National Provident Fund Final Report [Part 33]
Below we continue 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 2002/3.
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!
NPF Final Report
This is the 33rd extract from the National 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 several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.
Executive Summary Schedule 4B Continued
Management purchased the approved one million shares by March 2, 1996 but then proceeded, with no board approval, to purchase an extra 1.61 million shares as shown in the following table:
*Exempt – Ministerial approval is required for investment purchases in excess of K1,000,000.
(a) Mr Wright and NPF management failed in their duty to provide expert objective advice to the board on the HGL share acquisitions;
(b) The board failed to direct management to perform due diligence on HGL investments and to provide satisfactory reports;
(c) Both the officers and the trustees are potentially personally liable for losses caused by these failures of duty, as found above; and
(d) Management acquired at least 1.6 million shares, through Wilson HTM, without authorisation from the board to do so.
In April 1996, Mr Kaul reported that NPF now held 7,805,000 HGL shares. By simple mathematics and/or by consulting the schedules of investment tabled with the board papers, the trustees should have detected the unauthorised transactions and brought management sharply into line. They failed to do so and this opportunity was allowed to pass.
Management, particularly Mr Kaul and Mr Wright, then grew bolder in their unauthorised activities. Trustees Tau Nana and Abel Koivi have explained in evidence that they did not check the investment schedules because they felt that it was quite clear that Mr Copland knew what was happening throughout and was in full approval (Transcript pp. 8659-8720).
Sub-Underwriting HGL Shares
On the unsupported advice of management, the NPF board gave approval to a strategy for NPF to underwrite $A15 million of a HGL share placement. Wrongly taking this as board approval to implement the strategy, management entered into the sub-underwriting agreement.
There was a shortfall of $A6,084,650 which NPF was obliged to take up. Mr Kaul belatedly sought Ministerial approval after the event and made false representations to the Minister, and later to the board, to cover up the breach of the PF(M) Act.
(a) NPF management (Mr Wright and Mr Kaul) entered into an agreement sub-underwriting HGL’s $A15 million share issue before seeking Ministerial approval, as directed by the board; and
(b) Mr Kaul deliberately misled the Minister (and later the board) in order to cover up the fact that the agreement was executed prior to obtaining Ministerial approval.
Management continued to act in excess of their authority throughout 1996. Mr Wright refused an offer by Placer Dome to buy out NPF’s HGL shares at 75 cents without referring the offer to the board.
In November and December, the following unauthorised purchases were made:
Once again, there were no complaints from the trustees.
At the 104th NPF board meeting, chairman Copland informed the board that NPF now held 31.2 million HGL shares. He proceeded to outline NPF’s strategy regarding the current takeover bid.
Under his guidance, the board refused an offer by HGL to buy back its shares for 75 cents and resolved instead to continue purchasing HGL shares up to 75 to 76 cents, in order to keep the HGL share price above Placer’s offer of 75 cents. The board resolved to acquire up to 10 per cent of HGL’s issued capital for approximately K21 million. Armed with this resolution, NPF made the following HGL share purchases in December 1996:- See table on right:
(a) The management, the board and the Minister failed to comply with their duty of due diligence before recommending and approving purchases totalling $A16,469,387 worth of HGL shares in early December 1996;
(b) Management exceeded its authority by purchasing 1.15 million shares, without board authority, costing $A879,681;
(c) The purchase of 21.6 million HGL shares in December 1996 was excessive. The trustees had been enticed into agreeing with management’s speculative investment “plays” which was inappropriate for a provident fund;
(d) Management failed in its duty to provide the board with independent investment advice on this strategy and may be personally liable for losses incurred unless they can successfully claim to have “acted in good faith”;
(e) The trustees failed in their fiduciary duty in not directing management to provide the board with independent expert advice and may be personally liable for loses incurred unless they can successfully claim to have “acted in good faith”;
(f) The decision to buy at 75-76 cents a share, may amount to illegal share ramping, which should be referred to ASIC for investigation; and
(g) The purchases were made without obtaining the requisite Ministerial approval.
