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National Provident Fund Final Report [Part 78]

November 19, 2015 1 comment

Below is the seventy-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 2002/3.

NPF Final Report

This is the 78th* extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 9 Continued

Their failure to ensure this was a breach of their fiduciary duty to the members of the fund. The successive managing directors, as trustees and as managers, were in breach of the same duty in allowing such lax and inappropriate procedures to be followed.

Procurement And Disposal Of Property And Property Management Services Property disposal

Many of NPF’s “lesser” properties were sold during 1998 and 1999 as part of NPF’s asset disposal strategy.

The sales have been examined by the commission and found to be in order, with the one exception of Allotment 13 Section 73 Pipigari S Korobosea, which was sold to the Papua New Guinea Trade Union Congress (PNGTUC). The further investigation into this matter is dealt with at paragraph 3.6 below.

Property management services

Many irregularities have been discovered in management services contracts where proper tender procedures have not been followed and nepotism has clearly been occurring.

Long standing relationship with Century 21 Siule Real Estate (Century 21)

Since well prior to 1993, Century 21 was NPF’s sole agent, managing and marketing NPF’s various properties.

It is not known how this relationship developed, however, the commission is aware that Century 21 employed Noel Wright’s wife, Helen Copland.

In late 1997, as the NPF Tower neared completion, the question of marketing and managing it came up for consideration and this was clearly to be lucrative business for the chosen agent.

In August 1997, the exclusive marketing rights for the NPF Tower were granted to Century 21 as a matter of course, without following any form of competitive tender procedures. At the 114th NPF board meeting on September 1, 1998, Mr Fabila, supported by Mr Leahy, challenged that arrangement. Mr Wright’s failure to disclose his interest in Century 21, through the fact that his wife was employed there, formed part of the discussion.

In August/ September 1998, after obtaining legal opinion about the power to do so, Mr Fabila cancelled Century 21’s exclusive marketing rights over the Tower and called for competitive quotes from Graeme Dunnage and Associates, The Professionals, Port Moresby First National Real Estate (PMFNRE), L J Hooker and Century 21.

Mr Fabila also notified Century 21, in October 1998, of NPF’s intention to terminate Century 21’s contract for the exclusive management of all NPF’s properties and to call for tenders. This matter was not put before the NPF board and seems to have been an initiative of Mr Fabila and Mr Leahy.

Century 21 seems to have accepted the termination of its exclusive marketing and management contract, which took effect on 22nd December 1998 and then participated in the tendering process in January 1999 for a new contract.

The tenders

Advertisements, calling for tenders to manage all NPF’s properties as one contract, were published on January 15, 1999 with January 31, 1999 set as the closing date.

Tenders were called for the management of the following properties:

  • The four blocks of units at Allotment 7 section 142, Tokarara;
  • The NPF Head office Allotment 7 Section 58 Boroko;
  • One house at Allotment 18 Section 34 Lawes Rd;
  • One house at Allotment 26 Section 34 Ela Makana;
  • Eight units at Allotment 26 Section 34 Ela Makana;
  • Three units at Allotment 83 Section 51 Davetari Drive; and
  • The warehouse at Allotment 16 Section 62 Gordons.

Tenders were received from Gemini Holdings Ltd, Haka Holdings Ltd and Century 21 within time.

Possible collusion between Mr Leahy and PMFNRE

A proposal from PMFNRE was also considered although initially neither NPF nor PMFNRE was able to produce under summons a formal tender document from PMFNRE.

In April 2001, PMFNRE later produced some correspondence between Mr Leahy and Mr Sullivan of PMFNRE, which indicates that Mr Leahy was providing information to assist Mr Sullivan to prepare a tender in January 1999.

One of the documents he provided to Mr Sullivan was a list of NPF’s property portfolio, as follows:

78 a

The papers included a document purporting to be a tender which contained promotional material about PMFNRE and a one page sheet listing the quoted fees as “6 per cent of the total monies paid”.

It acknowledged that tenders for the Tower were not then being called for but expressed an interest in tendering for that contract when it came up. The PMFNRE unsigned and undated document entitled “Tender for NPF Property Management” cannot be seriously treated as a formal tender but it seems that it was accepted by NPF as such.

Mr Leahy intervenes in the tender process

After the tenders from Gemini, Haka and Century 21 were received and, possibly, the PMFNRE “tender” also, Mr Fabila left PNG for a short period. While he was away, and before any formal decision had been made to accept the best tender, Mr Leahy communicated with Haka, Gemini and PMFNRE. He advised Haka and Gemini that each had been accepted to manage a few of the properties for which they had tendered and asked them to again list the services they would supply and to, again, quote their fees.

As a result each restated the services and quoted substantially higher fees than previously (perhaps because the property portfolio to be managed was smaller). Haka complained bitterly at the limited portfolio it had been granted, and this was subsequently increased.

Mr Leahy grants management of the Tower to PMFNRE

On February 11, Mr Leahy also wrote to PMFNRE advising that it had been awarded:

  • Section 34: Allotment 26 Granville — 8 units;
  • Section 62: Allotment 16 Gordons — 1 x Archives shed; and
  • Section 5: Allotment 11 Granville — (The Tower)

The letter requested PMFNRE to provide a description of the scope of the service as well as a quotation of their fees.

Mr Leahy’s intervention in the competitive tender process changed it to that of non-competitive negotiated contracts with the three successful applicants.

Mr Fabila negotiates with the successful tenderers

On February 26, 1999, Mr Fabila formally notified Gemini of the list of properties it had been awarded at the higher fee, though he negotiated the fee down slightly. On the same date, Haka was similarly notified, but because of its complaints that the portfolio awarded by Mr Leahy on February 11 was too small, it was also awarded the management of the Ela Makana units (which were taken back from PMFNRE).

Also on the same day, Mr Fabila also confirmed the good news to PMFNRE that it had won the management contract for the NPF Tower, which had not even been on the list of properties for which tenders were called.

Finally, on February 26, 1999, Mr Fabila also notified Century 21 that its tender bid had been unsuccessful. Because of the way NPF handled this matter, the handover arrangements from Century 21 to the successful tenderers, were messy and unprofessional.

There is no evidence that the various tenders were ever comparatively analysed to choose the best tender.

On the face of the documents, it seems that Century 21’s tender was probably the best, considering its experience, prior successful service and fees quoted.

Findings

(a) The termination of Century 21’s exclusive property management agreement with NPF was a management decision Mr Fabila made without the authority of the NPF board;

(b) The exclusive property management contract for all NPF properties (other than the NPF Tower) was put out to tender. The lowest and best tender was that of Century 21;

(c) Mr Leahy acted improperly by contacting each of the three companies (Gemini, Haka and PMFNRE) while the tender procedure was in progress, asking them to specify a job profile and to quote a price to manage a portion of the properties originally put out to tender. This resulted in NPF paying a higher price than the tenders initially received;

(d) The Century 21 tender was rejected by management without proper analysis of the competing tenders;

(e) The appointment of Gemini, Haka and PMFNRE as management agents for NPF properties (shared between them) was not arranged under any proper or approved tenders procedures, but was the result of non-competitive contract negotiation;

(f) The awarding of property management contracts to Haka, Gemini and PMFNRE was a management decision made without board authority or approval; and

(g) Mr Fabila negotiated directly with each of the tenderers to agree upon a lower price than quoted.

Management agreement for the NPF Tower

The agreement was between PMFNRE as agent and the Tower Ltd as owner. The directors of the Tower Ltd, appointed by the NPF board on February 8, 1999, were Henry Fabila (chairman), Jimmy Maladina and and Herman Leahy (also secretary) although NPF was sole shareholder, its approval was not legally required for the terms of the management agreement, which was signed by Mr Leahy and Mr Fabila.

As these three persons were all involved in schemes to defraud the NPF at the time, it is not surprising that the terms of the management agreement were very generous to PMFNRE at the expense, of course, of the members of the fund. This generosity was built in by:

(a) Providing a 5 per cent commission, not only on rent paid, but also on rent plus the tenants outgoings paid;

(b) Providing for a minimum commission in the early days, when the occupancy rate would still be low, of K199,999.92 or 5 per cent of gross rentals, whichever was the greater; and

(c) The termination clause provided that PMFNRE would be entitled to its full commission for the whole of the three-year term unless the agent had breached a fundamental term of the agreement.

False report to the NPF Board

In his report to the NPF board at its meeting on April 20, 1999, Mr Leahy pointed out the important details of the contract as:

“(i) Three-year term; and;

(ii) Fee = 5 per cent of the gross monies collected from tenants; and

(iii) Subject to board approval”.

Mr Leahy failed to point out that:

(a) In the early years when the rental income would be low because the building would be only partly tenanted, the commission would be a guaranteed minimum of K199,999.92 per annum.

(b) In the event of wrongful termination, the agent would be entitled, not just to damages, but to the whole of the management fees for the rest of the term; and

(c) As the contract had already been executed on March 23, 1999, it was too late to make it subject to NPF board approval.

Sub paragraph (a) and (b) above amounted to a misrepresentation to the board. Sub paragraph (c) was simply false.

The commission views all these arrangements with suspicion because of its findings in relation to the NPF Tower fraud and the Waigani Land deal in which the same characters were involved in either the fraud itself or the subsequent laundering of the money — Mr Maladina, Mr Leahy, Mr Fabila, Mr Barker, Mr Sullivan and PMFNRE.

Findings

(a) The management contract between the Tower Pty Ltd and PMFNRE was negotiated directly by Mr Fabila, Mr Maladina and Mr Leahy as directors of the Tower Ltd and the management of PMFNRE;

(b) The awarding of contracts in this way justifies the commission’s suspicion of nepotism, because:

  • MR Maladina and Mr O’Neill have direct interests in PMFNRE and used PMFNRE as a vehicle to defraud the NPF regarding the NPF Tower and Waigani Land, NPF Tower Investigations and, Waigani Land);
  • THE property management contract between PMFNRE and the Tower Ltd (signed for the Tower Ltd by Mr Maladina and Mr Leahy), was excessively favourable to PMFNRE.
  • MR Leahy provided false information to the NPF board regarding the property management contract, which understated the benefits payable to PMFNRE under the contract.

Sale Of The Non-Core Properties Using Multiple Agents

In July 1999, NPF resolved to sell off all non-core properties and part of the NPF Tower. This was in accordance with the PwC report on NPF’s losses. It was decided to use multiple agents and the existing exclusive managing agents accepted this.

NPF Board Challenges Management Over Tender Procedures

In October 1999, the NPF board, led by trustee Jeffery and acting managing director Rod Mitchell, challenged Mr Maladina and Mr Leahy over a number of issues, including failure to follow tender procedures and nepotism. This led to the termination of Mr Maladina and Mr Leahy.

Findings

(a) The decision to enter into one-year and (for the Tower) three- year management contract for the properties in early 1999, when NPF was considering selling those properties was inappropriate and could have resulted in NPF facing a claim for damages in breach of contract.

(b) The questions posed by Mr Jeffery and Mr Mitchell regarding the failure to follow proper tender procedure when awarding property management contracts were valid questions which required answering.; and

(c) Mr Leahy’s responses to the questions were false and evasive.

Sale of NPF Property to PNGTUC

Expression Of interest by Mr Paska

NPF built a three-bedroom house on its land at Allotment 13 Section 73 Pipigari St, Boroko. As construction of the house was nearing completion in September 1995, it was recorded that trustee John Paska was interested in purchasing the property. Mr Paska was the general secretary of the PNGTUC and was one of three people appointed to the NPF board as a representative for employees on the NPF board.

Under the law of Trusts, it would be a serious breach of trust for a trustee to buy Trust property but this did not occur to anyone, not even the fund’s corporate secretary and legal counsel Herman Leahy, who should have advised Mr Paska and the NPF against this proposed purchase. In fact, Mr Leahy took very improper action to facilitate the sale to Mr Paska, as described below.

Mr Paska wrote to Mr Leahy in September 1995 expressing his interest to buy the property and advising that he had received legal advice that his conflict of interest would not be an impediment to the sale. His offer of K96,000 had been worked out in conjunction with Mr Leahy based on the cost of land and of constructing the house thereon. He wrote again in November saying he was prepared to pay the (higher) valuation placed on the property by the bank, which was financing him and would seek Ombudsman Commission approval.

TO BE CONTINUED

* PART 77 is missing and has not been published in this series

National Provident Fund Final Report [Part 69]

November 10, 2015 Leave a comment

Below is the sixty-ninth part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

NPF Final Report

This is the 69th 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. Michael Somare.

Executive Summary: Schedule 6 Continued 

(ii) To the Papua New Guinea Law Society — Mr Leahy and Mr Maladina and Ms Sariman to consider disciplinary measures;

(iii) To the Ombudsman Commission — Mr Maladina and Mr Fabila to consider whether they were in breach of the Leadership Code;

(h) The scam to defraud the NPF over the sale of the NPF Tower amounted to a criminal conspiracy involving Mr Leahy, Mr Maladina, Mr Fabila, Sullivan and Ms Sariman.

