The National Audit Office investigation into the Gaffarena/Old Mint Street expropriation deal has found that Parliamentary Secretary Michael Falzon, the Director General (DG) GPD and Director Estate Management (DEM) failed to safeguard the government’s interest by expropriating property belonging to Mark Gaffarena in Old Mint street which, although useful, served no identified public purpose.
It also said that standards expected in terms of good governance were lacking.
The report said Gaffarena proposed the exchange of a one-fourth undivided share of the property on 28 July 2014, after a meeting with PS Falzon. “This was favourably advocated by the Director Estate Management (DEM), endorsed by the Director General (DG) GPD and authorised by Dr Falzon shortly thereafter," the report said.
This quarter of the property was later valued at €822,500. This expropriation was followed by a deed of exchange, wherein Gaffarena acquired government land at Baħar iċ-Ċagħaq, Qormi, and Siġġiewi as well as a property in Sliema. These were valued at a total of €683,610, while the difference of €138,890 was settled as a cash payment.
"As negotiations with Government were under way, on 31 October 2014, Gaffarena entered into two promise of sale agreements with other co-owners for a one-eighth and a one-fourth undivided share of the Valletta property. Despite the fact that the contracts of sale had not yet been finalised, the latter share was the subject of another proposed sale by Gaffarena to Government, dated 13 February 2015,” the report said.
The DEM referred the proposal to the DG GPD and PS OPM, who duly authorised the expropriation of this second one-fourth undivided share. The President’s declaration was published on 8 April 2015, while Gaffarena entered into a deed with Government for compensation due on 10 April 2015. In exchange, Gaffarena received properties in Baħar iċ-Ċagħaq and Żebbuġ valued at €445,000, as well as €377,500 in cash.”
The NAO said that in its review of the expropriation process it found that “the standards expected in terms of good governance were lacking.” It said it deemed the prompt and decisive action taken by the GPD in advocating these expropriations without any form of discussion or analysis as “incomprehensible.”
Despite there being no written record of how Government arrived at certain key decisions, no analysis of the utility of the acquisition, and no consideration of alternative courses of action, the process went ahead nonetheless.
The NAO said it was not in a position to establish whether the presence of an officer in Falzon’s secretariat had conditioned the GPD’s favourable position towards Gaffarena’s proposition in the initial meeting between the controversial businessman and the DEM, and whether that discussed during this meeting reflected the outcome of the meeting between the PS OPM and Gaffarena.
The Auditor General also said the public purpose served by the expropriation was “far from clear.” The only documentation to this effect was a minute by the DEM on the property’s possible use as a ministry or museum. “The elusiveness of public purpose was not attributable to inadequate documentation as the PS OPM, DG GPD and DEM confirmed that they had not discussed the public purpose that was to be served through these expropriations.”
In these circumstances, the NAO concluded that these officials “failed to safeguard Government’s interest by expropriating property that, although useful, served no identified public purpose.”
It said that value for money is not solely limited to the value of what is being acquired but should also take into consideration its necessity and utility. In this case, the necessity of two one-fourth undivided shares remained a highly questionable matter. “The NAO’s reservations centre on what utility could possibly be served through ownership of an undivided part of a property, when it was entirely within Government’s control to expropriate the entire property.”
“When one considers the inflated valuation of 36 Old Mint Street, the undervaluation of Government land disposed of, as well as the substantial cash payments made, over and above the vague public purpose, the NAO deems this expropriation as not constituting value for money.”
The NAO said it had “unequivocally” established that Gaffarena was aware of Government’s intention to expropriate well in advance of the publication of the President’s declaration, as valuations relating to the properties identified by Gaffarena for exchange had been prepared prior to publication in the Government Gazette. Furthermore, other documentation required to effect the deed of exchange, which should have been completed after the declaration, was in fact received by the GPD well ahead of its publication.
“This information was confidential as it was sensitive government-related information that only Gaffarena was privy to. This put Gaffarena at an unfair advantage over the other co-owners as he could anticipate Government’s intention to expropriate the remaining undivided shares in advance of this becoming public knowledge. In fact, Gaffarena did exploit this information when he entered into two promise of sale agreements in advance of the publication of Government’s expropriation”.
