By Laksiri Fernando –

In a democracy, if a Prime Minister’s name is tarnished in a financial embezzlement of the slightest nature, he or she should gracefully resign. This does not necessarily mean that he/she is directly responsible, but trying to be in office disregarding the tainted image do harm to him/her and more to the country.

This is not written in law or in constitution, but a democratic custom. It is also common sense. Otherwise, how can a PM maintains the financial integrity of the Cabinet?

In these columns, I have written about the case of ‘A bottle of Wine [Throwing] a Premier Out!’ (Colombo Telegraph, 17 April 2017), well before the Yahapalana government, where “The Premier of the New South Wales (state) of Australia, Barry O’Farrell, announced his resignation (16 April 2014) over the issue of receiving a bottle wine as a gift that he failed to declare in 2011 in the ‘Pecuniary Interest Register.”

I further said, “This is a case of ‘accountability and transparency’ that all Prime Ministers, Chief Ministers, Ministers and all Members of Parliament or members of any such representative institution in a functioning democracy should abide by.”

Therefore, my claim: “It’s Time to Go Ranil!” is not at all personal or aiming at him alone.

Before the Commission

There was no ‘charge sheet’ as such before the Commission, but there were 28 questions first (letter dated 10 October 2017) and then 20 more for the PM to answer, because of his implication and/or responsibility on the matter of bond irregularities. In addition, he was requested to appear before the Presidential Commission to clarify several other related matters and the questioning lasted for about one hour on 20th November.

One may say that he answered well, which is true, or the Commission was so decent and polite without grilling him on the same matter again and again. It is also true that this is the first time that a sitting PM was questioned before an independent commission ever, and it speaks well for the democratic culture of the present government. The question or the necessity therefore is to take the next logical step.

Possible Culpability?

To the first question, the PM truthfully answered ‘Yes,’ that somewhere in early January 2015, he invited Mr Arjuna Mahendran (AM) to serve as the Governor of the Central Bank.

It is true that on the second question, he explained that the formalities under the Monetary Law Act were duly followed in the appointment. However, the third question further asserted that the recommendation came from the PM, based on AM’s evidence, and asked why AM was singularly considered ‘fit and proper person’ for the position of the Governor. The answer was ambiguous, going in rigmarole, even referring to the previous Governor unnecessarily, like in a Parliament debate.

The PM further couldn’t answer properly the suitability of a person who was not a Sri Lankan citizen (question 4), in the current context, or who has not even applied for the citizenship back. All indicated to the ‘conflict of interest’ on the part of the appointee being a citizen of Singapore; and the PM with a possible self-interest due to friendship or other obligations overlooking the above ‘suitability’ of the appointee.

Most importantly, the PM has clearly overlooked or taken lightly the ‘conflict of interest’ between the CB Governor (AM) and a Primary Dealer, Arjun Aloysius (AA), directly and indirectly. This is how and where the irregularities have apparently occurred, the gravity and illegality of which have to be determined by the Commission. The questions 5 to 7 were surrounded on these matters. The PM has clearly admitted: 

“I was aware that Mr. Mahendran’s son-in law Mr. Aloysius was the Chief Executive and Director of the primary dealer Perpetual Treasuries (Pvt) Ltd.”

The above could have been a disqualification for AM to be the Governor in addition to his citizenship.

Match Fixing?

However, the PM has thought otherwise. The most strange is the way he has tried his best to fix the apparent ‘conflict of interest.’ The following is what he has said, 

“When Mr. Mahendran was offered the post of the Governor of the CBSL, I insisted that he should ensure that Mr Aloysius would resign as a Director of Perpetual Treasuries (Pvt) Ltd, and not involve himself in the business activities of that company in anyway.”

How come that the PM ‘insist’ that AA should resign as the Director of the Perpetual Treasuries unless they were a close group? How come that even AM ensures that AA resigns as the Director? Even going beyond those premises, the PM has “[I] also strongly recommended that the best course would be for Mr Aloysius to divest himself of his shares in the company. This was conveyed by me both to Mr Mahendran as well as to Mr Aloysius.”

It appears that the PM had become an ‘advisor’ to both AM and AA, but none have heeded his advice, perhaps believing that the matters are not that serious or that the PM would protect them in any event. This was the standard thinking in Sri Lanka, particularly prior to 2015.

It was in the above context that the PM’s advice to go for ‘public auctions’ is highly questionable while the past practice has mainly been ‘direct placements,’ completely right or wrong. It is an obvious fact that ‘divesting shares’ is not that easy for anyone like resigning from a position of CEO or Director. A ‘conflict of interest’ can go even deeper, leading to ‘insider trading,’ as revealed by the fact that actual ownership of the primary dealer, Perpetual Treasuries, being with the Perpetual Capital Holdings.

Having known or aware of the above circumstances, the PM should have been much more vigilant and careful about possible ‘insider trading.’ He had already taken over the Central Bank under his ministry which otherwise was under the Ministry of Finance. It was also a political fact that he was like a ‘caretaker PM’ during that period without a direct mandate from the people.

Public Auctions!

In answering questions 10 and 11, the PM has admitted that he instructed AM in February ‘to issue bonds by way of public auctions in accordance with the economic policy of the Government,’ which could be his own or his party’s economic policy and he has not referred to any Cabinet decision or a meeting on the subject.

