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P. Samarasiri | S. Sepala Ratnayake | Arjuna Mahendran

The special Presidential Commission of Inquiry to Investigate and Inquire into the issuance of Treasury Bonds had its sittings on four consecutive says during this week too.

Monday’s session began with the Central Bank’s Deputy Governor and ex-officio Chairman of the Tender Board, P. Samarasiri giving evidence.

Additional Solicitor General (ASG) President’s Counsel (PC) Yasantha Kodagoda assisted the Commission in leading the evidence. Samarasiri took much effort to convince the tribunal that the controversial bond issues on February 27, 2015 took place with a possible leakage of inside information.

Samarasiri stressed that the massive transaction did not take place due to the introduction of a purely auction based system and instead he said that he suspected a possible leakage of insider information to the primary dealers or the concerned parties. He also said that the officers of the Public Debt Department (PDD) of the Central Bank or some outsiders to the PDD divulged the insider information.

“When I examined the bid sheet of the questioned auction, I thought some people may have known that a higher volume than advertised will be accepted. Anyone who examines the bid sheet prepared (for the auction held on February 27, 2015) will easily note the unusual bidding patterns. In previous bond auctions, the Employees Provident Fund (EPF) bid had come first, which was not the case at this auction.

The EPF usually bid for the whole volume that was being advertised prior to the auction. In this case, they had bid at a later point and for a different amount,” the Deputy Governor told the Commission.

The witness also suggested that running the operations of the front office, the middle office and the back office of the PDD within the same space was not the standard system. He said that the back office of the PDD should be in another department outside the PDD. The Commission questioned why he did not take action on the matter in his capacity as the Deputy Governor. Samarasiri said that such big reforms would definitely put his job in jeopardy. His answer was that he did not wish to go for reforms which might give rise to trade union action while adding that: “I am only a conduit sometimes.”

The Commission Chairman, Supreme Court Judge, Justice K.T. Chithrasiri said that Samarasiri had also become a typical public servant in the sense where such persons holding office neglect the requirements of society.

He said that the Commission had written to the Inspector General of Police (IGP) asking for security to run the Commission proceedings peacefully. “But, the IGP failed to at least acknowledge the receipt. You are also following a similar policy. If we also follow your theory, we would not be able to record your evidence today. This lethargic attitude of public servants is very bad,” said Justice Chithrasiri.

Former Governor of the Central Bank, Arjuna Mahendran who previously obtained permission to observe the hearings was not present at the hearing on Monday.

Tuesday’s hearings again commenced with Deputy Governor Samarasiri and Kodagoda PC along with Senior State Counsel Dr. Avanti Perera assisting the tribunal by leading the evidence.
Samarasiri told the Commission that it was the PDD officials who had informed him that former Governor Mahendran had given instructions to accept 10 times the amount of the bids than had been advertised in the public notice on February 27, 2015. He also added that he had lost his temper when he heard the instructions. He also gave his reasons to what made him lose his temper and said that the other two Deputy Governors had accompanied the former Governor to the PDD and had also brought the instructions to the Tender Board.

In his submissions, he also said that he had initially objected to it and questioned them over the purpose of having a Tender Board, if the Governor himself could take such decisions. He further told the Commission about the telephone conversation which he had with former Governor Mahendran during the said Tender Board meeting where he had sought Mahendran’s reasoning for his decision.

“The former Governor said we are going to remove the 5% penal interest rate, once this is removed the interest rate structure will be brought back to the pre-2014 September level. These are very technical reasons. He also said there is a lot of liquidity in the market and that the Government has a borrowing requirement,” Samarasiri said.

He also admitted that the reasons given to the Tender Board by Mahendran to accept Rs 10.5 billion worth bids on that day are debatable.

As previously claimed by Monetary Board Secretary, H.A. Karunaratna that his minutes were changed by Deputy Governor Samarasiri, he (Samarasiri) also admitted the fact and said that he “did make some changes in order to put the decisions and the Governor in a better light.”

In his submission to the Commission, he also added that Karunaratna’s minutes-keeping was not up to standard and according to the Monetary Law Act the minutes are the responsibility of the Governor. The Deputy Governors are there to assist Monetary Board Secretary to prepare the minutes.
Further, the witness said that there was no confrontation at the Tender Board over the former Governor’s instructions except a request from Additional Director of the Statistics Department of the Central Bank, Dr. M.Z.M. Aazim and Additional Director of the Bank Supervision Department of the Central Bank, U.L. Muthugala to contact the Governor and assure the Board. He completely denied that Assistant Governor S. Sepala Ratnayake had voiced his opposition against the move and denied that Ratnayake had made an allegation that they would all have to go naked if they agreed to raise Rs 10 billion.

