Today we begin the re-publication of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002.
As we said yesterday, the Inquiry findings provide an unprecedented insight into the methods that are still being used today by the mobocracy that is routinely plundering our government finances. The inquiry uncovered for the first time how the Waigani mafia organise complex frauds using mate-networks, shelf companies, proxy shareholders, and a willing fraternity of lawyers, accountants, bankers and other expert professionals. The Commission findings also reveal the one grand truth at the centre of all the corruption in Papua New Guinea: it is pure theft, no different from an ordinary bank robbery. However, if you steal the money by setting up, for instance, a bogus land transaction, the crude nature of the criminal enterprise is disguised to all but forensic experts, making it seem the perfect crime!
National Provident Fund Final Report
SINCE Prime Minister Sir Michael Somare tabled the findings of the NPF Commission of Inquiry in Parliament on November 20, numerous people have inquired about copies of the final report. For the benefit of our readers, the Post-Courier today [27 November 2002] begins a serialised edited version of the NPF Final Report.
SUMMARY OF EVENTS – 1995-1999
Pre 1995 – background
The NPF commenced operations in 1980. After troubles with the management of the fund in the late 1980’s involving unauthorised expenditure by management and serious cost blowouts, the management of operations and investments was contracted in 1988 to Niugini Asset Management, a subsidiary of McIntosh Securities Ltd for a five-year period.
At the end of the contract period in 1993, the period of external management ceased and NPF carried on as a self-managing entity. According to the Five-Year Development Plan 1995-99 (Schedule 1, paragraph 6.1) the Niugini Asset Management regime had stabilised the fund and introduced good corporate governance, with management reporting properly to the NPF Board and being properly supervised by the board.
It had been intended that senior management positions would be staffed by experienced expatriates tasked with training nationals as middle-level management to replace them when ready.
NPF was unable to recruit and hold the expatriate senior managers. In July 1993, Robert Kaul was appointed as managing director with expatriates Brendan Kelly and Jeffery Bunn as general manager and operations manager, respectively.
Noel Wright, a former employee of Niugini Asset Management, stayed on as finance and investment manager. The chairman of the board was the experienced secretary of the DoF, Gerea Aopi.
The other members of the management team were Herman Leahy as corporate secretary/legal counsel and the following inexperienced officers, Ian Tarutia (assistance compliance manager), Nellie Andoiye (assistant operations manager) and Salome Dopeke (assistant finance and investment manager).
Appointment of new management team — 1995
This team did not last because Mr Kelly and Mr Bunn departed the NPF before the end of 1995.
Mr Wright was soon promoted to deputy general manager and Mrs Andoiye, Ms Dopeke and Mr Tarutia were promoted into senior management positions for which they did not have the training, skills or experience.
Mr Aopi ceased to be Secretary of the DoF and chairman of NPF on October 3, 1995, and was succeeded in both roles by Rupa Mulina on October 4, 1995. Mr Mulina preferred not to act as chairman of the NPF (perceiving a conflict of interest in the two roles of Secretary of the DoF and chairman of the NPF Board).
Mr Mulina agreed to be replaced as chairman by Evoa Lalatute who was irregularly appointed by Minister Chris Haiveta on January 11, 1996 (Schedule 1, paragraph 18.104.22.168.1 and paragraph 1 in Appendix 1). Mr Lalatute chaired only one meeting before his appointment was revoked by Minister Haiveta who wished to appoint Trustee David Copland as chairman.
DoF Secretary Mulina gave evidence that he co-operated willingly and nominated Mr Copland as chairman and this was promptly approved by Minister Haiveta on April 18, 1996 (Schedule 1 paragraph 22.214.171.124 and Appendix 2, Paragraph 2).
1996 team with Mr Copland as Chairman
Thus, by April 18, 1996, the key players in the management of the NPF were Mr Copland (former managing director of Steamships Trading Company Limited (STC) as chairman of the Board of Trustees, Mr Kaul as managing director, Mr Wright as deputy general manager/ investment manager and Mr Leahy as corporate secretary/legal counsel.
This team had a close relationship with Minister Chris Haiveta, who frequently used an office in the NPF premises (The names of the Trustees at any time can be ascertained from the table set out at paragraph 5.1.1 above) or from the graph at Schedule 1, Appendix 22 (Also at Appendix of this report).
Prior to this date, NPF was following a conservative investment strategy and its only borrowing was that it operated on a K6.5 million-overdraft facility granted by the PNGBC (Schedule 2A, paragraph 2.4). There was no power for NPF to operate on overdraft and this overdraft had never been disclosed to or approved by the NPF Board. See the opinion of Allens Arthur Robinson at Schedule 2E, Appendix 6 referred to at Schedule 2E paragraph 14.6 and the Commission’s findings at Schedule 2E paragraph 18.3.
New investment strategy approved by Minister Haiveta
The new NPF team of Mr Copland, Mr Kaul, Mr Wright and Mr Leahy prepared a strategy to increase the growth of the fund by investing in PNG resource stock, which could be sold off profitably to make a tax-free capital gain.
They also determined to take advantage of an imminent sale by the Defence Force Retirement Benefits Fund Board (DFRBF) and POSF of their holdings in STC and CXL.
This strategy was devised in order to take advantage of existing market and interest rate conditions and with a nationalistic but misguided intention to enable Papua New Guineans to be able to participate (through their NPF membership) in the resource companies with interests in PNG.
