Daphne Caruana Galizia and High-Profile Corruption

The case closely ties private business interests and the party of government. Until his arrest, Yorgen Fenech was the chief executive of Tumas Group (his family’s business), whose interests span luxury hotels, property development, casinos, investment management, shipping, and, more recently, energy. Together with two other private Maltese companies, as well as Siemens and the Azerbaijan state oil company SOCAR, the group shares ownership in ElectroGas Malta — a consortium that won a state bid to build and manage a key gas power station after the 2013 election. Fenech personally held 8 percent of the Maltese share in the consortium.

Having spent fifteen years in opposition, Malta’s Labour Party campaigned in the 2013 election to attract middle-class voters by flaunting pro-business ideas, even while also promising to uphold the interest of its traditional working-class base. In this spirit, the power plant was a centerpiece of its successful election campaign. The project was devised to drive down electricity costs, guarantee a secure energy supply, and reduce carbon emissions.

In October 2013, a few months after Labour’s victory at the polls, the ElectroGas Malta consortium was selected from among several bidders. The €450 million upgrade of the power station was completed in April 2017. A report prepared by the National Audit Office concluded by noting the lack of appropriate due diligence for a project of such magnitude, but no action was taken by the relevant authorities.

In May 2017, journalist Daphne Caruana Galizia highlighted financial trouble at ElectroGas. She wrote that the company was “not paying creditors or even salaries to employees.” It had to rely on state support: the government secretly extended a €360 million state loan guarantee to the new power station right before the 2017 snap general election. In November 2017, the energy consortium failed to submit the necessary proof of secured long-term financing for the project by the stipulated deadline, thus breaching an agreement on another loan extension signed a few weeks earlier.

The privatization of the energy sector and energy deals in Malta also included selling one-third of the shares in the state-owned energy provider Enemalta to Chinese state-owned company Shanghai Electric Power, together with majority control of the power plant. These deals were sealed under the supervision of Konrad Mizzi, then energy minister, whose name featured in the Panama Papers revelations alongside the prime minister’s chief of staff, Keith Schembri, who also happened to be a close friend of the now-arrested tycoon.

The owner of the third company mentioned in the Panama Papers — Egrant — has not been identified, although Caruana Galizia had claimed that it belonged to the prime minister’s own wife. She stated that the company had received enormous sums of money from the Azerbaijani government. The allegations prompted the snap election of 2017, which the incumbent Labour Party won by a landslide.  The inquiry into the case did not prove the journalist’s allegations, but the full report was not made available to the public at the time of its release.

Despite the leaks pointing to their secret offshore companies, the two high-profile officials, Konrad Mizzi and Keith Schmebri, retained their positions and were reinstated in the government after the 2017 elections.

Caruana Galizia’s enigmatic February 2017 blog post entitled “17 Black – the name of a company incorporated in Dubai” suggested links to Maltese politicians, including the two officials uncovered by the Panama Papers and Prime Minister Joseph Muscat himself. After the assassination, the headline was picked up by the Daphne Project and, in November 2018, Reuters announced that the 17 Black account at Noor Bank in Dubai was owned by Yorgen Fenech. Mizzi’s and Schembri’s Panama companies were expected to receive up to two million US dollars within a year from the exposed company.

With more details emerging during the interrogations and from the court hearings, including testimony by the arrested tycoon, both senior political figures have finally resigned under pressure. Calls for Prime Minister Joseph Muscat to step down grew stronger by the hour — and the whole government began facing mounting pressure to be held accountable.

A Breeding Ground for Corruption

The scale of corrupt practices in Malta must be taken in the context of a bipartisan political system, non-transparent party financing, constitutional flaws, and the lack of mass movements to challenge abuses of power.

The bipartisan political scenario that emerged in Malta during the colonial era still persists. Two major forces — the Labour Party (PL) and the Nationalist Party (PN) — dominate public life in the country. The PL is usually characterized as social-democratic and the PN as conservative, but these apparent political orientations do not match the parties’ de facto policies.

In the 1960s and 1970s, the rivalry between the two parties stemmed from conflicting principles and politics: the PL had connections to Third World independence and socialist movements and was committed to maintaining the welfare state. This set it on a collision course with the PN and the Maltese Catholic Church, the conservative party’s close ally. The PN’s rejection of Labour’s economic policies and the contested results of the 1981 general elections sparked a political crisis, followed by violent clashes between the parties’ supporters. The violence of the 1980s is still alive in the collective memory.

