The Malta Independent 18 May 2021, Tuesday

Schembri bought Times printing press using offshore accounts to avoid tax, court hears

Friday, 26 March 2021, 08:47 Last update: about 3 months ago

Progress Press ended up paying $6.5 million extra for printing machines with the money shared between Keith Schembri, Malcolm Scerri and Allied Group directors Adrian Hillman and Vince Buhagiar.

Court testimony given by Inspector Joseph Xerri from the police anti-money laundering unit detailed a complex web of payments made through offshore companies through which the four men benefitted from the profit at the expense of the company.

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"What should have been a relatively simple transaction became a convoluted series of transactions intended to hide commissions... coordinated by the same people who were involved in the deal," the inspector testified.

The inspector was testifying in the compilation of evidence against Keith Schembri, his father Alfio Schembri, business partner Malcolm Scerri and Kasco Group financial controller Robert Zammit. One of the cases under consideration was the purchase of printing machinery by the Allied Group from Kasco for the new Mrieħel printing press.

Hillman's offshore company Lester Holdings received US$125,000 from Kasco Egineering, plus a further $100,000. Buhagiar received €50,000 from Malmos, another offshore company, into his MFSP account.

MFSP director Matthew Pace had emailed Nexia BT's Brian Tonna to show that this payment was for consultancy. The documents were fabricated, the inspector said, because there was no consultancy.

Hillman and Buhagiar had travelled to Brussels with Schembri, Scerri and others to view the printing machines when the company decided to invest in new equipment. Allied, which publishes the Times of Malta newspaper, transferred its operations from Valletta to Mrieħel. The printing press that cost millions to purchase has since been shut.

Xerri testified in court that investigators had found a spreadsheet prepared by Schembri on servers at Kasco, which detailed how the profit from the deal was to be split between himself, his business partner Malcolm Scerri, Buhagiar and Hillman.

"Progress Press paid $6.5 million more than it should have," the inspector said.

He briefly testified behind closed doors but then continued in open court.

The inspector said the police believe Keith Schembri paid out a total of $5.5 million in backhanders. "Experts had described the organisation as a professional money laundering operation," Xerri said.

"On a prima facie, basis it emerged that Brian Tonna, Karl Cini and Matthew Pace, had played a role in preparing the false documents," he continued.

Bail was not requested today since the defence wants to cross-examine the two inspectors on Monday.

Earlier, the court granted bail to Zenith Finance's Matthew Pace and Lorraine Falzon, who appeared on the same case yesterday. The court imposed strict conditions, including that they do not approach any airfield and stay at least 10m away from the coast.

Background

On Saturday, Schembri was charged together with his elderly father Alfio Schembri, a director of several of the Kasco companies, and business partner Malcolm Scerri and financial controller Robert Zammit.

Schembri was charged with corruption and giving false testimony. He was also accused of forgery.

He was denied bail and taken to the Corradino Correctional Facility.

13:05 Another sitting will commence shortly in which the compilation of evidence against Vince Buhagiar will start being heard. This will be reported in a separate live blog. Thank you for following.

13:04 The court decrees that an agreement has been reached and the sitting will continue on Monday from 1pm onwards. The sitting is over and the accused shuffle out of the courtroom.

13:00 Schembri discusses a point with lawyer Ishmael Psaila in the meantime.

12:59 The lawyers argue amongst themselves about whether the un-redacted report should be given to the defence. Gatt says it's on the Times of Malta. The prosecution asks that the parties approach the Bench. There is currently a six-person huddle around the magistrate.

12:55 This is part of the investigation which has not been presented yet. Gatt gets frustrated at the prosecution's reticence at providing him with a copy of the report. He says that if they are going to be difficult, he will request the expunging of it from the proceedings.

12:51 Gatt says he needs a copy of the forensic audits to prepare for Monday's sitting.

12:46 Gatt asks that the parties be in a position to have a copy of the recording to be made available before the transcription is ready, for expediency's sake. This to prepare for the cross-examination on Monday.

12:43 Gatt asks about bail. He requests the court not to decree the request for bail in today's sitting as the defence will make submissions on this at the end of Monday's sitting. On the day, the defence is planning to conduct the cross-examinations of Inspector Annemarie Xuereb and Inspector Joseph Xerri. Besides this, after the decree on bail, the defence will, regulate itself about the state of prima facie.

12:42 The defence reserves the right to cross-examine the witnesses.

12:42 Magistrate: "Besides this, as it appears that the meticulous testimony of the investigating officials requires more time to be heard in full, the court is making it clear that at later stages in the proceedings, they should testify again - as is the prosecution's right- to give further details beyond what they testified today, in view of the fact that at this stage the court must decide on prima facie. Obviously, once that the inspectors have testified as required, the defence also has all the time it requires to cross-examine them."

