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1 March 2011

Bank of Valletta and the Daewoo Loans


For many weeks articles have been published in the Maltese press about the mismanagement that took place at the Bank of Valletta’s (BOV) failed La Vallette Sicav multi manager property fund.

The difficulty with this situation is not what is being published in the Maltese press; it is what is NOT being published that raises serious concern.

On the 12th June 2001 the Business Times, a Maltese newspaper published an article claiming that EU Commissioner John Dalli was not involved with Daewoo in Malta when he was a consultant. This is incorrect and an obvious cover up. There are witnesses to the fraud that took place at the time when John Dalli was consultant for the company.

This article also states that the loans were sanctioned when Dr Reno Borg, a Malta Labour Party appointee was chairman for Bank of Valletta. This may be true; however, it is possible that Dr Reno Borg was not informed. The hypothec was signed by E. A. Said representing the Bank of Valletta and Dr Antoine Aguis (Notary Public) on behalf of several companies among them Universal Commerce Agency Co. Ltd., Universal Estates Co., Ltd., COR Ltd and Korea Motors (Malta) Ltd., owned jointly by Joe Gaffarena and Joseph Mary Scicluna.


However, hypothec 15248 and 15246 confirm that the major part of the lending amounting to more than   Lm6, 366, 688 (€14.73 million) was sanctioned in 1994. Dr Reno Borg was not BOV chairman at the time. However, EU Commissioner John Dalli was Minister of Finance from 1992–1996 and 1998–2004. As minister and having the financial institutions as part of his portfolio he must have known about this lending. John Dalli had a close relationship with Joseph Mary Scicluna and Joe Gaffarena for many years. In fact, his brother Bastjan was a business partner with Scicluna and Gaffarena between 1992 and 1994.

Also, Bank of Valletta’s hypothec 13640 authorising the loans was signed on the 25th September 1997. At the time EU Commissioner John Dalli was a consultant for the company and shadow finance minister. This confirms how unreliable the Maltese press is and they are always prepared to publish articles to cover up the rampant corruption that has existed in Malta during the Nationalist Party administrations.
The investor and the general public ends up paying for the mistakes of those who are supposed to be responsible for the funds entrusted to them by the bank’s clients on what is supposed to be professional advice given to them by the bank’s representative.

On many occasions BOV found itself in an unacceptable situation, always at the expense of its shareholders and clients. However, despite this, no one on the board of directors has ever been held accountable even though the Minister responsible for the tax payer’s shareholding (40%) should make sure that a proper and impartial investigation is conducted.

For those who have a short memory, between 1996 and 1999, BOV made loans worth millions of Euros to Price Club, Supermaster and Daewoo. The huge loans made at the time were granted to these companies when the Nationalist Party was in opposition.

Dr Alfred Sant, the Prime Minister (Malta Labour Party) at the time was kind enough not to replace the board of directors in entities where the government had a majority shareholding. He left the same people on all the boards despite the fact that they were Nationalist Party sympathisers. There is nothing wrong with leaving capable people of different political opinions at their posts as long as they continue to perform their duty with integrity and without discrimination. At the same time making sure that the interest of the shareholders and investors is looked after in a professional manner.

Time and again this was not the case. In the case of Daewoo, Bank of Valletta granted loans and overdrafts amounting to €47 million using very little collateral (see copies of hypothec). These loans were made when John Dalli (now EU Commissioner) was shadow finance minister and consultant for Daewoo and other companies.

John Dalli ordered the accounts department supervisory staff at Daewoo to prepare projections for the purpose of raising funds. When these were submitted to Dalli he blew his top, shouting because he found them unacceptable. This was because in reality the company was not in a position to borrow anymore funds. The sale of vehicles had reduced drastically and the company still had over four hundred (440) Daewoo Racer in stock.

Daewoo in Korea had been selling their new models (Lanos, Matiz, Nubira and Leganza) all over Europe for some time. Customers were coming in asking for these. However, Daewoo would not sell any of their new models to Malta because Universal Commerce Agency Ltd/Daewoo (Malta) Ltd. still had a substantial outstanding balance with Daewoo in Korea.

