Home > Corruption, Papua New Guinea > National Provident Fund Final Report [Part 56]

National Provident Fund Final Report [Part 56]

October 22, 2015 Leave a comment Go to comments

Below is the fifty-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 2002/3.

NPF Final Report

This is the 56th 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 6 Continued 

At paragraph 5.3.1, the commission reports in detail about how Mr Maladina set up the fraudulent scheme to illegally obtain a payment from NPF’s funds, of K2.5 million and an extra K150,000 “commission” for himself from Kumagai’s funds.

Mr Maladina personally handled the negotiations that put the criminal scheme in place, by calling the Kumagai general manager Shuichi Taniguchi to his office at Carter Newell Lawyers on three occasions.

The first meeting was just before Christmas 1998, at which Mr Maladina demanded a payment of between K1.5 to K2 million (paragraph This was followed by persistent telephone calls during which Mr Maladina said that if the money was paid, he would ensure Kumagai’s claims were paid smoothly but, if not, he would ensure the project was stopped and all Kumagai’s claims would be rejected (This was prior to Mr Maladina’s appointment to the NPF board).

In early February in Mr Maladina’s office, Mr Taniguchi agreed to a scheme whereby NPF would settle Kumagai’s kina fluctuation claim in full and also pay an artificially contrived second acceleration fee to bring the total contract price up to K54,000,000. This would enable Kumagai to use the extra money to meet Mr Maladina’s demands (paragraph

To make those payments from Kumagai seem legitimate, it was agreed that a false contract would be prepared between Kumagai and Ken Yapane and Associates for labour and materials allegedly to be supplied to do the extra work needed to accelerate the completion of the project (paragraph

When Mr Taniguchi said Kumagai would need directions from PAC (the project manager) before paying a subcontractor claim, Mr Maladina said he would fix that.

At a subsequent meeting in February, after the NPF board had authorised management to settle the kina fluctuation claim for up to K54 million total contract price, Mr Taniguchi again met Mr Maladina at Carter Newell offices, this time accompanied by Kazu Kobayashi, Kumagai’s project manager, who waited in reception while Mr Maladina and Mr Taniguchi met in Mr Maladina’s office.

Mr Maladina told Mr Taniguchi that the payments would be made to Ken Yapane and Associates, pursuant to a false sub-contract, to perform acceleration work to ensure timely completion of the project.

He said it could be done by five or six progress payments and that Kumagai should prepare the contract documents (Mr Maladina had already cleared this with Ken Yapane, who agreed to allow the payments to be “laundered” through his bank accounts for a fee) (paragraph

Mr Kobayashi then prepared the false contract with Ken Yapane and Associates and also prepared a fraudulent acceleration claim, changing the figure from K2.5 million to K2,505,000, to conceal the connection between the extra K2.5 million to be paid by NPF to Kumagai and the K2,505,000 that Kumagai was to pay Ken Yapane and Associates.

The documents that were manufactured were:

(a) a draft on A4 paper of a letter back-dated to January 5, 1999, from PAC to Kumagai asking Kumagai to investigate and confirm the feasibility of further acceleration and submit costs and conditions (Exhibit T291). This was to make it seem that PAC had asked Kumagai to consider further acceleration;

(b) a letter back dated to January 28, 1999, from Kumagai to PAC with a table showing the acceleration fee at K3.905 million — which was K2.505 more than the earlier agreed first acceleration fee of K1.4 million (Exhibits T292-3); and

(c) a draft on A4 paper of a letter dated February 25, 1999, from PAC to Kumagai signed by Roger Dalton of PAC, which purports to confirm that the NPF board had accepted Kumagai’s acceleration proposal and the overall project cost of K54,050,646 (Exhibit T294) (paragraph

Two copies of the false contract were signed by Mr Taniguchi for Kumagai and personally delivered by him to Mr Maladina at Carter Newell’s office (paragraph He also delivered the two draft false letters from PAC to Kumagai (1 and 2 above) so NPF could arrange for them to be retyped on PAC letterhead and signed by PAC.