REFERRALS

IN relation to the commission’s inquiries into the six matters investigated in Schedule 6, the commission recommends that the Prime Minister makes the following referrals:

SECTION A:

Referrals recommended by the commission to the constituting authority:

Jimmy Maladina

To the Commissioner for Police:

(a) Demanding money (K150,000) from Kumagai with threats to stop work on the Tower and reject payment claims if the demand was not met (Criminal Code Act, Section 389);

(b) Conspiring with Mr Taniguchi and Mr Kobayashi and probably with Herman Leahy to defraud the National Provident Fund Board of Trustees of K2.505 million ((Criminal Code Act, Section 407);

(c) Forging or causing to be forged a writing (being the signature of Ken Yapane & Associates) on the subcontract (Criminal Code Act, Section 462(1));

(d) Knowingly and fraudulently uttering a false writing (being the signature of Ken Yapane & Associates on the subcontract) to Kumagai (Criminal Code Act, Section 463(2));

(e) Fabricating evidence with intent to mislead a tribunal in judicial proceedings (the two false retyped letters produced to this commission by Mr Yapane) (Criminal Code Act, Section 122);

(f) Attempting to induce a person called as a witness in judicial proceedings (Mr Yapane as called before this commission) to give false testimony or withhold true testimony (Criminal Code Act, Section 123); and

(g) Possibly attempting in his telephone conversation with Mr Taniguchi (Transcript p.2977) to induce a person to be called as a witness in judicial proceedings (Mr Taniguchi before this commission) to withhold true testimony (Criminal Code Act, Section 123).

Ombudsman Commission:

To consider breaches of the Leadership Code in relation to his activities concerning the fraud against the NPF and related activities.

PNG Law Society:

Professional misconduct.

Henry Fabila

Commissioner for Police

(Transcript pp. 3280-3332) Mr Fabila: for being party to all or some of the above mentioned offences and/or of criminal conspiracy with Mr Maladina in relation to any or all of such offences.

Ombudsman Commission

To consider breaches of the Leadership Code in relation to his activities concerning the fraud against the NPF and related activities.

Herman Leahy

Commissioner for Police

For being party to all or some of the above mentioned offences and/ or of criminal conspiracy with Mr Maladina in relation to any or all of such offences.

PNG Law Society Professional misconduct.

Mr Taniguchi

Commissioner for Police

For being party to all or some of the above mentioned offences and/ or of criminal conspiracy with Mr Maladina in relation to any or all of such offences.

Kazu Kobayashi

Commissioner for Police

For being party to all or some of the above mentioned offences and/ or of criminal conspiracy with Mr Maladina in relation to any or all of such offences.

Ken Yapane

Commissioner for Police

(a) FOR being party to all or some of the above mentioned offences and/ or of criminal conspiracy with Mr Maladina in relation to any or all of such offences; and

(b) Fabricating documents.

Rex PAKI

Commissioner for Police

Aiding the office of fraud or receiving.

PNG Institute of Accountants

Professional misconduct

Ango Wangatau

Commissioner for Police

Aiding the office of fraud

PNG Institute of Accountants

Professional misconduct

David Lightfoot

Commissioner for Police

To consider whether there is criminal culpability in relation to the fraud against the NPF such as to warrant charging him with an offence against the Criminal Code.

PNG Law Society

Professional misconduct

Barbara Perks

Commissioner for Police

To consider whether there is criminal culpability in relation to the fraud against the NPF such as to warrant charging her with an offence against the Criminal Code.

Peter O’Neill

Ombudsman Commission

(a) The concealment of his interest in Bluehaven No.67 which purchased RIFL from ICPNG;

(b) The receipt of K100,000 fraud money by his company Mecca No.36; and

(c) The concealment of his interest in Nama Coffee Exports Pty Ltd.

Kenneth Barker

Commissioner For Police

(a) To be referred for perjury if he returns to PNG; and

(b) Aiding the offence of fraud.

Maurice Sullivan

Commissioner for Police

Aiding the office of fraud.

The commission has already directed that the following persons be referred to the Commissioner for Police.

SECTION B:

Direct referrals by the commission

Peter O’Neill

Commissioner for Police

Possible perjury regarding source of funds to purchase Manamatana apartments.

Concluding Comments

Result of the investigation

After thorough and painstaking investigations, the commission has concluded that no further action is required regarding:

  • The inground works variation costs of K3,006,270.26 as the costs were justifiable and there were no irregularities;
  • Builders other works variations because sound professional opinion establishes there were no irregularities;
  • The first acceleration fee of K1.4 million because the decision to pay the fee was justifiable and the cost was within reasonable bounds; and
  • The professional fees, because there is a genuine dispute caused by ambiguity in the contract documents and there are no irregularities.

However, the commission’s investigations uncovered criminal malpractice requiring the following matters and referrals to the Commissioner for Police and other authorities have been recommended:

The Kina devaluation claim of K3.3 million:

This payment was agreed upon by Mr Maladina so he could receive the fraudulent payment of K2,505,000 from Kumagai. That was part of the “deal” with Mr Taniguchi. NPF may be entitled to recover the refund of this K3.3 million;

THE second acceleration claim of K2,505,000:

This claim was spurious and was agreed upon between Mr Maladina and Kumagai Gumi managers (under pressure from Mr Maladina) to enable the money to be channelled through Kumagai Gumi and on paid for the benefit of Mr Maladina, with shares for Mr Leahy and Mr O’Neill (through the account of Carter Newell and PMFNRE).

NPF is entitled to recover this K2.505 million.

Tribute to Finance Inspectors

The commission once again commends the finance inspectors who were directed by DoF Secretary Brown Bai under Section 64 of the PF(M) Act to inquire into aspects of the NPF Tower financing and construction.

In every respect their inquiries and findings had validity and it amply demonstrates what a powerful tool Section 64 is if the inquiry into a public body is carried out by professional Finance Inspectors acting with perseverance and integrity.

SCHEDULE 7A

Niugini Insurance Corporation K2 Million Loan

The commission has carefully considered counsel’s opening submissions and all statements, evidence and submissions given in reply.

For ease of reference this report is presented generally in the same sequence as opened by counsel. The commission’s findings are set out at appropriate places within the text and also in the schedule of findings at the rear of the report as answers to the terms of reference given to the commission.

Addresses by counsel and evidence in relation to this topic can be found in the transcript of proceedings as follows:-

Background

The initial decision by the National Provident Fund of Papua New Guinea (NPF) to loan funds to Niugini Insurance Corporation (NIC) derived from the 93rd NPF board meeting on February 9, 1995.

At that meeting, finance and investment manager Noel Wright informed the board of NIC’s request for a loan to complete its Lakosi Place development.

A paper was also circulated to the board members in which the managing director Robert Kaul recommended board approval of a debt facility of K2 million at a fixed interest rate of 13 per cent for a term of 10 years.

The board, however, resolved not to approve the loan on the terms recommended by the managing director but instead resolved that the managing director offer the loan to NIC under the following terms:

Debt facility — K2 million;
Interest rate — PNGBC Indicator lending rate plus 4 per cent;
Term — 10 years; and
Security — first registerable mortgage over Lakosi place property. (Exhibit N1)

Although we were unable to locate a copy of the board paper that was circulated at the 93rd board meeting, it seemed that Mr Kaul brokered the deal with NIC as evidenced at the 94th board meeting on April 24, 1995.

The board meeting resolved to ratify the NPF management’s decision to loan up to K2 million to NIC on the following terms and conditions:

Borrower: Niugini Insurance Corporation Limited;
Amount : Up to K2 million;
Term: 10 years;
Interest Rate: PNGBC Indicator Lending Rate (ILR) plus 4 per cent payable monthly;
Grace Period: Eight months from date of signing agreement;
Drawdown Period: First drawdown after five days from date of signature of the loan agreement to and including up to 10 months from such date;
Commitment charges: No commitment charges within six months of the date of signature and 0.5 per cent of undrawn balance for the remaining drawdown period for each day undrawn;
Prepayment penalty: Provided no prepayment is made within three years, otherwise the charge equal to the default rate will apply on the prepaid amount before the expiration of the said period;
Default penalty: 2 per cent charge on unpaid amount remaining un-remedied within five working days;
Repayment: Repayments of the principal amount shall be made monthly equal installments, the first monthly repayment commencing on the eighth month after the signing of the loan agreement and the final repayment being on the 112 month after the signing of the loan agreement;
Management Fee: 1 per cent flat of the total facility in advance for the first K1 million drawn and for the balance of the drawdown in arrears; and
Security: First mortgage over the property. (Exhibits N2 and N3)

Although the minutes do not make reference to it, the managing director’s report for the 94th board meeting reads:

“v) NIC Loan

After NIC consented to the 4 per cent margin, Ministerial approval has been received and documentation is now proceeding smoothly. First drawdown is expected this month”. (Exhibit N4)

Mr Kaul failed to attach a copy of the Ministerial approval in his board report and it seemed his report might have been misleading.

Ministerial Approval

We have not sighted any Ministerial approval for this loan even though the finance report for the period ending March 1995 advised of the Ministerial approval as being received (Exhibit N5).

The NPF Files on “Letters to the Minister” (Commission Document 55) and “Letters from the Minister” (Commission Document 54) do not contain any letter granting Ministerial approval.

The documents produced by the Department of Finance and Treasury (DoF) in respect of Ministerial approval granted in 1995 (Commission Document 5A) contain no documents indicating Ministerial approval was either sought or given.

Consequently, there is no primary evidence of approval either being sought or given, only third party reports from Mr Kaul and Mr Wright.

Loan Documentation

The legal counsel/corporate secretary’s report for the months of April/ May 1995, reads: “Niugini Insurance Corporation Limited— Long Term Loan — K2 million Allotment 9 Section 62 Granville. I table the following loan and security agreements.

(i) Loan Agreement dated 28 April 1995

(ii) Memorandum of Mortgage dated 28 April 1995

The Memorandum of Mortgage was registered on the certificate of title to allotment 9 section 62 Granville on 17 May 1995. The certificate of title has now been lodged in the NPF safe”. (Exhibit N6)

The above report was for the 95th board meeting held on June 2, 1995. The minutes of that meeting record the corporate secretary tabling both documents (Exhibit N7).

The 95th board meeting was the last board meeting during which the NIC Loan was actually considered.

As was the case with the Ministerial approval letter, the commission was unable to locate copies of the signed loan documents.

Drawdown

In the managing director’s report for the 96th board meeting held on August 2, 1995, (Exhibit N8), Mr Kaul discussed NPF’s investment in the Bank South Pacific (BSP). Mr Kaul advised the board of NPF’s large deposit of K28 million with BSP and stated that although NPF is receiving healthy returns from this investment, the deposit will be reduced considerably in the next 12 months due to the withdrawal of funds to meet NPF’s loan commitments to, among others NIC.

With the K2 million already being committed the finance reports for the months of September and October 1995 attached the 1996 budget. The projection of interest from, the NIC loan was as follows: The interest projection was based on the assumption that the Indicator Lending Rate (ILR) averaged 13 per cent in 1996 (Exhibits N9-N12).

Repayment

By the end of 1995, NPF’s projection of interest income from the loan for the year 1996 was K281,419.

npf 69

The first mention of the NIC loan in 1996 was at the 101st board meeting on June 28, 1996.

The finance manager informed the board that NIC was willing to repay its K2 million loan.

The board resolved to accept early repayment subject to the terms and conditions governing the loan.

However, by the 103rd board meeting held on October 18, 1996, the board noted that NIC had decided against early retirement of the loan (Exhibits N13-N15).

In commission document 1144 is a schedule of loan repayments for the years 1996 to 1999 detailing monthly payments of K14,583.33 beginning January 1996 till December 1999. This standard payment of K14,583.33 was to retire the principal amount.

Therefore, a total of K699,999.84 had been received by NPF to retire the principal amount (i.e. K174,999.16 per year from 1996-1999) (Exhibit N16).

NPF could not locate documents evidencing payment of interest on the loan and it seemed that such payments were not forwarded to NPF.

Findings

(a) The NPF management failed to seek Ministerial approval for the loan to NIC;

(b) THE board reports by Mr Kaul and Mr Wright were misleading as no ministerial approval was sought or granted;

(c) NPF management and Board of Trustees failed to ensure that Ministerial approval had been received before allowing NIC to commence drawdown of the loan funds; and before allowing NIC to commence drawdown of the loan funds; and

(d) THE NPF management failed to ascertain and ensure that interest payments were made by NIC.

TO BE CONTINUED

National Provident Fund Final Report [Part 68]

November 9, 2015 Leave a comment

Below is the sixty-eigth part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

This conclusively showed that Mr O’Neill had definitely benefitted from the proceeds of the NPF Tower fraud.

NPF Final Report

This is the 68th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary: Schedule 6 Continued 

(b) The K250,000 paid to Bank of Hawaii was for the benefit of South Super Stores Limited and both Peter O’Neill and Nathaniel Poiya received a direct benefit as this payment reduced their direct personal liability under their respective guarantees given to Imak International Limited;

(c) The K60,000 came from Carter Newell and was credited to this Ledger 18. The evidence of Mr Barker regarding that money was false and knowingly false. It is recommended that if Mr Barker ever returns to PNG he should be referred to the Commissioner for Police with a view to his being charged with perjury under the Commissions of Inquiry Act;

(d) The K60,000 paid into Ledger 18 from Carter Newell was part of the proceeds of the Waigani Land fraud. It was later combined with other moneys to enable Mr O’Neill’s children’s company LBJ Investments (see paragraph 12.4.20.9) to buy Remington Ltd from Baradeen Holdings.