The intention was to obtain significant holdings in some of the smaller companies, so as to acquire seats on their boards and a massive holding in STC and CXL, in a bid to take them over and amalgamate and manage them as one company.
This latter aim was related to Mr Copland’s personal agenda, which was rooted in the circumstances of his departure from his former position at STC.
Rather than selling NPF’s holdings in IBD’s (which were then producing a good investment return) they opted to fund the proposed purchases of PNG equities by massive borrowings from the commercial banks, as interest rates were then favourable.
Utilising borrowed funds for this purpose had been discussed previously in 1994 and Mr Leahy had then given totally wrong advice that it was within NPF’s power to borrow (Schedule 2A paragraph 2.2).
There seems to have been no consideration that interest rates on borrowed capital might rise or that share prices might fall.
The strategy was discussed with an enthusiastic Minister Haiveta who gave immediate verbal approval at a meeting at the Gateway Hotel in April 1996.
Formal board approval was given on May 30, 1996, with no briefing papers for the board and little discussion. This was followed by immediate ministerial approval by Mr Haiveta, who did not seek the advice of the DoF. In this way, with little thought and no expert advice, the NPF board and Mr Haiveta approved the use of funds borrowed illegally from the ANZ Bank to purchase K39.7 million worth of shares in STC and CXL.
It was improper conduct for which the Commission has recommended that Mr Haiveta and the NPF Trustees in office at the time, should be referred to the Ombudsman Commission to investigate whether there has been a breach of the Leadership Code (Schedule 4D, paragraphs 4.4.1 to 4.4.6).
During the rest of 1996 and 1997, the NPF proceeded to increase its borrowings in order to invest in PNG resource stock and in STC and CXL.
It also invested in unlisted companies such as Crocodile Catering (Schedule 4L), BSP (Schedule 4J) and made investment loans to the State to fund the Poreporena Freeway (Schedule 7B) and Eda Ranu (Schedule 7C). In 1997, NPF borrowed K50 million from the PNGBC to construct the NPF Tower (increased to K59 million in 1999 – Schedule 2B, paragraph 13.15).
Although a few of these investments were moderately successful (namely, Schedule 4H, OML and Schedule 4F, NML) most of them resulted in massive losses for the NPF.
Failures of management
Throughout the period 1995-1999, common features of the equity investments included management’s failure to keep the NPF board informed of its activities and management making decisions in excess of their delegated authority.
Management made many investments without ever specifically advising the Board of Trustees.
The main responsibility for such matters lies with the managing directors, Mr Kaul and Henry Fabila and with the deputy general manager and investment manager Mr Wright, all of whom committed frequent breaches of their fiduciary or common law duties.
These events are chronicled in detail in the relevant Schedules to this Report.
Failures of the Trustees
The trustees must also bear responsibility for failing to oversee and control the management. Even when the trustees were eventually informed of management’s unauthorised activities, they failed to criticise or reprimand.
Also, had they bothered to examine the schedules of investments tabled at each board meeting, the trustees could have ascertained what was going on. Their failure to do so was a breach of their fiduciary duty to the members.
Failure to report and breach of investment guidelines
NPF was bound by Section 26(1) of the NPF Act to invest its funds only in accordance with the 1993 Investment Guidelines, as varied by Minister Haiveta in April 1996 (regarding overseas investment in equities listed on a stock exchange up to K1 million per transaction) (Schedule 1 paragraph 8.4 and Appendix 21). The NPF was also bound by Section 63(2)(b) of the PF(M) Act to maintain, update and report annually on a Five-Year Rolling Development Plan.
It was also bound to report quarterly on all investment decisions and on investment performance annually (Executive Summary 1, paragraph 10). The NPF management and Board of Trustees failed to meet any of these requirements.
Adhering to no expressed investment policy, NPF seems to have merely followed the gambler investor’s instincts of Mr Wright and Mr Copland and invested many millions of illegally borrowed funds in high-risk, volatile, non-earning PNG resource stock.
It did this without independent expert advice. The advice it sometimes received from its share broker, Wilson HTM, was not independent, as Wilson HTM was itself benefiting from NPF’s high-risk buying spree (Schedule 4B paragraph 7.6).
NPF management and trustees completely lost sight of the investment guidelines, as can be seen from the graphs and working documents appended to Schedule 1 as Appendix 24 NPF’s portfolio changed alarmingly from having only 8 per cent of its portfolio invested in high-risk equities in 1994, increasing to 20 per cent in 1995 which had risen to 58 per cent in 1996, 64 per cent in 1997 and 60 per cent in 1998.
During the same period, debt as a percentage of net assets rose from 5 per cent in 1994 to 70 per cent in 1998. By that stage, because of NPF’s heavy illegal borrowings, the debt to equity ratio was 69.9 per cent.
There was one fleeting attempt by managing director Mr Kaul to raise the awkward question of the disregarded Investment Guidelines in April 1996 (Schedule 1 paragraph 12.3.7).
This warning was simply ignored by Mr Copland and Mr Wright, except that at the 104th board meeting in December 1996, the board resolved to seek amendments to the investment guidelines to distinguish between long term and speculative investments (paragraphs 126.96.36.199 and 188.8.131.52).
It did not bother them that their expenditure of NPF funds on investments which were outside the investment guidelines, was illegal and was also a breach of their fiduciary duty as trustees, for which they could be personally liable.