The day after John Dalli had lost his temper and threw the financial projections in the dust bin he adjusted the figures making them look more acceptable and good enough for BOV to approve the finance. The fact that the targets in the projections were impossible to be achieved did not seem to matter to him or BOV.

Of course EU Commissioner John Dalli had every reason to make sure that the loans were approved because as “Mr Fix It” he was to receive €1.2 million (Lm500, 000) as a backhander (evidence to support this is available). He also had an outstanding balance on a Daewoo Espero (chassis no: KLAJF19VISB739096 (valued at €20,700) registered in one of his companies name (Database Ltd.). This vehicle was sold to him in 1996 but he never paid a single cent on it.

He was also given a Daewoo Cielo chassis no. KLATF19YISB598856 (valued at €16,000) registered in his eldest daughter’s name. At the time his eldest daughter was at university and wanted a car to run about in.

As a consultant for the company he was also receiving a monthly remuneration of €2, 300 (Lm1, 000). For all these reasons he gained himself the title of Johnny Cash because he liked getting paid in cash, which of course cannot be traced.

Despite the conflict of interest that John Dalli had and the fraud that took place at Daewoo the shareholders were never informed of the total loss incurred which had to be written off, especially in the Daewoo case.

The police never conducted a proper investigation into the €3.2 million that the Daewoo clients were defrauded of by the company. These were hire purchase payments paid in cash to the company but never passed on to BOV as they should have been.

The police commissioner appointed one police officer from the fraud squad to investigate. Without a doubt he was overwhelmed and so no one discovered what really happened.

By the time the investigation started John Dalli had been appointed finance minister, thus giving him the opportunity to ensure that such a scandal which he was involved in was covered up.

No one was ever held accountable for the Daewoo loans. It would appear that once again no one will be held accountable for the mismanagement that took place at the Bank of Valletta’s (BOV) in the failed La Vallette Sicav multi manager property fund.

Below is a summary of hypothecs no: 13640, 15248 and 15246 that were taken from public records. These confirm that the assets used to secure the loans and overdrafts for Universal Commerce Agency Ltd/Daewoo Malta Ltd were insufficient. The monetary values are in Maltese Lira (one Maltese Lira = € 2.3). Below the summary there is a reconstruction of these hypothecs. The occasional line is illegible and has therefore been left out and marked ******.

In my pictures there is a copy of the original documents filed in the public records. These copies indicate the lack of professionalism on behalf of BOV.


These loans and overdrafts were granted on the 25th September 1997. Those who wish to confirm the values of the properties listed above can do so. Any professional or well informed person will confirm that even at today’s (2011) values, they are not sufficient collateral to cover the loans and overdrafts amounting to Lm 16, 664, 988 = €38.34 million.

This volume of funds is not normally granted by BOV using such small security unless the person responsible at the bank was influenced by an someone. That someone was EU Commissioner John Dalli.

The purpose for these loans was so that Joseph Mary Scicluna (one of the business owner/directors and Honorary Consul for the Philippines in Malta) could be able to buy the other 50% shareholding from the other director Joe Gaffarena and to make a payment to Daewoo in Korea.

The Daewoo vehicles importation agency agreement was due for renewal in September 2000. The sales of Daewoo vehicles had been in decline since 1996 due to a dispute over balance payments that J.M. Scicluna had with Daewoo in Korea, because of this, the agency agreement would have not been renewed.

The sales of 1, 120 units in 1995 were only due to the company selling its vehicle stock on small deposits without making any credit checks on its clients. By 1998 a substantial amount of clients started to default. Arrears and non-payment became a serious cash flow problem.

 
Year
Daewoo Vehicles Sold
1993
75
1994
609
1995
1,120
1996
620
1997
369
1998
77
1999
10
2000
Company went
Bankrupt. It was liquidated under the name of Paola Motors Ltd.

Although the sales figures confirmed a drastic decline in sales and the company never submitted audited accounts to the Bank of Valletta or the authorities BOV still approved the loans without the knowledge of the Board of Directors. At BOV it was standard procedure that loans above $40, 000 had to be approved by the Board of Directors.