Mr O’Neill’s rental income 

In attempting to explain the expenditure of apparently excessive sums for his personal benefit Mr O’Neill claimed they were funded from rental income on his properties, which had been paid into PMFNRE on his behalf. At paragraph 12.4.25, the commission reported upon the procedures whereby PMFNRE accounted by monthly rental statements to Mr O’Neill for rental receipts.

Accordingly, payments were not made out of rentals unless they are detailed in the monthly rental statements.

Free rent for Minister Zemming 

While investigating the rental payments, the commission discovered that rent was not charged for unit 105 Pacific View Apartments, which was occupied by Hon Mao Zemming, a Minister in the National Government. Mr O’Neill said Unit 403 was occupied by Mr Zemming’s first secretary Sam Basil and that Mr Basil’s company paid the rent for both apartments by one cheque.

Findings 

At paragraph 12.4.25.1, the commission has found:

(a) Mr O’Neill’s statement that the payments out for his benefit are balanced by rental receipts from his rental properties managed by PMFNRE is not true; and

(b) Mr Zemming was occupying Unit 105 owned by Mr O’Neill rent free.

Money from Niugini Aviation Consultants and links to Chelsea Ltd 

At paragraph 12.4.27 (12.4.21(f)), the commission revisited the Waigani land matters concerning money allegedly paid into Carter Newell Trust Account Niugini Aviation Consultants in Hong Kong. After the deposit was made large cheques were paid to PMFNRE, Biga Holdings and also a cheque for K333,200.00 for Chelsea Ltd.

A search of Chelsea Ltd shows probable links to Mr O’Neill (represented again by Jack Awela and other significant links).

Findings 

At paragraph 12.4.26.1, the commission has found:

(a) There are clear links between the money from Hong Kong and each of PMFNRE and Mr O’Neill; the company Chelsea Security Limited and M Basil and Wandi Yamuna and the company Biga Holdings Limited owned by Ms Iaraga Asi (Mr Pok’s current partner);

(b) There are also rental arrangement links between Mr O’Neill, Chelsea Security and Mr Sam Basil and Hon. Mao Zemming and the commission so finds.

The relationship between Mr O’Neill and PMFNRE

At paragraph 12.5.2, the commission lists the many links between Mr O’Neill and PMFNRE, the many benefits he received from that company and the controls he exercised over the accounts and funds held by PMFNRE. The commission points out at paragraph 12.5.2.3 that:

(a) Mr O’Neill used PMFNRE as his banker with massive numbers of transactions treated as “Adjustments” and many entries on numbered sales ledgers attributable to Mr O’Neill and persons and companies associated with him and the commission so finds;

(b) Mr O’Neill also received funds for his personal benefit from sales “commissions” said to be earned by PMFNRE on property sales and which there were efforts to conceal;

(c) Mr O’Neill also borrowed large sums of money from PMFNRE, which were treated as “Adjustments” and many of which were not reimbursed even as late as 31st May 2001; and

(d) Mr O’Neill made, requested or gave directions to PMFNRE on multiple occasions concerned not only with his own funds but with funds derived from the NPF Tower fraud (credited to PMFNRE Ledgers 8, 9 and 18) and with transactions derived from those funds – one sees so often “REF P.ON” or “REF PO” or similar expressions that it is perfectly plain Mr O’Neill had dominion over these funds and gave directions in relation to them.

At paragraph 12.5.2.4 the commission describes how Mr O’Neill gave detailed directions to PMFNRE’s accountants on accounting matters. At paragraph 12.5.2.5, the commission reports on Companies Office records which show Mr Awela as owning 90 per cent of the shares in PMFNRE. Granted the commission’s previous findings that Mr Awela is a nominee for Mr O’Neill in Mecca No.36 Ltd, and Nama Coffee Exports Ltd, it is quite clear that Mr O’Neill himself owns the 90 per cent of shares in PMFNRE attributed to Mr Awela.

There are many reasons why Mr O’Neill would want to conceal his interests in PMFNRE including:

1. First, it would avoid the need for disclosure to the Ombudsman Commission during the time Mr O’Neill was executive chairman of Finance Pacific Group and subject to the Leadership Code;

2. Second, it would avoid the need for disclosure during the same period to PNGBC, which was a lender to each of these companies;

3. Third, it would conceal the fact that Mr O’Neill would receive benefits from the work that was directed to PMFNRE from the various Commercial Statutory Authorities; and

4. Fourth, it would mask Mr O’Neill’s connection with moneys that were being laundered through PMFNRE and used for purposes such as the acquisition of RIFL and the purchase by Bethgold Pty Limited of the Kanimbla property from Mr and Mrs Reynolds.

Findings

At paragraph 12.5.2.6, the commission has found that the:

(a) evidence is overwhelming that the true owner of PMFNRE is and was Mr O’Neill and that Maurice Sullivan and Mr Barker acted in accordance with his instructions.

(b) The commission recommends that the Prime Minister refer Mr O’Neill to the Ombudsman Commission to consider whether Mr O’Neill’s concealment of his interests in Nama Coffee Exports Pty Ltd and Port Moresby First National Real Estate Pty Ltd constitutes a breach of his duty under the Leadership Code and the need to submit full and honest Leadership Returns.

Concluding comments on the second acceleration claim 

The investigation into the spurious second acceleration payment has clearly demonstrated that it involved a carefully planned fraud on the NPF, instigated and carried out by Jimmy Maladina, with the active involvement and support of Herman Leahy. Mr Leahy’s wife Ms Angelina Sariman played a supporting role as a principal offender.

Ken Yapane was also involved, at least as an accessory and receiver of fraudulently obtained money. The two managers of Kumagai Gumi were reluctant participants and are also principal offenders. Mr Fabila had knowledge of what was occurring. He failed to stop it and signed documents which helped to perpetrate the fraud.

The tracing of the NPF money, paid as six progress payments by Kumagai Gumi, plus the K150,000 personal commission for Mr Maladina shows quite clearly who the beneficiaries of most of the Tower fraud moneys were.

These included Mr Maladina and his wife and companies, Mr Leahy and his wife and companies and Mr Yapane.

Substantial amounts were paid into PMFNRE accounts and substantial parts of these moneys were paid for the benefit of Mr O’Neill.

This finding was vigorously denied by Mr O’Neill, who argued that although it appears on paper that payments for his benefit came from ledgers containing NPF Tower fraud money, he in fact had other moneys of his own in other PMFNRE accounts, which were the true and “innocent” source of moneys paid out to himself, his companies and his family company.

To assess Mr O’Neill’s claim, the commission made a thorough study of PMFNRE’s accounts and traced all moneys paid in and out on account of Mr O’Neill.

This conclusively showed that Mr O’Neill had definitely benefitted from the proceeds of the NPF Tower fraud. It also showed that, despite his denial’s, Mr O’Neill is the beneficial owner of PMFNRE and that Mr Sullivan and Mr Awela are his nominee shareholders.

It is quite clear that there is a relationship between Mr Maladina and Mr O’Neill whereby they have benefitted jointly from the NPF Tower fraud.

The Proposed Sale Of 50 Per Cent Of NPF Tower To PNG Harbours Board 

1. In paragraph 13 of Schedule 6, the commission describes the failed attempt by NPF to sell a 50 per cent ownership in NPF Tower to the Papua New Guinea Harbours Board (PNGHB) for K40 million.

The idea of selling off an interest in the uncompleted NPF Tower was a good one because it would enable NPF to pay off some of its K59 million debt to the PNGBC, the interest on which was a crippling burden to NPF.

The commission reports how a small group of conspirators plotted and manipulated events hoping to ensure that:

  • Maurice Sullivan of PMFNRE would be appointed NPF’s agent to arrange the sale but this was without the knowledge and approval of the NPF board;
  • NPF management would agree to pay 2.5 per cent commission to Mr Sullivan, which was then raised to 5 per cent, (K2 million) without the knowledge or approval of the NPF board;
  • Mr Sullivan would take advantage of the inexperience of the PNGHB chairman John Orea to obtain his signature to a contract of sale;
  • The board of the PNGHB would then approve the purchase of 50 per cent of the NPF Tower for K40 million with the responsibility to pay the K2 million commission to PMFNRE being shared between NPF and the PNGHB;

2. Fortunately, the management of the PNGHB, under managing director Bobby Kaivepa, resisted the political pressure and prepared an excellent brief to the members of the PNGHB pointing out that:

(a) PNGHB had no legal power to enter the agreement;

(b) the proposal was not financially viable; and

(c) PNGHB lacked the required funds and had no power to borrow for this purpose.

3. The sale to PNGHB was then dropped by NPF. Throughout the negotiations Mr Leahy and Mr Fabila had deliberately refrained from mentioning the unauthorised agency agreement entered into with PMFNRE and the 5 per cent commission, which had already been agreed by Mr Fabila and Mr Sullivan.

On the evidence, it is clear that this idea was being promoted in NPF mostly by Mr Maladina and Mr Leahy, with Mr Fabila’s support.

Mr Sullivan was obviously a principal in the conspiracy.

In relation to the attempted sale to the PNGHB, at the paragraphs in Schedule 6 referred to below, the commission has found that:

At paragraph 13.1.3: 

(a) Mr Leahy was not in direct discussion with Mr Emilio;

(b) Mr Leahy, without any authority from the NPF board or Mr Fabila, engaged PMFNRE as NPF’s agent to sell equity in The Tower Pty Limited;

(c) Mr Leahy suppressed the fact that he had engaged PMFNRE from Mr Fabila and the NPF board.

(d) Mr Leahy provided false information to the NPF board that he was holding direct discussions with Mr Emilio and in failing to disclose his engagement of PMFNRE;

Paragraph 13.1.5: 

(a) Mr Leahy exceeded his authority in entering arrangements with PMFNRE in August 1998 without the approval of the NPF board or Mr Fabila;

(b) Mr Leahy was the recipient of Mr Sullivan’s letter of March 5, 1999, and the author of Mr Fabila’s letter of March 10, 1999. Mr Leahy exceeded his authority in entering into these altered arrangements with PMFNRE in March 1999 without NPF board and Ministerial approval. Mr Leahy was remiss in his duty to fully and properly inform Mr Fabila of the content and legal effect of the letter of March 10, 1999, which he arranged for Mr Fabila to sign;

(c) Mr Fabila was remiss in his duty as managing director of NPF in signing the letter of March 10, 1999, without properly reading and understanding it and without apprehending that the letter constituted a contract beyond his approved financial delegation, which required both NPF board and Ministerial approval;

(d) February/ March 1999 was a time of financial crisis at NPF and concurrently with this arrangement, Mr Leahy was heavily involved in the Waigani Land proposal and the NPF Tower claims with Kumagai. In those contexts, Mr Leahy also wrote and arranged for Mr Fabila to sign other letters in respect of which Mr Leahy also did not fully and frankly brief Mr Fabila; and

(e) MR Leahy, Mr Sullivan and Mr Fabila should be referred to the Commissioner of Police to consider whether charges of criminal conspiracy, attempted fraud or other offences should be brought against them.

Paragraph 13.4.1: 

Both Mr Fabila and Mr Leahy failed in their duties in not fully and frankly informing the board of this contractua* obligation they had entered into to pay 5 per cent commission to Mr Sullivan and by not openly seeking board ratification of their action despite the clear opportunity to do so.

Paragraph 13.5.5.1: 

The commission finds, on the balance of probabilities, that it is likely that this approval was prepared in Carter Newell’s office after March 25, but backdated to March 22.

There are at least two possible explanations for the sense of urgency about obtaining the Minister’s approval for the sale of 50 per cent of the Tower to the PNGHB. Firstly, NPF desperately needed the money. Secondly, the conspirators were greedily awaiting payment of the 5 per cent commission.

The three identical approvals by Ministers Lasaro, Pok and Auali, which were sent to the PNGHB were also dated 22nd March 1999, but were worded differently from the approval faxed from Carter Newell on 1st August 1999.