(a) Mr Maladina demanded that Mr Tanaguchi of Kumagai agree to enter into a fraudulent subcontract with Ken Yapane and Associates pretending to provide labour and services to accelerate the completion of the Tower project;

(b) Pursuant to the subcontract Ken Yapane and Associates would promise to place extra men on site and provide the necessary materials for a sub contract price. The price agreed was K2,505,000. It had the effect when the earlier paid K1.4 million was taken into account of increasing the total for acceleration to K3,905,000;

(c) In addition to those moneys which would be received by Kumagai from NPF funds and on-paid to Ken Yapane and Associates, Kumagai would itself pay “commission” to Mr Maladina of K150,000;

(d) PAC would be requested by NPF (Herman Leahy and Mr Maladina) to endorse the certificates, directions and necessary documentation to give apparent legitimacy to the fraudulent arrangements;

(e) Mr Leahy was a principal party to this scheme and was responsible for removing PAC from the negotiations, for preparing the deceptive NPF board paper and for obtaining NPF board approval for the excessive settlement of Kumagai’s kina devaluation claim, and the second acceleration claim which provided the extra funds for Kumagai to on-pay to Ken Yapane and Associates;

(f) MR Maladina and Mr Leahy and also Mr Tanaguchi and Mr Kobayashi are principals in the fraud perpetrated on the NPF;

(g) MR Yapane may not have initially known where the funds, which he agreed to launder through his personal and company accounts, came from. When he found out the funds came from NPF, he refused to allow any further amounts to be laundered through his accounts. Mr Yapane’s responsibility is discussed at paragraph 5.5.2;

(h) MR Fabila’s responsibility is discussed at paragraph;

(i) THE draft false letters from PAC to Kumagai were delivered by Mr Tanaguchi to Mr Fabila at NPF so they could be delivered on behalf of NPF to PAC.

On February 23, 1999, Mr Leahy signed and sent a fax to PAC (for the attention of Roger Dalton) over Mr Fabila’s name, saying NPF and Kumagai had agreed to further acceleration, to achieve completion by the end of March 1999 and requested Mr Dalton to re-engross the attached draft on PAC’s letterhead and forward it to Kumagai. The attachment was an altered version of Kumagai’s draft

npf 56 a

with the new date being January 26, 1999. PAC received this on February 23,1999, and it reads as follows:

npf 56 b

The next day, an NPF fax, bearing Mr Fabila’s name (but not signed by him) asked Mr Dalton to disregard the previous draft letter and attached a replacement draft letter which read:

(This was an exact copy of the false letter previously drafted by Kumagai).

Mr Dalton rang Mr Kobayashi to ask what was going on and was told not to comment as it was being arranged between Mr Maladina and Mr Taniguchi; so Mr Dalton did nothing.

He then received from Kumagai, the second false letter, above, with the date shown as January 28, 1999, saying it was feasible to provide acceleration and thereby complete the job on time.

The attached amended Table, at item B1.2, showed “acceleration” cost at K3,905,000. This covered the already agreed K1.4 million first acceleration cost, plus the K2,505,000 that was to be paid for Mr Maladina’s benefit.

Item C showed “Devaluation — proposed amount K3,300,000”. The progressive total cost, shown in the table, was K54,050,646.

This clearly reflects the agreed fraud.

Mr Maladina would receive his desired K2.5 million and Kumagai would receive its claimed kina devaluation cost of K3,300,000, all at the expense of NPF, which would draw on its increased FDL facility with PNGBC in order to fund this “increased cost” of construction. Mr Maladina would also receive his requested commission of K150,000 from Kumagai’s own funds.

Mr Dalton then received, from NPF, the third made up letter and a request to re-engross it on letterhead and send it to Kumagai.

It is letter number three It was dated February 25 and it advised Kumagai that the NPF board had approved the acceleration proposal and overall project cost of K54,050,646 “including second stage of acceleration (K2,505,000) and Devaluation (K3,300,000)”.

Mr Dalton duly did as requested. As soon as it received Mr Dalton’s letter, Kumagai made the first “progress payment” to Ken Yapane and Associates on February 26, 1999, amounting to K401, 032.


