Corruption, Clientelism and Murder – Malta Emerges as the EU’s Next Problem Child

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By Frank Hornig and Juan Moreno

Two years after the murder of journalist Daphne Caruana Galizia, Malta’s vast cesspool of corruption has become impossible to ignore. The EU’s smallest member state is on the brink of failure.

“There are crooks everywhere you look now. The situation is desperate.”
Daphne Caruana Galizia on Oct. 16, 2017, in her last blog entry, posted 24 minutes before her murder.

It’s tempting to ask Corinne Vella how she avoided going crazy in the last two years. It is one thing, after all, to lose your sister to a hit job — to learn that she was murdered in cold blood by a car bomb. But it is quite another to live with the conviction that neither the police, nor the country’s government nor public prosecutors seem to have much of an interest in getting to the bottom of the crime.

Vella is sitting in the lobby of the luxurious Phoenicia Hotel in Valletta, the capital of the Mediterranean island nation of Malta. Jazz is playing in the background and the waiters wear ties, at pains to serve guests from the correct side. Vella is a serene woman, perhaps even shy. But she’s here because she wants to talk about her sister and the factors that led to her death. It’s the strategy she uses to avoid going crazy. “Daphne basically became my job. There isn’t much else I’ve done in the last two years.”

Vella is the sister of Malta’s most famous journalist, Daphne Caruana Galizia. Daphne, as everyone in the country calls her, was murdered in a targeted killing on Oct. 16, 2017. She was a blogger, and her frequently extremely well reported, occasionally biting and sometimes humiliating reports were required reading on the island. Some of her entries were read more than 400,000 times. Everyone knew Daphne, many were afraid of her — and not a few hated her.

“When Daphne was killed, people wrote on social media that the witch had finally got what she deserved,” says Vella. Her family closed ranks after the murder and resolved to do everything in their power to ensure that the murderer would not go unpunished. Aunts, nieces, sons: They all protested at government agencies, got European institutions involved and spoke at journalism conferences.

The investigation, meanwhile, proceeded only sluggishly. Police arrested three suspects, ex-convicts who officials felt could have been responsible because of their criminal records and because of clues that seemed to point in their direction, but there was no obvious motive. Why should these men kill a journalist? Caruana Galizia never wrote a word about them. Who really wanted the prominent journalist dead?

Moving Quickly

Now, a bit more than two years after the attack, things have suddenly begun moving quickly. Two weeks ago, Yorgen Fenech, a businessman and a member of one of Malta’s wealthiest families, was arrested on his yacht — apparently just as the multimillionaire was preparing to leave the island. He has since been charged with accessory to murder. Despite incriminating witness testimony, Fenech continues to deny any wrongdoing. He has, however, accused a member of the Maltese government of being involved in the murder: Keith Schembri, chief of staff to the country’s prime minister.

Schembri resigned last week, despite insisting he is innocent. But then Prime Minister Joseph Muscat also announced his intention to step down in January. Opposition politicians in parliament demanded that he not wait so long and vacate his office immediately. Meanwhile, demonstrators pelted Muscat with eggs.

“It has been the two most chaotic weeks in Malta’s recent history,” says Corinne Vella, adding that she has spent almost the entirety of the last few days on her mobile phone because of the torrent of news. For the first time, she now has the feeling that she may ultimately learn who killed her sister.

Malta, the European Union’s smallest member state, generally stays out of the headlines. Two-and-a-half years ago, DER SPIEGEL and other European media outlets involved with European Investigative Collaborations (EIC) published the “Malta Files,” which revealed how German companies were able to save on taxes by establishing themselves on the island. Beyond that, not much tends to be written about the country and its 475,000 residents.

Now, though, dubious links between Maltese business leaders, politicians and organized crime have become visible, and it increasingly looks as though Malta operates by a different rulebook than the rest of the EU. The separation of powers in the country appears to be largely non-existent, with police doing the bidding of politicians and the anti-money-laundering agency joining the judiciary in turning its back all too often on malfeasance, instead of investigating, prosecuting and punishing criminal behavior.

Alarmed, the European Parliament sent a delegation to Malta a few days ago, with the European Commission in Brussels warning the country’s government to refrain from exerting political influence on the investigation. The murder of Caruana Galizia, it would seem, is no longer just a problem for Maltese politics. It is now emerging as an acute threat to European values, the rule of law, the freedom of the press and a rules-based market economy. Ultimately, it is about how many banana republics the EU can tolerate within its ranks.

An Economic Miracle?

