Malta is in crisis. Either the Prime Minister and his wife are looting the country through a convoluted web of companies and structures, or our Opposition is manipulating a near-coup with the help of a blogger ally. If you’re struggling to understand the basics, or you just need a recap of everything we’ve learnt so far, this is a comprehensive Q&A that explains how we got here and how this is all likely to end.

1. Firstly, why is Malta in such a panic?

Malta’s Prime Minister and his wife are under investigation over claims they were on the receiving end of secretive company structures, trusts and international transactions. They are denying the claims as a complete fabrication. The person who says she has evidence and a whistleblower, is a blogger who has shown little interest in cooperating with the official inquiry underway but who is dripping new information online on an almost daily basis with so much detail that it’s impossible to dismiss.

The Opposition is repeating the claims of blogger Daphne Caruana Galizia, after spending the past four years criticising dodgy deals and lack of transparency by “the most corrupt government in history”. Even the President felt the need to intervene and meet the Prime Minister and the Leader of the Opposition, seemingly to try and mediate the situation.

2. But does anyone have the proof?

Proof means different things to different people. Is there documentation that proves beyond a shadow of a doubt that Muscat and his wife were on the take in an elaborate money laundering set up? No and there probably won’t ever be. That’s the nature of money laundering set ups – especially ones in Panama.

3. So what is the proof?

It all depends on how far you want to go back. You could start from the fact that the Prime Minister’s two closest aides – his Energy Minister and his Chief of Staff – admitted to having secretive company structures of their own in Panama, which they began setting up days after they got elected to power. A third company – the one Caruana Galizia is connecting to the Prime Minister’s wife – was set up at the same time, in the same way, by the same financial advisers: Nexia BT (you’ll be hearing the name a lot – the BT stands for the boss Brian Tonna’s initials).

4. We knew all this last year. And everything stayed the same.

Yes. The government first played it cool and downplayed the significance of these structures. Then, as public criticism mounted, the government’s tune started to change and Muscat said he was disappointed the companies had been set up. But it ended with Muscat telling the electorate that although mistakes were made, the Labour project in government would go on.

And what a project it was: four years of Labour and the country is suddenly hitting a €100 million surplus, money is flooding the country from all quarters, passports are being sold like pastizzi, and the Opposition was until a few weeks ago on the defensive about dodgy donations. Everything looked great for Muscat, whose people were already telling him he could win the next election by another historic 40,000+ votes.

5. So, what has changed now?

Remember that third company that was set up in Panama? Its name is Egrant but we never really knew who owned it. The owners of the other two companies were published on an email black on white: Konrad Mizzi and Keith Schembri. The third? The name of the beneficiary was given over Skype so there were no records in the Panama Papers data leak – the biggest documentation leak in human history. But Caruana Galizia – who a year later had almost given up on ever finding the owner of Egrant – seems to have found herself a killer source. It seems a whistleblower decided to come clean and expose Egrant as having the Prime Minister’s wife as its beneficiary. Caruana Galizia last week produced transcripts of two documents which show that the ultimate beneficiary of the two companies who own Egrant is Michelle Muscat.

6. Is that proof enough? She didn’t even show actual scanned documents.

Again, proof can mean different things to different people. What’s really interesting is the way the government reacted. Imagine you were a Prime Minister at the top of your game being accused of such a dark web of corruption which also involves countries as far as Azerbaijan. How would you react? Who knows. Joseph Muscat reacted by saying he would sue for libel and ask for the case to be heard with urgency.

In the meantime, the owner of the bank at the centre of the alleged transactions – Pilatus Bank – arrived at his offices late at night and was filmed leaving with some suitcases. And a ferry plane left Malta for Azerbaijan at 3am. Hours later, after the Prime Minister was under pressure to call a magisterial inquiry, police finally descended on the bank.

7. Sure, but that’s all circumstantial evidence. The bank owner could have gone there to protect himself or anyone else for that matter. Has anyone actually proven that the Muscats have bank accounts at Pilatus through which dodgy payments were made to them? And if not, why is this enough to almost cripple a country to a standstill?