Paragraph 13.15: 

(a) THE approval for the sale of 50 per cent equity in the NPF Tower signed by Minister Lasaro dated March 22, 1999, which was faxed by Carter Newell Lawyers to NPF on April 1, 1999, was drawn up by Carter Newell and backdated to March 22, 1999;

(b) The approvals to sell to the PNGHB which were given by Ministers Lasaro, Pok and Auali, dated March 22 and 24, 1999, were also drawn up by Carter Newell, for the purpose of applying pressure on the management and members of the PNGHB to approve the purchase of 50 per cent of the NPF Tower;

(c) Mr Leahy acted unprofessionally in drawing up a certificate recording a circular resolution of the NPF board dated March 26, 1999, without indicating that it had not been ratified by the board at a properly constituted meeting and that it was therefore not a valid board resolution;

(d) THE payment to Kumagai authorised by Mr Fabila on March 31, 1999, was part of a fraudulent scam involving Mr Leahy and Mr Maladina to fraudulently obtain K2,505,000 for the benefit of Mr Maladina. On the face of the documents Mr Fabila was also involved;

(e) The responsibility for the scam involving the 5 per cent (K2 million) commission to Mr Sullivan of PMFNRE lies with Mr Leahy, Mr Maladina and Mr Sullivan. On the face of the documents, Mr Fabila was also involved;

(f) MR Fabila as managing director and Mr Maladina as chairman, knowingly withheld from the NPF board the fact that Mr Fabila had signed an agreement to pay Mr Sullivan of PMFNRE a 5 per cent commission on the sale of the 50 per cent interest in The Tower. This was a breach of fiduciary duty by Mr Fabila and Mr Maladina.

(g) In relation to the attempted sale to PNGHB, it is recommended that the Prime Minister should refer the following people to the authorities named:

(i) TO the commissioner for Police – Herman Leahy, Jimmy Maladina, Henry Fabila, Maurice Sullivan, and Angelina Sariman to consider criminal charges;

(ii) TO the Papua New Guinea Law Society – Mr Leahy and Mr Maladina and Ms Sariman to consider disciplinary measures.

TO BE CONTINUED

National Provident Fund Final Report [Part 65]

November 4, 2015 1 comment

Below is the sixty-fifth part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

NPF Final Report

This is the 65th 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 Michae-Somare.

Executive Summary Schedule 6 Continued 

Findings 

Further investigations, described in sub paragraphs 12.4.11.1 to 12.4.11.31 enabled the commission to make findings item by item as reported in those sub paragraphs. The results of the examination of these items recorded in Ledger 18 between August and December 1999 are set out at paragraph 12.4.11.34 as follows.

Summary at December 31, 1999

(i) As reported above, the balance of funds on Ledger 18 as at October 1, 1999, was a debit of K341.61 and the only ongoing investment sourced from funds earlier credited to Ledger 18 was the K1.5 million face value in Treasury Bills;

(ii) Between October 1, 1999 and December 31, 1999, the only funds credited to Ledger 18 aggregated K47,500 and those funds were derived by journal transfer from two other Ledgers – K27,500 from Ledger 8 and K20,000 from Ledger 23. The transfer from Ledger 23 is only of incidental interest but that from Ledger 8 is of great relevance in tracing the proceeds of the NPF Tower fraud.

Most importantly both these journal transfers according to the PMFNRE cashbook, were “TRANSFER REF PON” clearly indicating Mr O’Neil-directed the transfers and had dominion over the funds;

(iii) As reported at paragraph 12.4.3, the total funds credited Ledger 8 were K55,000 of which was NPF Tower fraud money and the K32,000 of Aviat Club “Calcutta” money won by Mr Fabila aggregating K87,000.

Payments were made from Ledger 8 as follows:

npf 65 a

The residua-K27,500 was journal transferred to Ledger 18 on the same day the cheque was paid to Ferragamo Limited.

The K25,500 said to have been paid for Mr O’Neill’s outgoings plus the K27,500 transferred to Ledger 18 account for K52,000 of these funds which is K20,000 more than the “Calcutta” money. It follows that if the funds transferred to Ledger 18 were applied for Mr O’Neill’s benefit, then Mr O’Neil-must to the extent of that spending, have benefited from up to K20,000 of the NPF Tower fraud moneys as credited to Ledger 8. If, the whole of the K32,000.00 income and outgoings on the Aviat Club Calcutta is disregarded as it should be, then the limit of Mr O’Neill’s benefit would increase to a ceiling of K27,500

The commission finds that Peter O’Neil-benefited from K20,000 of the NPF Tower fraud money as credited to Ledger 8 and later transferred to Ledger 18. 

(iv) On the expenditure side, it is clear that in addition to the opening debit of K341.61 these funds were expended for the following purposes:

a) Payment to Mr O’Neill’s ANZ Bank Account: There was a single payment of K30,000;
b) Cash payments to Mr O’Neill: There were cash payments of K10,000 and K1000 for the late Lucas Senar’s funera-aggregating K11,000 made to Mr O’Neill;
c) Airfares: There were five payments of K402.60, K402, K402.60, K3,197.40 and K665.60 for the benefit of Mr O’Neil-and apparently at his expense for a Mr P. Wong and a person with the initials “PK” aggregating K5070.02;
d) Amex Card: There was a payment of K1000. for Mr O’Neill’s ANZ Bank Amex Card;
e) Miscellaneous: A miscellany of small payments were made to:

KPMG – accounting fees for South Super stores K425;
AC Fox & Associates searches K198;
October water and sewerage bills K247.67;
Mr O’Neill’s Cellnet phone K125.33;
Hitron to relocate Mr O’Neill’s cable TV K110;
Aviat Club Membership K275;
December water and sewerage bills K214.78;
Brian Bel-for gas K98.78; and
Port Moresby Locksmith K269.50.
Total: K1964.06

The only payments which cannot be seen to be for Mr O’Neill’s benefit or for the benefit of companies with which Mr O’Neil-is associated are the AC Fox search fees, the Aviat Club membership, Brian Bel- gas charges and the Port Moresby Locksmith charges. These account for K742.50 of the total K1904.06. Invoices could be obtained for these from the suppliers to indicate who initiated the payment and for whose benefit these were for;

(v) The total expenditure in the period was thus K49,034.26 as against receipts of K47,500 resulting in an overspending of K1534.26 which when added to the opening debit of K341.61 meant Ledger 18 had a debit balance of K1,875.87 as at December 31, 1999.

All of this expenditure of K49,034.26 between October 1, 1999 and December 31, 1999, was for Mr O’Neill’s benefit save the K742.50 referred to in (iv) above and there is every reason to believe that if the invoices are obtained that would also have been spent for Mr O’Neill’s benefit.

Put simply the clear appearance is that Ledger 18 was Mr O’Neill’s ledger; and.

(vi) As reported at (iii) above, Mr O’Neil-benefited to the extent of up to K20,000 from the NPF Tower fraud moneys transferred from Ledger 8 to Ledger 18.

We will return to what occurred in relation to Ledger 18 after December 31, 1999, later in this report.

Findings

(a) Ledger 18 was Mr O’Neill’s ledger;

(b) Mr O’Neil-received the benefit of K20,000 or K27,500 of NPF Tower fraud money transferred from Ledger 8 to Ledger 18.

Ledger 21 – K18,423 

As described in paragraph 12.4.12, it is likely that this ledger, which records only two transactions represents a payment of VAT of K808 which is of no relevance to the commission’s inquiries.

Ledger 23

As described in paragraph 12.4.13 the K20,000 transferred to this ledger is not related to the commissions terms of reference.

Ledger 25 

PMFNRE produced no documents regarding the two transactions on this ledger, which seem to be related to sales tax payable on the PMFNRE “commission” for the Investment Corporation sale of Ilimo Farm.

Ledger 24 

On October 29, 1999 a deposit of K2,421,824 was credited to Ledger 24 by PNGBC cheque for K2,321,824 and Mr Maladina’s company Ferragamo’s cheque for K100,000. Paragraph 12.4.15 traces the source and history of that deposit and shows that on October 29, 1999, PMFNRE sold three Treasury Bills as follows:

npf 65 b

The discounted price of K2,321,824 was paid to PMFNRE and credited to Ledger 24 as was the K100,000 from Ferragamo.

K1 million of the funds, which purchased these Treasury Bills consisted of Mr O’Neill’s own money. K1.5 million of the funds which purchased the other two Treasury Bills was sourced from a combination of:

K10,838.33 – Mr O’Neill’s housing allowance and his K390,000 payout; and
K485,453.34 – Mr Maladina’s Tower fraud money and the redeemed Nambawan Finance IBD (which also contained fraud money).

Clearly the funds credited to Ledger 24 contained a mixture of Mr O’Neill’s own funds and NPF Tower fraud funds including Mr Maladina’s proceeds from the frauds.

The reconstructed Ledger 24 is shown at paragraph 12.4.16 is as follows:

npf 65 c

Each item is examined in paragraph 12.4.16. To make sense of the transactions in Ledger 24, it helps to consider the acquisition of Resource and Investment Finance Ltd (RIFL) by Bluehaven No.67 Ltd which is detailed at paragraph 12.4.17.

Acquisition of RIF-by Bluehaven No.67 

By March 1999 PNGBC was the sole owner of RIF-and it was transferred to Finance Pacific on June 28, 1999, in consideration of K2,280,365.

The signatories to the share transfer included Mr O’Neil-for Finance Pacific. This was part of the corporatisation project and RIF-was now ready for sale to a private buyer. The purchaser was to be Bluehaven No.67 Ltd, which was held out as purchasing on behalf of Pacific Helicopters a company owned by Malcolm Smith Kela. In fact, Mr O’Neill held a substantial interest in Bluehaven No.67.

The other interested party was Jimmy Maladina (through Ferragamo Ltd).

Mr O’Neill gave evidence on – Transcript pp. 7903 – that he was dismissed as executive director of Finance Pacific, without notice on August 23, 1999. His signature appears on the contract of sale to Bluehaven No.67 dated August 24, signing on behalf of Finance Pacific, one day after his dismissal. In fact, the evidence is clear that the sale agreement document was not even drafted unti-August 25, 1999. Mr O’Neill has failed to provide a satisfactory explanation for this clearly improper conduct. Even if he was still executive director of Finance Pacific when he signed the sale agreement (which seems impossible), why did he not disclose that he held a very substantial interest in the purchaser, Bluehaven No.67.

The evidence regarding the signing of the sale agreement and the interests represented by Bluehaven No.67 are fully detailed in paragraphs 12.4.17.2 and 12.4.17.3.

Quite clearly, great efforts were made to conceal the involvement of Mr O’Neil-for obvious reasons and to hold out that the sole purchaser (through Bluehaven No.67) was Pacific Helicopters.

At paragraph 12.4.17.4, it is shows that the deposit of K110,000 was paid by Carter Newel-and the balance of K2,794,342 was raised as follows:-

“(i) As reported in 12.4.15(b) and (c) above and 12.4.16 (c), the K2.5 million face value in Treasury Bills was sold by PMFNRE to PNGBC and the sale proceeds of

K2,321,824 credited to Ledger 24;

(ii) As reported in 12.4.16(a) above, K250,000 was paid to PMFNRE by Pacific Helicopters and credited to Ledger 24;

(iii) As reported in 12.4.16(b) above Mr Maladina’s company Ferragamo Limited paid K100,000 to PMFNRE which was credited to Ledger 24;

(iv) The aggregate of payments received and banked by PMFNRE on October 28, 1999 (the Pacific Helicopters payment) and on October 29, 1999 (the Ferragamo and PNGBC payments) was, as we have already seen only K2,671,824 and it was al-credited to Ledger 14 as the first cashbook entries on 1st November 1999;

(v) The total funds of K2,671,824 was exactly K122,518 short of the K2,794,342 required;

(vi) PMFNRE, as we have earlier seen, was not averse to “borrowing” the funds in its No.2 Trust Account and making “loans” and had done so in the form of the unreimbursed “Adjustment” items and the two IBD’s of K600,0000 with PNGBC. RIF-as we have seen was a liquid “cash” company and could easily and quickly be cash stripped once acquired to return any funds made available by PMFNRE;

(vii) PMFNRE accordingly provided the difference from its trust funds and as the funds credited to Ledger 14 were insufficient to make the required payment of K2,794,342 – the PMFNRE cheque by which it was paid – PMFNRE cheque #382541 for K2,794,342 was kept wholly “off-book” and treated as an “Adjustment”.

(viii) As we have shown at 12.4.16(d) above, this PMFNRE cheque #382541 was used to purchase a PNGBC bank cheque #0536056 dated October 29, 1999, for K2,794,342 drawn in favour of ANZ Bank and which was banked at ANZ Treasury, Pacific Place, Port Moresby.

The “lure” which motivated the parties concerned to collect these funds together and purchase the shares in RIF-was that it was a cash rich company available for a very cheap price which could subsequently be stripped of its assets to repay the moneys contributed by Mr Smith Kela, Mr O’Neill and Mr Maladina who would then have acquired a licensed financial institution for virtually no cost.

The problem as pointed out in paragraph 12.4.17.5 was that section 63 of the Companies Act would make it very hard for them to get their money back. The price paid for the RIF-shares was represented by RIFL’s assets. If the purchase amounts were treated as a loan to RIF-which could be repaid there will have been an offence against Section 62 Companies Act. If it is treated as capital, then returning the purchase money would be reduction of the capita-of RIFL, which can only be done by acquiring shares or by redemption of shares in accordance with the Companies Act.

This question of the attempted return of funds used to purchase RIF-is considered in paragraph 12.4.17.6.

Findings 

At paragraph 12.4.17.7, the commission has found as follows:

PMFNRE Receipt No.706886 for K122,518 was for RIF-cheque #12104 repaying part of the purchase price of RIF-shares provided by PMFNRE.