When William (Bill) Skate replaced Sir Julius Chan as prime minister in July 1997, Iairo Lasaro also replaced Mr Haiveta as the Minister responsible for the NPF.
Financial crisis looming in 1998
By early 1998, there were signs that NPF was in financial trouble because of the extreme imbalance and volatility of its investment portfolio, its falling value and the increasing burden of the interest being paid on the loans.
The chronic weaknesses in NPF’s governance continued with management under the control of Mr Kaul continuing to make significant decisions beyond their delegated powers and still failing to keep the NPF board properly informed on borrowings and investments. The trustees continued to give undue deference to chairman Copland and deputy managing director Noel Wright and failed their fiduciary duty to maintain supervision over management.
As reports by the Auditor-General, PwC and KPMG (See Schedule 1 paragraphs 10.5.2 to 10.5.8) demonstrate, senior management was incompetent and failing in the basic duties of maintaining a proper system of accounts, maintaining proper records of member’s contributions and administering proper procedures for acquiring goods and services and disposing of assets (Schedule 1 and Schedule 9).
There were also gross abuses of the payments of board fees and allowances (Schedule 1 paragraph 5.3.7 and 184.108.40.206 and Appendixes 16 and 19 referred to where irregularities are described in detail regarding Trustees and officers).
Appointment of Mr Skate’s protégé Henry Fabila as Managing Director
In May 1998, Prime Minister Skate arranged for his good friend and former colleague at the National Capital District Commission (NCDC) Henry Fabila to replace Mr Kaul as managing director, thereby invoking a substantial wrongful termination payout (Schedule 1, paragraph 220.127.116.11). Although Mr Fabila had experience as a former banker and public administrator, he did not succeed in injecting strict rules of governance and accountability into the NPF. He found himself powerless to control his deputy Mr Wright and unable to work with Mr Wright’s protector, chairman Copland.
Together with Mr Leahy, he set about obtaining the removal of both men. Mr Fabila was also beholden to Prime Minister Skate for his job, which compromised his independence as managing director and trustee of the NPF.
Meanwhile, the economic tide had turned well and truly against NPF. As described in executive summary 2E paragraph 13 and Appendix 5, the value of NPF’s substantial concentration of investments in PNG resource stock was tumbling, the interest rates were rising and the value of the kina was falling.
NPF had used borrowed funds to acquire its risky equity portfolio and was obliged to pledge more and more of its assets to the banks as security for its increasing debt burden, as it had undertaken to maintain a very high ratio of security to debt with the banks (This is described in detail in Schedule 2E, paragraphs 3.2; 5 and 6).
Banks seek to call in NPF’s debts – 1998
The ANZ was becoming alarmed at the increasingly frequent breaches by NPF of its loan covenants and was demanding that NPF reduce the debt. The Asian economic crisis was in full swing and NPF had encumbered itself with the huge NPF Office Tower construction project, funded by a K50 million loan from the PNGBC. The project struck time-consuming trouble with the beneath ground foundations (Schedule 6, paragraphs 4.1-4.9 and executive summary 3.2) and chose to pay a K1.4 million acceleration payment to make up the lost time. Then the falling kina eroded into the profits of the construction company Kumagai Gumi Co Ltd (Kumagai), leading to a K6.6 million kina devaluation claim, which was settled by agreement at K3.3 million.
As the construction costs mounted and the completion date blew out, NPF was faced with the fact that it had not secured in advance a single tenant and the demand for office space in Port Moresby was contracting with the economic crisis (The final cost of the Tower was K59.68 million).
With the lender banks turning hostile towards the end of 1998, Mr Wright desperately sought to bring his impractical and misguided attempt for NPF to issue a $A54 million bond to completion, so as to raise much needed cash (Schedule 2F and see paragraph 9 below).
Dismissal of Mr Copland and resignation of Mr Wright
In September 1998, Mr Fabila’s attempt to rid himself of Mr Copland as chairman succeeded and he was terminated because he had long ago ceased to be an employer in PNG and was therefore no longer qualified to be a trustee. He was succeeded by Brown Bai, the newly appointed Secretary of DoF, as chairman. At the 115th NPF board meeting on November 6, 1998, the new chairman, Mr Bai, jolted the NPF management and trustees out of their apparent stupor by asking if they knew what they were doing.
He asked how they intended to tell the members of the mounting losses then believed to be in excess of K40 million. The NPF Tower was incomplete and was suffering cost overruns. There was a cash crisis and Mr Wright was failing to bring the unworkable $A54 million bond to fruition. Mr Copland had gone and Mr Wright was forced to resign in January 1999.
Also in January 1999, at Mr Bai’s instigation, PwC was commissioned to report upon NPF’s financial situation. Paul Marshall of PwC soon told the NPF board about the disastrous imbalance in the investment portfolio. NPF was trapped in a vicious circle caused by the tumbling value of its equity portfolio (which required more and more scrip to be pledged as security for the bank loans) and the rising interest rate burden on NPF’s massive debts to the banks, then running at more than K1 million per month.
Even before his report was published, Mr Marshall was proactively negotiating with the banks and this led eventually to the commencement of the massive selldown of NPF’s assets agreed to by the NPF board by circular resolution in March 1999.
While these attempts to save the financially stricken NPF were under way, others had a very different agenda.