The NAO said its main concern related to the ethical conduct of officials involved in these expropriations relates to the collusion noted between the GPD and Gaffarena, secretly cooperating to the detriment of the other co-owners. “This conclusion, arrived at by the NAO, was based on the fact that although it was within the GPD’s legal right to acquire the entire property, the Department opted to expropriate only two undivided shares from Gaffarena in a piecemeal manner. In fact, the GPD only negotiated with Gaffarena and never informed any of the other co-owners of such negotiations. The GPD was aware of or could easily have traced the identity of the other co-owners and could have readily negotiated with them too following the issuance of the President’s declaration. Furthermore, the GPD justified the piecemeal acquisition by citing insufficient funds when funds to acquire the entire property were in fact available.”
“Also supporting the NAO’s understanding of collusion was the fact that Gaffarena offered to sell a share to the GPD that he did not own. Of significant concern to the NAO were the valuations prepared by the GPD with respect to the properties exchanged for 36 Old Mint Street, which render evident the fact that Gaffarena was involved in expropriation-related preparations well in advance of the President’s declaration. Further evidence of this irregularity was the form certifying ownership of the ‘expropriated property’ that was completed by Gaffarena’s notary and submitted to the GPD prior to the President’s declaration.
The elimination of the Żebbuġ property from the first expropriation process, due to the aggregate value of properties proposed in exchange for a share of 36 Old Mint Street exceeding that permissible, indicated that Gaffarena was aware of the values of the lands that he was to acquire. This was confirmed by Gaffarena in written submissions to this Office. In the NAO’s understanding, this awareness of the values assigned to the lands, apart from supporting the understanding of collusion between Gaffarena and the GPD, introduced a considerable element of risk as access to such information provided an opportunity and context for the breach of the process’ integrity.
The extent of the risk depended on what information Gaffarena was privy to. The fact that Gaffarena was informed of the proceedings prior to them becoming public was clear; however, the NAO could not establish the extent of the information at his disposal due to his failure to cooperate with this Office. The GPD’s poor record keeping and the officials’ dubious account of events, particularly in view of how this expropriation materialised without any coordination between those involved, further compounded this.
“This Office is of the opinion that this expropriation was instigated by Gaffarena, yet readily facilitated by the PS OPM, DG GPD and DEM. The NAO deems such collusive action as highly inappropriate, in clear breach of the fundamental principles of good governance, transparency and fairness.”
“The NAO is of the understanding that if the Attorney General’s advice to the Internal Audit and Investigations Department (IAID) is applied, then the two deeds with Gaffarena are invalid, as the compensation payable by Government for each of the undivided shares expropriated should have been proportionally paid to all co-owners. In the case of the first one-fourth undivided share expropriated, Gaffarena should have been paid €205,625, with the remaining €616,875 (balance of €822,500) paid to the remaining co-owners in a proportionate manner according to their share of ownership.
Compensation to Gaffarena exceeded the €205,625 payable based on this understanding, as properties valued at €683,610 were exchanged and a cash payment of €138,890 was effected. The validity of the exchange of lands in this deed is brought into serious doubt in view of provisions stipulated in the Disposal of Government Land Act. The NAO supports that stated by the IAID and the Attorney General, urging the application of provisions in this Act that would result in the reversal of the exchange of lands effected in this first deed.”
“Applying the Attorney General’s advice in the case of the second expropriation, the NAO is of the understanding that Gaffarena should have been paid €411,250, with the remaining €411,250 (balance of €822,500) paid to the other co-owners. The increase in the amount payable to Gaffarena is attributable to the fact that he was now the coowner of the second one-fourth undivided share at the time of the publication of the President’s declaration and therefore was to be accordingly compensated. The NAO noted that the value of the lands exchanged in the second deed with Gaffarena were in accordance with the provisions of the Disposal of Government Land Act.
Although the property exchanged fell within the stipulated parameters, the augmentation of compensation through a cash payment of €377,500 rendered this deed irregular.
This Office established that the officials bearing a key role in this expropriation were the PS OPM, DG GPD and DEM. The NAO arrived at the understanding that it was the DEM who assumed the primary role of negotiating with Gaffarena; however, it must be stated that the conclusion of these negotiations would not have been possible without the endorsement of the DG GPD and final authorisation by the PS OPM.”
Full NAO report