Archive

Posts Tagged ‘Brown Bai’

National Provident Fund Final Report [Part 12]

August 20, 2015 1 comment

Below is the twelfth 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 twelfth 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 [2002] by Prime Minister Sir Michael Somare.

Continued from yesterday

Background to April 1999 restructure

Throughout the period under review, NPF suffered from its failure to recruit well-qualified experienced officers for senior management positions.

This may explain why it sought to be liberated from the confines of the SCMC Act (paragraph 7.3) and why it ceased applying for SCMC to approve the higher salaries it was offering to attract suitable applicants.

In paragraph 7 – Background to April 1999 Restructure – the Commission reports how despite the illegally high remuneration offered, NPF still failed to attract well quality officers. During the period 1996 – early 1999, NPF promoted existing inexperienced and unskilled staff to the manager positions at high rates of remuneration (paragraph 7.2). Their poor performance is reported at paragraph 10.5 especially at 10.5.3 and following.

During this period, the plot to remove Mr Kaul and appoint Mr Fabila as managing director succeeded in May 1998.

Mr Leahy’s new contract was presented to and approved by the NPF Board on 6th November 1998. DoF had advised that Mr Leahy’s total remuneration of K121,700 was excessive. This advice was not passed on to the NPF Board by its Chairman (DoF Secretary Bai) and the contract was approved. SCMC approval was not sought.

Findings

(a) The DoF provided wrong advice to the DoF Secretary on the provisions of the NPF Act, which governed Mr Leahy’s salary.
(b) Mr Bai, as Secretary of the DoF, provided this incorrect advice to the Minister.
(c) Mr Bai, as chairman of the NPF Board failed his fiduciary duty to advise the Board that Mr Leahy’s proposed salary package was excessive (especially as he had already given such advice to the Minister).
(d) Mr Leahy, as Senior Legal Counsel, failed his duty to the NPF Board by not pointing out the correct procedures for determining his salary under the NPF Act.
(e) Mr Leahy’s contract exceeded K500,000 and thus required, but did not receive, prior Ministerial approval.
(f) Messrs Leahy and Fabila’s action in preparing and signing their own contract of employment in September 1998 was done without the authority of the NPF Board.
(g) The NPF Board was remiss in their duties by not giving full consideration to and questioning Messrs Leahy and Fabila about their employment contacts and in not taking the necessary action to correct anomalies.

Resignation of Mr Wright

Mr Wright resigned (under pressure) in January 1999 and the full extent of NPF’s losses began to become apparent. Mr Wright’s termination payments were irregular especially if it is true that he resigned voluntarily.

Findings

(a) Minister Lasaro acted beyond power in his instruction to Mr. Fabila to terminate Mr. Wright’s contract. This was a function of the NPF Board not of the Minister. Mr. Fabila also had no power to carry out this function.
(b) Mr. Fabila was in breach of his fiduciary duty to the members of the Fund and his duty to the Board in failing to inform the Board of his so called concerns about Mr. Wright and in manoeuvring to obtain Mr. Wright’s resignation, in secret consultations with Minister Lasaro.
(c) Mr. Fabila acted illegally where he authorised extra termination pay for Mr. Wright without the authority of the NPF Board. Mr. Fabila may be personally liable to reimburse NPF for the extent of the overpayments.
(d) It is very clear that political direction and interference with the administration of NPF was occurring with the willing cooperation of Mr. Fabila.

PwC was engaged and reported on severe deficiencies in NPF’s management performance.

Other managers

The remuneration history of Ms Andoiye (paragraph 7.8), Mr Tarutia (paragraph 7.9), Messrs Frank and Aiwa, Ms Dopeke (paragraph 7.11) and Mr Mekere (paragraph 7.1) are reported upon.

Findings

(a) The payment of DMA to Mr Tarutia, though approved by SCMC, was not formally approved by the NPF Board as required under the Act.
(b) After commencing as an Assistant Financial Controller in June 1994, Ms Dopeke was rapidly elevated to the position of Chief Accountant for want of any better candidate. It is clear that despite her higher status and salary, she did not have the experience or skills and was not competent for that job.

Despite increases in responsibilities and remuneration, NPF managers continued to perform badly and were criticised by Mr Fabila (paragraph 7.14.1).

Political involvement of Prime Minster Skate

There are two recorded incidents of interference by Prime Minister Skate. In October 1997, he applied a ban on overseas travel by statutory authorities to NPF. This was inappropriate as NPF had overseas investments, which required NPF representatives to attend at Board meetings and there was also Crocodile Catering in Indonesia.

Minister Lasaro reinforced the ban, which continued into 1999.

In March 1999, Prime Minister Skate directed NPF to review all its investments and report to the NEC. Meanwhile he forbade NPF from making any new investments (paragraph 7.16). Whereas Mr Skate was well and truly justified in feeling concern his direction as Prime Minister was improper. There were provisions under the PF(M) Act for the Secretary DoF and the Minister for Finance to seek such reports (the Prime Minister’s direction was followed up by letters from Secretary of the DoF and Minister directing compliance).

Pricewaterhouse Coopers Report

Mr Fabila had engaged PwC to report on NPF’s investments and financial situation. PwC commented upon very serious deficiencies in NPF’s accounting procedures, reporting and management of its investments functions and the high interest rates on its debts.

PwC was particularly critical of NPF’s accounts section and recommended redefining the role of the Finance Investment Manager and correcting the deficiencies in the accounts function. The situation described by PwC at paragraph 8.2 was extremely serious.

The Hay Group

Mr Fabila also engaged the Hay Management Group to analyse NPF’s management structure and propose a total restructure.

Findings

On the evidence of the PwC report, in early 1999 the Accounts section at NPF was so weak that it endangered the capacity of the NPF Board to carry out its function to safeguard the funds of the members.

April 1999 Restructure

With the report of Hay Group in hand, the NPF Board approved the restructure but limited it to the six senior management positions, not the total restructure which had been commissioned and recommended.

Mr Rod Mitchell

Mr Mitchell was engaged as Investment Manager under a consultancy agreement with a remuneration package of K200,000 (paragraph 8.3.2) plus extras.

Despite ongoing criticisms of and disciplinary action against the existing managers they were all retained as managers of the various divisions on the increased remuneration packages recommended by Hay Group.

Mr Leahy did not advise the Board about the underlying concerns about the managers’ efficiency.

Findings

(a) NPF management (Messrs Fabila and Leahy) deliberately failed to fully advise the Board about the incompetence of senior management staff.
(b) Mr Leahy’s deliberate lie to the NPF Board about Ms Andoiye’s departure was improper conduct.
(c) During this period, senior management placed proposals for substantial increases for management before the Board for approval.

Revitalisation of management under Mr Mitchell

By September 1999, under the influence of Mr Mitchell’s leadership and energy managerial weaknesses were being addressed effectively, but the restructure was not in place.

8th October special meeting – complaints and allegations

At the October meeting, the complaints about Messrs Maladina and Leahy regarding the Waigani Land deal and related matters finally erupted. This led rapidly to Mr Leahy’s suspension and then dismissal on 30th November 1999 and to the collapse of Mr Maladina’s chairmanship in early 2000. It led also to the establishment of the Finance Inspectors investigation and, eventually, to the establishment of this Commission of Inquiry.

The matter of Mr Leahy’s termination benefits is dealt with at paragraph 8.3.13.2. Although a huge sum was being calculated he received a gross payment of K49,807.58.

SCMC approval of senior office increases

After the Hay Group recommendations for senor officer upgrades were approved by the Board, NPF, at last, returned to the SCMC for approval. With minor variations, the increases were approved in January 1999.

Senior staff grades and SCMC approvals

The senior staff were job-graded by Hay group as follows:-

The contracts were drawn up by Carter Newell and the following package was given to each of Mr Tarutia, Ms Andoiye, Ms Dopeke, Ms Marjen and Mr Mekere.

The Carter Newell package gave remuneration at the top of the grade 13 range. Messrs Tarutia and Mekere had in fact been approved at grade 11 level, so they were overpaid. Those listed as grade 11 and 12 received the appropriate remuneration for those grades).

Mr Mitchell’s package

Carter Newell prepared an appropriate employment contract for Mr Mitchell. This was disregarded and he signed instead a consultancy agreement prepared by Mr Leahy.

Mr Mitchell received a gross remuneration package of AUD175,000 per annum with 5 weeks recreation leave per year and 10 days special leave.

The contract was not submitted for SCMC approval despite a demand by SCMC. It did receive NPF Board and Minister’s approval however.

Findings

(a) The remuneration package for Messrs Tarutia and Mekere were approved by the NPF Board and the SCMC but they were being paid at Grade 13 instead of the approved Grade 11 rate.
(b) Mr Mitchell was being paid since April 1999 according to a sham consultancy agreement which had been approved by the NPF Board and the Minister for Finance (pursuant to the PF(M) Act). It was not, however, approved by the SCMC and was therefore void.
(c) The other restructured senior officer contracts were in order.

OFFICERS ENTITLEMENTS AND ALLOWANCES

The Commission has not carried out its own inquiries into these matters but has studied the excellent report of the Finance Inspectors investigations. The Inspectors selected and investigated a sample of payments and allowances to individual officers as specified in paragraph 8.6 of Schedule 1.

The Commission accepts the Inspector’s findings. It is clear that there have been major abuses, which had led to an alarming increases in expenses paid as can be seen from the following table:-

Findings

(a) There were major abuses and over-payments of expenses and allowances to Trustees and senior officers in the period under review.
(b) The Commission recommends that a full audit and recovery action be carried out.

EMPLOYEES

The fairly generous remunerations for employees is reported at paragraph 9. Some attempts to set up a bonus scheme for this level of employee were rejected by the NPF Board, which did however approve a modest scheme of staff performance benefits to be administered by the managing director.

Home Ownership Scheme

The major additional benefit available to all staff, including the category of “employees” was the Home Ownership Scheme, which had been adopted in October 1993 and continued in the 5 year period under review. The rules for participating are set out at paragraph 9.2.2.