Appointment of Jimmy Maladina as Chairman of NPF orchestrated by Prime Minister Skate — January 1999
Prime Minister Skate had already decided to have Jimmy Maladina appointed as chairman of the NPF and this was known to both Mr Maladina and Mr Leahy by September 1998.
The NPF Tower and Waigani land frauds
In December 1998, Mr Maladina contacted Mr Tanaguchi of Kumagai, the NPF Tower construction company and put in motion a scheme, using that company, to defraud NPF of K2.5 million.
In December 1998, Mr Skate directed Mr Bai to stand down as NPF chairman and nominate Mr Maladina in his place. This was done and Mr Maladina was appointed chairman on January 27, 1999.
Together with Mr Leahy, they immediately arranged (by trickery) for the NPF board to reverse its previous decision and it resolved to purchase the Waigani Land (by purchasing shares in Waim No. 92 Pty Ltd which held the lease). This would bring a fraudulent profit of several million kina to Mr Maladina who secretly owned the shares in Waim No. 92 Pty Ltd.
Thus, even prior to his appointment to the NPF board, Mr Maladina, in criminal association with NPF’s legal officer/corporate secretary, Mr Leahy, was involved in two attempted frauds against the NPF, concerning the NPF Tower (Schedule 6) and the Waigani Land (Schedule 5) both of which are reported upon at paragraphs 15.11 and 15.12 respectively, below.
When news of the proposed sale of the Waigani Land to the NPF broke in the national press, Prime Minister Skate publicly forced the NPF to pull out of the deal.
Full extent of NPF’s financial crisis emerges
In February 1999, NPF engaged PwC to review its investment portfolio. In March, PwC reported on the volatile imbalance of NPF’s high-risk portfolio and the burden of the heavy borrowings.
PwC was engaged to address the cash flow crisis and by mid-March, was discussing selldown of assets with the banks. The selldown strategy was approved by circular resolution and began immediately.
The conspirators, meanwhile, were trying to sell 50 per cent of the NPF Tower to the PNG Harbours Board (PNGHB), thereby hoping to make a fraudulent commission (through Maurice Sullivan of PMFNRE) of 5 per cent aggregating K5 million (see Schedule 6, paragraph 13.1.4 and paragraph 15.11.1 below). By mid-year, Rod Mitchell had been appointed as general manager in place of Mr Wright, and John Jeffery had been newly appointed as a trustee.
They were in close contact with Mr Marshall of PwC. Mr Bai, as Secretary of DoF, appointed a team of finance inspectors to inquire into the financial affairs of the NPF and to look at worrying aspects of the proposed Waigani Land deal, which were becoming public knowledge. To start with, Mr Fabila and Mr Leahy failed to co-operate with the finance inspectors, until threatened with serious consequences by Mr Bai.
Around this time, the balance of power and the atmosphere at NPF headquarters began to change.
A second PwC report was commissioned and the finance inspectors report was published and Mr Mitchell and Mr Jeffery raised questions about Mr Maladina and Mr Leahy in September 1999.
At an October meeting of the NPF board, Mr Mitchell and Mr Jeffery tabled a special report on many irregularities, including the Waigani land deal. Mr Maladina sought, unsuccessfully, to block the meeting and did not attend.
Complaints levelled at Mr Maladina and Mr Leahy
Serious charges were levelled at both men, especially about their part in the Waigani land affair. This led eventually to the termination of their appointments as corporate secretary and chairman of NPF respectively. To conclude matters, KPMG were appointed by the Auditor-General to carry out an audit and report on the NPF as there was talk about a forced 50 per cent write down of members’ assets.
Assets selldown amidst confusion
The selldown of assets was completed at huge realised losses to NPF in the vicinity of K150 million. As 1999 drew to a close, NPF, with Mr Fabila as managing director, was in a state of confusion and near bankruptcy. It closed down Crocodile’s Maluk Bay operation without providing a caretaker budget for the assets.
While trying to sell off assets to raise much needed cash it nevertheless continued to try and finance the doomed Ambusa Copra Oil Mill project under Mr Mekere’s insistence (Schedule 4N) and unexpectedly purchased a new motor vehicle fleet (Executive Summary 9, paragraph 2.6). Gradually, Mr Mitchell brought financial reality to the fore and was appointed as managing director to replace Mr Fabila on July 17, 2000.
Establishment of Commission of Inquiry
Amidst great disturbance, among NPF members and significant political unrest, Sir Mekere Morauta then established this Commission of Inquiry into the affairs of the NPF in accordance with the Terms of Reference published above at paragraph 2.1, which include a requirement to recommend structural reforms.
Without waiting for the commission to report, the Prime Minister set up a Superannuation Taskforce to make recommendations for a new Superannuation Act. The commissioners, counsel assisting and consultants held consultations with the taskforce and the commission provided a forum by way of a seminar on the structural reform of NPF where there was a very good exchange of ideas by people with experience in the affairs of NPF and superannuation generally.
The taskforce recommendations led to the drafting of the Superannuation Bill 2000, which was enacted into law, coming into force in 2002. The commission is in general agreement with the provisions of the new Act as discussed at Schedule 1, paragraph 21.
