NEWZLIVE | VGH’s opaque accounts concealed failures for years

14:53 | That’s it from Hall 22 for today. The next hearing is scheduled for Wednesday, 21 August at 10:00. We are now going to summarise this sitting both in Maltese and English: another episode of NEWZ MILL-QORTI will be published later today.

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14:45 | In the cross-examination, defence lawyer Jason Grima takes over questioning the auditor general.

Grima asks the witness to confirm that the NAO based its observations about VGH’s disastrous finances on audited accounts which were filed late, in late 2020 – roughly around the time in which Steward Healthcare were already in talks for the takeover of the concession. The NAO confirms this was the case, highlighting that their severe concerns were based on the opacity of VGH’s financials.

The defence further asks whether the auditor general is aware that VGH’s accounts were audited by Christopher Spiteri, one of the accused. The witness says he is not aware of such a detail and that his team would have been familiar with such a detail.

It is pertinent to note that severe doubts have been raised about the integrity of Spiteri’s auditing process.

The auditor general is asked about whether these audited accounts were subject to any doubts from the NAO’s end, and Deguara notes that his office does not comment on the competence (or lack of it) of other auditors. They therefore rested on the conclusions of this auditor given that they did not have any information at the time which indicated any cause for suspicion regarding the integrity of these audited accounts.

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14:34 | The prosecution asks the auditor general about the process of handing over ownership of the hospital sites to the concessionaire, and he says that this too was rife with unusually lax conditions imposed on the concessionaire.

Deguara says that the addenda which extended the timeline for the concessionaire’s infrastructural investment were a key example of how this process was far too favourable for the concessionaire.

Spiteri asks the auditor general about how come VGH was not sanctioned about its failure to openly state its financial situation, and he says he is unable to comment about something which did not happen.

“For whatever reason, the government decided to stay put in those circumstances,” Deguara notes dryly.

“If you don’t have any idea how Vitals were spending their money, you cannot tell whether this money was being used correctly, as stipulated by this agreement,” he adds.

Asked to comment about the transfer of the concession to Steward Healthcare, the auditor general recalls how it was all done “with undue urgency,” with the transfer being approved before Cabinet even had time to think about it or discuss it.

Nobody had taken clear, unequivocal responsibility for the haste with which this was done, though the government had clearly piled all of its weight behind the transfer (with Joseph Muscat, Chris Fearne, and other key accused endorsing it heavily).

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14:26 | The termination clause and the defaulting conditions which were imposed on the concessionaire – and how these two were different – are now subject to the prosecution’s questioning

Deguara explains that the termination clause refers to Konrad Mizzi’s infamous €100 million golden handshake clause, which had promised to guarantee that Steward would walk away with that amount in the eventuality of any termination scenario.

The defaulting conditions were those included strictly as part of the original agreement, none of which were availed of at any point in the time since the government refused to terminate the concession.

What happened with the budget allocated by the government for this concession, the prosecution now wants to know.

The witness says that VGH never published audited accounts for the first four years. These accounts were published after those first four years and they clearly showed that VGH was a going concern at the time those reports were supposed to be published.

Although the prosecution’s question itself remains unanswered, prosecutor Rebekah Spiteri says “I feel like that answers my question”.

Deguara says that VGH did not adequately refund the government on all of its expenditure, and that VGH was supposed to pay 2% increases to each healthcare worker employed within its domain.

These annual increases were nonetheless absorbed by the government’s taxpayer chest, the chief auditor says, using this as an example of the government’s constant effort to minimise the concessionaire’s spending while increasing its own, even when it was not obliged to do so.

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14:20 | Quoting directly from the second report, prosecutor Rebekah Spiteri asks specifically about the MoU and how the NAO noted that Cabinet had only been given two days to review and approve the MoU.

This question elicits laughter from the defence’s benches as the witness points out that the NAO “was not present for Cabinet meetings” and that they do not have any visibility on whether any Cabinet members had complained about a lack of time to review this MoU.

Deguara now speaks about how Eurostat had classified the gaping expenditure hole resulting from the hospitals concession on the government’s balance sheets, meaning that this impacted the country’s entire deficit.

The government had attempted to shift this expenditure onto Steward, who by the time had claimed that severe financial concerns about the status of the concession was not their own issue to resolve.

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14:13 | How were the agreements (which make up the hospitals concession) drafted, the prosecution now wants to know from Auditor General Charles Deguara.

The witness notes that practically most of the risks which ensue from the concession were shifted to the government rather than the concessionaire, including income guarantees which would have come through irrespective of the concessionaire’s performance.

