{"id":206790,"date":"2019-12-05T15:59:04","date_gmt":"2019-12-05T10:29:04","guid":{"rendered":"https:\/\/www.colombotelegraph.com\/?p=206790"},"modified":"2019-12-14T11:05:20","modified_gmt":"2019-12-14T05:35:20","slug":"governor-indrajits-stewardship-hiding-forensic-audits-other-issues","status":"publish","type":"post","link":"https:\/\/www.colombotelegraph.com\/index.php\/governor-indrajits-stewardship-hiding-forensic-audits-other-issues\/","title":{"rendered":"Governor Indrajit\u2019s Stewardship – Hiding Forensic Audits & Other Issues"},"content":{"rendered":"

By\u00a0<\/b>Amrit Muttukumaru<\/a> –<\/b><\/span><\/p>\n

\"\"<\/a>

Amrit Muttukumaru<\/p><\/div>\n

The media reports that Central Bank<\/span><\/strong><\/a> (CBSL) Governor Dr. Indrajit Coomaraswamy<\/span><\/strong><\/a> will be \u2018resigning\u2019 with effect from 20 December. Being held in high esteem by the intelligentsia and elite circles of this country, much was expected from him after he was appointed Governor on 3 July 2016. This was particularly so after the controversial exit of Arjuna Mahendran<\/span><\/strong><\/a> in the aftermath of the egregious Treasury bond scam<\/span><\/strong><\/a> in the context of the CBSL being the issuing agency.\u00a0<\/span><\/p>\n

The jury is still out whether there was a marked improvement in the image of the CBSL in view of the EU \u2018Blacklist\u2019 on Sri Lanka for money laundering<\/b> almost 19 months after<\/b> Coomaraswamy took office. The EU \u2018Blacklist\u2019 was subsequent to the \u2018Financial Action Task Force\u2019 (FATF) placing the country on its \u2018Grey List\u2019 from November 2017. FATF recommendations are \u201crecognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard.\u201d<\/i> Although Sri Lanka was removed from the FATF \u2018Grey List\u2019 last month (October 2019), it is not clear whether the country continues to be on the EU \u2018Blacklist\u2019. While Coomaraswamy must bear\u00a0some responsibility\u00a0(together with Messrs. Cabraal<\/span><\/strong><\/a> and Mahendran) for these strictures, he must bear major responsibility\u00a0<\/b>for the country continuing to be in this position at least until October 2019.<\/p>\n

While wishing him well in his retirement, this writer believes that it is fair to state that overall the tenure of Coomaraswamy as CBSL Governor could be considered a disappointment<\/b> for reasons that will be made clear in this article. Clarification from him is awaited. These include:<\/p>\n

Hiding Forensic Audits<\/b><\/span><\/p>\n

It is shameful that the CBSL has reportedly sought the approval of the Attorney-General to release to the public domain its long delayed \u2018Forensic Audit\u2019 of the egregious Treasury Bond scam on the premise that it \u201ccould influence the upcoming presidential election\u201d (\u2018Sunday Times\u2019 3 November). Is this not the very reason it should have been in the public domain to enable voters to make informed decisions? I ask Coomaraswamy (i) Is the AG\u2019s Department more competent <\/b>than the CBSL on the subject of issuance of Treasury Bonds? (ii) Does not the CBSL have the independence<\/b> to place the forensic audits in the public domain?<\/p>\n

The forensic audit was a key recommendation of the report of the Presidential Commission on the bond scams which was available in the public domain from 3 January 2018. It is only after a protracted delay of 22 months<\/b> that the audits have been completed. Now that the long delayed forensic audit has been completed, the CBSL is stalling its presentation by the shameful recourse to seeking the approval of the Attorney-General!<\/p>\n

No one with fiduciary<\/b> responsibility with access to official data on the 27 February 2015 and March 2016 bond scams has credibly quantified<\/b> the loss incurred by the government and the people.\u00a0 <\/span>Various \u2018unofficial\u2019 estimates have indicated astronomical <\/b>losses. As the issuing agency for Treasury Bonds, should it not have proactively engaged the attention of the CBSL long before a Presidential Commission had ordered it?<\/p>\n

Money Laundering<\/b><\/span><\/p>\n

Dr.\u00a0Coomaraswamy was appointed CBSL Governor on 3 July 2016. It was under his watch that the contentious \u2018Foreign Exchange Act, No. 12 of 2017\u2019 was enacted on 28 July 2017 and became effective from 20 November 2017 \u2013 16 months<\/b> after he took office.\u00a0<\/span><\/p>\n

The Act inter alia states\u00a0\u201cThe Central Bank shall as the agent of the Government, be responsible for implementing the provisions of this Act\u201d<\/i>.<\/p>\n

