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Jimmy Maladina acquitted??? Spare a thought for his partner in crime 

April 21, 2016 1 comment

jimmy maladina

The Supreme Court it appears has quashed Jimmy Maladina’s conviction for misappropriation, which emerged out of  the National Provident Fund inquiry. We are told Maladina is away on business, but will hold a press conference shortly. 

No doubt Mr Maladina will claim full vindication, and protest his innocence. But don’t get the tissues out just yet for Jimmy. In fact spare a thought for one of his conspirators, who does not appear to have the same luck as Jimmy Maladina when it comes to the courts. 

Iori Veraga was found guilty of misappropriation and conspiracy in 2005, for his part in the fraud Maladina is alleged to have masterminded. According to the National Court Mr Veraga was a registered valuer, who was recruited by Jimmy Maladina to provide services to the National Provident Fund at a grossly inflated price. The proceeds of the scam were then shared between the two.

The court accepted:

‘the State evidence, once again confirmed by the accused’s own evidence that 50% of the proceeds of each of these cheques went to Maladina as his share of the fees as agreed between them’.

The National Court also claimed it was:

‘satisfied beyond reasonable doubt that before Maladina’s meeting with the accused, there had been an agreement with … [NPF executives] Herman Leahy and Henry Fabila about this criminal enterprise. These two officers were to be the conduits for the successful prosecution of the conspiratorial agreement. The events which took place throughout the entire affair did not, in my opinion, take place by accident. There was here the hallmark of preconcert. These events occurred pursuant to a pre-existing, antecedent, agreement’.

‘The conspiracy also depended on the accused performing his part by over-pricing or exaggerating the values of the two properties and charging excessive fees to be shared with Jimmy Maladina. The fees had to be large enough to be worth sharing. Messrs Leahy and Fabila were important elements, conduits, in the conspiracy. They were in the position to ensure secrecy, non-compliance with tendering requirements, keep the [NPF] Board in the dark, and ensure further that the fees quoted were accepted, thus committing the Fund to paying them, and paying them quickly.’

The National Court, therefore, concluded:

‘the funds [misappropriated by Veraga and Maladina] were the funds of the NPF. They remained the property of the Fund because neither the accused nor Jimmy Maladina had any legitimate claim over them. Thus, the sharing of the fees between the accused and Jimmy Maladina constituted the dishonest application to his own use and to the use of another person, property belonging to another as defined [by the Criminal Code].’

Veraga was sentenced to six years hard labour. Curiously Maladina – the alleged mastermind – was never successfully prosecuted for this crime. 

Instead his recently quashed conviction related to yet another act of misappropriation against the National Provident Fund.

So when you hear Jimmy Maladina waltz around the media claiming he is the true victim in all this, spare a thought for his partner in crime, Mr Veraga, who spent six years inside for a crime Mr Maladina was allegedly the primary author of.

National Provident Fund Final Report [Part 81]

November 24, 2015 1 comment

Below is the eighty-first 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 81st 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

Mt Tapi Brothers

Mt Tapi Brothers Ltd (MTB) had associations with Mr Skate as it provided security services for the Prime Minister’s residence and family and for some of his Ministers. The telephone contact number MTB provided NPF was one of Mr Skate’s official numbers. Also at a later date, Mr Skate actively intervened on behalf of MTB (see below).

Mt Tapi Brothers Forceful Initial Approach

On February 23, 1999, MTB offered to provide security for all of NPF’s properties. In its initial letter it pointed out its close connections with the Prime Minister and enclosed a draft contract. Mr Fabila received the letter on February 24, 1999 and immediately granted a contract to MTB, in the full knowledge that NPF was contractually bound to Metro and Kress.

On February 26, Mr Fabila wrote to Kress and Metro arbitrarily terminating their contracts as from February 28, enclosing cheques for payments due to that date.

Mr Fabila also wrote to MTB granting a 12-month contract, with a three-month probationary period. He then wrote to Century 21, which was still managing NPF properties, directing them to terminate any current security contracts for the investment properties and to make way for the new security guards to commence work from 1st March 1999.

Metro accepted the termination of its head office contract without a fight.

Kress on the other hand demanded K199,844.80 for wrongful termination of its contract. Kress received K8283.60 from NPF for the Nine-Mile properties for January and February and K22,754.40 for its other contracted properties prior to its contract being terminated. Its claim for breach of contract was eventually settled out of court for K40,684.80 (being three months payment in lieu of notice plus costs).

MTB Contract

Mr Leahy prepared a contract on March 29, 1999 granting the security services for all NPF properties to MTB. The contract followed the draft presented by MTB with a few very minor amendments.

The first invoice for the period March 3, 1999 to April 7, 1999 was a phenomenally high K45,792, yet reports were being received that the service was very poor. When Mr Fabila complained about the exorbitant cost, the number of guards was cut from 52 down to 17. From March to August 1999 the complaints about the MTB security guards were pouring in.

NPF records show that the following payments were made to MTB in 1999: (See table)

npf 81 aIn October 1999, the NPF board resolved to terminate the services of MTB for the properties being sold off by NPF and the purchasers were advised that they could contact MTB if they wished to reemploy that firm. This resulted in MTB instituting court proceedings claiming K200,000 from NPF, which had been rejected by the NPF board.

On June 21, 2000, Shirley Marjen noted on an NPF file:

“File Note — Tapi Bros Security Service Bill Skate phone me at home on 20/06/00 at about 8.00pm asking me if I could assist with Mr Tapi Bros claim of about K200,000.00 I told Mr Skate that it would not be possible as NPF had objected to the claim and that Mr Tapi Bros can proceed to sue NPF if it wished to.

“I also told Mr Skate that if the matter went as far as the National Court, NPF would defend the matter vigorously.” (Exhibit N401)

In evidence to the commission on December 12, 2001 (Transcript pp. 9897-9902), Mr Skate admitted that the head of MTB Mr Okil, was employed on his Prime Ministerial staff and that MTB provided security services for himself and his family. He denied holding any interest in MTB or putting pressure on NPF to employ MTB. He said that if MTB played upon its close association with the Prime Minister, it was without his knowledge or authority.

Findings

(a) Both Mr Fabila and Mr Leahy failed in their duty to NPF in the way they handled the security services arrangements. As a result of these failures, NPF:

(i) suffered a K41,684.80 loss, paid to Kress Security, plus the related legal costs paid to Maladinas Lawyers;
(ii) may well be at risk of a similar claim or suit by Metro Security;
(iii) paid the very large security bill for the period March 3 to April 7, 1999 (K45,792) which, as later costs show, was for services vastly in excess of NPF’s reasonable security service needs; and
(iv) faces possible further risk in the pending litigation with MTB.

(b) Mr Fabila and Mr Leahy face personal liability to NPF in relation to their failures outlined above which led to NPF’s loss. They would have great difficulties pleading a defence of “acting in good faith”;

(c) Mr Fabila and Mr Leahy disregarded the proper tendering process when engaging MTB;

(d) The commission finds that nepotism and political interference were operating in the actions of Mr Fabila and Mr Leahy in their handling and engagement of security firm MTB; and

(e) The action by Prime Minister Skate in telephoning Mrs Marjen on behalf of MTB was improper conduct. The commission recommends that the constituting authority refer this matter to the Ombudsman Commission to investigate Mr Skate’s conduct and his possible links to MTB to consider possible breaches of the Leadership Code by Mr Skate.

As MTB’s legal proceedings in the National Court against the NPF are still pending, the commission refrains from further comment about the roles of the various persons involved.