As Deguara’s lengthy testimony carries on, we can safely state that the prosecution’s questions so far largely seem to be limited to facts which have been established a while ago. At the moment, Deguara is briefly describing how the evaluation committees for the concession were appointed, material which we’ve already covered in previous hearings.

The prosecution asks the auditor general to specifically state whether there was anyone “pressuring” for the deal to go through, and though he does not say specifically that the person in question was trying to illegally expedite the process, he does reiterate that Konrad Mizzi was the government’s key man for this deal.

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14:08 | The prosecution now asks further about the issues which the NAO observed between this deal and other similar deals. The RfP was highly subjective and the selection process in and of itself was not up to standard given the project’s size and scope.

“VGH’s bid was far too ambitious”, the auditor general notes.

He points out their glaring financial difficulties, their lack of experience in the sector, and the unlikely amounts of revenue which the investors claimed would be generated from medical tourism. The evaluation process was deemed “inadequate” by the NAO.

“Had this project continued, around 400 billion would have been issued in total,” he pointed out, arguing that feasibility studies beforehand would have clearly pointed out just how unlikely the bid was.

Regarding the 30-year duration of the concession with the option to extend for another 65 years, Deguara notes that VGH’s cash flow projections were based on the assumption that they would hold the concession for the whole term, and not just for the bare minimum of 30 years.

When the NAO asked about the energy ministry’s dubious involvement in the project, Cabinet had informed the NAO that Konrad Mizzi specifically was selected by Cabinet as the special delegate for such major projects.

In fact, his signature is listed on every single contract related to this deal, even when he was later moved around to the tourism ministry and as minister within the OPM.

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14:02 | Who cooperated in the NAO’s investigation – and who didn’t, the prosecution now wants to know.

When it came to investigating the MoU, Deguara says that they asked various entities about the MoU that had infamously gone missing.

Malta Enterprise and the OPM both claimed that the MoU went missing, leading the auditor-general to issue an explicit note outlining they could not fulfil their investigation until the MoU was found. Two weeks later, OPM claimed to have suddenly found the missing document, leading to the issuance of an addendum from the NAO.

Asked specifically to state who cooperated and who didn’t, the auditor general says they found cooperation from mostly everyone, though certain entities did not respond to queries. Malta Enterprise cited commercial secrecy laws in their refusals to provide certain documentation to the NAO, which remains secret to this day.

Prosecutor Rebekah Spiteri now asks Deguara to describe what evidence they managed to gather from their investigation. Noting that the NAO is only able to investigate public spending – and not the private accounts of an entity like Steward Healthcare – Deguara says they sourced their information largely from the government’s own data.

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13:59 | The prosecution now asks about the NAO’s established principles when it comes to reviewing good governance practices (or the lack of them).

Auditor General Charles Deguara says that public procurement regulations are meant to serve as “a bible” for such cases.

“Once that MoU was signed about four or five months before the RfP was issued, this was not according to public procurement regulations. According to such regulations within an ethical framework, this should not have happened… we feel there were a lot of deficiencies in the process! We felt there should have been more input from the health ministry since they are the ones who had all the relevant competence and expertise. In this case, good governance did not happen”, he emphasises.

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13:48 | Auditor General Charles Deguara is back on the stand.

The prosecution asks Deguara about the three reports presented by his office in relation to the hospitals concession case. Prosecutor Rebekah Spiteri asks the witness to explain what had led to the need to commission those reports in the first place.

Charles Deguara says that the public accounts committee had first asked his office to investigate. He is asked to explain the terms of reference of the investigation. Deguara explains that they first focused on how the tendering process was first set out, with those findings being all set out in the first volume that the NAO published about this deal.

The auditor general highlights how the press had exposed the government’s secretive MoU, and that this was the first unequivocal alarm bell about this project – especially due of the fact that this information came to light through reports in the media rather than through official government channels.

“On the basis of this MoU alone, VGH’s bid should have been rejected,” he emphasises.

Deguara also notes that another major problem was the government’s constant proclivity towards extending the concessionaire’s deadlines and amending the conditions of the contract when it was evident that the concessionaire could not fulfil their contractual obligations.

He further notes other issues which have long been noted in the public domain – the lack of documentation which attests to how decisions were taken, conflicting views and claims between the concessionaire and the government, and the inevitable problems which arose as a result – including ongoing litigation between the government and Steward Healthcare.

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13:45 | The next witness is Ivan Vladimir Buttigieg, managing director Mulberry Insurance Brokers. He says that Pierre Sladden has two insurance renewals pending with his firm, and presents documentation which refers to the insured vehicles in question.

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13:36 | Adrian Cutajar presents, on behalf of Mapfre-MSV life, five insurance policy documents which the firm he represents issued to one of the accused.

