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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 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 46]

October 8, 2015 1 comment

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

NPF Final Report

This is the 46th 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 4J Continued 

Findings 

(a) The BSP investment was performing well as a high dividend long-term investment with good capital growth potential;
(b) Mr Wright’s reassessment of the value of NPF’s BSP shares should have been supported by a professional review;
(c) Mr Wright gave unprofessional investment advice to sell-off the BSP investment based on extraneous matters; and
(d) The trustees were in breach of their fiduciary duty in uncritically accepting Mr Wright’s advice and resolving to sell NPF’s BSP investment without obtaining independent advice about the decision to sell or the price offered.

Investment In 1998 

Finalisation of the sale to DFRBF was protracted and in the meanwhile, BSP’s results continued to be very favourable. Mr Kaul clearly favoured holding onto the BSP shares and to await the results of a valuation that was being carried out by Coopers & Lybrand.

By the time Minister Lasaro finally approved DFRBF’s request to buy the BSP shares from NPF on September 1, 1998, the DFRBF had decided the price was too high and withdrew from the proposed sale.

While Mr Wright sought legal advice regarding a possible breach of contract by DFRBF, the NPF board adopted a positive view of the situation and decided instead to participate in a K15 million rights issue by BSP, which, together with a relaxation of the BPNG’s prudential guidelines, would free BSP to offer larger loans.

Misleading Conduct By Mr Wright 

Not only did Mr Wright change his mind about the need to sell-off the BSP shares, he went ahead and acquired 333,333 shares in the new issue before seeking the NPF board’s approval.

At the November 6, 1998, NPF board meeting, Mr Wright sought the board’s approval for this purchase, deliberately not informing the board that the transaction had already been completed. This deliberately misleading conduct was improper.

Mr Wright also wrongly advised the trustees that the transaction would not require Ministerial approval as it was valued at K999,999, which was just below the K1 million level already approved by the Minister in June 1995 for transactions which would not require Ministerial approval.

This advice was wrong because the dispensation from seeking Ministerial approval for transactions valued under K1 million, applied only to transactions involving shares listed on authorised stock exchanges. The BSP shares were unlisted so the Minister’s approval was required for transactions above K500,000.

Findings 

(a) The management and the trustees, failed in their fiduciary duties where independent advice was not obtained and no critical appraisal of the proposal to purchase further BSP shares, was performed (Exhibit B96);
(b) Mr Wright and Mr Kaul failed in their fiduciary duty by misrepresenting to the board that they were requesting board approval to purchase 333,333 shares on November 6, 1998, when in fact they were requesting ratification of the 333,333 shares already purchased without board authority on October 29, 1998;
(c) Mr Wright and Mr Kaul failed in their fiduciary duty as they had acted beyond their authorised financial delegation limit by committing the funds prior to obtaining the board’s approval;
(d) Mr Wright failed in his fiduciary duty to the board when he misrepresented to the board that the K1 million limit approved by the Minister, covered NPF’s investment in BSP. However, the dispensation only applied to the purchase and sale of shares listed on approved stock exchanges and the BSP shares were not listed on any stock exchange;
(e) The trustees failed in their fiduciary duty to the members when they failed to obtain Ministerial approval for the transaction thereby contravening Section 61 of the PF(M) Act.

Investment In 1999 

Resignation Of Mr Wright And Engagement Of PwC

Mr Wright was forced to resign in January 1999 and the then recently appointed managing director Henry Fabila, appointed PriceWaterhouse Coopers (PwC) to review NPF’s investments. On March 8, 1999, Mr Marshall of PwC reported to the NPF board that NPF was facing huge unrealised losses and a severe cash flow crisis.

Proposed Sale Of BSP Shares

It was decided to try and sell the BSP shares and notes which were professionally valued by PwC at K5 to K5.90 and K4.25 to K5.20 respectively, which put the total value of NPF’s holdings in BSP at K8 million. NPF then offered 1,192,661 BSP shares to Finance Pacific for K6.5 million. The NPF board also resolved to offer to sell its Government Roadstock, worth K62 million, to Finance Pacific.

Mr Peter O’Neill’s Involvement 

Finance Pacific, of which Peter O’Neill was then executive chairman, then made a package offer to buy the whole of NPF’s Government Roadstock as well as all of its BSP shares for K59.5 million, provided that NPF could obtain an extension of the Government’s expired guarantee of the Roadstock.

It was proposed that the sale would be to the Motor Vehicle Insurance Trust, which was part of the Finance Pacific Group.

The sale price of K59.5 million was exactly equal to the outstanding amount NPF owed to the PNGBC, which was also part of the Finance Pacific Group and so this proposed sale would clear that debt.

Mr Mitchell has given evidence that he was informed by Mr O’Neill and the new NPF chairman Jimmy Maladina, that the purchase of the Government Roadstock was dependent on the sale of NPF’s BSP shares (which would increase Finance Pacific’s holding in BSP to 30 per cent of its issued capital).

In view of the commission’s finding that Mr O’Neill was implicated with Mr Maladina in the NPF Tower fraud and received part of the illegal proceeds, the commission regards this proposed transaction between NPF and Finance Pacific with suspicion.

The sale, however, did not proceed because NPF had not succeeded in obtaining an extension of the Government’s guarantee of the Roadstock before Mr O’Neill was removed from the position of executive chairman of Finance Pacific.

Dividend Income BSP dividend payment history

According to BSP’s historical financial performance schedule, included in its 1999 Annual Report, the bank’s operating profit after tax had grown from K2.984 million in 1993 to K19.570 million in 1999, with 1999 being a record high (Exhibit B141).

As per the 1999 annual report, the total dividend paid between 1995 and 1999 was as follows:

npf 46a

BSP dividends received by NPF

BSP have confirmed that NPF was paid a total dividend of K2,358,082 for the years 1995 to 1999.

Director’s Fees

Directors fees and allowances paid to NPF’s representative directors on the BSP board, Mr Kaul and Mr Fabila successively, were correctly paid into NPF’s accounts.

Concluding Comments

The fact that the BSP investment has been profitable for NPF is due entirely to BSP’s successful management qualities and is not due to NPF’s investment policies or skills. It is probably fortunate that NPF never acquired sufficient equity in BSP to enable it to significantly influence BSP’s management policies.

The investment survived two misguided attempts by NPF to sell it.

Looking below the profitable surface of this dividend producing investment, we see Mr Wright acquiring notes without board authority and giving false and misleading information to the board when retrospectively seeking board approval for what he had already done. Once again, we find that the Board of Trustees failed to maintain control over management.

Executive Summary Schedule 4K Westpac Bank (PNG) Ltd, SP Holdings Ltd and Toyota Tsusho (PNG) Ltd 

Introduction 

The NPF investment in these three PNG companies has been relatively small but profitable in terms of capital gain and dividends.

After their initial investments, there were no further transactions during the period 1995 to December 31, 1999, and the investments have not been the subject of report or discussion at any board meeting.

The initial investments in these companies was as follows:

npf 46b

The unrealised gains made by NPF in these investments at December 31, 1999, are in the ranges as follows:

  • Westpac bank – between K669,600 and K1,103,600;
  • SP Holdings – between K748,000 and K1,468,000; and
  • Toyota Tsusho — between K34,931 and K120,074.

In addition to the significant capital gains made on these investments for the years 1995 to 1999, NPF earned the following in dividend income:

  • Westpac bank – K1,135,375;
  • SP Holdings – K600,000; and
  • Toyota Tsusho – K140,266.

NPF’s investment in these companies is clearly consistent with more traditional investment philosophies of provident funds in most countries.

The full details of these investments are set out in the report.

Executive Summary Schedule 4l Crocodile Catering (PNG) Ltd And Maluk Bay Investment

Introduction

In late 1996, the NPF was approached by representatives of the Crocodile Group of companies, which specialised in remote site catering in Australia and PNG.

The Australian company, Crocodile Pty Ltd (Crocodile Australia) was in financial difficulties and the principals wished to sell off its interests in Crocodile Catering (PNG) Ltd (Crocodile) in order to pay off the debts of Crocodile Australia and to enable them to obtain repayment of personal loans given by them to Crocodile Australia.

In January 1997, prior to obtaining the required Ministerial approval under the Public Finances (Management) Act 1995 (PF(M) Act), NPF acquired the share capital of Crocodile for K300,000.

In the period from January 1, 1997, to December 31, 1999, NPF then invested (in net terms) a further K7.4 million in the form of both equity and loan capital.

Crocodile performed very poorly because of:

  • an apparent lack of management skills, particularly with regard to financial management skills, with the few profitable catering contracts managed by Crocodile “dragged” down by loss making contracts and a high administrative overhead structure (examples included at Transcript pp. 7166, 7208-9, 7290-7294, 7335-7338);
  • a lack of attention to financial results and a failure to initiate appropriate corrective action in a timely fashion (examples included at Transcript pp. 7199-7200, 7202, 7208, 7220, 7242, 7280, 7288);
  • an ineffective board of directors and poor corporate governance (examples included at Transcript pp. 7188-7189, 7192, 7307-8);
  • managing director Garry Jewiss living in Indonesia to the detriment of effectively managing the PNG operations (see report on Maluk Bay);
  • unfavourable economic conditions; and
  • a continued investment in Crocodile without properly appraising this investment Transcript pp. 7177- 7178, 7261, 7091.

Crocodile recorded accounting losses every year from 1996 to 1999 and by December 31, 1999, there was a net unrealised loss of K7.4 million. Source: NPF accounting records/Crocodile accounting records (Exhibit CC700A). See table 3:

npf 46c

Summary of Crocodile financial performance as reported by financial statements in the period 1997 – 1999

npf 46d

Source : NPF accounting records/ Crocodile accounting records (Exhibits CC808B & 959). 

Acquisition Of Crocodile

The due diligence performed by Mr Wright was inadequate in that there was no:-

  • search into the background of the company and its directors;
  • legal due diligence conducted; and
  • financial appraisal of Crocodile’s catering and associated contracts.

Consequently, the information presented to the NPF board at the 104th NPF board meeting on December 9, 1996, was inadequate as a basis for an investment decision because:-

  • It failed to mention Crocodile’s obligations to finance, construct and operate a warehouse at Paiam;
  • Placer had provided free freight from Lae to Porgera and this artificially increased apparent net profits;
  • NPF had no understanding of Crocodile’s business strategy;
  • NPF did not assess Crocodile’s management team;
  • NPF did not assess Crocodile’s business risks;
  • NPF did not conduct a rigorous audit (including the commerciality of the contracts);
  • NPF did not assess its ability to own and manage a remote site catering business or the appropriateness of doing so; and
  • NPF did not consider the future funding requirements of the business and whether it would call upon NPF for funding.

NPF management, particularly Mr Wright and Mr Kaul, failed their duty to properly brief the board and the trustees failed their fiduciary duty to the members, by acquiring this business without insisting upon proper due diligence and analysis beforehand.

As sole shareholder, NPF appointed the following people as directors on the board of Crocodile: David Copland (chairman); Robert Kaul; Noel Wright; Tau Nana; Henry Leonard with Kenneth Frank as corporate secretary.

The practice was to hold Crocodile meetings at NPF headquarters the day before the scheduled NPF meeting.

From the start, it became apparent that it was a mistake to have appointed Mr Jewiss as manager, as he had few managerial and organisational skills and was extremely poor at consulting with and reporting to the Crocodile board.

To try and strengthen financial control, Crocodile’s former financial controller, Ray Barredo, was retained. This did not work and NPF was frequently called upon to make direct injections of financial support.

During 1997, Crocodile struggled to finance and organise the required warehouse at Paiam. It was eventually funded by a PNGBC loan guaranteed by NPF. The cost was about K4 million.

Findings 

(a) NPF breached the PF(M) Act by entering the contract to acquire Crocodile before Ministerial approval had been given;
(b) NPF management, particularly Mr Wright, failed its duty to the NPF board by not performing due diligence on Crocodile prior to buying the company and by failing to critically appraise the business prospects and risks of becoming sole owner and manager of a remote site catering business;

TO BE CONTINUED

National Provident Fund Final Report [Part 40]

September 30, 2015 1 comment

Below is the fortieth 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 40th 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 4D Continued Investments – 1999 

Concern About NPF’s Unrealised Losses – Termination Of Mr Wright 

After Mr Wright’s employment with NPF was terminated in January 1999, he was replaced on the CXL board by trustee Nathaniel Poiya.

Mr Fabila reported in February on the CXL and STC results. Discussion centred on CXL, which showed a loss of K3.7 million, K2.5 million of which was attributable to a budget blow out in respect of directors’ remuneration. Although Mr Fabila wrote to the CXL chairman on this matter, he failed to provide the NPF trustees with an expert assessment of its CXL investment.

Advice from Ben Semos of Wilson HTM 

By this time, NPF management had begun to realise the enormous unrealised loss suffered on NPF’s investments as interest rates on NPF’s huge debts rose and the value of the kina and of resource stocks fell. Ben Semos of Wilson HTM was asked to advise on NPF’s investments. On February 6, commenting on each investment in turn, he advised selling CXL shares rather than STC. Mr Semos forwarded a mandate document appointing himself as sole agent and broker on the sell down but on February 19, 1999, Mr Fabila wrote cancelling all authority for Wilson HTM to act as broker for NPF.

On March 12, Mr Semos wrote again urging his appointment as sole agent to handle the difficult job of selling off large parcels of shares in STC, CXL and HPL without causing a massive fall in share prices.

