What Is a Company Formation Agent?
Hidden assets, money laundering, tax dodging, and the firms that help make it all possible. Here’s how formation agents can facilitate abuse of the global financial system.
When Maltese blogger Daphne Caruana Galizia was murdered in a car bombing on Oct. 16, 2017, she’d been digging for months into the island’s hugely profitable “passports for sale” program.
It wasn’t the only story she was working on, but it was one that involved enough money to pull the entire Maltese economy from deficit to surplus in a few short years, bringing in an estimated €850 million since January 2014.
Caruana Galizia believed that such sums were irresistible to some of the top officials in the ruling Labour Party government. She believed the passport program — formally known as the Individual Investment Program (IIP), and less formally as the Golden Visa — was rife with cronyism, bribery, and kickbacks.
Now a team of investigative reporters working to finish her stories has obtained a confidential report by Malta’s Financial Intelligence Analysis Unit (FIAU) that zeroes in on allegations of kickbacks.
The Daphne Project, a consortium of 45 investigative reporters from 18 news organizations in 15 countries including OCCRP and its partner, the Investigative Reporting Project Italy (IRPI), has been working for the past five months to complete Caruana Galizia’s work. The project was organized by Forbidden Stories, a platform to protect threatened journalists.
The FIAU document is just one of a series of reports looking into Maltese corruption that the agency has referred to police and prosecutors. A magistrate has been investigating the matter, but has not yet scheduled a preliminary hearing; such proceedings are kept secret under Maltese law.
Two men who are the focus of the FIAU report have brought the scandal uncomfortably close to Muscat. One is Keith Schembri, chief of staff to Prime Minister Joseph Muscat; and the other is Muscat’s associate, businessman Brian Tonna.
“Passports – this is part of an ongoing magisterial inquiry, but I can assure you that there was no wrongdoing,” said Schembri in a comment to consortium journalists.
Malta is one of several dozen countries that have launched Golden Visa programs over the past three decades. The idea is both simple and attractive to the rich: for a specified investment — invariably substantial — citizens of one country can obtain legal residency in another, and in some cases, win citizenship.
Critics say that without strict controls, such programs can be abused by tax evaders, money launderers, and organized crime figures who may find it useful to be able to cross borders on short notice. Malta’s passport is considered especially desirable because it provides visa-free access to the European Union (EU) and its institutions, such as banks, courts, cultural and financial centers.
And not just European access. With Maltese passports, people can travel visa-free to 157 countries; by comparison, a Russian passport provides access to 113.
The Maltese program was designed and implemented by Henley & Partners, a major global citizenship-by-investment services firm with close ties to top Maltese officials and, according to its Chief Executive Officer Christian Kalin, a footprint in Malta that reaches back 15 to 20 years.
He told consortium reporters that his company’s long history with Malta was one reason it won the tender to create and run the IIP over two other competitors. The program sparked controversy from the very beginning, however, as it was launched without notice and the Labour Party had not campaigned on the issue. Caruana Galizia herself was particularly critical about this lack of transparency and public consultation.
The contract with Malta specifies that Henley & Partners is the “unique concessionaire” of the IIP program. That gives the company the right to distribute lucrative fees to dozens of legal firms that assist IIP applicants. They also operate their own real estate company and earn fees from the investments required by applicants under the IIP rules.
The contract also requires Henley to ensure that the program is proceeding smoothly and that the company promotes Malta’s initiative all over the world.
Henley has made at least €20 million in fees and other income from the Maltese IIPs’ launch in 2014. Kalin dismissed critical news reports about the IIP and Henley’s role in Malta as “fake news” prompted by a variety of motives, including what he said were politically motivated Maltese media reports.
Email correspondence suggests Henley has close ties with top Labour Party officials. Caruana Galizia reported on her blog that Kalin wrote to Muscat and discussed plans to sue the journalist. Daphne believed the email’s intent was to coordinate lawsuits against her with the intention of ruining her financially. In response to Kalin’s email, Muscat wrote “I don’t object,” while Keith Schembri, the prime minister’s chief of staff, said “Thanks Chris. This looks good. Very kind regards.”