The finance inspector’s report, which examined and detailed irregularities in the security contracts, is summarised in paragraph 7.8.1. The finance inspectors focused on the failure to call tenders; failure to verify invoiced charges; advance payments; overpayments; extra legal amendments and failure to obtain the authority of the NPF Board of Trustees. The schedules to the finance inspectors report contain details of persons who authorised all the payments referred to and detailed calculations of the overpayments made to Kress Securities of K7632 (Schedules 3.1 and 3.2) and overpayments to MTB of K16,896 (Schedule 3.5). No attempt has been made by NPF management or the board to recover these amounts.

The commission records its agreement with the finance inspectors findings on these matters.

120th NPF Board Meeting

At the NPF board meeting on September 29, 1999, Trustee Jeffery and Mr Mitchell asked detailed questions about the failure to tender security contracts; the termination of Kress and the appointment of MTB without competitive tenders. Mr Fabila’s answers were very unsatisfactory and it was resolved that:

“Resolution:
“It was resolved that all security contracts adhere to proper tender procedures. It was further resolved:
(i) THAT the vendor for each property sold be advised in writing after contracts of sale be exchanged and that security on the property then becomes the purchasers responsibility;
(ii) THAT MT Tapi Brother be advised that their services are no longer required for each property when sold, however, allowing for the appropriate time for vendors to engage new security services;
(iii) THAT NPF put out tenders for the Tower and remaining properties;
(iv) THAT at the end of the property rationalisation that MT Tapi Brothers be given three months notice of termination.” (Exhibits N423-4)

The now active NPF board held a special meeting on October 8, 1999 to consider a special report by Mr Jeffrey and Mr Mitchell. Mr Leahy was given time to answer searching questions. His reply, when it came, was evasive.

The changing of security arrangements in 1999 entailed breaches of contract and unnecessary cost to NPF. As corporate secretary, legal counsel and operations manager Mr Leahy had a duty to give proactive advice to Mr Fabila and the NPF board on these matters. He failed in that duty.

Findings

At paragraph 7.8.4, the commission has found:

(a) NPF paid Metro Security K6830.20, Kress Security K8283.60 and MTB K199,560 for security services in 1999, aggregating K214,673.80. In addition, the payment of damages and legal costs made to Kress Security of K41,684.80, increased this total to K256,358.60 (It is necessary to deal with a single total, as the payments to MTB have not been split, in the commission’s calculations, between head office and other properties);

(b) The actual security costs included in the 1999 Income and Expenditure Account are; K223,223 for “Rental Property Expenses” and K54,542 for “Head Office Expenses”, aggregating K277,765. The difference of more than K21,000 cannot be explained by adopting a cash against accruals basis of calculation and the commission is not able to explain a difference of this magnitude;

(c) The decision by Mr Fabila to terminate the less costly services of Metro and Kress and to appoint the more expensive MTB was made in two days, without competitive bidding or advice. It cost NPF dearly in terms of:

(i) A payout to Kress of K41,684.80 for breach of contract;
(ii) AN enormous initial bill of K45,792 from MTB for the first month for services, which were massively in excess of NPF’s actual needs;
(iii) THE legal risk to NPF of a like wrongful termination suit from the second terminated contract; and
(iv) litigation now pending before the National Court by MTB whose services, under a legally deficient contract, were also subsequently terminated.

(d) MR Leahy was remiss in his duty in not proactively advising Mr Fabila against the foolhardy course on which he was embarking; (e) The contract awarded, without contest, by Mr Fabila to MTB Ltd was politically influenced by the close association with that company of Mr Fabila’s political appointer, the former Prime Minister Hon. Bill Skate and constitutes an example of nepotism in the award of that contract.

Concluding comments

The commission concluded that:

“As with other topics in this report, it does seem that in 1994-5, both the NPF board and senior management appreciated the need to tender and obtain competitive bids for the provision of security services for the NPF Head Office and for the NPF properties rented to third parties.

Even then, when tenders were obtained and considered in March/ April 1995, there were competitive tenders for the rental properties only, but not for the head office. The board of trustees made the decision to contract in this instance.

Thereafter and until the end of 1999, all NPF security service contracts were let without tender and without any competitive bidding process and contrary to Government procedures for the procurement of services.

The board of trustees was only consulted once during this period — in October 1996 — over the change of security provider at NPF’s head office. On that occasion the board delegated the decision to management.

Otherwise, all other decisions about security services were made at management level.

The situation reached absurd proportions in February/March 1999 when Mr Fabila made a hasty decision to terminate the services of the two contracted security providers in favour of a single more expensive alternative — Mt Tapi Brothers Limited.

He did this without seeking advice or making inquiries and did so without referral to the NPF board”.

Procurement Of Accounting Services Background

In house accounting capabilities during the period under review were as follows.

Noel Wright, a qualified Chartered Accountant who was originally employed as compliance manager, later became finance and investment manager and deputy managing director. He resigned from NPF in January 1999. He was replaced by Rod Mitchell who is not a qualified accountant. This was the time when NPF struggled to come to “grips” with its financial crisis.

Salome Dopeke was the chief accountant — she was a graduate accountant but had not passed all her PNGIA examinations and as such was not a formally qualified accountant.

It is therefore important to note that the accounting capabilities of NPF were weak and lacked professional efficiency and effectiveness. There were other specialised accounting requirements, which were outsourced to local accounting firms in Port Moresby.

Fees Paid To Accountants — 1995

Other than the above fees and audit related fees there were no external accounting fees incurred in 1995 and it is inferred all other accounting needs were satisfactorily handled in-house.

NPF utilised the services of the accounting firm Ernst & Young as tax agent from 1995 to 1998. There is no evidence of favouritism or nepotism in the appointment and continued engagement of Ernst & Young.

npf 81 b

The audit of the financial statement of NPF is the responsibility of the Auditor-General’s office (AGO). In the case of NPF, the AGO subcontracted Deloitte Touche Tohmatsu to audit NPF’s accounts until the year ended December 31, 1997. There was scope for nepotism by NPF in this arrangement.

TO BE CONTINUED

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 75]

November 17, 2015 1 comment

Below is the seventy-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 75th 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 8 Continued

Air Niugini Employees Demand Payout Of Their Employee Contributions/Communication Unions Demand Payouts of State’s Contributions

The PTC(C) Act provided the employers of the old PTC with an option of a payout of their own component of the benefits from POSFB.

No such option was provided for the Air Niugini employees, but there were numerous requests from Air Niugini employees for payout of their own share of contributions. This was related to the fact that Air Niugini management, including trustee Koivi, had reached an extra legal agreement with the union that NAC employees who continued in employment with Air Niugini would be offered the payout of their contributions previously made to POSF.

Mr Kaul advised the NPF board during their 111th board meeting on February 20, 1998 that it was anticipated Air Niugini employees would demand payout of their own contributions following the transfer of funds from POSF. The board resolved to offer Air Niugini employees payout of their own contributions during this meeting. This was contrary to the NPF Act and not sanctioned by any other legislation.

On February 24, 1998, Mr Kaul informed Air Niugini that the NPF board had resolved in their 111th board meeting on February 20, 1998, to payout the employee contributions to the employees. On the same date, the NAEA was also advised of the NPF board’s decision.

The NAEA acknowledged Mr Kaul’s letter and responded with requests for clarification on other issues raised by Mr Kaul in his letter of January 24, 1998.

PNGCWU Queries Timing Of The Payout Of The State’s Share And Drafting Of The Deed

On March 3, 1998, Mr Kaul responded to PNGCWU queries regarding the payout to former PTC employees of the State’s share of contributions.

Mr Kaul explained to the PNGCWU that there was no provision in the PTC(C) Act 1996 for the payout of the employers (State) component of the contributions.

In any event without receipt of funds from the state, NPF could not and would not payout the State’s share of contribution in the manner being requested by the unions. NPF’s current legal obligations were limited to withdrawals, which were permitted under the NPF Act (i.e. on retirement, death or retrenchment).

