The dramatic bond issue: How COPE

went beyond bioscope

After some 18 months of strenuous debate and the
UNPs defence of former CBSL governor
But footnotes added by UNP MPs as riders
Sunday, October 30, 2016

JVP parliamentarian Sunil Handunetti, taking the centre stage as

COPE chairman in probing the Central Bank bond scam is seen
here at the Parliament complex corridor carrying the final draft of
the widely awaited report. Pic by Indika Handuwela

By Our Political Editor

At no time before has the United National Party (UNP) used its
might so strongly in Parliament to try and block what it perceived
was a report not to its liking.
The first occasion was in June last year. The previous Committee
on Public Enterprises (COPE) had completed its probe on the
controversial Central Bank bond issue of February 2015. Its then
Chairman, Communist Partys D.E.W. Gunasekera was to table the
report but the seventh Parliament was dissolved on June 26, 2015
by President Maithripala Sirisena. The Committee, like all other
appointed parliamentary committees, became defunct and the
report was rendered invalid. That report had already made some
adverse findings on the Central Bank for the handling of the bond
issue of 2015.
Yet, the 19-page 2015 COPE document which was not official, had
received wide play in the media. The Sunday Times was even
reported to the Speaker for breach of Parliamentary Privileges by
Prime Minister Ranil Wickremesinghe on charges that it published
the contents of that report. The report made indictments on the
then Central Bank Governor Arjuna Mahendran and his son-in-law
Arjun Joseph Aloysius. It said that Governor Mahendran and
Perpetual Treasuries Limited, a company held by his son-in-law
Aloysius (who resigned two months before the transaction) but
was still co-owner of the holding company had a related party
transaction. However, President Sirisena did not grant an
extension of service to Mahendran as Governor when his term
expired in June last year amid high drama. The President had
wanted the Deputy Governor appointed but the Prime Minister
was insistent that Mahendran continue; then, there was a name

sent from the Prime Ministers Office (PMO) when the President
was adamant he would not extend Mahendran; that name was
sent back asking for more names and eventually the current
holder of the post, Dr. Indrajit Coomaraswamy, was chosen as the
compromise choice. Mahendran was thereafter inducted to the
PMO and was a member of official delegations that travelled
abroad with the Prime Minister and was introduced to heads of
state in the glare of television cameras.
As criticism against the National Unity Government mounted,
Prime Minister Wickremesinghe charged at a news conference on
July 7 last year that the Gunasekera document was illegal and
breached the Parliamentary Privileges Act. He charged that
Gunasekera had committed a major fraud by distributing a
document as part of a report.
The eighth Parliament of Sri Lanka, after the August 2015
parliamentary elections, picked the Janatha Vimukthi Peramunas
(JVP) Sunil Handunetti as the new COPE Chairman. The task of
probing the same Central Bank bond issue of February 2015 fell
on him and the new members. For 14 long months they
deliberated, examined evidence of Central Bank officials, Auditor
General Gamini Wijesinghe among many others.
Their report was reaching finality. Tensions began to grow at COPE
meetings as leaks in the media highlighted goings on. An internal
report of the Central Bank, published in the media, came out with
a bombshell stating that Perpetual Treasuries made an after-tax
profit of Rs. 5 billion from the bond issues, the one under probe
and others. The Bank reacted by trying to find out how its internal
report leaked, but the damage was done. There was renewed
public agitation to expose those involved.