(a) There is no evidence that PAC or its employees were knowing parties to the Tower fraud;

(b) The commission finds that when PAC was directed by Mr Leahy to withdraw from negotiations between NPF and Kumagai over the kina fluctuation claim, it did so reluctantly, as it wished to contribute its expertise to the negotiations;

(c) When Mr Dalton received the correspondence over Mr Fabila’s name requesting him to retype and sign the back-dated letters to Kumagai and when he received Kumagai’s back -dated response he must have known that some arrangement was being manipulated by representatives of NPF and Kumagai behind his back;

(d) Mr Dalton clearly believed Mr Fabila was involved in the manipulations and pleaded that PAC must be kept fully informed;

(e) The fact that Mr Dalton refused to certify the two “inflated” payments to Kumagai of K3.3 million (Kina fluctuation) and K2.505 million (second acceleration claim) indicates that neither he nor PAC were involved in or benefited from the fraud;

(f) Mr Dalton and PAC must, however, be criticised and bear responsibility for acquiescing to the request by Mr Leahy (apparently acting for Mr Fabila) to retype and sign back-dated letters. To Mr Dalton’s knowledge, the documents were false and were obviously required by the principals (Mr Kobayashi and Mr Leahy) for dishonest purposes. Mr Dalton and PAC may be liable at civil law at the suit of the (current) NPF board, or in a class action brought by the members of the fund, for losses suffered by NPF and its members from the Tower fraud, which was facilitated by the preparation, signing and transmitting of the false letters.

The responsibility of NPF officers and trustees are discussed in paragraphs (Mr Leahy);, (Trustees); (Mr Fabila) and (PAC).


(a) Within NPF the principle conspirators were Mr Maladina and Mr Leahy who hatched and implemented the fraudulent scheme;

(b) Both Mr Maladina and Mr Leahy should be referred to the Commissioner for Police to determine whether criminal charges of fraud, criminal conspiracy and or other charges should be brought against them;

(c) The commission finds on all the evidence, that Mr Fabila was not part of the initial conspiracy, which conceived and implemented the fraud. However, he had sufficient knowledge of what was going on, including knowledge of a suspicious second acceleration claim and of a suspicious additional payment to Kumagai being recommended to and resolved by the board.

He also knowingly signed at least one false letter, which facilitated the fraud. As managing director, he had a duty to strenuously inquire into and seek information on these matters. He failed to do this because he knew of Mr Maladina’s involvement and because Mr Maladina had strong connections to the ruling political hierarchy. Mr Fabila’s failure to inquire into the suspicious activities, which he had knowledge of, was a gross breach of his fiduciary duty to the members of the fund. Mr Fabila may also be guilty of aiding the commission of the offence or of being an accessory and should be referred to the Commissioner for Police for investigation;

(d) The trustees who attended the February 8, 1999, NPF board meeting failed in their fiduciary duty to the members of the fund by failing to inquire into the proposal to settle Kumagai’s claim for between K53 and K55 million.

The details of the payments, from NPF to Kumagai, are set out in paragraphs 5.4.1 and 5.4.2. The money was to cover the K3.3 million fluctuation payment and the K2.505 acceleration claim. It was paid in two tranches as set out in Kumagai’s letter of March 18, 1999 (Exhibit 328) which (deceptively) makes reference to PAC’s Progress Certificate No. 22 for February 1999:

“With reference to ATTACHMENT No.1 of Progress Certificate No.22 for February (Refer attached copy), Kumagai Gumi would like to request the payment of K3,300,000 for February as agreed for further acceleration and kina devaluation.

npf 56 c

The money was drawn on the PNGBC FDL facility, at Mr Fabila’s request of March 31, 1999, and was paid on April 6, 1999.

The second tranche of K3,445,842, which included a legitimate payment of K920,842 on PAC certificate No.23, was paid on June 1, 1999.


The amount of K5,805,000 was paid to Kumagai in satisfaction of the kina fluctuation and second acceleration claims in two tranches. The second tranche included a genuine certified progress payment of K976,842.

The inflated fraudulent component of these payments amounted to K2,505,000.

The amount to be paid by Kumagai to Mr Maladina was K2.65 million including the K150,000 “commission” for Mr Maladina.


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  1. October 23, 2015 at 12:00 pm

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