EU membership has made some Maltese fabulously rich. Buildings are going up everywhere, real estate prices have been rising for years, there are a conspicuous number of German luxury cars on the streets, and in the country’s most famous shopping boulevard, Republic Street, there is no shortage of jewelers. The luxury brand Rolex also has a shop there.

It is nothing short of an economic miracle. Following the financial crisis, Malta “has been one of the fastest growing countries in the EU,” the International Monetary Fund wrote in February. “Malta is benefiting from a flourishing economic climate,” wrote the Council of Europe. And the European Commission, the EU executive, likewise took note of the island’s economic output, writing that key indicators such as gross domestic product, employment rate and the budget surplus had all been growing for years.

From afar, in fact, the country looks a lot like a model student. Annual growth rates of between 6 and 7 percent? Not the kind of thing you tend to see elsewhere in Europe.

Given those economic foundations, Prime Minister Joseph Muscat, who has been in office since 2013, likely didn’t imagine his tenure at the top would be ending anytime soon. Under his leadership, online casinos, financial service providers and real estate developers took over the island, frequently unencumbered by particularly strict regulations or overzealous government officials. Because many residents of Malta benefited from the situation, the 45-year-old prime minister has been popular.

Even the Panama Papers scandal, which pulled back the veil on tax dodgers around the world in 2016, did nothing to harm Muscat and his allies. In other countries, leading politicians were forced to resign due to their connections to the law firm Mossack Fonseca. But in Malta, it was just business as usual, as though nothing had happened at all.

Chief of Staff Schembri and Tourism Minister Konrad Mizzi remained in office, despite owning offshore companies in Panama that had money trails apparently leading to corrupt business deals. Official inquests? Investigatory committees? In Valletta, where dabbling in business in addition to holding political office isn’t generally frowned upon, none of that took place.

But there was one woman who disturbed the peace. Daphne Caruana Galizia took aim almost weekly at Muscat and his government in her blog “Running Commentary.” Sometimes she would rely on insinuations, but at others, she published hard facts. On the day after her murder, Muscat told Christiane Amanpour on CNN that Galizia was “a very harsh critic of mine. I think the harshest I ever had.”

A Victim of Corruption

The journalist died shortly before 3 p.m. on a narrow road in the northern part of the island, just a few hundred meters from her home. She was driving a Peugeot when the bomb exploded. Her son Matthew was at home when it happened, and he heard the detonation. He ran out into the street and saw the destroyed vehicle. There was nothing he could do except stand by and watch as his mother burned.

Her family has since become convinced that Caruana Galizia was a victim of the corruption that is widespread in the country, as the European Commission noted in a February report. The document doesn’t pull any punches regarding the sleaze that the booming economy has brought to the island, including “a large number” of foreign banks and insurance companies that are registered in Malta, yet “serve almost exclusively foreign customers.” The same holds true, the report continues, for online casinos, which make up around 11 percent of the country’s economic output. Furthermore, the report notes, Malta is seeking to position itself as a leading center for cryptocurrencies.

Bank accounts, casinos and cryptocurrencies: Hot-shot financial investors have apparently chosen Malta as their island of choice. In the fight against money laundering, which is widespread in these sectors, there have been serious shortcomings, according to the authors of the European Commission report. “Sanctions,” they wrote, “are rarely imposed.” Two years ago, according to the report, Malta inspected 22 banks and found fully 21 infringements. Yet “only two fines and one written warning were issued.” There have been “improvements” made in the battle against money laundering, but real results have been few and far between.

Part of the problem is a shortage of personnel in the police unit responsible for investigating white-collar crime. Beyond that, though, politicians all-too-frequently interfere with the judiciary and the police — such as when the prime minister suddenly replaces the chief of police. That happened fully five times during just the first three years of Muscat’s tenure. He has also replaced judges and public prosecutors at his own discretion and he personally appointed the members of the Permanent Commission against Corruption (PCAC), which casts doubt on the body’s independence.

It doesn’t really matter all that much what the PCAC does, though, because the Justice Ministry almost never passes its reports along to the police. In the last 10 years, it has only done so on a single occasion.

‘A Fantastic Business’

Recently, opposition to this distasteful blending of government, judiciary, police and business has grown louder. And Manuel Delia is one of those who has turned up the volume. A former politician himself, Delia was long active with the conservative Nationalist Party before becoming a blogger. Today, he is something like Caruana Galizia’s successor. On Tuesday of this week, he could be found in front of the Maltese police headquarters with a group of demonstrators chanting: “Mafia! Mafia! Mafia!” Behind the gates were black-clad police officers doing their best to smile.