On March 16, 1999 at a special NPF board meeting, the board appointed Mr Fabila and Mr Leahy to negotiate the sale of all NPF’s holdings in CXL to the Swires Group for a minimum price of $A3.75 per share (9.3.4). These negotiations were unsuccessful.

Unsuccessful Attempts To Sell CXL Shares 

By March 25, NPF chairman Brown Bai sought Ministerial approval to sell NPF’s CXL shares at $A3.75 and 50 per cent of the Tower Ltd. Unfortunately, Swires would not go beyond $A2 per share and Wilson HTM could only manage $A2.25.

Although Minister Lasaro had approved the sell down on March 25, 1999, his approval was not received by NPF until April 8.

Meanwhile, Mr Fabila had instructed Mr Semos to sell prior to receiving Ministerial approval and Mr Semos was actively involved trying to generate “good buying” for CXL, and for some other NPF holdings.

NPF Moves Away From Substantial Holdings Into Smaller Passive Holdings 

By May 1999, the sell down of equities in order to reduce NPF’s debt to the ANZ Bank had still not got underway. On May 11, Mr Fabila wrote a long explanation to Minister Lasaro, explaining the history of NPF’s disastrous investment strategies of obtaining significant holdings in PNG resource stocks and obtaining controlling interest in CXL and STC.

He explained how this had been financed by massive borrowings from ANZ and he laid the blame squarely on the previous Board of Trustees and on Mr Copland in particular (The letter is quoted in full at paragraph 9.4).

On May 21, 1999, the NPF board resolved to move away from substantial shareholdings in a few companies in favour of passive minority interests and to reduce holdings in any company to 11 per cent of issued capital (except for HPL).

Trustee John Paska spoke against the proposal, particularly against selling STC shares, sensing some “political” motivation. On May 28, 1999, NPF’s investment team, headed by Rod Mitchell submitted an investment fact sheet on STC recommending that its value be reassessed to reflect its much lower true value.

Selldown Of CXL Shares NPF’s Selldown Prompts Swires Takeover Offer For CXL

On June 3, 1999, Mr Fabila instructed Mr Semos to sell off NPF’s holdings of 8,266,679 CXL shares at $A2.56 or better. This prompted Swires to make a take-over bid for CXL by offering to acquire all the issued shares in CXL at $A1.50 per share (paragraph 9.7). Mr Fabila was prompt to accept Swires’ offer and obtained NPF board approval by circular resolution on July 7, 1999. This was ratified by formal board resolution at the 119th NPF board meeting on July 29 and 30, 1999.

CXL Share Valuation

Before finalising the sale, NPF management obtained an expert independent opinion on CXL’s fair market valuation from KPMG which on July 8, 1999, stated:-

“Our valuation of CXL is prepared in order to determine a fair market valuation of each share. The valuation has been prepared using generally accepted valuation principles and is based on information provided to KPMG by CXL. This information has not been verified by KPMG. Based on the information provided, our valuation of CXL is K62,461,000. Given the 21,060,370 shares in issue this equates to a value per share of K2.97.

“Swire PNG’s offer of $A1.50, as set out in their take over notice, equates to K2.68 per share (exchange rate K1= $A0.56).

“When considering the merits of the offer, it is necessary to consider the following:

  • Poor trading results for 1998;
  • Projected poor trading results for 1999;
  • Increasing cash flow requirements to fund trading losses and replacement of inventories;
  • Technical breach of current banking covenants;
  • Law and order issues in PNG;
  • Political instability;
  • The precarious nature of the kina currency; and
  • The lack of alternative investors for a minority investment of the size and nature in question.

“Overall, we are of the opinion that the offer price is not unreasonable and represents a price that whilst not great provides an exit alternative to shareholders, thereby giving a level of certainty which may not otherwise exist.” (Exhibit S152)

Department Of Finance Recommendation On CXL Selldown 

Mete Kahona of the office of Public Enterprises and Asset Management, wrote a brief to the Secretary for Finance supporting the sale of NPF’s CXL shares to Swires at $A1.50 per share. The brief highlights the problems caused by investing in a significant holding in such a company:

“NPF’s Acceptance of the Offer.

“The fund’s management supports the acceptance of the current offer by John Swire & Sons Limited and KPMG’s recommendation with the following argument:

  • That CXL has been touted around the market by a number of stock brokers with no serious interest what so ever in the stock;
  • That the CXL with a falling kina has suffer large diminution in value;
  • NPF debt to equity ratio would be reduced to 20 per cent from 45 per cent;
  • Failure to accept the offer means that NPF will breach current interest cover ratios required by the ANZ Bank; and
  • Acceptance of the offer allows NPF to keep its strategic holding in Steamships Trading Company. NPF’s Board Position

“The board at its previous meeting discussed NPF’s debt problem and agreed to the sale of Collins & Leahy shares down to 11 per cent of its market capitalisation.

“It is for the above arguments that the NPF board supports to accept the current offer by John Swire & Sons for $A1.50 per share held in Collins & Leahy.

“For your information in this regard.” (Exhibit S153)

NPF’s Realised Loss On CXL Investment

The proceeds of the sale, $A12,354,269, were paid to ANZ Nominees, which held the shares as security for the ANZ loan facility and it went towards retiring NPF’s debt to ANZ. The loss suffered by NPF was:

npf 40 a

(This does not include the effects of foreign exchange loss and bank fees).

Sell-Down Of STC Shares Negotiations With Swires 

On September 17, 1999, through capital Stockbrokers Ltd, Mr Mitchell ascertained current market price for STC was $A2.50 per share.

He then negotiated a sale of NPF’s entire STC share holding (7.3 million shares) to Swires at $A2.25 per share ($A16.425 million).

This strategy was approved by the NPF board on November 29, 1999, which resolved on “the sale of 100 per cent of its share holding in STC at a price no less than $A2.25 per share net of all costs”. The following problems occurred arranging the actual sale.

Negotiations With Bromley Group (Lemex International) 

After Mr Mitchell received Swires’ offer of $A2.25, he informed Mr Semos and asked him to contact Sir Michael Bromley to gauge if he was interested. This produced an offer from Lemex International Ltd of $A2.26 per share, which was then increased to $A2.28. Mr Mitchell then made an unauthorised decision for NPF to retain 5 per cent of its STC holding to see whether this would enable Lemex to go higher. On the morning of September 7, Lemex increased its offer to $A2.30 and Mr Mitchell said that he required time to consider the offer. He then left a message for Swires that an offer of $A2.30 had been received and then Mr Mitchell attended another meeting. Some time later, Swires left a message in Mr Mitchell’s office offering $A2.40 for NPF’s entire STC holding.

Acceptance Of Lemex Offer

Before returning to his office, Mr Mitchell accepted Lemex’s offer of $A2.30 per share for 95 per cent of the shares.

Realised And Unrealised Loss On STC Investment

At that price, NPF’s situation on its STC investment as at December 30, 1999, and November 3, 2000 was:

npf 40 b

The realised loss on the sale of 5,762,023 shares as at December 31, 1999 was therefore $A7,160,677 and the unrealised loss on the retained 5 per cent of shares was $A1,315,526. By November 3, 2000, that unrealised loss had increased to $A2,392,291 – making a total realised and unrealised loss in November 2000 of $A9,552,968.

Complaints By Swires

After the sale to Lemex, the Swire Group expressed considerable bitterness that Mr Mitchell had accepted the Lemex offer without formally checking whether Swires had improved on it. Swires wrote a letter of complaint to the chairman of NPF and Mr Semos and others wrote in support of Mr Mitchell.

Findings

(a) Mr Fabila was acting without board authority in seeking to mandate Wilson HTM as sole broker;
(b) Mr Semos’ comments about CXL in his report of February 6, 19996 should have been made much earlier consistent with his duty to “know your customer” (NPF) when Wilson HTM was providing investment advice (Mr Semos’ statements indicate that on occasions, he had given investment advice although on other occasions, he simply executed client’s instructions without giving advice);
(c) Mr Mitchell’s decision to retain 5 per cent of STC was contrary to the board resolution of November 29, 1999, to sell off all NPF’s holding in STC;
(d) Mr Mitchell failed to maximise the price obtainable for the sale of NPF’s STC shares. Mr Mitchell failed to actively conduct a “Dutch auction” to bring forth Swires best offer before accepting Lemex’s offer of $A2.30 per share;
(e) Mr Mitchell was acting in stressful and difficult circumstances when trying to finalise a deal to sell off NPF’s shares in STC. The commission accepts that he was trying to act in the best interests of the members of the fund and that he had no ulterior motives. Nevertheless, his failure to seek out Swire’s last highest offer before accepting the lower Lemax offer was careless and unprofessional. It was a failure of his duty to NPF. At the time of this failure Mr Mitchell was acting managing director and was therefore also a trustee bearing all the onerous fiduciary duties of a trustee. He is therefore personally liable for the losses suffered by the contributors from his breach of fiduciary duty unless he can successfully raise the defence that he was acting in good faith. This would be a matter for a court of law and is beyond the scope of this commission.

Concluding Comments

The NPF’s large scale investment in STC and CXL was inappropriate for a provident fund which should concentrate on small passive, risk-averse equity investments.

By making an amateurish attempt to take over these companies, NPF was obliged to acquire large shareholdings (21 per cent of STC and 38 per cent of CXL) which was bound to motivate the companies’ powerful owners to resist the takeover attempt. This happened.

NPF’s acquisitions were funded by borrowed capital (drawdowns on its ANZ facility) and when economic circumstances made it impossible for NPF to service this debt, it was obliged to sell down its equity portfolio, including its investments in STC and CXL. It was unable to do so at competitive prices because of low demand for the shares. It was then left at the mercy of the powerful Swires Group, which could ensure that the price offered would be low.

Because of Mr Mitchell’s inexperience, NPF sold to Lemex International at 10 cents below Swire’s intended final offer but in any event NPF’s realised losses on these investments, totalling $A23,483,324 and unrealised loss of $A2,392,291 (for a total of $A25,875,615) made huge inroads into members funds. The main procedural short-comings regarding these investments included management’s failure to provide the board with expert investment advice and failure to keep the board advised of the on-market transactions, some of which exceeded management’s delegated authority.

Once again there was failure by the board to seek out proper investment advice and failure to exercise proper control over management.

There was also failure by DoF to provide critical comment on NPF’s strategies. There was improper conduct by Minister Chris Haiveta in enthusiastically approving Mr Copland’s misguided strategy of leading NPF into a K40 million strategy to take over, merge and manage two of PNG’s largest retail and manufacturing corporations, without seeking expert advice from DoF or elsewhere.

The main responsibility for leading NPF into the misguided attempt to takeover CXL and STC must be borne by Mr Copland, who conceived and inspired the policy, Mr Kaul and Mr Wright who implemented it and Minister Haiveta who gave it such enthusiastic and unqualified support without seeking expert advice.

The commission’s major findings in the context of the commission’s Terms of Reference are listed in paragraph 10 of Schedule 4D.

Executive Summary Schedule 4E Macmin NL

Introduction 

NPF was enticed into the Macmin investment by an address given to the NPF board by Macmin managing director Robert McNeil.

Macmin was a small or junior minerals exploration company. It was avowedly a high risk, speculative enterprise, which had interests in the Wapolu and Wild Dog projects in PNG.

Its aim was not so much to be the owner of a rich, income-producing mine as to be alert to bringing in joint venture partners to the early stage of a project with a view to selling its interest when there was a chance of a quick profit. For these endeavours it was chronically under funded. It was essentially a “father and son” corporation.

Mr Copland and Mr Wright and also Mr Kaul became enthusiastic about Macmin’s prospects and set out to obtain a significant interest in the company for NPF.

TO BE CONTINUED

National Provident Fund Final Report [Part 29]

September 14, 2015 1 comment

Below we continue the re-publication of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

The Inquiry findings provide an unprecedented insight into the methods that are still being used today by the mobocracy that is routinely plundering our government finances. The inquiry uncovered for the first time how the Waigani mafia organise complex frauds using mate-networks, shelf companies, proxy shareholders, and a willing fraternity of lawyers, accountants, bankers and other expert professionals.

The Commission findings also reveal the one grand truth at the centre of all the corruption in Papua New Guinea: it is pure theft, no different from an ordinary bank robbery. However, if you steal the money by setting up, for instance, a bogus land transaction, the crude nature of the criminal enterprise is disguised to all but forensic experts, making it seem the perfect crime!

NPF Final Report

This is the 29th 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 3B continued

Findings

If not technically a direction, it was at the least a very strong request. Regarding Mr Lasaro however, it went further and amounted to impropriety. As Minister responsible for NPF, with responsibility for granting all-important approvals under the PF(M) Act, Mr Lasaro occupied a position of special influence over NPF.

When he followed up his initial request that NPF take up the advertising opportunity, by persistently urging the reluctant Mr Fabila to pay up in accordance with the terms of the contract (on one occasion humiliating Mr Fabila in front of Ms Bergin), the commission finds that it amounted to improper interference with the management of NPF.

Mr Lasaro should be referred to the Ombudsman Commission to consider whether there has been a breach of the Leadership Code.

(i) Mr Fabila’s ill-advised attempt to unilaterally impose a favourable discount in favour of NPF, contrary to the terms of the contract, exposed NPF to the possibility of an expensive lawsuit and cost NPF an additional K8577 in interest payments.

Universal News Inc.

Introduction of Universal News Inc.