Mr Kaul directed Mr Leahy on March 25, 1998, to immediately finalise the amendments to the deed.

The draft deed records that the State’s total unpaid contribution amounted to K23,785,056.23.

POSFB wrote to NPF on April 16, 1998 confirming the total funds being transferred to NPF as:

“The total fund share of the transfer is K17,625,057.02 and this has already been paid to NPF. The State share component is K24,475,074.65, which has increased from the previous amount of K23,785,056.23 as advised per our letter of 7 November 1997. The increase has come about as a result of another lot of transfers effected on 21/04/98 for a few employees of the above authorities whose balances were never transferred in the previous transfers. This is a matter, which the NPF management will deal directly with the National Government through your department.

Please refer enclosure.” (Exhibit T2)

npf 75 a

Unions Heighten Demands For The State To Pay Its Share of Contributions

The PNGCWU wrongly believed that the execution of the deed would enable NPF to payout the State’s share of contributions to its members. When they realised that this was not to happen, they threatened industrial action in mid 1998.

113th Board Of Trustees Meeting

At the 113th board meeting held on July 22, 1998, Mr Leahy informed the board that NPF had paid out K3,279,952.20 to those Air Niugini employees wanting payouts of their own contributions.

At the same meeting, the minutes record that Noel Wright advised the board of a K4 million overdraft for the purpose of covering the payout of Telikom, Post PNG and Air Niugini employees. Mr Wright’s reason given as explanation for the overdraft facility of K4 million was misleading and incorrect.

Mr Fabila Seeks The Involvement Of DOF To Assist In Negotiations With PNGCWU

Because of the slow progress in the negotiations with the unions, Mr Fabila requested the DoF to assist with the negotiations.

Minster Briefed On The Deed

Ori Avea of DoF provided a brief to Minister Lasaro on July 17, 1998, on the status of the deed and the outstanding issues concerning the finalisation of the deed.

Mr Fabila’s Brief To The Minister

Mr Fabila wrote a brief to Minister Lasaro on August 3, 1998, setting out the background to the dispute and at the same time requesting the Minister to reject the unions claim for full payout of the States share of contributions.

114th Board Of Trustees Meeting

On August 18, 1998, NPF instructed Carter Newell Lawyers to write to the PNGCWU requesting them to clarify and justify their demands for the payout.

At the 114th board meeting on September 1, 1998, Mr Leahy advised the board that NPF had not received any advice about the deed.

Mr Fabila advised the board that there was no legal entitlement for NPF to payout the State’s share of its contributions. The board endorsed Mr Fabila’s stand.

Strike Action By Unions

The union went out on strike during September/ October 1998. Telikom instigated legal action against the union for loss of income associated with the strike.

The deed was finally signed on October 29, 1998.

The Negotiated Settlement Of Strike Action

The board resolved in their 115th board meeting on November 6, 1998 to continue to resist the union’s demand.

The legal action and strike were, however, amicably settled through the signing of two agreements involving the State, the various communications entities POSF, NPF and PNGCWU, which agreed that the State share would be paid to the communication employees in three tranches during December 1998 and 1999.

To enable this to happen, the State paid the required funds to NPF in November 1998, May 1999 and November 1999 and the funds were paid out to the former PTC employees by NPF soon after they were received. (See full details at paragraph 29 below).

Findings

At paragraph 4.22.1, the commission has found that:

(a) THE trustees failed in their fiduciary duties to the members by:

  • ALLOWING payments to Air Niugini employees of the employee contributions in breach of the NPF Act. These payments were made preferentially and not equitably to other members; and
  • ENTERING into a memorandum of agreement, which was contrary to the NPF Act;

(b) Despite the board resolution of December 11, 1997, which resolved to payout the State contributions to the transferred employees NPF management and board subsequently maintained a strong and legally correct resistance to PNGCWU’s claims for payout of the State share;

(c) After the Deed of Acknowledgement of Debt was executed, which (technically) meant that NPF began to receive the benefit of the transferred State share of contributions (the benefit being in the form of interest payments on the NPF loan to the Sate) the PNGCWU took strike action to obtain payout by NPF of the State share to former PTC employees who had continued in employment with the new corporate entities;

(d) Under the pressure of the strike action, (and pressure from the Government) NPF capitulated to union demands and agreed to pay out the State share in three tranches to all former PTC members who had transferred to NPF and continued in employment;

(e) The trustees would probably be liable in any future action brought by affected members regarding the preferential treatment accorded to transferred former NAC and PTC employees that effectively enabled them to avoid the write down (if they remained NPF members through to the end of 1998 and 1999); and

(f) Noel Wright provided misleading and false information to the board of trustees when he informed the board that K4 million overdraft was secured in June 1998 for the Post PNG, Telikom PNG and Poreporena Freeway loans.

Deed Of Acknowledgement Of Debt And MOA

The deed was drafted by DoF and reviewed by NPF. It was finally signed on October 29, 1998.

The summary of the deed is as follows:

  • It recognised that on January 1, 1997, all assets, rights, liabilities and obligations of PTC and NAC were transferred to the corporatised entities Post PNG Limited and Telikom PNG Limited and Air Niugini Limited respectively;
  • IT recognised that the superannuation of the corporatised entities came under the NPF Act and therefore these entities were required to register and contribute to NPF;
  • THE State unconditionally acknowledged its liability to NPF effective from January 1, 1997 for its unpaid share of contributions for the employees of the corporatised PTC and NAC. The total debt acknowledged was K23,531,053;
  • IT said that the State would repay the principal sum in full on December 31, 2006, but allowed for repayment prior to that date;
  • THE State agreed to pay interest at a rate of 15.67 per cent. A discount of 1 per cent was allowed if it was paid within three business days of the interest payment falling due date. It stated that interest was payable at the end of each quarter and that the interest for 1997 was due on December 31, 1997;
  • IT stated that interest on the unpaid interest was to be calculated daily and compounded monthly at the rate of 15.67 per cent; and
  • THE State agreed that the security for the principal sum would be a charge over its interest in Post PNG Limited, Telikom PNG Limited and Air Niugini Limited.

It is noted that:

  • POSF advised that the State’s final total unpaid share transferred to NPF on May 1, 1998 was K24,475,074.65 (commission document 1171), however, the deed only acknowledged a debt of K23,531,053 to NPF. This error was carried over by NPF when billing the Sate for interest payable under the loan, which resulted in significant shortfalls in interest being paid. (See paragraph 29 below).

Ministerial Approval

The State’s unpaid share of contributions assumed by NPF was in effect a long-term commercial loan by NPF to the State. Long-term loans are a permitted type of investment for NPF.

There was a request dated October 24, 1997 for Ministerial approval of this loan.

The commission has been unable to ascertain whether Ministerial approval was granted.

Findings

In paragraph 5.1.2, the commission has found that:

(a) Management failed in their duties to the members because:

  • THE deed understated the State’s liability to NPF by K944,022;
  • NO attempt has been made to seek repayment of the K944,022 and no interest has been paid by the State on this amount;
  • NO agreement or arrangement was in place for the State to repay the K944,022 and interest thereon; and
  • NO attempt was made to enforce interest payable for 1997 as stipulated by the Deed

(b) MR Leahy failed his duty when he instructed the DoF to capitalise the 1997 interest on the POSF State share loan without board approval. He also failed to ensure that this amount was paid or that it was stipulated in the Deed of Acknowledgement of Debt;

(c) THE board of trustees failed in their fiduciary duties to the members because:

  • THE State’s liability to NPF, as acknowledged in the deed, was understated by K944,022;
  • NO attempt had been made to seek repayment from the State of the K944,022 and the interest payable on this amount;
  • NO agreement or arrangement was in place in respect of the State repaying the K944,022 and interest thereon; and
  • NO attempt was made to enforce payment interest payable for 1997 as stipulated by the deed.