Caruana Galizia was subsequently sued by Henley; Kalin denies the accusations.
Last October, nine days after Caruana Galizia was assassinated, Muscat went to Dubai to make a keynote speech to promote Malta’s program at the Global Citizenship Seminar, one of a series of such events Henley organizes each year in places like Monaco, Istanbul, Lebanon, and Brazil.
In November, Muscat missed the discussion at the EU Parliament about the Rule of Law in Malta because he was attending a similar event for Henley in Hong Kong. The company’s contract stipulates that Muscat or his staff must make speeches at various Henley conferences. As of last May, Muscat and Schembri had attended several international passport sale roadshows, with Muscat often making a keynote speech on the success of the Maltese IIP program.
The booming Maltese economy, which benefited from the IIP, is credited with strengthening the Labour Party. On Feb. 28, voters were asked to indicate if they wanted the IIP program to continue; the results of the vote have not yet been released.
The FIAU report on the IIP program details a series of transactions involving three Russians who had obtained Maltese citizenship in 2016: Irina Orlova, Evgeny Filobokov, and Viktor Vashkevich.
Investigators believe that the three ultimately paid bribes totalling €166,832 ($206,725) to Willerby Trade Inc., an offshore company directed by Muscat’s business associate Brian Tonna.
Tonna is also the director of a second company named in the report, Nexia BT, a tax advisory and financial firm involved in the IIP program. BT International, fully owned by Nexia BT, was the company which processed the three Russians’ applications.
(Caruana Galizia had previously reported that Tonna, through Nexia BT, had registered several companies in the name of Schembri and also Muscat’s wife, Michelle, in Panama and the British Virgin Islands).
Irina Orlova lives in Moscow. Her husband, Mikhail Orlov, is the co-founder of an IT consulting company, RUNA, which deals with management software; he also obtained a Maltese passport.
Evgeny Filobokov is a Siberian businessman in the transportation industry who applied for Maltese citizenship between 2014 and 2015. His Pevek-based company registered a Maltese company in July 2014 called Headway Holding Ltd. However, Headway Holding was registered in BT International and Nexia BT’s offices in San Gwann about six kilometers northwest of the capital of Valletta. The company later shows up as under the ownership of Nexia BT’s before being eventually dissolved. The circumstances raise questions about whether Headway Holding was a company used to bolster his IIP application or a real investment in Malta.
Journalists were unable to reach Filobokov for comment. His son, Yan, declined to comment.
Meanwhile Vashkevich, until March 2015, was the chief executive officer of Svyaztransneft, a major telecommunications company which serves Russian state-owned giants like Gazprom. He owns a Maltese company called M&Y Ltd., which was set up through Nexia BT and its subsidiaries.
The normal procedure would have been for the three applicants to pay fees to Nexia BT, which would insure they met all necessary criteria before forwarding their applications to Identity Malta, the state agency responsible for issuing passports.
But that’s not what happened, according to the report.
Nexia BT has a wholly owned subsidiary, BT International Ltd. In January, 2014 — just as Malta’s IIP was being launched — an agreement was drafted between BT International and Willerby Trade to give Willerby a finder’s fee for every prospective IIP client who signed with BT International, the Maltese investigators wrote in their report. While the agreement was never signed, investigators said the agreement “appeared to set out the intended agreement between these companies.”
For successful clients, Willerby would get half of BT International’s fee. In the case of the Russians, however, their payments went directly to Willerby rather than passing through BT International, as the contract would require.
Orlova, Filobokov and Vashkevich made three deposits to Willerby’s account at Pilatus Bank totaling €166,832.
Two separate payments of €50,000 each were subsequently transferred from the Willerby account to another Pilatus account controlled by Schembri, the Prime Minister’s chief of staff. When FIAU investigators asked bank officials about the transfer, they were told the money was repayment for a loan Schembri had made to the Prime Minister’s associate Tonna to help him out during a legal separation from his wife.
“The figure of €100,000 seems to be much higher than what would be normally needed for a person to undertake personal separation in Malta,” the FIAU report notes. In addition, according to the investigators, there is no reasonable explanation to set up such a complex scheme to repay a loan.