During that period EU Commissioner John Dalli was a consultant for Daewoo and other companies. When the acquisition of Joe Gaffarena’s shareholding was agreed this was concluded during an evening and one night of negotiations at Joe Gaffarean’s residence. Both parties had legal representation. However, there were no audited accounts at the time. There was no realisation of assets as anyone would expect. The final arrangement was agreed verbally. 

It is difficult to ascertain how much Joe Gaffarena received for his 50% in the business. Apart from the millions he received in cash and in bankers drafts he also acquired the Dacia vehicle sales agency, a small hotel in Buggiba (Three Rocks), a large piece of land at Bahria next to the one that was used as collateral, two garages at Qormi, a large open vehicle storage at Hal Farrug (large enough to store four hundred vehicles) and much, much more.

It should also be noted that most of the assets that Universal Commerce Agency Limited and the other companies in the group had were acquired by the loans and overdraft facilities that the Bank of Valletta had authorised in hypothec 15248 and 15246 in 1994.

Technically the Bank of Valletta was extending its credit to Joseph Mary Scicluna to acquire Joe Gaffarena’s interest in the business by securing the loans and overdraft facilities on assets purchased by the funds that BOV had provided in 1994. 


In the hypothecs it is noticeable that much of the property used as security is always adjacent to a property owned by the Government of Malta. For many years Joe Gaffarena has been in the habit of finding Government land, occupying it without permission and building without planning permission. When the building is almost complete he will use his political contacts to make it all legal at a very economical price. There is always a backhander involved.

He did this with the site where the showroom at Mdina Road, Qormi was erected.  He did the same thing with the vehicle lock-up at Hal Farrug near Qormi. This plot was large enough to hold between 400 and 500 vehicles. A 4.25 meters high perimeter wall was built to secure the site. It cost Lm23, 000 (€52, 900) to surface the area with tarmac. In the enclosure there is a five room property at the entrance on the right hand side.

The following is a reconstruction of hypothecs 13640, 15248 and 15246. It is being reconstructed because the original copy which is published in my pictures is not clear. The original is filed in the public records.
Reconstruction of Hypothec No: 13640 and 15248 and 15246

Page 1

Creditor:         Bank of Valletta

Debtor:            Universal Commerce Agency Co. Ltd., principal debtor.
                       Universal Estates Co., Ltd., COR Ltd and Korea Motors
(Malta) Ltd., joint and several sureties amongst themselves and the principal debtor.


Creditor:          One Million and six hundred thousand Maltese Liri (Lm1, 600, 000 (€3.7 million) Granted on loan by the creditor Bank to the principal debtor, out of which sum four hundred thousand Maltese Liri (Lm400, 000 (€920, 000) to be used for its business, in general, and the balance of one million and two hundred thousand Maltese Liri (Lm1, 200, 000 (€2.76 million) are to be used to refinance existing loans and to effect a part payment to Daewoo Corporation and other hypothec and special hypothec for the sum of six million and two hundred thousand Maltese Liri (Lm6, 200,000 (€14.26 million) and relative interest granted by the sureties the Limited liability companies COR LTD and Korea Motors (Malta) Limited on

Case of Preference (Security):
Kawza ta’ preferenza:
(a)        General Hypothec up to the sum of one million and six hundred
Thousand Maltese Liri (Lm1, 600, 000 (€3.7 million) over all the property of the principal debtor and the surety Universal Estates Company Ltd.

(b)        General Hypothec for the sum of one million and six hundred thousand Liri
(Lm1, 600, 000 (€3.7 million) over all the property of sureties COR Ltd., and Korea Motors (Malta) Ltd.,

(c)        Special hypothec up to the sum of one million six hundred thousand Maltese Liri (Lm1, 600, 000 (€3.7 million) over the unnumbered showroom at Mdina Road, Qormi, built on a divided plot of land (continued on page 2)