Basically a participant received an advance equal to one years gross salary for down payment on a property. The amount is progressively forgiven at the rate of 20 per cent per year. If the employee remains with NPF for 5 years no repayment will be required.

This scheme should have been, but was not, referred to SCMC for approval.

Findings

During the period under review, NPF consistently failed to refer increases in NPF staff remuneration and benefits (such as the Home Ownership Scheme) to the SCMC for approval. This appears to have been deliberate defiance of the SCMC Act by senior management and the NPF Board.

Salary increases

There were several “real” wage increases in the period in addition to CPI adjustments.

At the 109th NPF Board meeting on 5th May 1997 it was resolved to adopt the following policy in relation to staff salary increases:-

During the period under review, NPF consistently failed to refer increases in NPF staff remuneration and benefits (such as the Home Ownership Scheme) to the SCMC for approval. This appears to have been deliberate defiance of the SCMC Act by senior management and the NPF Board.

Throughout 1997, despite severe falls in profits, the NPF still increased benefits to staff based on performance.

When the PEA won an across-the-Board increase of 5% the NPF ruled that this could be paid to PEA members but that they must opt whether to accept that increase or remain with the NPF performance based scheme. They could not benefit from both.

Budgetary restraint

At the end of the period under review, at the Special Board meeting on 8th November 1999, Mr. Mitchell indicated that the budget for 2000 would involve restricting the size of the productivity review to 5% and that local leave fares would be reviewed. Nevertheless, there was still a relaxed attitude to spending members funds as entertainment expenses would still be K5,000 for the managing director, K2,000 each for the corporate secretary and general manager and that K1,600 would be budgeted for the staff Christmas party which included a K100 voucher for each employee at Stop and Shop.

Finding

(a) The repeated failures to obtain SCMC approvals to improvements in employees’ remunerations reflected a cavalier approach to employment laws by NPF Board and management.
(b) The attempt to implement the coherent total staff restructure recommended by Hay Group was restricted to 6 senior positions.
(c) The total remuneration of NPF employees, including performance based percentage increases and access to the NPF home ownership scheme, compared favourably with the remuneration of similar employees in private enterprise and the public service.

continued tomorrow

National Provident Fund Final Report [Part 9]

August 17, 2015 1 comment

This week 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.

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 ninth 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.

Continued from Friday

Three Employee Representative Trustees
Position: Trustee
Name: Henry Leonard
Period: May 18, 1995 to May 17, 1998 and January 1, 1999 to December 21, 1999

Irregularity
The only irregularity is that after his first term expired on May 17, 1998, a period of seven months was allowed to elapse before his reappointment. During that period, there were only two employee representative trustees.

Three Employer Representative Trustees
Position: Trustee
Name: Graham Hogg
Period: February 12, 1993 to February 11, 1996

Irregularity
No irregularities

Position: Trustee
Name: Isikeli Taureka
Period: February 12, 1993 to December 1997

Irregularity
Mr Taureka apparently resigned in about December 1997. It was not gazetted as required by the NPF Act. The vacancy was not filled for over 12 months.

Position: Trustee
Name: David Copland
Period: September 1, 1998

Irregularity
Mr Copland was allowed to continue as an employer representative trustee long after he ceased to be an employer – in contravention of the Act. The stated ground for termination was not a prescribed ground under the Act.

Position: Trustee
Name: Tau Nana
Period: February 8, 1996 to February 7, 1999 and April 20, 1999 to December 31, 1999

Irregularity
Once again, there was a gap between the end of Mr Nana’s first term and his reappointment. For a period Mr Nana was the only employer representative trustee. Mr Nana’s second appointment was invalid as there was no vacant employer trustee position available.

Position: Trustee
Name: Nathaniel Poiya
Period: January 19, 1999 to December 31, 1999

Irregularity
No irregularity

Position: Trustee
Name: Jimmy Maladina
Period: January 19, 1999 to December 31, 1999

Irregularity
This controversial appointment was opposed by the employers federation on the ground that his name had not been put forward by an organisation representing employers. Court action was settled on the basis that Mr Maladina would resign as trustee. He did not do so.

Position: Trustee
Name: Wayne Golding
Period: February 18, 1999 to March 13, 1999

Irregularity
Mr Golding was appointed by Minister Lasaro as an employer’s representative trustee. The appointment was invalid as there was no vacancy for an employer’s representative trustee and because his name had not been put forward by an organisation representing employers. When the employers federation threatened court action, his appointment was terminated.

Position: Managing Director
Name: Robert Kaul
Period: July 5, 1993 to May 5, 1998

Irregularity
His initial appointment was in accordance with the NPF Act but his conditions of employment were agreed by way of a personal contract of employment, with generous early termination clause. This was contrary to the provisions of Section 15 of the NPF Act, which required a Ministerial determination after prior consultation with the NPF board.

Revocation of his appointment by Minister Lasaro was improper and ineffective. It coincided with conflict between Mr Kaul and Mr Lasaro over claim for exemption by Masurina Group of Companies.

Position: Managing Director
Name: Henry Fabila
Period: ?

Irregularity
His initial appointment was invalid as Mr Kaul had not vacated the position. The signing of personal contract of employment was contrary to the NPF Act.

Findings regarding the  appointment of chairmen to the NPF Board

Appointment of Evoa Lalatute

Minister Haiveta’s precipitate conduct in purporting to appoint Mr Lalatute, as chairman of the NPF board was improper and ineffective. The proper way to make the appointment was for the Secretary of the DoF Rupa Mulina to nominate him as chairman and for the Minister to then approve the nomination. Mr Mulina’s attempt to regularise the appointment by way of a backdated nomination may be ineffective.

Findings

(a) Minister Haiveta had no legal power to appoint a chairman to the NPF board. His appointment of Mr Lalatute as chairman on December 13, 1995 was therefore illegal and improper.
(b) It is not appropriate for NPF management to be involved in giving advice to the Minister and DoF on the appointment of a trustee and to draft the required legal documents.
(c) The improper appointment resulted from Mr Haiveta’s enthusiasm for achieving results by exercising power and because DoF and Mr Mulina did not insist on asserting DoF’s primary role as Ministerial advisor and implementer of Minister’s decisions. There was nothing sinister in the replacement of Mr Mulina by Mr Lalatute, however.
(d) In an attempt to regularise Mr Lalatute’s appointment, Mr Mulina nominated Mr Lalatute to replace himself as chairman on January 19, 1996 pursuant to Section 6(1)(b) of the NPF Act. The instrument of nomination was however, backdated to December 1, 1996, in order to give the appearance that the initial appointment of Mr Lalatute had been done in accordance with the Act.

The validity of Mr Lalatute’s appointment is questionable.

Revocation of Mr Lalatute’s appointment as Chairman

The proper way to revoke this appointment was for Mr Lalatute to resign or else for the Secretary of the DoF Mr Mulina, to withdraw his nomination. Instead, Minister Haiveta purported to rescind the appointment and published a notice in the Gazette approving the revocation of Mr Lalatute’s appointment as chairman.

Mr Mulina did not withdraw Mr Lalatute’s nomination as chairman and there is no documentary evidence that Mr Lalatute ever resigned in writing given to the Minister, as required by the Act. No termination of Mr Lalatute’s appointment was ever gazetted. Nor is there evidence that Mr Lalatute’s appointment as a trustee was ever properly terminated.

The uncertainty about Mr Lalatute’s termination as a public service representative trustee and as chairman throws up doubts about the legality of the appointments of his successors as chairman and trustee.

Findings

(a) Mr Lalatute’s appointment as chairman of the NPF board on the nomination of the previous chairman Rupa Mulina was never properly revoked or otherwise terminated prior to the appointment of his replacement as chairman – David Copland.
(b) The appointment of Mr Copland as chairman of the NPF board was not valid as the position was not vacant.
(c) The appointment of Mr Lalatute as a trustee representing the public service was not validly terminated.
(d) The appointment of Gerea Aopi to replace Mr Lalatute as a public service representative trustee was not valid as there was no vacancy in that category of trustee position at that time.
(e) The managing director of NPF had no power to recommend trustees to the Minister and DoF to be appointed to the NPF board.
(f) DoF failed to assert itself as the prime authority to advise and support the Minister in these matters. This left a bureaucratic vacuum, which NPF management attempted to fill.
(g) In consequence there is serious doubt about the legality of Mr Lalatute’s vacating the office of chairman and consequently there is also doubt about the validity of Mr Copland’s appointment as chairman.

Role of Morea Vele

The new Secretary of the DoF assumed the role of chairman by revoking Mr Copland’s nomination but then failed to attend meetings.

Findings

(a) Mr Vele’s failure for a period of almost six months (February 15 to August 4, 1998) to attend to his duties as NPF chairman or, alternatively, to nominate a person to occupy the position of chairman at and between meetings was a breach of his fiduciary duty to the members of the fund.
(b) There is no evidence that Mr Vele was under any political or other external pressure to not perform his role as chairman.

David Copland – termination of appointment as a Trustee 

In the absence of Mr Vele from meetings, Mr Copland was repeatedly appointed acting chairman, even after he ceased to be an employer. When he was finally terminated as a trustee no valid ground was stated. The correct grounds for terminating Mr Copland should have been under Section 10(1)(h) of the Act (ceasing to be an employer).

Findings

(a) After Mr Copland ceased to be a representative employer in PNG he was allowed to continue as a trustee in contravention of Section 10(1)(h) of the NPF Act.
(b) The reason given in the letter to Mr Copland for his termination was not one of the reasons for termination prescribed in the NPF Act. This illustrates the inherent dangers of relying on NPF management for advice instead of taking advice on matters about the appointment and termination of trustees from the appropriate line department or agency, to ensure action is taken on proper legal grounds.

Brown Bai

After Mr Bai became Secretary of the DoF on September 1, 1998, he performed actively as chairman of the NPF board. He stood down reluctantly and nominated Jimmy Maladina as chairman under pressure from Minister Lasaro and Prime Minister Bill Skate, who exerted strong and improper pressure to have Mr Maladina appointed as a trustee and as chairman.

