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

April 21, 2016 1 comment

jimmy maladina

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

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

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

The court accepted:

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

The National Court also claimed it was:

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

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

The National Court, therefore, concluded:

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

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

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

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

National Provident Fund Final Report [Part 52]

October 16, 2015 1 comment

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

NPF Final Report

This is the 52nd 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 5 Continued 

(f) MARIANO Lakae and Iori Veraga charged fees at approximately double rate to give grossly inflated valuations for the NPF Tower and the Waigani land;
(g) Authorisation for payment was given by general manager Henry Fabila, well in excess of his financial delegation and without consultation with or authority from the NPF board;
(h) The two valuers each paid Mr Maladina K30,000 commission on the fees paid to them by the NPF for valuation of the Waigani land. They each paid a commission of K87,500 to Mr Maladina from the fees received for valuing the NPF Tower.
(i) There was a conspiracy between Mr Leahy, Mr Maladina, Mr Lakae and Mr Veraga and possibly including Mr Fabila to obtain inflated valuation fees from NPF;
(j) Mr Maladina, Mr Leahy, Mr Veraga, Mr Lakae and Mr Fabila should each be referred to the Commissioner of Police to consider criminal charges, including conspiracy in relation to the valuations and valuation fees (See paragraph 19.9.2 for referral).
(k) Mr Fabila was in breach of his fiduciary duties as an NPF trustee and should be referred to the Ombudsman Commission in relation to this matter to consider possible breach of the Leadership Code.

On the face of the Carter Newell records, the 50 per cent of the valuation money was received by Carter Newell as legal fees for division in accordance with the partner’s profit sharing arrangement. As it was grossly excessive considering the minimal service provided by Mr Maladina that amount of remuneration was improper.

However, the commission made further investigations to see what actually happened to those valuation fees after they were received into the Carter Newell Trust account. It found the fraudulently obtained valuation fees were laundered through Carter Newell trust account and general account and paid largely for the benefit of Mr Maladina and Mr Leahy and their corporate entities. Angelina Sariman, Mr Leahy’s wife, was clearly involved and cashed and reinvested several of the cheques.

The commission traced the payments of these moneys to their end destinations as far as possible and these transactions are depicted diagrammatically in chart 1 attached as an appendix to this report (It deals with both the Waigani land and the NPF Tower valuations) (see paragraphs 17 and 19).

Findings 

(a) There is strong evidence that the arrangements between Mr Lakae, Mr Veraga, Maladina and Mr Leahy and Ms Sariman involved a conspiracy to cheat and defraud the NPF and that the conduct of these people was criminal in nature;
(b) Cheating is an offence under Section 406 of the Criminal Code Act as is conspiracy to defraud under Section 407. Misappropriation is an offence under Section 383A of the same Act and knowing receipt of property obtained by means of an indictable offence is an offence under Section 410 of the same Act;
(c) The commission recommends to the constituting authority that:
(i) each of Mr Maladina, Mr Leahy, Ms Sariman, Mr Veraga and Mr Lakae should be referred to the Commissioner of Police for investigation with a view to criminal prosecution; and
(ii) each of Mr Maladina, Mr Leahy and Ms Sariman, as lawyers, should be referred to the Papua New Guinea Law Society for investigation with a view to examining whether their respective conduct was unprofessional;
(iii) each of Mr Veraga and Mr Lakae should be referred to the Papua New Guinea Valuers Registration Board and the Papua New Guinea Institute of Valuers for investigation with a view to examining whether their respective conduct was unprofessional; and
(iv) Mr Maladina should be referred to the Ombudsman Commission for investigation whether he has committee offences in breach of the Leadership Code.

Attempts by Mr Maladina and Mr Leahy to persuade the NPF board to resolve to acquire a 100 per cent interest in the Waigani land were firmly rejected by the NPF board at its meeting on December 22, 1998, despite the preparation of false and misleading briefing papers for the Board (See paragraphs 13, 15 & 18).

Findings

(a) Attempts were being made, simultaneously, to sell off all or part of the Waigani land through the sale of shares in Waim No. 92 / WCC Ltd to POSF, MVIT, DFRBF and NPF;
(b) Pacific Capital was retained to prepare investment memoranda for the proposed sale to POSF and DFRBF. False information was included in the memoranda, which had been provided by the client, notably that the Valuer General had valued the land at K15 million whereas the actual Valuer General’s valuation had been K2.866 million;
(c) Mr Maladina was heavily and directly involved in briefing Pacific Capital in the preparation of the two memoranda of information;
(d) Mr Maladina was also directly involved in proposing to the NPF board that NPF should purchase 100 per cent of the shares in Waim No. 92, known as Waigani City Centre Ltd (WCC Ltd) for K10 million;
(e) Mr Maladina had an interest in WCC Ltd, which he was deliberately concealing;
(f) Mr Leahy was conspiring with Mr Maladina to sell off the interest in Waigani land to NPF and the other institutions; and
(g) These activities were serious breaches of Mr Maladina’s fiduciary duty as a trustee and of Mr Leahy’s contractual duties to NPF.

