The report of the committee appointed to look into the bond issues of the Central Bank was tabled in Parliament on May 19, 2015. We reproduce here the synopsis, and excerpts of the findings and recommendations of the report.
REPORT OF THE COMMITTEE TO LOOK INTO THE BOND ISSUES Of THE CENTRAL BANK 2015
Involvement of the Governor CBSL
Therefore given the fact that the funding requirement of the Government as at 02/03/2015 was 13.550 billion rupees the Public Debt Department(PDD) had decided to announce the said 30~year bond up to an amount of 1 billion rupees. Even though the minutes of the Monetary Board number 4/2015 specifies to issue a 30 year treasury bond, the amount of the bond has not been decided by the Monetary Board. This exercise is vested with the PDD as per the Operational Manual of the PDD. The decision to accept the excess amount has been taken by the Tender Board Committee that comprises 8 members and the Governor of CBSL is not a member of the Tender Board Committee. (In terms of the above there is no evidence at this stage to the effect that the Governor of the CBSL had direct participation with regard to the activities of the PDD and the Tender Board Committee as aforesaid other than to issue certain directives based on the decisions of the Monetary Board and the Operational Manual of the PDD).
The Committee at this stage can only make an observation that the bidding pattern of Perpetual Treasuries and securing 50% of the accepted bids as unusual. Given the limited scope of the TOR this Committee is not empowered to make any assumption with regard to the aforesaid.
However, in the interest of the public since the said transaction involves public funds and fiscal regulations of the Government, the Committee observes that a full-scale investigation by a proper Government Authority is warranted.
The Committee further observes that the Board of Directors of BOC shall initiate a full-scale investigation and if necessary a forensic audit into the activities of the Dealer room of BOC given the fact that it is a State Bank. The Committee further observes that the Board of Directors of BOC may call for explanation from the Chief Dealer and his superior officers with regard to ad-hoc decisions made considering the large portfolio of BOC funds that are involved as stated above.
The Committee observes that there is no impediment for the Government and or Parliament and or any Organization with public interest to engage in necessary mechanism in establishing the loss to the Government, if existent.
Since the PDD is dealing with the most sensitive information of the Government, the Committee is of the opinion that a proper supervisory and monitoring mechanism has to be immediately implemented with regard to the activities of the PDD and the Primary Dealers.
The Committee further observes that the sentiments expressed by several Primary Dealers establishes a conjecture that sensitive information of the Central Bank and the secrecy of the same may have been compromised on occasions. The Committee is very careful to take note that this is only an assumption bordering on an allegation and nothing more. However, given the fact that a document containing sensitive information is available in the public domain, there may be a possibility of the secrecy of information possessed by the CBSL being compromised. In view of the aforesaid the Committee observes that a full-scale investigation by a proper Government Authority is warranted upon the activities of the PDD and its officials and any other Department of CBSL and its officers, to ascertain whether there is any truth in the assumptions pertaining to the sensitive information of the CBSL being compromised.
Given the sanctity and the obligations vested with the CBSL in managing the lifeblood of commerce in Sri Lanka and the onerous responsibility that calls for conduct beyond reproach, the Committee observes that it is not unfair for the general public to expect a high level of integrity in the conduct of the officials of the CBSL that includes the Deputy Governors and the Governor. Therefore the monitoring of the digital footprints of the officials of the CBSL will espouse the cause in maintaining public trust.
The Committee having observed the nature, in which the auctions had been carried out without the proper function of the Tender Board Committee and the lack of paper trail and or recorded calls with regard to Direct Placements, thinks prudent that a full-scale investigation to be done with regard to direct placements up to 2012.
The Committee re-iterates that this is only a fact finding Committee with a limited mandate granted on the Terms of Reference as above. The Committee makes a humble request to the Hon. Prime Minister who is also the Minister of Policy Planning, Economic Affairs, Child, Youth and Cultural Affairs to take all necessary steps within the powers vested in him in taking further remedial measures that may be necessary.
- Though there is no legal bar, it is unusual for a Primary Dealer to forward bids through another Primary DeaIer;
- The Chief Dealer of BOC has acted without Board approval and has failed and neglected to apprise the Board of BOC thereafter.
- The Chief Dealer of BOC had failed to exercise due diligence in checking the source of funding
- There is a lack of transparency and disparity in statements of the Chief Dealer of BOC and CEO of Perpetual Treasuries;
- There is discrepancy of statements made by each other.
- The bidding pattern of Perpetual Treasuries at this bond auction is unusual for two reasons: a) Considering their previous bidding patterns, bids amounting to Rs.2,000,000,000 when the value of the Bond is Rs. 1,000,000,000, and b) Seeking the assistance of BOC to forward bids amounting to Rs.13,000,000,000 given the fact that the value of the bond announced was 1 billion.
- The Committee also observes, from the information placed before the Committee, that-there is a serious lack of transparency pertaining to the activities of the PDD of the CBSL There Is no proper supervision of the activities between the Primary Dealers and the PDD. There is no recording of calls, there Is no log of any documents received, no supervision of electronic footprint; such as text messages and emails between the officials of the PDD and the Primary Dealers.