National Provident Fund Final Report [Part 6]
Today we re-publish the sixth part 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.
NPF Final Report
This is the sixth extract from the Nationa-Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against severa-high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michae-Somare.
Failed attempt to sel-Waigani land shares to NPF
Jimmy Maladina and Herman Leahy then attempted to sel-the shares in Waim No.92 to NPF and other PNG institutions. To reverse an unfavourable decision by NPF, Mr Maladina brought about or took advantage of changes made in the membership of the NPF board to re-submit the proposa-to buy the Waigani land.
He was assisted in this scheme by Mr Leahy and Henry Fabila who arranged the meeting so that two trustees, John Paska and Mr Nana who had previously opposed the purchase, were unable to attend.
The NPF board approved the purchase of the Waigani land at an exorbitant price but before it progressed much further, the news of the purchase broke in the press and it was called off at the direction of then Prime Minister Bil-Skate.
Sale of Waigani land share to Trinco No. 6 Pty Ltd
Having failed to sell-the Waigani land to the NPF or any other PNG institution the shares of the land holding company (now known as Waigani City Centre Ltd), Mr Maladina utilised the services of Simon Ketan of Ketan Lawyers to sell-to Trinco No.6 Pty Ltd (a company owned by the Rimbunan Hijau group).
The sale was agreed, subject to certain conditions attached to the lease document being modified. To organise this, Mr Maladina arranged for Land Board chairman Mr Guise to be bribed as wel-as the new Lands Minister Dr Fabian Pok.
By this means, he arranged for minutes of a former Land Board hearing to be altered to achieve the desired alterations to the lease conditions, which the Lands Minister Dr Pok, duly approved (Dr Pok subsequently received the benefit of a motor vehicle and the sums of K10,000 (paragraph 126.96.36.199) for his part in this fraudulent scheme (Schedule 5, paragraph 32.8.9)). Dr Pok also appears to have received the sum of K220,000 to his company, Biga Holdings, which was received from Mr Maladina’s Niugini Aviation Consultants company in Hong Kong (which payment should be referred to the Ombudsman Commission for investigation).
When the commission commenced investigating these matters, Mr Maladina and Mr Eludeme both left PNG to reside in Australia (Mr Eludeme returned much later and gave evidence under summons on February 19 and 20, 2002 (Transcript pp. 10346-10404 & 10407-10444). Mr Maladina has not returned and has given no evidence).
At Mr Maladina’s instruction, lawyers Jack Patterson and Simon Ketan both concealed and fabricated documents on Mr Maladina’s instruction in order to protect Mr Maladina. They have been referred to the Commissioner for Police to consider prosecution for fabricating documents contrary to Section 122 of the Crimina-Code.
Mr Eludeme and Mr Lightfoot and Ms Perks of Carter Newel-(now Pacific Lega-Group) have also been referred to the Commissioner for Police to consider their part in the cover-up. The ful-details of these direct referrals directed by the commission are set out at Executive Summary 5, paragraph 2.7, Section B.
The Waigani land fraud deprived the NPF of only K120,000 for the valuations and lega-costs because the sale of the WCC Ltd shares to the NPF was stopped before money changed hands. It is significant though because it clearly revealed the crimina-intentions and conduct of Mr Maladina and Mr Leahy and the depth of corruption in the Lands Ministry.
Term of Reference 1(l) and 1(m) Term of Reference 1(l)
“The purchase of Crocodile Catering and the role of any trustee or manager of the fund or of any other person or entity”
These two terms of reference are reported upon as one item as there is so much overlap between them.
Crocodile was a fully owned subsidiary of Crocodile (Australia) Pty Ltd. Its business was to provide catering services to the canteens of mining and exploration companies in remote areas of the PNG mainland.
When NPF acquired the shares in Crocodile, it was operating pursuant to severa-catering contracts, such as the Porgera Joint Venture in the Enga Province and Tolukuma Gold Mine in the Goilala region of the Centra-Province.