At paragraph 12.4.17.8, the commission has found as follows:

(a) RIF-drew on its IBD asset and cash funds to return K122,518 to PMFNRE which was part of the funds provided by PMFNRE to enable Bluehaven No.67 Limited to purchase shares in RIFL;

(b) RIF-had further withdrawn another K500,000 from its IBD assets but for some reason, the payment of that sum to Remington Limited ( a company Mr O’Neill says he was buying) was aborted.

“Carryover” items 

The commission at paragraph 12.4.18 continued to study the items, which were “carried over” after December 31, 1999 into 2000 in order to further assess Mr O’Neill’s explanation. At paragraph 12.4.18, it studied carried over adjustment items, which had not been credited to any numbered ledger and some items in numbered ledgers.

PMFNRE No.2 Trust Account to May 2000 

At paragraph 12.4.19 the commission examined the No.2 Trust account to May 2000 in order to:

  • trace further dealings with the Tower fraud money (much of which was used for the purchase of RIF-by Bluehaven No.67);
  • Locate Mr O’Neill’s own funds; and
  • Ascertain what parts of the RIF-purchase money were returned to PMFNRE.

Twenty six “off book adjustments” transactions were examined, numbered (a) to (z) as follows:

(a) Cheque # 26785 – K5000 – December 21, 1999,
(b) Cheque #36699 – K2000 – January 7, 2000;
(c) Credit – K7000 – January 7, 2000;
(d) Cheque #26786 – K500,000 – December 21, 1999,
(e) Credit – K500,000 – January 5, 2000;
(f) Cheque #36701 – K10,000 – January 10, 2000;
(g) Cheque #26766 – K250,000 – December 7, 1999;
(h) Cheque #36706 – K500,000 – January 13, 2000;
(i) Credit K750,000 – January 28, 2000;

TO BE CONTINUED

National Provident Fund Final Report [Part 64]

November 3, 2015 1 comment

Below is the sixty-fourth part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

NPF Final Report

This is the 64th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 6 Continued 

Chronological overview 

At paragraph 12.4.9 of Schedule 6, the commission has presented a chronological overview of payments in and out of the PMFNRE No.1 and No.2 Trust accounts.

It shows that there were some of Mr O’Neill’s funds in the trust accounts at various stages during 1999 but that at each stage the payments out of the accounts, which are proven to have been for his benefit and/or made at his directions, far exceeded the amount of Mr O’Neill’s funds available to fund these payments out for his benefit.

These other funds, which must have funded these payments out for Mr O’Neill’s benefit, included large amounts which had been derived from the NPF Tower fraud (and at least K600,000 which derived from the sale of the Waigani land, which had previously been invested on IBD with Nambawan Finance for Jimmy Maladina’s benefit).

The commission finds in paragraph 12.4.8, that Mr O’Neill’s explanation that he at all times had ample legitimate funds in PMFNRE accounts to fund the payments made for his benefit is demonstrated to be untrue. It is quite certain that very significant payments, which derived from the NPF Tower fraud, were paid for his benefit.

The chronological overview deals with Mr O’Neill’s benefits from outside funds from various sources, including commission on the sale of Ilimo Farm, but we are confined by the commission’s terms of reference to limit our report to outside funds derived from the NPF Tower and Waigani land frauds. In this regard the commission reports at paragraph 12.4.9.2.6(e) (p318).

(e) The real impact arises from the transactions on Ledger 11 to which Mr O’Neill’s July housing allowance of K10,833.33 and the K85,949.57 withdrawn from the Nambawan Finance Limited IBD were credited and the four payments by which those funds aggregating K96,782.90 were disbursed. It is clear that the following expenditure reimbursed from that money was expended for the benefit of Mr O’Neill:

(i) The K20,025.70 balance for the remittances to Amex and Cheryl Caley;

(ii) The K16,207.70 paid for stamp duty on the purchase of Mr O’Neill’s Daugo Drive property;

(iii) The K2,556.80 paid to Qantas for airfares for Mr O’Neill;

(iv) The K1000 paid to Young & Williams for legal fees for Bluehaven No.42 Limited;

(v) The K5000 provided via the cheque shown as drawn to Geuhena Limited but what was in fact shown by Mr Barker as paid to Mr O’Neill;

(vi) The repayment of K17,830.89 of K18,600 in VAT on the Ilimo Farm commission which was “borrowed” to make the payment of K195,600 to Pangia Enterprises Limited.

Thus a total of K62,621.09 of this expenditure, including fraud money derived from the Nambawan IBD, was quite clearly paid for Mr O’Neill’s benefit and bearing in mind that only Mr O’Neill’s housing allowance and IBD funds withdrawn from Nambawan Finance were credited to this Ledger 11, we believe the other payments of the balance of these funds would almost certainly have been for Mr O’Neill’s benefit.

Findings 

At paragraph 12.4.9.2.7, the commission has found that:

(a) Payments made by or on behalf of Mr O’Neill to PMFNRE up to the end of March 1999 aggregated K189,569.91.

It was not possible to ascertain what amounts of that aggregate were attributable to investment in PMFNRE’s IBD with Nambawan Finance Limited and/or funds transferred to Carter Newell and/or funds taken in cash.

(b) It is plain that all of the K56,040 of the first withdrawal of funds from that IBD and most, if not all, of the K85,949 of the third withdrawal of funds from that IBD aggregating K141,989 were applied for Mr O’Neill’s benefit.

Inferentially, this would indicate up to that amount of Mr O’Neill’s funds was in fact invested in the Nambawan Finance IBD;

(c) Other expenditure made by PMFNRE on behalf of Mr O’Neill between March 1 and July 31, 1999, and which was not reimbursed far more than accounts for the residue of Mr O’Neill’s funds even on the most favourable scenario for Mr O’Neill;

(d) In total accounting for Mr O’Neill’s funds on the most favourable scenario to him, the following payments were not attributed against Mr O’Neill’s funds:

(i) the loan of K25,000 paid by PMFNRE No.2 Trust Account cheque #263663 on April 19, 1999, to PMFNRE No.1 Trust Account;

(ii) the refund of K29,500.00 paid by PMFNRE No.2 Trust Account cheque #263670 to Peter Pena & Associates of deposit moneys paid to Hunter Real Estate Limited;

(iii) the payment of K30,400 paid by PMFNRE No.2 Trust Account cheque #263673 to the credit of the fully drawn loan account of Hon. William Skate;

(iv) the payment of K50,000 to Mr O’Neill’s former wife Cheryl Caley by PMFNRE No.1 Trust Account cheque #266923 on May 4, 1999;

(v) the payment of K100,000 to Mecca No.36 Limited by PMFNRE No.1 Trust Account cheque #266932 on May 17, 1999, this company being owned by Mr O’Neill and Nathaniel Poiya;

(vi) the second withdrawal of K160,000 from the Nambawan Finance IBD on June 25, 1999, which was credited to Ledger 9 and used by Mr O’Neill’s company Bluehaven No.42 Limited to purchase the Manamatana flats;

(e) Clearly, payments (iv) and (v) were paid from moneys derived from the NPF Tower fraud and have never been reimbursed.

Payments (vi) was combined with K150,000 derived from the NPF Tower fraud to pay the deposit stamp duty and building inspection costs on the Manamatana flats and leave a small residue to pay the fees payable to Bank of Hawaii in part.

Payments (i), (ii) and (iii) were still not reimbursed as at May 31, 2000. All were treated as “loan to trust a/c 1” and it remains to be explained whose funds the payments were charged against and who if anyone, has the obligation to repay the money.

(f) Mr O’Neill has failed to explain his involvement in the Coringa Limited purchase the subject of PMFNRE Ledger 8, in terms both of the K25,500 said to have been paid for his “outgoings” by PMFNRE cheque #26630 drawn on November 2, 1999, and the K27,500 which was transferred by PMFNRE journal entry 3437 at his apparent direction to the credit of Ledger 18 on November 17, 1999.

Carry over items 

Items not yet accounted for are listed at paragraph 12.4.9.2.8 as “carry over matters”.

The chronological accounting for transactions in PMFNRE No.2 Trust Account continues in paragraph 12.4.10 for the period August to December 1999. There the commission considers whether payments out for the benefit of Mr O’Neill could have been sourced from Mr O’Neill’s own legitimate funds held on his behalf by PMFNRE.

Incoming funds for Mr O’Neill of: Housing allowance K10,833.33 — Ledger 18;
Finance Pacific payout K390,000 — Ledger 18;
Interest on K1m. Treasury Bills K120,850 — Ledger 18;
Total incoming funds PON — K521,683.33

10.3.10 Adjustment items to December 1999

The commission was able to make the following findings regarding these few adjustment items.

Findings

At paragraph 12.4.10.1.1, the commission has found that:

Cheque #350109 for K1806.40 was paid for the benefit of Mr O’Neill;

At paragraph 12.4.10.1.2, the commission has found that:

The K10,000 was loaned from PMFNRE to Hunter Real Estate Limited, for the benefit of Mr O’Neill. In the course of detailed examination of PMFNRE’s books, it was frequently necessary to summons documents to be produced by PMFNRE employees Rupa Siba and Joseph Kup. The commission encountered a lot of obstruction in this process. At paragraph 12.4.10.3.2, the commission has found that: Mr Kup deliberately obstructed the commission’s inquiries by withholding documents and fabricating adjustment figures.

Some of the payments out are discussed in relation other ledgers but the commission made the following findings on the elimination of adjustment items.

At paragraph 12.4.10.3.3, the commission has found that:

The payment of K3770.20 by cheque #382446 was clearly made for the benefit of Mr O’Neill’s company Hunter Real Estate Limited;

At paragraph 12.4.10.3.4, the commission has found that:

The deposit of K17,631.35 used to purchase a bank cheque for $A10,000 was for the benefit of Mr O’Neill;

At paragraph 12.4.10.3.5, the commission has found that:

The payment of K111.32 by cheque #26783 was for Mr O’Neill’s benefit; and

At paragraph 12.4.10.3.6, the commission has found that:

This cheque #26785 for K5000 was for cash, the recipient of which was Mr O’Neill.

Payment to Mr Skate is not connected with fraud money 

During the course of its investigations, the commission was troubled by discovering an unexplained payment to Hon. Bill Skate, the former Prime Minister. Careful attention was given to this payment because of the prominence of Mr Skate’s position.

The commission is satisfied that the payment was from Mr Skate’s rent allowance, legitimately received from the National Parliament.

It had been incorrectly treated in PMFNRE books to create the suspicious appearance that South Super Stores had subsidised the payment of K30,000 into Mr Skate’s loan account.

Findings

Summing up the items listed as adjusting in the period August to December 1999, the commission has found at paragraph 12.4.10.4:

(a) There are a number of items included as “Adjustments” which were quite clearly not “off-book” items and which may have been included to conceal the source of funds from which cheque #350132 for K30,000 was reimbursed;

(b) The bulk of the “Adjustments” items have a clear association with Mr O’Neill and his company Hunter Real Estate.

Ledger 18 – Additional items August to December 1999. 

At paragraph 12.4.11, the commission examines additional items on Ledger 18.

With additional documentation and further evidence, the commission was able to construct Ledger 18 almost in its entirety as follows:

64 table 2 a

64 table 2 b

TO BE CONTINUED

National Provident Fund Final Report [Part 62]

October 30, 2015 1 comment

Below is the sixty-second part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

NPF Final Report

This is the 62nd extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 6 Continued 

(d) When Mr. Maladina’s K300,000.00 of NPF Tower fraud money was added on 16th March 1999 both of these deposits became a single IBD – Deposit No. C08541 of K914,616.00.

(What happened on withdrawal of this deposit is reported under the heading of the Port Moresby First National Real estate Number 2 Trust Account paragraph 12.4.1(d)).

THE PMFNRE NO. 2 TRUST ACCOUNT 

The PMFNRE No. 2 Trust Account is examined in detail in paragraph 12.4 from sub-paragraph 12.4.1 to sub-paragraph 12.4.26.

The various amount of NPF Tower fraud money known to have been transferred from the No. 1 Trust account to the No. 2 Trust Account are listed as well as amounts of Tower fraud money paid directly into the No. 2 Trust Account and amounts paid in from the Nambawan finance deposit (see 12.4.1). Each payment was traced by the Commission, which determined which amounts were credited as “off-book” and which amounts were credited to a numbered ledger.

The results were as follows:-

(a) K100,000 cheque # 266929 transferred form No. 1 Trust Account to No. 2 Trust Account 14th May 1999 (on the same day cheque # 263729 was drawn to cash which was cashed and collected by one Dick Yanda);

(b) From 30th May to 29th September 1999 money transferred from No. 1 Trust Account to No. 2 Trust Account was as follows (only K55,120 being “suspect”:-

npf 62 table 1

The ledgers to which those funds were credited are also shown.

(c) Tower Fraud money paid direct to No. 2 Trust Account:

npf 62 table 2

The ledgers to which those funds were credited are also shown.

(d) From the Nambawan Finance IBD (which included K300,000 of Tower Fraud money) (see paragraph 7.2) the following was paid via the No. 1 Trust Account to the No. 2 Trust Account.

npf 62 table 3

K55,120 for vehicle and K920 for Mr. O’Neill’s benefit

(See detailed discussions at paragraph 12.4.1).