A few months before her death, Caruana Galizia reposted an entry written by Manuel Delia and wrote that she couldn’t have expressed it better herself. As a result, Delia immediately became famous in the country. “When her voice disappeared, I had the impression that I had to take over her role,” Delia says.

A few weeks ago, he and two co-authors presented their book, “Murder on the Malta Express,” a detailed account of corruption in Malta. They write: “Gangsters and their smooth-talking lawyers, fixers and PR truth-twisters are using crooked microstates to wash their ill-gotten gains from Angola to Azerbaijan so that their money ends up in London, Miami, Rome or New York.” Dirty money, the authors write, is eroding democracy and the rule of law.

Essentially, it is always the same trick, he says. And it is always the same question behind it: How can a small country turn its sovereignty into money? What can a country sell that no company can offer? Passports, says Delia, “a fantastic business.”

The sale of passports to wealthy clients has become one of the country’s most important sources of income, and it is estimated that Malta has thus far earned 2.5 billion euros from the practice since Muscat approved the sale of passports just a few months after he entered office in 2013. His predecessor was resolutely opposed to legalizing such sales. The buyers are frequently Russian oligarchs, Arab sheikhs or Chinese businessmen who are eager to attain the advantages of EU citizenship for themselves and their families without attracting too much attention.

‘They Fucking Hate Each Other’

It’s not particularly easy to speak with the Maltese about politics. The political camps in the country, which spent 150 years as a British colony, are deeply divided: Either you are a supporter of the Labour Party or of the Nationalist Party. It is similar to sports fandom, with the same team being supported by a family through generations. The politicians you support are fundamentally in the right and are to be defended against any and all attacks. Accordingly, following a flurry of arrests and increasingly outlandish accusations, a group of Labour supporters gathered in front of party headquarters on Monday to demonstrate solidarity.

There are, of course, advantages to the system: If you have a problem with the building inspection agency or if you have a ne’er-do-well nephew who needs a job with a public utility, all you have to do is call up your local party official. The island isn’t large. Connections can be used to solve almost any problem.

“The two sides, Labour and Nationalist, are both stubborn. They fucking hate each other,” says Lizzie Eldridge, a 54-year-old Scottish woman who has been living in Malta for the last 12 years, pursuing acting and teaching English. Not too long ago, she began participating in the protests. “Malta can drive you crazy of you know what’s going on,” she says. All the cafés in the center where the tourists hang out, she says, are owned by politicians’ lackeys. She points to the crowded outdoor terrace of a restaurant next to the parliament. “It belongs to the prime minister’s bodyguard,” she says.

Eldridge is happy that the world is now taking a closer look at Malta, but she doubts that the Maltese are particularly pleased. Those who dodge taxes here, whether a common citizen or a politician, are considered smart and not necessarily criminal.

When the delegation from the European Parliament arrived in Malta in the middle of this week, the parliamentarians wanted to learn how the investigation was proceeding. They had meetings with Muscat, with state prosecutors and with those engaged directly in the investigation. But the situation remains murky.

EU Dissatisfaction

Yorgen Fenech, an investor in real estate, casinos and a controversial natural gas facility, has been behind bars for a week, and there are indications that he was in contact with Chief of Staff Schembri. Schembri was also arrested and interrogated before ultimately being released. A taxi driver, who claims to be an intermediary in the murder plot, testified that Fenech had contracted the hit and was the “mastermind” behind the attack.

Shortly after the arrest of his chief of staff, Muscat gathered the parliamentarians from his party for a confidence vote and they assured the prime minister, allegedly unanimously, that they continued to support him. And since they were all together, they used the opportunity to reinstate the economics minister, who had “suspended” himself just a short time before in a legally dubious move. He also testified that he had nothing to do with the murder. Caruana Galizia had also written about him, detailing his alleged visit to a brothel during a visit to Germany, which he denies.

The EU delegation spent two days in Malta, but they seemed anything but satisfied. For Sven Giegold of Germany’s Green Party, it was his fifth crisis visit to the country. “I believe there is a desire to clear up the murder,” he says, “but when it comes to money laundering and corruption, I don’t see any progress.”

“Just like in every tax haven,” he continues, external pressure must be applied because there is no interest internally in changing anything. “Ultimately, Commission President Ursula von der Leyen has to step in.” The Green politician would like to see rule-of-law proceedings initiated against Malta, a step that could ultimately lead to a suspension of certain EU voting rights. “We’re talking about the EU’s smallest member state with fewer residents than the city of Hannover. If von der Leyen doesn’t have the courage to take steps against Malta, then you have to wonder against whom she would be willing to take such steps.”

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