Investigators believe that the loan may be bogus and the payment is a bribe, so that Orlova, Filobokov, and Vashkevich could become Maltese citizens by paying Schembri, through Willerby.
Later on, the Willerby account received further deposits totalling €583,618 ($722,631) in two other payments dated November 2015 and January 2016. The FIAU report says they came from an account at the Bank of Valletta controlled by BT International, the Nexia BT subsidiary.
On April 19, 2016, €609,831 ($754,983) held in Willerby’s account in Pilatus was moved to a new account with the Bank of Valletta “that was opened for this purpose,” the FIAU report reads. On May 5 that year, the Pilatus bank account was closed.
The holder of the account with the Bank of Valletta is “Brian Tonna A/C Nexia BT Dividend.”
Tonna did not reply to requests for an interview.
Muscat told consortium journalists: “An important element of the rule of law is the principle of ‘innocent until proven guilty’. We are in a world today where misinformation, gossip, and speculation have become potent forces in society. Allegation without proof is dangerous and destructive.”
Since the IIP program began in 2014, more than 1,300 people from around the world have used it to apply for Maltese passports, and more than 1,000 have been approved. This means just over one in five applications is rejected.
Determining who these new Maltese are — and where they come from — is not easy, as the Maltese government releases very little information about them and what it does provide is difficult to analyze. While it publishes an annual list of all new Maltese citizens, the list mixes IIP participants with those who gained citizenship by marriage, family heritage or other means.
What is clear is that anybody who applies for an IIP is, by definition, rich. The base cost is €650,000 for each primary applicant, with additional, smaller fees charged for family members.
In April of this year, the Maltese government split off the IIP program from Identity Malta, the agency is charge of passports, residence permits and visas, and formed a new agency named after the IIP called the Individual Investor Program.
IIP agency chief Jonathan Cardona told consortium reporters that “The normal minimum is people with at least a net worth of €5 million and above” are eligible to apply for the country’s IIP program.
Identity Malta says that for cases in which applicants don’t meet the criteria, “the responsible Minister may revoke citizenship.”
Russians appear to make up nearly half of the new Maltese, but it is hard to be sure since the government does not release detailed information on country of origin.
To get a Maltese passport, applicants must clear several hurdles, including a clean background check, enough money to meet program requirements, and a demonstrable “connection” to Malta.
A reporter for OCCRP partner IRPI was able to identify a number of cases in which one or more of these elements were seemingly overlooked.
For example, several Russians who have recently obtained citizenship are linked to possible sanctions levied by the US Treasury Department.
The men were named on the so-called Kremlin List of billionaires believed to be close to Russian President Vladimir Putin that was released by the Treasury Department in January. The three — Arkady Volozh, Boris Mints, and Alexander Nesis — were not named in the subsequent sanctions list released on April 6.
Becoming Maltese starts with filing an application with Identity Malta. The paperwork is submitted to Identity Malta by an “agent” law firm (at least 155 Maltese firms have been approved to do this).
Final approval takes one year, during which the agents are to conduct background checks and the applicants are to make specified investments in the local economy — “either government bonds, or else stocks which are listed on the Malta Stock Exchange,” Identity Malta states — and in real estate, demonstrating their connection to Malta.
Incorporating a new Maltese company is also welcomed. “Experience so far has shown that there are individuals who have established companies after they obtained citizenship, which has further aided to the significant growth registered in the economic activity of the country,” explains Identity Malta.
Some applicants succeed even if they appear to have no real connection to Malta, or if they haven’t actually lived there for one year. According to media reports, in some cases these criteria are fulfilled only on paper.
Muscat told consortium reporters, “In Malta, I am determined that proper process and the rule of law should prevail. There are ongoing independent investigations and I will not prejudge or prejudice their outcome.
“My position has always been clear. If any wrongdoing is found, the persons involved should step down immediately. But I will not comment on wild speculation and unproven allegations.”
In a previous version of the story, OCCRP used a incorrect photo of chief-of-staff Keith Schembri. We regret the error.
The source of two quotes in a previous version of the story were reversed by accident. OCCRP regrets the mistake.