The Commission then conducted a ledger-by-ledger examination in date order.

The “off-book” or adjustment items were considered in paragraph 12.4.2.

Each item is considered in detail in a separate sub-paragraph. The Commission made the following findings and referrals.

Findings 

At paragraph 12.4.2.1, the Commission has found:-

The Commission was unable to ascertain who Dick Yanda was and thus could not trace the K100,000.00 further.

At paragraph 12.4.2.2, the Commission has found:-

The payment of K55,120.30 by cheque # 286403 was for the benefit of Mr. P. O’Neill.

At paragraph 12.4.2.3, the Commission has found:-

The Commission finds that this payment of cheque # 263604 K100,000.00 was made by PMFNRE for and on behalf of Mr. Peter O’Neill to secure his 25% shareholding, held in the name of Mr. Jack Awela, in Nama Coffee Exports Limited.

At paragraph 12.4.2.4, the Commission has found:-

Mr. O’Neill was concealing his interest in Nama Coffee Exports Ltd, which had borrowed K4 million from PNGBC while Mr. O’Neill was Executive Director of Finance Pacific which owned / controlled PNGBC.

At paragraph 12.4.2.5, the Commission recommends that Mr. Peter O’Neill be referred to the Ombudsman Commission:-

(a) to consider whether he has breached the Leadership Code by receiving the benefit of money derived from the NPF Tower fraud and by concealing his interest in Nama Coffee Exports Ltd.

(b) consider whether Mr. O’Neill has breached the Leadership Code when executive Director of Finance Pacific when PNGBC extended loan facilities to Nama Coffee Exports Ltd in which Mr. O’Neill had an undisclosed interest .

At paragraph 12.4.2.6, the Commission has found:-

This payment of K29,500 was the refund of deposit less agreed costs and the payment was made for the benefit of Hunter Real Estate Limited.

At paragraph 12.4.2.6.1, the Commission has found:-

That the payment of cheque # 263673 for K30,400 was a payment by Ikub Consultancy Ltd (Dr. Rad) to PMFNRE as rental on Mr. Skate’s property and was on-paid by PMFNRE to Mr. Skate’s loan account.

At paragraph 12.4.2.7, the Commission has found:-

The payment of cheque # 263799 for K22,799.82 was for the benefit of Mr. P. O’Neill.

Ledger 8 

The Commission’s detailed examination of Tower fraud moneys credited to PMFNRE Ledger 8 is reported in paragraph 12.4.3 to 12.4.3.7.

Using additional documents provided by Mr. Joseph Kup the Commission reconstructed PMFNRE Ledger 8 as follows:-

npf 62 table 4

Findings

For the reasons set out in sub- paragraphs 12.4.3.1 to 12.4.3.7, the Commission made the following findings:-

At paragraph 12.4.3.1, the Commission has found:-

The proceeds of cheque # 385454 for K5,000.00 cash.

In view of the transactions which follow and the timing of this payment it is quite likely that the K5,000.00 was used to purchase tickets in the annual Aviat Club Melbourne Cup Calcutta.

At paragraph 12.4.3.2, the Commission has found:-

Cheque # 26630 for K25,500.00 was banked to the credit of the bank account of Norman Kenneth and Remidius Barker with Westpac Bank.

In view of what follows it is almost certain that this K25,500.00 was used to pay the cost of the horses purchased as specified in (d) below in the Aviat Club Melbourne Cup Calcutta auction.

At paragraph 12.4.3.3, the Commission has found:-

This Aviat Club cheque # 352264 for K32, 000.00 was in payment of this Calcutta prize money (Exhibits T1500-1503) won in Mr. Fabila’s name when the horse purchased in the Calcutta (Rogan Josh) won the Melbourne Cup.

At paragraph 12.4.3.4, the Commission has found:-

This cheque for K1,500 was profit on the Calcutta prize money (and arrived at by deducting from the prize money of K32,000.00 the cost of tickets of K5,000 and cost of the horses bought in the Calcutta auction of K25,500.00) and was taken in cash.

At paragraph 12.4.3.5, the Commission has found:-

The cheque itself was made payable to “FARAGAMO LTD” (Exhibit T1509) and banked to the credit of Jimmy Maladina’s company Ferragamo Limited with Bank of Hawaii Port Moresby on 18th November 1999 (Exhibit T1510-1512).

At paragraph 12.4.3.6, the Commission has found:-

The Commission notes that the transfer is said to “TRANSFER REF PON” thus indicating the transfer was made at the request or direction of Peter O’Neill and that Peter O’Neill exercised dominion over these funds and the Commission so finds.

Ledger 9

The Commission reports upon Ledger 9 at paragraph 12.4.4. The Ledger was reconstructed as follows:-

npf 62 table 5

This ledger concerns the use of Tower fraud money in the purchase by Bluehaven No 42, of the Manamatana Flats. The Commission has found that Bluehaven 42 was owned by Mr. O’Neill (with shares being held on trust for him) and that on 8th March 2000 it was owned by LBJ Investments a company set up for Mr. O’Neill’s children.

Sums of K150,000, K160,000 and K600,000 were credited to Ledger 9.

The balance of the purchase price for the Manamatana Flats was paid out of PMFNRE in April 2000 at which time Bluehaven No 42 was owned by Mr. O’Neill’s children’s company, LBJ Investments.

After the Commission of Inquiry was established on 11th April 2000, attempts were made to hide the source of the funding by fabricating an agreement between Global Halshaw and Property and Investment Consultants Ltd (Mr. Sullivan) shown as dated 24th June 1999, lending funds to purchase investment properties in Port Moresby. This document is clearly false and ignores the fact that Property and Investment Consultants was not a shareholder in Bluehaven No 42 (see description of the attempted cover up at paragraph 12.4.4.6).

It is clear that Messrs Sullivan, Barker and O’Neill have been involved in this cover up and that Messrs Barker and O’Neill committed perjury. Messrs Barker, Sullivan and Maladina left PNG soon after the establishment of the Commission of Inquiry and have not returned.

At paragraph 12.4.4.8, the Commission has found:-

(a) At the time of the purchase by Bluehaven of the Manamatana flats, Bluehaven was beneficially owned by Mr. P. O’Neill.

(b) K150,000 receipted by receipt no. 70547 used in the purchase was derived from the NPF Tower fraud.

(c) K160,000 of the funds receipted by receipt no. 70546 was derived from Nambawan Finance IBD which included K300,000 derived from the NPF Tower fraud

(d) The K600,000 paid to complete the purchase was derived either from moneys fraudulently obtained by Mr. Maladina from the sale of the Waigani land or from Niugini Aviation in Hong Kong.

(e) Messrs Maladina, O’Neill, Sullivan and Barker are well aware of the true facts concerning these moneys and this transaction. Each of Mr. O’Neill and Mr. Sullivan have not given evidence which can be accepted by the Commission.

(f) The evidence of Mr. Barker in relation to what occurred with this K600,000 is clearly false and knowingly false.

Although Mr. Ken Barker committed the crime of perjury before the Commission in relation to what occurred with this K600,000.00, the Commission believes it would be a waste of resources to refer him to the Commissioner for Police as he has departed PNG permanently. He should be referred if he ever returns.

(g) On the 28th October 2002, the Commission directed Counsel Assisting to refer Mr. O’Neill to the Commissioner for Police to investigate whether he should be charged with perjury concerning his evidence on this issue.

Ledgers 10 and 12

Ledgers 10 and 12 are dealt with together at paragraph 12.4.5 and following sub paragraphs. These ledgers do not contain NPF Tower fraud moneys. They deal with other moneys transferred from PMFNRE No 1 Trust Account to the No 2 Trust Account. The Commission studied them in detail as part of its assessment of Mr. O’Neill’s explanations.

TO BE CONTINUED

National Provident Fund Final Report [Part 60]

October 28, 2015 1 comment

Below is the sixtieth part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

NPF Final Report

This is the 60th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 6 Continued 

Of major concern to the commission were large payments to Mecca No.36 Pty Ltd (now South Supa Store) owned by Peter O’Neill and NPF trustee Nathaniel Poiya.

Findings

The commission finds the deposit of K10,833.33 was in respect of Mr O’Neill’s rental allowance for April 1999 and in consequence that K10,833.33 of Mr O’Neill’s funds were held in this account.

In paragraph 12.3.2.2, the commission made the following findings:

(a) PMFNRE cheque # 266923 for K45,000 was sourced from the NPF Tower fraud money;

(b) As a consequence, K5,000 of the Tower fraud funds remained in this account;

(c) As we have said earlier, we will come back to the payments to Williams Graham & Carman shortly. Mr O’Neill’s evidence was that none of these earlier payments had been made for his benefit so his K10,833.33 should still have been held plus the K5,000 of NPF Tower fraud moneys aggregating K15,833.33;

(d) The cashbook balance according to PMFNRE (Exhibit T1017) was only K10,854.68. Again it is clear either PMFNRE was “using” this money or Mr O’Neill’s or the NPF Tower fraud funds had been used to pay other cheques;

In paragraph 12.3.2.3, the commission made the following findings:

The two cheques each for K50,000 presented on May 4, 1999, were funded from the NPF Tower fraud money;

In paragraph 12.3.2.4, the commission made the following findings:

(a) After considering the whole of the available evidence, the commission finds that the sum of K102,300 paid by the Carter Newell cheque # 788441 which was derived from the NPF Tower fraud money was placed under the control of Maurice Sullivan and Ken Barker of PMFNRE upon its deposit on May 4. 1999, and that in exercise of the control so placed in him Mr Barker on the same day directed payment out of such funds of the two cheques # 266924 and 266925 each for K50,000 to PNGBC the first to make an International Money Transfer of the equivalent of K50,000 to Williams Graham & Carman, Solicitors of Cairns Australia and the second to make an International Money Transfer of the equivalent of K50,000 to Mr O’Neill’s former wife Cheryl Caley;

(b) The commission further finds that the bank fees of K36 were also paid from this deposit and that all of these payments were from funds derived from the NPF Tower fraud.

(c) It follows from these findings that of the funds remaining in this PMFNRE No.1 Trust Account after such payments and the debit of bank charges the residue of this K102,300 deposit amounting to K2264 plus the earlier residue of K5000, aggregating K7264 were held out of the NPF Tower fraud moneys and that K10,833.33 was held on behalf of Mr O’Neill;

In paragraph 12.3.2.5, the commission made the following findings:

The commission finds that this deposit of K10,833.33 was in respect of Mr O’Neill’s rental allowance for May 1999 and in consequence of its other findings that the funds of Mr O’Neill held in this account increased to K21,666.66;

In paragraph 12.3.2.6, the commission made the following findings:

There is insufficient evidence for the commission to make any definite finding in relation to these two payments of K6000 and K5000.

In paragraph 12.3.2.7, the commission made the following findings:

The only source from which this cheque for K100,000 could have been fully funded was the deposit of K300,000 on the same day (see (m) above), which was derived from the NPF Tower fraud;

In paragraph 12.3.2.8, the commission made the following findings:

(a) Cheques # 266930 and # 266931 aggregating K17,379.11 were paid from Mr O’Neill’s own funds;

(b) The dilemma, as we have said earlier, is that if the K10,833.33 of Mr O’Neill was applied in the earlier payment of K50,000 to his former wife, then there would not have been sufficient of his funds to cover this second payment to his former wife;

(c) Again the situation is confused by the use of the MJS/KB code on deposits of both NPF Tower fraud moneys and Mr O’Neill’s moneys and the payment out of moneys for the benefit of Mr O’Neill as well as others;

(d) Later investigations support the possibility that the various credits formed one common fund;

In paragraph 12.3.2.9, the commission made the following findings:

(a) It is totally clear that the deposit of K300,000 on Friday, May 14, 1999, derived from the NPF Tower fraud was banked with the “MJS/KB” code; that the K100,000 transfer to PMFNRE No.2 Trust Account on the same day was sourced from this deposit; that the K100,000 transfer to Mecca (No.36) Pty Limited the following Monday also with the “KB/MJS” code was also sourced from this deposit and finally that the cash withdrawal of K100,000 on the following Friday yet again with the “KB/ MJS” code was also sourced from that deposit;

(b) As will be seen later in this report, the K100,000 transferred to PMFNRE No.2 Trust Account was also converted to cash on May 14, 1999, and could not be traced further;

(c) On the evidence before the commission, it is clear that the second K100,000 was received by Mecca (No.36) Pty Ltd and that such money was not earned;

In paragraph 12.3.2.10, the commission made the following findings:

(a) The payment of K100,000 to PMFNRE No.2 Trust Account on May 14, 1999, derived from the NPF Tower fraud and could not be traced further;

(b) The cash withdrawal of K100,000 on May 21, 1999, was derived from the NPF Tower fraud and was received by Ken Barker and later paid to Jimmy Maladina;

(c) The payment of K100,000 to Mecca No.36 on May 17, 1999, was derived from the NPF Tower fraud and it was unearned by Mecca No. 36;

(d) Mr Poiya was a substantial shareholder in and director of Mecca No.36 Pty Ltd (now South Super Stores Ltd). At the time of the K100,000 payment to Mecca No.36 Mr Poiya was a trustee of the NPF;

(e) MR Poiya and Mr O’Neill benefited from the payment to Mecca;

(f) THE benefit received by trustee Poiya was improper and the commission recommends that he be referred to the Ombudsman to consider whether there had been a breach of the Leadership Code by Mr Poiya; and

(g) The benefit received by Mr O’Neill was improper and at the time he was subject to the Leadership Code, being executive director of Finance Pacific.

