By Chris Scicluna
VALLETTA (Reuters) - Malta's Prime Minister Joseph Muscat has told associates he plans to resign over the political and legal crisis stemming from the murder of journalist Daphne Caruana Galizia, the Times of Malta reported on Friday.
Muscat's spokesman would neither confirm nor deny the report.
Muscat's chief of staff and two members of the cabinet have already stepped aside this week over the murder case, which threatens to bring down Malta's political elite more than two years after Caruana Galizia was blown up by a car bomb.
Her family demanded on Friday that Muscat resign, after his right hand man Keith Schembri was set free overnight. Schembri, who quit as Muscat's chief of staff and was held for questioning in the murder case this week, denies wrongdoing. Police said they no longer needed him in custody for their investigation.
Earlier on Friday, Muscat's cabinet turned down a request to pardon a businessman, Yorgen Fenech, over the murder in return for testimony that Fenech's lawyers said would implicate senior government figures including Schembri.
Fenech, who was arrested last week while trying to leave the country in his yacht, was also freed on bail on Friday. He appeared in court later on Friday for a hearing at which he hopes to have his request for a pardon sent directly to the president, avoiding the cabinet which his lawyers say has a conflict of interest.
Caruana Galizia's family said Muscat must resign rather than preside over "an assassination investigation that so far implicates three of his closest colleagues".
"This travesty of justice is shaming our country, ripping our society apart, and it is degrading us. It cannot continue any longer."
Family members and their supporters staged a vigil outside the government headquarters, where the cabinet decided at a meeting that ran into the early hours of Friday reject Fenech's request for immunity in return for testimony.
As one minister was driven away, one of Caruana Galizia's sons hurled fruit at his car and shouted obscenities.
Three men have been awaiting trial for setting the bomb that killed Caruana Galizia, but so far the authorities have failed to track down the person who hired them.
The case has moved quickly in recent weeks, since a middleman suspected of introducing the killers to the person who ordered the hit was pardoned in return for testimony. Within days, authorities had arrested Fenech.
COVER UP
The investigation focuses on Fenech, a businessman whose empire included property, retail, hospitality, gambling and energy companies. He handed the business reins to his brother a day before attempting to leave Malta on his yacht.
In a letter to the president, Fenech's lawyers said he was prepared to give information involving Schembri and two cabinet ministers - Tourism Minister Konrad Mizzi and Economy Minister Chris Cardona. Mizzi resigned on Tuesday and Cardona has suspended himself from his duties. All three deny wrongdoing.
In a separate case on Friday showing how the corruption allegations have closed in on the government, a court ordered Mizzi, Carduna and Finance Minister Edward Scicluna to face a criminal probe over the granting of a contract to run hospitals. The three all deny wrongdoing in that case.
ADVERTISEMENTMuscat has previously rebeffed calls to quit.
"I will not abdicate my responsibilities. Malta needs stable leadership and I will continue to take decisions in the interests of the country and will not protect anyone," he said.
Dunja Mijatovic, human rights commissioner for the Council of Europe, said she was "seriously concerned by recent allegations of political interference in the investigation" and called on Muscat to prevent the appearance of collusion.
Before she was killed, Caruana Galizia had revealed the existence of a secret offshore company called 17 Black. A Reuters investigation last year revealed Fenech was the owner of the company, named in emails as a vehicle to fund secret Panama companies owned by Schembri and Mizzi.
There is no evidence that money changed hands and Mizzi has said there are no links between him and Fenech's company. Cardona has also denied involvement.
ADVERTISEMENTOne of Fenech's companies formed part of a consortium which was awarded a government contract in 2015 to build a power station. Other partners in that consortium included SOCAR of Azerbeijan and Siemens <SIEGn.DE>.
Siemens and SOCAR have both denied their staff was involved in wrongdoing. Since Fenech's arrest, Siemens has said it tried to remove him from the board of the joint venture.
(Reporting by Chris Scicluna and Stephen Grey; Additional reporting by Francesco Guarascio; Writing by Peter Graff, Editing by Giulia Segreti, Crispian Balmer and Angus MacSwan)