When Prime Minister Skate succeeded in obtaining the appointment of Mr Maladina as chairman of NPF in January 1999, Mr Maladina directed that the Waigani land deal be put back onto the agenda for the NPF board meeting scheduled for February 1999. Mr Leahy “doctored” the minutes of the December board meeting to create the impression that the board had left open the possibility of acquiring the land.

Prime Minister Skate appointed new trustees to replace those whose terms were expiring. By postponing the February meeting by a few days, Mr Leahy, supported by Mr Fabila (who was himself one of Mr Skate’s appointees) manipulated things so that Mr Paska, Mr Koivi and Mr Nana had no current appointment as trustees, so they were barred from attending the February meeting. With virtually a new board, Mr Fabila and Mr Leahy provided false information to the new trustees who then resolved to acquire 100 per cent of the shares in WCC Ltd (see paragraphs 20 & 21).

Findings 

(a) There were clear and obvious manipulations of the minutes of the 117th NPF board meeting, to reduce the role of Mr Maladina in the NPF Tower discussions and to hide the fact that he arranged, with Mr Leahy’s help, that negotiations to settle a claim by Kumagai Gumi be taken over by NPF management so as to achieve the increased ceiling of K54 million (See Schedule 6);
(b) There are also clear and obvious manipulations of the minutes regarding the Waigani land item to attribute to Mr Fabila, remarks which were actually made by Mr Maladina; to add in a fabricated recommendation attributed to Mr Fabila and to add additional resolutions which had not actually been passed;
(c) The additions to the evolving drafts of the minutes purported to empower an acting managing director to execute documents. This was intended to empower Mr Leahy to sign the contract and other documents during Mr Fabila’s absence from PNG when he attended a Cue Energy board meeting; and
(d) Further additions made after the meeting purported to expand the financial delegations of the corporate secretary and managing director to K50,000, falsely referring to the distribution of a paper which was not distributed at the meeting.

Using Patterson Lawyers as solicitors for WCC Ltd (to hide the involvement of Mr Maladina and Carter Newell), a contract was prepared and signed on behalf of NPF by either Mr Fabila or Mr Leahy and a cheque for K80,012 was drawn for stamp duty (see paragraph 22).

Mr Leahy and Mr Fabila provided false and deceitful information to obtain Ministerial approval.

Findings 

(a) The submission to the Minister seeking approval for NPF to purchase shares in WCC Ltd was knowingly deceitful and dishonest on Mr Leahy’s part because he drafted and asked Mr Fabila to sign the submission;
(b) If Mr Fabila read the submission before signing it, he, too, was knowingly deceitful, dishonest. If Mr Fabila failed to read the submission, as he claims, he was merely negligent; and
(c) Mr Fabila was in breach of his fiduciary duty as a trustee.

On the eve of the final settlement in April 1999, the press broke the news of the proposed Waigani land acquisition by NPF and the participation of other PNG institutions.

It was clear the press had very detailed and authentic evidence.

Mr Skate directed that NPF and other institutions must withdraw from acquiring the Waigani land (see paragraph 24).

Mr Maladina Mr and Fabila publicly and falsely denied NPF had signed a contract or expended any funds, despite the valuation fees of K235,000 and the stamp duty cheque for K80,012 (paragraph 26).

After the scandal broke in the press in April 1999, Brown Bai, Secretary for Finance established an inquiry by the finance inspectors in June. By October 1999, the NPF board itself was actively inquiring into the Waigani land deal and other matters (paragraph 29). Mr Leahy and Mr Fabila were unco- operative and obstructive to the finance inspectors, which amounted to deliberate interference with their investigations. These inquiries led to the termination of Mr Maladina and Mr Leahy from NPF.

Findings 

(a) The commission, in the light of all the evidence available to it, fully supports the findings of interference listed in the finance inspectors report;
(b) The interference by Mr Leahy and Mr Fabila is evidence that they feared exposure of improper conduct; and
(c) If Mr Fabila is, as he claims, innocent of any wrongdoing except that he was tricked and misled by Mr Leahy and Mr Maladina, he should have welcomed and fully co-operated with the Inquiry.

