Bond Commission report having ripple effect on the Yahapalana Government

BY GAGANI WEERAKOON-2018-01-21

President Maithripala Sirisena stated that he will resign from office after meting out the appropriate punishments to corrupt politicians. Some people ask the question as to when I will resign from the office of the President. I will leave the Presidency after giving the appropriate punishment to the corrupt politicians, he stated. The President was addressing a Sri Lanka Freedom Party public rally held in Seethawaka, Kosgama on 18 January.

After the Local Government elections on 10 February, a national movement against corruption will be launched, where we will join hands with all the politicians who love the motherland, irrespective of their political affiliations, the President further stated. He extended an invitation to all the citizens who love the country, including all the religious leaders and intellectuals, to join the initiative.

Addressing the gathering, the President further said that by no means could the work that has to be done for the betterment of the country and the nation, be neglected, adding that in order to progress on that journey with any measure of success, exemplary politicians should be created in the country.
In what appeared like a dig at President Sirisena's remark, on launching 'Operation Two' against corrupt politicians and that he would not resign from office without punishing all corrupt politicians, Chairman of Parliament watchdog committee, the Committee on Public Enterprises (COPE), Sunil Handunnetti called on the Head of the State to first show the results of Operation One.

He said that he, as the COPE Chairman or as a Parliamentarian representing the Janatha Vimukthi Peramuna (JVP), had no faith in the Attorney General (AG) or his Department with regard to taking legal action on the Bond Commission report, as they are yet to act on the COPE report on the same matter, even though it being referred to the AG 15 months ago.

He said even though both, President Sirisena and Prime Minister Ranil Wickremesinghe had attempted to project the view that they themselves had no involvement in the Bonds scam, the President however cannot, by any means, wash his hands off from being responsible for appointing Arjuna Mahendran as the Governor of the Central Bank of Sri Lanka (CBSL).

"President Sirisena speaks about an Operation Two against corruption. Before he moves to Operation Two, we would like to ask him whether he has taken action to recover the money which was lost to the State coffers from the culprits and whether a single person responsible for this has been properly dealt with. Without doing so, there is no point in boasting about an Operation Two or ensuring that culprits are sent to hell. Let King Yama (devil) take care of the operations in hell and you as the President take care of matters at hand under your purview," he said.

Handunnetti added that the Presidential Commission Report on the Treasury Bonds scam stated that the appointment of Mahendran to the post raised concerns and was questionable.

"When the Commission observes such, the President cannot completely evade responsibility, because it was he who made the appointment even though Premier Wickremesinghe nominated Mahendran for the post."

The COPE Chairman, referring to the special statement made by the Prime Minister said, "There cannot be anything more hilarious than the Prime Minister saying he will appoint a committee headed by Minister Tilak Marapana to investigate if any United National Party (UNP) member was involved in this Bonds scam. Marapana was appointed to the Parliament through the National List and given a Ministerial portfolio by Wickremesinghe. He was earlier compelled to resign from his Ministerial portfolio due to his involvement in the Avant Garde case. In one of the 34 reports handed over by the Presidential Commission of Inquiry to Investigate and Inquire into Serious Acts of Fraud, Corruption and Abuse of Power, State Resources and Privileges, Marapana has been implicated with involvement in the Avant Garde issue. On the other hand, the attorney of Perpetual Treasuries Limited associate Arjun Aloysius is his brother Gamini Marapana. I know what the UNP did to sabotage the COPE investigations into the Bonds scam.

They did everything possible to stop it or derail it. They challenged the Auditor General and even incorporated footnotes. Their conduct was so bad that I had to walk out of the proceedings in protest," Handunnetti further said.

The Commission on the other hand, has dedicated an entire section to evaluate Prime Minister's role in matters relevant to their Mandate in the Executive Summary of the report.

"Arjuna Mahendran was appointed the Governor of the CBSL, on 23 January, 2015 and, thus, the appointment of Mahendran was made before the period of our Mandate commenced and we have no jurisdiction to determine the merits or demerits of that appointment.