Payout Of State Share To PTC Employees — 1999

Of the total K15,049,421 State’s share due to the employees of Telikom and Post PNG, K6 million was received on November 11, 1998 and was payed out to the former PTC employee members on December 4 and 7, 1998. The balance remaining to be paid by the State was K9,049,421.

The second payout of K6 million from the State was paid into the NPF bank account on May 18, 1999, and was paid out to Telikom and Post PNG employees in June and July 1999.

NPF received the final instalment of K3,049,412 on November 15, 1999.

Two payouts totalling K966,073.05 were made out of this final instalment.

This commission has not been able to determine when the remaining K2,083,338.95 was paid out to the employees.

Findings

In paragraph 6.1, the commission has found that:

(a) THE trustees failed in their fiduciary duties to the members because payments of the State share of contributions made to Post PNG and Telikom PNG employees were made in breach of the NPF Act.

(b) THE trustees are open to actions brought by affected members in respect of the preferential treatment accorded to Post PNG and Telikom PNG employees, which effectively enabled these employees to avoid the write-down suffered by other members.

Interest Income

In order to understand the make up of interest income due under the deed, it is important to note:

  • Interest was payable effective from January 1, 1997;
  • 1997 interest accrued was payable December 31, 1997;
  • THE deed was signed on October 29, 1998, which set the interest at a rate of 14.67 per cent if it was paid within three business days of the due date, or 15.67 per cent as set out in Clause 3 of the deed.
  • Between January 1, 1997 and October 29, 1998 (the date the deed was signed), it is apparent from correspondence that there was an expectation by both the NPF and the State that interest was to be charged at 12.67 per cent with a default rate of 14.67 per cent.

Interests Income Due To NPF — Error In Principal Sum

In 1997, the correct principal sum representing the true value of the State’s share of contributions was K24,475,075.

The correct interest rate chargeable was 12.67 per cent as this was the common understanding of both parties.

Instead, NPF calculated the 12.67 per cent on an incorrect principal sum of K23,785,056.

On this principal sum, which was short by K690,019, NPF then billed the State for interest of only K3,013,567.

When the State failed to pay this amount on the due date, Herman Leahy, without NPF board authority to do so, agreed that the interest be capitalised and that this fact be written into the deed.

In fact, the 1997 capitalisation of interest was not recorded in the deed.

This miscalculation of the principal sum in 1997 was carried over into 1998 and 1999 during which period’s interest was charged on a principal sum, which was considerably less than the actual amount of the loan outstanding from time to time.

Error In Interest Rate Charged

The deed signed on October 29, 1998, specified an interest rate of 15.67 per cent with a discounted rate of 14.67 per cent for prompt payment within three business days of the due date.

In fact, Mr Wright and his successors continued to bill the State at the former rate of 12.67 per cent even when payment was made outside the three-day period of grace.

This resulted in very substantial underpayment of interest by the State throughout the period under review.

TO BE CONTINUED

National Provident Fund Final Report [Part 73]

November 13, 2015 1 comment

Below is the seventy-third 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 73rd 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 7c Continued

Findings

(b) NPF’s source of funding for the second tranche of the loan to Eda Ranu was deliberately obscured by Mr Wright who was deceiving the BSP about the purpose of a drawdown intended to finance an unauthorised purchase of Orogen shares.

Decision To Sell Down

NPF’s finance report for the months of May 1997 discussed the option to convert the loans to the Poreporena Freeway project and the K5 million loan to Eda Ranu to bonds. Instead, the loans were eventually assigned to the Bank of Hawaii on December 8, 1997.

Request For A K1 Million Loan

At the 106th board meeting on May 5, 1997, Noel Wright informed the board that Eda Ranu had requested a second loan of K1 million. The board resolved to reject this request. At the 107th NPF board meeting held on July 4, 1997, the K1 million loan request was revisited and the board eventually approved the loan.

NEC, however, had already approved the grant of a Government guarantee to NPF for the K1 million loan at its meeting on April 24, 1997. In this same meeting, NEC advised the Governor-General to approve the purpose of the loan pursuant to Section 37 of the PF(M) Act. This premature decision by the NEC amounted to political interference with the management of the NPF.

The purpose of this second loan was for the payment of termination benefits to former NCDC employees.

A brief by Salamo Elema dated September 18, 1997, to the Minister and acting Secretary explained the facts surrounding the NEC decision and at the same time recommended approval for Eda Ranu to enter into a K1 million loan agreement with NPF. Again there is clearly a conflict of interest where the DoF recommended approval for Eda Ranu to enter into a second K1 million loan agreement with NPF without considering NPF’s interest.

The action of DoF and NEC shows clear political interference with the administration of NPF. The second K1 million was paid to Eda Ranu on June 12, 1998.

Findings

(a) The NPF Board of Trustees and management failed to critically analyse this additional K1 million loan funding when K5 million had already been lent;

(b) The Finance Department treated the NPF as a bank, making frequent requests and supporting of loans for Government initiated projects and entities to be sourced through NPF without due consideration for the effect on members’ funds and the financial position of NPF, especially when it was borrowing the money at commercial interest rates to on-lend to the institutions recommended by the DoF;

(c) There was a conflict of interest situation, within DoF where they supported and recommended NPF to lend funds to Eda Ranu.

Interest Received By NPF

Clause 5 of the Fixed Rate Loan Agreement required the borrower to pay interest to NPF on the amount of each advance outstanding from time to time at the interest rate of 15.67 per cent. However, if payment was made within three days of the due date, interest would be payable at the concessional rate of 14.67 per cent.

These interest payment dates fell due at the end of the month of each quarter in each year.

The theoretical total income receivable by NPF at the end of 1999 from interest payments at the concessional rate of 14.67per cent was K2,522,018.93.

The amount actually received was K2,480,035.39, which shows an underpayment of K36,976.46. This discrepancy occurred because NPF failed to bank the cheque received for the interest paid for the last quarter of 1998. After that was pointed out by this commission and rectified, the full amount of interest receivable at the concessional rate balanced.

There were, however, also instances of interest being paid outside the three-day grace period, when the higher rate of interest should have been 15.67 per cent but it was not applied by NPF. There were also instances when the daily and compound interest on the unpaid interest was not calculated. These instances were not included in the calculation of the total amount of interest theoretically receivable by NPF as stated above.

If the additional interest for late payment and compound interest had been strictly imposed, NPF would have been entitled to a further K45,000 to K46,000 approximately in addition to the theoretical interest receivable figure of K2,522,018.93.

Findings

(a) NPF did not enforce Clause 5 of the Fixed Rate Loan Agreement to situations where interest payments were made outside the three-day grace period, which resulted in loss of interest income to NPF of between K45,000 to K46,000;

(b) NPF management’s administration of the loan was careless in that they failed to bill interest when due and they failed to charge higher interest on the default amount when DoF failed to pay by the due date.

Concluding Remarks

The outstanding features of the NPF’s two loans to Eda Ranu were:

(a) the acute conflict of interest faced by DoF senior officers and the Minister for Finance when advising NPF and recommending and approving transactions in matters where significant State interests were involved;

(b) the State’s failure to recognise and deal with these conflicts by ensuring that NPF was given independent and objective advice;

(c) the way the State’s urgent need to find finance for Eda Ranu was allowed to dominate arrangements and negotiations so that proper legal and financial arrangements were rushed and not properly in place before the drawdowns were made;

(d) The behaviour of the NEC and its advisers, which led to NEC approval being given to guarantee a loan which NPF had not yet even considered, amounted to political interference with the management of the fund;

(e) The failure by NPF management and board of trustees to resist these political pressures and insist that due diligence be performed and that due process be followed, with all required approvals and all security arrangements in place;

(f) Even though NPF’s investment in these loans to Eda Ranu turned out to be sound, the way they were handled by management and trustees put NPF at risk and was a breach of duty by management and of fiduciary duty by the trustees; and

(g) There was serious failure by management to keep the NPF board adequately informed.