Some of the UNP members in the Committee, some more than

others, took on an aggressive posture after it became clear the
emerging findings were going to embarrass the party. They had
hoped that Chairman Handunetti would agree to go over the final
draft paragraph by paragraph and delete what they wanted. They
were strongly critical of the affable Auditor General Wijesinghe
and declared his testimony could not be accepted. They were
accused of using aggressive language, abusing their privileges as
MPs on the AG who took things in his stride. One of the UNP MPs
said it was merely a debate they had with the AG. It was quite
clear that the independent AG had done a critical, forensic study
of the bond issue and faulted the former Governor.
However, eight of the 14 members present at a meeting (argued
as the majority then) had already placed their signature on the
final draft. The UNP members, particularly Ajith Perera, Harsha de
Silva and Sujeewa Senasinghe all deputy ministers
protested. They were to tell the Chairman that they would table
dissenting reports. So much so, Handunetti told the Sunday Times
last week he would have to allow even if all 26 members of the
Committee were to present dissenting reports. At one point, the
pressure from the UNPers was so high that he walked out in
protest, said Handunetti. He was determined and tabled the
report this week though the English and Tamil translations were
not ready.

At this stage came a

significant turn of events. It transpired that both in the case of the
COPE and the Public Accounts Committee (PAC), there was no
provision (in the Parliamentary Standing Orders) for members to
present dissenting reports. Nor was there any provision for them
to appoint an interim Chairman. Soon after Handunettis walk out,
the UNP MPs had in fact named Abdulla Mahroof (UNP) as the
interim Chairman. This, however, had no legal effect. Handunettis
JVP referred to this as a byescope (a cheap movie) punning on
the word COPE, and said attempts to hijack COPE were futile.
Harsha de Silva, however, told Parliament that he ran behind
Chairman Handunetti and pleaded with him to return to the chair.
With the news that no dissenting reports were permitted, nor
even an interim Chairman possible, public resentment (including
ordinary UNP supporters) mounting and the media taking the

message even overseas that it appeared the ruling UNP was

filibustering, its members began to backtrack.
De Silva expressed regrets if there were any hurtful remarks
against the Chairman. Ajith Perera went as far as to say the COPE
had found fault with former CBSL Governor Mahendran but
defended the Government. But what made this sudden
turnaround from the UNP come about even if all the above factors
were stacked against them?
The first indication emerged at the weekly ministerial meeting last
Tuesday. Minister Rauff Hakeem paved the way for Prime Minister
Wickremesinghe by raising a question. He wanted a discussion on
where the Government stood on the CBSL bond issue.
Wickremesinghe went on to make a statement. He said when the
issue had first been brought out, Deputy Minister of Foreign
Affairs (earlier deputy in the PMs office) Harsha de Silva had
written to the Central Bank asking for statistics on bond issues.
The CBSL had replied providing those details only up to the end of
2008. The Premier said he believed that no approvals have been
given by the Monetary Board of the CBSL for private placements
during the period thereafter.
He said there was the danger of the entire issue (that would
include transactions by Mahendran) becoming illegal if this was
the position. Finance Minister Ravi Karunanayake was to point out
that the amounts involved in the period after 2008 would be in
the region of more than four trillion rupees. Wickremesinghe said
he had asked the Attorney General to look into the matter and
give his opinion. The idea was to regularise the issue. Thereafter,
he would make a public statement, said Wickremesinghe. As a
senior Sri Lanka Freedom Party (SLFP) Minister, who did not wish
to be identified declared after the ministerial meeting, We want
to see whether such a move is intended to absolve Mahendran. As
far as we are concerned, the issue is not over and will not be over
with the impending opinion of the Attorney General. Apart from