However, in view of the circumstances referred to in Chapter 26, we decided to briefly look at these issues, though we will not, in view of the confines of our Mandate, venture to arrive at any determination on these issues.

When Mahendran was appointed as Governor of the CBSL, he had: a "hands on" knowledge of the CBSL after having worked at the CBSL for a considerable period of time; working experience in the field of Fiscal Policy at the Ministry of Finance; a long and successful career in International Banking thereafter, where he held high level management positions and gained in-depth exposure to and experience of International Finance; knowledge of international markets which Sri Lanka needs to participate in; and also experience as a Chairman of the Board of Investment of Sri Lanka.

In this connection, we also note that, from 2004 onwards, the Governor of the CBSL has been a person appointed to that post from outside the cadre of officers of the CBSL and have been persons with no experience in 'Central Banking'. In fact, to the best of our knowledge, Mahendran is the only Governor during the period from 2004 onwards who has had extensive experience in 'Banking'.
Next, although we believe Mahendran was a Sri Lankan citizen at birth, he has assumed citizenship of the Republic of Singapore at some point before 2015. Thus, at the time he was appointed the Governor of the CBSL, Mahendran was not a citizen of Sri Lanka. He had not assumed citizenship of Sri Lanka after 2015.

The provisions of the Monetary Law Act, the Constitution and the law do not require that the Governor of the CBSL must be a citizen of Sri Lanka.

It is also clear that, Mahendran, who, we believe was a Sri Lankan citizen at birth and, further, had his Primary and Secondary Education in Sri Lanka and appeared to have been well qualified to handle the duties of a Governor of the CBSL, has deep roots in Sri Lanka and had had continuous connections with Sri Lanka despite working abroad for many years and assuming citizenship of the Republic of Singapore, at some point in time.

In these circumstances, the question of whether or not the fact that, Mahendran was not a citizen of Sri Lanka precluded him from being appointed the Governor of the CBSL was not a 'Question of Law'. Instead, it was a 'value judgment' which had to be made by those who considered the wisdom of appointing Mahendran, who was not a citizen of Sri Lanka, as the Governor of the CBSL.

At the time Mahendran was appointed the Governor of the CBSL, the Prime Minister had been aware of the potential for a conflict of interest and has directed that, Mahendran must ensure that, Arjun Aloysius resigns from all positions he held in Perpetual Treasuries Ltd and that, Aloysius must not have any connection with the operations of Perpetual Treasuries Ltd. Further, the Prime Minister has recommended that, Aloysius divests himself of any shareholdings in Perpetual Treasuries Ltd. Subsequently,Aloysius has resigned from all positions he held in Perpetual Treasuries Ltd.
Mahendran has repeatedly assured the Prime Minister that, Aloysius "would not under any circumstances play any role in the business activities of Perpetual Treasuries Ltd."

It appears that, the Prime Minister has relied on those assurances given by Mahendran.

We consider that, the confidence which the Prime Minister states he placed in the assurances given to him by Mahendran, was misplaced. We are of the view that, the more prudent course of action would have been for the Prime Minister to have independently verified whether Mahendran was, in fact, honouring the assurances he gave the Prime Minister. We regret that, the Prime Minister did not take that course of action.

Next, when the results of the Treasury Bond Auction held on 27 February, 2015 became known and there were several allegations that, Mahendran had interfered in the auction, to benefit Perpetual Treasuries Ltd, the Prime Minister appointed the Three-member 'Pitipana Committee' to inquire into and report on the matter.

We are of the view that the members of the 'Pitipana Committee' (comprising three senior and reputed Attorneys-at-Law) did not possess technical knowledge or practical knowledge in the considerably complex arena of Government Securities and Public Debt.

Although, we see that, the Prime Minister has sought to supplement that lack of expertise by ensuring that, the members of the "Pitipana Committee" had the assistance of Dr. W.A. Wijewardena (a former Deputy Governor of the CBSL) with regard to the technical aspects of the matter being inquired into, we consider that, a more effective inquiry could have been done if the "Pitipana Committee" also had members who had knowledge and experience in the technical and practical aspects of the matter being inquired into.

