The Maltese financial regulator has seized control of a bank embroiled in an alleged sanctions-breaking scandal.

Malta’s financial regulator is restricting transactions by Pilatus Bank, which is registered in the island, following news that the lender’s chairman has been arrested by US authorities for allegedly helping to breach sanctions against Iran. 

As reported here yesterday, Ali Sadr Hasheminejad, 38, faces charges concerning his alleged involvement in helping funnel Iranian funds through the US financial system. Pilatus, which is registered in Malta and has an office in London, has been registered with the Malta Financial Services Authority since 2013, and was granted a licence in 2015.

The watchdog yesterday ordered that Sadr be immediately removed from his position of bank director and from any other executive positions he holds at Pilatus; it also suspended his voting rights as a bank shareholder. Further, MFSA said Pilatus must not allow “any banking transactions, including withdrawals or deposits held with the bank by the shareholder, members of the board of directors and senior management officials of the bank, or related persons thereto, whether direct or indirect”.

The regulator said the bank must not move any of its assets without the MFSA’s approval, adding that it is considering further supervisory steps.

US authorities arrested Sadr, saying he took part in a scheme to break US sanctions against Iran and funnelled more than $115 million paid under a Venezuelan construction contract via the US financial system, federal prosecutors said. Prosecutors said Sadr’s family controlled an Iranian conglomerate called Stratus Group, which had international business operations and that led a project to construct thousands of housing units in Venezuela. The project stemmed from agreements that Iran and Venezuela entered into in 2004 and 2005 calling for cooperation between the two governments in constructing housing units in the South American country. 

The indictment said an Iranian company that Stratus incorporated called Iranian International Housing Corporation entered into a $476 million deal in 2006 with a Venezuelan state-owned energy company to build 7,000 housing units. Sadr played the part of trying to evade US anti-Iran sanctions by covering up the role of Iran and Iranian parties in the payments sent via the US banking system. 

The bank has been hit by controversy. It had been locked in a legal clash with the late Maltese journalist, Daphne Caruana Galizia, over several articles she wrote that accused the bank and Sadr of facilitating corrupt political activities and money laundering. (The journalist was murdered last October in Malta and investigations into her killing continue.) The bank said her articles were false and defamatory. A former bank employee, Maria Efimova, who was reportedly the main source for Caruana Galizia’s accusations, handed herself in to Greek police this week. A European arrest warrant was issued by the Maltese government in response to a complaint of fraud by Pilatus Bank.

Media reported in February that the European Banking Authority was conducting preliminary inquiries into Pilatus Bank following requests by the European commission and the European parliament. A report in the Guardian newspaper on 2 February said: “Financial authorities at the EBA, which monitors the integrity of the EU banking sector, have been asked by the European parliament to examine whether Maltese financial authorities, which have oversight of Pilatus and other banks, are fully equipped and free from conflicts of interest in their work. The EBA has also been asked to assess whether Pilatus should continue to hold an EU licence or whether the European Central Bank or EBA should intervene.” In the same report, a spokesperson for the bank was quoted as saying: “Pilatus firmly believes in the rule of law and stringent regulation, as this is paramount for the integrity of the financial systems in which we operate. Our Maltese licence was assessed and issued by the [Malta Financial Services Authority] in full compliance with the laws after a two-year process. Our robust compliance and governance meet the highest European standards and is thoroughly and independently audited.”

Authorities in certain jurisdictions are under pressure to crack down on dirty money. In 2016, Singapore’s main regulator banned BSI and Falcon Private Bank from operating in the city state, citing serious shortcomings in AML controls linked to illicit transactions in Malaysia. 

US and European sanctions against Iran have seen a number of banks get into trouble. France’s largest bank, BNP Paribas, was fined $8.9 billion about two years ago for breaches of such controls. 

(Editor’s note: The involvement of US authorities in the Pilatus Bank case is a potential game-changer amid controversy that has swirled around Malta for over a year. The US has demonstrated, as in the case of global football organisation FIFA, that it is prepared to chase after anyone who uses the US financial system as an alleged conduit; what had been a European affair centred on a small Mediterranean jurisdiction has “gone global”.)