The commission recommends that Mr O’Neill be referred to the Ombudsman Commission to consider whether there has been a breach of the Leadership Code.

The payments made to Williams Graham & Carman were all from NPF Tower fraud money and all were paid to the lawyers in relation to the purchase by Bethgold of the Kanimlba property. The K50,000.00 to Cheryl Caley on May 4, 1999 was from the same source and for the same purpose.

Although Mr Barker and Mr Sullivan are shown as the directors and shareholders of Bethgold Mr Maladina and/or Mr O’Neill had beneficial interests in that company held for him/them by Mr Barker and Mr Sullivan.

The commission’s investigations clearly showed the criminal activities of Mr Barker and Mr Sullivan, former PMFNRE managers who had fled to Australia. At paragraph 12.3.4.1, the commission has found:

(a) Both Mr Sullivan and Mr Barker were involved in the laundering and disposal of the proceeds of the NPF Tower fraud through the PMFNRE No.1 Trust Account and the use of a code in that process strongly suggests “guilty” knowledge which may render both men accessories after the fact to that fraud;

(b) The commission recommended that Mr Sullivan and Mr Barker both be referred to the Commissioner for Police to consider charges for aiding the offence of fraud and any other offences;

(c) The commission also considered that Mr Barker:

(i) LIED on oath regarding the refund of K99,000 to Mr Maladina;

(ii) falsely denied knowledge of payments of K102,300 and K300,000 made by Mr Maladina to PMFNRE No.1 Trust Account; and

(iii) falsely stated that K60,000 and K690,000 were used to purchase Treasury Bills (see paragraph 12.3.4).

As Mr Barker is now permanently residing in Australia it would be a waste of resources to refer him to the Commissioner for Police to consider charging him with perjury under the Commissions of Inquiry Act. If he ever returns to PNG, he should be so referred.

As the commission’s inquiries continued it became clear that many payments were made to or at the direction of Mr O’Neill, that these payments far exceeded the total funds legitimately held by PMFNRE and that a significant portion of these additional payments were sourced from funds which demonstrably were the proceeds of the NPF Tower fraud.

In trying to explain these matters, some of Mr O’Neill’s explanations were unacceptable, internally inconsistent and contrary to clearly documented factual evidence. As inquiries progressed further and the successive ledgers were examined in more detail it became clear that Ledgers 18 and 31 were Mr O’Neill’s own ledgers.

At the end of the day the commission was forced to conclude that Mr O’Neill actually owned PMFNRE. To test Mr O’Neill’s unsatisfactory evidence, the commission constructed an extension of the cashbook as at paragraph 12.3.6 as follows:

The reconstructed extension of cashbook from May 30, 1999 to September 29, 1999.

60 image a

60 image b

60 image c

It was then able to make the following further findings.

Findings 

This deposit of K10,833.33 was in respect of Mr O’Neill’s rental allowance for June 1999;

At paragraph 12.3.7.2, the commission found that:

(a) The two cheques for K55,120 and K920 account exactly for the proceeds of the Nambawan Finance cheque for K56,040 banked the previous day and the commission so finds;

(b) The receipt of K55,120 into the No.2 Trust Account was kept “off book”;

At paragraph 12.3.7.4, the commission found that:

The cheque #028585 for K275,000.00 obtained by Hunter Real Estate Limited was proceeds of funds paid out of IBD held by the Registrar of the National Court, which was the subject of litigation between Mr O’Neill and Mr and Mrs Donald.

At paragraph 12.3.7.5, the commission found that:

The deposit was in respect of Mr O’Neill’s rental allowance for July 1999;

At paragraph 12.3.7.6, the commission found that:

The deposit of K275,000 into PMFNRE No.1 Trust Account on July 16, 1999, was paid into the No.2 Trust Account in three separate cheques and receipted as a deposit on PMFNRE sale of property by Hunter Real Estate.

The evidence of Mr O’Neill’s involvement with regard to the No.1 Trust Account is discussed at paragraph 12.3.8 and it is clear that the only funds paid into or held in the No.1 Trust Account for Mr O’Neill aggregated K32,449.99 or on the view most favourable to Mr O’Neill the total would be K57,499.99. Yet quite clearly the sum of at least K167,397.11 was paid out for his benefit or at his direction.

At paragraph 12.3.8.1, the commission has found that:

(a) Given the above explanation, the commission is compelled to conclude that the source of the differentials was Mr Maladina’s funds from the NPF Tower fraud and the explanation given by Mr O’Neill does not withstand testing and cannot be accepted. (Mr O’Neill’s explanation is further reported below at paragraph 12.3.8.2).

(b) The PMFNRE No.1 Trust Account appears to have been treated as a common account containing the funds of Mr Maladina and Mr O’Neill and some other transactions. Mr O’Neill’s explanations included claims that some of the payments were sourced from or paid as rental on his properties but his claim did not withstand scrutiny as other arrangements for rent were actually in place as recorded in detail in paragraph 12.3.8.3 of the Schedule.

TO BE CONTINUED

National Provident Fund Final Report [Part 59]

October 27, 2015 1 comment

Below is the fifty-ninth part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

NPF Final Report

This is the 59th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 6 Continued 

At paragraph 11.5.18.1, the commission has found that:

(a) The K3752 part of the funds transferred from Carter Newell trust account to Carter Newell No.2 account was transferred in reimbursement of the payment made by Carter Newell No.2 account cheque # 788532 and that such payment as so paid was sourced from the NPF Tower fraud; and

(b) The residual K3248.64 so transferred and paid out appears to have been sourced from other funds.

At paragraph 11.5.20.1, the commission has found that:

The payments of K140,000 and K250,000 as so paid, were sourced from the NPF Tower fraud.

At paragraph 11.5.21.1, the commission has found that:

(a) THE K40,000 part of the funds so transferred from Carter Newell trust account to Carter Newell No.2 account was transferred in reimbursement of the payment made by Carter Newell No.2 account cheque # 788548 and that such payment as so paid was sourced from the NPF Tower fraud; and

(b) THE residual K638.05 so transferred and paid out appears to have been sourced from other funds.

Looking as a whole at the disposal of the fraud moneys which had been received into Carter Newell accounts, the commission found at paragraph 11.5.23:-

(a) There were four sums as specified in 11.5.1, 11.5.3, 11.5.9 and 11.5.10 above received in the Carter Newell trust account aggregating K1,187,387.21 credited to this file which were derived from the NPF Tower fraud.

(b) From these funds, four payments as specified in 11.5.4, 11.5. 16, 11.5.19 and 11.5.20 above aggregating K572,850.64 were made direct from the Carter Newell trust account to Port Moresby First National Real Estate (three payments) and Ram Business Consultants (one payment). These payments have been dealt with earlier.

(c) The residue of these funds aggregating K614,563.57 plus K8847.23 from other sources was transferred from Carter Newell trust account to Carter Newell No.2 account and expended from the latter account;

(d) It is not possible to identify which part of the aggregate payments of K623,383.80 sourced from these transferred funds was funded from the K8847.23 of funds from other sources but it can be said they were sourced to the extent of K614,536.57 from the NPF Tower fraud.

(e) Those payments aggregating K623,383.80 which required further investigation are: See table 1.

59 image a

Findings

The commission then set out to investigate the payments referred to in (e) above and made the following findings in sub-paragraphs 11.6.1.1 to 11.6.6.7.

At paragraph 11.6.1.1, the commission has found that:

A sum of K600 derived from the proceeds of the NPF Tower fraud was received by Jimmy Maladina in cash on July 27, 1999;

At paragraph 11.6.2.1, the commission has found that:

The payments aggregating K7656.30 for airfares were made from the proceeds of the NPF Tower fraud and that Mr Maladina, his family and Mr P Maladina received the resultant benefits.

At paragraph 11.6.3.2, the commission has found that:

The sum of K4,927.10 spent on air tickets for Mr Maladina and Dr Pok was sourced from NPF Tower fraud and the tickets were used by Mr Maladina and Dr Pok.

At paragraph 11.6.3.5, the commission has found that:

(a) The air tickets for Mr Maladina and Mr Paki on August 13, 1999, for K3773 were financed from the proceeds the NPF Tower fraud;

(b) Mr Paki was referred to the Commissioner for Police to investigate whether he committed perjury by denying his trip to Cairns and Brisbane was paid for by Mr Maladina;

At paragraph 11.6.4.1, the commission has found that:

(a) The withdrawal of K400,000.00 (or $A226,754.22) on July 30, 1999, was sourced from the NPF Tower fraud, that such payment was a benefit received by Mr Maladina and that such benefit was improper.

(b) The description of the purpose of this payment was clearly false and evidences a dishonest intention on the part of Mr Maladina in relation to these moneys; and

(c) Limitations on the territorial jurisdiction of the commission prevented it from further tracing these funds in Australia.

At paragraph 11.6.5.1, the commission has found that:

The payment of K100,000 by cash cheque # 788504 on July 12, 1999, was sourced from Tower fraud money and was drawn for the benefit of Mr Maladina, probably for political purposes.

At paragraph 11.6.6.1, the commission has found that:

The clear inference is that this K700 cash was drawn for use on Mr Maladina’s trip to Cairns on July 30, 1999, and the commission so finds.

At paragraph 11.6.6.2, the commission has found that:

Cheque # 788518 for K17,000 was cashed and the recipient cannot be traced;

At paragraph 11.6.6.3, the commission has found that:

It is likely that cheque # 788523 for K5000 was cashed for the benefit of Mr J Maladina and a Mr P Maladina;

At paragraph 11.6.6.4, the commission has found that:

It is likely that cheque # 788527 for K45,000 was cashed for the benefit of PMFNRE;

At paragraph 11.6.6.5, the commission has found that:

It is likely that cheque # 788529 for K2500 was cashed for the benefit of Mr J Maladina;

At paragraph 11.6.6.6, the commission has found that:

Cheque # 788549 which was cashed for K40,000 could not be traced further, although there is a link to Mr Maladina through the Morea Henry connection;

At paragraph 11.6.6.7, the commission has found that:

Cash cheques totalling K110,200 cashed between July 29 and September 7, 1999, were sourced from the Tower fraud money and the cash was used for Jimmy Maladina’s benefit or at his direction.

Further Tracing Of Money paid Into The Accounts Of PMFNRE 

The NPF Tower fraud money paid into PMFNRE came from three sources:

(a) Kumagai payment No.1 indirectly from Ken Yapane and Associates via payments variously through Kuntila Company No.35, Mr Barker and PMFNRE;

(b) Carter Newell’s investment of fraud money in Finance Corporation; and

(c) Carter Newell by cheque or cash.

The trust account books of PMFNRE are described in paragraph 12.1.2, consisting of the earlier manually recorded No.1 Trust Account and the later computer recorded No.2 Trust Account.

“Off-book” transactions are described in paragraph 12.1.3. These often involved fraud moneys which were received and banked but for which no receipt was issued or recorded. Often they were coded “MJS/KB” (referring to Mr Sullivan and Mr Barker who had personal knowledge of these transaction as described in paragraph 12.1.4. At a later date these non-property management transactions were recorded in numbered ledgers – but still some “off-book” transactions occurred for which minimal records were kept. By calling for production of documents from banks on summons and by other means described in the Schedule, the commission has been able to elicit details of most of the “off-book” transactions.

In paragraphs 12.2.1 to 12.2.5, the commission discusses the various amounts of fraud moneys, which were paid into PMFNRE No.1 and No.2 trust accounts and this is summarised at paragraph 12.2.6 where the commission has found that the following fraud moneys were received into the ledgers indicated.

(a) Account No.246204 – the Number 1 Trust Account 

59 image b

(b) Account No.613086 – the Number 2 Trust Account

59 image c

The amounts received into the PMFNRE No.1 Trust Account were examined in paragraph 12.3. A major problem for the investigation was that PMFNRE personnel claimed that most relevant records had been lost or removed by Mr Barker and Mr Sullivan and by their failure to co-operate with the commission. At one stage, commission staff were unexpectedly invited to visit PMFNRE premises and in one day gained considerable knowledge of how and where the records were kept. This proved most helpful.

The commission was able to reconstruct a cash book from available records which is set out at paragraph 12.3.1, as follows: See table 4.

59 image d

TO BE CONTINUED

National Provident Fund Final Report [Part 56]

October 22, 2015 1 comment

Below is the fifty-sixth part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

NPF Final Report

This is the 56th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 6 Continued 

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

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

The first meeting was just before Christmas 1998, at which Mr Maladina demanded a payment of between K1.5 to K2 million (paragraph 5.3.1.1). This was followed by persistent telephone calls during which Mr Maladina said that if the money was paid, he would ensure Kumagai’s claims were paid smoothly but, if not, he would ensure the project was stopped and all Kumagai’s claims would be rejected (This was prior to Mr Maladina’s appointment to the NPF board).