The first record of NPF’s involvement with this organisation was through a faxed letter dated January 27, 1999 by Natalie Hughes and Alvaro Macarron. This letter thanked Mr Fabila for his warm reception and interesting interview and for his support and personal involvement in the project. Minister for Mining Masket langalio, also sent a letter introducing Universal News Inc. to Mr Fabila. This letter was not dated. However, a handwritten note on it is dated February 12, 1999. Clearly, Mr Fabila had interviewed Ms Hughes and Mr Macarron and then told Mr Leahy to take action.

Attempt by Mr Leahy to cancel the contract with Universal News Inc.

The day following the Universal News interview with Mr Fabila (January 27, 1999), Mr Leahy sent a fax to Universal News advising them that he had received instructions from the chairman of NPF to cancel the contract.

Invoice received

An invoice dated March 10, 1999, records that on March 10, 1999, a contract No.09810916 was entered into between Mr Fabila on behalf of NPF and Universal News Inc for junior advertising space at a cost of $US58,800. The commission has not found a copy of any such contract on NPF files.

Delay in payment to Universal News by NPF

Similar to the situation regarding the payments to World Report Limited, Mr Fabila delayed payment of the Universal News Inc. invoice. Tim Rooker, who described himself as the finance manager of Universal News, wrote a letter to NPF chairman Jimmy Maladina, on May 7, 1999 (copied to Mr Mekere) requesting full payment of the contracted amount of $US58,800. Mr Fabila endorsed the copy of Mr Rooker’s letter requesting Mr Mekere to pay half the contracted amount and the balance upon completion of the work. Mr Rooker wrote another letter to Mr Maladina (copied to Mr Mekere) requesting immediate payment of the contracted sum.

The first instalment of K79,263.28 was made on July 12, 1999. Mr Leahy approved this payment. This amount was above Mr Leahy’s delegated authority. The balance of K89,108.91 was paid on August 31, 1999. Again, Mr Leahy authorised this payment, which was above his delegated authority. The total cost to NPF was K168,372.19.

The unauthorised commitment by Mr Fabila of these expenses during this period of severe cash flow problems was improper and amounted to a serious breach of fiduciary duty. From observing Mr Fabila’s demeanour while giving evidence on several occasions and on the basis of the other oral and documentary evidence before it, the commission finds that Mr Fabila found it difficult to say no to requests and directions when he felt himself to be under pressure. In the case of these two contracts, Mr Fabila said “yes” in the face-to-face interview with the publishers’ representatives, entered into a binding contract and then regretted it when it was too late. His delaying tactics, then further aggravated the situation, causing further loss to NPF. Mr Fabila’s weakness led to him being in breach of his fiduciary duty to the members of the fund.

No Board of Trustees approval

The value of this contract was in excess of K100,000 and it therefore required Board of Trustees approval. No such approval was sought or obtained. The contract value was well above Mr Fabila’s delegated authority and he therefore did not have the legal power to sign the contract. The commission finds that both Mr Fabila and Mr Leahy may be personally liable to the fund for losses suffered by contributors for their respective actions in excess of lawful authority and that a defence of “acting in good faith” would be unlikely to succeed.

Involvement of Minister Lasaro

It seems that Minister Lasaro had some involvement in facilitating payments to Universal News Inc. as the letters demanding payment were copied to him. Mr Lasaro has denied in his sworn statement that he discussed the non-payment of the Universal News account with NPF, but he agrees that letters of demand for payment to NPF were copied to him.

Findings

Mr Fabila and Mr Leahy may be personally liable at this suit of the fund for loss suffered by the contributors of the Fund for their respective excess of lawful authority and that a defence of “acting in good faith” would be unlikely to succeed.

Findings

(a) Mr Fabila was in breach of his fiduciary duty to the members in signing the contract with Universal News Inc, especially as he suspected (with good reason) that it might be a scam;
(b) Mr Fabila failed in his fiduciary duty in not seeking NPF board approval for the contract with Universal News Inc, which was beyond his delegated financial authority;
(c) Mr Fabila may be personally liable for loss suffered by NPF as a result of his breach of duty. It is unlikely he could successfully claim to have “acted in good faith”;
(d) Mr Leahy acted in excess of his delegated financial authority in authorising the payment to Universal News lnc, as there was no board approval. This constituted a breach of his common law duty to the NPF board for which he may be personally liable.
(e) The commission is not satisfied that Mr Lasaro wrote letters of introduction for Universal Productions or that he acted improperly or inappropriately with regard to this matter.

Executive Summary Schedule 3C Entertainment and board expenses

Introduction

The Terms and Conditions and Remuneration of Trustees

Schedule 3C summarises the history of payments of fees and allowances to board members up to January 1995, and considers the validity of increases in accordance with the provision of Section 6(3) of the National Provident Fund Act (the Act). Section 6(3) provides that the only valid way to increase fees and allowances is by determination of the of the Prime Minister, which would then be brought into effect by way of publication in the National Gazette. There was a valid determination of NPF’s board fees and allowances made by Prime Minister Paias Wingti on December 31, 1990, which set fees and allowances as follows:

(a) Sitting Allowance – K45 per day
(b) Meal Allowance – K35 per day
(c) Stipend – K1000 per annum paid quarterly.

No Delegation Of Prime Ministerial Powers Under Section 6 Of The Act

Section 6(3) of the Act refers only to the responsibility of the Prime Minister. The commission was not able to find any delegation of the power by the Prime Minister under Section 6(3) of the Act.

Nevertheless, at the December 1993 board meeting, the board itself approved the following fees for employer and employee representatives who were appointed under Section 6(1) subsection (d) and (e) of the Act.

(a) Annual Stipend – K1200;
(b) Sitting Allowance – K70

The commission has not been able to locate any document or national gazette notification, amending the earlier determination by Prime Minister Wingti. The board had no power under the Act to set fees and allowances for its members.

NPF Board Seeks Massive Increases Of Board Fees And Allowances

In August 1995, the board resolved to increase board fees and allowances to:

(a) Board sitting fees – K250 per sitting; and
(b) Quarterly allowance – K2000.

Mr Kaul wrote to Prime Minister Sir Julius Chan giving an encapsulated history of the fund seeking to justify the increases sought. Chairman Mr Lalatute followed up Mr Kaul’s letter with a letter to Sir Julius on February 21, 1996, but Sir Julius did not respond.

In March 1996, Mr Kaul advised the board, in his managing director’s report, that Acting Prime Minister Haiveta had approved the increase.

Acting Prime Minister Haiveta Approves K20,000 Fee for Chairman Copland

Mr Haiveta, after considering Mr Kaul’s submission regarding the expertise of Mr Copland, approved Mr Copland’s remuneration as a trustee and chairman at K20,000 per annum, which was exclusive of board sitting allowances.

Setting of personalised remuneration for the chairman of the board is not provided for in the Act and it was therefore invalid.

Acting Prime Minister Haiveta Approves Increases In Board Fees And Allowances

On May 30, 1996, Mr Haiveta determined the following fees and allowances in the National Gazette for employee and employer representative trustees:

(a) Meal Allowances – K45;
(b) Sitting Allowance – K250 per sitting; and
(c) Stipend – K2000 per quarter

These increases were backdated to January 1, 1996. Mr Haiveta had the power as Acting Prime Minister to grant the increases to employer and employee representative trustees.

Findings
(a) It was not appropriate for the managing director to lobby the Acting Prime Minister to increase the board members’ fees and allowances;
(b) The determination by Acting Prime Minister Haiveta of board member’s fees and allowances, back dated to January 1, 1996, was valid;
(c) The determination by Acting Prime Minister Haiveta of a special allowance of K20,000 per annum for Mr Copland as chairman of NPF, was not provided for in the Act and was invalid. The commission sees this as an improper action by Mr Haiveta.

Acting Finance Minister’s Invalid Determination

On May 6, 1997, Mr Konga (when he was Acting Minister for Finance) approved the following variations under the Board Fees and Allowances Act:

(a) Stipend per year

(i) Chairman – K15,000;
(ii) Deputy Chairman – K12,000;
(iii) Other members – K10,000;

(b) Attendance fee per meeting

(i) Chairman – K400;
(ii) Deputy Chairman – K300;
(iii) Other members – K300.

As the Boards Fees and Allowances Act did not apply to the NPF, Mr Konga’s approval of the above fees and allowances was beyond his power and therefore invalid. The board, however, accepted this invalid determination and implemented it. Legal officer Mr Leahy failed in his duty to the board by not advising on this matter.

Findings
(a) Acting Minister Konga acted beyond his power by purporting to approve fees and allowances for the NPF Board of Trustees;
(b) The NPF board acted beyond its power by approving an additional K50 sitting allowance for trustees other than the chairman;
(c) Herman Leahy failed in his duties to the NPF board by not checking and giving advice on Minister Konga’s invalid determination.

Finance Inspectors’ Report

The finance inspectors report shows up many specific anomalies. The commission accepts and agrees with the findings in the finance inspectors report and has decided not to make further inquiries at this level of detail. These irregularities and over-payments to the trustees seem to include instances of improper conduct and breaches of fiduciary duty by trustees who knowingly accepted payments of fees and allowances in excess of their entitlement. The commission has not inquired into the details surrounding these comparatively minor breaches but has recommended that the matter be dealt with by way of an internal audit and recovery exercise.

Concluding Comments

It is of serious concern that the NPF management and board of trustees ignored the provisions of the Act, which empowered only the Prime Minister to vary trustees fees and allowances and simply approved their own increases. It is equally serious that those decisions were not criticised by the DoF or the Auditor-General at the time nor were they commented upon by Mr Leahy – the NPF’s senior legal counsel.

It is of similar concern that Minister Haiveta’s improper conduct in granting a special K20,000 allowance to Mr Copland was not similarly subject to criticism. NPF’s successive chairmen, managing directors and finance officers failed their duty to the members of the NPF by not ensuring proper financial controls were enforced to process claims and acquittals for trustee’s fees and allowances and board expenses as criticised in the finance inspectors report.

Findings
(a) Nakikus Konga acted beyond his power when he approved new allowances and board fees in his letter to Mr Kaul dated May 6, 1997. His approval was invalid in its application to the NPF;
(b) The NPF board acted beyond its power in approving an additional K50 sitting allowances for trustees based on Minister Konga’s approval;
(c) Legal secretary Mr Leahy failed in his duty to advise the board about the review of sitting allowances for trustees;
(d) The commission accepts and agrees with the finance inspectors’ findings;
(e) The finance inspectors report discloses clear evidence of improper conduct and irregularities in the administration of board fees and allowances.
The commission recommends that the NPF board commissions an internal audit to assess and recover amounts overpaid to trustees in board fees and allowances.

TO BE CONTINUED

National Provident Fund Final Report [Part 28]

September 11, 2015 1 comment

Below is the twenty-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 28th 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 3B continued 

Findings 

(a) The donation of K100,000 to the Aitape Relief Fund, authorised by Mr. Fabila, was without NPF Board approval, in excess of Mr. Fabila’s powers and beyond the powers of NPF.
(b) Mr. Fabila was in breach of his fiduciary duty to the members of the Fund and may be personally liable unless he can successfully claim that he acted in good faith. On the facts found by the Commission it is unlikely that a “good faith” defence would be successful.
(c) The request by Minister Dr. Fabian Pok for the NPF to contribute K100,000 by 2pm on the day of the request was improper.
(d) Seeking approval of the NPF Board by way of Circular Resolution is not a valid resolution within the terms of the NPF Act, which envisages that valid resolutions will be made “face to face” at a properly constituted meeting of the NPF Board. The danger of proceeding by way of circular resolution was well illustrated, as several trustees expressed serious concerns and it was left to Mr. Fabila to decide what to do and to decide how the amount of K100,000 would be distributed.

Requests for donations by Mr. Skate 

During 1998, the Prime Minister Mr. Skate and his wife requested donations from NPF. As Mr. Fabila was specifically appointed to the position of managing director of NPF as a friend of Mr. Skate, he must have been under considerable pressure to agree to the requests.

Findings 

(a) Mr. Fabila was in breach of his fiduciary duty to the members of the Fund in authorising payments of K2000 and K5000 to the PNG Sports Federation and Bougainville Children’s Fund.
(b) In view of the public controversy in which NPF was correctly criticised for acting beyond power in donating to the Aitape Relief Fund, Mr. Fabila cannot really claim to have been “acting in good faith” and hence is personally liable to NPF members for these losses.

1999 

NPF’s tax return for this year showed a total of K23,241.70 in donations was made by NPF. However, there could be more donations made that the Commission investigation could not locate.

1. 6th January 1999 NPF Soccer Club K1,000
2. 12th January 1999 POM Rugby Football Union K 700
3. 12th January 1999 The Scots Limited K1,000
4. 25th March 1999 Hiri Moale Festival K5,000
5. 25th March 1999 Brothers Rugby Union Club K1,000
6. 31st March 1999 Hula United Church K1,000
7. 4th May 1999 Mama Tapi K 200
8. 5th May 1999 U/Church POM East Circuit K 500
9. 11th May 1999 Cross Road Shelter K 500
10. 18th May 1999 Air Niugini K4,378
11. 24th June 1999 POM Golf Club Inc. K1,000
12. 24th June 1999 Miss NCD FRC K1,500
13. 24th June 1999 PNG Netball Federation K1,000
14. 30th June 1999 Brothers Rugby Union Club K4,000
15. 30th June 1999 Hiri Production K 600
16. 28th July 1999 Lihir Red Cross K1,000
17. 10th August 1999 Takone Amatr. Volleyball Ass. K 300
18. 25th August 1999 Miss Mary English K 500
19. 26th August 1999 Orogen Minerals Limited K1,000
20. 1st September 1999 United Church – East Papua M/land Region K 500
21. 29th September 99 PNG Cricket Board K 700
22. May 1999 Cop Publishing Pty Ltd K2,400

A greater number of donations were made during this year than in previous years despite the fact that NPF was going through an acute cash flow problem and was struggling to manage the substantial losses from its investment portfolio. Mr. Fabila’s action in approving donations during this difficult time was imprudent and beyond any legal authority. It amounted to a breach of his fiduciary duty to the members of the Fund and was improper conduct.

