Bond Scams: Trade Unions To Save Workers’ Savings
Lucien Rajakarunanayake
The continuing political altercation about the forensic audit on Treasury Bonds and Central Bank activity, has largely ignored the related situation of the Employees Provident Fund (EPF), the largest Social Security Scheme in the country, and the source of relief for millions who have no pension facilities on retirement from work.
The Annual Report for 2016, the latest on the Internet, states the total assets of the EPF increased by 11% during 2016 from Rs. 1,668 bn in 2015; and the total member accounts went up from 16.9 mn to 17.3 mn in the same year. This is certainly good reading, but the facts and figures emerging from the Forensic Audit reports, as revealed by Members of Parliament who now have access to them, show a picture that raises much concern
The EPF was established in 1958 to serve the rising call for social security in retirement by employees in the non-state sector, as government service employees had a pension scheme. The call for such a facility came very strongly from the left-wing trade unions of the time, and was part of the wider call for security that came from the time that worker organizations began in the 1890s and later moved to trade unions.
The trade union movement is largely divided politically today, but the facts of the Treasury Bond Scams of 2016, and the prior realities seen in the forensic audits, shows the need for a non-political unity by the trade unions to prevent future threats and losses the EPF would face if the current politico-governance trend continues.
The nearly 20 mn or more “Member Accounts” of the EPF relate to the vast majority of non-government employees of this country. They are employees of the Private Sector – big and small businesses, State Corporations and Statutory Boards, the plantations, and new economic & trade sectors. This is the largest employee sector in the country that requires retirement securities, housing loan facilities, and other social and personal assistance the EPF provides. While the politicians go on with their arguments and wrangling about the recent and past Bond Scams, Stock Market investments, and other use of EPF funds, it is becoming a necessity of the trade unions to come forward against this corrupt politics, governance and administration that poses a major threat to the EPF.
The UNP-led Ranil/Mahendran Bond Scam certainly misused the EPF in its record of perpetual fraud. The Perpetual Treasuries in the Bond bidding made profits by getting the EPF to invest with them, while they later made more profits by investing inTreasury Bonds. The Government authorities associated with these Bond transactions also influenced, if not directed the EPF towards making these questionable investments. The EPF clearly lost.
The EPF takes pride in its ability to assure financial stability to employees in the ‘winter of life’ and the rewards it provides to employees in being participants in the economic growth of the country. That all sounds very good. But the evidence emerging from the Presidential Commision of Inquiry (PCoI) into the Bond Scam, and the Forensic Audits that were conducted on the recommendations of the PCoI, show major losses incurred by the EPF in Treasury Bond and other investments in the Share Market. These are not seen in the annual reports of the EPF that come from the Central Bank, which formally manages the Fund. These reports show the annual profits, but do not reveal the losses that have incurred and covered by the overall profits, which remain a loss to EPF members.
The question of the EPF investing in Treasury Bonds and the Stock Market has bothered those concerned about the security and people’s profitability through this Fund. There are valid concerns about the financial status and security of some of the companies in which investments have been made. This is a reality of EPF investments in the Bond Scam corruption (2015 – 2017) and in decades before this. These are losses that are not accounted for, and not even discussed by the managers of the EPF.
Evidence before the PCoI said that internal investigations by the Central Bank did show considerable losses faced by the EPF. The losses suffered by the EPF as seen in the Forensic Audits raises questions about the profitability of EPF investments in the secondary market, and more importantly the directions given to the EPF for such investments. These figures were known before the forensic audits, which show devastating losses suffered by the EPF, amounting to Rs.3000 million, all of which is the savings of the people.
These losses by the EPF in the 2016-17 Bond Scam period show that such losses would have contributed to the overall profits of Perpetual Treasuries and helped in the money laundering exercises made through questionable investments.
Two reports of the Committee on Public Enterprises (COPE) of Parliament have found major concerns about the conduct of the Treasury Bond exercises. These were Committees chaired by two MPs respected for their interest in proper procedure and against the trends of corruption – Mr. DEW Gunesekera (CP) and Mr. Sunil Handunneththi (JVP). We also saw several UNP members of the second COPE inquiry place footnotes at its report seeking to belittle the findings and revelations of the report, showing their lack of interest in the profitability of the EPF, and their interests in the profits of those who manipulate EPF monies for individual or corporate profits, and handling of the market.
The dangers to the funds of the people in the EPF were seen when the UNP-SLFP Yahapalana Government of Maithripala Sirisena and Ranil Wickremesinghe moved the control of the Central Bank (which overall manages the EPF) to the Office of the Prime Minister from the Office of the Finance Ministry. The instructions given to State Banks by the then Finance Minister Ravi Karunanayake not to bid at certain Treasury Bond auctions, and thus help Perpetual Treasuries, shows how manipulative politics can adversely affect the EPF. It is clearly seen that the Central Bank under Arjuna Mahendran was involved in leading to the losses suffered by the EPF by the contrary and questionable directions given or encouraged in EPF investments at the time.
The Forensic Audit reports on the Central Bank Treasury Bill, Treasury Bond, and share market transactions in the 2015 to 2017 period, and such activities in a decade before that, under Governors of the Central Bank, certainly points to the need for a total rethink and overall reform of the investment guidelines and policies of the EPF. The problem should not be with the name of the Governor but their policies. This does raise valid questions about the relationship of Central Bank Governors with the directors and key operators of the few approved investors in Treasury Bonds. Family bondage, as seen in the Perpetual dealings with Governors Mahendran and Cabraal, certainly point to the need for further investigations into their directives and policy approaches. These will also show the necessity to bring in new legislation and regulations on how the EPF investment policies are worked out, and prevent political and/or family interests in the carrying out of such policies.
The Forensic Audit reports on the Central Bank Treasury Bill, Treasury Bond, and share market transactions in the 2015 to 2017 period, and such activities in a decade before that, under Governors of the Central Bank, certainly points to the need for a total rethink and overall reform of the investment guidelines and policies of the EPF. The problem should not be with the name of the Governor but their policies. This does raise valid questions about the relationship of Central Bank Governors with the directors and key operators of the few approved investors in Treasury Bonds. Family bondage, as seen in the Perpetual dealings with Governors Mahendran and Cabraal, certainly point to the need for further investigations into their directives and policy approaches. These will also show the necessity to bring in new legislation and regulations on how the EPF investment policies are worked out, and prevent political and/or family interests in the carrying out of such policies.
There should be thorough investigations on the reasons and background in which Central Bank Governor Nivard Cabraal gave instructions to the EPF on investing in the Stock Market during the Mahinda Rajapaksa presidency, when he was also Finance Minister. Why was the EPF prevented from obtaining a higher of .05 percent profit from investing in the Primary Market, and instead officially directed to invest in the Secondary Market and the Stock Exchange. The .05 percent profit may seem very small, but it is not so when it involves many millions of rupees. It is also necessary to probe as to how employees of the EPF invested funds of the Fund in the secondary market, and then got profits by the sale of such stocks.