Page 2

Creditor:          twenty-seventh day of September, one thousand nine hundred and ninety six (27/09/96). The Bank had granted to Universal Commerce Agency Ltd, as principal debtor extensions of overdraft facility for the sum of five million two hundred thousand and four hundred Malta Liri (Lm5, 002, 400 (€11.506 million) up to the global sum of six million five hundred thousand seven hundred Maltese Liri (Lm6, 500, 700) registered in the Public Registry of Malta in Volume 1 number fifteen thousand two hundred and forty eight of the year one thousand ninety six (15248/1996) interest at the allowed rate by law shall be reckoned on the time

Kawza ta’ Preferenza:
Case of preference:
(c)        unnumbered garage including its air space, both situated Valley Road, Birkirkara, which garage is bound on the south by Valley Road, on the north by Paris Street and on the west by the said showroom or more accurate boundries; the said showroom underlies property belonging to third parties; the ramp in front of the garage and it services road are in common with the showroom, otherwise free and unencumbered, property of the surety, the limited liability company Korea Motors (Malta) Ltd; and

(ii)        the following properties belonging to the surety, the limited liability company COR Limited.

           (a)        a divided portion of land known as (continued on page 3)


Page 3

Creditor:          the amount due for the balance of loan and overdraft facilities by the principal debtor from time to time according to recognised banking practice, the said rate of interest to be fixed by the creditor bank in its sole discretion from time to time. The said sum is repayable on demand a simple request in writing to be deemed good and sufficient notice for this purpose. This said guarantee is in addition to and without prejudice to the guarantee granted in the said deed of overdraft. Deed published by me on the eighteen day of September, one thousand nine hundred and ninety-seven (continued on page 7)



Kawza ta’ preferenza:
Case of Preference:
“Tal-Princep”sive Tal-Wied Tas –Salina in the district of “Ta’ Cassia” at Qawra in  the limits of Saint Paul’s Bay, which portion of land measures approximately two thousand six hundred and twenty four (2, 624) square meters and is bounded on the south west by property of Emmanuel and Francis brothers Gauci, on the south east by property of the Government of Malta, and on the east by property of Joseph Gauci and by an unnamed alley, or more accurate boundaries otherwise  free and unencumbered;

(b)        the land known as “Tal-Plieri”, in the limits of Rabat, Malta, which land measures approximately ten thousand two hundred and fifty one square meters (10, 251) having access from Triq
            (Continued on page 4)

Page 4

Kawza ta’ Preferenza:
Case of Preference:     
Il-Korsa: the said land comprises unnumbered room and well already existed on it, all bounded on the east by property of ********** Cassar on the south by property of Guseppi
Pulicino on the south west by the said ******************* and on the north by the property of the Monastery of Saint Catherine of Valletta or its successors in ************.  
           
(c)        The three garages known a “Car Tech Garages” in Loreto Cutajar Street, Zebbug, Malta, which garages are unnumbered and are contiguous and together bounded on the north by the said street on the west by property of M. Cars Limited and or all other boundaries by property of the Government of Malta or more accurate boundaries (continued on page 5)

Page 5

Kawza ta’ Preferenza:
Case of Preference:
underlying third party property and subject to the rate of annual and perpetual grounds rent mentioned in the deed.

(d)        the two garages numbered thirty three (33) and thirty four (34) in an internal development at basement level, having access through an unnumber entrance abutting onto Vjal Indipendenza, Zebbug Malta, which entrance is bound on the north west by the said street, on the north east by property of Alfred Balzan and on the south west and west in part by property of Salvatore Ciantar, in part by property of Angelo Scicluna, and in part by property of Joseph Vella, excluding their airspace.

(e)        The house numbered (20) Saint (continued on page 6)

                                                                        Page 6
Kawza ta’ Preferenza:
Case of Preference:
                        Catherine Street, Qormi, subject to perpetual pious burden in the deed.

            (f)         the house numbered (58) Misrah is-Sliem (formerly Misrah San Gakbu) Zabbar.
                        (continued on page 7)


                      Reconstruction of Hypothec 15248

Page 7

Creditor:          Bank of Valletta

Debtor:             Universal Commerce Agency Company Limited, principle debtor and
                        Universal Estates Company Limited, joint and several surety.