Findings

(a) The nomination of Mr Maladina to be an employers’ representative trustee was not from an organisation of employers and hence did not satisfy the requirements of Section 6(1)(e) of the NPF Act.
(b) Mr Leahy’s legal advice on this subject was seriously flawed in favour of the appointment of his friend and fellow conspirator, Mr Maladina.
(c) The involvement of NPF management in giving advice to the Minister regarding Mr Maladina’s appointment as a trustee and in preparing instruments for gazettal was inappropriate. It led to wrong advice, faulty instruments, legally ineffective appointments and great confusion.
(d) There was direct contact and plotting between Mr Leahy and Mr Maladina during the struggle to achieve Mr Maladina’s appointment as trustee and chairman of the board. This was inappropriate and improper.
(e) Minister Lasaro and Prime Minister Skate exercised improper influence to obtain the appointment of Mr Maladina as a trustee and then as chairman of the board.
(f) Mr Bai’s decision to stand down as chairman of NPF and to nominate Mr Maladina in his place was due to the improper pressure exerted by Minister Lasaro and Prime Minister Skate.
(g) It is recommended to the constituting authority that Mr Skate and Mr Lasaro be referred to the Ombudsman Commission to investigate whether there has been a breach of the Leadership Code in connection with the nomination and appointment of Mr Maladina as a trustee and then as chairman of the NPF Board of Trustees.
(h) Mr Bai’s failure to attend meetings of the NPF board after his appointment as a trustee in February 1999 was a breach of his fiduciary duty to the members of the fund.
(i) Mr Maladina’s failure to formally resign his position of employer representative trustee, as he had promised, casts doubt about the legality of Mr Jeffery’s subsequent appointment, as there was no vacancy for him to fill.

Findings regarding appointments of Trustees to the NPF Board

Vele Iamo

Mr Iamo’s repeated absences from NPF board meetings deprived the board of the benefit of his expertise. Even though it was caused by pressure of other important work it was a breach of his fiduciary duty to the members of the fund. After absenting himself without permission of the chairman for more than three consecutive meetings, it was obligatory for the Minister to terminate Mr Vele’s appointment. This did not happen for several years.

The belated termination of Mr Iamo’s office of trustee was irregular.

Findings

(a) Mr Iamo failed in his fiduciary duty to NPF when he failed to regularly attend board meetings.
(b) Mr Frank and Mr Leahy failed in their fiduciary duties by not advising the board about the legal position concerning Mr Iamo’s continuous absences from board meetings.
(c) Minister Lasaro failed to make a clear-cut and publicly gazetted termination of Mr Iamo’s appointment, before advertising for applications to fill the non-existing vacancy in his position.
(d) Mr Iamo’s frequent absences from NPF board meetings were because of his extremely busy schedule as a senior officer of the DoF, which obliged him to attend a great many board and other meetings. Expecting senior officers to hold responsible positions on so many boards amounted to a structural weakness in the NPF Act.
(e) There were many instances where Mr Iamo’s role as a senior officer of DoF was in direct conflict with his role as a trustee of NPF, especially when he was promoting the Government’s interests while advising/requesting NPF to assist the State by, for instance, purchasing Government bonds or road stock.

Evoa Lalatute

There was confusion about Mr Lalatute’s position as a trustee after he ceased to be chairman because proper procedures were not followed.

Findings

As Mr Lalatute never resigned as a trustee and as his appointment was never formally terminated, it throws legal doubt about the subsequent appointment of Gerea Aopi as a public service representative trustee, as there was no vacancy in that category of trustee at the time of his purported appointment.
Gerea Aopi

Mr Aopi’s appointment as a public service trustee occurred before there was a vacancy, as Mr Lalatute was still a public service trustee. There were, therefore, too many public service trustees for over 21/2 years, from February 8, 1996 until August 28, 1998.

Findings

(a) The failure to follow the prescribed procedures in the NPF Act regarding appointment and termination of trustees continued to undermine the constitutional validity of the NPF Board of Trustees up until Mr Aopi’s resignation on August 28, 1998.
(b) Primary responsibility for this situation is the failure of DoF to accept responsibility for managing these changes to the NPF board and Mr Leahy’s failure to proactively provide timely and professional advice as legal counsel and corporate secretary.
(c) It seems there was more than the maximum allowed number of public service representative trustees for more than 21/2 years throwing doubt on the legality of the NPF board and all its decisions in that period.

Abel Koivi

Mr Koivi was appointed as a public service representative trustee because he held a position with Air Niugini when it was Government owned. The appointment was invalid because there was no vacancy for a public service representative trustee at that time.

When Air Niugini was privatised, Mr Koivi was no longer a public servant and therefore he was not qualified to hold this position.

Mr Leahy attempted to “qualify” him by arranging for his job with Air Niugini to be declared an office in the public service.

Findings

(a) Mr Koivi was initially appointed to the NPF board on April 1, 1996, when there was no vacancy for a public service representative trustee and without following prescribed procedures. His appointment was therefore invalid.
(b) This irregularity became known to Mr Leahy who on August 5, 1997, advised managing director Kaul of the fact and the legal consequences, but did not pursue the matter to rectification.
(c) When an attempt was made to regularise Mr Koivi’s appointment as a public service representative trustee he was no longer in the public service.
(d) Following Mr Leahy’s advice, NPF management sought to overcome this impediment by declaring the position to be a public service office by declaration under Section 3(5) of the Interpretation Act. This was done surreptitiously, without notifying DoF or the Minister about the reasons for this deft legal manoeuvre. It is not certain whether or not this finally regularised Mr Koivi’s appointment, two years and five months after it had been made.
(e) When it was decided to terminate Mr Koivi’s appointment, he was given no notice and it was done by Prime Minister and Acting Minister Skate, irregularly and not upon any grounds specified under Section 10 of the NPF Act, as required. The effectiveness of the formal termination of appointment is therefore in doubt.

Brown Bai

When appointed a trustee after he stood down as chairman, Mr Bai continuously failed to attend meetings. His appointment was not terminated as required by Section 10(1)(d) of the NPF Act.

Findings

(a) Because of slackness in the way appointments and terminations of office of trustees were handled, the NPF board of trustees was improperly constituted for almost two years and five months from early 1996 until August 28, 1998.
(b) This situation was known by Mr Vele, Mr Kaul, Mr Fabila and mr Leahy.
(c) It raises doubts about the legality of NPF board decisions and contracts during a period when there were very significant transactions involving many millions of kina.
(d) Mr Leahy failed in his duties by not taking immediate and appropriate action to ensure the board was properly constituted as far as public service trustees are concerned.
(e) The DoF failed in its duties by not ensuring that the matter of the constitution of the NPF board under Section 6(1)(c) of the NPF Act was properly managed.
(f) The commission recommends that the monitoring of the constitutional integrity of statutory corporations should be the responsibility of a single agency and that the statutory instruments should always be prepared in the office of the First Legislative Counsel.

Findings regarding the appointments of three employee representative Trustees

There were no substantial irregularities in the appointment and terminations of appointment of the employee representative trustees — Mr Paska, Mr Gwaibo and Mr Leonard. The only serious irregularity was that for substantial periods, there were only two employee representative trustees instead of the prescribed three.

Findings regarding the  appointments of three employer representative

Trustees Graham Hogg
There were no irregularities.

Isikeli Taureka

Mr Taureka resigned for personal reasons about December 1997. There is an air of uncertainty, as his resignation was not gazetted as required under Section 10(3) of the NPF Act. The vacancy caused by his departure was allowed to remain vacant for 12 months.

David Copland

After being illegally allowed to continue as an employer representative trustee, after ceasing to be an employer, Mr Copland’s appointment was terminated on a ground, which was not prescribed in Section 10 of the NPF Act.

Findings

(a) After Mr Copland ceased to be a representative employer in PNG, he was allowed to continue as a trustee in contravention of Section 10(1)(h) of the NPF Act.
(b) The reason given in the letter to Mr Copland for his termination was not one of the reasons for termination prescribed in the NPF Act. This illustrates the inherent dangers of relying on NPF management for advice instead of taking advice on matters about the appointment and termination of trustees from the appropriate line department or agency, to ensure action is taken on proper legal grounds.

Mr Copland’s vacancy was not filled immediately and for a period, Mr Nana was the only employer representative trustee on the board.

Tau Nana

There were no irregularities except the two-month delay in reappointing him. For a period, Mr Nana was the only employer representative trustee.

Jimmy Maladina

There was considerable controversy surrounding Mr Maladina’s appointment as employer representative trustee as for a long while no valid organisation representative of employers was willing to nominate him for consideration by the Minister. It involved much political pressure and contrived nominations.

In evidence before the commission, Mr Skate and Mr Lasaro each blamed the other for the appointment of Mr Maladina.

Findings

(a) The nomination of Mr Maladina to be an employers’ representative trustee was not from an organisation of employers and hence did not satisfy the requirements of Section 6(1) (e) of the NPF Act.
(b) Mr Leahy’s legal advice on this subject was seriously flawed in favour of the appointment of his friend and fellow conspirator Mr Maladina.
(c) The involvement of NPF management in giving advice to the Minister regarding Mr Maladina’s appointment as a trustee and in preparing instruments for gazettal was inappropriate. It led to wrong advice, faulty instruments, legally ineffective appointments and great confusion.
(d) There was direct contact and plotting between Mr Leahy and Mr Maladina during the struggle to achieve Mr Maladina’s appointment as trustee and chairman of the board. This was inappropriate and improper.
(e) Minister Lasaro and Prime Minister Skate exercised improper influence to obtain the appointment of Mr Maladina as a trustee and then as chairman of the board.
(f) Mr Bai’s decision to stand down as chairman of NPF and to nominate Mr Maladina in his place was due to the improper pressure exerted by Mr Lasaro and Prime Minister Skate.
(g) It is recommended to the constituting authority that Mr Skate and Mr Lasaro be referred to the Ombudsman Commission to investigate whether there has been a breach of the Leadership Code in connection with the nomination and appointment of Mr Maladina as a trustee and then as chairman of the NPF Board of Trustees.
(h) Mr Bai’s failure to attend any meetings of the NPF board after his appointment as a trustee in February 1999 was a breach of his fiduciary duty to the members of the fund.
(i) Mr Maladina’s failure to formally resign his position of employer representative trustee as he had promised, casts doubt about the legality of Mr Jeffery’s subsequent appointment — as there was no vacancy for him to fill.