In the following decade, as in other countries, both parties adopted an openly pro-business approach to economics. Indeed, today, the PL is primarily distinguished from its opponent by its more liberal stance on reproductive rights. However, the two parties retain their influence over public opinion through the TV and radio stations they each run, broadcasting their own biased interpretations of economic, social, and cultural developments. Disguised as rivalry, the relationship between the parties is in fact symbiotic. A common strategy of labelling whatever the opposing side says as mere propaganda feeds a mistrust through which they can impose neoliberal policies and engage in corrupt practices with little public resistance.

Since returning to power in 2013, the PL has pursued the same economic policies set by its predecessor: privatizing public assets and attracting global capital. Both parties maintain clientelistic networks that cut across social classes and transcend the boundaries between the public and private sectors. In a country where wages remain below the European Union average and the cost of living has been steadily increasing, patronage offers a stable source of income in exchange for electoral loyalty.

Depending on their social status and proximity to the authorities, loyal supporters are rewarded with handouts, jobs, state concessions, contracts, and permits for business development. Clientelism further impedes accountability of authorities since the prosperity of many citizens depends on the continuous success of their allied party. Benefactors of patronage are unlikely to challenge their patron’s abuses of power.

Non-transparent party financing serves as a platform for shady deals between politicians and their big business donors. Promises to donors made during electoral campaigns are implemented through an overhaul of consultation procedures, despite multiple public objections. In the past few years, such projects included plots of public land in prime locations given away to hoteliers, property developers, and other tycoons. Obscure business interests thus distort democratic procedures, forcing ordinary citizens to struggle away in an unequal battle.

One of the most fundamental systemic faults that allows high-profile corruption and the abuse of power to go unchecked is the institutional flaw ingrained in the Independence Constitution inherited from colonial times. In practice, insufficient separation of powers means that police investigations against the government or without its consent are impossible. These and other matters were outlined by the Venice and GRECO Commissions, which recommended a set of constitutional reforms with respect to the country’s judicial system and the concentration of power in the hands of the prime minister.

The economic model pursued by successive PN and PL governments has further aggravated these societal and institutional flaws. Enabled by a favorable corporate tax regime, almost a quarter of Malta’s GDP relies on financial services and online gambling. Both sectors are abused as hubs for money-laundering and tax avoidance. Unfortunately, citizens perceive the island state’s taxation system as a lifeline, since Malta’s integration in the global economy and the single market entails fierce competition with established EU member states by underbidding on tax rates.

Attracting the global rich has also been a high priority on the Labour government’s economic agenda. The Individual Investment Programme (IIP) allows wealthy individuals to purchase Maltese citizenship. Anyone willing to contribute €650,000 to a national development fund and invest €150,000 in government stocks or bonds can apply. Corrupt practices associated with the citizenship scheme are an open secret. One of the major private IIP agents was filmed by a French TV channel bragging about his ties with the prime minister, justice minister, and parliamentary secretary in charge of the passport scheme.

Privatization of public assets, however, seems to be the most insidious facilitator of deals between big business and politicians: a way to receive kickbacks, disguised as socially beneficial infrastructural upgrades that save public money. The privatization of the energy supply was one of many such cases.

Between Democratic Breakthrough and Partisanship

High-profile corruption is hardly just a Labour Party phenomenon. Obscure privatization deals occurred under the Nationalist Party administration, too. The son of the former conservative prime minister was repeatedly suspected of providing services to the ‘Ndrangheta money-laundering ring, (he was ultimately cleared of these charges). Although members of the previous administration appeared in the Panama Papers database, they were no longer in power so as to be accused of corrupt sources of income.

The PN survived its terms in power without comparable scandals for another significant reason — a lack of initiative to investigate their ties with big business. Prior to 2013, Daphne Caruana Galizia herself was renowned mainly for her acerbic social commentary and was not keen on exposing members of her preferred administration. However, she did not tolerate Labour Party corruption and showed her strong determination to inform the public of their numerous misdeeds.

This was a rallying crusade. Caruana Galizia’s anti-Labour passion was not entirely motivated by the party’s record of shady practices, but also by a class-based aversion. The journalist was concerned that the exposure of Malta’s senior political figures in the Panama Papers scandal would damage the country’s offshore economy, and she was not critical of the wider economic set-up. However, her deep antipathy toward the PL positioned her as the only source of information on handouts, kickbacks, and illegal sources of income of politicians and their trusted circles.

The antagonism between the journalist and the majority of the working and lower class was mutual. She was frequently reviled and referred to in a dehumanizing manner by hard-line Labourites. Unpopular outside privileged circles, Caruana Galizia did not seem to threaten the political power of the Labour Party, regardless of the scandalous leaks. Still, her revelations must have menaced the financial interests and self-assurance of the governing clique and their friends in big business.