NPF Board seeks to control donations

The Board passed a resolution during their 120th Board meeting held on 29th September 1999 to adopt a policy that demanded that NPF management must seek prior Board approval before responding to any form of request for donations. This resolution resulted in NPF not making further donations during that year.

Mr. Fabila’s evidence

Mr. Fabila has agreed in his evidence that there was no power to make donations set out in the NPF Act, nor is the matter dealt by any policy document. He explained that the various causes were “Worthwhile” and that he felt that NPF should donate to such causes in order to be a good “corporate citizen”. Mr. Leahy, as in-house legal counsel, failed to give advice on NPF’s powers to make donations and this amounted to a breach of his professional duty to the NPF. Mr. Fabila failed to seek legal advice.

Findings

(a) The National Provident Fund Board of Trustees had no legal power to make donations. Those who authorised and approved the donations (Messrs Maladina, Fabila and Leahy and the Trustees who supported the Aitape Disaster donation) albeit with the best of charitable intention – acted beyond power and are legally personally liable to the Fund for their unauthorised actions. The Trustees (including the managing directors) were in breach of their fiduciary duty to the members and their personal liable for each donation, which they authorised stems from breach of this fiduciary duty.
(b) Dr. Fabian Pok acted improperly in requesting NPF to contribute to the Aitape Disaster appeal and should be referred to the Ombudsman Commission for possible breach of the Leadership Code.
(c) Prime Minister Skate acted improperly in requesting NPF to contribute to the Prime Ministers Celebrity Walk & Banquet and should be referred to the Ombudsman Commission for possible breach of the Leadership Code.
(d) The Commission considers that most of the people who requested donations should not be criticised, as their mere request did not put pressure on NPF management. The Commission takes a different view when the request comes from National Leaders who are or are seen to be in a position of power over the NPF.
(e) Mr. Herman Leahy failed in his duty as Legal Counsel in not providing a legal opinion on NPF’s power to make donations.
(f) The Commission finds that the payments (made from Trust moneys) were not made in good faith as no due diligence in this respect was exercised at all. The position may have been different if advice on the power to make donations had been sought and erroneous advice had been given and relied upon.
(g) The Board’s belated direction to management in September 1999 succeeded in bringing the donation problem under control. It was a rare example of how firm guidance and direction given to management by the NPF Board during the period under investigation.

PROMOTIONAL ADVERTISING COSTS 

Introduction

The Commission appreciates that the NPF Board of Trustees did have power to advertise and to charge the cost and expenses against the Fund in some circumstances (such as publishing a list of employers who are in default in the payment of Fund contributions for instance).

This section however is dealing with overseas advertising of a promotional nature. The Commission believes that there is no point in promoting NPF overseas unless it is for a specific purpose where there would be tangible benefits in increasing member’s funds.

The Commission also notes that the high cost of these advertisements came at a time when NPF was facing serious cash flow problems. NPF management failed to properly consider NPF’s financial position before agreeing to participate in the advertising campaign.

Finance Inspectors report on selected “paid vouchers” 

The Finance Inspectors report was the starting point for the Commission’s investigation, which focussed on two foreign publications, on which substantial sums of members’ money had been expended. These two publications were:-

(a) World Report Limited and
(b) Universal News Inc.

World Report Ltd.

This organisation had a post office box address, telephone and facsimile number in London but no street address.

Introduction of World Report Limited to NPF 

Mr. lairo Lasaro in his capacity of Treasury Minister and Minister responsible for NPF introduced the representative of World Report to Mr. Fabila in his letter dated 8th August 1998. Similar letters of introduction from Prime Minister Skate, other Ministers including Mr. Masket langalio, Sir Rabbie Namaliu, Mr. Dibara Yagabo and Mr. Michael Nali were produced and given to Mr. Fabila by the representative of World Report, Ms. Joanna Bergin, at the initial meeting.

Contract and cost of advertising in the Independent Newspaper 

A single paged Advertising Contract 098/0156 between World Report Limited and NPF, was signed by Ms. Joanna Bergin and Mr. Fabila, for a double page spread, full colour insertion in the Independent Newspaper at a cost of US$98,800. Payment arrangements were 50 percent within 30 days from the date of the contract and the balance within 60 days from the date of the contract.

Misleading report to NPF Board of Trustees 

In the management report to the Board for the months of August / September 1998, Mr. Fabila raised the matter of NPF advertising in the Independent Newspaper. Mr. Fabila made three fundamental errors in his report.

  • Firstly, he said World Report published the Independent, which is not the case.
  • Secondly, he said a commitment was made to pay “up to US$98,800” when the reality was a valid contract to pay that exact amount had already been signed by him.
  • Thirdly, he said the advertisement was to be included in a book about PNG published by World Report Limited, when in reality, the payment was for a one off supplement inserted in only one issue of the Independent newspaper.

NPF seeks a discount 

On the 16th November 1998, Mr. Fabila wrote a letter to Ms. Bergin acknowledging receipt of the invoice and at the same time seeking a discount on the contracted price, giving the reason that NPF had done a lot of artwork for the NPF advertisement. This request received a very negative reply.

NPF then remitted part payment of US$69,160. World Report Ltd were obviously concerned about the part payment and responded by sending a number of faxed letters to Mr. Fabila with copies to Mr. lairo Lasaro as Minister responsible for NPF.

On the 15th January 1999, the balance of US$14,820 was remitted.

Involvement of Minister Lasaro

As we have indicated earlier, letters of demand to Mr. Fabila for the remaining part of the contracted payment were being copied to Mr. Lasaro. This raises the possibility that the Minister had become personally involved and needed to be advised that payment had been made. Mr. Lasaro in his sworn statement to the Commission however said that his involvement was to help World Report Ltd and NPF to resolve the issue of payment.

Mr. Fabila’s evidence 

Mr. Fabila in his evidence said that because Ms. Bergin also presented him with supporting letters from the Prime Minister Mr. Skate, Sir Rabbie Namaliu, Mr. langalio, Mr. Yagobo and Mr. Nali, which were typed on the appropriate Ministerial letterheads, he assumed the Government supported the venture and wanted NPF to pay for advertising in the World Report supplement in the Independent Newspaper. He therefore signed the contract in front of NPF legal counsel Mr. Herman Leahy, who according to Mr. Fabila was satisfied with the terms of the contract.

Mr. Fabila described how Mr. Lasaro had contacted him three times to discuss payment of the outstanding amount. Mr. Fabila was adamant that NPF should not have paid the outstanding amount until it had inspected the final outcome of the advertisement. He said Mr. Lasaro insisted on him paying. Mr. Fabila said that he then authorised the payment.

Minister Lasaro’s sworn statement 

Minister Lasaro agrees that he received a letter from Prime Minister Skate about supporting the World Report promotion of PNG. He also agrees that he wrote a letter to Mr. Fabila introducing the World Report. He explained that he contacted Mr. Fabila only about paying the outstanding amounts to World Report Limited, because as a Minister of State, he was concerned about PNG’s image overseas.

Findings 

(a) Prime Minister Skate had selected Mr. Fabila and appointed him as Managing Director of NPF (See report on Structure and Mr. Fabila’s own evidence Transcript pp.1781-1783). There is also evidence that Mr. Lasaro, as a Minister appointed by Mr. Skate, was accustomed to accepting Mr. Skate’s direction. In these circumstances, on all the evidence, the Commission finds that Mr. Fabila found it difficult to refuse directions from both Prime Minister Skate and Minister Lasaro.
(b) When Ms. Joanna Bergin personally handed a letter of recommendation signed by Minister Lasaro to Mr. Fabila and similar letters signed by at least four other ministers, he (Mr. Fabila) interpreted this as a political direction to commit NPF to advertise in the Independent and he accepted that direction.
(c) Mr. Fabila was in breach of his fiduciary duty to the members of the Fund by accepting Minister Lasaro’s letter as a direction and then committing NPF to a binding contract with World Report Ltd.
(d) The evidence is that Mr. Fabila realised that the paid advertisement was not in the best interest of NPF members. It is unlikely he would succeed in claiming he “acted in good faith” and is therefore probably personally liable for loss incurred by NPF if that loss can be quantified.
(e) Mr. Fabila entered into a contract with World Report Ltd without authority from the NPF Board and then provided the Board with false and misleading information in order to obtain Board ratification.
(f) Mr. Fabila’s conduct was improper and in breach of his fiduciary duty as a Trustee to the members of the Fund. Mr. Fabila may be personally liable for loss suffered by NPF arising from this contract and it is unlikely he could successfully claim a defence of “acting in good faith”.
(g) The Trustees were placed in a difficult situation by management as contractual relations had already been entered into without their knowledge. Even so the Trustees were remiss in not castigating Mr. Fabila and in not resolving to put in place clear directions to avoid repetition of unauthorised decisions by management in the future.
(h) The letter from the Prime Minister seems to have been circulated to other Ministers who then had the identical or very similar letter printed out under their own letterhead. These letters were then addressed to NPF and probably to other bodies asking them to participate in this advertising opportunity. This would be likely to have impressed the recipient of those letters as being a strong Ministerial push, initiated by the Prime Minister himself.

TO BE CONTINUED

National Provident Fund Final Report [Part 26]

September 9, 2015 1 comment

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

NPF Final Report

This is the 26th 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 2E Continued 

11. The trustee’s breached their fiduciary duties by failing to:

  • inquire from management the status of the ANZ facilities;
  • properly understand the risks inherent in NPF’s investment, as it was funded by debt;
  • consider whether NPF management was appropriately qualified and competent in the field of investment and provident fund management;
  • react appropriately to the clear warning signals in late 1997 and early 1998 when interest rates, exchange rates and share market prices all adversely impacted on the fund.

The roles of NPF management, the trustees, the Minister for Finance and of the ANZ managers have been examined in detail in this report because the approval of the ANZ facility and the way it was used to fund NPF’s disastrous investment strategies were very significant factors in the financial downfall of the NPF.

Executive Summary Schedule 2F Attempts to issue $A Bond 

Introduction: 

The possibility that the National Provident Fund (NPF) might issue an Australian dollar bond ($A bond) was first discussed in April-May 1994 when NPF’s finance and investment manager Noel Wright raised the matter with Dr Jacob Weiss, a World Bank advisor to the PNG Government.

At that stage Mr Wright floated the idea of offering the opportunity for NPF’s employer companies to buy transferable NPF bonds, earning tax-exempt interest. He felt this may be a cheaper way for NPF to raise funds to finance investment opportunities which may be attractive to NPF’s employer companies.

It was an ill-considered concept, which Dr Weiss did not encourage.

The concept surfaced again in 1997 with the apparent support of trustees Mr Copland and Mr Aopi. Mr Wright placed the matter before the NPF board on October 28, 1997. The proposal was to issue a $A54 million bond with a 14.67 per cent coupon rate (interest) maturing in 9 years. It was linked to a proposal to make a loan of K54 million to the State at 14.67 per cent interest for constructing the Poreporena Freeway.

The management paper which recommended that such a bond issue would be profitable for NPF was simplistically argued and was prepared without expert advice. It ignored some significant risk factors, particularly the risk that profitability could be eroded by unfavourable movements in the kina/$A exchange rate.

Without insisting on obtaining expert advice, the Board resolved to approve the issue of the bond subject to the approval of the Bank of Papua New Guinea (“BPNG”) and the Department of Finance (“DoF”). Making such a poorly advised decision constituted a breach of duty by management and the Trustees. NPF sought the views of the BPNG Controller of Foreign Exchange, Mr Benny Popoitai (paragraph 4.1). Mr Popoitai expressed strong concerns that the proposal could expose NPF to heavy loss if the value of the Kina fell in relation to the Australian dollar, as NPF would be paying interest in Australian dollars.

It is possible to “hedge” against such a risk by holding substantial Australian dollar assets, which would be appreciating in value if the exchange rate moved against the Kina and this was argued by Mr Wright. Mr Popoitai and other experts pointed out, however, that NPF’s Australian dollar assets were concentrated heavily in PNG resource stock, which are subject to dramatic fluctuations in value. If the value of these assets plummeted, which they did during late 1997 and 1998, the exchange rate hedge would be ineffective and NPF would be in serious financial difficulties if the value of the Kina fell against the Australian dollar. Mr Popotai’s warning was disregarded by NPF management and not put before the NPF Board.

Findings 

Mr Popoitai’s concerns about the exchange rate risks were valid and Mr Wright’s explanation was over simplistic and failed to recognise other risks that would negate the effectiveness of the “natural” hedge, which impacted on the exchange rate movement.

ANZ BANK VIEW 

Australia & New Zealand Banking Group Ltd (“ANZ”) diary notes of 1st December 1997 show that ANZ was approached by Mr Wright to help market the bond but decided not to get involved because it felt the bond issue would be commercially impractical.

No reputable investor would purchase a bond issued by an unknown institution like NPF unless performance of the bond conditions was guaranteed by a reputable government or financial institution.