The employers federation strongly resisted the appointment of Mr Maladina as an employer representative trustee on the nomination of Waghi Mek Plantations, saying this was not an organisation of employers representing employers and a Writ was issued. It was settled on the basis that Mr Maladina would resign as an employer representative trustee, allowing for the appointment of Mr Jeffery in his place, with Mr Maladina to remain with NPF solely in his capacity as chairman. When Mr Maladina failed to carry out the formalities required in order to validly resign, it threw doubt on the legality of Mr Jeffery’s subsequent appointment — as there was no vacancy for him to fill.

Wayne Golding

Mr Golding’s appointment by Minister Lasaro was invalid from the start. He was not nominated by an organisation of employers representing employers, nor was there a position for him. Nevertheless, he assumed duties and voted at meetings before his appointment was terminated in the face of threatened court action by the employers federation.

Findings

(a) The appointment of Mr Golding as an employer’s representative trustee by Mr Skate as Acting Minister for Finance, without a nomination by an organisation of employers representing employers, was improper and invalid, being contrary to the requirements of Section 6 of the NPF Act.
(b) It was inappropriate that Mr Fabila and Mr Leahy were dealing directly with the Minister in organising the appointment of Mr Golding, by-passing the DoF.
(c) The DoF failed to assert itself by insisting on advising the Acting Minister on this appointment. This is understandable considering that Mr Skate had already indicated he would act despite DoF’s contrary advice.
(d) The procedures adopted by Mr Lasaro and Mr Fabila to terminate the (invalid) appointment of Mr Golding were not in accordance with the NPF Act and were very confusing.
(e) It seems that Mr Golding participated in NPF decision-making, despite his initial appointment being invalid and after steps had been taken to terminate the appointment.

No independent monitor of statutory compliance

Many of the irregularities which occurred regarding the appointment and termination of trustees arose from the fact that no agency of government assumed responsibility for ensuring that the NPF board was properly constituted at all times.

It was left to the NPF corporate secretary/legal counsel to monitor the completion of terms of appointment, to ensure nominations for appointment and reappointment occurred in compliance with the Act and to prepare instruments of appointment for signature by Prime Minster or Minister and to organise gazettal as appropriate. Similarly, it was left to Mr Leahy and NPF management to ensure that all categories of trustee position were filled, with the prescribed number of trustees of that category.

This system clearly broke down.

As neither DoF nor the First Legislative Counsel had clear responsibility in these matters, the gross constitutional defects which occurred in the composition of the NPF board throughout the period under review were not noted and corrected.

Findings

(a) The failure of DoF or any other government agency to advise the Minister and manage appointments and termination of trustees continued to undermine the constitutional validity of the NPF board when the resignation of Mr Maladina as an employers representative trustee did not proceed as agreed.
(b) The appointment of Mr Nana and Mr Jeffrey on June 3, 1999, resulted in there being four trustees in that category and consequently the board was invalidly constituted from June 3, 1999, until the end of the period under review on December 31, 1999.
(c) The fact that there was no validly appointed NPF board of trustees casts legal doubt upon the validity of the major board decisions made after June 3, 1999, which included the transfer of NPF assets. There is no validating clause in the NPF Act to protect decisions made by an unconstitutional board containing too many members in any one category of trustee (Section 11 only validates decisions of a board which has two few trustees in a particular category).
(d) The primary responsibility for ensuring that the trustees are validly appointed to the NPF board and that the composition of the board is in accordance with the requirements of the Act lies with the corporate secretary and principle legal officer Herman Leahy. Mr Leahy was in serious and repeated breach of that duty.
(e) The DoF did not accept responsibility to oversee and monitor the process of appointments to the board.
(f) Mr Lasaro and his advisors within the NPF, Mr Fabila and Mr Leahy as well as the DoF, which failed its responsibility to advise and manage this process, are all responsible for the serious legal confusion.
(g) The commission recommends that all instruments of appointment or termination of appointment should be prepared by the office of the First Legislative Counsel.

Appointment of  Managing Director

Legislation

Section 15 provides that the appointment of the managing director is by the Minister after prior consultation with the NPF board. Under Section 16, termination is by the board. Terms and conditions are as determined by the Minister after prior consultation with the NPF board.
Robert Kaul

Mr Kaul’s initial employment in 1993 was regular but his terms and conditions were agreed to by a contract of employment with NPF rather than by Ministerial determination as required by Section 15(2) of the NPF Act. This was repeated on his reappointment on July 4, 1996, with generous payout terms for early termination.

His early termination in 1998 was a result of improper political direction from Minister Lasaro and Prime Minister Skate, which resulted in a significant payout of his unexpired contract. Proper procedures were not followed. The termination was the result of a political scheme involving Mr Skate and Mr Lasaro, assisted by Mr Leahy, to appoint Henry Fabila to the office of managing director.

The irregular termination of Mr Kaul’s appointment was legally ineffective, which in turn invalidated Mr Fabila’s appointment, as the position of managing director had not yet become vacant.

Findings

(a) Gerea Aopi and the NPF management and board ignored the provisions of Section 15 of the NPF Act regarding appointments and the conditions of a managing director and inappropriately appointed Mr Kaul in 1993 pursuant to a personal contract of employment, containing generous payout provisions for early termination.
(b) After the formation of the “Skate” government in 1997, Prime Minister Skate and Minister Iairo Lasaro wished to replace Robert Kaul with Henry Fabila as managing director NPF.
(c) Prime Minister Skate had strong personal links with Mr Fabila and Minister Lasaro had strong personal reasons for replacing Mr Kaul, who was strongly resisting the Minister’s improper pressure to grant an exemption to the Masurina Group of Companies.
(d) Minister Lasaro gave an improper direction to the chairman of the NPF board/Secretary DoF Mr Vele to terminate the appointment of Mr Kaul without any prescribed grounds, which was beyond his power as this power lay with the board.
(e) Minister Lasaro’s direction to NPF to submit a list of names, including the name of Mr Fabila for his consideration, in circumstances where he had already made up his mind to appoint Mr Fabila and had issued a press release to that effect, did not constitute prior consultation with the NPF board as required by Section 15(1)(a) of the NPF Act.
(f) It was not possible to appoint Mr Fabila until Mr Kaul’s appointment had been terminated. This early termination required a payout to Mr Kaul of K141,983.51 for early termination according to his contract of employment.
(g) The DoF gave inadequate and incorrect advice to the Minister on the termination of Mr Kaul and appointment of Mr Fabila.
(h) Mr Leahy failed his duty as legal counsel and corporate secretary to advise the NPF board as to its rights and duties and that the Minister was exceeding his power in directing the termination of Mr Kaul’s appointment.
This was a serious breach of duty for which Mr Leahy, as a qualified and practising lawyer, was professionally liable. He may be personally liable for damages at the suit of the NPF board, including liability for loss suffered by NPF members caused by the excessive payout to Mr Kaul.
(i) The decision to terminate Mr Kaul and appoint Mr Fabila amounted to improper interference with the management of the NPF for which both Minister Lasaro and Prime Minister Skate were responsible.
(j) The commission recommends that the constituting authority refer William Skate and Iairo Lasaro to the Ombudsman Commission to investigate whether there have been breaches of the Leadership Code in relation to the termination of Mr Kaul’s appointment and the appointment of Mr Fabila as managing director of the NPF.
(k) The action of Acting Minister Sir Mekere Morauta in signing the instrument of appointment of Mr Fabila to the position of managing director of the NPF was not improper, as he acted in good faith, on the advice of the DoF, that the appointment was appropriate and in order.
(l) The statutory instrument of appointment of Mr Fabila was not prepared by the office of the First Legislative Counsel. It was probably prepared by Mr Leahy at the NPF. The instrument fails to recite the words of section 15(1)(a) “after prior consultation with the board” and there had been no such prior consultation — merely directions given by the Minister.
(m) The commission recommends that the office of First Legislative Counsel be given clear authority to prepare all instruments of revocation and appointment.
(n) Carter Newell were remiss in their professional duty for simply producing a contract for Mr Fabila’s terms and conditions, without proper research and without taking account of statutory provisions including Sections 16 and 17 of the Act, which set out grounds for termination.

continued tomorrow

National Provident Fund Final Report [Part 8]

August 14, 2015 Leave a comment

Below is the eighth 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 eighth 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.

INTRODUCTION AND OVERVIEW

Schedule 1 reports upon the legislative and policy framework within which it was intended that the National Provident Fund (NPF) should operate.

It records how NPF management and trustees frequently operated outside of that structure and how, by 1999, that structure had, to a significant extent, broken down in key areas, such as the constitutional integrity of the NPF board, internal governance, accounting, compliance by contributors, investment strategies, reporting obligations and external monitoring and controls. Specific matters, which received detailed investigation, are reported upon in Appendices 1 to 21 that are attached to Schedule 1.

On August 11 and 15, 2000, the commission conducted a seminar in the form of a public hearing to seek the views of 78 participants about the effectiveness of the legislative and administrative structure for the NPF. The proceedings were recorded at transcript pp. 1-121. The report on the seminar is included as Appendix 23 to Schedule 1.

Just prior to presenting this report, the new Superannuation Act 2000 was brought into force and NPF restructured itself and was licensed under the new Act under the name of Nasfund. The NPF Act was then repealed in its entirety and Nasfund now operates under the provisions of the Superannuation Act 2000.

In this schedule, the commission presents its findings and recommendations regarding the legislative structure which applied to the NPF in the years January 1, 1995 to December 31, 1999. Despite the fact that the Act has been repealed, the schedule continues to talk about the NPF and the NPF Act in the present tense, as if the NPF Act and the NPF still exist.