You could argue that there isn’t enough proof yet. The Muscats keep denying it tooth and nail – and the Pilatus Bank has denied that it has any form of banking relationship with the Prime Minister, his wife or any other members of his family. Muscat even challenged the Opposition leader to a TV debate, and quite frankly, he emerged unscathed. To be fair, these aren’t allegations that can be easily explained, or easily proven. And Muscat’s debating opponent Simon Busuttil isn’t even the one with the evidence – Caruana Galizia is. For all we know, she may only be releasing what her source allows her to release. She may not even have all the information herself. All she has, she has by two miraculous strokes of luck: a giant Panama Papers leak, and a whistleblower who is filling the gaps. Oh, and the gigantic balls to go public and risk her reputation despite knowing that she may not ever be able to provide a smoking gun.

8. Then why isn’t she going to the police?

That’s a fair point. She does seem strangely uncooperative – for a journalist, not for Daphne Caruana Galizia. This 52-year-old blogger has been exposing scandals in Malta for three decades and she is generally quite mistrusting of police and the judiciary. She believes it is the institution’s job to gather proof – not hers. She cannot compromise her source or even let off that she might. So while she will most likely meet the inquiring magistrate, she will remain silent or ask him – and the police – to do their homework instead. Which leaves the rest of us refreshing her blog to be among the first to know the latest sordid details. Kaching!

9. Why is the media giving this so much importance? Hasn’t Caruana Galizia lied before?

At any given moment in her life, Caruana Galizia probably has dozens of ongoing libel cases. Yes, she wins some and she loses some. Her fans will tell you she’s always right. Her “victims” feel they know for a fact she’s a liar. Many people admire her and despise her with almost equal measure. But there is no disputing that she was right about Panama Papers last year. And the fact that her son just won a Pulitzer for being part of the international Panama Papers team of investigators, gives us a clue as to how far her investigative network may extend. In other words, if she is to be believed on one issue, it’s probably Panama.

Also, her theory passes the Occam’s Razor test: that the simplest explanation is usually the right one. Think about it this way: If Joseph Muscat found out his two closest aides set up secretive company structures behind his back, would he have defended their actions so much? Imagine you were in his shoes. Wouldn’t you have thrown them out of a window if they jeopardised your work to that extent?

And if a third company was set up at the same time but the name was too important to give over email so it was given over Skype, isn’t it logical to think the owner was more worth protecting than the owners of the other two?

Surely all this, supported by documentation linking the third company to Michelle Muscat as the beneficiary would be damning enough.

10. But if it was ok for Keith Schembri and Konrad Mizzi to have companies in Panama, why wouldn’t it be ok for Michelle?

This is really interesting. If Muscat had defended Schembri and Mizzi till the end, and come clean about Egrant’s ownership, he could have argued that this was just another family trust set up, very sorry, won’t do it again. But things got much more complicated in the meantime. Public pressure forced him to pretend-demote Konrad Mizzi. And eventually Brian Tonna (remember the owner of that financial advisory firm Nexia BT which set up all the accounts?) took ownership of Egrant himself. So this time, denial became the only option for the Muscats – perhaps safe in the knowledge that the whole point of money laundering structures makes them difficult to expose.

11. Ok, so let’s break that down a little, why are we talking about money laundering and what does that even mean?

Money laundering is what it sounds like: making dirty money become clean money. Money earned from a crime – say, a drug deal or a bribe – becomes legitimate income, for example, income from the sale of a property. When the EU’s investigative committee on Panama Papers visited Malta, they described the company setups of Konrad Mizzi and Keith Schembri as “textbook money laundering setups”.

12. How does money laundering actually work, though?

Imagine you are Walter White in Breaking Bad. After selling your batch of crystal meth, you are flush with cash. You cannot deposit your funds at the bank without raising suspicion. After all, you are only a chemistry teacher at your local high school. You need to find a way for the money to get into the financial system without raising any suspicion, in his case: a local car wash. In Netflix’s Narcos, Pablo Escobar’s associates set up a taxi company.

Then there’s what we call “layering”, which is done with the help of friends and contacts. You are now trying to figure out a path for all your cash in a way that confuses whoever is trying to trace the source of funds. Complicated money laundering schemes may involve a large number of companies incorporated in many countries providing often fake services to each other. The companies are structured in a way that it is difficult to determine who is their owner. A complicated system of companies and trusts may be used.

Ultimately, for money laundering to be successful, the money must find its way back to the original beneficiary. In Breaking Bad, it is easy for Walter White to recover the money because he owns the car wash company and the money is the profits of his business.