Attempts to “cover-up” Mr Maladina’s offences and interfere with the Inquiry
During the commission’s investigations into these two frauds in 2000, there were attempts made to “cover-up” the activities of Mr Maladina. These involved two lawyers, Simon Ketan and Jack Patterson, who, at Mr Maladina’s instructions, fabricated documents and removed documents from files, which had been summonsed by the commission. Both admitted the offences and have been referred to the Commissioner of Police for investigation. David Lightfoot and Barbara Perks, both of Carter Newell Lawyers, have also been referred to the Commissioner of Police to investigate their possible role in this “cover-up”.
Possible similar scams to defraud other PNG institutions
While investigating these matters and while examining bank accounts of the companies and persons involved, the commission located evidence that other very large sums of money were being “laundered” during that period through the books of Carter Newell and PMFNRE and that similar scams involving the Investment Corporation, the PNG Harbours Board and the DFRBF were occurring.
The commission is aware and has taken judicial notice of the fact that this was the period leading up to the time when a vote of no-confidence against the Prime Minister in the National Parliament would be possible under the law. It is usual that large sums of money change hands during such times in order to obtain support from members. There was evidence that “political camps” were established and that Mr Maladina was an active political organiser at that time. Perhaps, some of the moneys raised in the two frauds against the NPF were intended for political purposes, but the commission lacks the evidence to make such a finding.
A second Commission of Inquiry has been set up to investigate the funds lost from the DFRBF and the affairs of its chairman Kelly Naru, who is one of Mr Maladina’s fellow legal partners in Carter Newell lawyers (now Pacific Legal Group).
Yesterday we announced our intention to republish over the coming weeks the findings of the National Provident Fund Commission of Inquiry (2000-02) and we presented a summary of the background to the whole NPF saga.
The Inquiry findings provide an unprecedented insight into the methods that are still being used today by the mobocracy that is routinely plundering our government finances.
The inquiry uncovered for the first time how the Waigani mafia organise complex frauds using mate-networks, shelf companies, proxy shareholders, and a willing fraternity of lawyers, accountants, bankers and other expert professionals.
The Commission findings also reveal the one grand truth at the centre of all the corruption in Papua New Guinea: it is pure theft, no different from an ordinary bank robbery. However, if you steal the money by setting up, for instance, a bogus land transaction, the crude nature of the criminal enterprise is disguised to all but forensic experts, making it seem the perfect crime!
Tomorrow we will publish the first installment from the serialization of the Commission of Inquiry Report that first appeared in the Post Courier newspaper from November 2002.
But first, by way of further introduction, below is the speech given by Prime Minister Michael Somare on presenting the Commission Report to Parliament…
NPF – NATIONAL PROVIDENT FUND – TABLING OF THE FINAL REPORT OF THE COMMISSION OF INQUIRY INTO THE NATIONAL PROVIDENT FUND
by RT HON SIR MICHAEL SOMARE GCMG CH, PRIME MINISTER
NATIONAL PARLIAMENT, WEDNESDAY 20 NOVEMBER 2002
I rise to table the findings of the Commission of Inquiry into the National Provident Fund that was established in April 2000, after a special audit report showed that the NPF had suffered enormous losses in excess of K155 million, that it had failed to honour its reporting obligations and that it faced a 50 per cent write down in members funds.
There was also an indication that there had been gross abuses regarding an attempt to sell some property known as the Waigani land to NPF at a grossly excessive price and similar abuses regarding the construction and attempted sale of the NPF Tower (now known as the Deloittes Tower).
The Commission was established with wide terms of reference to examine all NPF’s equity investments, its purchases and management of a company called Crocodile Catering (PNG) Pty Ltd and other investments.
The Commission was asked to examine the conduct of the NPF Trustees and management to see if there were breaches of duty and other abuses and to look specifically at the Waigani land deal and the NPF Tower.
Finally, the Commission was asked to report upon the legislative structure governing the NPF and to make recommendations for structural reform.
The first Chief Commissioner, Sir Charles Maino, resigned early in the piece to contest a by-election and he was replaced with former National and Supreme Court Judge, Mr Tos Barnett. The other Commissioners were Lady Whilhemina Siaguru and Mr Donald Manoa.
The Commissioners, with Mr John Reeve as Senior Counsel assisting the Commission, set about their investigations vigorously calling in documents on 34 major topics to be investigated as well as summonsing hundreds of witnesses to give evidence.
In order to be transparent, the Commission published the Transcript of its daily hearings on the Prime Minster’s website, and gave everyone implicated an opportunity to appear and be heard.
The Commission has found that the losses suffered by the Fund were even worse than has been suspected.
The report, states that by far the main cause of the losses was NPF’s outrageous investment strategy during the 5 years under review by the Commission – 1995 to 1999. Under the chairmanship of Mr David Copland (former managing director of Steamships Trading Company Limited) NPF formulated a policy to borrow massively from the commercial banks to fund its investments in PNG resource stock, mining and exploration companies.
It bought into these investments when prices were high and it borrowed the funds when the interest rate was low. But these were volatile, risky, non-income producing investments and their price was about to tumble as the South East Asian financial crisis of 1997 – 1998 loomed.
The report also states that the NPF also invested more than K40 million of borrowed funds in a doomed attempt to take over Steamships Trading Company and Collins & Leahy Holdings, paying top market price for the stock, which was also about to fall in value.
Then three things happened: –
- the share prices fell;
- the interest rate on NPF’s borrowed funds rose and
- the Kina depreciated against the Australian dollar.
NPF was trapped. As its interest rate burden rose to K1 million per month, it was obliged to transfer more and more share scrip to the banks for security.