This is partly to ensure that the commission’s report is faithful to its terms of reference and partly because it will be of current benefit to understand how the previous structure was largely by-passed by the former trustees and management with impunity and to consider whether the new structure put in place under the Superannuation Act 2000 successfully overcomes the previous weaknesses.

NPF Act and Rules

NPF is given corporate status and its powers and functions are strictly defined under the NPF Act.

Expenditure of funds is limited to NPF’s objectives and powers as defined in the NPF Act, or other legislation. It is, for instance and importantly, not given the power to borrow or pledge its assets.

It was naturally assumed that NPF’s governing board of trustees would be properly constituted in accordance with the provisions of the Act so that its decisions would be legally valid.

The Act established the NPF as an accumulated benefits superannuation fund for private sector employees. All private employment establishments employing 25 or more employees are required to join the fund, with employers and employees all contributing a percentage of the employee’s wages to be received by the fund and credited to the member’s account. NPF’s funds must be properly accounted for and deposited into a certified bank and invested in accordance with guidelines promulgated by the Minister.

The Act provides that the Minister with responsibility for financial matters, have portfolio responsibility for NPF, with powers regarding appointments to the managing board and some powers regarding termination of appointments.

Under the Public Finances (Management) Act 1995 (PF(M) Act 1995), the Minister was given powers to approve major transactions and investments. Under Section 26 of the NPF Act, the Minister is empowered to promulgate guidelines for NPF’s investments.

It was envisaged that the Minister would receive reports and financial statements on the progress and health of the fund and that these reports and statements would be audited by the Auditor-General and tabled in Parliament.

The Act established that the governing body of the NPF would be a board of trustees consisting of a mix of trustees from the public service (two), from private enterprise (three) and representing employees (three). The managing director would also serve on the board as a trustee.

The legislation

The major pieces of relevant legislation are:-

  1. The PF(M) Act;
  2. The Audit Act and
  3. The Salaries and Conditions Monitoring Act.

The NPF Act 1995 establishes the NPF as an accumulated benefits fund for all workers employed in private enterprise employment establishments employing 25 or more employees unless an exemption has been granted under Section 3(6) or 42, of the Act. Participation is compulsory (The amendment repealing subsection 3(6) was not brought into force).

The NPF falls within the portfolio of the Minister responsible for PNG financial affairs (the Minister) and it is governed by a board of trustees (the NPF board), consisting of two representatives of the public service, three representatives of employers and three representatives of employees. The NPF board is chaired by the Secretary for the department responsible for managing the country’s financial affairs, referred to here as the Department of Finance (DoF).

The Managing Director

The management of NPF is headed by a managing director appointed by the Minister after prior consultation with the board (Section 15), who is also a member of the board of trustees and is therefore himself a trustee pursuant to Section 6(1)(d).

Officers

The managing director has control of the officers appointed by the NPF board on the recommendation of the managing director (Section 19).

Employees

Beneath the officers are the employees of the fund, appointed by the managing director with the approval of the board (Section 21).

Contributions and compliance

Part V of the NPF Act provides for employers to contribute an amount equal to 7 per cent and employees to contribute 5 per cent of each employee’s monthly wage actually drawn. Section 35 obliges the NPF to credit to each member all amounts paid on his behalf.

Section 37 enables the managing director to charge a penalty interest to employers on overdue contributions. Failure to comply is also an offence (Section 36).

Withdrawals and payments from the Fund

Section 49 provides a mechanism whereby the managing director may approve a withdrawal to purchase a dwelling house or site or materials for a dwelling to a maximum limit of 24 times the member’s monthly pay.

Section 52 provides for withdrawal of the full amount standing to the credit of the member’s account on retirement after attaining 55 years, on attaining 55 years after previous retirement, on retirement due to total and permanent incapacity; or immediately prior to permanent emigration from PNG.

Reporting and external supervision

Although the NPF is designed to be independent of government control and interference, the legislation provides for a framework of external monitoring and supervision and for broad policy guidelines and directives on investment policies to be issued by the Minister (Section 26(2)) within which the NPF board and management is obliged to operate.

The NPF Act specifies rules for banking and investing the funds and the Minister is empowered to issue policy guidelines on investments (Section 26 of the NPF Act). Section 30 (now subsumed by Section 63 of the PF(M) Act) requires NPF to submit an annual report to the Minister and to also submit the report to the Auditor-General who, pursuant to Section 29, shall report the result of his audit to be Minister, who, in turn, is obliged to submit the audited report to Parliament each year.

Section 63(2)(b) of the PF(M) Act requires NPF to report quarterly to the Minister on all investment decisions and to provide an annual report on investment performance and an updated five year rolling plan on investment strategies and administrative systems. How this structure, which requires NPF to have in place and to report upon investment strategies and plans, was ignored, is set out in paragraph 16 of Schedule 1.

The formal legislative and administrative structure in place for NPF between 1995 and 1999 is shown in Table 1 below.

Trustees

Schedule 1 reports how the members of the NPF board failed to appreciate and to perform their fiduciary duty as trustees and how this leaves them open to personal liability for loss suffered by the fund and its members, arising from their breach of fiduciary duty. It reports in detail how the repeated irregularities in the appointment and termination of trustees seriously compromised the legal validity of the NPF board. It clearly demonstrates that no single agency was responsible for ensuring that the board was validly established at all times and that appointments and terminations were constitutional.

Problems regarding the determination of trustees’ expenses and allowances are studied in detail, as are the failures to properly administer and account for payments of these allowances to trustees. These are reported at paragraph five and in Appendix 16.

Managing Director

Similar problems with the appointment, termination of appointment and determination of terms and conditions of employment of the managing director are reported in paragraphs 5.4 and 5.4.5 of Schedule 1 which shows how the provisions of Section 15(2) of the NPF Act, requiring a determination by the Minister acting with the advice of the board were ignored in favour of signing a contract of employment with very favourable terms for early termination in defiance of the statutory provisions.

Officers

The appointment, termination and conditions of employment of the other officers are reported upon in paragraph 6 of the Schedule and how the necessity to obtain the approval of the Salaries and Conditions Monitoring Committee (SCMC) was ignored, which had the effect of making the contracts void.

The senior officers were given additional remuneration in the form of a senior officers bonus scheme, which was inappropriate and led to irregular accounting techniques in order to artificially boost the profit-based bonus payments.

In reporting upon the nature and defects of the bonus scheme the commission has made a detailed study of the ineffectiveness of NPF management and financial planning which is reported in detail as specific matter number 20 in Appendix 20.

As with the trustees, the commission has found that there were serious irregularities regarding the determination and administration of expenses and allowances for officers. These are reported at paragraph 8.6.

Employees

The fairly favourable conditions of employment of employees and their access to a home ownership scheme and staff performance benefits are reported in paragraph 9 of Schedule 1.

After the departure of experienced and well trained staff prior to January 1995, NPF suffered from a serious lack of experienced and well trained work force and this is clearly reflected in the lack of efficiency reported upon by the Auditor-General, Pricewaterhouse Coopers (PwC) and KPMG.

There were attempts to restructure all staff positions at NPF. This resulted, however, only in a restructure and salary increase for senior officers.

Overview of officers and employees

Paragraph 10 of Schedule 1 provides a detailed overview of NPF’s management problems and deficiencies as reported by the Auditor-General, PwC and KPMG, which the commission adopts as part of its own findings.

Board forum and decision-making

The structure created for NPF envisioned that decisions would be made by the NPF board in properly constituted board meetings, unless delegated to management.

In paragraph 11, the commission reports on ultra vires decision-making by management; failure by management to properly brief and inform the board prior to seeking a board resolution; decision-making by “circular resolutions” and the board’s frequent failure to obtain the required approval by the Minister for decisions involving transactions over K300,000 (later increased to K500,000).

The problem caused by the participation in board meetings of invalidly “appointed” Trustees is also discussed.

The relationship between structural problems and losses suffered by NPF

NPF failed to develop investment policies and strategies and to report upon them quarterly as required.

Instead, it embarked upon a wholly inappropriate series of high-risk investments in PNG resource and other shares.

It ignored the structural requirement to confine its activities within the boundaries of its statute-given powers. Most notably it borrowed the funds to make these investments, which was beyond its powers.

The NPF board was required to confine its investments within the guidelines set by Sir Julius Chan in November 1993. Its failure to do so was a breach of fiduciary duty by each trustee in office during the period in which these investments were made and retained. Most of

NPF’s huge losses resulted from stepping outside the set structure governing its activities in this way.

The reason these activities and the mounting losses continued for so long is that NPF also ignored the obligatory structural requirement that it report quarterly and annually to the Minister. DoF must have been aware of this but felt no obligation to monitor and rectify the situation.

This was a serious gap in the structure of reporting. With NPF’s reporting to the Minister having broken down, it meant that the Auditor-General’s audit and reporting system also failed to operate, as it required the receipt from NPF of its report to the Minister to set the audit procedures in motion.

Weak governance within NPF was a significant contributing factor to the losses, which NPF suffered.

For most of the time, trustees were badly informed by management and seemed content to passively attend meetings, draw their allowances, sign circular resolutions and not inquire what management was doing.

The managing directors and investment managers rarely sought expert advice, relying on their own ego-driven and extreme views of what were suitable investments and activities for a provident fund.

The trustees almost never questioned or criticised management and never insisted on being given independent expert advice. In this manner, the trustees meekly went along with management’s recommendations to borrow funds for high-risk equity transactions, to invest millions of kina in Crocodile Catering and its foolish Indonesian adventures, to attempt to issue a $A54 million bond and to construct the NPF Tower.

Having embarked upon those ventures, the trustees did not insist upon strict accounting and reports by management as to their progress and NPF’s financial situation.

Criminal conspiracies

In 1999, while NPF’s financial lifeblood was haemorrhaging and it was facing bankruptcy and the complete loss of its member’s funds, its chairman Jimmy Maladina and its legal counsel/board secretary Herman Leahy, with the complicity of its managing director Henry Fabila, in defiance of all legal constraints, set about defrauding the NPF by means of the Waigani land deal and the NPF Tower construction fraud. These criminal conspiracies caused a further loss of just under K3 million to the Fund.

