By Sanja De Silva Jayatilleka –

The nation waited with bated breath as the PM, in his capacity as Minister in charge of the Central Bank, was called before the Bond Commission.

The people of Sri Lanka had seen the ferocious efficiency with which the inquiry was conducted by the representatives of the Attorney General’s department, turning Mr. Dappula de Livera and DSG Yasantha Kodagoda into popular heroes of a grateful public, seeing their skill and determination in their search through the complex transactional twists and turns of the Bond Scam. 

This very determination seems to have eliminated them from being the persons who would question the PM. Citing protocol accorded to the PM attending a Commission of Inquiry, the Attorney General himself questioned the PM instead. The courtesy extended to the PM included desisting from addressing any follow up questions that would force the PM to go beyond the limits of what he seemed to have planned to say on the day.

It was a cakewalk for the PM, unlike for Minister Ravi Karunanayake, who was forced to resign as a result of what emerged from the questioning by the Attorney General’s department at the Bond Commission. This was a fate that did not befall the other 3 Ministers who attended the inquiry, by whatever magic that ensured that neither Mr. De Livera nor Mr. Kodagoda would question them. The people understood the limits imposed on the Commission, but were glad that it did its best within them.

Going by reports of the PM’s replies to the written questions, and his replies at the Commission itself, he seemed to have absolved himself of any wrong doing. In fact, he hardly admits there has been any wrong doing by anybody at all.

If there were, he seemed to suggest that the Commissioners should look in the direction of Arjuna Mahendaran or Ravi Karunanayake. However he generously concludes that he is sure Mr. Mahendran “acted in good faith”. What a relief for the beleaguered public. Not so bad then, if we were scammed “in good faith”.

If the PM is innocent of any wrongdoing, it is nerve-wracking to think that our country is in the hands of someone of such enormously bad judgment. The large contingent of UNF Ministers who appeared in support of him at the Bond Commission, seem determined to celebrate him unconditionally, including his bad judgment.

The PM’s replies are of great use to all who want to learn how to avoid blame. Just make sure it was someone else’s responsibility while declaring that you had complete faith in them. Examples abound.

Appointment of the Governor of CBSL

Was it the PM who in early January 2015, invited Mr. Arjuna Mahendran to accept appointment as the Governor of the CBSL?

The PM replies that:

• In a discussion with him, Mr. Ravi Karunanayake agreed that Mr. Arjuna Mahendran was the best candidate
• Mr. Ravi Karunanayake then recommended to the President, with the PM’s concurrence, that Mr. Mahendran should be appointed.
• The President, “acting upon the said recommendation appointed Mr. Arjuna Mahendran as the Governor of the CBSL.”
  

So, it looks pretty much like it was Ravi Karunanayake who was immediately responsible for Mr. Mahendran’s appointment.

The Commission then makes a further attempt to pin the PM down on whether it was in fact the Finance Minister, Mr. Karunanayake or the Mr. Wickremesinghe “as the Hon. Minister of National Policies and Economic Affairs (which is the Ministry under which the CBSL has been placed)” on whose recommendation Mr. Mahandran was appointed.  But Mr. Wickremesinghe is not so easily pinned down!  He repeats what he said earlier:

“… I discussed the proposed appointment with the then Minister of Finance who agreed that Mr. Mahendran was the most suitable candidate. Accordingly, the then Minister of Finance with my concurrence recommended to His Excellency the President that Mr. Mahendran should be appointed. His Excellency the President acting upon the said recommendation appointed Mr. Arjuna Mahendran as the Governor of the CBSL.”

Great stuff. “Not I Sir” is in full swing here.

Surely the question is, with whom did the then Minister of Finance “agree”? Who suggested Mr. Mahendran in the first place? Who “proposed” the “proposed appointment” of Mr. Mahendran?

There’s more.

The method of Bond Issuance

Question: Who decided on the method of Bond issuance?

The Commission tells the PM that Mr. Mahendran says that “you instructed him that, the practice of accepting Private Placements of Treasury Bonds should be stopped.”

Answer: “It was the view of all concerned in the new Government that in order to achieve more transparency the raising of funds by way of Public Auction was preferable to the private placement method. This view was conveyed to Mr. Mahendran.”

Basically, the unspecified “all concerned” are responsible for introducing a new method of Bond issuance without adequate thought to its consequences on the economy. The PM is not individually responsible for making that decision, even though he was the Minister in charge. No accountability seems to accrue to him. Is this the case with all Ministers? Is the Cabinet completely unaccountable for its decisions and are Cabinet Ministers unaccountable for their decisions?

