March 22, 2018 / 9:15 AM / 2 years ago

Malta freezes Pilatus bank's operations after chairman's arrest

FRANKFURT (Reuters) - Malta’s regulators have imposed a freeze on the business of Pilatus Bank after its chairman’s arrest on charges of breaking U.S. sanctions prompted a fresh wave of criticism of the island’s authorities.

A washing machine and a mock plaque commemorating the opening of Pilatus Bank by Maltese Prime Minister Joseph Muscat in 2014, which was left outside Whitehall Mansions, which houses the Maltese-registered Pilatus Bank, whose Iranian chairman Ali Sadr Hashemi Nejad was arrested in the U.S. on charges of evading U.S. sanctions and money laundering,, in Ta' Xbiex, Malta March 21, 2018. The placard beside it reads "We don't want any more corruption". REUTERS/Darrin Zammit Lupi

Earlier this week, the bank’s chairman Ali Sadr Hashemi Nejad, 38, was accused in an indictment filed in a federal court in Manhattan of involvement in a scheme to evade U.S. economic sanctions against Iran, prosecutors have said.

Sadr was arrested on Monday, according to court papers. A lawyer for Sadr has declined to comment.

That prompted criticism of the Maltese authorities for inaction, including from the children of a journalist murdered in Malta last year. Daphne Caruana Galizia had reported on corruption and accused Pilatus of money laundering.

Some lawmakers had also questioned whether Pilatus Bank, which is registered in Malta, should keep its license.

The developments prompted new protests by anti-corruption activists outside the bank’s headquarters near the capital of Valletta, who placed a washing machine on a plaque marking the opening of Pilatus Bank by Prime Minister Joseph Muscat.

Malta’s police said the alleged sanctions busting did not involve Maltese citizens or institutions and that no transactions passed through Malta.

Malta’s financial supervisors nonetheless responded by imposing controls on Pilatus that effectively freezes the bank’s business.

“The bank has been directed not to transact any business whatsoever,” the Malta Financial Service Authority said in a statement, adding this applied to “all deposits and withdrawals and any disposal of the bank’s assets.”

It was not clear how long the controls would stay in place. The bank has not responded to requests for comment.

The events unfolded after a former employee of Pilatus, who ignited a political scandal in Malta after she became a source for the murdered journalist, surrendered herself to Greek police.

Maltese prosecutors have filed a European warrant for the arrest of Maria Efimova, a Russian who left Malta for Greece last year with her family, on suspicion of fraud. A Greek police official said she had been arrested at Malta’s request.

Efimova was employed for three months in 2016 by Pilatus. Caruana Galizia named her as the source of internal bank documents which she said indicated that Michelle Muscat, wife of Prime Minister Joseph Muscat, owned a secret company in Panama.

Joseph Muscat and his wife have denied the accusations.

Reporting by John O'Donnell; Editing by Mark Potter

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