Much of this debt was with the ANZ Bank. Just as it was becoming difficult to meet the interest payments and to honour the agreement with ANZ about the value of shares pledged as security, NPF borrowed a further K40 million from PNGBC to construct the NPF Tower.
According to the report, the NPF’s management failed to perform due diligence in relation to the investments and failed to keep the NPF Board of Trustees informed. Frequently management acquired shares without the Board’s authority and also entered agreements without authority.
The Commission has found that NPF’s senior officers – the managing directors, Messrs Robert Kaul and Henry Fabila, the Investment Advisor, Mr Noel Wright and the Corporate Secretary/Legal Adviser, Mr Herman Leahy, were in breach of duty and suggests that in some instances the actions of some of them were criminal.
The Commission has made recommendations that many people be referred to the Ombudsman Commission and some to the Commissioner of Police for further investigations.
Similarly, it has found that the Trustees are in breach of their fiduciary duty to the members for not keeping management in check and for not seeking independent expert advice before investing multi millions of Kina in risky stock.
The commission also found that the NPF management and Trustees ignored and sometimes deliberately violated the Investment Guidelines, which were laid down by Sir Julius Chan in 1993. These were designed to make sure that this superannuation fund (NPF) invested members’ funds carefully and prudentially.
One of the strangest things found by the Commission is that NPF never had the power to borrow money in the first place. The banks failed to make proper inquiries and made these vast loans, which were illegal and probably not recoverable.
When NPF’s cash crisis had brought it to the verge of bankruptcy it was obliged to sell off its assets to repay the debt, which it could no longer service. By that time, however, the share price for NPF’s narrow range of PNG resource stock was very low and when NPF tried to sell down large volumes of those shares, it brought the price down even further so that NPF realised massive losses.
The Commission has reported that while NPF was facing and addressing this crisis in 1999, its newly appointed chairman Mr Jimmy Maladina and the Legal Officer, Mr Herman Leahy (assisted by the late Mr Henry Fabila) set about defrauding the NPF of some K5 million by means of the Waigani land fraud, which the Commissioners say involved the bribery of Lands Ministers Viviso Seravo and Dr Fabian Pok and Lands Board Chairman, Mr Ralph Guise.
The Commission has laid out the evidence against these people in Schedules 5 & 6 and many others in great detail – most of it documented – and has recommended that I should refer them to the Commissioner for Police and to the Ombudsman Commission.
The Commission’s report includes charts, which trace the trail of money from the original fraudulent payments through many transactions and in and out of the books of Carter Newell Lawyers and Port Moresby First National Real Estate, to the ultimate beneficiaries, their families and companies.
Each transaction shown on the charts carries the paragraph number in the Schedule where that transaction is described.
Although the amounts lost to NPF from criminal activities are said to amount to only about K5 million of the approximately K170 million losses, it is still a significant sum which the Commission has found was stolen from NPF by those responsible for managing and safeguarding the members assets.
The Commission has presented tables of all those persons it has recommended that I should refer to the Commissioner for Police or to the Ombudsman Commission, the Law Society and other professional bodies.
I now commend this report to the house and call on the appropriate authorities to take action forthwith
It is 13 years since the National Provident Fund Commission of Inquiry reported its findings on the fraud and mismanagement in our national superannuation provider through the late 1990s.
This means there is now a whole generation of young people who know almost nothing about the corruption that defrauded over 50,000 ordinary people of their savings and which involved many of our current leaders and public figures, including the Prime Minister, Peter O’Neill.
To try and close this important gap in our collective memory and to remind us all of the Commission Findings and the lack of subsequent action against many of those implicated in the corrupt loans and fraudulent building projects, PNGExposed is embarking on a major exercise to republish the Commission findings.
The full report of the Commission of Inquiry has never been publicly released, but over the next few months we will republish the serialization of the Report findings that first appeared in the Post Courier newspaper in 2002.
We begin though with a short summary of the history of the National Provident Fund and the Commission’s main findings (adapted from Wikapedia).
Tomorrow we will publish the Statement made by the Prime Minister Michael Somare when he tabled the Commission of Inquiry Report in Parliament. On Wednesday we will begin the republication of the Post Courier’s serialization of the Commission findings.
The National Provident Fund (NPF) of Papua New Guinea was established in 1980.
In the late 1990s there was concern about NPF’s financial liabilities and several allegations of fraud and mis-management.
Between 1996 and 1997, the NPF had increased its debt by approving illegal loans from both domestic and foreign commercial banks as well as engaging in two fraudulent projects; the attempted purchase of the Waigani land and the construction of the NPF tower, which further contributed to its losses.
As a result, in early 2000, NPF fund managers announced a write down of 50 percent in all member contributions made before December 1999, equal to almost K114 million. But a special audit report revealed that the total losses were actually in excess of K155 million.
As a result of these findings the government established a Commission of Inquiry in April 2000 to examine the financial dealings and the allegations of fraud.
The Commission was chaired by former Judge, Tos Barnett, who had previously chaired the inquiry into the logging industry. Barnett was assisted by commissioners Donald Manoa and Lady Wilhemina Siaguru.
The Commission reported its findings in November 2002, but.to date that report has never been made publicly available
The Fund was finally dissolved in 2002 and its assets transferred to NASFUND
Waigani Land Fraud
The Commission of Inquiry found that in 1999 NPF Chairman, Jimmy Maladina had influenced the Fund to purchase a piece of land in Waigani, which he secretly held an interest in, at an exorbitantly inflated price.