The purchase of Crocodile Catering is reported upon fully in Schedule 4L. Easy access to the commission’s deliberations and findings is accessible through the executive summary to Schedule 4L, which summarises the main points, with references to paragraphs in the schedule for a more detailed report.
The executive summary also reproduces the main findings of the commission concerning Crocodile Catering.
The main feature of the purchase of Crocodile was its folly. It was never going to be a good idea for NPF to buy 100 per cent of the shares in a remote catering business and then seek to run it. NPF management had absolutely no experience or skil-in the difficult task of catering for a series of mining camp messes in remote areas.
The idea seems to have been strongly supported by trustee Copland and Mr Wright and Mr Kaul. It was not a flourishing and profitable business when NPF acquired the company from its near bankrupt Australian parent company. There was a serious failure of due diligence by NPF management into the profitability of Crocodile’s existing contracts or how Crocodile was to be funded. NPF was aware that Crocodile had an obligation to build a warehouse at Paiam in the Enga Province as an incident of its catering contract with the Porgera Joint Venture. They assumed that the cost of construction would be funded by the former owners and failed to ascertain the scale of the project. Consequently, Crocodile was unexpectedly obliged to itself fund the construction of a warehouse at a cost of K4 million which had not been allowed for in the budget. No consideration was given to how Crocodile’s future funding would be organised or from whence it would come.
Without assessing Mr Jewiss’ qualifications or manageria-skills or his previous performance as a manager of Crocodile in PNG, the Crocodile board simply appointed Mr Jewiss as managing director of Crocodile.
He was a very unsuitable appointment as he was a very poor manager who failed to establish and maintain even a proper system for recording Crocodile’s accounts or for planning its business and financia-future. His reporting to the Crocodile board and the NPF board was seriously over optimistic, misleading and dishonest.
Within two months of his appointment, he relocated himself and family to live on Bali Island so he could seek business for Crocodile in Indonesia. He unsuccessfully tried to manage Crocodile’s PNG mainland projects from Bali.
He soon became distracted by the dream of constructing a large resort complex at Maluk Bay on nearby Sumbawa Island.
At paragraph 2.1, of Executive Summary 4-and at paragraph 4.2 of Schedule 4L, the commission sets out its findings condemning Mr Wright for his failure to perform due diligence and al-the trustees for breaching their fiduciary duty to the members of the NPF by not critically assessing this proposal, not seeking expert advice, not checking out the Crocodile management team and for not determining where future funds were to come from.
Allowing Mr Jewiss to remain in Bali as his headquarters was a major failing of the NPF and Crocodile boards.
At Executive Summary 4L, paragraph 4, the commission criticises NPF management, particularly Mr Kau-and Mr Wright for secretly organising transfer of capita-and loan funds from NPF to Crocodile without NPF board approval.
The trustees were in breach of duty to the members by meekly ratifying these unauthorised transfers or funds without reprimanding management or bringing them under board contro-(See forma-findings at Executive Summary paragraph 5.1; Schedule 4L).
When Mr Wright provided $US2 million bridging finance to Crocodile without board knowledge or approval, it was a serious breach of duty and it was an illega-exercise of power, of which Mr Copland must have been aware, as he was the very actively involved chairman of both NPF and Crocodile boards (See Schedule 4L, paragraph 4.7.3).
Mr Maladina makes unauthorised appointments
As chairman of NPF from January 1999, Mr Maladina abused and exceeded his power by appointing Ram Business Consultants as investigators and interna-auditors of Crocodile in early 1999 (Executive Summary paragraphs 9 and 9.1 and Schedule 4L, paragraph 4.9.6).