In addition, he also denied knowledge of the relationship of former Chief Executive Officer of the Perpetual Treasuries, Arjun Aloysius with former Governor Mahendran, until the media broke the news after the controversial deal.

Deputy Central Bank Governor P. Samarasiri on Wednesday testified before the Commission for the third consecutive day and said that the Monetary Board had taken a decision to remove him from the Tender Board membership. State Counsels of the Attorney General’s Department informed the Commission that they had a copy of the letter attesting to it and that the Monetary Board had decided to reconstitute all the members of the Tender Board until the proceedings of the Commission ended.

The letter which was dated March 20, 2017 had been served to the relevant officers on March 24. It was also said that the Monetary Board was of the view that “in the context of good governance and in order to enable a conducive environment for the ongoing proceedings of the Commission of inquiry it would be appropriate if the officers who were members of the Tender Board during the period from February 2015 to March 2016 not continue in their substantive positions until the findings of the inquiry are made”.

Counsels appearing for Mahendran again highlighted the fact which Samarasiri had previously said that no one had seriously gone against the former Governor’s decision at the Tender Board on February 27, 2015. Counsel Chanaka de Silva further asked Samarasiri whether any member of the Tender Board was forced to sign the agreement with the decision and Samarasiri in turn said that nobody was forced to sign and all had signed voluntarily.

Counsel Harsha Fernando who is appearing for Samarasiri raised his objection to the way in which the panel appointed by the Attorney General was leading evidence at the Commission. He said that there was too much pressure on a witness, which could not be tolerated in the context of a fact-finding mission.

However, ASG Dappula de Livera PC questioned certain statements made by Samarasiri again and again. He also questioned about the knowledge of Samarasiri on the direct placements and bond auctions and further suggested that the witness was making certain false statements before the Commission.

The fourth day of the hearing commenced with former Assistant Governor, S. Sepala Ratnayake, who was also a member of the Tender Board dealing with the issuance of controversial Treasury Bonds on Feb 27, 2015.  Ratnayake who had joined the Central Bank in 1983 had specialized in making money for the Treasury via Direct Placements. Testifying before the Commission on Thursday he said that he was “shocked” when he heard that the Tender Board was required to accept Rs 10.58 billion worth bids on that day’s auction.

Ratnayake told the Commission that he had not only asked why such a big amount was being accepted and had also proceeded to show the Tender Board members, the negative consequences that could result from such a move. However, he added that then Superintendent and Registrar of the Public Debt Department and incumbent Director of the Information Technology Department of the Central Bank, C.M Deepa N.K. Seneviratne had explained to the Board members about the instruction which she had received from then Governor Mahendran, to accept 10 times the amount of bids advertised in the press notice.

“I also wanted the Tender Board Chairman, P. Samarasiri to contact the Governor immediately and sort it out. Then Samarasiri attempted to contact the Governor via the intercom telephone line but he had been informed by the speaker on the other end of the line that the Governor was not in the office,” he said.

Then, Samarasiri had left the room and came after a few minutes, and informed the Tender Board members that he had contacted the Governor via his mobile phone and he had instructed him to accept the so-called amounts of the bids. He told the Commission that he was not ready to accept that unusual procedure and expressed his unwillingness saying that ‘better to leave our clothes here and go out naked after signing this’, in Sinhala.
He also said that Tender Board members’ objections were not included in the minutes those days and the same fact compelled him to make it compulsory to record the objections or displeasure in the minutes even if they were by a single member of the Tender Board.

Senior Deputy Solicitor General, Priyantha Nawana led the evidence on behalf of the Attorney General, and the Tribunal advised him twice to not put questions that prompts or encourages an answer which Nawana wanted to elicit out of the witness. Ratnayake also showed graphs prepared by himself and explained to the Commission how the so-called auction on February 27 had caused the Central Bank enormous losses.

The evidence by the Deputy Governor and the Assistant Governor gave an idea to the Commission that they had some personal issues between them. The Deputy Governor once said that the Assistant Governor was not much conversant with auctions and that he was from the non-banking sector. The Commission however did not allow him to proceed further. The Assistant Governor on the next day denied any personal dispute between him and the Deputy Governor. However, both clearly said that they had only an official relationship. There were also certain discrepancies regarding some of the facts revealed by the duo.

Following the Commission Chairman’s charge pertaining to the IGP’s inability to at least send an acknowledgement note in relation to the Commission’s request, a few Police officers were seen in the Commission premises on Wednesday. By Thursday, Assistant Superintendent of Police N.V. Lawrence who is attached to the Criminal Investigation Department had been assigned to assist the Presidential Commission of Inquiry into the Central Bank Bonds issue. The Commission will meet again on Monday, April 3.

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