He has further given a theoretical discourse on ‘market liberalism’ and ‘macroeconomic liberalization,’ but it is not clear why he was so quick in overhauling the bond procedure that way, which has led to the erosion of credibility, arising ‘conflict of interest,’ ‘insider trading’ and at an enormous loss to the government according to the Auditor General.

From the answers given the following also were clear.

• “Mr Mahendran informed me that evening [26^th] he may be able to raise money far in excess of Rupees One billion in the Bond Auction fixed for 27th February 2015” (The PM should have known that this is not a task of the Governor directly. He should have suspected a ‘conflict of interest’ or ‘insider trading’ arising). 

• “After the Auction held on the 27th of February 2015, he informed me that in fact Rupees Ten billion had been raised.” (The PM should have requested more information directly as to who were the beneficiaries as he has known about the possible ‘conflict of interest’ or ‘insider trading.’ Although a ‘Briefing Note’ had been requested later, no further action had been taken).

• “I stated that neither the Monetary Board nor I was the proper authority to inquire into the issue.” (This was with reference to the Parliamentary debate of 17 March 2015 and appears evading of responsibility in addition to political defence of the whole affair on the pretext of criticisms over the previous administration).    

• “As stated above, I have forwarded the COPE Report to the Attorney General to take appropriate action if there has been any transgression of the law by Mr Mahendran or any other person.” (This was clearly evading the question 25: “Did you consider that, it was fit and proper for Mr Mahendran to continue to serve as Governor of the CBSL after the events of the Treasury Bond Auction held on 27th February 2015?).

• “I deny that I had agreed to provide or provided copies of Minutes of meetings of the Monetary Board meetings/papers to Mr Aloysius or any other person. I resent the insinuation.” (This is in respect of an alleged text message (question 26) sent to AA by his personal assistant to request Monetary Board papers from PM and RK! The PM’s denial and resentment should be accepted.).

There is no much point in going further into other questions and answers in the Affidavits or his submissions at the Commission. The questioning at the Commission was solely ceremonial.

Let us assume, for his favour, that the nexus between his ‘market policy’ and ‘bond irregularity’ is purely coincidental, but he cannot easily absolve himself from overlooking the ‘conflict of interest’ or the ‘insider trading.’ The key question is whether he is not politically responsible for the whole Saga as the responsible Minister? If not, who is responsible?

International Best Practices

Let us look into the ‘international best practices,’ at least briefly, first in the case of ‘insider trading,’ and then the responsibilities of the minister in charge, and in this case the PM. The ‘conflict of interest’ between AM and AA, that the PM has conveniently overlooked, is fairly clear I believe.

About ‘insider trading’ the following is what Wikipedia states: “Insider trading is the trading of a public company’s stock or other securities (such as bonds or stock option) by individuals with access to non-public information…In various countries, some kinds of trading based on insider information is illegal.” It further says, that “A person who becomes aware of non-public information and trades on that basis may be guilty of a crime.” 

It also says, “However, some economists have argued that insider trading should be allowed and could, in fact, benefit markets.” Milton Freedman is one such a prominent culprit. It is possible that Ranil Wickremesinghe and his advisors belonged to this category! This is in fact a serious situation.

In many countries, that I know of, insider trading is an offense. Australia, the US, UK, Germany, Netherlands, India, China and France are some. Sri Lanka is the same. There are many cases of prosecution and/or penalty. James Thomson (Macro Think Institute) gives a comparative picture of insider trading regulations.

Let us look at the political side of the matter, in respect of accountability and responsibilities of the minister in charge. Sri Lanka is a unique case where the PM has involved or implicated almost by choice under the circumstances. In Britain, the PMs have been maintaining quite a high profile particularly in financial matters and there are no known cases of PMs involved in financial scandals or resigning on those counts. But as Graham Thomas has recounted (‘Prime Minister and Cabinet Today,’ 1989) there are numerous cases of ministers’ resigning on financial matters prompted mostly by PMs themselves to preserve the integrity of cabinets. This is more or less the case of other parliamentary democracies including India. 

In the case of France, however, there are numerous cases of PMs resigning after financial scandals. In 1993, the PM, Pierre Beregovoy, even committed suicide unable to bear the charges of a financial scandal. There are many other cases of PM’s resigning on the issues of accountability largely to preserve the good name of his or her government. Let me finally refer to Shinzo Abe’s resignation in Japan in 2007 as the PM not due to financial malpractices on his part, but several scandals involved in his government. He became elected again in 2012 and 2014 because of his retained credibility after initial resignation. 

Ranil Wickramasinghe has been in Parliament since 1977, more years than even Robert Mugabe (since 1980). Even Mugabe has now resigned. RW has been holding the reins of the UNP since 1994 and his association with power perhaps only second to Mahinda Rajapaksa. It is a common dictum that ‘justice should not only be done, but must also be seen to be done.’

It is obvious that he has overlooked or took mildly the ‘conflict of interest’ between AM and AA and oblivious to ‘insider trading’ perhaps because of his too much of market thinking. However, as the minister in charge of the CBSL and the whole saga of the controversial bond issue, at least until his name is clearly cleared, he should step down following the international best practices.