He also exceeded and abused his authority as chairman in Apri-1999 by appointing his friend, Peter Petroulas of Precise Strategies to perform an interna-review of Crocodile in Indonesia and by appointing another friend, Ray Barredo, as managing director of Crocodile in Apri-1999 and personally approving and illegally sealing his contract conditions, which included annua-transfers of 150,000 Crocodile shares in an attempt to give Mr Barredo ownership of Crocodile within a few years.
NPF suffered a loss of K7.4 million as a result of poor management decisions and breaches by al-trustees of their fiduciary duties. They may be personally liable for some of these losses.
Term of Reference 1(m)
“The participation in the resort complex in Indonesia, and the role of any trustee or officer or employee of the fund or of any other person or entity”
Maluk Bay Resort
Prompted by friends employed by PT Cikoba Konseptama Bangunmutra on Sumbawa Island near Bali, Mr Jewiss somehow persuaded the Crocodile board of the merits of constructing a smal-bar and gril-complex, with simple cabin type accommodation at Maluk Bay on Sumbawa Island to service the rest and recreation needs of the employees of the nearby mining company.
The germ of this idea spread in Mr Jewiss’s imagination unti-it became a plan to build a major 70-room resort complex at Maluk Bay with his friends, Patrick Goodfellow and Keith Wilson, in charge of construction and the training of loca-staff.
Mr Jewiss’ accounting records, his estimates of cost and time of construction, of future occupancy rates and profitability were so flawed that they may wel-have been figments of his imagination.
They were sufficient, however, to persuade the Crocodile board and the interlinked NPF board to go along with the idea.
Pursuing this dream of constructing, owning and managing a major resort on a tropica-island in Indonesia was a serious distraction of Crocodile management’s focus away from its catering contracts in Papua New Guinea.
Crocodile did not even have title to the land at Maluk Bay when construction started, it had no source of funds for the venture except NPF and it had no Indonesian bank account or legitimate means of transferring funds to Indonesia to finance this unregistered venture, which was illega-under Indonesian law. How “informal” and illega-methods of funding the Indonesian venture were arranged on an ad hoc basis, through travellers cheques, persona-bank accounts and transfers from NPF’s overseas account with its stockbrokers Wilson HTM are described in detail in Schedule 4L, paragraphs 8 and Executive Summary, paragraphs 11 and 12. The story is set out in broad outline in the Executive Summary 4L.
Both the schedule and its executive summary are presented in two parts: the first dealing with Crocodile’s PNG operations and the administrative and financial relationship between the boards of NPF and Crocodile and the second part dealing specifically with the financial and managerial morass of the Maluk Bay project.
The two aspects are, however, inextricably related. The failure to define clear legal and financial boundaries between NPF (the legal entity which was established to invest and safeguard members’ funds) and Crocodile (a trading enterprise acquired to make profit from PNG catering contracts, which was now wafting into an Indonesian island resort dream) would seriously endanger the assets of NPF which NPF management and trustees were obliged to protect.
Term of Reference 1(n)
“Whether there was any non-disclosure of a conflict of interest by a trustee or officer or employee of the fund in respect of any investment or transaction to which the fund or the any of the subsidiary companies was a party”
Many instances of non-disclosure of a conflict of interest can be discovered by studying this term of reference in the “Findings in the Context of the Terms of Reference” paragraph at the end of each Schedule.
The most serious examples of such non-disclosure included:-
- Mr Maladina’s failure to disclose his interest in Waim No.92 Pty Ltd when the company was trying to sell the Waigani Land to the NPF.
- The failure by NPF’s purchasing officer Simon Wanji to disclose the interest of himself and his wife in the stationery companies that were selling stationery to NPF (Schedule 9, paragraph 13.5 and Executive Summary paragraph 10);
- The failure by Mr Copland to disclose that he was sitting as an independent member of the board of Cue (Schedule 4C, paragraph 11);
- The failure by Mr Copland, Mr Kaul and Mr Wright to disclose that they held personal interests in Cue Energy N.L. and Vengold (Schedule 4C, paragraph 13.8);
- The failure by trustee Vele Iamo and other public service representative trustees to disclose the extent of their conflict of interest when continuing to participate in NPF board deliberations on transactions with DoF, with which they were intricately involved, as part of their service as DoF officers. In some instances, their undisclosed conflict of interest was acute (Executive Summary 7B, paragraph 4.1).