ANZ was also concerned that this would be the first such bond issue in PNG and that NPF management lacked any experience or expertise in this area.

NARA INVESTMENTS (J. RYAN) AND WARRINGTON INTERNATIONAL 

Making no progress in finding a reputable investor to buy the bond, Mr Wright turned to Mr Jai Ryan a Canadian living in Port Moresby associated with Ambusa Copra Mill, who quickly identified Warrington International as a potential buyer for the bond.

Mr Wright, without consulting the NPF Board, offered Mr Ryan a commission of .05 percent which would net him a sum of $270,000 or $385,000 depending on how the ambiguous “informal” commission agreement was interpreted. Mr Wright authorised an advance of $15,425 to Mr Ryan, also without NPF Board authority and in contravention of the agreement, which specified payment only on successful completion.

Warrington was incorporated in Antigua and its representative was another Canadian, Mr Rudi Cooper. The terms of the agreement for Warrington to purchase the bond were quickly prepared. Without performing due diligence on the unknown and dubious Warrington and still with no expert professional advice, the NPF Board agreed to issue an AUD54 million bond with a 9 year maturity date and a coupon rate of 14.6 percent to be purchased by Warrington International.

Mr Wright and NPF management had withheld the critical comments of Mr Popoitai and the ANZ Bank from the NPF Board. The Trustees accepted management’s positive but shallow recommendations and did not insist that management perform due diligence on Warrington or obtain expert advice.

Findings 

(a) The failure of Mr Wright and Mr Kaul to brief the Board on these matters was a breach of their common law duties to the NPF. For Mr Kaul it was also a breach of his fiduciary duty as a Trustee.
(b) On the other hand the Board of Trustees’ failure to inquire about these matters and/or to insist that management undertake due diligence on Warrington was a breach of their fiduciary duty to the members of NPF.

FALSIFICATION OF DOCUMENTS AND WITHHOLDING INFORMATION FROM NPF BOARD 

In certifying the Board resolution, Mr Leahy, the corporate secretary and senior legal counsel, falsely included additional provisions authorising management to approve and execute all necessary documents which had not formed part of the resolution.

NPF prepared a very optimistic application for Ministerial approval. Two briefs for the Minister were prepared in DoF. One simply recommended approval. Another, prepared by Mr Tim Curtain, a World Bank consultant employed within the DoF, was a detailed and expert critique, which set out the commercial impracticality of the proposal and the serious risk of financial loss to NPF.

Mr Curtain’s brief was never put before the NPF Board. Mr Vele Iamo, the Deputy Secretary, DoF and a Trustee on the NPF Board, was aware of the critical brief but failed to ensure it was placed before the Trustees.

Findings

(a) Mr Vele Iamo’s failure to advise the NPF Board of Mr Curtain’s severely critical expert assessment of the proposed bond issue was a serious breach of Mr Iamo’s fiduciary duty to the NPF members.
b) The Commission finds that it is unlikely that he could successfully claim he was “acting in good faith” as a defence and accordingly he may be personally liable for any provable losses incurred because of his breach of fiduciary duty.

Mr WRIGHT WITHHOLDS CAUTIONARY EXPERT ADVICE FROM THE NPF BOARD AND MAKES COMMITMENTS WITHOUT BOARD’S AUTHORITY 

The similar concerns of the BPNG were also not put before the NPF Board.

NPF briefed Clifford Chance, lawyers in Paris, France, to advise on the terms of the agreement. As it was to be a bearer bond, Clifford Chance recommended it would be necessary to appoint an independent Security Trustee to hold NPF’s securities for the bond on behalf of NPF, with authority to release them to Warrington if NPF defaulted on the bond conditions.

In February 1998, there were wrangles between Warrington and NPF over the securities to be provided by NPF as cover for the bond. Mr Wright offered $A72 million in share scrip, without any authority from the NPF Board, in an endeavour to expedite settlement.

When Warrington sought evidence that interest it received on the bond would be tax free, Mr Wright was sensibly advised to obtain a ruling from the Tax Office. Instead, he recklessly guaranteed on NPF’s behalf to meet any taxes that might be levied. This potentially costly guarantee was without Board knowledge or authority.

Findings 

(a) Mr Wright’s guarantee that NPF would cover tax charges in PNG did not have the Board’s approval. Had the bond come into existence, this representation potentially exposed NPF to a heavy PNG taxation liability because PNG tax could be payable on the income earned from the bond. This was a serious breach of Mr Wright’s duty to the NPF.
(b) The Commission finds that Mr Wright had no relevant experience in corporate finance, especially in securing finance through bond issues. It is worthy of note that as far as we are aware, no bond has ever been issued in PNG.
(c) The Commission of Inquiry finds that Mr Wright and the NPF management team were unqualified to handle such a transaction and should have taken note of the professional and specialist assistance provided by the DoF, the BPNG, the ANZ Bank and Clifford Chance, instead of potentially exposing NPF to great risks.
(d) Mr Wright acted beyond his authority in exposing NPF to grave risks. Mr Kaul’s supervision of Mr Wright was inadequate.
(e) The Trustees also failed in their fiduciary duty to ensure that proper advice was obtained where it was obvious to the Board (or should have been) that NPF management did not have the appropriate in-house capabilities.

Foreign Exchange Controller Popoitai commissioned his own inquiries into Warrington and became increasingly concerned that it was not a reputable and financially secure company and that it may be connected with money laundering operations. He delayed foreign exchange approval while seeking further information and guarantees.

Clifford Chance also advised caution because of Warrington’s method of negotiating and about the security conditions being sought by Warrington.

MINISTERIAL APPROVAL 

Minister Lasaro was given only the DoF favourable recommendations and the NPF optimistic request for approval. He was not shown the critical report prepared by Mr Tim Curtain, which also queried NPF’s power to issue such a bond in foreign currency. Consequently, the DoF failed its duty to provide proper advice to the Minister and he gave his approval as recommended by DoF.

Findings 

(a) The Commission finds that the NPF had no power under any law to borrow money by way of bond issue or otherwise. This topic is dealt with in detail in the separate report on Borrowings.
(b) The Commission finds that DoF failed in their role to properly scrutinise NPF’s submission seeking approval under Section 61 of the PF(M) Act. The DoF failed to properly advise the Minister of Finance.

Mr POPOITAI’S SUSPICIONS ABOUT WARRINGTON INCREASE AND Mr WRIGHT MAKES FURTHER UNAUTHORISED OFFERS ON BEHALF OF NPF 

In January 1998, Papua New Guinea Banking Corporation (“PNGBC”) was prepared to provide a $A77 million bank guarantee to Warrington (covering principle and interest) but required specific details from Warrington to establish its credentials (Warrington failed to provide this information). PNGBC also required a 150 percent security cover from NPF for its guarantee.

A 150 percent security cover was beyond NPF’s capability as Mr Wright had already pledged huge volumes of scrip to ANZ as security for NPF’s loan facilities with ANZ. Instead, Mr Wright offered Warrington share scrip to the value of $A77 million as security (paragraphs 11.2 and 11.3). He had no NPF Board authority to make this offer and was therefore acting beyond his authority.

By March it was apparent that Warrington was suspiciously reluctant to provide details of its credentials and of its financier (NationsBank).

When Mr Wright finally provided Mr Popoitai with a company profile of Warrington it raised more concerns as it portrayed Warrington as a secretive organisation registered in Antigua, providing cheap loans to third world countries, using innovative funding methods. The profile did not allay fears that Warrington could be involved in money laundering activities for its anonymous owners and no reputable banker was listed as a referee.

Mr Popoitai expressed concerns about the lack of tender procedures in the appointment of Mr J. Ryan as agent and the selection of Warrington as the purchaser of the bond. He sought details of the specific purposes for which the proceeds of the bond would be used. Mr Popoitai also expressed concerns about the commercial practicality of the bond proposal and called for the coupon rate to be significantly reduced. Mr Wright’s replies misrepresented the facts and were deceitful.

Findings 

(a) The terms of the purchase agreement with Warrington and the surrounding circumstances strongly suggest it was not a normal commercial transaction.
(b) Mr Wright’s explanations about the purpose to which the hoped for bond funds would be put were unsubstantiated late inventions, of which the Board had not been advised and which it had not approved.
(c) Mr Wright gave misleading information to Mr Popoitai in order to gain BPNG approval to issue the bond.
(d) The NPF Board approved the issue of the bond on the basis of clearly inadequate information and advice, in breach of the Trustee’s fiduciary duty to the members.
(e) In failing to direct management to provide essential details of the bond and any risk to the Fund, the Trustees were in breach of their fiduciary duties to the NPF members.

The Commission finds that the views and conduct of the BPNG Foreign Exchange Controller were proper as he correctly expressed concerns regarding fundamental issues, which had not been addressed by NPF management, or the Board of Trustees.

In reviewing the correspondence referred to above, the Commission finds that Mr Wright misrepresented to Mr Popoitai the advice from Clifford Chance regarding security arrangements as Clifford Chance was still far from satisfied and was sending warning signals to NPF. He was also deceitful about the Board’s view in relation to reducing the coupon rate of the bond. The Board did not discuss the issue.

Mr COPLAND PERSUADES BPNG GOVERNOR TO INTERVENE AGAINST Mr POPOITAI 

Mr Popoitai continued to withhold Foreign Exchange approval until BPNG Board member and NPF Acting chairman, Mr Copland, exerted extreme pressure on the Governor of the BPNG, Mr Koiari Tarata.

Responding to this pressure, the Governor bypassed Mr Popoitai and personally signed the approval for NPF to issue the bond to Warrington. Mr Popoitai then gave approval for NPF to transfer the shares required as security from the PNG Register to the Australian register.

TO BE CONTINUED

National Provident Fund Final Report [Part 18]

August 28, 2015 1 comment

Below is the eighteenth 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 2002/03.

NPF Final Report

This is the 18th 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.

LOAN AGREEMENT SIGNED BY MANAGEMENT WITHOUT BOARD AUTHORITY

Mr Wright handled the loan negotiations and reached agreement with PNGBC as to its terms in June 1997.

The loan establishment fee was K375,000 which was debited to NPF’s interest income account. Messrs Kaul and Frank attested the Board of Trustees’ seal to the agreement on 17th June 1997, entirely without the authority of the NPF Board.

These decisions were never ratified1 by the NPF Board resolution so the loan agreement between NPF and PNGBC remained illegal because, firstly, NPF lacked the power to enter into an agreement to borrow and, secondly, because the agreement which was actually signed, lacked NPF Board approval. PNGBC’s lack of due diligence was surprising.

Findings

(a) Mr Kaul’s request to Minister Konga for NPF to borrow K50 million from PNGBC had not been considered or resolved by the NPF Board. This amounted to improper conduct by Mr. Kaul and a breach of his fiduciary duty to the members of the Fund.
(b) Minister Konga was also guilty of improper conduct in approving Mr. Kaul’s request without sighting an NPF Board resolution and without seeking advice from the DoF.
(c) Mr Wright’s application to PNGBC for the loan facility had no authority from the NPF Board.
(d) PNGBC was negligent in not requesting a copy of the NPF Board approval and the Minister’s approval before approving the loan facility of K50 million. PNGBC also failed to perform due diligence in relation to NPF’s power to borrow.
(e) PNGBC’s analysis of the loan application was flawed.
(f) Mr. Wright’s conduct in accepting the loan facility on behalf of the NPF Board and authorising payment of the K375,000 establishment fee without consulting the Board, was improper.
(g) The conduct of Messrs Kaul and Frank in applying the NPF seal and executing the loan facility agreement without the authority of the NPF Board, was improper.
(h) The improper conduct and breach of duty by Messrs Kaul and Wright leave them open to personal liability for loss suffered by members of NPF and, in the circumstances, it is unlikely they could defend themselves against an action by claiming to have “acted in good faith”.

MANAGEMENT FAILS TO FULLY INFORM NPF BOARD

At the 4th July NPF Board meeting, the Board was given the barest details of the loan agreement and was not asked to consider the tenders. Also it was not told that Gadens Lawyers had established The Tower Pty Ltd and transferred title to it and would act for NPF on the construction contract despite the fact that Gadens also acted for PNGBC on the loan facility agreement.

Findings

(a) Management was grossly negligent in allowing The Tower project to proceed with:-

-Inadequate planning (no financial planning)
-No financial evaluation
-No commitment for equity participation
-No commitment for leasing
-Insufficient due diligence

This amounts to a breach of common law duty by Mr. Wright and of fiduciary duty by Mr. Kaul.

(b) Messrs Kaul and Wright failed in their duty to keep the NPF Board fully informed of the progress of The Tower development.

(c) The Trustees in office at the time were in breach of their fiduciary duty to the members by failing to insist on a full report and full disclosure from management and for failing to inquire into and inform themselves on these issues. Their failure in these respects amounted to improper conduct.

CONTRACTUAL AND LOAN ARRANGEMENTS APPROVED WITH MINIMAL THOUGHT AND DISCUSSION

Paragraph 7 of Schedule 2B, describes how the NPF Board simply “rubber stamped” management’s recommendations on:-

(a) awarding the K45.447 million building contract to Kumagai;
(b) entering into the K50 million loan facility with PNGBC and
(c) appointing Century 21 with exclusive marketing rights.

Management did not point out to the Board that the loan agreement was based on a fluctuating Indicator Lending Rate (“ILR”) + 0.5 percent interest over 10 years which could leave NPF exposed to a massive increase in its debt burden if interest rates rose (which in fact happened when the ILR rose from 8.5 percent in mid 1997 to 21 percent in 1998). This was gross dereliction of duty by management.