This executive summary will now present the major findings made by the commission in Schedule 1 with a brief summary of the relevant context. References to the relevant paragraphs in Schedule 1 and to the relevant appendix are given.

IRREGULARITIES IN APPOINTMENTS, TERMINATIONS AND CONDITIONS OF TRUSTEES AND OFFICERS

The structural framework for appointing, removing and remunerating trustees and officers, was carefully specified in the NPF Act. The administration of the process was so poor, however, that it undermined the constitutional legality of the board and the integrity and efficiency of the officers.

Schedule 1 examines these processes in great detail in paragraphs 4, 5 and 6.

This executive summary first postulates the formal structure as intended by the Act and then tabulates the period of incumbency of successive trustees, chairmen, managing directors and officer holders, pointing out any irregularities in tabular form.

Finally, this section of the summary sets out the commission’s findings on appointments, terminations and remunerations with brief contextual comments.

The structural framework for appointments, removals and the remuneration of office holders 

The Board of Trustees

The tripartite structure of the board is designed to give representation to the public service (two trustees), the employers (three trustees) and the employees (three trustees).

Appointment of Trustees

The public service representative trustees are appointed by the Minister to ensure that the board contains their professional expertise and to allow for an informal avenue of co-ordination and communication between the NPF and the public service and government (the intention was frustrated because the senior public service representative Iamo Vele rarely attended board meetings. On several significant matters his role as a trustee was in direct conflict with his role as a senior DoF officer).

The employer representative trustees are to be appointed by the Minister from a panel of names submitted by organisations representing employers. This is designed to ensure that this category of trustee is made up of trustees acceptable to the contributing employer establishments (The appointment of Mr Maladina as a trustee was in breach of this requirement).

The employee representative trustees are to be appointed by the Minister from a panel of names submitted by an organisation representing employees (traditionally the PNG Federation of Trade Unions).

Termination of appointment of Trustees

The employer and employee representative trustees are appointed for fixed three year terms subject to terminations upon grounds set out in the Act, and not otherwise.

Section 10 provides mandatory grounds upon which the Minister shall terminate a trustee’s appointment if (relevantly), the trustee:

(c) resigns his office by writing under his hand addressed to the Minister;

(d) absents himself from three consecutive meetings without the written consent of the chairman;

(e) . . .

(f) . . .

(g) being a person appointed under Section 6(1)(e), ceases to be an employee;

(h) being a person appointed under Section 6(1)(f) ceases to be an employer.

Section 10(2) allows the Minister to terminate a trustee’s appointment on the clearly stated grounds of:

“. . . inability, inefficiency, incapacity or misbehaviour”.

These are the only legitimate grounds for termination, yet there were many purported terminations on other grounds.

Where the Minister terminates an appointment, Sub-section 10(3) provides that the Minister shall, by notice in the Gazette, declare the office vacant and sub-section 10(4) provides it shall then be filled in accordance with Section 6.

Schedule 1 traces the history of the appointment and termination of appointment of trustees in detail.

As there were so many irregularities and so little care taken to follow the provisions of the Act, that the board was improperly constituted for long periods of time, which throws the legality of major board decisions into doubt. These irregularities are set out in Table 1 of this executive summary and the commission’s findings on this aspect are set out at paragraph 3 of this Executive Summary.

The chairman

Section (6)(1)(a) provides that the chairman shall be the Secretary of the DoF or his nominee approved by the Minister (An amendment to Section 6 which was enacted by Act No. 40 of 1986, was never brought into force).

Expenses and allowances of Trustees

The Act provides for board expenses and allowances to be determined by the Prime Minister and this power was never delegated.

Schedule 1 shows how the power was illegally exercised by Acting Minister Konga (paragraph 5.3.5) and how the NPF board itself illegally increased its own expenses and allowances (paragraph 5.2.2).

The Finance inspectors’ report has traced serious irregularities in the way board expenses and allowances were administered and calculated and the commission has recommended a full audit and recovery action to be implemented in order to recover the vast increase in expenses and allowances (paragraph 5.3.7.1 and Appendix 16).

There are no provisions for granting additional allowances for the chairman (i.e. the Secretary of the DoF or his nominee).

The managing director

Section 15 of the NPF Act provides that the managing director will be the chief executive of the board and head of the staff.

He is appointed by the Minister by notice in the Gazette after prior consultation with the board.

Sub-section 15(2) provides that the managing director’s salary and conditions shall be determined by the Minister, acting with the advice of the board.

Vacation and termination of office are provided for in Section 16 if the managing director:-

(a) becomes incapable;

(b) resigns;

(c) undertakes outside work without board’s consent;

(d) becomes bankrupt;

(e) is guilty of moral turpitude; the board shall terminate his employment.

Under sub-section 16(2), the board may, with the approval of the Minister, terminate the managing director’s appointment for “inability, inefficiency, incapacity or misbehaviour”.

There is no room for the managing director to be engaged on different terms pursuant to a contract of employment or for his appointment to be terminated on grounds other than those specified in section 16, yet these things happened.

Officers

Section 19 provides that the board may appoint officers of the board on the recommendation of the managing director. Conditions of service of officers may be prescribed in the rules.

Though not stated in the NPF Act, it is clear that the remuneration of officers is subject to the SCMC Act. SCMC approval was, however, rarely sought for officers’ remuneration and conditions, including the benefit of the senior staff bonus scheme.

Other employees

By Section 21 of the NPF Act, the managing director may, with the approval of the board, appoint other employees on terms and conditions determined by the board. Their remuneration is also subject to SCMC approval, which was rarely sought.

Periods of appointment

The periods of office of the successive Minister, secretaries of DoF, chairmen of the NPF board, trustees and managing directors are set out in a graph at Appendix 22 to this executive schedule.

Dates of appointment

The dates of appointment to and vacation of office of the successive Ministers, chairmen of the NPF board, trustees and managing directors and officers of the board are set out in the following table, noting all major irregularities, with references to paragraphs in

Schedule 1 and its appendices.

DATES OF APPOINTMENT AND VACATION OF OFFICE NOTING MAJOR IRREGULARITIES

Position: Minister

Name: Chris Haiveta

Period: January 1, 1995 – August 26, 1997

Irregularity: None

Position: Minister

Name: Iairo Lasaro

Period: September 29, 1997 to August 2, 1999

Irregularity: None

Position: Minister

Name: Sir Mekere Morauta

Period: August 1, 1999 to December 31, 1999

Irregularity: None

Position: Chairman

Name: Gerea Aopi

Period: January 1, 1995 to October 3, 1995

Irregularity: Held position of chairman by virtue of being Secretary of the DoF and vacated the chairmanship on ceasing to be Secretary.

Position: Chairman

Name: Rupa Mulina

Period: October 3, 1995 to January 11, 1996

Irregularity: Mr Mulina became chairman by virtue of his appointment as Secretary of the DoF. He sensed a conflict of interest and willingly complied with Minister Haiveta’s request to nominate Evoa Lalatute in his place. Minister Haiveta proceeded, however, to appoint Mr Lalatute himself, illegally on December 13, 1995. On January 19, 1996, Mr Mulina then signed a nomination of Mr Lalatute which was backdated to December 1995

Position: Chairman

Name: Evoa Lalatute

Period: January 11, 1996 to October 18, 1996

Irregularity: Minister Haiveta’s appointment of Mr Lalatute was beyond power and invalid. This mistake was purportedly corrected when Mr Mulina nominated Mr Lalatute on January 19, 1996 by backdated nomination. Mr Lalatute’s appointment was later wrongly terminated by Minister Haiveta. Only the Secretary of the DoF, Mr Mulina, had the power to terminate Mr Lalatute’s chairmanship which he should have done by revoking his nomination. The termination of Mr Lalatute’s appointment by Minister Haiveta was, therefore, ineffective.

Position: Chairman

Name: David Copland

Period: April 18, 1996 to January 15, 1998

Irregularity: Mr Copland’s initial appointment was tainted by the failure to properly terminate Mr Lalatute’s appointment. Mr Copland’s appointment was probably ineffective. Mr Copland’s subsequent periods as acting chairman was by resolution of board meetings from which Mr Vele was absent. Mr Copland’s appointment was purportedly terminated by Minister Lasaro but no proper ground was stated and it was not gazetted as required by the Act.

Position: Chairman

Name: Morea Vele

Period: January 15, 1998 to August 4, 1998

Irregularity: Mr Vele assumed the role of chairman after his appointment as Secretary of DoF. He then absented himself for nine months without nomination of a successor.

Position: Chairman

Name: Brown Bai

Period: September 1, 1998 to January 27, 1999

Irregularity: Mr Bai actively assumed the role as Secretary of the DoF/chairman when appointed as Secretary DoF. Under pressure from Minister Lasaro and Prime Minister Bill Skate, he stood down and nominated Jimmy Maladina as chairman.

Position: Chairman

Name: Jimmy Maladina

Period: January 27, 1999 to December 31, 1999

Irregularity: Mr Maladina’s appointment was planned by Prime Minister Skate and Minister Lasaro with the assistance of Herman Leahy. Mr Maladina’s appointment as chairman (and as employer representative trustee) was strongly opposed by the Employers Federation who issued a Writ seeking a Court injunction.

Position: Public Service Trustees (Not more than two)

Name: Vele Iamo

Period: February 12, 1993 to january 1, 1999

Irregularity: Mr Iamo was a senior officer in the DoF. He was frequently absent without permission for more than three consecutive board meetings, which should have resulted in obligatory termination of his appointment by the Minister (Section 10 – NPF Act). This did not happen. He was eventually terminated for political reasons by Minister Lasaro for no stated ground and without gazettal as required under the Act. The termination was invalid.

Name: Alphmeledy Joel

Period: January 28, 1994 to February 9, 1995

Irregularity: No irregularities

Name: Evoa Lalatute

Period: May 18, 1995 — no formal termination

Irregularity: Carried on as trustee after his chairmanship was revoked. No resignation, formal termination or gazettal. Uncertainty about cessation of his appointment taints the appointment of his successor with legal uncertainty.