12:39 The court says that "today we have a big hall, but tomorrow we might not and we would have to cut down on all personnel present, including the media". The court notes that the only direction it gave to the two inspectors was that their testimony today should not, where possible, be a reproduction of the statements made to the police, as there was going to be a transcript made of them.

12:36 AG lawyer Elaine Mercieca Rizzo says that at the jury stage there would be questions raised as to why the inspector hadn't testified at length in the compilation.

12:33 The inspector continues to read from them. Gatt protests. The magistrate says that they had said they wouldn't read the statements. She wouldn't cut his testimony short but urges the prosecution to be aware of the time constraints.

12:28 Defence lawyer Edward Gatt stops the witness, as he is reading from the men's statement. This will be transcribed by a court expert and inserted in the acts of the case. The court agrees and asks the inspector to be brief as there was other business to attend to in this case.

12:25 The printing machine was delivered in 2010, in several containers.

12:24 Vincent Buhagiar had helped with the design of the machines and there was no agreement as to how he was going to be paid.

12:23 Nexia BT's Brian Tonna and Karl Cini gave advice on how to use the offshore companies, effectively serving as professional money launderers to conceal and launder money, the inspector says. Matthew Pace, Cini and Tonna helped prepare the documentation. Malcolm Scerri had insisted that the purchase was completely legitimate and so was the process behind it.

12:22 Buhagiar and (Omissis 1) received money into their personal accounts, even though the deals were made on behalf of Progress Press. The two also deposited more money. It is unclear where it came from. The inspector describes it as a "clear case of bribery".

12:22 The inspector testifies that between 2010 and 2016, Kasco sold €21 million in raw materials to Progress Press. The inspector tells the court that (Omissis 1) accounts also feature suspicious transactions related to property development and the purchase of paper. It appears (Omissis 1) received well over €1 million in all.

12:18 (Omissis 1) owned an offshore structure called Lester Holdings, which was opened in 2011. This company received around $100,000 and another payment $125,000 from Malmos. MFSP director Matthew Pace, who handled the investment account of (Omissis 1) was unable to explain the provenance of these funds. The inspector presents a number of documents to the court, including a package containing cash divided in several envelopes.

12:09 Experts had described the organisation as a professional money laundering operation, Xerri says. "On a prima facie basis it emerged that Brian Tonna, Karl Cini and Matthew Pace, had played a role in preparing the false documents," he continues.

12:07 Inspector Joseph Xerri continues testifying. The inspector says the police believe Keith Schembri paid out a total of $5.5 million in backhanders.

11:40 Xerri will continue to testify behind closed doors.

11:36 The court orders that those persons who are till now not accused and who were mentioned by Xerri are not identified in the media reportage.

11:35 Progress Press ended up paying $6.5 million extra.

11:33 He adds that Omissis 1 received €400,000 in Lester Holdings, a company he owned in the British Virgin Islands and another €150,000 in June 2012.

11:32 Xerri says that the behaviour is consistent with layering for money laundering purposes.

11:29 Xerri: “What should have been a relatively simple transaction became a convoluted series of transactions intended to hide commissions... coordinated by the same people who were involved in the deal.”

11:28 The machines purchased by Allied for €13 million were initially bought through offshore structures. The machines were worth around €2million according to the customs declarations.

11:24 The inspector is going through a list of transactions between several offshore accounts involving the men and MFSP. Sparkasse Bank was often used, he says.

11:22 Inspector Joseph Xerri testifies that Kasco made a US$5 million profit on the deal. The profits were to be distributed between Schembri, Scerri, Omissis 1 and Buhagiar.

11:21 The court hears that Vince Buhagiar was chairman of Progress Press and Adrian Hillman was managing directo at the time. In 2007, the company had issued an invitation-only call for new printing machines. Board minutes showed that Demajo Group, Saco Group and Kasco Engineering had submitted offers. Hillman and Buhagiar gave the board a presentation and a US$13 million offer by Kasco Engineering was accepted. The machines arrived over a six-month period in 2010. Invoices issued in 2008 were paid for between 2008 and 2011. The inspector says the spreadsheet prepared by Schembri, which the police found on a Kasco server, showed how the machines were purchased using offshore companies to avoid tax.

11:18 The inspector continues testifying.

11:18 The court refers to its decree from yesterday that the registrar had to scan everything.

11:17 Defence lawyer Edward Gatt interrupts, asking if he is going to present the reports of the forensic auditors since this is needed for cross-examination.