Creditor:          Extension of overdraft and other banking facilities up to and additional limit of five million and two hundred thousand four hundred Maltese Liri (Lm5, 002, 400 (€11.506 million); interest rate not exceeding the maximum rate allowed by law shall be due by the debtor on daily balances in accordance with recognised banking practice, the said rate of interest to be fixed by the creditor bank in its sole discretion from time to time; the creditor bank shall be entitled at any time to call upon the debtor and ***************************ess, a simple request in writing to be deemed good and sufficient for the debtor and


Kawza ta’ Preferenza:
Case of Preference:
General hypothec over all the property of the principle debtor and of the surety and special hypothec over all the unnumbered showroom at Mdina Road, Qormi, built on a divided plot of land forming part of the land known as “Tal-Ghaqba” in the district known “Ta Ghar-Ram” having an area of one thousand two hundred and ninety (1, 290) square meters and is bound on the north by Mdina Road, on the east by Ghar-Ram Street, and on the west by property of the Government of Malta: property of surety.
(continued on page 8)

Page 8


Creditor:          sureties to implement their engagements forthwith as per deed in my records of the twenty seventh day of September, one thousand nine hundred and ninety six. These facilities are in addition to pre-existing facilities of one million four hundred and ninety eight thousand three hundred Maltese Liri (Lm1, 498, 300 (€3.45 million) granted by a deed in my records of the tenth day of June, of the year one thousand nine hundred and ninety four (10/6/1994) and inscribed in the Public Registry in Volume 1 number eight thousand six hundred and forty seven of the year one thousand nine hundred and ninety four (I.8647/1994) (continued on page nine)


Page 9
Reconstruction of Hypothec 15246

Creditor:          Bank of Valletta

Debtor:             Universal Commerce Agency Company Limited, principle debtor and
                        Universal Estates Company Limited, joint and several surety.


Creditor:          Eight hundred and sixty five thousand nine hundred and eighty eight Maltese Liri
(Lm865, 988 (€1.992 million) granted on loan by the creditor Bank to the principle debtor with interest at the rates not exceeding the maximum rate allowed by law, this interest shall be reckoned on the amount due for the balance of the loan by the principle debtor from time According to recognised banking practice, the said rate of interest to be fixed by the creditor bank in its sole discretion from time to time;*********. The said sum is repayable on demand on simple request in writing to be deemed good and sufficient for the purpose as per deed.

Kawza ta’ Preferenza:
Case of Preference:
General hypothec over all the property of the principal debtor and of the surety and special hypothec over the unnumbered showroom at Mdina Road, Qormi built on a divided plot of land forming part of the land known as “Tal-Ghaqba” in the distric known as “Ta’ Ghar–Ram” having an area of one thousand two hundred and ninety (1, 290) square meters and is bounded on the north by Mdina Road, on the east by Ghar-Ram Street, and on the west by property of the Government of Malta of the surety (continued on page 10)
Page 10

Creditor:          *************  **  *********** creditor **********  guarantee the overdraft and other banking facilities granted by the creditor bank to Universal Agency Company Limited, as principal debtor by deeds: (i) up to the same sum of one million four hundred and ninety eight thousand three hundred (Lm1, 498, 300 (€2.65 million) by deed published by me on the tenth day of June, of the year one thousand nine hundred and ninety four (10/6/1994) registered in the Public Registry of Malta in Volume I numbered eight thousand six hundred and forty seven of the year one thousand nine hundred and ninety four (8647/1994); and by another deed published by me on the twenty ************.


Kawza ta’ Preferenza:
Case of Preference:
forming part of land known as “Tal-Gharba” in the district known as “Ta’ Ghar-Ram” at Qormi, Mdina Road having an area of one thousand two hundred and ninety (1, 290) square meters and is bound on the north by Mdina Road, on the east by Ghar-Ram Street and on the west by property of the Government of Malta as free and unencumbered, as shown on a plan site plan mentioned in the deed, property of the surety, the limited liability company Universal Estates Company Limited:

(D) special hypothec for the sums of one million and six hundred thousand (LM1, 600, 000 (€3.7 million) and six million and two hundred thousand Maltese Liri (6, 200, 000 (€14.26 million) over: