Germany’s Spiegel carries big article on Malta Financial Services Authority chief and the Cayman Islands

The Spiegel, one of Germany’s most influential publications, on Wednesday carried a big article about Joe Bannister, chief of the Malta Financial Services Authority for the last two decades, and his involvement in a Cayman Islands operation.

Bannister has so far been shielded by the Prime Minister against repeated verbal assaults from his Education Minister, Evarist Bartolo, who despite having no portfolio links with financial services has said repeatedly that Bannister should step down.

A translation of the article follows beneath.

———-

TAX HAVEN: MALTA’S FINANCIAL SUPERVISOR MANAGES FUNDS IN THE CAYMAN ISLANDS

There’s trouble in tax haven Malta: The head of the Malta Financial Services Authority is also director of several funds in the Cayman Islands. Now the EU regulating authorities are going to have to deal with the case.

Joseph Bannister’s CV is impressive: he studied at the elite British Oxford University; he is a professor of biochemistry at the University of Malta, and chairman of various funds and banks. But it is another post which has drawn attention to him: for around 20 years he has been the head of the Maltese Financial Services Authority – a position which does not fit in at all with his other activities.

The professor is listed as a director of several funds registered in the Cayman Islands, which like Malta is regarded as a tax haven. Bannister admitted to that in 2012, but apparently the government of the island nation sees no major problem with it.

Now, however, the case is likely to escalate internationally. Sven Giegold, a Green MEP, has written to the heads of the European Banking Authority, the Authority for Insurance and Occupational Pensions Authority and the Securities and Markets Authority to take up the case.

Bannister’s directorships in the Cayman Islands are “a serious violation of the international standards of independence of financial supervisors,” Giegold wrote (Spiegel Online has a copy of his letter). Giegold also asks those authorities how many national regulators they have investigated so far on matters of independence and conflicts of interest, and whether Bannister is among them. He says he has yet to receive a reply.

Bannister has refused to reply to the questions sent by Spiegel Online about the activities of these Cayman-Islands-registered funds, and how he squares his position as head of the Malta Financial Services Authority with that of director of these funds. “There is no connection between the capital investments in the Cayman Islands and Malta”, he merely replied. “There is no conflict of interest.”

The directorships in the Cayman Islands are not the only problem that Giegold has with Bannister. The Malta Financial Services Authority chief is also deputy chairman of Finance Malta, a public-private agency which promotes Malta’s financial services.

“That is clearly not on,” Giegold said. “You cannot monitor a financial centre and promote it at the same time. These are two conflicting mandates.” This conflict is “actually more scandalous than Bannister’s activity for the funds in the Cayman Islands”, he said. Bannister responded by saying that he does nothing to promote Malta as a financial centre.

Giegold however sees more in the process than just a farce on a small island. There is a risk of negative impact on other EU member states and the single market, he says. “Once banks become unstable, this affects the entire system,” Giegold said. “This contagiousness was made clear in the 2008 financial crisis”.

Education Minister puts Bannister in the vicinity of the Mafia

Bannister’s entanglements are already the subject of political debates in Malta. Education Minister Evarist Bartolo has called for his resignation. The man is “unacceptable”, Bartolo said, has been in office far too long, and disregards international standards for financial supervisors, which were drawn up by the International Monetary Fund and the World Bank.

On Facebook, the Minister has been attacking Bannister for months with increased intensity and has even placed him in the vicinity of the Mafia by comparing him to Marlon Brando in The Godfather: “He leads his peasants in the Malta Financial Services Authority to satisfy his friends in the industry and politics.”

The Panama Papers revelations have hit the political class of the Mediterranean island hard. There have been demonstrations outside the Office of Prime Minister Joseph Muscat. Two of his confidants are alleged to have hidden money from the tax authorities through a whole network of companies in Panama and trusts in New Zealand. On Wednesday, the European Parliament set up a committee of inquiry for the Panama Papers.

Malta is a good illustration of how the business of tax avoidance works. Since the island became a member of the European Union in 2004, it has continued to attract investors with low tax rates. Malta took great care, during its negotiations with Brussels in the run-up to accession, that its business model was not damaged. Like Ireland and Luxembourg, it works to put the brakes on new directives to combat tax avoidance practices.

This does not bode well for the EU, because next year Malta will head the Presidency of the European Council. This means that larger initiatives in the fight against tax evasion will be unlikely.

In summary: Of all people, the head of the Malta Financial Services Authority is also the director of several funds in the Cayman Islands. Now the financial scandal that has been simmering for years has grown to become a concern also of the European supervisory authorities.