11:17 Invoices issued by Robert Zammit, Karl Cini, Brian Tonna and Malcolm Scerri were intended to hide commissions and spread the money through several companies. Some of the companies were shell companies without employees, Xerri testifies.

11:16 Xerri refers to a spreadsheet made by Keith Schembri, which gave details of the purchase of the printing press through several companies. The point of this was to hide the profits from the tax authorities in Malta, experts had said, Xerri explains. Kasco was going to make a profit of over €5 million, spread through several companies.

11:15 Xerri says that Michel Rizzo, the current managing director of Allied Group, and board member Austin Bencini, a lawyer, had testified before the inquiry. They explained that Progress Press is responsible for printing while Allied Newspapers is responsible for the running of Times of Malta. Hillman resigned in 2016 following the revelations made by Daphne Caruana Galizia of his offshore accounts and money transfers from Schembri. The company had reached an out-of-court settlement with Hillman.

11:10 He gives an overview of the process leading to the printing press tender by Progress Press and the payments made to Kasco Technical through bank transfers.

11:07 The magistrate stops him. “We've already heard all this. Can we skip this… not even if we have two weeks we'll never reach the end of this,” Magistrate Donatella Frendo Dimech remarks. The witness moves on.

11:05 He gives an overview of the Keith Schembri and Adrian Hillman allegations.

11:04 The court is back in session. Inspector Joseph Xerri from the anti-money laundering squad takes the stand.

10:45 Inspector Xuereb steps off the stand. The court orders a short break.

10:44 The inspector says that over the course of the investigation, Keith Schembri had collaborated with the police and answered their questions.

10:42 On transactions from Alfio Schembri to Keith Schembri, the latter had told police these were donations but the inspector says that in an email these were listed as salary.

10:41 Schembri had told the police that his intentions had always been to create jobs and generate commerce and would leave the rest in the hands of his auditors.

10:38 The inspector is now giving a timeline of the arrests and questioning of the accused.

10:36 Payments for the printing press went through companies in different jurisdictions to avoid a hefty tax bill.

10:35 Schembri had told police that he was bringing Hillman on board to pursue projects for Kasco abroad. Schembri also said that Kasco had loaned Allied Newspapers €1 million to be repaid over four years.

10:35 The inspector talks about the printing press deal. It was audited by PWC. Schembri had always found it difficult to win tenders at Progress Press, but this changed when directors changed and Hillman got a more prominent role. Schembri said that he, Malcolm Scerri, Robert Zammit, Adrian Hillman, Vince Buhagiar, and others from the Strickland Foundation travelled to Brussels to see printing equipment.

10:30 Schembri had told police that the two struck up a friendship as they worked in similar lines. Hillman was managing director at the Allied Group, which ran Progress Press and publishes the Times of Malta newspaper. Schembri told police that Hillman had helped him with consultancies.

10:28 The inspector now turns to the Adrian Hillman inquiry. She says the two investigations converged as it involved almost the same people. She says that Schembri was interrogated in March 2020.

10:27 Schembri and his dad exchange words and laugh.

10:25 The inspector says Schembri had offered to help Tonna financially as he was separating from his wife. However, Tonna could not recall how the funds were transferred to him.

10:24 One of the accused asks to go to the bathroom. He is allowed to do so. Keith Schembri's father, Alfio, is reminded to cover his nose and mouth with his mask.

10:23 As the inspector testimony moves on, the magistrate cuts the inspector short again when she is talking about Brian Tonna's separation. The loan Tonna purportedly took from Schembri was in relation to the separation proceedings.

10:22 Katrin Bondin Carter, financial controller at Nexia BT had been questioned too, over backdated documents which she said had been done at the behest of the partners in the firm.

10:22 Schembri claimed it took him two months to open the accounts at Pilatus because of the due diligence he underwent. Schembri also claimed that he did not know what it meant to be a PEP, politically exposed person, until becoming chief of staff at the OPM in 2013.

10:13 Schembri had said his contact at Pilatus Bank was Ali Sadr Hasheminejad - the owner.

10:12 Many of the police's questions were parried by Schembri who pointed them in the direction of the magisterial inquiry.

10:12 When asked about the loan agreement with Tonna, Schembri had said that the police should refer to his testimony before Magistrate Natasha Galea Sciberras in the inquiry. Schembri had said that he would have many bank accounts to spread his wealth and conduct financial planning.

10:10 Manuel Castagna of Nexia BT was first to be spoken to by the police in the presence of lawyers Michael Sciriha and Matthew Xuereb. He opted not to answer any questions. All the accused opted not to answer questions, bar Keith Schembri who released a statement to the police.