This Act which repealed the \u2018Exchange Control Act No. 24 of 1953\u2019 further liberalizes foreign exchange transactions and in effect is conducive for money laundering if people are so inclined. In the context of the absence of the political will to enforce even existing laws and regulations on a level playing field, is it not downright dangerous <\/b>to have such an Act in the statute book?\u00a0<\/span><\/p>\n

A\u00a0precursor\u00a0to this dangerous Foreign Exchange Act is the \u2018invitation\u2019 issued by then Finance Minister Ravi Karunanayake through India\u2019s prestigious publication \u2018The Hindu\u2019<\/a> of 5 October 2015 to\u00a0\u201cSri Lankans and Indians who had to take back their deposits from banks in Switzerland to place their funds in Sri Lanka\u201d<\/i>. He had further assured that\u00a0\u201cNo questions would be asked\u201d<\/i><\/b>!<\/p>\n

Politically Exposed Persons<\/b><\/span><\/p>\n

In the context of Politically Exposed Persons (PEPs) being at the centre of the worldwide efforts for the prevention of money laundering,\u00a0where else in the world<\/b>\u00a0would (i) a Senior Deputy Governor of the Central Bank soon after retirement be appointed a Director of a leading bank? (ii) a Chief Justice of the Supreme Court soon after retirement be appointed\u00a0a Director of a leading bank? (iii) a highly connected PEP previously Chairman of a leading bank be currently Chairman of a competitor<\/b> bank?<\/p>\n

Panama Papers<\/b><\/span><\/p>\n

It is now more than three years since the\u00a0\u2018<\/i>International Consortium of Investigative Journalists\u2019 (ICIJ) in a worldwide expos\u00e9 named persons in several countries including Sri Lanka\u00a0<\/i>allegedly linked to offshore companies in tax havens revealed in the \u2018Panama Papers\u2019.<\/p>\n

While not suggesting that the mere listing of names and entities in tax havens is indicative of wrongdoing, it must be appreciated that until the accounts are determined legitimate, they will remain suspect and the persons concerned \u2018not fit and proper\u2019 to hold any position of\u00a0trust<\/b>\u00a0involving the Public.<\/p>\n

A name included in the \u2018Panama Papers\u2019 is an erstwhile colleague<\/b> of Coomaraswamy on the Director Board of JKH arguably the country\u2019s most diversified conglomerate with top tier market capitalization. This person from 1 January 2019 has assumed the position of Chairman of JKH. Until this date he was Chairman of a Bank controlled by JKH. Did \u2018conflict of interest\u2019<\/b> have a role in the inaction of CBSL\u2019s Bank Supervision Department?<\/p>\n

Coomaraswamy was a Board Director of JKH for more than 5 years from 7 February 2011 until his resignation on 3 July 2016 subsequent to his appointment as CBSL Governor. Unless he functioned pro bono, he would have received pecuniary benefits from this office.<\/p>\n

It beggars belief that CBSL under Coomaraswamy\u00a0 <\/span>has the audacity<\/b> to cite the new and contentious \u2018Foreign Exchange Act, No. 12 of 2017\u2019 to\u00a0j<\/b>ustify inaction on the Sri Lankan names in the Panama Papers:<\/p>\n

\u201cThe time period prescribed by the Foreign Exchange Act No. 12 of 2017 to conclude investigations under ECA expired on 19.05.2018 as stipulated in the Foreign Exchange Act No 12 of 2017. These investigations also lapsed on that date.\u201d<\/i><\/p>\n

Alleged HNB Tax Evasion<\/b><\/span><\/p>\n

After the damning<\/b> allegations in a website of an alleged tax evasion in HNB Bank was brought to the attention of Governor Coomaraswamy\u00a0on\u00a025 September 2017, it took the CBSL 42 days<\/b> to advise me (i)\u201cCBSL has not carried out any investigations\u201d\u00a0(ii)\u00a0\u201cthe statements\u201d\u00a0in the article \u201care factually incorrect\u201d\u00a0(iii) \u201cThe matter is being brought to the attention of the Inland Revenue Department.\u201d<\/p>\n

It begs the questions:<\/p>\n

i) How \u201cthe statements\u201d contained in the article could be \u201cfactually incorrect\u201d if \u201cCBSL has not carried out any investigations\u201d?<\/p>\n

ii) Why it took CBSL 42 days (from my initial e-mail of 25 September) to belatedly state \u201cThe matter is being brought to the attention of the Inland Revenue Department.\u201d?<\/p>\n

iii) Has CBSL brought it \u201cto the attention of the Inland Revenue Department\u201d even now? If not why?<\/p>\n

The allegations include:<\/p>\n

i) Some portion of the \u201cevaded tax\u201d was \u201cdivided between the tax advising company and the officers at the Inland Revenue Department involved\u201d<\/p>\n

ii) \u201cThe current chairman of the bank Rani Jayamaha has also been able to identify the wrongdoing through an internal probe\u201d.\u00a0<\/span><\/p>\n

