The report of the Sri Lankan Presidential Commission which probed a massive illegality in the issue of Treasury Bonds by the Central Bank of Sri Lanka (CBSL) in 2015, serves the political interest of President Maithripala Sirisena.
The report on the multi billion rupee scam, the main contents of which were revealed to the country by Sirisena on Wednesday, helps him keep the coalition with the United National Party (UNP) going despite sharp differences and moves within to scuttle it.
By only mildly ticking off UNP leader and Prime Minister Ranil Wickremesinghe for going by the false assurances given by the erring bank Governor Arjuna Mahendran, the report helps Sirisena safeguard his relations with his Prime Minister, who heads the single largest party in parliament.
By saying that similar scams had taken place when Mahinda Rajapaksa was President, and his man Ajith Cabraal was CBSL Governor, and that the bonds issued between 2008 and 2015 should also be investigated and legal action taken, the report helps put Joint Opposition leader and carping critic Rajapaksa and his henchmen in the dock.
With Sirisena saying that he has asked the Attorney General to begin the legal process, the Rajapaksa camp will have cause to worry in the run up to the crucial local bodies elections in February.
President Sirisena, who is now portraying himself as a crusader against corruption and thereby against the corrupt former regime headed by Rajapaksa, has declared that he will go by the commission’s recommendations to reform the monetary system and also the Central Bank.
The President’s faction of the Sri Lanka Freedom Party (SLFP), which has been losing public support for not living up to its 2015 election promises, is expected to use the anti-corruption plank provided by the bond scam report to weaken the Rajapaksa camp ahead of the February elections.
The report has recommended legal action against former Governor Arjuna Mahendran and his son in law Arjun Aloysius, head of Perpetual Treasuries (PTL), a primary dealer. The only politician singled out for punishment is former Finance Minister Ravi Karunanayake, though the CBSL was under the purview of the Prime Minister and not the Finance Minister.
In late February 2015, soon after Sirisena and Wickremesinghe came to power replacing the Mahinda Rajapaksa regime, the Central Bank suddenly decided to raise LKR 10 billion from a sale of 30-year government bonds with a coupon (fixed interest rate) of 12.5% , when it had initially advertised an offer of LKR 1 billion with a fixed interest rate of 9.5%.
Despite the sudden change in the terms, Perpetual Treasuries Limited, a primary dealer owned by Arjun Aloysius, who is also the son-in-law of then Central Bank Governor Arjuna Mahendran, and its associate Bank of Ceylon, took 73.5% at an an interest rate of 11.5%. It was suspected that Aloysius had inside information about the hike and was prepared for it while others were in the dark.
Arjuna Mahendran, a Sri Lankan-Singaporean banker, had been chosen for the top banking job by Wickremesinghe. But under a cloud over the scam, Mahendran resigned and was replaced by Dr.Indrajit Coomaraswamy, said to be a nominee of President Sirisena.
Sirisena’s Sri Lanka Freedom Party (SLFP) and Wickremesinghe’s United National Party (UNP) were sharply divided on the bond issue though they were both part of the National Unity government.
Early in 2017, Sirisena felt that the SLFP would lose political credibility if it did not clear itself of the charge that it was also protecting the wrong doers. Sirisena then asked the Prime Minister (under whom the Central Bank functioned) to clear his name. Instead of making his submissions in writing Wickremesinghe decided to appear before the commission and answer all questions.
Extent of Scam
The bond commission found that the illegal bond issue made to benefit the PTL headed by Arjun Aloysius , CBSL Governor Mahendran’s son-in-law, had caused a total loss of LKR 11,145 million. Out of that LKR 8529 million had been from the Employees Provident Fund (EPF), the Mahapola Scholarship Fund, National Savings Bank and Sri Lanka Insurance Corporation. The balance was from private institutions.
Hence the loss to the public sector – EPF, Mahapola, NDB and SLIC – was over Rs 8.5 billion. Perpetual Treasuries Limited (PTL), the primary dealer and the kingpin of the scam, had made a profit of LKR 11,145 million within five months, the report found.
“In the auction held on 27th February 2015 alone, Perpetual Treasuries Limited has made a minimum profit not less than LKR 688 million. The Commission is of the opinion that further investigations could reveal that this amount could even be more than that. As revealed during the investigations, PTL had made an undue profit of Rs 11,145 millions in the secondary market. In this, EPF and other government institutions had lost more than LKR 8,524 million or LKR 8.5 billion,” the report said.
The report stated that PTL had earned profits through means that are not legal, with the involvement of Governor Arjuna Mahendran, CBSL officials and some external parties.
Prime Minister’s Role
The report said that Prime Minister Wickremesinghe had erred in going by the information and assurances given by the then Governor, Mahendran, on the question of “conflict of interest” in regard to his son in law and primary dealer Arjun Aloysius.
“The Commission is of the opinion that the Prime Minister made his statement in parliament regarding the appointment of Mahendran believing in the facts presented by Mahendran and Samarasiri, especially, the promises made by Mahendran. The report also says that the Prime Minister should not have done that. The Commission further stated that these facts were before the parliamentary Committee on Public Enterprises (COPE) and the Prime Minister had not stated these, because of that he had not taken proper action against Mahendran,” President Sirisena quoted the report as saying.