10:10 The inspector moves on to the searches carried out on Keith Schembri's house. Several Mac devices, USB sticks, and papers hidden in the wardrobe were seized, she says. Police then went to the Kasco offices, where more computers were seized.

10:09 Defence lawyer Edward Gatt argues with AG lawyer Elaine Mercieca Rizzo again. The court insists that it has the inquiry and that the deposition of the witness is going into too much "nitty gritty".

10:08 The court hears that Schembri also had a second account at Pilatus, which was linked to a Mastercard credit card. Schembri used the account to pay €19,000 for shares in an offshore firm named Tillgate - a Panama company he acquired in 2015 from Nexia BT.

10:07 The inspector says that Keith Schembri opened his Pilatus Bank account in June 2015. The account received an initial payment of €50,000, on 25 June. In August of that year, Schembri received a second €50,000 payment in his Pilatus account.

10:00 The inspector says that Keith Schembri opened his Pilatus Bank account in 2015.

10:00 Tonna had told the police in a statement that Willerby belonged to Nexia for use as an "investment vehicle".

09:59 The inspector reiterates that the alleged loan Tonna took out from Schembri was not required.

09:59 The inspector testifies that there were double invoices for the Russian passport sales. One in BTI International and another in Willerby Trade - both belonging to Brian Tonna. Willerby's incorporation papers said it was to be used for any business.

09:55 Xuereb testifies that one document created in 2016 referred to a transaction that happened in 2015. While minutes of a 2013 meeting were drafted in April 2016. This is after the Panama Papers leak happened.

09:53 Gatt objects as this is not the case against Brian Tonna. The lawyers bicker again.

09:52 Inspector Xuereb says that Brian Tonna didn't need to take the loan from Keith Schembri.

09:51 The inspector notes several documents and board meeting minutes which showed them discussing opening the bank account. There was also an email from Nexia BT's auditor who queried the funds that were being deposited in Willerby Trade - a BVI company owned by Brian Tonna.

09:49 The magistrate orders that the testimony continue.

09:48 The court says that it has copies of all the documents in the inquiry and doesn't need to hear everything. However, the magistrate notes that the inspector is giving a necessary overview. She asks the parties not to object on everything.

09:47 Defence lawyer Edward Gatt objects. The lawyers bicker. Gatt insists that the case cannot be decided on the basis of the conclusions of the inquiry.

09:47 She says an email from Brian Tonna, titled "as discussed" contained documents pertaining to the 'loan agreement' between him and Keith Schembri. The inspector says that had Brian Tonna wanted to pay back his loan from Schembri, there were other bank accounts he could have used to settle the debt.

09:42 The magistrate tells the inspector to ensure that whatever she says will be presented before the court at some stage. She orders her to continue testifying so that insofar as possible and without the deposition ending up inconsistent or incongruent, what she testifies is what emerged from a magisterial inquiry. Inspector Annemarie Xuereb continues to testify.

09:42 Gatt says the police had decided to arraign everyone mentioned and this would create difficulties down the line as all the people testifying are accused. "We are treading on very sensitive academic ground," he says.

09:39 Mercieca Rizzo objects on the basis of case law which established that the inspector must testify on all the facts, which emerged in the investigation. She notes that one of the accusations is in fact conspiracy. Thirdly, she adds, the inspector is testifying about sworn evidence and other evidence emerging from the inquiry.

09:37 Gatt asks the court to guide the witness over the information which is inadmissible as it hearsay and the version of a co-accused.

09:36 The court says that it needs an overview. AG lawyer Elaine Mercieca Rizzo says that the witness is testifying on what is in the inquiry report.

09:34 Gatt says the inspector is quoting the version of a co-accused. "This is not admissible and also creates the problem of whether Brian Tonna will be brought to testify. He could then choose not to testify. It is understandable for the courts to allow an inspector to give an overview using hearsay evidence but not his entire version," Gatt argues.

09:33 Defence lawyer Edward Gatt raises a point of law.

09:33 Xuereb says that it emerged that neither Brian Tonna nor Keith Schembri when testifying, knew when the loan was made or whether it was paid in one go or in tranches of €20,000. The inspector says that Brian Tonna would keep detailed accounting records, even for small expenses. But there was nothing about the €100,000 he paid Schembri.

09:31 She adds that documents on dividends paid to Nexia BT partners provided to Pilatus Bank and Bank of Valletta were also falsified. A cheque for €84,409 for BT was fake. It also recommended proceedings on false accounting, Xuereb says.

09:30 Schembri and Tonna had said the €100,000 money transfer was a repayment of a loan that Schembri had given Tonna to help him during marital separation. The inspector says that the documents relating to the loan were untrue and false.