Placer Dome Buy Out And The Establishment Of Highlands Pacific Limited
On January 7, 1997, the restructuring was announced so that all HGL assets except the valuable interest in Porgera and Orogen receivables, were transferred to the new entity, HPL, and HGL received 564.5 million shares in HPL, with an equity raising of $A160 million at 30 cents.
NPF would receive $A27.6 million for its HGL shares and Mr Wright recommended NPF add an additional $A22.4 million to invest $A50 million in HPL. Mr Wright’s investment paper followed the HGL media release and gave the following reasons in support of the investment, without providing any professional investment analysis:
- NPF realises $10 million profit on the deal upfront;
- PNG Institutions, NPF in particular will control Highlands Pacific Ltd and by default Ramu Nickel and Nena/ Frieda Copper;
- The deal shows the maturity of the PNG institutions and PNG capital markets;
- Provides members with long-term opportunities and maximises return to get in to these big projects at the ground level;
- Baring Brothers valuations of these assets indicate the shares should be worth 42 cents each and not 30 cents. The 30 cents issue price represents a 29 per cent discount to the Baring Brothers low valuation.” (Exhibit H29)
Without providing expert advice or any opportunity for discussion, Mr Wright sought immediate approval, by way of circular resolution on January 15, 1997, from the trustees.
All trustees, except Isikeli Taureka, gave their immediate approval without seeking further advice and without protesting at being given no opportunity to discuss this huge $A50 million investment at a properly constituted board meeting (Mr Taureka proposed that the money from the HGL takeover be invested in a sale interest bearing investment rather than being invested, together with further borrowed funds, in the risky HPL ventures).
This investment was made in such a rush that it was certified as a board resolution the next day, January 16, 1997, and given approval by Minister Haiveta on the same day.
(a) Mr Noel Wright failed in his duty to provide expert objective advice to the board regarding investing the HGL share proceeds and extra funds totalling $A50 million, in HPL;
(b) Seeking approval for the huge investment in HPL, by way of circular resolution, was unnecessary and inappropriate and deprived the trustees of the opportunity to have face-to-face discussions regarding that important topic;
(c) The trustees, with the exception of trustee Isikeli Taureka, failed in their fiduciary duty to the members, by voting in favour of the resolution without insisting on due diligence and proper expert briefing from management. They face personal liability to reimburse the fund for any losses incurred from their failure of duty, unless they can successfully claim to have “acted in good faith”;
(d) Mr Frank erred by certifying the result of the circular resolution as a resolution of the NPF board, before the board convened face-to-face to ratify the resolution;
(e) Minister Haiveta failed in his duty pursuant to the PF(M) Act when considering NPF’s request for approval in that he failed to seek DoF or other expert advice on the HPL investment. This amounts to improper conduct by Mr Haiveta.
Mr Wright and Mr Frank exceeded their authority by unlawfully signing the formal reconstruction agreement on January 28, 1997, under the NPF seal.
In February 1997, NPF management acquired a further five million HGL shares for $A3,875,025 without board approval and without due diligence.
Mr Wright and Mr Kaul face personal liability for loss suffered by NPF members for this unauthorised purchase.
Highlands Pacific Limited
Mr Copland and Mr Aopi were appointed as NPF representative directors on the HPL board. In addition to the $A50 million shares acquired by NPF, NPF agreed to sub-underwrite $A50 million of the HPL share placement. NPF later agreed to scale back its entitlement.
At paragraph 6.5, the commission has found that:
(a) The failure of Mr Copland and Mr Aopi to disclose their conflict of interest as HPL directors to the NPF board was improper;
(b) Whichever officers signed the sub-underwriting agreement exceeded their financial delegation;
(c) The Minister was not formally informed of the details of the sub-underwriting and scaling back arrangements;
(d) NPF failed to seek BPNG approval for the full amount of the $A50 million share price. This failure was an offence under the Foreign Exchange regulations.
From June 12 to September 29, 1997, NPF management authorised the purchase of 1,712,333 million shares without board approval. They were purchased in parcels worth less than K1 million so Ministerial approval was not required. (This seems to have been a deliberate strategy to take advantage of Mr Haiveta’s standing approval for transacting up to K1 million to avoid the necessity of involving the Minister and possibly to avoid DoF scrutiny of the proposed transactions).
TO BE CONTINUED