those remarks, it also raises a question on why that lacuna was

not detected when issues were raised last year. Another minister
claimed that Nivard Cabraal, Governor of the Central Bank under
the Mahinda Rajapaksa administration, had obtained written
authority from the Monetary Board for bond issues even after
2008. He said he was in possession of a copy.
In this backdrop, a source said, the UNP consulted legal opinion.
That led to their members agreeing to the COPE report subject to
the inclusion of footnotes that placed on record their position.
Thus, they have placed on record for future use, possibly during
an investigation, what their position would be. During
consultations that got under way thereafter, Chairman Handunetti
agreed to the UNP stance on the matter. They would be
incorporated as footnotes. The Committees own findings were
further fine-tuned to keep to legal parameters. Thus, Handunetti
declared at a news conference on Friday, that all members of the
Committee had agreed to the recommendations. All but one as
anti-corruption crusader Ranjan Ramanayake of the UNP ducked
the whole issue by saying he had just returned from Japan and
was not able to study the final draft. Handunetti said no changes
had been made to it. Some voted without the footnotes included
whilst others did so after their inclusion, he pointed out.
We carried out investigations under the powers vested in
Parliament. This is a 55-page report. The annexures and
documents being tabled have another 1,900 to 2000 pages, he
told the news conference on Friday. He said the report covers the
allegations about financial misappropriation that had taken place
in the issue of Treasury bonds from February 2015 to May 2016
period. Handunetti revealed that the following 16 members
accepted the report without the footnotes. Sunil Handunnetti
(Chairman), Rauff Hakeem, Anura Priyadharshana Yapa, Dayasiri
Jayasekara, Lakshman Senewiratne, Lasantha Alagiyawanna,
Anura Dissanayake, Chandrasiri Gajadeera, Mahindananda

Aluthgamage, Bimal Rathnayake, Weerakumara Dissanayake, S.

Shritharan, Gnanamuthu Srineshan, M.A. Sumanthiran, Nalinda
Jayathissa, Mavai S. Senathirajah from the SLFP, JO, JVP, TNA
and the SLMC.
Those who accepted it subject to the inclusion of the footnotes,
he said, were: Ravindra Samaraweera, Wasantha Aluvihare,
Harsha De Silva, Ajith P. Perera, Ashok Abeysinghe, Hector
Appuhamy, Sujeewa Senasinghe, Harshana Rajakaruna, and
Abdullah Mahroof all of the UNP.
If the previous D.E.W. Gunasekera COPE document, which was
never tabled in Parliament but widely publicised, concluded that
Arjuna Mahendran and his son-in-law Arjun Joseph Aloysius were
involved in a related party transaction, the official Handunetti
report this week, some 17 months later, had a stronger
conclusion. It said; The Committee observes that evidence has
been disclosed that there has been reasonable doubt to the fact
that the former Central Bank Governor Arjuna Mahendran made
an intervention or used pressure in the transaction of bonds that
took place on February 27, 2015, which were examined by the
Committee.
The report adds: The Committee observes that it has been
disclosed there is reasonable doubt that some of the transactions
lack transparency and the manner the transactions took place
causes damage to the credibility of the Central Bank of Sri Lanka.
Also, it is observed that one of the primary dealers, Perpetual
Treasuries obtained large financial profits in the sale of bonds.
Therefore: In order to recommend penalties and other directives
against the Central Bank officials and Institutions responsible for
the transactions and in order to recover the losses incurred by the

public and Government, the Committee emphasises that legal

action should be initiated against the persons and institutions
responsible for the transactions.
The Committee also recommends a post-supervision system to
ensure that penalties and other directives issued are
implemented. In order to ensure to prevent the recurrence of
similar issues the Committee recommends that necessary checks
and balances are maintained and other necessary steps are
taken. To ensure that the Central Bank maintains the necessary
checks and balances and to ensure the post-supervisory steps are
implemented, the Parliament should directly intervene as it has
the fundamental responsibility on public finance.
The Committee emphasises that it is the responsibility of
Parliament to recover the losses incurred by the Government and
to act under existing laws and the Central Bank and related
institutions should give an assurance to Parliament that a suitable
mechanism is implemented to prevent the recurrence of such
incidents. The Committee also recommends that the Executive
should appoint a special supervisory team to observe the calling
and awarding of tenders of the Central Bank to raise funds.
The Committee recommends that a recognised institution with
legal powers should investigate and necessary measures should
be taken to prevent the recurrence of similar situations in which
the credibility and transparency of the Central Bank was seriously
affected by allowing a single institution Perpetual Treasuries
gaining undue profit as a Primary dealer. The Committee
recommends that state financial institutions should be given
priority in raising funds through bonds and the Central Bank
manual and other documents should include relevant clauses.