09:29 The magistrate had asked the Police Commissioner to investigate further on several points.

09:28 Magistrate Natasha Galea Sciberras, who handled the inquiry, concluded that there was not enough evidence for prima facie on kickbacks, but that Brian Tonna's and Keith Schembri's explanation for the money transfer was not credible.

09:27 Busuttil had asked that the following be investigated: The bank account at Pilatus Bank for Willerby Trading (a BVI company owned by Brian Tonna); Brian Tonna had received €166,831 to Willerby Trading, which is not a registered IIP partner from Russian individuals; Keith Schembri pocketed commissions; in Pilatus Bank there was an account for Keith Schembri which received two payments of €50,000 from the Russian sale.

09:25 The police investigation had started after an inquiry initiated by an application filed by Simon Busuttil, the former Opposition leader. Magistrate Aaron Bugeja had decreed that the inquiry should go ahead. It was concluded in September 2020. The inquiry the inspector is referring to is the one in which allegations were made that Keith Schembri received kickbacks from Nexia BT's Brian Tonna over the sale of Maltese passports to three Russian nationals.

09:21 Inspector Annemarie Xuereb from the police's Financial Crimes Investigation Department takes the witness stand.

09:20 Lawyers Edward Gatt, Mark Vassallo and Ishmael Psaila are appearing for the defendants.

09:19 All stand as the magistrate enters the courtroom. We are back in session.

09:16 The other co-accused, Alfio Schembri, Malcolm Scerri and Robert Zammit, are also in court.

09:15 Keith Schembri, the former chief of staff to ex-prime minister Joseph Muscat, is inside the courtroom dressed all in black. He discusses something with his lawyer Edward Gatt as we wait for the magistrate to emerge from chambers.

08:59 Court orders a 15 minute break.

08:56 The court, after having heard the detailed testimony of the investigating police inspectors decides that there are sufficient reasons for the accused to be placed under a bill of indictment. The case against Pace and Falzon is put off till the 27 April at 8:30am.

08:55 QUICK RECAP: We are waiting for the compilation of evidence against Keith Schembri and associates at his Kasco Group of companies, to start. Prior to this, Magistrate Donatella Frendo Dimech has ruled on bail requested yesterday by Zenith Finance owners Matthew Pace and Lorraine Falzon, who stand charged with money laundering offences linked to the same case. The court has granted them bail and imposed several conditions, including an order for them not to approach any airfield and stay away at least 10m from the coast.

08:51 AG lawyer Elaine Mercieca Rizzo says that the magisterial inquiry had concluded that there were sufficient prima facie grounds for the accused to be charged.

08:51 Gatt informs the court that without prejudice to guilt and limitedly in order to be practical and allow the speedy conclusion of proceedings, the defence is submitting itself to the court's decision on prima facie.

08:49 Defence lawyer Edward Gatt informs the court that Lorraine Falzon's address in the charges was wrong and so dictates the woman's actual address.

08:48 The court moves on to consider bail for Lorraine Falzon, the finance director at Zenith. The court says that her criminal record is spotless. The prosecution had declared that there was no fear of her absconding. The evidence is entirely preserved in the acts of the magisterial inquiry. The court grants Falzon bail, ordering her to sign a bail book every day and observe a curfew. She is also prohibited from approaching the airport or the coast. Bail is secured by a deposit of €25,000 and a personal guarantee of €50,000.

08:47 Pace is the part-owner of Zenith Finance, formerly known as MFSP. He was described by police testifying yesterday as a “professional money launderer”. Pace managed investment accounts held with MFSP by Schembri and two former managing directors of the Allied Group, publishers of Times of Malta, Adrian Hillman and Vince Buhagiar.

08:45 The court orders Identity Malta not to issue any emergency travel documents without a court order.

08:44 The court now moves onto bail considerations. The court says that having taken into account the criminal record and seriousness of the crime as well as the fact that there was no risk of absconding and the police said that he cooperated, compounded by the fact that the prosecution failed to substantiate the fears mentioned, Matthew Pace is released on bail. He is ordered to deposit his travel documents with the court and has to report to the Qawra police station daily, observe a curfew and not change his residential address. Pace is prohibited from going to the airport or any other airfield or within 10m from the coast. Bail is secured by a deposit of €40,000 and a personal guarantee of €60,000.

08:42 Financial services practitioner Matthew Pace is led into the courtroom. The compilation of evidence against him started yesterday. The court will give a decree on the constitutional reference he asked for. Magistrate Donatella Frendo Dimech says the issue raised by the defendants is vexatious for the purposes of the law and denies the request.

08:39 Good morning.

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