Attorney General’s letter to Parliament on COPE findings

By Janitha Devapriya

The Attorney General’s letter addressed to Parliament, which was tabled by the Speaker on 7 March 2017, received mixed reactions from those who were keenly following the Treasury bond saga of 27 February 2015 and the events that followed the tabling of the COPE report on 28 October 2016 in Parliament. 

The learned Attorney General has provided a very objective and appropriate opinion on the matters referred to him by the Speaker, consequent to the COPE findings on the Treasury bonds issues from 2015-2016. One opinion that came up soon after the tabling of the AG’s letter in Parliament was from T. Rusiripala - a veteran banker, trade unionist, one-time Chairman of BOC and also someone who was engaged in political activity briefly - which was published in Daily FT on 8 March.

His inferences and comments are however not exactly what one observes when reading the AG’s letter carefully. He speculates that the Prime Minister would have separately instructed to provide advice on the validity of the bonds issued since 2008 as it was not an issue arising out of the COPE recommendations. 

In fact it was reported that it was the Prime Minister who first referred the COPE report to the AG as he announced it in the house. Rusiripala continues: “The AG has confirmed the validity of all such bonds, stating further that it is not affected in any way due to any defect in the procedure followed while issuing them. In fact such a situation or doubt has never arisen because the Central Bank which issued them has not disputed them at any time. An alarm of this nature anyway sounds unwarranted.” Rusiripala overlooks the fact that such a doubt in fact ensued when the Attorney General’s representative queried about the Gazette that authorised the issue of the bonds in question at the Presidential Commission of Inquiry where it was found that the concerned gazette was invalid because it did not carry the signature of the Finance Minister, either previous or current, due to an unpardonable blunder committed by the Central Bank. 

This is somewhat similar to a situation where a person having a defective title cannot pass a clear title to another, though it is not exactly the same parallel but fortunately the Attorney General cleared the air by stating that “the legality of bonds issued by the Central Bank of Sri Lanka since 2008 in the hands of any bona fide third parties purchasing same for value, will not be affected by a lack of authority or defect in the procedure in relation to issuing such bonds.” This keeps the minds of holders of the said bonds or those dealing in them at rest. Besides, the Treasury Bonds are Government paper considered gilt-edged securities and therefore the payment on them is guaranteed and it is a timely assurance by the Attorney General.

Rusiripala goes on to say somewhat euphorically that “the AG’s letter has cleared the position that civil and criminal remedies can be resorted to in terms of the provisions under the relevant ordinances and acts. This is an important view in the context of earlier conjectures that the lapses do not fall within criminal law. Now we know that offences committed are chargeable under criminal charges”. 

However, it is also necessary to note the entire paragraph of the AG’s letter which also said, “The contents of the above COPE report point to the possibility of several transgressions known to the law, including market manipulation, insider dealing and non-compliance with mandatory procedure.” 

Insider trading

Here the AG is quite emphatic with the word ‘possibility’ and he has not conclusively stated that the transgressions have taken place. It flows from this that acts of market manipulation, insider trading or non compliance with mandatory procedure have to be firmly established with evidence. If the primary dealer presently under intense scrutiny in this matter has engaged in market manipulation, which is prohibited in most parts of the world, it is the Central Bank which should initiate proper investigations and gather relevant evidence to initiate legal steps. 

With regard to insider trading, which is a serious offence, one can envisage three hypothetical scenarios in the case of the impugned bond auction. It is recorded in the COPE investigation that the former CBSL Governor entered the Public Debt Management Department of the Central Bank at 10.45 a.m. on 27 February 2015 whilst the bids were being processed. He had allegedly visited the department again at 12. 30 p.m. and was said to have instructed or advised the tender committee to go for 10 billion through the auction process. If insider trading is alleged against the former Governor and the said primary dealer, which is said to be connected to him, his intention if it existed at the time to go for 10 billion should have been conveyed after 10.45 a.m. to the primary dealer who had submitted their late bids through BOC, just before bids closed at 11.10 a.m. Now for this arrangement to be in place, there were only 25 minutes before the closing of bids, which may seem practically impossible. 

On the other hand, if it was in the mind of the Governor and he was determined to go with the idea of 10 billion, it would have been conveyed to the primary dealer long before and they would have placed their bid through BOC after necessary negotiations much earlier. If this is the case, there may be ways to gather evidence especially from BOC to establish attempts at insider trading. 

Anyway, all these possible activities have to be established with firm evidence which would stand scrutiny in courts. However, the question one can raise is, was it only the former Governor and the said primary dealer who could have engaged in insider trading and wasn’t there any other person or persons in the Central Bank who could have engaged in this nefarious activity? There was some evidence presented during the COPE investigation that there were quite a few others who were privy to the information. The Central Bank is therefore burdened with an unenviable task of naming the accused and presenting unimpeachable evidence to the CID or the investigative authority of the Police as recommended by the Attorney General.

Another aspect is that despite wide allegations or claims, and what Rusiripala also claims is “alleged massive fraud”, recovery of defrauded funds through the institution of legal action is possible. It does not appear that the AG has come to any firm conclusion that the bond issues of 27 February 2015 are in fact a fraud, the proof of which requires five elements – a false statement of a material fact, knowledge on the part of the perpetrator that the representation or statement is untrue, intent on the part of the perpetrator to deceive the alleged victim, justifiable reliance by the alleged victim and injury (legal) to the victim) to be fulfilled. 

Estimation of losses

What the AG opines is that the “recovery of losses by the Government if any from the related parties” and here the word ‘if’ is significant.

There were questions about the estimation of possible losses at the COPE because COPE depended on the calculated losses presented by the Auditor General, which was Rs. 889 million. It was observed that the Auditor General based his estimation and calculation on the premise that the bonds are issued mainly through private placements by primary dealers and a few by auction whereas according to the CBSL manual, it is the other way around. 

In fact, in the previous draft COPE report of 25-06-2015 under D.E.W. Gunasekera MP, which was not officially issued by Parliament but found its way into the public domain, the loss to the Government was said to be Rs. 526 million by way of opportunity cost and a commitment by the Government, this too estimated by the then Auditor General. Therefore there appears to be a discrepancy in the estimated losses on two different occasions. These estimates were anyway far below the figures of Rs. 50 billion bandied about by Joint Opposition members like Bandula Gunawardena. 

It may be for this reason as well as due to the absence of an identifiable way to calculate the loss or gain in these transactions that the Attorney General has said: “A reasonable estimation of damages assessed by a method that could be substantiated before a court of law would be required. In this regard, it would be necessary to provide a precise quantification of the loss suffered by the Government.” 

The most important recommendation in the AG’s letter is the “Auditor General’s Department, with the assistance of an independent expert or experts whose evidence can be relied upon in a court of law, in calculating the alleged loss.” 

Therefore the estimation of the alleged loss if any needs to stand the severe scrutiny of the courts of law and until this process is complete, it is not fair to crucify the parties named as “suspects” by certain MPs, commentators and sections of the media without an opportunity being given to them to answer.