Bond scam steps into 4th anniversary today

27 February 2015 was a D-day for the Central Bank of Sri Lanka, with several unprecedented events taking place connected to the Treasury bond issue of Rs. 1 billion advertised by the bank. This episode has now gone down in the history of this country with full details available in the public domain. The matter remains in a questionably doubtful state regarding its impending outcome. 

This is a recreation of the past events of the issue and with the advantage of hindsight a speculation of what we could possibly foresee in the context of what was mockingly obvious in hindsight.

We have seen the outcome of the special Committee of Inquiry appointed by the Prime Minister as well as the then Minister in charge of the CBSL, to investigate about the matter in the wake of the public hue and cry immediately after the bond issue on 27 February. 

The composition of this Committee and its findings reported to Parliament are now known. The matter could not be put to rest because the report inter-alia stated that there should be an investigation into how Perpetual Treasuries secured 50% of the bids accepted at the TB auction held on 27 February.

On 20 May 2015, the Speaker of Parliament directed that the COPE should carry out a full investigation into the issuance of a 30-year bond taking into consideration the Motion earlier submitted to Parliament by several MPs and included in the Order Paper on 8 May 2015. 

COPE accordingly appointed a special sub-committee of 13 members chaired by MP D.E.W. Gunasekara. Before COPE concluded its investigations several MPs requested that a report of the special COPE be submitted and in view of this the Speaker requested an Interim Report. 

Gunasekara, the Chairman, insisted that further inquiries were necessary before a complete report could be prepared. But COPE was unable to prepare even this Interim Report due to disagreement among the members of the sub-committee. The seventh Parliament was dissolved on 26 July 2015.

Public outcry on the subject was so demanding that the new Parliament had to appoint a special COPE committee to investigate and report. From the information subsequently available it is evident that there were many quizzical things happening while the COPE inquiry was proceeding. 

A list marked C352 prepared by AG’s Department officials using data extracted from the mobile phone used by Arjun Aloysius and publicly available information with regard to the telephone numbers used by the members of COPE submitted to the Presidential Commission of Inquiry revealed the following:

Members of the COPE of the eighth Parliament during the period from 6 May 2016 to 28 October 2016 (when the inquiry conducted by COPE was underway) have had communications with Arjun Aloysius, one of the suspects in the case.

 

i. Sujeewa Senasinghe MP (appoi-nted to the COPE on 7 July 2016)

Former CB Governor Arjuna Mahendran

Arjun Aloysius

Former Finance Minister Ravi Karunanayake

Incoming telephone calls – 36 

Outgoing telephone calls – 26 

ii. Harshana Rajakaruna, MP

Incoming telephone calls – 13

Outgoing telephone calls – 10

iii. Hector Appuhamy, MP

Incoming telephone calls – 13

Outgoing telephone calls – 10

iv. Dayasiri Jayasekera, MP

Incoming telephone calls – 1

Outgoing telephone calls – 1

v. Ajith Perera, MP

Incoming telephone calls – 1

Outgoing telephone calls – 1

 

We recall the Footnotes to the COPE report made by some members of the COPE belonging to the UNP which created discussions in the media and elsewhere and became sensational news in the public domain. However in the final report there was agreement among all members of the COPE, viz.:

“According to evidence before COPE which are likely to cause reasonable suspicion that the former Governor of the Central Bank, Arjuna Mahendran, has made an intervention and influenced bond issue transactions on 27 February.”

“That Perpetual Treasuries out of the primary dealers has made enormous financial dividends through the bond transactions that have taken place during that period.” 

The COPE report emphasised that Parliament should directly intervene to,

“The loss incurred by the Government should be recovered from those persons or institutions and necessary legal action should be initiated against them.”

“Parliament should ensure that the recommended punishments and orders are implemented to the letter and do the necessary follow up.” This report unfortunately could not be discussed by the Parliament because of objections raised by MP Sumanthiran that there were no Sinhala and Tamil translations before the Parliament! To date the matter lies as it is and the noble recommendations of the COPE also remain jacketed in darkness!

The legal process, however, started its own unavoidable course, but now stands choked due to the principal actor absconding, now in ambush far away from the reach of anyone disappointing the COPE sub-committee which contemplated serious action.

Is this the end of the road for the bond scam? Many farcical events that we witnessed keep haunting our memories:

• Statement of the Prime Minister of Sri Lanka made in Parliament on 17 March 2015, even before his hurriedly appointed three-man Committee of Inquiry;
• The special ministerial meeting of two Cabinet ministers along with the advisor to the PM, Malik Samarawickrama, held at the CBSL premises with Governor Mahendran on the previous day of the bond auction to establish the need for Rs. 15 billion to pay contractors on account of road construction work done over and above the amount the Treasury requested from the CBSL to be raised;
• The engagements and involvements of Governor Mahendran to foster and commit a bigger fraud on 29 and 31 March 2016 running to much bigger amounts while the investigations on the first scam were proceeding; 
• Efforts taken by persons in authority to reappoint Mahendran as the Governor at the end of his first term after all these incidents;
• Continuing to nurse Mahendran in higher echelons of the Government as an advisor, plenipotentiary, emissary, etc. after he was unceremoniously dethroned from the CBSL;
• People responsible for appointing him made no hum about the fugitive Mahendran keeping away from the arm of the law in callous disregard of the dignity becoming of a person who held such a high position in the country;
• Attempts being made to change the laws that are applicable to impose punishment to such crimes overlooking the specific references made to the relevant sections in the Act by the COI.
  