When Wickremesinghe testified before the commission, he revealed that in January 2015, he was told that Aloysius would be resigning from PTL and that he was going to spend his time developing the Mendis distilleries business.
“That was all I knew. Other than that, I didn’t know his affairs,” the Prime Minister had said. “I had no information that he (Mahendran) in fact deliberately misled me,” he added.
After the matter went to parliament, he had left it to parliament to proceed further in the matter, the Prime Minister said. Wickremesinghe added that the conflict of interest issue had been there before too, referring to former Governor Ajith Nivard Cabraal’s sister’s alleged Directorship in PTL.
Spineless CBSL Officials
The report stated that senior officials of the CBSL were “inactive” before Arjuna Mahendran. Bad decisions were made because these officers had become inactive.
“Mahendran had made interference into Treasury bond auctions through a process of incorrect and unconventional methods and he was responsible for providing internal information to outsiders. Such conduct has allowed one party to obtain undue monetary gains,” the report states.
Former Finance Minister’s Role
The Commission’s report refers to the allegation against former Minister of Finance Ravi Karunanayake regarding the payment of rent for the ‘Penthouse’ apartment by Walt and Raw Company owned and controlled by the Aloysius family.
“Karunanayake was responsible for that and recommended that the government should to take necessary action against Ravi Karunanayake under the section of bribery and corruption, and further legal action should be taken under the penal code for giving false evidence at the Commission,” the President said.
Misuse of Employment Provident Fund
The Commission mentioned the misuse of funds of the Employees Provident Fund (EPF), and stated that a forensic audit examination should be conducted to find out the amount of losses of EPF. The people responsible for these frauds have been identified and the Commission recommends legal action against them ,the President said.
The report recommends that, the legal action be taken against relevant persons and officials who are responsible for the fraud including Perpetual Treasuries Limited, Arjuna Aloysius and Kasun Palihena. It also recommends action to recover lost funds. Accordingly, the government is in consultation with the legal authorities ,the President said.
Probing Past Illegalities
The Commission pointed out that similar scams had happened even in 2008-2015 (when Joint Opposition leader Mahinda Rajapaksa was in power). It recommended that the CBSL should first conduct a forensic audit with regard to the alleged fraud and corrupt practices from 2008 onwards, and based on such findings, legal actions should be taken.
The present report dealt only with the events in 2015 and 2016, but funds of the EPF were lost mostly between 2008 and 2015 ,the President said.
“I have already submitted this report to Attorney-General and the Commission recommends that the criminal and civil court action must be taken through the Criminal Investigations Department and the Commission to Investigate Allegations of Bribery or Corruption,” he said .
Considering the recommendations of the Commission, the government is to make new Monetary Law Act to avoid such malpractices in the CBSL in future. “The existing legal provisions are old and need replacement,” President Sirisena said.
The commission also recommended that the Registered Share Market Act must be replaced by a new legal act. Members of Monetary Board and Central Bank Governor must be appointed by the Constitutional Council in concurrence of the members. The regulations must be amended accordingly ,the report said.
The report recommended that there should be highest levels of supervision over the Public Debt Department.
“As auditing at the Central Bank has not been conducted in a proper manner, the Commission recommends that the Audit Department must be reorganized completely. A Legal Department must be established in the Central Bank and ensure that the Legal Department functions efficiently.”
In a broader recommendation ,the commission stated that the Attorney General and the Commission to investigate Bribery or Corruption must take legal actions to implement the recommendations of the Commission.
As regards recovering money from fraudsters, the Commission recommended that parliament legislate for speedy recovery. The commission had also said that all the expenditure occurred for the Commission must be recovered from Perpetual Treasuries Limited.
“We agree to that recommendation,” the President said.
“I have already submitted a copy of the Commission Report to the Attorney-General and he will identify the persons against whom the legal action must be taken and initiate necessary criminal or civil legal action to implement the recommendations of the Commission “, the President stated.
Reform of CBSL
The confidentiality, astuteness and auditing methods of the Central Bank of Sri Lanka were extremely weak, the report said. There were no tele-recording systems, electronic monitoring or even CCTVs. The current Governor of the Central bank has already taken steps to remove weaknesses and rectify these errors.
“The Governor has informed that he has suspended some employees of the Central Bank after their malpractices were revealed in the investigations in the Commission and disciplinary actions are being taken against those officers. I expect the Governor to make a statement in the near future regarding the shortcomings in the Central bank as revealed in the commission’s report,” the President said.
“I have informed my Secretary to hold monthly review meetings with the heads of relevant departments and institutions to examine the progress in implementations of the recommendations of the commission to take legal steps against those individuals and take other required steps in an efficient and speedy manner,” the President said.
“I would like to specifically state here that I would not hesitate to take steps to recover the loss of Rs 11,145 million to the government and take legal action against the offenders and punish them,” he assured.
The President said that his approach will be non-partisan and alleged wrong doers from both political parties will be investigated.