Executive Summary Schedule 7d Southern Highlands Four Roads Project

In 1998, at a time when NPF was in financial difficulties with the Australian & New Zealand Banking Group (PNG) Limited, (ANZ) the Department of Finance (DoF) was actively promoting a proposal that NPF would agree to lend K17 million to the Southern Highlands Provincial Government (SHPG) for major roadworks.

The proposal was being “worked up” by Mete Kahona working with the State’s Infrastructure Development Group (IDG), which was acting as paid consultants to the SHPG. Clearly, the IDG had the interest of the State and its paying client (the SHPG) primarily in mind — not the interests of NPF.

DoF’s Conflict Of Interest

When NPF was considering these proposals, its chairman Morea Vele was Secretary for Finance and trustee Iamo Vele was a senior officer of the DoF. Both participated in the NPF decision-making process despite their undisclosed conflict of interest.

It was a very bad time for NPF to be lending K17 million as it was itself suffering a severe cash crisis and its lender banks were reducing NPF’s credit facilities. Neither NPF management nor the trustees considered a specific funding plan for this loan. They seemed to rely upon the vague possibility that it could be funded from the $A54 million bond that NPF was fruitlessly trying to issue.

Concern About Security For The Loan

Initially, the NPF board refused to approve the loan because it had major concerns about the security being offered, as the loan was not going to be guaranteed by the State (as the Freeway loans had been). NPF would not accept a guarantee by the SHPG as sufficient security. Mr Kahona and the IDG worked out an alternative security proposal, which included SHPG giving NPF a charge over its share of the conditional grants from the State for infrastructure purposes.

NPF Approves Loan To SHPG

NPF approved the loan in principle “subject to availability of funding” and subject to legal counsel (Mr Leahy) checking the adequacy of the security documents.

Mr Leahy sought advice from Carter Newell lawyers who responded with an alternative proposal, saying the draft charge prepared by the State was worthless. The State rejected Carter Newell’s draft but amended its own draft charge in order to address Carter Newell’s concerns. Mr Leahy and NPF management did not advise the board about these matters.

When the loan agreement was drawn up, the security provided for was the amended version proposed by the State. Mr Leahy failed to ensure that the formal agreement was made conditional upon the availability of finance to enable NPF to fund the loan.

Failure To obtain Independent Investment Advice

Management and the trustees were in serious breach of their duty to the board and members of the fund for not obtaining independent investment advice before entering into this loan, especially as the DoF, which had the duty to consider NPF’s best interests and to give impartial expert advice on the proposed loan to the Minister, was employed by SHPG to look after its interests.

Drawdowns

When SHPG sought two drawdowns of K500,000 each, NPF management had great difficulty finding the funds — eventually sourcing the money from its member’s contributions account. Management made payments to SHPG in accordance with drawdown requests, without obtaining board approval.

After the first two drawdowns in August and September 1998, respectively, SHPG proved to be an unreliable borrower and had to be “chased up” for payment of interest and fees.

NPF Terminates The Loan Agreement

This proved to be a boon for NPF as it enabled Mr Fabila to seek out details of the various defaults in SHPG’s performance under the agreement. This enabled NPF to terminate the agreement and institute legal proceedings to recover the principal and outstanding interest.

Outstanding Interest

As at December 1999, the NPF had received K110,728.35 in interest payments from SHPG and was owed K221,057 in outstanding interest. NPF has now commenced action to recover the principal of K1,000,000 and outstanding interest.

Concluding Comments

This investment by NPF in this commercial loan to the SHPG highlighted the severe unaddressed conflict of interest faced by the DoF, which was advising both SHPG and NPF. The conflict was particularly acute for the public service representative trustees Morea Vele and Vele Iamo.

The NPF board demonstrated a rare streak of independence when it initially refused to approve the loan and commissioned legal advice on the security aspects. After this, however, it adopted a more compliant attitude, Mr Leahy failed to ensure NPF’s interest were safeguarded by the loan agreements and management and the trustees failed their duty to seek independent investment advice.

Findings

(a) The concept of NPF lending K17 million to SHPG seems to have originated from within the DoF, which called for expressions of interest from ANZ Bank, PNGBC and NPF. DoF actively supported and facilitated the establishment and funding of the project;

(b) The CID of DoF favoured the NPF offer because it was the offer most favourable to SHPG. DoF did not seem to consider whether making the loan would be in the best interests of NPF;

(c) DoF trustees on the NPF board, including the Secretary of DoF were in a conflict of interest situation, pulled between their duty as trustees and their duty to DoF to implement National Government policy;

(d) The NPF board had not expressly resolved to approve the loan to SHPG before Cabinet and SHPG had given approval. DoF had input to the Cabinet submission;

(e) After Cabinet and SHPG approved the project, NPF management sought and received Ministerial approval for NPF to create a loan facility of K17 million for SHPG. Again DoF advised Ministerial approval; (f) NPF board approval was then obtained and it was given subject to legal counsel checking the adequacy of the securities to ensure repayment. The board specifically directed legal counsel to ensure a fixed charge was granted over the conditional grants, which were to secure the loan;

(g) NPF board approval was made “subject to availability of funds”;

(h) The NPF board and management did not seek independent investment advice before approving this loan or have it independently evaluated;

(i) Legal counsel Mr Leahy, prepared a draft charge document and sought external legal advice from Carter Newell who advised the charge in its then form was worthless as an enforceable security. Carter Newell recommended taking a legal assignment of SHPG’s entitlement to royalties from the Kutubu project and prepared appropriate documents;

(j) DoF rejected Carter Newell’s suggestion and Mr Leahy did not advise the NPF board of this situation. Mr Leahy and Mr Wright signed the loan agreement and fixed charge document, the latter amended to accommodate the main criticisms made by Carter Newell;

(k) Mr Leahy should have advised the NPF board of Carter Newell’s concerns that NPF’s securities for this loan may not be adequate. Mr Leahy and Mr Wright may be personally liable for losses incurred by NPF from their signing of the loan agreement and charge, to the extent they were not in accordance with the board’s approval conditions and direction regarding security;

(l) From the outset, NPF had not established its source of funding to provide this loan. Its facilities with PNGBC were insufficient; ANZ was calling in and capping its facilities to NPF. For NPF to rely on the eventual success of the $A54 million bond issue was reliance on fantasy, in view of the difficulties being encountered in bringing the bond issue to fruition;

(m) Even at the time of the first drawdown of K500,000, it was clear that NPF lacked the funds to fulfil its commitment under the loan agreement it had entered into;

(n) The approval by the NPF board was explicitly made “subject to availability of finance”. Mr Leahy as legal counsel failed to ensure that the loan agreement also contained a “subject to finance” clause. This was a failure in his professional duty to NPF;

(o) SHPG defaulted in its interest payments under the agreement. NPF successfully obtained three of the quarterly payments from the State pursuant to the undertaking and charge over the conditional grant money. This satisfied interest payments for the December 1998, and the March and June 1999 quarters, totaling K110,728.35. As at December 1999, there was K221,057 owing and no further payments were received;

(p) From July 2, 1998 until April 1999, NPF management did not adequately advise the NPF board regarding SHPG’s breaches of the loan agreement. This was a failure of management’s duty to the board;

(q) HAD the SHPG not defaulted in its obligations under the loan agreement, which provided NPF with grounds to terminate the agreement, NPF risked being in breach because of its inability to meet drawdown requests due to a lack of funds and because there was no protective “subject to finance” clause in the loan agreement.