The Committee strongly believes that it is the responsibility of

the Central Bank as soon as possible to ascertain if the
Government has suffered losses through this transaction and
Perpetual Treasuries, as a Primary dealer has obtained large
profits during a short period which should be investigated by a
mechanism fully empowered to do so.
The Committee recommends that a post-supervisory mechanism
be established to supervise the markets of the primary dealers
and secondary market to prevent financial irregularities in future.
The Operations Guide of the Public Debt Department which has
not been updated so far, should be updated immediately with
mention that state institutions should be given priority in raising
funds by the sale of bonds.
Former Central Bank Governor Arjuna Mahendran is directly
responsible for the particular bond transaction and the Committee
recommends that legal action should be taken against him and
the relevant officials of the Central Bank. The Committee
recommends that the Exchange Control Act and other laws should
be amended in order to protect the credibility of the Central Bank
and ensure transparency.
The Committee believes that it is the firm belief that all
documents, information and evidence (though some of the
information is sensitive) should be submitted as soon as possible
keeping with the Constitutional powers on control of state
finances. Accordingly, the Committee is making these
recommendations and submitting the recommendations of the
Auditor General and his findings to parliament with the firm belief
that there will be an open discussion in Parliament on this report.

Here are highlights of some of the footnotes given to COPE

Chairman Handunetti and published in the report:
The 9.48 percent interest was determined by the Central
Bank interest rates and not determined independently based
on market rates. (Ref. page 22)
In the morning on February 27, 2015 (the day of the bond
issue) the Operational Committee decided that the
regulation that if a bank deposits money for more than three
days in the Central Bank the interest rate will be reduced
from 6.5 per cent to 5 per cent was removed. Thereby it was
restored to 6.5 per cent. (Ref page 22)
The time has been extended beyond 11.00 p.m. for one
buyer. That is for the HSBC for Rs. 100 million until 11.04.26
p.m (Ref page 23)
The evidence recorded shows that the Central Bank called
up primary dealers on the previous day and checked with
them about purchase of (bonds) for around Rs. 10 billion.
Perpetual Treasuries too received a telephone call. Perpetual
Treasuries auctioned for Rs. 3 billion at 12.5 per cent, Rs 5
billion at 12.75 per cent and Rs. 5 billion at 13 per cent and
shortly before the auction instructions were sent on email to
the Bank of Ceylon on February 27, 2015 at 10.48 am. The
Bank of Ceylon sent out the bids at 10.57.22, 10.57.41 and
10.57.57 respectively to the Central Bank. According to
records the HSBC bid was sent at 11.06 a.m. (Ref page 23).
The decision to increase the sum to be raised from Rs one
billion to Rs 10 billion was taken based on a professional
decision by a team, according to Chairman of the tender
committee P.Samarasiri. (Ref page 24)
According to Superintendent of the Public Debt Department
the former Central Bank Governor had not said Do it, but
instead had given the idea why dont you go for ten? Even
in the Auditor General report it is mentioned that the former

Central Bank Governor had told Ms Seneviratne Why dont

you go for ten ? and there is no other evidence contrary to
that (Ref page 24)
There is no evidence that former Central Bank Governor
Arjuna Mahendran or Deputy Governors Dr Nandalal
Weerasinghe and Ananda Silva made inquiries or intervened
in the particular auction (Ref. Page 37)
As is clear, the thrust of these footnotes is to make clear that
Mahendran has not been responsible of any impropriety.
The bond issue is undoubtedly one of the issues over which
tensions between the SLFP and the UNP, the two principal
partners of the Government, have grown high. The UNP is
confident that it can, through the documentation Deputy Minister
Harsha de Silva has received, prove its case that its man Arjuna
Mahendran is not to blame. However, it is another story with the
SLFP. Some of the frontliners have come out strongly calling for
action against the former Central Bank Governor and the alleged
irregularities in the transaction. At least in this, the pro-Sirisena
and the pro-Rajapaksa groups in Parliament appear to be on the
same platform.
We are asking for a debate on the COPE report before the
November 10 budget, Joint Opposition Leader Dinesh
Gunawardena told the Sunday Times yesterday. He said the
Opposition groups would not allow the bond scam to be a
forgotten issue. We are also writing to President Sirisena asking
him to appoint a Presidential Commission of Inquiry to probe the
matter, he added.
JVP leaders said that they would not permit the UNP to succeed in
protecting Mahendran and sacrificing his son-in-law only. Others
point out that COPE cannot give directives to a private company