In evidence given on January 31, 2001, transcript pp. 5113-4, Mr Fabila explained his earlier obstruction was caused by his ignorance of the legal powers of the finance inspectors pursuant to the PF(M) Act. His resistance continued for three months, however, despite clear warnings and directions from the Secretary DoF.

The commission does not accept his explanation. It is far more likely that this resistance was related to fear of what the inspectors might uncover.

By January 2000, working through Simon Ketan, of Ketan Lawyers, Mr Maladina (with Mr Eludeme as his representative director) negotiated a sale of the Waigani land to Trinco No.6 Pty Ltd (a member of the Rimbunan Hijau Group) for a drastically reduced price of K3.3 million (see paragraph 29). The sale was, however, subject to WCC Ltd arranging for variation of the existing lease condition and other conditions precedent being satisfied.

To satisfy these conditions precedent and enable the sale to Trinco No.6 to proceed, Mr Maladina entered into corrupt agreements with the then Minister for Lands Dr Fabian Pok and chairman of the Lands Board, Ralph Guise.

Pursuant to this corrupt agreement, there was, firstly, a clumsy attempt to falsify the record of an earlier Land board hearing — No. 2006 of March 1999.

The fabricated record made it appear as though an application by Waim No.92 had been dealt with as item 151 and that the Land Board had recommended and the Minister had approved, the grant of a lease which would satisfy all the matters required by Trinco No.6 as conditions precedent to purchasing the Waigani land from WCC Ltd (see paragraph 30).

In pursuit of this clumsy attempt, Mr Guise and Dr Pok were involved in fabricating and gazetting false documents, preparing and signing false Land Board minutes and signing false and fictitious approvals (see detailed findings below). These clumsy attempts to “rig” the false approvals purportedly given at meeting no. 2006 left a documentary trail and when it became clear that it would probably be discovered by the finance inspectors, it was dismantled by a further gazettal notice which admitted that item 151 had never been considered by the Land Board.

Mr Guise then participated in another corrupt activity by arranging for an application by WCC Ltd to be listed for the next Land Board meeting, No. 2017 to be held on November 24, 1999.

Without the formality of a hearing, Mr Guise then simply signed a notice that the desired variations of conditions had been recommended and Dr Pok gave the necessary Ministerial approval.

Mr Guise, Mr Pok and Mr Maladina were all involved in a criminal conspiracy to achieve this result for WCC Ltd. All received corrupt benefits for the part they played (see paragraph 31).

Findings

(a) Relevant files in the Department of Lands have been removed or concealed in order to cover up fraudulent activities carried out by Dr Pok, Mr Guise and possibly by other officers and Ministerial staff;
(b) Mr Guise prepared or directed the fabrication of false minutes of Land Board meeting No.2006 of March 1999, purporting to be pages 10 and 11 dealing with a fictitious item 151 — application by Waim No.92, in which the Land Board recommended granting an urban development lease to Waim No.92 with very favourable conditions;
(c) The then Minister for Lands, Dr Fabian Pok, on September 22, 1999, improperly requested the Government Printer to publish a corrigendum to Land Board meeting 2006, showing Waim No.92 as a successful tenderer in respect of Item 151;
(d) Minister Pok improperly signed notification of alteration of State lease dated September 28, 1999, purporting to grant Waim No.92’s fictitious application purportedly recommended at meeting 2006. Minister Pok was fully aware of the impropriety and illegality of this action and that it was designed to benefit the owners of WCC Ltd; and
(e) Mr Guise improperly caused a corrigendum to be published in Government Gazette G152 dated October 22, 1999, to assist the conspiracy relating to the sale of shares in WCC Ltd;
(f) Mr Guise fraudulently and improperly issued a notice of a Land Board approval, purportedly granted at Land Board hearing no 2017, on November 24, 1999, for Waim No.92, which had in fact not been considered or approved by the Land Board;
(g) Dr Pok received corrupt benefits for his actions in favour of Waim No.92. There is insufficient evidence to make the same finding against Mr Guise although it sees that at least K100,000 was expended from the proceeds of WCC Ltd share sales for “Land Board claims”; and
(h) There is ample evidence that Dr Pok and Mr Guise were party to a criminal conspiracy with Mr Maladina to fabricate false documents designed to favour WCC Ltd in its endeavours to conclude a sale of the shares of WCC Ltd.

Referral

Dr Pok, Mr Guise and Mr Maladina should be referred to the Commissioner of Police to consider whether criminal charges should be laid in respect of their activities in obtaining a lease for Waim No.92 on favourable terms to assist in completing the sale of WCC Ltd shares to Trinco No. 6 (Rimbunan Hijau).