In early February in Mr Maladina’s office, Mr Taniguchi agreed to a scheme whereby NPF would settle Kumagai’s kina fluctuation claim in full and also pay an artificially contrived second acceleration fee to bring the total contract price up to K54,000,000. This would enable Kumagai to use the extra money to meet Mr Maladina’s demands (paragraph 5.3.1.3).

To make those payments from Kumagai seem legitimate, it was agreed that a false contract would be prepared between Kumagai and Ken Yapane and Associates for labour and materials allegedly to be supplied to do the extra work needed to accelerate the completion of the project (paragraph 5.3.1.4).

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

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

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

He said it could be done by five or six progress payments and that Kumagai should prepare the contract documents (Mr Maladina had already cleared this with Ken Yapane, who agreed to allow the payments to be “laundered” through his bank accounts for a fee) (paragraph 5.3.1.3).

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

The documents that were manufactured were:

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

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

(c) a draft on A4 paper of a letter dated February 25, 1999, from PAC to Kumagai signed by Roger Dalton of PAC, which purports to confirm that the NPF board had accepted Kumagai’s acceleration proposal and the overall project cost of K54,050,646 (Exhibit T294) (paragraph 5.3.1.4).

Two copies of the false contract were signed by Mr Taniguchi for Kumagai and personally delivered by him to Mr Maladina at Carter Newell’s office (paragraph 5.3.1.3). He also delivered the two draft false letters from PAC to Kumagai (1 and 2 above) so NPF could arrange for them to be retyped on PAC letterhead and signed by PAC.

Findings

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

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

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

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

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

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

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

(h) MR Fabila’s responsibility is discussed at paragraph 5.3.6.4;

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

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

npf 56 a

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

npf 56 b

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

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

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

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

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

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

This clearly reflects the agreed fraud.

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

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

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

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

Findings 

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

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

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

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

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

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

The responsibility of NPF officers and trustees are discussed in paragraphs 5.3.6.1 (Mr Leahy); 5.3.6.2,  5.3.6.3 (Trustees); 5.3.6.4 (Mr Fabila) and 5.3.6.5 (PAC).

Findings

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

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

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

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

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

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

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

npf 56 c

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

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

Findings

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

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

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

TO BE CONTINUED

National Provident Fund Final Report [Part 55]

October 21, 2015 1 comment

Below is the fifty-fifth part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

NPF Final Report

This is the 55th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 6 Continued

The inspectors then re- examined the builder’s construction costs which rose from the contracted price of K45,447,388 by K9,484,706.67 to K54,942,094. The inspector’s report provided a break up as follows:

npf 55 a

The inspectors noted that the major cause of increased costs were:

  1. In-ground works variation costs of K3,006,270.26;
  2. Recovery of delays in the Stage 1 construction program (First acceleration fee) K1.4 million;
  3. Settlement of kina devaluation claim of K3.3 million; and
  4. The second acceleration claim of K2.505 million; All of these costs were examined by the inspectors.

In-ground Works Variation Costs Of K3,006,270.26

The inspectors listed the cost of these variations, which were caused by instability in the ground supporting the foundations, as follows:

npf 55 b

The inspectors made no further inquiries, feeling they lacked expertise to do so. However, this commission did carry out further investigations and based upon the expert evidence it obtained, has reported in paragraphs 4.1- 4.9.

Findings

(a) The commission is satisfied that the redesign and re-engineering work was necessary in order to accommodate the substrata conditions encountered. This resulted in additional work, additional costs and 84 days time loss to the construction schedule

(b) The commission is further satisfied that the work costs and delay were thoroughly and professionally examined and vouched by Rider Hunt and PAC and that no further investigation is warranted.

Builders Other Works Variations:

The finance inspectors thoroughly examined the substantial list of builder’s works variations. Cost increasing variations amounted to K2,562,082.02 and cost decreasing variations amounted to K3,278,645.61. These are listed at paragraph 3.1, Table 3 of Schedule 6 and have been audited by the inspectors. The commission has not inquired further into those variations as they appear to professional auditors to be in order.

Cost To Recover Stage 1 Delays (First Acceleration Fee) K1.40 million

The inspectors reported on the decision to try and recover the 12 weeks time lost due to the additional in- ground construction works. The project architects, PAC, told the inspectors that they were not asked to comment on the options Kumagai offered to facilitate the acceleration, which had been requested by Mr Copland. They told the inspectors that, had they been asked, they would have expressed doubt whether the expenditure of an additional K1.4 million was warranted for this acceleration. At paragraph 4.12.1, the commission has found that:

(a) The first acceleration transaction for K1.4 million does not require to be examined further; and

(b) Acceleration of the works was of questionable value to NPF. Both NPF management and the board were remiss in not accepting the offer of PAC to further advise the board on the subject.

Kina Devaluation Claim And Negotiation Between Parties 

The inspectors reported that negotiations to settle a kina devaluation claim of K6.60 million by Kumagai, had reached the stage where Kumagai had agreed to accept a devaluation fee of K3,054,354, increasing the total cost of construction to K51.3 million.

The inspectors expressed surprise and suspicion to note that, at this stage, Mr Leahy directed PAC to withdraw from negotiations and a settlement was reached (without PAC’s expert advice) to combine a second, and probably unnecessary acceleration fee of K2,505,000, together with a kina devaluation fee of K3,300,000, amounting in total to a settlement payment of K5,805,000. This brought the total cost up to K54 million, i.e. K2.7 million more than what Kumagai had requested as full payment.

To the inspectors, it looked as though NPF was paying a larger kina devaluation fee than Kumagai had agreed to accept as well as an unfounded second acceleration fee.

The inspector’s further investigations uncovered suspicious documents and calculations such as a schedule justifying the K2.505 million acceleration costs, which had not been evaluated by PAC, whose architect said he could not tell if extra people had been placed on site. The amount was paid to Kumagai but there was no report or accounting of the additional labour.

The inspectors concluded the K54 million settlement agreed by the new NPF board on February 8, 1999, was deliberately inflated in order to include the two claims. Submissions to the board by management were misleading as they concentrated on the devaluation fee and ignored the second acceleration fee.

A further ground for suspicion was that the project consultants had recommended that the K2.505 million acceleration fee be paid by way of a slow release of funds as the project neared completion. However, it was paid out quickly months before the project was completed.

The inspectors concluded, on this topic:

“This investigation is highly suspicious of the manner the NPF and Kumagai Gumi reached this understanding. Why did NPF abandon its negotiated gains on Kumagai Gumi’s kina devaluation claim? Why is it that PAC was excluded from a very important technical negotiations on kina devaluation claim and acceleration which involved quite a large sum of money? This investigation believes that it was highly possible that corrupt practices may have existed in the negotiation leading to the settlement of K5,805,000. A probe by the National Fraud Squad is highly recommended by this investigation.”

The commission shared the inspectors suspicions about these two payments and therefore thoroughly investigated them as reported at paragraph 5 below and in Schedule 6 paragraphs 5.1 to 5.7.

Professional Fees

Finally, the finance inspectors examined the question of the greatly increased payments for professional fees, listed as follows:  

npf 55 c

Although suspicious, because the fees had blown out to K3,568,298.84, they were unable to offer an explanation.

The commission carried out its own examination of the costs for professional services, which is reported at paragraphs 6.1 to 6.3.

Commission’s Investigations Into Professional Fees Paid By NPF

The commission worked from the records of PAC, which was the professional project manager, rather than NPF’s very fallible records. On that basis, the general professional fees that the commission examined were:

npf 55 d

The consultancy agreement between NPF and PAC, which provided for all consultancy fees, was delivered to PAC on August 20, 1997, to be signed. It had originally been drafted in April 1995 but was revised on June 12, 1997, to set out the fees for the construction phase – so that the contract administration component for each area of specialty was calculated as a percentage of the base contract price of K45,447,388.

The main 23-page consultancy agreement provided for NPF to pay the project manager all fees on a lump sum basis, as detailed in the terms of reference agreement.

The terms of reference agreement referred to the consultants services by reference to the six appendices to the consultancy agreement, referring also to a fee schedule at appendix 1 of the letter from PAC dated August 23, 1994.

Appendix 1 in the consultancy agreement, applicable to each specialty service, stated a lump sum amount.

When all the documentation is studied however, in order to determine the agreed terms of payment, a distinct ambiguity arises, which is analysed in detail in paragraph 6.3 of Schedule 6. Although the consultancy agreements and the appendices to them assume “fixed lump sum payments”, in order to identify the appropriate lump sum payable for each specialty service, one is referred to the terms of reference which in turn refer one to Appendix 1 of a letter of 23rd August 1994 from PAC to NPF (Exhibit T19).

That document (Exhibit T19) provides for payment as a percentage of construction cost – 8 per cent of construction cost of K24,135,000. PAC has interpreted this as an entitlement to fees at 8 per cent (but it charged at only 6.47 per cent). The result of this interpretation is that the fees charged varied as a percentage of the (increasing) construction cost. The revised fees quoted by PAC in a facsimile of June 12, 1997, (before the signed contracts were sent to them by Mr Leahy on August 20, 1997) reflect their interpretation as it applied to the contract administration portion of the works at a base contract price K45,447,388. The effect of the variation for the contract administration phase was:

  1. The architects fees increased from K210,350 to K454,473 (and in total from K965,400 to K1,218,523);
  2. The structural and civil engineer’s fees increased from K96,540 to K181,789 (and in total from K386,160 to K471,409); and
  3. Each of the mechanical, electrical and hydraulics engineer’s fees and the quantity surveyor’s fees increased from K72,405 to K136,342 (and in total from K289,620 to K353,557).

The commission’s report at paragraph 6.3 exposes the ambiguity caused by the wording of the consultancy agreements and associated documents. It is left to NPF and PAC to take up this matter by way of legal interpretation through the courts, if so desired. Suffice it to say that the additional costs resulting from PAC’s interpretation are considerable.

Findings

(a) Owing to ambiguity in the documentation, it could be interpreted that the professional fees paid by NPF exceeded the contractual agreement. This would need to be interpreted in court;

(b) NPF management (Mr Kaul and Mr Wright) failed to obtain NPF board approval for expenditure of more than K1.5 million on professional fees. They may be personally liable for losses suffered by NPF members; and

(c) NPF was in breach of S.61(2) of the PF(M) Act in not obtaining prior Ministerial approval before paying additional professional fees beyond the K1.93 million previously approved by the Minister.

Commission’s Investigations Into The Kina Fluctuation Claim

The kina fluctuation claim is first discussed in paragraph 5.2.1, from Kumagai’s perspective. By February 1998, Kumagai had given notice of its intention to claim additional cost because the kina had devalued against the Australian dollar from K1= $A0.93 to K1= $A0.74.

Kumagai persisted with this claim until, on legal advice, NPF management formally rejected the claim.

On July 10, PAC confirmed its previous advice that there was no legal basis for the claim but added that Kumagai was being genuinely disadvantaged by the kina fluctuation (paragraph 5.2.1).

A dispute was notified and Kumagai analysed its actual and anticipated cost increases due to the kina fluctuation, presenting a total claim to PAC on August 27,1998, of K6,756,388.46 (paragraph 5.2.1).

On November 24, 1998, Kumagai wrote to PAC itemising all variations due to Architectural Instructions (AI), aggregating the net increase due to AI variations and the cost of kina fluctuation at K6,600,000 and offered to split the cost between itself and NPF by accepting K6,600,000÷2= K3,300,000 as the additional cost for the kina fluctuation, on top of the then project cost of K48,245,645. Kumagai then offered to accept K51,545,646 as the total cost, as varied (a 13.4 per cent increase above the original project cost).

Kumagai’s calculations were checked by PAC and Rider Hunt who adjusted Kumagai’s calculations to a lesser figure. Though reiterating that NPF was not legally bound to do so, PAC advised on December 10, 1998, that it would be wise to offer Kumagai K50.5 million as a final price to ensure the project was safely completed with no costly disputes. This matter was to be considered by the NPF board on December 22, 1998, however, at that meeting, management held back the full details of Kumagai’s claim and of PAC and Rider Hunt’s advice. Seeing only PAC’s letter of December 10, and accepting PAC’s advice, the NPF board resolved at that meeting to reject Kumagai’s offer of K51.5 million to settle and resolved to make a full and final settlement offer of K50.5 million for the full project price. PAC conveyed this to Kumagai on January 25, 1999.

Kumagai rejected that offer and made a counter offer on the same day to accept K51.3 million as the total project cost.

NPF did not respond and negotiations ceased when Mr Maladina became chairman of the NPF board and became involved in the matter (Mr Kobayashi of Kumagai gave evidence that the claim was absolutely genuine and had it not been met Kumagai would have been obliged to suspend operations, to everyone’s substantial disadvantage).

That was where matters stood when Mr Leahy, on January 29, 1999, directed that PAC pull out of any further negotiations with Kumagai on this issue (paragraph 5.2.2.5).

TO BE CONTINUED