(r) NPF board allowed itself to be drawn into this loan agreement without obtaining adequate advice from management about the source of funding, the reliability of the borrower or the adequacy of its securities to protect NPF against possible default by SHPG. This was a breach of fiduciary duty by the trustees.

(s) NPF management, particularly Mr Fabila, Mr Leahy and mr Wright, failed in their duty to provide necessary and timely information and advice to the NPF board;

(t) Mr Leahy, as legal counsel, failed in his duty to ensure the loan documentation was adequate, was subject to NPF having available funds and that adequate security was provided to protect NPF against possible default by SHPG. He failed in his duty to advise the NPF board that he may have been unable to ensure adequate security was in place — despite having received Carter Newell’s detailed professional advice on that subject.

TO BE CONTINUED

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 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 61]

October 29, 2015 Leave a comment

Again, Peter O’Neill features heavily…

Below is the sixty-first 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 61st 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 12.3.8.4, after exhaustive investigations, the commission found that:

(a) The commission finds that Mr O’Neill’s money had gone out of the PMFNRE No.1 Trust Account prior to March 25, 1999, and the money in the account was less than sufficient to meet unpresented cheques.

(b) Mr O’Neill’s evidence cannot be accepted.

The commission set out to investigate what happened to the aggregate of K167,300.94 paid into PMFNRE No.1 Trust Account in four payments between January 20, 1999 and March 10, 1999, as detailed earlier in paragraph 12.3.8.3 sub paragraphs (a)-(d).

The commission searched the company records of PMFNRE. They are in clear breach of the Companies Act but also they showed Jack Awela owned 89 of 100 shares.

Other searches have shown this same name appear as the major share holder in other companies which are clearly (and admittedly) owned by Mr O’Neill. At paragraphs 12.5.2.5 and 12.5.2.6, the commission has found that Mr Awela (if he exists as a real person at all) is holding his shares in all these companies for Mr O’Neill. The result is that Mr O’Neill is the beneficial owner of PMFNRE and this accords with the overwhelming weight of other evidence – as set out in paragraphs 12.5.2.2, 12.5.2.3, 12.5.2.4 and 12.5.2.6.

At paragraph 12.3.8.5.3, the commission finds:

The directors of PMFNRE should be referred to the Registrar of Companies for further investigation and with a view to their each being prosecuted for failure to comply with their clear statutory obligations.

That failure renders it difficult to ascertain how the moneys of Mr O’Neill received by PMFNRE were either expended or invested on Mr O’Neill’s behalf.

On March 11, 1999, the No.2 Trust Account was said to have been opened and funds totalling K790,451.10 were recorded as transferred to it from the No.1 Trust Account. In fact, only K120,157.56 was so transferred (see paragraph 12.3.8.6.6(b)) the deficiency between funds actually deposited as against funds recorded as received is K600,293.54. (See commission’s conclusions at paragraph 12.3.8.6.6).

At paragraph 12.3.8.6.7, the commission has found:

(a) Despite Mr O’Neil’s explanation, the commission finds that none of the funds attributable to Mr O’Neill were transferred from PMFNRE No.1 Trust Account to PMFNRE No.2 Trust account between the time the latter was opened on March 11, 1999, and March 31, 1999;

(b) Further, the reconstructed cashbook for the No.2 Trust Account for the periods March 25, 1999 up to September 29, 1999 with this No.1 Trust Account show that none of the funds deposited into PMFNRE No.1 Trust Account and which were attributable to Mr O’Neill were recorded as having been received into the PMFNRE No.2 Trust Account during the same period;

(c) That the funds held by PMFNRE for Mr O’Neill in this No.1 Trust Account were paid out to third parties from the No.1 Trust Account prior to March 25, 1999, as the reconstructed cashbook shows. They were not paid out after that date.

In paragraphs 12.3.8.6.8 to 12.3.8.6.13, the commission makes a detailed study of the “off-book” entries in 1999. These are listed at paragraph 12.3.8.6.10 as follows:

61 table 1

Large sums of money were being transferred. The net effect of what occurred was that there were three contributions to the “off- book” receipts being:

(a) Nambawan Finance Limited, which contributed K321, 593.72;

(b) Mr O’Neill who contributed K189,570.01 as follows:

21/01/99 – K 91,467.63
09/02/99 – K 54,166.65
11/02/99 – K10,833.33
10/03/99 – K22,269.07
10/03/99 – K10,833.33
K189,570.01 

(c) Carter Newell Lawyers who contributed K70,000 as follows:

25/01/99 – K50,000.00
12/02/99 – K20,000.00
K70,000.00 

There were three payment destinations for the “off-book” payments:

(i) Carter Newell Lawyers K420,000

(ii) Nambawan Finance Limited K100,000

(iii) Recipients of cash:

25/01/99 – K20,000
28/01/99 – K30,000
29/01/99 – K1000
10/03/99 – K10,000
K61,000 

As at March 10, 1999 – some two weeks before the K300,000 of NPF Tower fraud money came via Ken Barker’s bank account into the PMFNRE Trust Account on March 25, 1999 – a residue of only K163.73 of this “off-book” money remained in the PMFNRE No.1 Trust Account.

Thus, at March 10, 1999, only K163.73 of the K189,569.91 previously for Mr O’Neill remained in the No.1 Trust Account. The rest of Mr O’Neill’s must have:

  • Been in part included in the K420,000 paid out to Carter Newell Lawyers, and/or;
  • Been in whole or in part included in the K61,000 taken in cash; and/or; and
  • Been in whole or in part included in the K100,000 invested in IBD with Nambawan Finance Limited.

On the state of the evidence obtained by the commission, we are unable to determine what was occurring, though it seems that Carter Newell’s cheque # 79628 for K50,000 was “laundered” through PMFNRE and then paid out on the same day by two cheques for K30,000 and K20,000.

It is possible that Mr Maladina was seeking K400,000 for the purchase through Perimist of a property at 5 Atherton St, Whitfield (Cairns), but there is insufficient evidence for a positive finding.

Findings 

(a) In the absence of evidence, the commission was unable to conclude what was intended and occurred with respect to these “off- book” transactions;

(b) Whoever was managing these “off-book” transactions – Mr Barker and/or Maurice Sullivan must have known exactly what was involved and where Mr O’Neill’s money went but both are now “safely” out of Papua New Guinea as is Mr Maladina;

(c) Clearly, PMFNRE must have kept records of these “off-book” transactions but we are told there are none beyond those produced. Equally clearly Carter Newell Lawyers must have had financial records of the transactions involving them but again we are told there are none available beyond those produced;

(d) Finally, it is also not credible that when Mr O’Neill provided his ANZ cheque for the precise and odd sum of K22,269.07 banked on March 10, 1999, he did not know exactly what that sum was required for and where his money had either been spent or invested.

In paragraph 12.3.8.7, the commission reported upon the surviving investment of Tower fraud moneys.

At paragraph 12.3.8.7.1, it examined the Nambawan Finance IBD’s.

The large funds involved did not concern the commission, being outside the terms of reference but indicate that huge funds were being laundered by Carter Newell through PMFNRE.

It seems the funds were coming from the funds of another statutory corporation.

The commission examined these movements of large amounts of money in 1998 and 1999 through the same CN and PMFNRE accounts through which the NPF Tower fraud moneys were also laundered.

We followed the payment in and out of the accounts of these large flows of funds in order to:

  • demonstrate that a similar laundering operation was occurring; and
  • confirm that it did not leave any additional “innocent” funds in Mr O’Neill’s account which might disprove the provisional finding that some expenditures for Mr O’Neill’s benefit must have come from the Tower fraud.

