By Chandani Kirinde
The Commission of Inquiry into the Central Bank Treasury Bond issue has come down hard on the conduct of the Central Bank’s former Governor Arjuna Mahendran, accusing him of misleading the Prime Minister on the bond sale that took place in February 2015, as well as interfering with the decision-making processes at the CB’s Public Debt Dept (PDD).
“Mr Mahendran knowingly acted improperly and wrongfully, and interfered in the decision-making processes at the PDD and thereafter, at the Tender Board, and directed that, bids to the value of Rs. 10.058 billion be accepted at the TB Auction held on Feb. 27, 2015. With regard to the statement made in Parliament by the Prime Minister, on Mar. 17, 2017, wherein he states, inter alia, that, Mr. Mahendran had not interfered in the TB Auction, we have held that, the evidence establishes that, Mr. Mahendran and Deputy Governor Samarasiri, deliberately and mala fide, misled the PM and suppressed material facts, and misrepresented the factual position, when they reported the events relating to the TB Auction to the PM, and also when they submitted a Briefing Note to him, with regard to the events of that Auction,” the CoI said in its findings.
The Report of the CoI containing 1,153 pages was made public this week by the President‘s Office. Copies of the Report were also handed over to Speaker Karu Jayasuriya. A date to debate on the findings of the CoI will be decided when Party leaders meet on Monday (22).
The CoI said there was a clear conflict of interest due to the former Governor’s relationship with his son-in-law Arjun Aloysius, and the latter’s close links to Primary Dealer Perpetual Treasuries Ltd (PTL) who benefited from the TB auction.
“There is no doubt Mr. Mahendran full well recognized that, there was potential for a grave conflict of interest arising from the fact that he was the Governor of the CBSL and his son-in-law was closely associated with the PTL. Having admitted there was a potential for conflict of interest, Mr Mahendran went on to state he was confident he could “handle it” and avoid a conflict of interest arising by performing his duties as Governor “in a transparent manner”, and by keeping any decisions affecting PTL “at arm’s length,” the Report said.
Mr. Mahendran had also, repeatedly, assured the PM he would ensure Mr Aloysius severed all connections with PTL. “However, Mr. Mahendran failed to honour his word. Instead, Mr Aloysius continued to be closely involved in the day-to-day operations of PTL, was a key decision-maker at PTL and was in control of PTL. Mr Aloysius also did not dispose of his beneficial ownership of PTL.”
The CoI said Mr. Mahendran had to be aware of the role Mr. Aloysius continued to play at PTL. “Although Mr. Mahendran admitted there was a potential for a conflict of interest, there is no record of Mr Mahendran having formally advised the Monetary Board that, there was a potential for a conflict of interest arising from the fact that, his son-in-law was closely associated with the Primary Dealer. There is also no record of Mr. Mahendran having recused himself from decisions which affected PTL.”
It added that, even though Mr. Mahendran stated he was confident of avoiding a conflict of interest, there were several instances where Mr Mahendran had acted in a manner which benefited PTL.
The CoI Report also said Mr Mahendran had repeatedly assured the PM that, Mr. Aloysius “Would not, under any circumstances, play any role in the business activities of PTL.” “It appears that, the PM has relied on those assurances given by Mr. Mahendran. We consider that, the confidence which the PM states he placed in the assurances given to him by Mr. Mahendran, was misplaced. We are of the view, the more prudent course of action would have been for the PM to have independently verified whether Mr. Mahendran was, in fact, honouring the assurances he gave him. We regret that, the PM did not take that course of action,” the Report added.
The CoI also said it is reasonable to conclude that, Mr. Mahendran directed that Bids to the value of Rs 10.058 billion be accepted at the TB Auction held on Feb.27, 2015, for the improper and wrongful collateral purpose of enabling PTL to obtain a high value of TBs at that Auction, at low Bid Prices and high Yield Rates.
The CoI, in conclusion, held the view that, the Attorney General (AG) and other appropriate authorities consider whether PTL is liable for prosecution for an offence, in terms of the registered Stock and Securities Ordinance and, in the event of a conviction being entered by a learned Magistrate, after Summary Trial, PTL could be held liable to a fine equivalent to twice the value of the aforesaid sum of Rs. 8,529,964,495.61 or, in such other sum as the Court may determine.
The CoI said that, evidence placed before it establishes that Arjun Aloysius and Kasun Palisena (CEO of PTL) were both parties to and directly responsible for the aforesaid violation and breach of the Code of Conduct for Primary Dealers, by PTL and therefore, fall within the scope of the description “every person who, at the time of the commission of the offence, was a director or an officer of the body corporate, shall be deemed to be guilty of that offence, in Section 56B of the Registered Stock and Securities Ordinance No.7 of 1937.
The CoI also said, the AG and other appropriate authorities should consider whether these acts amount to criminal offences under the Penal Code and, if considered so, institute appropriate prosecutions against the appropriate persons.
The CoI comprised Supreme Court Judges Justice K.T. Chitrasiri (Chairman), Justice Prasanna Jayawardena P.C. and Retired Deputy Auditor General Kandasamy Veluppillai.
The CoI was appointed on Jan.27, 2017, by President Maithripala Sirisena, to investigate, inquire into and report on the Issuance of TBs during the period Feb.1, 2015 to Mar.31, 2016.