The employee representative trustees voted against lending to the State for the freeway — Mr Aopi and Mr Iamo, who were intimately involved as DoF officers in securing the loan for the State, did not disclose their conflict of interest and voted as NPF trustees for NPF to agree to the loan. Without their vote, the motion would have been lost.
- David Copland’s failure to always disclose his conflict of interest as managing director of Steamships and his failure to withdraw from NPF board deliberations on the purchase of motor vehicles from Toba Motors — a STC company.
At one stage, virtually all new vehicles were being purchased from Toba Motors with no proper system of open tenders in place (Schedule 9, paragraph 4.7 and Executive Summary paragraph 2.7).
Term of Reference 1(o)
“The failure to comply with prescribed tendering processes, and whether such failure benefited any person and if so who, and the role of any trustee or officer or employee of the fund or of any other person or entity”
As pointed out in Schedule 9, NPF was not subject to the tenders procedures applied to the public service and most other public bodies under the Public Finances (Management) Act (PF(M) Act).
The NPF Board of Trustees did, however, have a duty to ensure that management was applying appropriate procedures to control the purchase of goods and services and the disposal of assets. In order to be even-handed, fair and cost effective and to avoid nepotism, it was necessary therefore, to administer a well run tenders system.
As late as 1993-94, NPF had a tenders committee and NPF managers (incorrectly) believed they were subject to the public service tenders regime.
By 1995, however, the tenders committee had ceased to function and there was no coherent and consistent system of tenders in place.
The commission examined the situation in the following fields of activity, reported in Schedule 9:-
- Acquisition and disposal of motor vehicles (Schedule 9, paragraph 2);
- Property and management services (Schedule 9, paragraph 3);
- Legal services (Schedule 9, paragraph 4);
- Security services (Schedule 9, paragraph 5);
- Accounting services (Schedule 9, paragraph 6);
- Other professional services (Schedule 9, paragraph 7);
- Computer hardware and software (Schedule 9, paragraph 9);
- Disposal of assets (Schedule 9, paragraph 8); and
- Stationery and office supplies (Schedule 9, paragraph 10);
Schedule 9 reports in detail on these matters and the executive summary gives a full outline and sets out the commission’s findings.
At paragraph 14 of Schedule 9, the commission sets out some general conclusions as follows:
“The commission’s investigations have shown that at the beginning of the period under review, there was some attention given to calling for tenders and seeking competitive quotations for procurement of some of the goods and services examined in this report. As time went on, these frail attempts to comply with proper procedures lapsed and management increasingly ignored the concept of obtaining competitive quotations. Management also ignored the need to keep the NPF board informed or seek its approval.
This gross laxity allowed the development of nepotism and criminal acts to steal from the NPF. It is a very sad story for which NPF senior management is primarily to blame.
The NPF trustees, however, had a fiduciary duty to ensure the fund was well managed and its finances were protected. They failed this duty totally. The abuses were so noticeable that the trustees’ failure to notice and address it constitutes a breach of their fiduciary duty to the members of the fund and may constitute a breach of the Leadership Code by all trustees who held office during the period under review. This matter should be referred for consideration by the Ombudsman.”
Term of Reference 2
“Whether there was any inappropriate intervention by persons or entities in relation to illegal or unsuitable borrowings and investments, or other improper actions”.
The commission has reported upon a number of inappropriate interventions in relation to illegal or unsuitable borrowings and investments and other improper actions.
Some of these interventions occurred when a chairman or officer of NPF intervened by some unauthorised activity which was the legal function of the NPF board. Some of the interventions were by people outside of NPF — such as a Minister.