like Perpetual Treasuries so when the UNP tries to clear

Mahendran and give the go-ahead to prosecute Aloysious only,
there may be legal obstacles in that exercise.
As is clear, the COPE report is meant for Parliament. Any further
action on the findings could see the emergence of a resolution. A
country and its people await the next phase on a controversy that
has gone on for over a year.
Local company gets huge housing project without
tendersA Rs. 1.2 billion project to refurbish the Nila Sevana
Housing Scheme is being awarded to a local company on the
basis of its reported past performance.
No tenders have been called or expressions of interest sought
from other parties.
The move comes on the joint recommendation from Development
Strategies and International Trade Minister Malik
Samarawickrema, and Public Administration and Management
Minister Ranjith Maddumabandara.
Making a case for the award of the project to Walkers CML, the
two ministers have said, The Nila Sevana Housing Project is a
joint project entered into in 2003 by the Board of Investment of
Sri Lanka (BOI), Ministry of Public Administration and Management
Reforms (now known as the Ministry of Public Administration and
Management) and a private company Wincon Development
Ceylon (Private) Limited (now acquired as Walkers CML Properties
(Private) Limited).
The Chairman of Walkers CML is Azmil Khalil Bin Dato Khalil, a
Malaysian national. Jehan Prasanna Amaratunga is the Group
Executive Director and Deputy Chairman whilst Dian Jayasuriya is
Managing Director and Chief Executive Officer.
Pointing out that the project was intended to increase the stock
of affordable housing in the country, the two Ministers have
noted that Selected underutilised crown lands suitable for
residential development were identified by the Ministry of Public

Administration and Management and vested with the Board of

Investment. These lands were then leased (zero value lease basis)
to Wincon Development Ceylon (Private) Limited for the said
purpose of development.
The pilot projects, it has been pointed out, have been spread over
two districts, Galle and Kandy, with the intention to cover all
districts over time. In Galle District, 1,088 apartments were built
across two sites 512 apartments in Wakunagoda and 576 in
Habaraduwa. Unfortunately, the initial developers (Wincon) were
unable to complete both projects due to funding constraints and
matters related to general lack of understanding on local
documentation processes and regulations. The project lay idle
from approximately mid-2011 to January 2015, the two Ministers
have said in their joint memorandum.
This joint memorandum adds: The 576 apartments in
Habaraduwa remain untouched since the completion of the initial
work in 2011. The nine buildings across 13 acres remain, to date,
in a general state of severe disrepair and are inhabitable without
infusion of a minimum of Rs 600 million to bring the complex to a
livable condition; it is understood that the market demand from
public sector employees alone for the offering at Habaraduwa is
insufficient to justify such additional investment.
It is learnt that the Habaraduwa project was brought over for
approximately Rs. 900 million and estimated that the apartment
can be sold to buyers for a sum of approximately Rs 1.3 billion,
after refurbishment, which makes it financially non-viable for
refurbishment, as is, infusing a further sum of Rs. 600 million.
The two ministers have claimed that market study shows that
there is a lack of affordable accommodation for foreign and local
tourists in the Habaraduwa area. They point out that most
places offering accommodation come in the form of high-end
luxury vilas or ad-hoc guest rooms which are mostly homes that
are temporarily converted. Hence, the duo wants the Cabinet of
Ministers to allow Walkers CML to develop it as a residential cum
tourism project with the infusion of Rs. 1.2 billion.

Posted by Thavam