Subsequent cover up of the money trail 

Other difficulties have been caused by the activities of the conspirators, their associates and, in some instances, their lawyers after the commission was established.

Mr Maladina, Mr Sullivan and Mr Barker, having given false statements or evidence, have departed PNG and taken up residence in Australia, outside the commission’s jurisdiction. In some cases, they seem to have taken vital documents with them.

  • Ken Yapane, on Mr Maladina’s instructions, was party to the production and disclosure to the commission of back-dated false documents designed to hide Mr Maladina’s involvement in the fraud;
  • Barbara Perks and David Lightfoot were involved also in disclosing false documents to the commission, which were designed to distract it from discovering Mr Maladina’s involvement in the fraud.

Mr Maladina’s crimes are listed at paragraph 5.7.1. These matters are set out in detail in paragraph 5.5.1 – 5.5.4 and referrals to the Commissioner of Police are dealt with at paragraph 5.8.

Findings 

With regard to Mr Maladina, the commission has found at paragraph 5.7:

There is clear evidence that Mr Maladina committed a multiplicity of serious crimes which include:

(i) 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);

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

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

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

(v) 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);

(vi) 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

(vii) 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).

The commission has also found that there is sufficient evidence against several other participants to warrant referring them to the Commissioner for Police and to other authorities.

At paragraph 5.8, the commission recommends to the constituting authority as follows:

Referrals 

A – To the Commissioner for Police 

(a) Mr Maladina: For investigation into whether he should be charged with criminal offences including those specified above. (Paragraphs 5.3 and related sub paragraphs – 5.3.1.1-5.3.1.4 and 5.3.1.6-5.3.1.7);

(b) Mr Leahy: 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. (Paragraphs 5.3.6.1 and 5.3.6.7);

(c) (Transcript pp. 3280-3332) Henry 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. (Paragraphs 5.3.6.4 and 5.3.6.7);

(d) Mr Taniguchi: 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. (Paragraph 5.6 and related sub- paragraphs);

(e) Mr Kobayashi: 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. (Paragraph 5.6 and related sub- paragraphs);

(f) Mr Yapane: 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. (Paragraphs 5.5.3.1 and 5.5.4);

(g) Mr Lightfoot: 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. (Paragraph 5.5.3, 5.5.3.1 & 5.5.4); and

(h) MS Perks: 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.

B – To the Ombudsman Commission 

(a) MR Maladina: To consider breaches of the Leadership Code in relation to his activities concerning the fraud against the NPF and related activities. (Paragraph 5.3 and related sub-paragraphs);

(b) Mr Fabila: To consider breaches of the Leadership Code in relation to his activities concerning the fraud against the NPF and related activities. (Paragraphs 5.3.6.4 and and 5.3.6.7).

Examination Of Funds Transferred Between No.1 And No.2 PMFNRE Trust Accounts – Assessing Mr O’Neill’s Explanation. 

Mr O’Neill’s explanation 

In his initial statement and evidence to the commission, Mr O’Neill stated that it was not appropriate to treat the PMFNRE No.1 Trust Account and the PMFNRE No.2 Trust Account in isolation from each of the other and in so doing to conclude that payments made on his account or behalf could only have been funded by funds banked to the credit of the PMFNRE No.1 Trust Account and some of which were sourced from the NPF Tower fraud.

Mr O’Neill was in effect saying that such payments were made by funds held to his credit in the PMFNRE No. 2 Trust Account.

Mr O’Neill’s funds In IBD’s at March 16, 1999 

It was in consequence necessary to examine in detail transfers of funds from PMFNRE No.1 Trust Account (into which Mr O’Neill’s money had been banked) to the PMFNRE No.2 Trust Account in order to test this explanation.

This is reported item by item in paragraphs 12.3.8.2 to 12.3.8.7.10.

The “investments” which subsisted after the transfer of funds between these two accounts were the IBD which PMFNRE had with PNGBC of K600,000.00 and the further IBD which PMFNRE had with Nambawan Finance Limited which was at March 16, 1999, in the sum of K914,616.

Findings 

At paragraph 12.3.8.7.11, the commission examined the IBD with the PNGBC of K600,000 established on March 12, 1999, and found at paragraph 12.3.8.7.11 that:

(a) Having completed this analysis and tracing it is totally clear that all the moneys contained in the initial IBD with PNGBC were funds that were deposited into the PMFNRE No.1 Trust Account and for which receipts were duplicated in the PMFNRE No.2 Trust Account computerised cashbook. It is also totally clear that the renewed IBD was an extension of the same process;

(b) None of Mr O’Neill’s funds which were banked into PMFNRE No.1 Trust Account were shown as included in the receipts duplicated in the PMFNRE No.2 Trust Account computerised cashbook up to March 31, 1999, and it can in consequence be said with total certainty that none of Mr O’Neill’s funds were included in these two IBD’s with PNGBC.

(c) The only ongoing repository of funds in which Mr. O’Neill’s funds could have been invested and which was in existence after March 25, 1999, was the funds invested by PMFNRE on IBD with Nambawan Finance Limited in the deposits of:

(i) K500,000 which subsisted after January 18, 1999 (if part of the Carter Newell “share” was transferred to Mr. O’Neill) as to which see paragraph 12.3.8.6.9; and

(ii) K100,000 which was established on February 25, 1999 – as to which see paragraph 12.3.8.6.10.

TO BE CONTINUED

National Provident Fund Final Report [Part 57]

October 23, 2015 Leave a comment

“Most of the fraudulent funds, which were laundered through the accounts of PMFNRE, were for the benefit of Peter O’Neill”

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

NPF Final Report

This is the 57nd 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 Fraudulent Payments 

Once the scheme had been agreed and the February 8 board resolution was in place, no time was wasted transferring the money from NPF to Kumagai and sending the K2.5 million, via Kumagai, on route, through devious channels, towards the intended beneficiaries.

The first transfer of funds was the progress payment number one from Kumagai to Ken Yapane and Associates. Then the first tranche of NPF funds was paid from NPF to Kumagai.

Then in rapid succession, the second, third and fourth progress payments from Kumagai to Ken Yapane and Associates, were paid into Mr Yapane’s personal account with BSP, Waigani. The second tranche of money due from NPF to Kumagai was credited to Kumagai’s account on May 20, 1999.

After Kumagai had drawn the cheque for the fifth progress payment to Ken Yapane and Associates, Mr Yapane refused to allow his bank account to be used to launder any further payments and the cheque was altered, at Mr Maladina’s direction, to substitute Carter Newell as the payee and it was paid into the Carter Newell Trust account, as was the sixth progress payment.

The six payments from Kumagai are described at paragraph 5.6. Mr Yapane’s role is reported at paragraph 5.5.

Six progress payments made by Kumagai 

The six progress payments paid by Kumagai to Ken Yapane, Ken Yapane and Associates and to Carter Newell are described in paragraph 5.6, (paragraphs 5.6.1 to 5.6.6). The six progress payments were banked as follows:

npf 57a

Tracing The Money Trail The tracing process

Commission staff expended an enormous amount of effort tracing the money trail, issuing more than 200 summonses in this process.

The task was made difficult because the fraudulent conspirators used devious methods to try and cover the trail by paying the six progress payments from Kumagai through a variety of bank accounts, including the trust and general accounts of Carter Newell, the accounts of Port Moresby First National Real Estate (PMFNRE) and through interest bearing deposits with Nambawan Finance and Fincorp into the accounts of various corporate entities owned by or associated with the conspirators. Most of the funds held in the Carter Newell accounts were for the benefit of Mr J. Maladina or spent on his direction. Most of the fraudulent funds, which were laundered through the accounts of PMFNRE, were for the benefit of Peter O’Neill.