13. Aren’t there institutions qualified enough to trace these things and investigate?

Yes, some countries have that. They even have public registry records to ensure that major changes to company shareholding are made public for scrutiny. Panama works differently though, and that’s why its name is now synonymous around the world for dodgy deals. If you want to hide money and hide ownership in dozens of different businesses each also hiding their ownership, Panama is the place to be. Ultimately, if you have a crooked financial advisor willing to set up the most devious of structures you could get them to do it without leaving so much as a signature as proof. And even after the biggest data leak in history – all we have are a couple of company names and their owners. No wonder people are willing to take that risk.

Still, countries like Malta have supposedly strict regulators and intelligence units to make sure the country is never exposed to transactions that could come back to haunt them. A transaction of more than $1 million from some dubious structure to another will spark questions. And in fact, Caruana Galizia has said questions were raised at this point. Remember banks usually use bigger ‘correspondent’ banks to manage such transactions – and they can’t afford to make mistakes (although they do, sometimes).

14. Especially if the people they’re dealing with are politicians….

Yes, there’s even a word for that in the anti-money laundering world: Politically Exposed Person (PEP). This is person who is either a politician or is closely connected to a politician, for example, their partner or associate. This is because all around the world, politics is a target of bribes. Companies and individuals try to bribe politicians to influence laws or decisions in their favour. There have been some high profile cases of political corruption. In Brazil, for instance, investigators are unwinding a complex structure whereby construction companies paid bribes to politicians in order to win contracts.

PEPs can function much like Walter White’s wife in Breaking Bad: As a vehicle of the crime. In this case, Walter White’s wife is a co-owner of the car wash and takes care of business. With politics it’s the same: a relative, associate or personal secretary, could declare the money as their own for a politician – which is why these people are also classified as PEPs. Banks and other financial institutions are required at law to identify any PEP and take extra special care when dealing with them.

15. But if there’s all this secrecy, how can criminals ever get caught laundering money?

A complex money laundering initiative can include an entire network of companies, trusts and anonymous structures around the world. There are, however, some tell-tale signs of money laundering. One such sign can be a complex multinational group of companies for no apparent reason, each company held by a trustee for the benefit of an unidentified beneficiary.

However, not all multinational groups are money laundering initiatives. Some individuals may set up a network of companies for very legitimate reasons. Other structures may be what is known as tax planning structures, which is a very controversial yet legal approach to minimising tax liability. US companies for example have billions of dollars outside of the US in subsidiaries around the world. If this money gets to the US, it gets taxed at what company executives feel is a very high rate, so they prefer to park the money in a low tax jurisdiction.

Another sign of potential money laundering activity is a sudden and unexplained large payment. However, again, not all sudden large payments are a sign of a crime. Winning the lottery, for example, is not a crime.

Police forces and investigative agencies around the world have specialised units that are trained to spot and investigate signs of money laundering. The market has also developed tools and software to sift through the millions of transactions that are made every day on the global financial systems and flag suspicious movements.

In theory – apart from the dodgy suitcase episode and flight to Baku – oh and the fact that the Police Commissioner was busy having a fenkata when all this was going down – you could simply put your trust in the authorities to do the right thing and expose the Muscats if there really is something to expose. Especially now that there’s more information.

16. So shouldn’t we just wait for justice to take its course?

Perhaps. The problem is that justice could take a while. In the meantime, Malta either has a government or an Opposition which is devious beyond imagination. Either the Prime Minister and his wife are looting the country through a convoluted web of companies and structures, or our Opposition is manipulating a near-coup with the help of a blogger ally. Meanwhile, elections are less than a year away. For all we know, we’re going to go to the polls armed only with what we have today – even though the country is on tenterhooks for more. And that’s still a possibility of course.

17. So, what’s really the bottom line? Should we trust the blogger or the Muscats?

Let’s go back to the bare facts. Michelle Muscat is identified as the beneficiary of a trust over shares in Egrant – meaning her and her spouse stand to gain any profits flowing through Egrant.

18. Hold on, what’s a beneficiary and what’s a trust?

Let’s start with trusts. A trust is an arrangement whereby a person holds his property for the benefit of another person. Trusts originated in medieval England at a time when knights spent their summers fighting crusades. They couldn’t leave their castles and estates unattended, so they handed over the estate to a trusted person to hold for the benefit of the knight and his family. Over time, trusts became a very popular and convenient way of managing property, including in Malta – they operate a bit like wills.

In theory, there are no formalities to establish a trust. And you don’t even need a signature to be a beneficiary.

