Report on Central Bank bond scam gives Sirisena a political boost

Report on Central Bank bond scam gives Sirisena a political boost

Colombo Correspondent,

In what was seen as a politically significant step, President Sirisena Wednesday issued a public statement on the Presidential Commission which probed a massive illegality in the issue of Treasury Bonds by the Central Bank of Sri Lanka (CBSL) in 2015, the blackest mark on the National Unity government which promised a corruption free rule, but also quoted the commission as saying that other instances of corruption of similar nature carried out in 2008 under the former regime would also be investigated.

Making a special statement and releasing to the public the contents of report by the commission that he had appointed last year, President Sirisena insisted that alleged wrong doers irrespective of their political parties will be investigated and the massive amount of money lost to the country as a result of the scam, be recovered. The submission of the final bond report to President Sirisena by the Commission and his public statement on it comes ahead of the decisive local government polls to be held in February where former President Mahinda Rajapaksa and his supporters will test political waters with their new party Sri Lanka Podujana Peramuna (SLPP).

“I would like to specifically state here that I would not hesitate to take steps to recover the loss of Rs 11145 million to the government and take legal action against the offenders and punish them,” President Sirisena assured, and revealed that report had indicated similar scams had taken place in 2008 when Mahinda Rajapaksa was President.

Sirisena further declared that he has asked the Attorney General to begin the legal process against irregularities in 2008. This is expected to ruffle feathers in the Rajapaksa camp which seems confident of victory in the February local government polls.

Meanwhile among those that the Commission to investigate the Central Bank Bond scam had recommended legal action against is Ravi Karunanayake, who was Finance Minister when the Bond scam took place and is the assistant leader of the United National Party which cohabits with Sirisena’s SLFP.

The report on the multi billion rupee scam revealed to the public by Sirisena on Wednesday, helps him in a broad manner, to either to keep the coalition with the United National Party (UNP) afloat but also be able to take the SLFP through a healthy campaign for the upcoming polls despite what could be tough competition from Rajapaksa’s new party, if it is not debilitated by the bond commission report.

A significant aspect of the report is that UNP leader and Prime Minister Ranil Wickremesinghe is not accused of any wrongdoing, although he had appointed Mahendran and failed to immediately remove him after the allegation surfaced although he was removed subsequently.

However, the Commission appointed by Sirisena only mildly finding fault with Sirisena for going by the false assurances given by the then bank Governor Arjuna Mahendran, helps Sirisena safeguard his relations with his Prime Minister, who heads the UNO which is the single largest party in parliament.

President Sirisena, who has for the past months being portraying himself as an advocate and reformer against corruption has declared that he will go by the commission’s recommendations to reform the monetary system and also the Central Bank.

The release of the Bond report comes in the wake of President Sirisena’s faction of the Sri Lanka Freedom Party (SLFP), losing public support for not living up to its 2015 election promises and further weakened by several members of the SLFP supporting Rajapaksa.

In this background Sirisena is expected to use the anti-corruption platform provided by the bond scam report to weaken the Rajapaksa camp ahead of the February elections and strengthen the image of the SLFP.

The report has recommended legal action against former Governor Arjuna Mahendran and his stockbroker son in law Arjun Aloysius, head of Perpetual Treasuries (PTL), a primary dealer who used inside information to make a killing on profits. Interestingly, though the CBSL was under the purview of the Prime Minister and not the Finance Minister, no action or further investigation is being recommended against Prime Minister Wickremesinghe.

The report stated that PTL had earned millions as profits through means that are not legal, with the involvement of Governor Arjuna Mahendran, CBSL officials and some external parties. A profit of LKR 11,145 million was made by PTL within five months, the report found.

“In the auction held on 27th February 2015 alone, Perpetual Treasuries Limited has made a minimum profit not less than LKR 688 million. The Commission is of the opinion that further investigations could reveal that this amount could even be more than that. As revealed during the investigations, PTL had made an undue profit of Rs. 11,145 millions in the secondary market. In this, EPF and other government institutions had lost more than LKR 8,524 million or LKR 8.5 billion,” the report said

The report had further said that Prime Minister Wickremesinghe had erred in going by the information and assurances given by the then Governor, Mahendran, on the question of “conflict of interest” in regard to his son in law and primary dealer Arjun Aloysius. Wickremesinghe had told the Commission that he had warned Mahendran on the issue of conflict of interest.

The Commission report had stated that it is of the opinion that the Prime Minister made his statement in parliament regarding the appointment of Mahendran believing in the facts presented by Mahendran and promises made by Mahendran. However, without any action recommended against Wickremesinghe, the Commission merely notes that Premier Wickremesinghe ‘should not have done it’.

When Wickremesinghe testified before the commission, he revealed that in January 2015, he was told that Aloysius would be resigning from PTL.

“That was all I knew. Other than that, I didn’t know his affairs,” the Prime Minister had said, adding that Mahendran had ‘deliberately’ misled him.

Significantly, Wickremesinghe had added that the conflict of interest issue had been there before too, referring to former Governor Ajith Nivard Cabraal’s sister’s alleged Directorship in PTL.

The Commission’s report refers to the allegation against former Minister of Finance Ravi Karunanayake regarding the payment of rent for the ‘Penthouse’ apartment by Walt and Raw Company owned and controlled by the Aloysius family.

“Karunanayake was responsible for that and recommended that the government should to take necessary action against Ravi Karunanayake under the section of bribery and corruption, and further legal action should be taken under the penal code for giving false evidence at the Commission,” the President said.

Considering the recommendations of the Commission, the government is to make new Monetary Law Act to avoid such malpractices in the CBSL in future, Sirisena said adding that the existing legal provisions are old and need replacement.

With regard to recovering money from fraudsters, the Commission recommended that parliament legislate for speedy recovery and all the expenditure occurred for the Commission be recovered from Perpetual Treasuries Limited.

“We agree to that recommendation,” the President said in his statement, adding that he has already submitted a copy of the Commission Report to the Attorney-General and he will identify the persons against whom the legal action must be taken and initiate necessary criminal or civil legal action to implement the recommendations of the Commission.

The scam

Soon after Sirisena and Wickremesinghe came to power replacing the Mahinda Rajapaksa regime, the Central Bank decided to raise LKR 10 billion from a sale of 30-year government bonds with a coupon (fixed interest rate) of 12.5%, whereas it had initially advertised an offer of LKR 1 billion with a fixed interest rate of 9.5%. Regardless of the sudden change in the terms, bonds worth LKR 7 billion were bought by Perpetual Treasuries Limited, a primary dealer owned by Arjun Aloysius, the son-in-law of then Central Bank Governor Arjuna Mahendran, a Sri Lankan-Singaporean banker appointed by Wickremesinghe. It was suspected that Aloysius had inside information about hike and was prepared for it while others were not.

After the controversy of the scam came to light, Mahendran resigned and was replaced by Dr. Indrajit Coomaraswamy, a nominee of President Sirisena.  The bond issue created a rift between Sirisena’s Sri Lanka Freedom Party (SLFP) and Wickremesinghe’s United National Party (UNP) threatening the cohabitation of the National Unity government, furthermore, after the then Finance Minister, a senior UNPer Ravi Karunanayake was accused of accepting a luxury penthouse paid for by Aloysious (which he said was bought by his wife without his knowledge).

Early in 2017, Sirisena felt that the SLFP would lose political credibility if it did not clear itself of the charge that it was also protecting the wrong doers and Sirisena requested the Prime Minister (under whom the Central Bank functioned) to clear his name and therefore Wickremesinghe decided to appear before the commission and answer the questions put to him.