The Commission notes that the Rider Hunt feasibility study of September 1996 assumed a flat interest rate of 9 percent to be set off against projected rental income when calculating net annual income from The Tower. It seems the Trustees were happy to proceed on the basis of gross rental figures.

Findings

(a) The management and Trustees in office at the time, were in gross breach of their duty and fiduciary duty respectively by:-

(i) giving so little consideration to:-
– the Kumagai K45,447,338 building contract
– the K50 million PNGBC loan agreementand failing to obtain adequate expert advice.
(ii) engaging a photographer without calling for tenders.
(iii) appointing Century 21 without going to tender.

(b) The management and Trustees failed to perceive the dangers of agreeing to pay fluctuating interest at ILR over 10 years and failed to consider the effect of sudden changes in ILR on their financial calculations. This was a major cause of the financial loss NPF suffered on The Tower project.

(c) These breaches of duty by management and of fiduciary duty by the Trustees, exposes them to personal liability for the losses incurred by the members as a result of these breaches of duty. It is unlikely that they could avoid liability by claiming to have “acted in good faith”.

DISCUSSIONS ON SECURITY AND LEGAL DOCUMENTATION

The fine-tuning of the documentation between PNGBC, Gadens and Mr Leahy continued through August and September as described in paragraph 7.1.7. It was still assumed that the borrower would be The Tower Pty Ltd.

MINISTERIAL APPROVAL OF K50 MILLION LOAN

On 8th September 1997 after the 1997 National Elections, Mr Kaul requested Ministerial approval of the PNGBC K50 million facility giving brief details, but providing no critical analysis and with no mention of the rate of repayment or the security to be offered.

Acting Minister Hon. Roy Yaki sought DoF advice. After almost one month of consideration at various levels, DoF finally provided advice, which merely summarised Mr Kaul’s brief. It presented no financial analysis, cash flow projections or assessment of NPF’s capacity to service the debt. The loan was then approved by the then new minister for Finance and Treasury, Hon. Iairo Lasaro.

This was a devastating failure of proper process. Neither NPF nor the PNGBC had addressed issues which were critical to the financial viability of the project and this failure was not picked up and addressed by anyone involved in the departmental and Ministerial approval process.

Findings

(a) Mr. Kaul’s brief to Minister Hon. Roy Yaki requesting approval of the K50 million PNGBC loan was totally inadequate, leaving out vital information that was required totally inadequate, leaving out vital information that was required.
(b) The DoF failed to critically analyse NPF’s proposal and failed to request that further information be supplied to enable a proper assessment to be made. The DoF failed its duty in recommending Ministerialapproval in these circumstances.

COSTLY EXTRA WORK REQUIRED ON THE BELOW GROUND FOUNDATIONS

After work commenced, there were immediate problems regarding the foundations, which required pilings at an estimated additional cost of K2 million and a 50 day delay (later extended to 86 days). This was reported to the October NPF meeting (see Schedule 6 where this matter is investigated).

The final cost of strengthening the foundations was K2,725,236 plus redesign work costing K212,496.

This, plus the fact that BSP had refused to purchase equity in The Tower, strained the financial viability of The Tower project. Gaps in legal documentation were still preventing NPF from drawing down on the facility.

ACCELERATION PAYMENT

To get the project back on track, NPF agreed to an acceleration payment of K1,400,000 and the adjusted contract price as at 15th April 1998 was K47 million. NPF was, by then, meeting progress claims by PAC the project manager at the rate of K3 million per month.

SUBSTITUTION OF NPF AS THE BORROWER

In paragraph 7.1.11, Schedule 2B describes how PNGBC agreed to Mr Leahy’s request to substitute NPF for The Tower Pty Ltd as the borrower in the contract documents because of last minute tax advice. The change was agreed without any thought about whether NPF had the power to borrow.

LEGAL DOCUMENTATION

By June 1998, the following legal documents were in place, preparatory to NPF drawing down on the facility:-

1. Floating Kina Loan Agreement between PNGBC and the NPF Board of Trustees drawn by Gadens Lawyers – attested by Mr Henry Fabila and Mr Herman Leahy (This document is dated the 4th of May,the day before the instrument of Mr Fabila’s appointment was signed and gazetted on 5th May 1998).

2. Fixed and Floating Charge between The Tower Pty Limited (Mortgagor), NPF Board of Trustees (Debtor) and PNGBC – attested by Mr Robert Kaul and Mr Herman Leahy.

3.Unlimited Guarantee between the NPF Board of Trustees and The Tower Pty Limited (Debtor and Guarantor) and PNGBC attested by Mr Robert Kaul and Mr Herman Leahy.

4. Mortgage between The Tower Pty Limited (Mortgagor), the NPF Board of Trustees (Debtor) and the PNGBC over Allotment 16 Section 5 Granville (the consolidated description of The Tower site) attested by Mr Robert Kaul and Mr Herman Leahy.

5. Equitable Charge from NPF Board of Trustees to PNGBC over 4,108,779 shares in Highlands Pacific Limited (“HPL”) attested by Mr Robert Kaul and Mr Herman Leahy.

FALSE DOCUMENT PREPARED BY MR LEAHY

Paragraph 9.4 recounts the detailed evidence how Mr Herman Leahy falsely certified 2 resolutions of the NPF Board allegedly passed at a meeting on 5th May 1998, which purportedly authorised NPF management to negotiate and sign the loan facility agreements with PNGBC. The certificate, dated 22nd May 1998, was clearly false and it was used to entice PNGBC to allow the first draw down on the facility.

Findings

The document certified by Mr. Leahy on 22nd May 1998 was false. He should be referred to the Commissioner for Police to consider whether he should be prosecuted under the Criminal Law.

The first drawdown of K21,598,271 occurred on 17th July 1998.

KUMAGAI’S KINA FLUCTUATION CLAIM AND ATTEMPTS TO SELL EQUITY IN THE TOWER PTY LTD

At this stage, the builders, Kumagai, began making a claim for additional costs and currency fluctuations, which were resisted by NPF.

This matter was raised in the June / July 1998 management report, as was the possibility of a sale of equity in The Tower to the PNGHB.

Mr Leahy falsely referred to a meeting between himself and Mr Greg Emilio, the Managing Director of the PNGHB which Mr Emilio denies ever took place.

At the 115th NPF Board meeting on 1st September 1998, the propriety of the un-tendered contract with Century 21 for management of The Tower (previously signed by Mr Wright) was criticised and it was resolved to obtain legal opinions about the possibility of seeking other quotations on the contract. Mr Wright, whose wife was employed by Century 21, strongly opposed this course.

COMMENCEMENT OF THE WAIGANI LAND FRAUDULENT SCHEME

At the 115th and 116th NPF Board meetings in September and November, the first steps in a fraudulent Waigani Land scheme involving Messrs Leahy and Maladina, were put in place.

PAC ADVISES SETTLEMENT OF KUMAGAI’S KINA FLUCTUATION CLAIM – OPPORTUNITY FOR FRAUD

At the 116th NPF Board meeting held on 22nd December 1998, Kumagai’s currency fluctuation claim was discussed. PAC advised that such a claim was not provided for in the contract but recommended agreeing to a settlement in order to prevent a possible walk away by Kumagai. The Board resolved to accept an increased final price of K50.5 million.

DRAWDOWNS ON FDL FACILITY – HUGE INTEREST RATE INCREASE

The first draw down of K21,598,271 occurred on 17th July 1998. By December 1998, the total draw down was K44,352,334 which required interest payments in December of K712,133, at 21 percent ILR.

As the building neared completion, NPF would be paying off K1 million per month and it still had no committed tenants to generate income.

CONSPIRACY TO DEFRAUD NPF

On 19th January 1999, Prime Minister Skate appointed Mr Jimmy Maladina as Chairman of NPF and the new NPF Board was in place. The Commission finds that at this stage, Messrs Leahy and Maladina were conspiring to defraud the NPF in several ways:-

* Fraudulent sub-contract payments through Kumagai and Ken Yapane and Associates during the construction of The Tower;
* The Waigani Land scam whereby land secretly owned by Mr Maladina was intended to be sold to NPF at an inflated price, and whereby Mr Maladina gained an improper commission from exorbitant land valuation fees );
* An inflated commission payable to Mr Sullivan of PMFNRE on the sale of equity in The Tower to PNGHB and
* Fraudulent payments through Ken Yapane and Associates for fictitious office refurbishment for the benefit of Mr Maladina and his associates.

INFLATED DISPUTE SETTLEMENT PAYMENT

After NPF’s offer to settle the Kina fluctuation claim by increasing the contract price to K50.5 million, Kumagai rejected it but made a counter offer of K51.3 million. Hiding these facts away in a schedule to the Board papers and without referring to them, Mr Leahy recommended to the newly appointed Trustees that they authorise management to settle the claim for between K53-55 million. Upon tha deliberately wrong advice, the Board resolved that management should negotiate settlement at K54 million.

The actual payment is dealt with at paragraph 13.7. The full details of this and other Tower-related frauds upon NPF are described in Schedule 6.

VARIATION TO PNGBC LOAN AGREEMENT TO FINANCE THE CONSTRUCTION OF THE TOWER

On 25th January 1999, Mr Fabila, without the knowledge of the NPF Board, sought and obtained the approval of Minister Lasaro to extend the PNGBC facility by K5 million to K55 million and to extend the overdraft facility by K5 million. DoF provided a positive recommendation to the Minister, which merely parroted NPF’s brief and provided no critical analysis.

Findings

(a) Mr. Fabila was in breach of his fiduciary duty to the members of the NPF in seeking approval from the PNGBC to increase NPF’s loan facility by K5 million and extending its overdraft facility by K5 million without obtaining approval from the NPF Board.
(b) Mr. Fabila was in breach of his fiduciary duty by seeking Ministerial approval for NPF’s varied loan arrangements without obtaining approval from the NPF Board.
(c) Mr. Fabila was in breach of his fiduciary duty in not informing the NPF Board about the contents of the PNGBC letter dated 25th January 1999 regarding the interest cost of The Tower loan.
(d) The DoF was in breach of its duty by failing to critically analyse NPF’s request to the Minister and in merely summarising NPF’s request in its recommendations to the Minister.

When Mr Fabila sought a further increase in the overdraft to K8 million a few days later and to increase the FDL to K59 million, PNGBC requested some hard financial details including a revised cashflow, details of confirmed tenants, a revised profit and loss statement for The Tower and a copy of the PwC Report.

Mr Fabila was not able to provide all the required information. He told PNGBC that the revised construction cost was K54.11 million, including K3.3 million to settle Kumagai’s claim. NPF’s loan relationships with both PNGBC and ANZ were in a fragile state, with PNGBC threatening to dishonour an NPF cheque for K368,071.57 made out to ANZ Bank for line fees. This is a clear indication of how serious the loss of fraudulently obtained payments aggregating some K2.5 million was to NPF at this critical time.

In fact, NPF was relying on an increase in the PNGBC overdraft to remain “financial” and an increase in the FDL facility in order to complete The Tower.

Findings

(a) The only thing stopping NPF’s Tower construction project from financial collapse in early 1999 was continuing support from PNGBC.
(b) NPF’s management of The Tower construction was in such disarray that Mr Fabila was unable to produce even basic details required by PNGBC to enable it to consider extending the loan facility.
(c) There were no committed tenants and no profit and loss statements or financial projections for The Tower.

ATTEMPTED FRAUD IN THE PROPOSED SALE OF EQUITY IN THE TOWER PTY LTD TO PNGHB

Both lender banks, ANZ and PNGBC, were reassuring themselves that NPF’s financial crisis could be
solved by selling The Tower, the proceeds of which would be used to retire debt. They would have gained further reassurance when Mr Leahy reported in his June / July report that the PNGHB was interested in acquiring 50 percent equity in The Tower Pty Ltd and this prospect was kept alive for the next few weeks.

Unfortunately, it was not true.

Schedule 2B devotes some time discussing the pressure being put upon the PNGHB to sign the contract because the possibility of that sale going through led NPF management to ignore proper laws and procedures and led PNGBC to ignore the fact that neither the NPF Board or the Minister had approved the K9 million additional loan. The K40 million expected on the sale to the PNGHB would solve NPF’s calamitous cash crisis, which threatened both NPF and the PNGBC. These matters and the fraudulent conspiracy involved in this proposed sale, are dealt with in more detail in Schedule 6. They are touched upon in this report because of their relevance to the PNGBC loan facilities.

Paragraph 13 of Schedule 2B provides details of a fraudulent scheme worked up by Messrs Maladina, Leahy and the Chairman of the PNGHB, Mr John Orea and Mr Maurice Sullivan of PMFNRE. The scheme involved Mr Orea manipulating the PNGHB to purchase 50 percent equity in The Tower Pty Ltd and for NPF to pay Mr Maurice Sullivan of PMFNRE a 5 percent (K2 million) Commission on the deal.

That commission would subsequently be laundered through the accounts of PMFNRE and Carter Newell lawyers and then divided between the conspirators and Mr Peter O’Neill (see Schedule 6). Mr Fabila, who placed his signature on some of the crucial documents, claims to have been duped by Mr Leahy but the Commission has found that he had some knowledge of serious improprieties occurring which he chose not to question or expose, probably in order to safeguard his job.

Findings

Messrs Maladina, Leahy, Orea, Sullivan and Fabila should be referred to the Commissioner for Police to consider whether charges of criminal conspiracy, attempted fraud or other offences should be brought against them.

