Pilatus Bank fined €4.9M

Pilatus Bank has been fined a record €4.9 million for a “serious and systemic failure” to follow anti-money laundering laws at the now-shuttered bank.

In a notification on its website, the Financial Intelligence Analysis Unit (FIAU) on Tuesday said the bank’s lax approach to due diligence on its customers was of particular concern. The FIAU said it had identified failures when it came to the bank’s obligations to ensure it keeps customer information, data and documentation up to date in 97% of the customer files it reviewed. The FIAU said the bank’s dependence on a “series of connections to the Caucus region,” a veiled reference to Pilatus’s high number of Azeri clients, made it impossible for the bank to ever take concrete actions in respect of any transactions, activity or relationship deemed to be suspicious.

In April 2018, Times of Malta had revealed as part of the Daphne Project, how a network of over 50 companies and trusts secretly owned by Azerbaijan’s ruling elite used accounts at Pilatus Bank to move millions around Europe.

According to the unit, throughout its operations, the bank had exposed itself and the Maltese jurisdiction to “egregious” money-laundering risks that were not mitigated in any manner. “The bank’s total disregard towards necessary anti-money laundering and terrorism financing safeguards, led to it allow millions to pass through the Maltese economy without any considerations of possible money-laundering taking place,” the unit said.

Pilatus Bank’s licence was stripped by the European Central Bank in November 2018, following the arrest of its founder and chairman Ali Sadr in the US. Sadr has since been released after being found not guilty of money-laundering charges due to disclosure failures by the US prosecution.

That same year, the European Banking Authority had criticised the FIAU’s failure to impose any sanctions on the bank, despite its misgivings about its anti-money laundering controls. An inquiry into the bank’s operations was opened by the Maltese police days before the order to shutter the bank was handed down. The inquiry has since concluded and charges in connection with the bank’s operations are set to be issued.

Former prime minister Joseph Muscat and his top aide Keith Schembri were both revealed to have attended Sadr’s lux wedding in Italy. Their friend, 17 Black owner Yorgen Fenech, was also invited to the 2015 wedding. Fenech stands accused of conspiracy in the murder of Daphne Caruana Galizia.

Bank relied on ‘generic information’

The compliance review revealed how the bank’s measures for obtaining information on the activities of the customers, their source of wealth and expected source of funds and estimated account activity were overall lacking. The bank relied heavily on “generic information” provided by its customers, which was not even considered to be sufficient to establish the customer profile for normal risk customers.

While the bank held information on the reason customers opened accounts with it, such as to hold, manage and invest the wealth of their beneficial owners, it did not substantiate this with more detailed information and documentary evidence.

In other instances, the bank obtained CVs of customers without considering that these were not a reliable nor independent source of information. The bank also held information on the customer’s operations and expected turnover that were “exceptionally high in value”, without obtaining documentary evidence to substantiate it.

Credit: Jacob Borg and Ivan Martin, Times of Malta