The various streams of money went in and out of these accounts but the commission is satisfied that the vast bulk of it has been traced to an end destination. Even when the end destination turns out to be a large cash payment in K50 bills, in many cases the commission staff have been able to identify who collected the money from the bank by the notations made by bank staff on the cheques.

For example, in some instances, the notes were picked up by the Carter Newell driver or clerk and, in the absence of any alternative explanation, the commission has been able to find, on that and other evidence that the money was taken for the benefit of Mr Maladina.

With great skill and patience, those assisting the commission have traced and exposed all these devices, which formed the money “laundering” process.

The money trail is set out from paragraph 7 to paragraph 11, which deals with money held in the Carter Newell accounts and paragraph 12, which deals with the moneys paid to PMFNRE accounts and is depicted diagrammatically in Charts 1 to 4C which are attached to this executive summary and also to Schedule 6.

Those findings were made by the commission on the basis of the evidence of what occurred in the NPF (involving Mr Maladina, Mr Leahy and Mr Fabila), what occurred in Kumagai Gumi, what occurred in Carter Newell involving Mr Maladina, Ms Perks and Mr Lightfoot and of course Mr Yapane’s role in laundering the Kumagai payments.

The next step was to widen the net by tracing how the moneys were disposed of to see who benefitted. It also involved investigating the role of PMFNRE, its principals and employees and ascertaining the relationship between Carter Newell, its partner Mr Maladina, PMFNRE its managers Mr Sullivan and Mr Barker and Mr O’Neill whose activities and funds were intricately interwoven with the affairs of PMFNRE.

The commission reports firstly on its tracing of Kumagai’s six payments of the fraud money.

Each of the six Kumagai payments are methodically traced into the relevant Carter Newell account or PMFNRE account 

Kumagai Payment No.1 for K401,032.30

As shown on Chart 1, Kumagai payment No.1 was traced in paragraph 7.1 through the account of Ken Yapane and Associates to PMFNRE from which some of it was invested on IBD with Nambawan Finance. In giving evidence Ken Barker of PMFNRE committed perjury and has been referred for prosecution.

He subsequently left PNG and the jurisdiction of the commission.

Findings 

(a) From Kumagai payment No.1 of K401,032.30, the sum of K2,032.30 was retained by Ken Yapane and Associates;

(b) The residual sum of K399,000 was laundered through the bank accounts of Ken Yapane & Associates then Kuntila Company No.35 Limited then Mr and Mrs Barker and then deposited into the account No. 246204 of Port Moresby First National Real Estate with PNGBC Port Moresby Branch;

(c) The sum of K300,000 was withdrawn from this account and invested by Port Moresby First National Real Estate in an IBD with Nambawan Finance Limited;

(d) The residual sum of K99,000 deposited into Port Moresby First National Real Estate Account No.246204 with PNGBC Port Moresby was disbursed from that account as reported at paragraph 12.3.2;

(e) Ken Barker gave false evidence before the commission on December 1, 2000. Normally the commission would direct counsel assisting to refer Mr Barker to the Commissioner for Police to investigate whether he has committed the crime of perjury. Mr Barker, however, is now residing permanently in Australia and to refer him would be a waste of resources. If he should ever return to PNG, he should be referred for investigation.

Kumagai Payment No. 2 for K652,421.29 

As shown on Chart No.1, Kumagai payment No.2 for K652,421.29 was traced through Mr Yapane’s personal account to Finance Corporation and hence, after Mr Maladina’s instructions to Barbara Perks, office manager at Carter Newell Lawyers, was withdrawn and paid to Carter Newell Trust Account and to PMFNRE.

Findings 

(a) Mr Yapane retained K5,409.29 and K30,000 for himself;

(b) He split the balance into two streams of K285,000 and K332,000, both of which he paid into the Finance Corporation (Fincorp);

(c) These two streams were split into four sub-streams, three of which were paid into the Carter Newell Trust Account as follows:

  • Fincorp # 794643: K70,000 John Lousia
  • Fincorp # 794721: K216,156.65 John Lousia; and
  • Fincorp # 821685: K189,854.27 Kerowa Tiki

These amounts will be further traced at paragraphs 9.2.2, 9.2.3 and 9.3.2 see Chart 2;

(d) The fourth sub-stream was paid into PMFNRE account 613086 Ledger 9 by Fincorp # 794559 for K150,000. (Follow trail on Chart No. 4A and paragraph 12.2.2).

Kumagai Payment No. 3 for K595,453 

The commission has traced this money through Mr Yapane’s personal account onwards at Mr Maladina’s direction to Fincorp on behalf of Carter Newell’s Trust for John Louisa (pseudonym for Jimmy Maladina) from which it was split and paid partly to PMFNRE and partly to Carter Newell (see Chart No. 1).

Findings

(a) Of the K560,000 not retained by Mr Yapane, Finance Corporation cheque # 776040 for K300,000 dated May 12, 1999, went to Port Moresby First National Real Estate (follow up at paragraph 12.2.3 and Chart No. 2);

(b) The balance the commission finds, went to Carter Newell Lawyers with interest as follows:

(i) Finance Corporation cheque # 794454 for K150,000 on June 11, 1999 (CN No.2 Account)

(ii) Finance Corporation cheque # 794483 for K112,768.35 on June 16, 1999 (John Lousia file follow on Chart No.2).

Kumagai payment no. 4 for K446,841.84 

The commission has traced this money through Mr Yapane’s personal account onwards on Mr Maladina’s instructions to be invested in Fincorp for Mr Maladina’s company Ferragamo Ltd and then into Carter Newell Trust Account (Kerowa Tiki file) — follow on Chart No. 2 and paragraph 9.4.1.

Findings 

The payment for K440,000 derived from fraudulent Kumagai payment No.4 and interest went to Carter Newell Lawyers in the form of Finance Corporation cheque # 821711 while Mr Yapane retained the difference of K6,887.84 plus K50 cash. It was eventually paid into Carter Newell Trust Account (Kerowa Tiki File).

Kumagai Payment No. 5 and 6 for K421,651.57 and K132,500 

The commission has traced this money directly to the bank account of Carter Newell (Kerowa Tiki File) — (see Chart No. 1 and paragraphs 7.6.1 & 7.6.2).

Findings 

Mr Yapane’s role and his referral for prosecution is described in detail in paragraph 8 and at paragraph 8.5, the commission has found:

(a) The total received by Ken Yapane & Associates out of Payment # 1 was K2032-30;

(b) The total received by Mr Yapane personally was:

  • Payment # 2 -K35,409.29
  • Payment # 3 -K35,445.00
  • Payment # 4 -K 6937.84

Total K77,792.13 

(c) These moneys were received as a result of a criminal fraud and were benefits received within the meaning of the commission’s terms of reference;

(d) Mr Yapane should be referred to the Commissioner for Police to consider whether he should be charged with a criminal offence in relation to these payments.

(e) Mr Yapane should also be referred to the Commissioner for Police for being party to the manufacturing and production of false documents intended to interfere with the work of the commission of inquiry.

Further Tracing Of Fraudulent Money Paid Into Bank Accounts of Carter Newell

This further tracing is described payment-by-payment in paragraph 9 of the Schedule.

It is depicted on Chart No.2 and each onward payment is dealt with in separate subparagraphs with the number of each subparagraph also indicated in the chart to facilitate the tracing.

When a cheque has been traced to an end destination it is made the subject of a separate finding in the text.

The moneys were paid variously into trust accounts for the Kerowa Tiki file 990393 and John Lousia file 980246.

Tracing money in John Lousia file 980246 

The payments into and out of the John Lousia Consultancy file 980246 are further traced in paragraph 10 where a trust ledger was reconstructed by the commission as follows:

npf 57 b

npf 57 c