Name: Gerea Aopi

Period: February 8 to August 28, 1998

Irregularity: Mr Aopi was appointed as public service representative trustee prior to completion of Mr Lalatute vacating office as a trustee. As there were still two public service trustees, there was no vacancy for Mr Aopi in this category, so his appointment was invalid.

Name: Abel Koivi

Period: April 1, 1996 to January 19, 1999

Irregularity: Appointment was invalid because there was no vacancy in this category of trustee. Mr Koivi was an officer with Air Niugini when it was privatised at which time he ceased to be a public servant and was no longer qualified to be a public servant representative trustee, but he remained in the position. Two years and five moths later, Herman Leahy attempted to rectify the situation by having Mr Koivi’s Air Niugini position declared to be an office in the public service.

The termination of his office as trustee by Mr Skate as acting Minister was without prescribed ground and was not gazetted as required.

Name: Brown Bai

Period: January 19, 1999 to December 31, 1999

Irregularity:After he stood down as chairman (under pressure) Mr Bai remained Secretary of the DoF and he was also appointed as a public service representative trustee. Whether Mr Bai’s appointment was valid depends upon whether the irregular termination of the appointments of Mr Iamo and Mr Koivi were effective.

After appointment Mr Bai absented himself without permission from many more than three consecutive meetings making himself liable for obligatory termination by the Minister. This did not happen.

Name: Mickey Tamarua

Period: January 19, 1999 to October 29, 1999

Irregularity: The validly of Mr Tamarua’s appointment depends on whether the termination of the appointments of Mr Iamo and Mr Koivi were valid — otherwise there was no vacant public service representative trustee position for him to fill.

Mr Tamarua’s termination as a trustee was sudden, with no grounds given and no gazettal.

Consequently, formal date of his termination and its legality is uncertain.

* Three Employee Representative Trustees

Name: John Paska

Period: February 12, 1993 to February 7, 1999 and February 19, 1999 to December 31, 1999

Irregularity: Mr Paska’s appointment was allowed to expire on February 6, 1999, leaving a gap before his reappointment. Mr Fabila and Mr Leahy exploited this situation to reintroduce the proposal to buy the Waigani land in Mr Paska’s absence

Name: Michael Gwaibo

Period: February 12 1993 to February 7, 1999

Irregularity: No irregularity. His appointment was allowed to expire. For a long period, there was no third employee representative trustee.

CONTINUED ON MONDAY

National Provident Fund Final Report [Part 7]

August 13, 2015 Leave a comment

Below is the seventh 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 seventh 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.

Borrowings

All the borrowings were illegal and unsuitable because NPF had no power to borrow. When Noel Wright or the managing director of NPF exceeded their delegated authority to obtain a loan for NPF or to draw down on an existing facility, this amounted to an inappropriate intervention, as these actions were the function of the NPF board.

Examples were:

  • The agreements with PNGBC to utilise an overdraft facility (Schedule 2A, paragraph 4.3 and Executive Summary paragraph 4);
  • The agreement between NPF management and the ANZ to grant an additional K20 million facility without the knowledge or approval of the NPF board (Schedule 2E, paragraph 4.3 and Executive Summary, paragraph 7.1); and
  • Many examples when NPF management exceeded their authority by making drawdowns or transferring securities on the loan facilities without NPF board approvals.

Investments

The schedules dealing with NPF’s equity investments contain many, many examples when NPF management (Mr Wright and Mr Kaul mostly) acquired shares on-market, way beyond their delegated powers. These were inappropriate interventions in the functions of the NPF board.

Examples include:

  • STC and CXL – Executive Summary 4D, paragraph 6.1
  • Cue – Executive Summary 4C, paragraphs 6 & 7
  • Macmin – Executive Summary 4E, paragraph 5 and 6

Sometimes these inappropriate interventions by management to acquire shares were subsequently ratified by specific resolutions of the NPF board. Many times there was no such ratification. For example, Mr Kaul’s unauthorised action in sealing an irrevocable offer to sub-underwrite a Cue share placement to the extent of A$25 million (Executive Summary 4C, paragraph 2.5).

Directions by Ministers Intervention by Prime Minister  Bill Skate

The intervention by Prime Minister Bill Skate to direct DoF Secretary Brown Bai, to stand down as chairman of NPF and to appoint Jimmy Maladina in his place (Schedule 1, paragraphs 4.3.6.1 and 4.3.6.2).

The intervention by Prime Minister Skate and Minister Lasaro to arrange for the termination of Robert Kaul’s appointment as managing director and to secure the appointment of Henry Fabila in his place (Schedule 1, paragraphs 4.4.13 and 4.4.1.4).

The intervention by Prime Minister Skate by directing NPF managing director not to travel overseas.

Intervention regarding the purchase of Government stock

It seems that almost annually the NPF was asked to take up government stock or Treasury Bills for the purposes of the national budget by the Minister responsible for NPF.

Such requests are, in the commission’s view, improper and an interference with the investment powers of the NPF board.

Intervention by Jimmy Maladina

Before his appointment as a trustee of the NPF, Jimmy Maladina intervened in December 1998 to force Mr Taniguchi of Kumagai to agree to participate in the NPF Tower fraud, threatening him that he would otherwise deny Kumagai payment of its existing claims when he became chairman of NPF in the near future.

Intervention by Herman Leahy

When preparing to implement the NPF Tower fraud, Mr Leahy intervened in existing contractual arrangements by directing PAC to withdraw from the negotiations process it was conducting with Kumagai on NPF’s behalf. This enabled Mr Leahy to take over the negotiations and arrive at a settlement price which was inflated by K2,505,000.

Intervention by Noel Wright

There were many instances when Mr Wright intervened in the lawful functions of the NPF board by taking actions way beyond his delegated authority.

Examples include:

  • Dealing in Lihir options, despite a board resolution to desist from the practise (Schedule 4I, paragraph 4.4.2);
  • Directing Wilson HTM to transfer funds to Crocodile in Indonesia (Schedule 4I, paragraph 7.5.7(g);
  • Securing an additional K20 million facility from ANZ; and
  • Pledging and transferring huge volume of NPF share scrip as security for ANZ loans

Intervention by Henry Fabila

Mr Fabila and Mr Leahy intervened in the lawful tender process for awarding contracts for managing NPF properties, which included awarding the lucrative contract to manage the NPF Tower to PMFNRE (Schedule 9, paragraph 5.6.1(c).

Agreeing to appoint PMFNRE as NPF’s agent to sell 50 per cent of the NPF Tower to the Papua New Guinea Harbours Board (PNGHB) and to pay a 5 per cent commission worth K2 million to Mr Sullivan – without the knowledge or approval of the NPF board (Schedule 6, paragraphs 13 to 13.1.4).

Term of  Reference 3

“Whether in connection with action or failure to act of any trustee, officer or employee of the fund or any other person should be referred to the relevant authorities for investigation with a view to criminal prosecution or other action”

To the Ombudsman Commission

Throughout its investigation, the commission has made many findings about the conduct of trustees and other leaders, which it considers constitutes a breach of the Leadership Code, which has been promulgated pursuant to the Organic Law on the Duties and Responsibilities of Leadership.

In many cases, this has led the commission to recommend to the Prime Minister that those leaders be referred to the Ombudsman Commission. In some cases, the leader is referred to by name for a particular failure by that leader personally. In some cases, the referral has been in respect of all trustees in office at the time because the failure has been a collective failure of such magnitude that it constitutes a breach of the Leadership Code, not merely a breach of fiduciary duties to the members of the fund. Examples of individual referrals to the Ombudsman Commission include:

  • Minister Haiveta’s repeated failure to obtain expert independent advice from DoF or elsewhere before granting approvals for transactions having a significant impact on the affairs of NPF.

For example general approval for NPF to invest in companies registered on stock exchanges up to K1 million per transaction (Schedule 1, paragraphs 14.4.3 and 14.4.4.1(a). Approval for NPF to invest in STC and CXL up to K40 million as part of a take over strategy (Schedule 4D, paragraph 4.4.1).

  • Trustee Nathaniel Poiya’s acceptance of K150,000 paid to him personally (Schedule 6 paragraph 12) and another payment of K100,000 to the company Mecca No.36 Ltd (Schedule 6 paragraph 12.4.9.2.7(v), which was jointly owned by himself and Peter O’Neill, was from proceeds of the NPF fraud.

Examples of the trustees being referred to the Ombudsman Commission as a group include their repeated failure to supervise, reprimand and control NPF management’s unauthorised activities.

To the professional regulatory bodies

When people have been guilty of professional misconduct as a lawyer, accountant, valuer, etc, the commission has recommended that they be referred to the body responsible for investigating professional misconduct – such as the PNG Law Society and the PNG Institute of Accountants.

To the Commissioner for Police

If the commission finds that there is substantial evidence that a person has committed a crime it has recommended that the Prime Minister refer that person to the Commissioner for Police for investigation and to determine whether the person should be charged with a criminal offence.

Direct referrals

In cases where a person has committed an offence, in effect, against the commission itself – such as fabricating documents, committing perjury and generally interfering with the investigation, contrary to the Commission’s of Inquiry Act or the Criminal Code, the commission itself, through counsel assisting, has referred the matter directly to the Commissioner for Police or other relevant authority.

Method of reporting referrals

Each of the referrals is reported in the schedule, which deals with the topic under investigation. The referrals are therefore listed in the body of the schedule as a “finding”. They are also mentioned in the paragraph at the rear of the schedule, which brings together all findings in the context of the commission’s terms of reference. These referrals are listed in those paragraphs under the heading of Term of Reference 3.

An attempt has been made to list all people who have been referred from the schedules in the following Table of Referrals. Part 1 lists referrals recommended to the Prime Minster by the commission. Part 2 lists referrals made by the commission itself to the relevant authority.