The policies are as follows:
Ivan Vassallo and his wife (legacy protection plan),
Ivan Vassallo solely (another legacy protection plan valued at around 1 million euros and carrying a hefty €18,000 annual premium),
Ivan Vassallo and his wife (savings plan spread over thirty years),
Ivan Vassallo and his wife (child policy),
and another child savings policy sold to the Vassallos.

All in all, a very significant level of expenditure on just insurance premiums alone.

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13:32 | Luana Agius testifies, on behalf of Bank of Valletta, about Ivan Vassallo’s bank loans. The BOV representative says he had loans to his name with third parties. Agius says there were four accounts with active loans and ongoing repayment plans.

The prosecution asks the witness about when these loans were first issued, and she says the first two were issued in July 2016. All loans were to be repaid in monthly instalments.

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13:23 | Martin Spiteri, secretary of the accountancy board, is today’s fourth witness to testify. He was previously asked to provide documentation related to Nexia BT Ltd and any/all accounting certifications that the accused may have.

Spiteri says that Nexia BT was not registered with the accountancy board, though it was registered with the MFSA. In 2010, ‘Brian Tonna & Co.’ changed its name to Nexia BT.

The witness also presents an email which shows that the finance minister formally approved the registration of this ‘civil partnership’ – Nexia BT’s legal status at the time.

Nexia BT’s Manuel Castagna had sent a letter in April 2010 informing the accountancy board about his company’s name change.

The prosecution asks the witness to sign over all documentation that is being submitted in court to ensure it can be identified as authentic.

Spiteri is asked to briefly note who among the accused holds a valid warrant to practice the accounting profession.

He says the warrant holders as certified public accountants and/or auditors among the defendants are Mario Gatt, Christopher Spiteri, Brian Tonna and Karl Cini.

The witness briefly notes that Tonna offered to temporarily suspend his own warrant in April 2023, a request which the accountancy board adhered to. He presents documentation that attests to Tonna’s offer.

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13:17 | Next witness is Eleanor Scerri, a scribe of the House of Representatives, presenting documents related to appointments and income of the accused former MPs.

She briefly describes when Joseph Muscat and Konrad Mizzi took their oath of office as well as providing official documentation which outlines their tenure as MPs.

As for the parliamentary declarations of assets filed by Muscat and Mizzi, the witness presents all asset declarations filed by these two individuals.

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13:13 | Joyce Cassar, the permanent secretary within the ‘People and Standards Division’ at the Office of the Prime Minister, is the second person to take the witness stand today.

Cassar was previously asked to present documentation about a list of individuals and to determine whether any of them were employed as public officials or otherwise as employees within the public service.

Today, she states nobody on the list in question is currently employed as such an official or employee.

Brian Bondin and Codger-Thompson were previously engaged with the state – Bondin as a staff nurse in 2001 while Codger-Thompson was employed with MaltaHealth in 2024 through transfer of business when the concession was passed on.

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13:10 | The first witness today is Louis Buhagiar, a representative of Jobsplus, presenting to the court a set of documents which attest to the employment history of all of the accused: Joseph Muscat, Konrad Mizzi, Keith Schembri, Clarence John Codger-Thompson, Christopher Spiteri, Jonathan Vella, David Meli, Ivan Vassallo, Mario Gatt, Brian Bondin, Adrian Hillman, Pierre Sladden, Brian Tonna, Karl Cini.

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13:05 | Today’s sitting begins 95 minutes after the scheduled time, after Magistrate Rachel Montebello concluded the previous session in another case she presided over.

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12:07 | Apparently there are two more witnesses going to testify in the unrelated sitting which is still ongoing. Perfect time for a coffee and a cigarette! We’ll be back with you shortly.

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11:50 | We’re back in Hall 22 today for the next hearing in the compilation of evidence against disgraced former prime minister Joseph Muscat and his former associates and colleagues.

Muscat and the co-accused are currently facing organised crime, fraud, corruption, bribery, and a slew of other charges in relation to the hospitals concession case.

Following a rather uninteresting first hearing last week, in which almost two dozen bank representatives were asked to testify about whether the bank they were representing had any business relations with companies MTrace and Kasco Engineering – we are expecting to hear more about the prosecution’s long list of witnesses today.

MTrace and Kasco Engineering, owned by former VGH investor Ivan Vassallo and disgraced former OPM chief of staff Keith Schembri, were directly involved in the complex process of siphoning money out of the concession and into offshore structures owned by the shareholders of Vitals Global Healthcare and later, Steward Healthcare.

While today’s hearing was scheduled for 11:30, it seems an ongoing testimony from an unrelated case is leaking into the time slot allocated for the hospitals concession case.