Maladina had acquired the lease for the Waigani land in 1997, via his company Waim No.92 Pty Ltd, at a reduced price of PGK1.4 million, instead of the market value of PGK2.87 million. The Commission found that Maladina negotiated this reduction by bribing the chairman of the Lands Board, Ralph Guise, and the Lands Minister, Viviso Seravo.
Following his appointment as Chairman of the NPF in January 1999, Maladina with NPF’s Legal Advisor, Herman Leahy, arranged for NPF to purchase the rights to the Waigani Land, by purchasing a 100 percent shareholding in Waim No.92 for an inflated price of PGK10 million. Maladina had not declared that he held an interest in Waim No.92.
However, when news of the proposed acquisition was published in the national media, the ensuing outcry against the exorbitant price led Prime Minister Bill Skate, to force NPF’s withdrawal from the purchase.
NPF Tower Fraud
The Commission of Inquiry also found that Jimmy Maladina, Herman Leahy and Peter O’Neill had profited by K2.5 million in a fraudulent scheme involving Japanese construction firm, Kumagai Gumi.
Kumagai Gumi was contracted by NPF to build what is now known as the Deloitte Tower in Port Morseby, in 1997. The project was beset by delays and overran its initial schedule, which when coupled with the devaluing of the Kina in 1998 and 1999, reduced the profitability of the project for Kumagai Gumi and led it to register a devaluation claim against NPF.
Maladina agreed with Kumagai general manager, Shuichi Taniguchi, that he would ensure that NPF pay out a K5.8 devaluation settlement provided that K2.5 million of this then be paid to Maladina, by way of commission. The monies were paid as agreed and the PGK2.5 million was shared between Maladina, O’Neill and Leahy.
The Deloitte Tower is now owned by NASFUND.
Charges against Jimmy Maladina and Peter O’Neill
As a result of the Inquiry findings, Maladina was referred to the Commissioner of Police, but fled to Australia to avoid arrest. The government of PNG applied for the extradition of Maladina from Australia, but he returned to PNG voluntarily.
The Commission also referred then Treasurer Peter O’Neill to the Commissioner of Police for his involvement in both the NPF Tower fraud and the Waigani land case. O’Neill was brought before the Waigani Committal Court in 2005 and charged with misappropriation, but the charges were dropped.
Australian investors, business community and government ignore illegal logging, human rights abuses and corruption in their pursuit of profits
Papua New Guinea’s worst human rights abuser and forest destroyer is being welcomed into the Australian business community with the listing of Kina Securities on the Australian Stock Exchange (see story below).
Kina Securities is wholly owned and controlled by Rimbunan Hijau, the Malaysian logging company with a long history of illegal logging, forest destruction and human rights abuse in PNG.
But none of this seems to worry the Australian business community or the Australian government who simply view Kina Securities as another good opportunity to make a profit out of PNG.
Australia’s actions in welcoming Kina Securities into the heart of its business environment exposes how paper thin are its supposed commitments to good governance, fighting corruption and corporate social responsibility.
Just last year Rimbuan Hijau was exposed in a multi-agency report as employing police officers to brutalize local communities in logging areas.
The 2013 Commission of Inquiry into Special Agriculture Business Leases revealed Rimbunan Hijau’s role at the centre of a huge corrupt and illegal land grab:
With corrupt government officials from implementing agencies riding shotgun for them, opportunistic loggers masquerading as agro-forestry developers are prowling our countryside, scoping opportunities to take advantage of gullible landowners and desperate for cash clan leaders… Our investigations reveal that over 50% of the so-called developers’ currently holding subleases on SABLs are connected in one way or another to Rimbunan Hijau (RH) Limited, which by far is the biggest logging operator in PNG’.
The inquiry concluded more than 90% of the leases investigated were unlawful and should be revoked. But RH has not relinquished any of its stolen ground.
Rimbunan Hijau has a long history of abuse in PNG.
A 2004 report, The Untouchables – Rimbunan Hijau’s world of forest crime and political patronage, exposed RH as one of the world’s largest forest destroyers; its operations characterised by documented illegalities and environmental destruction and protected by an extensive and well-established network of political patronage and media control.
The SBS television company in Australia has also exposed Rimbunan Hijau’s human rights abuses. This is the video testimony of one police officer who was employed by RH:
“We handled those suspects good and proper. We bashed them up, we hit them with huge irons and when we mobilised in there we made sure that these people who complain against rights of their benefit were manhandled, you know. I became violent because of their [Rimbunan Hijau’s] actions, because of their instructions”.
For a more complete dossier of Rimbunan Hijau human rights abuses check out this review.
Rimbunan Hijau is the largest logging company operating in PNG where at least 70% of logging operations are illegal – as revealed in a 2014 report from the prestigious Chatham House group in London. That is a figure confirmed by the World Bank.
Kina Securities to list on ASX and Port Moresby Exchange
Rose Powell | Sydney Morning Herald
Kina Securities will become one of the first dual-listed Papua New Guinea-Australian companies when begins its float on Thursday morning.
The Port Moresby-based company manages a range of financial products and has a market-leading position in the micro-lending space and superannuation. It is the largest licensed funds manager in the country with more than $2.3 billion under management.