Term of  Reference 4

“Whether in connection with any failure to act in good faith, any trustee or officer or employee of the fund or any other person should be held personally responsible for decisions and outcomes”

If a trustee fails in a fiduciary duty or an officer fails a common law duty to the NPF board, that person may face personal liability for any loss caused by that failure of duty depending upon the circumstances. It may be a defence to an action claiming personal liability brought by the NPF board or members of the fund, if the trustee or officer can establish that he or she acted in good faith.

Throughout the schedules, the commission has found many, many instances where management as a whole, individual officers, the trustees as a whole and individual trustees, were in breach of fiduciary or common law duty. The commission has noted that fact.

In instances where the failure of duty has led to loss suffered by the fund and by its members, this is pointed out by the commission in the text and in the findings.

The commission has not, however, proceeded to determine whether or not there is personal liability or whether a defence of “acting in good faith” would succeed. This matter is left for the current NPF board, individual members and the membership as a “class” to consider.

There may be circumstances where it would be appropriate to institute court proceedings but it is not the commission’s role to make findings about personal liability.

Term of  Reference 5

“Whether, under the Constitution or any Act, the responsible government agencies, including the Department of Finance and Treasury and the Auditor-General and failed in their regulatory, supervisory or reporting responsibilities, and what was the extent of this failure”

This matter has been fully reported in Schedule 1, paragraph 15 and it is outlined in Executive Summary 1, paragraphs 9 and 15.

By legislation, the NPF was obliged to invest only in accordance with the investment guidelines and had strict obligations to make quarterly and annual reports and to maintain and work to a five-year plan updated annually.

It failed to perform on all these obligations throughout the five-year period under review.

The fact that these failures persisted unrectified for five years enabled the NPF to pursue its reckless investment policies to the brink of financial ruin and somewhat over the brink, in that it suffered losses in excess of K150 million.

No agency of Government accepted the clear responsibility to supervise, report on and enforce NPF’s compliance with its planning, investing and reporting obligations.

Department of Finance

Under the PF(M) Act, the DoF was not obliged to perform this role in relation to the NPF (because it was not a “public body” for the purpose) unless so directed by the Minister, and no such direction was given.

The DoF did, however, have an obligation to make recommendations to the Minister when required by the Minister to do so. This included the duty to give the Minister sound, analytical, expert advice on applications for approval by NPF. In most cases, it conspicuously failed its duty in this regard.

Mostly, its advice to the Minister consisted of parrot-like summaries of NPF’s submissions, lacking any critical analysis.

Evidence from senior DoF officers showed that DoF lacked the professional expertise to provide expert advice on investments and it failed to brief this role out to independent expert consultants.

Under Section 64 of the PF(M) Act, the Secretary of the DoF was empowered to oblige the NPF (and other public bodies) to report to him on the state of their finances. Under Section 64, the Secretary could instigate an investigation into its affairs.

Brown Bai utilised this section with great effect in 1999, by commissioning the Finance Inspectors’ inquiry and report. Prior to this, however, this effective tool, which could have been the salvation of NPF, was left unused.

The Minister

The Minister for Finance was the Minister responsible for NPF and under the PF(M) Act, was Minister responsible for monitoring all public bodies which for some (but not all) purposes, included the NPF. The Minister was also empowered to issue guidelines on investments and to give broad policy directions.

Sir Julius Chan promulgated carefully considered and appropriate guidelines in 1993.

After that, the power was unused except for one hasty and ill-advised variation by Minister Haiveta in 1996, which allowed NPF to acquire equities in companies listed on registered stock exchanges up to K1 million per transaction, without the need to seek his approval.

This opened the door to a massive increase in investments in equities in a series of less than K1 million transactions.

Mr Haiveta sought no expert advice before making this decision (Schedule 1, paragraphs 22.3.9.1, 22.3.10.1, Executive Summary, paragraph 15.12).

Accounts and audit obligations

The obligations and the breakdown in their performance are briefly described in Executive Summary 1 at paragraph 1 and fully reported in Schedule 1 paragraph 15.

Because NPF failed to present its annual reports from 1997 onwards, the Auditor-General was unable to perform the annual audit for presentation to the Minister and tabling in the National Parliament. This was a complete systemic breakdown from 1997 onwards.

The commission’s finding at Schedule 1, paragraph 15.4.3 are repeated in Executive Summary paragraph 9.8.

Term of Reference 6 – Structural Reforms

“Whether the present reporting, monitoring and supervisory regime is adequate and whether any, and if so what, structural reforms should be implemented”

The commission was asked to report upon the adequacy of NPF’s reporting, monitoring and supervisory regime under the NPF Act and has done so at paragraphs 21 and 22 of Schedule 1, which are summarised at Executive Summary 1, paragraph 15.

After the completion of the commission’s inquiries and public hearings into structural matters were completed, the Superannuation Act 2000, was brought into force.

The NPF has registered under the new Act as Nasfund and the NPF Act has been repealed.

The commission has nevertheless published its report about structural weaknesses and problems under the NPF Act and its recommendations for reform, which had been worked up prior to the coming into force of the new Act. This approach has validity, partly because some of the previous weaknesses and problems may still persist and our findings may therefore have direct relevance.

Also, in many ways, the NPF’s problems were not caused by weaknesses in the formal structure established under the legislation and directions made under it.

The problems were mainly caused by the way the NPF was able to ignore and disobey the clear structural requirements – regarding such things as its investment policies and reporting obligations and there was no agency to monitor its non-compliance.

The effectiveness of the Superannuation Act 2000, will to a large extent depend upon whether an effective monitoring and enforcement agency is put in place.

Throughout the schedules to this report, the commission has pointed to weaknesses caused by the power of the Minister over some of NPF’s affairs and occasional inappropriate intervention. Other weaknesses described include the inadequacies of the NPF Board of Trustees and the lack of an effective supervision and monitoring body.

The commission’s recommendations are discussed and recorded fully in paragraphs 21 and 22 of Schedule 1. In Executive Summary 1, paragraphs 15.5 to 15.34 is a full list of the commission’s recommendations for structural reform.

In general terms, the major recommendations are, in essence, to:

(a) Remove the NPF from the detailed control and influence of the Minister and the DoF, as it is a private superannuation fund;

(b) Reduce the degree of external control over the management of NPF’s affairs and investments but increase the capacity of management;

(c) Vest the control in a better-qualified board of trustees;

(d) Establish the BPNG as the external regulator of NPF and give it the staff and powers to regulate effectively;

(e) For matters still requiring imposition of external controls or guidelines the necessary powers to monitor and control should be transferred from the Minister and DoF to the Regulator (the BPNG).

(f) In order to ensure better qualified Trustees:

(i) remove all political interference from the selection and appointments process and vest power of appointment in specified organisations of employers and employees with all appointments to the board and senior management to be approved as fit and proper persons by the regulator.

(ii) Take active measures to help trustees understand and perform their roles and to understand the nature of their fiduciary duty to members of the fund. These measures should include detailed orientation or new appointees, a hand book or manual and seminars on essential aspects of trustees’ functions.

(g) Strengthen the accounting and reporting requirements and require the regulator to accept responsibility to monitor and enforce compliance.

Trustees need such help in order to understand such things as the principles of investment, the relationship between trustees and management, the nature of fiduciary duty, personal liability, the structure of NPF, benefits for members.

(h) Provide for prudential investment guidelines to be promulgated and enforced by the regulator.

(i) Enable NPF to appoint professional fund managers onto the board of NPF or, preferably, to brief investment management to a firm of professional fund managers, which would be obliged to act within the prudential guidelines promulgated by the regulator and within policy directions of the board.

(j) Strengthen and facilitate two-way communication between members and management so that an active and informed membership can find ways to monitor the conduct and performance of management and to monitor the fund’s investment policies and strategies.

CONCLUDING COMMENTS

To a very large extent, the crisis which befell the NPF was caused by a dramatic departure from the normal prudential guidelines applicable to superannuation funds, which had been spelled out explicitly in the 1993 Investment Guidelines. The reasons why this occurred lay in the personalities of the fund’s chairmen, trustees and managers in 1996 to 1999, the reckless high-risk investment strategy they pursued and the fact that they financed the investments with borrowed funds.

When the inevitable down turn in economic conditions occurred in 1997-1998, NPF was trapped.

The rapid fall in the value of its equities meant more and more scrip needed to be pledged to the banks as security for the loans.

As interest rates rose and the value of the kina fell NPF’s interest rate burden, of more than K1 million per month became unbearable. Inevitably, NPF began to default on its loan agreements with the banks and the banks then required the loans to be reduced.

This in turn required NPF’s equity assets to be sold off at a time when they had very little value – leading to massive realised losses in the members’ assets.

More than K150 million of NPF’s funds were lost in this way.

This recipe for financial disaster continued un-remedied for so long because NPF management totally failed to meet its reporting obligations and the board of trustees failed their fiduciary duties to monitor and control management.

On top of this, when NPF was at its lowest point, those charged with its management, namely its chairman Jimmy Maladina its corporate secretary/ legal officer Herman Leahy and to a lesser extent its managing director the late Henry Fabila, were involved in a criminal conspiracy and other criminal conduct. They succeeded in defrauding the NPF of millions of kina by means of excessive valuation fees, a fraudulent second acceleration claim on the NPF Tower, payment of a currency fluctuation claim on the NPF Tower, which was not legally payable and Mr Maladina’s retention of the proceeds of sale of shares in Vengold.

DoF Secretary Brown Bai started the investigation and clean-up process in early 1999 and the new manager Rod Mitchell started to impose appropriate financial and managerial controls by mid-year.

NPF then quickly began to address its problems. With good advice from PwC and KPMG, a rescue package was worked out.

This involved government assistance and increased employer contributions. It also involved members foregoing entitlements.

NPF then commenced the climb back to profitability, which it appears now to have been achieved as “Nasfund” under the regime created by the Superannuation Act 2000.

CONTINUED TOMORROW

National Provident Fund Final Report [Part 1]

August 5, 2015 Leave a comment

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 4.3.3.2.1 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 4.3.4.1 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).

Borrowings-based investments

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 12.3.2.1 and 12.3.7.3).

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 5.3.7.1 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 4.4.1.5). 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.

Superannuation Taskforce

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).

CONTINUED TOMORROW