To date, the investigation has brought out shocking details that implicate the figures closest to the prime minister. On November 30, Yorgen Fenech was charged with complicity in murdering the journalist; his and the middleman’s testimonies claim involvement of the prime minister’s chief of staff and security service. Judging by the revelations, the accomplices planned the murder in cold blood. They fully relied on the inaction of their loyal appointees, convinced of their influence over police investigations and the judiciary as a guarantee against prosecution.

Public Protest

The news of Yorgen Fenech’s attempt to flee the country was met with public outrage and, on the evening of the same day, an impromptu protest took place outside the parliament and the office of the prime minister. In the following days, the protests grew in size and intensity.

Sadly, the country’s bipartisan climate stifles mass mobilization against abuses of power. Nor did the disturbing revelations encourage the majority of Labourites to challenge the leadership of the incumbent party. To them, the demands for justice still seem like an opposition trick aimed at grabbing power.

In an attempt to safeguard popular support, the Labour Party thus resorted to proven means: appealing to partisan sentiments and national pride. The latter has been the government’s preferred tool for a few years: it has continuously labelled the slain journalist as a national enemy and a traitor. In his address to citizens, Prime Minister Joseph Muscat highlighted his administration’s key achievement — economic growth. Simultaneous with one of the protests, a large crowd of the PL’s hardline supporters gathered outside the party headquarters to express their continued support for Muscat.

Still, the peaceful protests persisted. Although the majority of demonstrators do hail from the middle-class families allied with one of the PN factions, the protests have not been exclusively partisan. Several independent NGOs and left-wing organizations joined them in a shared call for justice. Left-leaning organizations and individuals held a nonpartisan protest and addressed an open letter to the government.

The protesters are demanding the prime minister’s immediate resignation in order to guarantee unbiased legal inquiries. He has announced his exit for mid-January 2020, but many are sure this will be too late, since the coming weeks will be decisive to the murder investigation. Other demands include constitutional reforms and investigations into privatization deals and major concessions to private entities performed under the current administration’s watch.

The breakthrough in the investigation has altered the Maltese political landscape in unforeseen ways. If only a day before the middleman’s arrest the authority of the Labour Party and the prime minister seemed unshakable, it then rapidly began to diminish. Both Konrad Mizzi and Keith Schembri finally resigned following the arrest. And although Joseph Muscat continues clinging to power, international authorities — a European Parliament delegation among them — have also urged him to step down right away.

The unfolding crisis is a pivotal moment for democracy in Malta — and things can’t go on as they have. Parliamentarians may have failed to back earlier public calls for high-profile resignations, but the demonstrators are now more determined than ever to hold the authorities accountable.

The landmark progress in the investigations cannot be underestimated. It has set a decisive precedent: for the very first time, accomplices in a political murder have been identified and brought to justice. Their testimonies exposed the appalling extent of an impunity which can no longer be ignored. Charges against a mighty tycoon have dented this rotten practice and undermined the idea that the powerful stand above the law.

A Test for Democracy

The legacy of the last few weeks of 2019 will become imprinted in the collective memory, for better or for worse. For the Labour Party, its highest ranks’ involvement in the ruthless assassination has been akin to a political suicide. Having navigated their way through previous corruption scandals without significant losses, it turns out that the governing clique literally could not get away with murder — despite their expectations. The exposed institutional failures erode the legitimacy of Malta as a jurisdiction within the EU and globally.

Although the polls still register majority support for the current administration, the long-term social and economic consequences of this crisis are yet to be seen.

While current events promise that formerly untouchable members of the elite may be held to account, this will not necessarily produce only positive results. Some of Labour’s base may even shift towards the emerging far right, faced with possible economic decline. Unlike the openly pro-business PL, various far-right factions pose as the true representatives of the downtrodden and promise to tackle the corruption cultivated by both major parties.

This risk should not be taken lightly. The conspicuous absence of working-class Labour Party supporters at the mainly middle-class protests speaks volumes. It is now more important than ever to ensure that the battle against high-profile corruption has social justice at its heart, providing an opportunity to re-invigorate a movement in Malta that is not only leftist in name but has a real commitment to socialist ideas.

Only a decent quality of life can emancipate ordinary people from having to rely on patronage for prosperity. Absent this change, mass mobilization in defense of democracy will surely remain a distant pipe dream: ordinary citizens either have to condone crooks in power in order to make ends meet or, affected by disappointment and resentment, see the far right as the only alternative.