To establish the truth or otherwise of this alleged scam, has the CBSL at least inquired from \u201cRani Jayamaha\u201d former Deputy Governor of CBSL whether she was \u201cable to identify the wrongdoing\u201d through \u201can internal probe\u201d when she was Chairman of HNB? If not why?<\/p>\n

The silver lining to unravel this \u2018hot potato\u2019 is Dinesh Weerakkody<\/b><\/a><\/span> being the incumbent HNB Chairman (previously Chairman, Commercial Bank).\u00a0 <\/span>He should be more than capable to get to the bottom of this saga.\u00a0He is described as a \u2018thought leader\u2019<\/b> in his frequent articles to the \u2018Daily FT\u2019.<\/p>\n

Bank Supervision<\/b><\/span><\/p>\n

1) <\/b>NDB Bank<\/p>\n

Did the CBSL investigate and respond to the damning allegations in the \u2018Daily FT\u2019 of 15 May 2017:\u00a0<\/span><\/p>\n

\u201cNDB is on the verge of firing its Chief Financial Officer (CFO) for blowing the whistle late, though he did so within the stipulated timeframe.\u201d<\/p>\n

It relates to the alleged \u201cserious misconduct by a senior management personnel over a year ago. The revelation had come two months after the high senior management member concerned had left the bank.\u201d<\/p>\n

Is there anything in common <\/b>between the alleged \u2018HNB Tax Evasion\u2019 and the alleged NDB misdemeanor?<\/p>\n

When there are serious allegations, is it not incumbent on CBSL\u2019s Bank Supervision Department to conduct robust investigations to ascertain whether such persons are \u2018fit and proper\u2019 to hold senior management positions in banks?<\/p>\n

2) Sampath Bank\u00a0<\/span><\/p>\n

There was even a mainstream media \u2018blackout\u2019 of the alleged\u00a0\u201cMassive Fraud At Sampath Bank\u201d<\/i><\/b>\u00a0published in \u2018Colombo Telegraph\u2019 on 29 January 2019. It was alleged by the \u201cvictims\u201d\u00a0<\/i>that CBSL\u00a0\u201cwas in a deep slumber while Sampath Bank was siphoning off the customers\u2019 money\u201d<\/i>. We are still to hear from the CBSL on this alleged\u00a0\u201cMassive Fraud\u201d<\/i>.<\/p>\n

3) Dubai Arrest<\/p>\n

It was widely reported in February this year that a high profile Sri Lankan arrested in Dubai for his alleged involvement in the illicit drugs trade had allegedly deposited as much as\u00a0\u201cRs.10 billion in 23 bank accounts\u201d<\/i><\/b>\u00a0in Sri Lanka and Dubai. Even if half this sum was deposited in Sri Lankan banks, does it not indicate that the CBSL has been in\u00a0\u201cdeep slumber\u201d\u00a0<\/i>in this respect too?<\/p>\n

One could only speculate as to how many other cases concerning bank supervision<\/b> not yet in the public domain have escaped the notice of the CBSL?<\/p>\n

EAP Group Sale<\/b><\/span><\/p>\n

The CBSL has not disclosed whether its claimed \u2018due diligence\u2019<\/b> in regard to the sale of EAP Group companies has considered the damning<\/b> allegations in the news report in \u2018The Sunday Times\u2019<\/a> of 3 June 2018\u00a0\u201cPurchase of Edirisinghe Group: Investors in a labyrinth of multiple companies\u201d<\/i>?<\/p>\n

In particular CBSL has avoided<\/b> confirming whether there is any truth to the\u00a0terrible allegation<\/b>:<\/p>\n

\u201cBut punitive action is being blocked by the Ministry of Finance which has taken from the Customs Department a file containing evidence against the suspects\u201d<\/i><\/p>\n

If the CBSL considers the report spurious, has \u2018The Sunday Times\u2019 been taken to task?<\/p>\n

Links with Jailed Hedge Fund Manager\u00a0<\/span><\/b><\/p>\n

Intriguingly the CBSL has maintained \u2018Radio Silence\u2019<\/b> on Coomaraswamy\u2019s links with jailed hedge fund manager Raj Rajaratnam for \u2018Insider Trading\u2019. When questioned on this soon after his appointment as CBSL Governor, he responded as follows:<\/p>\n

(i) <\/i>He was invited by Rajaratnam when he was \u201cfinishing at Commonwealth Secretariat\u201d<\/i> for \u201cdelivering some professional services\u201d <\/i>on \u201cmacroeconomic research\u201d<\/i><\/p>\n

(ii) \u201cThat happened for about 10 – 11 months and then of course he was charged and the operation stopped. It took another year for the whole thing to be wound up legally\u201d<\/i><\/p>\n

Watch 0.25 onwards:<\/p>\n