The details of the fraudulent scam are further outlined in paragraphs 13.2, 13.3 & 13.4, showing how NPF Board approval was obtained to sell 50 percent of the equity in The Tower Pty Ltd for K40 million and how no mention was ever made to the Board of the K2 million commission for Mr Sullivan.

With the fraudulent scam in place it merely required the sale to the PNGHB to be completed. Here the conspirators struck trouble because the managing director of the PNGHB, Mr Robbie Kaivepa, and its legal officer, Mr Erastus Kambur, were men of integrity who realised it would be against the best interest of the PNGHB.

As part of the scam, Mr Orea (who stood to benefit personally) had already agreed to the purchase as Chairman of the Harbours Board, though he had no authority to do so. Mr Kaivepa rejected this as invalid and obtained legal advice that the PNGHB lacked the legal power to make the purchase. Three (3) Ministers wrote letters dated 22nd and 23rd March 1999, in identical terms, approving the sale (Ministers Lasaro, Pok and Auali).

These letters were intended to demonstrate that there was strong political support for the transaction. As PNGHB management remained firmly opposed to the deal, Mr Leahy wrote a letter on 10th June 1999 vaguely threatening future legal consequences.

The sale and the scam came to naught when at its meeting on 17th July 1999, the PNGHB accepted its
management’s firm and honestly reasoned recommendation to reject the proposition to acquire 50 percent of The Tower equity.

PNGBC APPROVES FDL INCREASE TO K59 MILLION AND EXTENDS THE OVERDRAFT FACILITY TO K9 MILLION

The bank approval for these variations was subject to proof of NPF Board approval and also of NPF’s power to borrow. This constituted a problem, firstly, because the NPF Board had not approved the variations, as Messrs Leahy and Fabila had acted without authority in accepting the increase in the facility and, secondly, because NPF did not possess the power to borrow.

Findings

The Commission’s findings clearly show the irregularities which had occurred in relation to this facility:

(a) The approval to sell a 50 percent equity in the NPF Tower, signed by Minister Lasaro dated 22nd March 1999, which was faxed by Carter Newell Lawyers to NPF on 1st April 1999, was drawn up by Carter Newell and backdated to 22nd March 1999.
(b) The approvals by Ministers Lasaro, Pok and Auali to sell to PNGHB, all dated 22nd March 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 percent of the NPF Tower.
(c) Mr Leahy acted unprofessionally in drawing up a certificate recording a circular resolution of the NPF Board dated 26th March 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) Mr Fabila failed his fiduciary duty as a Trustee and his duty to the NPF Board by seeking an increase of K9 million in the PNGBC Tower FDL facility in excess of the amount approved by the NPF Board.
(e) The payment to Kumagai authorised by Mr Fabila on 31st March 1999, was part of a scam involving Messrs Leahy and Maladina to fraudulently obtain K2,505,000 for Mr Maladina’s benefit. On the face of the documents, Mr Fabila was also involved (See Schedule 6). Those involved should be referred to the Commissioner for Police to consider prosecution.
(f) The procedure of obtaining approval for multi million Kina transactions concerning The Tower and other matters by way of circular resolution to be ratified later at the 118th NPF Board meeting in April 1999, was an abuse of process for which management and the Trustees must bear responsibility.
(g) The responsibility for the scam involving the 5 percent (K2 million) commission to Mr Sullivan of PMFNRE lies with Messrs, Leahy, Maladina and Sullivan. On the face of the documents, Mr Fabila was also involved.
(h) Mr Fabila as managing director and Mr Maladina as chairman, knowingly withheld from the NPF Board that Mr Fabila had signed an agreement to pay Mr Sullivan of PMFNRE a 5 percent commission on the sale of the 50 percent interest in The Tower. This was a breach of fiduciary duty by Messrs Fabila and Maladina.
(i) The scam to defraud the NPF over the sale of the NPF Tower amounted to a criminal conspiracy and Messrs Leahy, Maladina, Fabila, Sullivan and Ms A. Sariman should be referred to the Commissioner of Police to consider bringing criminal charges.
(j) Messrs Leahy and Maladina and Ms Sariman should also be referred to the Law Society of PNG to consider disciplinary measures.
(k) The PNGBC was remiss in failing to follow up its inquiry in April 1999 about NPF’s power to borrow, especially as it had knowledge of a previous legal opinion that NPF had no such power.
(l) The NPF Board was in breach of S.61(2) of the PF(M) Act when management (Messrs Fabila and
Leahy) accepted the increase in the PNGBC (Tower) FDL without obtaining prior approval from the NPF Board and the Minister.

SPECIAL NPF BOARD MEETING – 30TH APRIL 1999

This was the first meeting at which the Board was given full details about the loan facility and the
PNGBC conditions attached to it. It showed also that the NPF management was still holding out hope that the sale of the 50 percent equity in The Tower to PNGHB would succeed. The minutes show that the Board had considered Kumagai’s proposal to extend the completion date to 30th June 1999 but had firmly rejected it. It instead insisted on completion by the agreed date being 30th May 1999 or it would seek liquidated damages for any overrun.

PNGBC AND NPF CONFER AND AGREE ON NPF’S DEBT REDUCTION STRATEGY – MAY 1999

At meetings in May 1999, between PNGBC and NPF it was agreed that Mr Mitchell would continue negotiations with Mr Hersey of PNGBC. Negotiations seem to have gone well between May and October 1999.

PNGHB RESISTS FURTHER PRESSURE AND REJECTS A PROPOSAL TO BUY EQUITY IN NPF TOWER

Despite pressure from Mr Leahy on 10th June 1999, threatening legal consequences if the PNGHB withdrew from the transaction and despite a similar letter from Fiocco Posman Kua Lawyers, the PNGHB met on 17th July 1999 and finally and firmly rejected the proposal. This brought to a close Mr Maladina’s fraudulent scam to obtain the K2 million commission through Mr Sullivan of PMFNRE.

This outrageously excessive commission agreement had never been disclosed to the NPF Board. By contrast, when there was a later offer by another potential buyer to purchase The Tower for K69 million, the commission, which was to be only K775,000, was immediately disclosed to the NPF Board.

NPF MANAGEMENT PROVIDES EFFECTIVE SERVICE TO THE BOARD AND ADVISES OF FINANCE PACIFIC OFFER

Prior to June 1999, management, under Mr Rod Mitchell, had begun providing fully informative briefings to the Board in monthly papers. As at 30th June 1999, the Board received a performance analysis on The Tower including debt servicing cost, valuation, current leasing and expected income, schedule of overheads and return on book value. Mr Mitchell recommended selling The Tower.

The brief included documentation of an offer from Finance Pacific to purchase NPF’s BSP shares and assume NPF’s debt to PNGBC for K60 million which was exactly equal to NPF’s debt to PNGBC on The Tower FDL. By 5th August 1999, NPF had accepted the offer as The Tower was then costing NPF K1 million per month and its sale was crucial to NPF’s debt reduction strategy.

In August and September, NPF pursued the Government to revalidate its guarantee for the Roadstock to enable it to be assigned to PNGBC and asked PNGBC to capitalise the K900,000 per month interest debt in the meantime.

INVESTIGATIONS AND RECRIMINATIONS

At the 29th September NPF Board meeting, many serious complaints were aired about NPF affairs,
including matters related to the Waigani Land and NPF Tower frauds. These were followed up at the
October special Board meeting. Accusations were made against Mr Maladina and Mr Leahy.

INTERNAL FINANCIAL CONTROL RE-ESTABLISHED AT NPF

By mid June 1999, although NPF was still in very difficult financial circumstances, with the unsold Tower still draining off interest payments at K1 million per month, the new management team, under Mr Mitchell, advised by Mr Paul Marshall of PwC, had brought financial procedures under control and were progressively reducing the burden of debt by a concerted effort to sell off assets. These strategies had been formulated and implemented in consultation with Mr Hersey of PNGBC.

FINANCE PACIFIC MOVES TO TAKE CONTROL OF NPF’S ASSETS

It therefore came as a shock when Mr Rimbink Pato, the Executive Chairman of Finance Pacific, move to appoint an “Informal Administrator” to take control of NPF in order to protect the interests of PNGBC (a member of the Finance Pacific Group). The Finance Pacific Group was NPF’s major creditor with claims against most of NPF’s assets as security for The Tower FDL.

As part of a Skate Government restructuring of financial institutions, the PNGBC, MVIT, Agricultural Bank, National Investment Corporation and the Resources and Investment Finance Ltd were brought under the control of a newly created body, Finance Pacific Investments Ltd under the Executive Chairmanship of Mr Rimbink Pato.

Paragraph 17.1 describes how Mr Pato undermined the job tenure of the Finance Pacific Group General Manager, Mr Ken Bromley, in October 1999 and then appointed him as “Informal Administrator” of the NPF, claiming to be entitled to do so in order to protect the assets of NPF pledged as security for the K60 million owing to PNGBC on The Tower FDL facility.

Mr Pato clearly expected Mr Bromley to accept his directions to take control of NPF’s major assets on behalf of Finance Pacific, which controlled PNGBC. As an inducement (or possibly a veiled threat) it was pointed out to Mr Bromley that this appointment gave him an opportunity to demonstrate his higher managerial skills.

The report details the hard line adopted by Mr Pato and the pressure put on Mr Bromley to dismiss Mr Mitchell and oppose the appointment of PwC to “ensure an independent assessment of NPF’s viability over the coming six to twelve months” (paragraph 17.11). Early relationships between Mr Bromley and senior NPF management were strained and objection was taken to his presence at Board meetings. NPF quickly got legal advice, which confirmed that Mr Pato lacked the power to appoint Mr Bromley as Informal Administrator. However, largely because of the patient and understanding approach taken by Mr Bromley, NPF agreed to cooperate.

Luckily for NPF and its members, Mr Bromley was a man of integrity who formed a beneficial relationship with Messrs Mitchell and Marshall and adopted a patient “hands off” approach, as he saw that NPF was applying open, transparent procedures and following the rules of good corporate governance. It had also formulated and was conscientiously performing appropriate financial strategies, which were rapidly bringing NPF under proper financial control and reducing its burden of debt. Mr Bromley saw that those policies and strategies were working for the interests of both PNGBC and NPF’s members.

The fact that Mr Pato and his deputy Mr Hersey were not happy with this turn of events but wished to apply non-legal pressure on NPF management and NPF’s assets, indicated that they had a different and improper agenda.

Mr Bromley wrote four (4) reports to Mr Pato on the progress of NPF’s financial restructuring, the soundness of PNGBC’s security situation and the progress towards retiring the NPF debt to PNGBC.

They were all positive reports, which virtually precluded any possible attempt by Finance Pacific or PNGBC to deal with NPF’s assets.

Paragraph 17.18 of Schedule 2B, quotes an unused “draft” paragraph written by Mr Bromley that exposes the pressure, which was brought to bear on him by Finance Pacific and hints at hidden agendas.

Findings

(a) A concerted attempt by Finance Pacific to destabilise NPF by arranging for the dismissal of Mr Rod Mitchell was thwarted by the fact that Finance Pacific’s “Informal Administrator”, Mr Ken Bromley, was a man of integrity who realised that with appropriate encouragement and guidance, NPF’s new management and Board would bring NPF’s finances under control.
(b) NPF management under Mr Mitchell, assisted by Mr Paul Marshall of PwC, formulated sound financial strategies and obtained sound legal advice regarding the limit of Finance Pacific’s powers to take control of NPF’s assets.
(c) When Messrs Bromley, Mitchell and Marshall of PwC combined to ensure NPF was allowed time to implement its strategies, it was in the best legitimate interests of Finance Pacific as a concerned creditor and of NPF and its members. This combination of three men of integrity, armed with sound legal advice, brought Finance Pacific’s plans to a halt.
(d) The attempt by Mr Rimbink Pato of Finance Pacific to gain control over NPF’s assets, exceeded the legal powers of Finance Pacific and amounted to improper interference with the management of NPF. As Mr Pato was subject to the Leadership Code, his conduct should be referred to the Ombudsman Commission to consider his liability for breaches of the Leadership Code.

POWER TO BORROW

Finally, the report concludes by detailing the failure of PNGBC to follow up on knowledge it had (corporately) obtained by at least 14th August 1998, that there was competent legal opinion that NPF had no power to borrow, pledge assets or give guarantees.

TO BE CONTINUED

National Provident Fund Final Report [Part 17]

August 27, 2015 Leave a comment

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

NPF Final Report

This is the 17th 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. 

Mr WRIGHT ADVISES NPF BOARD OF EXISTENCE OF A K4 MILLION OVERDRAFT

In May 1998, PNGBC incorporated the various assets over which it had obtained security for the overdraft facility into the security it held for the PNGBC Tower loan.

It was not until June 1998 that Mr Wright provided any information to the NPF board about the long-standing overdraft. At this time it stood at K4 million. The information provided to the board, however, was very guarded and misrepresented the true facts.

Findings

(a) Disclosure of the overdraft facility by management (Mr Wright and Ms Dopeke) to the NPF board at the 113th board meeting on July 2, 1998, was inadequate and misleading as it implied that the overdraft was a new event and failed to mention it had been in place a long time; and
(b) Minister Lasaro was in breach of his duty as a Minister in not seeking DoF or other expert advice before approving the K4.5 million overdraft on August 19, 1998.