Next, with regard to the Statement made in Parliament by the Prime Minister on 17 March, 2017, in which he states, inter alia, that, Mahendran had not interfered in the Treasury Bond Auction of 27 February, 2015, we have held that, the evidence establishes that, Mahendran and Deputy Governor Samarasiri, deliberately and mala fide, misled the Hon. Prime Minister and suppressed material facts and misrepresented the factual position when they reported the events relating to the Treasury Bond Auction held on 27 February, 2015, to the Prime Minister and also when they submitted a Briefing Note to the Prime Minister, with regard to the events of that Auction.

While we do not, for even a moment, presume to make any pronouncement on events that transpired in Parliament, we consider that, the Prime Minister would have been better advised, if he had independently verified what had happened at the CBSL on 27 February, 2015, before making any statement, instead of relying on the Briefing Note and Report submitted to him by Mahendran and Deputy Governor, Samarasiri.

We note that, the Report of the "Pitipana Committee" did not determine that, there was any impropriety in the conduct of the Treasury Bond Auction held on 27 February, 2015 and that, consequently, Mahendran (who had been on leave pending the completion of the Inquiry of the "Pitipana Committee" and the submission of its Report) resumed duties as Governor of the CBSL when there was no finding of impropriety.

In any event, soon thereafter, Parliament had resolved to inquire into the Treasury Bond Auction held on 27 February, 2015, through the COPE of the Seventh Parliament and, later, through the COPE of the Eighth Parliament. That process of Inquiry by Parliament was completed only in October, 2016.
The Prime Minister has stated that, since the matter was in the hands of the Parliament, he could not have taken further steps in that regard.

We consider that, the position may have been different if the Committee or other body which carried out this Inquiry had the benefit of members who had knowledge and experience in the technical and practical aspects of the matter being inquired into.

In the meantime, since no finding of impropriety or bad faith had been made against him, Mahendran continued to serve as Governor of the CBSL until his term ended on 30 June, 2016 and he was not re-appointed.

Meanwhile, Anti-corruption activists are now raising concerns as to whether legal action could be taken against the infamous Perpetual Treasuries Limited, to recover the losses the Government incurred as a result of selling Treasury Bonds between 2015 February to March 2016.

These Watchdog groups claim that the report of the Presidential Commission, that investigated the alleged Bonds scam, which was sent to Parliament on Wednesday (17), lacks certain information contained in the comprehensive report.

What was released to the public, they point out, was only the Executive Summary. The entire report comprising over 9,000 pages in three volumes has yet to be sent to the Speaker, official sources said.

What the Speaker has is only Volume One, they added.

The activists are also urging President Maithripala Sirisena to appoint the second Presidential Commission immediately, which would be effective to investigate and recover the profits made by PTL from 1 April 2016 to 31 March 2017 too.

President of the Voice Against Corruption (VAC) Wasantha Samarasinghe said they have doubts about recovering the losses the Government incurred as a result of the issuances of the controversial Treasury Bonds, as the Presidential Commission was only mandated to investigate auctions that took place between February 2015 and 31 March 2016.

"The profit earned by the Perpetual Treasuries from February 2015 to March 2017 amounts to a total of Rs 18,224 million, whereas the PCoI Report, has only cut down the loss to Rs 11,937 million. That is because the Commission was not mandated to investigate Bond auctions held after March 2016.
Whatever the profit made by PTL is a loss to the Government. We have doubts that someone would be able to challenge the Commission's Report in Court once the Government initiates legal action against the PTL and Aloysius," he said.

Samarasinghe noted that Mahendran functioned as the Governor of the Central Bank till July 2016 and the CBSL suspended PTL as a primary dealer only in July 2017.

"The profit made by PTL for the six-month period, from April to September 2016 alone, is Rs 6,813 million. There is a question whether this amount falls under the mandate of this Commission or not. By March 2017 PTL has recorded a total profit of Rs 18,225 million. We urge the President to either extend this Commission as the second one or appoint a new Commission to recover the total amount, lost by the Government up to March 2017, from Aloysius and PTL. It should not be kept for the next Government," he added.