For example, parents that are concerned about their spendthrift children can place a sum of money with a third person (a trustee) to hold for the benefit of their children. The parents sign a declaration of trust where they instruct the trustee to hold the money for the benefit of their children and to only spend the money on their education. The kids, as beneficiaries, would not be able to spend the money as they wish.

19. So can the Labour Party set up a trust in Panama and name Simon Busuttil as the beneficiary?

Yes, technically it could. And it might strengthen the party’s case if the Muscats decide to maintain their stance of innocence in the face of a grand “frame up”.

20. But do the Muscats have any actual proof to support their claim that this is a frame-up?

Remember what we said about proof? We’ve got the same thing here. Muscat tried to poke holes in Caruana Galizia’s documents when he was on Xarabank – but many of his arguments don’t stick.

First he said the address of Egrant was given as San Gwann, when if it was based in Panama it should have had a Panamanian address. But in reality, a Panama company may have its business address anywhere in the world as long as it appoints a Panama law firm as its registered agent. Indeed, searches in the Panama Papers database indicate various such companies having addresses outside of Panama: including the companies of Konrad Mizzi and Keith Schembri. In fact, the San Gwann address given actually belongs to Nexia BT, which doesn’t really help their case.

Muscat also said the declaration of trust transcribed by Caruana Galizia shows no ID card or passport number and gives Michelle Muscat’s place of birth as Rabat when she was born in Attard. While it is unusual for a declaration of trust not to include an ID card or passport number, the truth is that there is no prescribed form at law for such a declaration so this does not necessarily indicate falsification. That her address was the one listed on her ID card not her birth certificate is perfectly understandable seeing as banks and financial professionals almost always ask for ID cards over hospital records.

Another argument by Muscat was that there are no signatures on the documents – but as we’ve already said before, signatures are not required to become a beneficiary of a trust.

21. If all that’s true, Muscat doesn’t have much of a leg to stand on. Why would he expose himself to such an extent?

Because there’s one last piece to the puzzle. You see, Brian Tonna has given an alternative version of events:

Egrant, he says, was incorporated on July 4th 2013 by two other companies: Dubro and Aliator – the same two companies that emerged in Caruana Galizia’s transcripts as being the ones which own Egrant for the beneficiary of Michelle Muscat.

Five days later, however, these companies ceased to be shareholders in Egrant which was instead given to another company: ATC Administrators. And this is in his own words:

“Whilst it is true that the names of both Dubro Limited S.A. and Aliator S.A. continued to appear on the public register, this does not mean that they remained shareholders after 9th July 2013: they did not.”

This is the real stinger:

“In fact, under Panamanian law, changes in shareholding are not publicly recorded, and so the public register continues to show only the original subscribers. Changes in shareholdings are only recorded in the corporation’s internal register, and they are evidenced by share certificates issued to shareholders.”

This is all true. And again, this is exactly why Panama attracts dodgy business.

The statement goes on:

“On August 9th 2013, Brian Tonna acquired the beneficial ownership of the one share representing the whole issued share capital of the corporation. ATC Administrators Inc. remained the shareholder of this one (1) share acting on a fiduciary basis on behalf of Brian Tonna.”

He says there were no further share transfers or transfers of beneficial ownership and, as also corroborated with signed declarations by the director of the corporation, Brian Tonna remained the ultimate beneficial owner of the corporation.

22. And because Panama operates the way it does, we just have to take his word for it?

Pretty much. In Brian Tonna’s words again: “No other properly signed, authentic documentation exists or ever existed.” Similarly, there is no way of verifying whether his documents are back-dated, or whether any other transactions took place. Nexia BT is a representative of the crooked Mossack Fonseca, after all.

There is one problem with BT’s evidence which doesn’t add up with his story. He claims the first two shareholders of Egrant were Dubro and Aliator and a third share was subsequently issued to his company, ATC Administrators. However, the share certificate produced by Brian Tonna himself shows the share certificate numbered “No. 1”. Share certificates are numbered sequentially, so this should have been marked “No. 3.”

Who knows why. We’ve sent him questions and we’re waiting for a reply.

23. So where do we go from here?

You decide.

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Continue reading the Egrant Exposed series: EGRANT EXPOSED PART 2: DISSECTING THE EVIDENCE

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Chris Peregin

Christian is an award-winning journalist and entrepreneur who founded Lovin Malta, a new media company dedicated to creating positive impact in society. He is passionate about justice, public finances and finding ways to build a better future.