FURTHER OVERDRAFT ASSISTANCE FOR NPF BOARD

From August 1998, NPF required temporary overdraft assistance from PNGBC of K5 million to help meet its cash flow crisis. NPF management made minimal explanation to the board and the trustees failed to notice that management was exceeding its authority.

Findings

(a) PNGBC was remiss in August 1998 in not insisting that it sight board and ministerial approval before granting the K5 million temporary overdraft facility at 22.75 per cent interest;
(b) NPF management and Mr Wright in particular was in breach of duty in not keeping the NPF board fully informed and seeking approval for the K5 million overdraft facility;
(c) Mr Wright and NPF management failed to obtain approval from either the NPF board or the Minister for the K5 million overdraft facility;
(d) As the NPF 1998 Annual Report showed overdraft at December 31, 1998 of K6,770,000, both PNGBC and NPF trustees were negligent in not perceiving that this was in excess of the K4.5 million approved by the Minister of Finance.

NPF ADVISED OF LACK OF POWER TO BORROW FUNDS

When in August 1998, Gadens advised PNGBC that NPF lacked the power to borrow, PNGBC continued to lend to NPF, thus creating a very real possibility that the loan may not be recoverable and exposing the bank to a possible class action brought on behalf of NPF members in the future.

Findings

(a) Management’s reporting to NPF board in the last half of 1998 was scant and misleading as the overdraft balance was netted off against credit balance. This concealed the fact that NPF’s account with PNGBC was overdrawn by K6 million;
(b) The NPF board was remiss in accepting and not questioning such scant information and in simply approving confirmation of the overdraft facility at a level in excess of that earlier approved by the board and the Minister.

NEGLIGENCE OF NPF AND PNGBC

By December 31, 1998, NPF’s overdraft with PNGBC was K6,770,000 and it was having difficulty meeting its commitments to reduce it.

Findings

As the NPF 1998 Annual Report showed an overdraft at December 31, 1998, of K6,770,000, both PNGBC and NPF trustees were negligent in ignoring the known fact that this overdraft figure was in excess of the K4.5 million approved by the Minister of Finance.

FURTHER INCREASE IN FACILITY

PNGBC then acceded to NPF’s improper request to increase the overdraft facility even further by increasing it to K7 million subject to board and Minister’s approval.

The Department of Finance (DoF) recommended that the Minister give his approval without performing any analysis of the situation.

Findings

The Department of Finance was clearly remiss in not obtaining advice and not pointing out to the Minister – as it should have earlier:-

(a) Section 56 does not apply to the NPF Board of Trustees as it is not “a public body to which this Act applies”; and
(b) the NPF Board of Trustees has no power to borrow at all;
(c) the Minister should accordingly not grant approval under Section 61 of the borrowing as a contract because it was ultra vires the NPF board’s powers; and
(d) Those involved in giving advice to the Minister were clearly remiss in their duties.

REQUEST TO INCREASE OVERDRAFT FACILITY

The NPF board was notified of the overdraft extension to K7 million and a request for a further K2 million as well as a K9 million addition to the NPF Tower loan after the event.

Findings

(a) NPF management was remiss in the way it sought board approvals for extensions of the PNGBC overdraft facility to the extent that a valid approval was not obtained before management entered a binding commitment;
(b) The NPF board was remiss in not questioning management’s actions and not censuring management for acting in excess of its lawful authority.

ASSETS SALE TO REDUCE OVERDRAFT

By March 1999, Mr Marshall of PwC was helping NPF reduce its burden of debt by selling off assets.

The proceeds were used to reduce the PNGBC overdraft, which had been almost eliminated by January 2000. A similar overdraft for Crocodile was to be eliminated soon afterwards.

CONCLUDING COMMENTS

In addition to the major point that NPF had no power to borrow at all by way of overdraft or any other form of loan, the major discovery which the study of the PNGBC overdraft facility disclosed was that it had been arranged by NPF management secretly and that, mostly, PNGBC had gone along with management’s failure to obtain board (and sometimes ministerial) approval.

Entering into and using an overdraft facility is a contract requiring Ministerial approval in accordance with the sum involved. Deceptive accounting had initially hidden the existence of the overdraft and even after it had been disclosed to the board, the management provided misleading information. These matters were not properly regularised until Mr Mitchell had been appointed in 1999.

Executive Summary Schedule 2B

This is a summary of Schedule 2B which deals with the financing and construction of the NPF Tower.

See Schedule 6 also for details of special investigations into certain matters relating to the NPF Tower.

References in this summary to paragraph numbers in the report (unless otherwise stated) refer to the report on the NPF Tower loan set out in Schedule 2B.

deloitte-tower

INTRODUCTION

This report focuses on the loan funding obtained from the PNGBC to construct the NPF Tower.

It also outlines relevant aspects of the construction of the tower in order to provide background context for the loan funding. It overlaps to some extent with Schedule 6, which reports on several matters mentioned in this report that required detailed investigations.

RELATIONSHIP OF THIS REPORT TO SCHEDULE 6 – THE REPORT ON NPF TOWER 
INVESTIGATIONS

Schedule 2B reports on the decision to construct the NPF Tower, the incorporation of a company, The Tower Pty Ltd, to be the legal entity for the project; the tenders procedures and building contracts which resulted in the appointment of Pacific Architects Consortium (PAC) as the architects and Kumagai Gumi Company Ltd as the builders; the financing of the project and the performance of NPF management and the board in obtaining and servicing the loan from PNGBC; difficulties and claims during construction and machinations to sell a share in the tower to the PNG Harbours Board (PNGHB).

Schedule 2B also describes the history of the construction, with initial delays and increasing costs of K2 million caused by unexpected problems with the foundations.

It describes increased costs due to architect approved variations and an increase in costs of K1 million because of a genuine acceleration claim and of K2.5 million resulting from a fraudulently inflated settlement of a currency devaluation claim and a fraudulent second acceleration claim.

Further investigation of this fraud and other suspicious activities are reported upon in Schedule 6 which also relates the full history of the frauds perpetrated by Jimmy Maladina, Herman Leahy and Angelina Sariman in early 1999 whereby they illegally obtained K2.5 million from NPF and attempted to benefit from a K2 million commission to Port Moresby First National Real Estate (PMFNRE). It also reports upon the involvement of Peter O’Neill, Maurice Sullivan and Ken Barker.

Schedule 6 presents the results of the commission’s investigation into the money trail, which traced the “dirty money”, as far as possible to its eventual recipients.

The trail leads through the bank accounts of Carter Newell Lawyers and PMFNRE to the intended beneficiaries who include Mr Maladina, Mr Leahy and Ms Sariman as well as the directors of PMFNRE

Ken Barker and Maurice Sullivan and Peter O’Neill, executive chairman of the PNGBC and Finance Pacific and the secret “owner” of PMFNRE.

In this Schedule 2B those criminal matters are merely outlined, in order to provide background content for the loan funding for the construction of The Tower, which is the major focus of this Schedule.

EARLY DISCUSSIONS

The tower project was first discussed at NPF board meetings in December 1994 when K1.5 million was approved for preparing documentation to the pre-tender stage. Ministerial approval for K1.93 was requested and obtained by management, which was in excess of the board’s resolution. Throughout 1995, the board proceeded with caution and sought details of the financial viability of the project, refusing to be pressured by Mr Wright into premature approval.

Findings

(a) In 1995, the board authorised expenditure of up to K1.5 million to get the proposed NPF Tower development to pre-tender stage and made it clear that NPF by itself should not be exposed to a venture of this magnitude. The board emphasised the need for joint venture partners;
(b) Although the NPF board approved feasibility costs of only K1.5 million to pre-tender stage, Mr Wright exceeded his authority by seeking and obtaining Ministerial approval for such costs to K1.93 million;
(c) The Minister was not told that the board had only approved K1.5 million;
(d) The board was not told the Minister had approved K1.93 million;
(e) The cost estimate for the construction of the NPF Tower was K39.285 million;
(f) There were no projected rental calculations from Mr Wright as requested by the board; and
(g) No information on possible joint venture partners was forthcoming from Mr Kaul.

The project was temporarily shelved while management unsuccessfully sought joint venture partners.

When the project was revived by Mr Copland, Mr Kaul and Mr Wright in mid 1996, they discussed partial loan funding and the ANZ Bank, which was NPF’s major financier, was keen to provide a loan facility but under BPNG guidelines, it was unable to do so because ANZ was already over exposed to NPF.

APPROACH TO PNGBC FOR A LOAN FACILITY

By August 1996, the project was being pushed along by NPF chairman Copland as interest rates were low and he felt the time was ripe (paragraph 2.7.2).

With Mr Kau’s support, the project was approved in principle by the NPF board on August 27, 1996.

This approval was premature and based on little detailed information.

Findings

(a) The trustees failed in their fiduciary duty to the members by approving the development of the NPF Tower despite obvious deficiencies in the information provided to them on key matters such as thorough marketing evaluation, rental calculations and the availability of a joint venture partner.
(b) The trustees failed to inquire into the unexpected doubling of the approved K1.5 million initial investigation costs to K3 million.

Mr Wright approached Mr Holmes of PNGBC in October of 1996 (paragraph 3.1). He welcomed the possible business but wisely expressed precautions about the lack of research into the financial viability of the project and noted that the loan should be limited to K25 million which was about 50 per cent of the projected cost of the project. He felt that 100 per cent loan financing would lead to a prohibitively high interest rate burden. Unfortunately, this wisely cautious approach was later abandoned by PNGBC.

MINISTER HAIVETA APPROVES THE CONSTRUCTION OF THE NPF TOWER AT A COST OF K40 MILLION

NPF’s headlong rush into this risky and expensive venture continued and no brakes were applied by the supervisory bodies. Mr Kaul’s submission for Minister Haiveta’s approval provided no detailed financial analysis. The Minister granted approval without waiting for Department of Finance advice.

The DoF advice, when it came, provided no critical analysis of the economics of the proposal.

Findings

(a) Mr Kaul failed to provide a properly researched brief to the Minister to support his request for approval of the NPF Tower project;
(b) Senior officers in the DoF failed their duty to provide the Minister with an objective critical analysis of the proposal;
(c) Minister Haiveta failed in his duty to act on independent expert advice and granted approval without any expert advice other than the preliminary feasibility studies submitted by NPF. In granting premature approval to a half thought out project in these circumstances, Minister Haiveta was guilty of improper conduct;
(d) The approval was given even though there had been no market research to determine possible occupancy and achievable rental rates. There were no plans formulated to finance the total cost of the project or to service the debt over a stated time frame. The only due diligence and documented material available to the Minister and his advisors was the feasibility assessment by Rider Hunt;
(e) The hasty process by which Ministerial approval was given and recorded may have resulted in conditions imposed by the Minister being not recorded in writing.
(f) As both the Minister and the senior officers of the DoF failed in the discharge of their duties – this resulted in premature Ministerial approval of a poorly thought out, unresearched, unplanned and extremely speculative expenditure of up to K40 million of members funds.

MR WRIGHT APPLIES TO PNGBC FOR K50 MILLION LOAN FACILITY

Without NPF board authority, Mr Wright began negotiating the loan arrangements with Mr McAnally of PNGBC, seeking a K50 million facility on security of the tower, Highlands Pacific shares and an NPF guarantee. The Tower Pty Ltd was shown as the borrower.

While PNGBC were considering the loan application, the NPF board continued to make ill-considered decisions in February and May 1997 towards implementing the project, including the un-tendered appointment of Century 21 Siule Real Estate to market the leasing of the tower (paragraph 4.6) and the appointment, after considering tenders, of Kumagai as builder. The board was not informed of the proposals to borrow K50 million from PNGBC.

Findings

(a) The management and trustees were in breach of their duty in appointing Century 21 to market the tower leases without calling for tenders;
(b) Mr Wright acted improperly in not disclosing to the board that his wife was employed by Century 21.

PNGBC APPROVES K50m FACILITY

With the PNGBC Lending Committee about to meet, Mr Kaul quickly obtained approval from acting Minister Konga to increase the cost of the project by K10 million to K45 million.

In recommending approval of the loan facility, the PNGBC Lending Committee gained reassurance from the fact that it was a fixed price contract which it felt removed the possibility of subsequent costly kina fluctuation claims and that NPF would itself be able to finance any cost over K50 million.

Both these sources of assurance proved to be unwarranted as later there was a successful kina depreciation claim and NPF was not able to meet costs more than K50 million from its general revenue.

TO BE CONTINUED TOMORROW

National Provident Fund Final Report [Part 12]

August 20, 2015 1 comment

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

NPF Final Report

This is the twelfth extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 [2002] by Prime Minister Sir Michael Somare.

Continued from yesterday

Background to April 1999 restructure

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

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

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

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

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

Findings

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

Resignation of Mr Wright

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

Findings

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

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

Other managers

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

Findings

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

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

Political involvement of Prime Minster Skate

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

Minister Lasaro reinforced the ban, which continued into 1999.

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

Pricewaterhouse Coopers Report

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

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

The Hay Group

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

Findings

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

April 1999 Restructure

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

Mr Rod Mitchell

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

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

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

Findings

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

Revitalisation of management under Mr Mitchell

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

8th October special meeting – complaints and allegations

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

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

SCMC approval of senior office increases

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

Senior staff grades and SCMC approvals

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

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

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

Mr Mitchell’s package

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

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

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

Findings

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

OFFICERS ENTITLEMENTS AND ALLOWANCES

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

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

Findings

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

EMPLOYEES

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

Home Ownership Scheme

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

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

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

Findings

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

Salary increases

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

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

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

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

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

Budgetary restraint

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

Finding

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

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