   

It is also pertinent to review some of the theatrical occurrences during the period after the exposures related to the bond scam:

 

• A member of the COPE published a book exonerating Mahendran;
• The PM was given a questionnaire in advance to prepare his answers before his evidence at the Bond Commission – question No. 20: “During the course of your statement to Parliament on 17 March 2015, you have also stated that the allegation that Mr. Mahendran interfered in the decision of the Tender Board was factually incorrect.” The COI asked, what his source of information for him to make this statement? His reply was that it was based on the information provided by Governor Mahendran and chairman of the Tender Board Samarasiri! Doesn’t this remind us of the Sinhala idiom “horage ammagen pena ahanawa vagei?”;
• Mahendran confirmed in his evidence that PM instructed him to stop the practice of accepting private placements of Treasury bonds on 24 February 2015. Eventually it is this instruction of PM that led the Governor to accept any and all offers irrespective of important monetary and fiscal considerations without even referring the policy change to the Monetary Board!;
• Ravi Karunanayake as the Minister of Foreign Affairs stating as follows in his evidence before the COI: That he did not know who the owner of the apartment where he lived until he came to occupation! The owner in her evidence affirmed that the floor area was 4,000 Sq.Ft. But the Minister in his evidence said it was only 700 Sq.Ft.! A company called Walt and Row Associates was paying Rs. 1.4 million a month as the rental for this apartment at Monarch Residencies. But the Minister maintained that his family was reimbursing the amount to this company. Arjuna Mahendran, of Perpetual Treasuries Ltd., however, was a Director of Walt and Row Associates. When shown a text message from the inbox of Arjuna Aloysius’s mobile phone, which read as “Dear honourable Minister Ravi,” he said he does not understand this SMS. Hilarious indeed!
  
   

It is important to recapitulate some of the specific areas that the COI was required to investigate, inquire into and report on, in particular the following:

 

• Whether there has been any malpractice or irregularity, or non-compliance with or disregard of the proper procedures applicable to, management, administration and conduct of affairs in relation to “decision making processes that preceded the issuance of such Treasury bonds…”
• Whether proper procedures and adequate safeguards have been adopted to ensure that the issuance of Treasury bonds resulted in obtaining the optimum price or benefit for the Government
• The big question before us is whether giving of a specific directive by a person in authority that yields to a calamity is not an offence? In both bond issues of February 2015 and March 2016 (yet to be deciphered), is not the directive given as an instruction by the PM to Governor Mahendran the root cause of this entire episode? Then who should be made culpable?
  
   

Finally let us go through some related instances to refresh our minds:

 

• Yahapalana Government comes in on 8 January 2015
• Ranil Wickremesinghe takes oaths as PM on 9 January 2015
• CBSL is removed from the Finance Ministry portfolio and assigned to a ministry under the PM 
• Arjuna Aloysius resigns from the primary dealer company PTL on 16 January 2015
• Arjuna Mahendran is appointed as the Governor CBSL, recommended by the PM on 20 January 2015
• Treasury requested CBSL funding of Rs. 13.5 for the month of March on 20 February 2015
• Monetary Board of the CBSL met on 23 January Jan 2015, chaired by the new Governor Mahendran. Among the decisions were three issues relevant to the subject matter, viz.:

i. The prevailing SDFR (bank interest rate) should remain unchanged till the next MB meeting

ii. A Treasury bond of 30-year tenure should be issued the next week

iii. Facilities provided to primary dealers by the bank to be reviewed for enhancement

 

• On 24 February the PM instructs Governor Mahendran to stop private placements and confine to auction only process 
• Public Debt Department of CBSL announces a TB issue of one billion for 30 years on 25 February
• On 26 February 2015, Ministers Ravi Karunanayake and Kabir Hashim meet with Governor Mahendran and UNP Chairman Malik Samarawickrama at the CBSL to discuss how to raise an urgent Rs. 15 billion funding requirement for payment to highway contractors
• On 27 February 2015, Governor Mahendran joins the normal market operations meeting of the CBSL officials uninvited and directs the officials to increase the bank interest rates from 5% to 6.5% with immediate effect, contrary to the decision of the MB of 23 February
• On 27 February 2017, the bond auction takes place as scheduled between 8 a.m. and 11 a.m. Governor Mahendran walks into the Front Office where the auction process is taking place at 10:45 a.m. At about 10:48 a.m. the front office receives a request from BOC Treasury Department to extend the auction closing time by 10 minutes to accommodate certain special bids from customers. The auction closes at 11:04 a.m. and the Front Office prepares a schedule of the acceptable bond range to be submitted to the CBSL Tender Board. The amount so decided to be accepted as bids was Rs. 2.6 billion. At about 12:30 the same day Governor Mahendran walks in again to the Auction Room and make inquiries about the offers received. After learning that there were offers to the value of 20 billion, he instructs the Front Office to take all as there is an additional fund requirement (approximately 75% of these bids have come from PTL and BOC on their behalf at extremely high rates). CBSL officials resist this, stating reasons, but due to the insistence of Governor Mahendran decide to recommend Rs. 10 billion. Mrs. Seneviratne, Superintendent of the Department, makes a note in the documents stating ‘Governor instructed to raise Rs. 10 billion, taking into consideration additional fund requirements of the Government”. The Tender Board of the CBSL meeting the same afternoon decides to accept this recommendation after its Chairman obtained direct confirmation from Governor Mahendran which he informed to the members of the Treasury Board. The DDMC, Domestic Debt Management Committee of the CBSL has decided before that the bank should raise one billion and take the rest on the basis of the decided rate by direct placements.

The rest is history and in public domain. Whatever the findings are, people can surmise what has actually happened.