However, the stock sparked conversation among Australian investors due to its relatively cheap starting price as well as its dependence on the Papua New Guinean economy and currency.
The 30 year old company is seeking to raise $97 million from its IPO, with shares starting at $1. It has a 7.5 price-to-earnings ratio and its prospectus says it is aiming for an annualised 9.7 per cent dividend yield. It will have a market cap of $164 million.
Despite the risks, the IPO is oversubscribed. One investor, Bill Laister from Contango Asset Management, is optimistic about the company and its unusual exposure to the burgeoning middle class of Australia’s rapidly growing neighbouring economies.
“We participated in the float because we liked the company, its valuation and the share price. It’s very cheap, which compensates for increased risks, and the price and valuation will support the stock going forward,” Mr Laister said.
Australian investors can gain exposure to Papua New Guinea through two of Australia largest banks, Westpac and ANZ, but Mr Laister said Kina’s potential lay in its access to wider range of financial products and profits.
“This is the first listed opportunity to get exposure to banks involved at the micro-lending level, which we think has real potential,” Mr Laister said.
The majority of Kina Securities’s operating revenue comes from lending operations. Another quarter comes from foreign exchange and remittance activities and another quarter from deposits and funding.
A significant proportion of the funds raised from the IPO, just under $77 million, will go towards the acquisition of another Papua New Guinea financial company the Maybank Group and covering the costs of listing.
Another $22 million will go to the company’s largest shareholder, Hong Kong based investment company Fu Shan, in a partial sell-down.
Kina Securities, which is chaired by former Papua New Guinea prime minister Sir Rabbie Namaliu, will appoint former Suncorp chief executive David Foster to its board.
The float is underwritten by Morgan Corporate. It will list on both the ASX and the Port Moresby exchange on Thursday morning.
There has still been NO ACTION to cancel the huge SABL land grab, revoke the unlawful leases or stop the illegal logging in Papua New Guinea.
It is now 763 days, more than two years, since Prime Minister Peter O’Neill was told that the SABL leases were unlawful and should be cancelled.
On June 24, 2013 O’Neill was given the reports of the SABL Commission Inquiry which detail the widespread fraud and mismanagement used by foreign logging companies to gain illegal access to over 5 million hectares of land.
O’Neill has REPEATEDLY STATED the leases will be canceled and illegal logging stopped.
In September 2013 O’Neill told Parliament:
“We will no longer watch on as foreign owned companies come in and con our landowners, chop down our forests and then take the proceeds offshore”
In June 2014, announcing an NEC decision cancelling the leases, O’Neill said
“We are taking these steps to reclaim our customary land illegally lost to foreigners with the help of corrupt public servants and leaders”
“As a responsible government we want to ensure that all citizens have access to the lands of their ancestors. We will not allow our land to be lost to unscrupulous people out to con our people”
Most recently O’Neill promised a new Task Force to look at the Commission of Inquiry recommendations, but, WE ARE STILL WAITING for the leases to be cancelled and the logging stopped.
For 763 days O’Neill has failed to ensure the SABL leases are revoked and he has been complicit in the illegal logging of our forests by foreign logging companies.
Crucially he has failed to take any action to remove the corrupt public servants responsible for the land grab or distance himself from the politicians, including key Minister’s, complicit in the illegal deals and who are now blocking any positive action to revoke the leases and stop the logging.
Prime Minister Peter O’Neill has aided and abetted the theft of logs worth hundreds of million of kina and the destruction of thousands of hectares of pristine forest.
ANDREW ALPHONSE in the Post Courier
LOGGING companies in this country are run and owned by ‘foreign criminals Mafias’ who have no regard for the laws of this sovereign nation.
Oro Governor Garry Juffa said this during a press conference early Wednesday morning. He later raised the same during Question Time in Parliament.
Governor Juffa said foreign logging companies are hell-bent to exploit our virgin forests without any compliance to the rules and laws governing timber operations in the country.
He said with their no-care attitude, they also use our very own police force against fellow citizens of this country. Governor Juffa said this after policemen engaged by a Malaysian logging company in Oro last week assaulted, arrested and locked up 17 local landowners who protested over illegal logging of their customary forest.
Governor Juffa said the particular logging firm is illegal conducting logging at the Yamagapa area bordering Morobe and Oro which is not in their licensed area of logging as permitted by the National Forest Authority (NFA).
He said several times when landowners protested over these illegal logging in their area, the company uses police who employ heavy- handed tactics like beating and locking them up including dishing out inhuman treatments. Governor Juffa said policemen, state agencies in Oro like FNA officers and other line agencies are turning a blind -eye to the situation and as frustration is building up, the worst is imminent as landowners are already fed- up and willing to take law into their own lands.
See also: No more PNG police at logging sites
Governor Juffa demanded the NFA to immediately revoke the license of this company and have them deported adding that logging has being in operation in Oro for nearly 20 years but there is no economic return for the landowners and the provincial governments. He said all that is left is over 100 hectares of barren land not even reforested.
“I say even is enough and under my watch and leadership, I will stop all illegal logging in Oro,” Governor Juffa said.
In Parliament on Wednesday, Forest Minister Douglas Tomuresia said that he is aware of the logging incident and has advised his office to give the company a show- cause notice to explain.
He said officers have also being sent to investigate the allegations and a report of their findings would be made available to Governor Juffa soon.