Due Process for changing methods of Bond issuance

Question: Was the right procedure followed in implementing this sudden change? The Commissioners ask the PM:

“Did you, in fact, instruct Mr. Mahendran, on 24th February 2015, to immediately stop the practice of accepting Private Placements of Treasury Bonds?”

The PM predictably says what amounts to, Hey don’t look at me! I had complete faith in the Governor to take care of all that!

His actual answers to the two questions trying to elicit who was responsible for the sudden change which occurred overnight were:

• “…I insisted that Mr. Mahendran should consider the issuance of Bonds by way of Public Auction in accordance with the economic policy of the Government and I expected that he would comply with due procedure.”
• “…it was expected that Mr Mahendran would take appropriate steps in accordance with due procedures to give effect to the objectives of the Government as expeditiously as possible in the light of concerns expressed by me.”

Mr. Mahendran, it was You, Sir!!

The sudden increase in the amount of the Bond Issuance

The Commissioners want to know why such a large amount of Bonds were issued when they had evidence that it was not necessary. They say:

“…the evidence before this Commission of Inquiry suggests that, the funds required for these payments were to be raised only in the months of April or May 2015 and that, there was no requirement for any funds for this purpose to be raised at the Treasury Bond Auction held on 27th February 2015 or at Treasury Bond Auctions to be held during the month of March 2015.”

Answer:

• The Minister of Highways stated that there was an urgent need of funds for road development projects, which were undertaken by the previous Government for which the Treasury was unable to provide funds.
• The Interim Budget also involved additional expenditure including an increase in recurrent and capital expenditure in March.
• I requested that the concerned Ministers and officials of the Treasury and CBSL meet as soon as possible.
• Subsequently, they including the Governor CBSL had met on 26th February 2015 and they determined that Rupees Fifteen billion was urgently required.
• Mr. Mahendran informed me that evening he may be able to raise money far in excess of Rupees One billion in the Bond Auction fixed for 27th February 2015.

Mr. Mahendran, it looks again like it was You Sir!

MR. Mahendran’s Son-in- Law’s involvement with Perpetual

The Commisioner’s ask:

“What action would you recommend against misleading and false statements made to the Prime Minister of the country?”

Reply: “I believed that Mr. Mahendran acted in good faith.”

The Clincher! It’s all his fault! The ultimate “Not I, Sir!”

From the point of view of the citizens, checks and balances are there in systems and processes in order that errors of bias of this sort can be mitigated. Mr. Wickremesinghe’s ‘beliefs’ are his private matter and cannot be relied upon beyond a point! But the Auditor General who pointed these out is out on a limb!

And to further questions, more of the same by the PM:

• “In this regard the due procedure I expected Mr. Mahendran to follow was to work within the rules and guidelines set by the Monetary Board and follow best practices relating to the running of a Central Bank. Beyond this, I was not expecting to give any instructions or exercise any supervisory role.”
• “As stated earlier, I had no reason to believe that Mr. Arjuna Mahendran would face a conflict of interest, and there was no special reason to satisfy myself that due procedure had been followed.”

Mr. Mahendran! Tsk! Tsk!

But what about checks and balances? Who is responsible for satisfying themselves that due procedure had been followed?

The US Treasury

What about the text message that seemed to suggest that Arjuna Aloysius was meant to meet with Mr. Wickremesinghe regarding the US Treasury?

The Commissioners ask:

“…A text message sent on 14.01.2017 by Mr. Aloysius’s Personal Assistant Steve Samuel appears to be reminding Mr. Aloysius of a meeting with you regarding the US Treasury. Was there a meeting scheduled between you and Mr. Aloysius on that date?…did you in fact meet Mr. Aloysius on 14.01.2017 regarding the US Treasury or any other matter?”

Answer: “There was no meeting scheduled between Mr. Aloysius and myself, nor did I meet Mr. Aloysius, on 14 January 2017, regarding the US Treasury or any other matter.”

Clearly, that would not have been proper at all.

However, Mr. Wickremesinghe seems to have met with a specialist from the US Treasury himself, dashing any hope that Mr. Aloysius may have had of joining in!  The Daily Financial Times reports that “A specialist brought down from the US Treasury, said Wickremesinghe, introduced the Government to this system.”

Who then Sir?

The PM, despite his great technique, failed to look anything like Caeser’s wife. So questions remain.

We put our faith in the Commissioners, to present their observations and conclusions leading to a process of  clear identification of those who are accountable, directly and indirectly, for the scam, the chain of command or decision-making, and thus enable the President to take appropriate action, including recommendation of controls and monitoring as in Sarbanes-Oxley after Enron, so that the country and its citizens are never again subjected fraud on such a massive scale by seemingly unrepentant perpetrators.

*The author was part of the Sarbanes-Oxley team as an accountant at GSK in London when the US Federal law was first applied in the UK.