The sale to Trinco No.6 went through and the sale price (after paying out money owed to the Lands Department and for other statutory requirements) was paid to Ketan Lawyers.

Mr Ketan deducted his fees of K40,000 and paid the balance of K1,417,643.69 into the Carter Newell trust account on January 21, 2000, a manual receipt was made out to Philip Eludeme allocating no file number. This receipt was then cancelled (see paragraphs 30.11 & 30.12).

In fact, the money was immediately credited to Carter Newell file no. 200055 (Global Halshaw Consultants — an entity of Mr Maladina’s). It was then paid out through the Carter Newell general account for Mr Maladina’s benefit in various ways or, at his direction, to the benefit of those who had assisted him in organising the Waigani land (or NPF Tower valuation) fraud. The beneficiaries included Mr Eludeme, Mr Mamando, Mr Leahy, trustee Mickey Tamarua, Ram Business Consultants, Viviso Seravo, Dr Pok, Jack Patterson and Mr Maladina’s company, Ferragamo and Dr Pok’s company Biga Holdings.

Peter O’Neill appears to have received a benefit of K60,000 paid on his behalf to Port Moresby First National Real Estate (see Schedule 6 and paragraph 32).

All these transactions are fully described in paragraph 32 of the report and are depicted on Chart No.2.

The tracing of these moneys provides extremely strong evidence in support of the commission’s findings regarding those who perpetrated and benefitted from the Waigani land fraud (and from the NPF valuation fees).

TO BE CONTINUED

National Provident Fund Final Report [Part 19]

August 31, 2015 Leave a 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 19th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Continued from Friday 

The Commission has found that NPF certainly lacked power to borrow, pledge and guarantee.

It is possible that PNGBC is vulnerable should a class action be mounted on behalf of NPF members against the NPF Board and PNGBC for losses incurred as a result the various ultra vires loan arrangements entered into between NPF and PNGBC.

CONCLUDING COMMENTS

The decision to invest in the construction of the NPF Tower involved very major expenditure of borrowed funds.

It was driven by Messrs Copland and Wright and was riddled by gross failures of judgement by management, which failed to take basic steps to ensure the financial viability of the project and to address the inherent dangers in the loan agreement NPF entered into with PNGBC. Throughout the construction period, management repeatedly acted without Board approval to seek, enter and sign loan agreements and extensions.

The DoF failed to critically analyse proposals and make professionally competent recommendations to the Minister and the PNGBC failed to carry out competent due diligence about NPF’s power to borrow or to check that loan applications from NPF management had received NPF Board approval.

In the midst of this serial incompetency, the NPF Trustees completely failed to ensure that they received adequate briefs from management, based on independent professional advice.

Within the scope of its Terms of Reference, the Commission has accordingly found that the Trustees were in breach of their fiduciary duty to the members by not controlling management’s excessive zeal and in not seeking independent professional advice and that management was in breach of its duty to the Board, particularly Messrs Kaul and (later) Fabila, Mr Wright and Mr Leahy.

Worse still, by early 1999, a criminal conspiracy had evolved involving Chairman Maladina, Mr Leahy, Ms Sariman, Messrs Veraga and Lakae, Kumagai Gumi, Mr Ken Yapane, Messrs Barker, Sullivan and O’Neill and probably Mr Henry Fabila to cheat and defraud the NPF by means of excessive land valuations, a spurious acceleration claim, an inflated sale of 50 percent of the Tower to the PNGHB and inflated real estate commissions. These criminal matters are merely introduced in outline in this report, but are dealt with in detail in Schedule 6.

This report concludes with a description of what seems to have been a failed attempt by Pacific Finance to obtain access to NPF’s assets.

At the 108th NPF Board meeting on 27th August 1997, the Board “noted” that a K50 million loan would be secured

INTRODUCTION

The National Provident Fund (“NPF”) borrowings from Bank of South Pacific Limited (“BSP”) commenced entirely as a management initiative without any Board involvement.

Throughout the period between January 1995 and December 1999, there was a continuing tendency for management, particularly Mr Wright, to act without the Board’s knowledge and authority. BSP seems to have condoned this by not insisting on evidence of Board approval before approving loan agreements and allowing drawdowns.

On the other hand, BSP was very insistent on sighting evidence of Ministerial approvals. This requirement became troublesome for Mr Wright when the Ministerial approvals were too narrow to encompass Mr Wright’s desired purposes. On some occasions, he solved this problem by framing the drawdown requests within the narrow terms of the Minister’s approval and then requesting BSP to pay the drawdowns into an NPF account with another bank. This enabled Mr Wright to withdraw the money for non-approved purposes.

The history of the borrowings from BSP, discloses misleading conduct by Mr Wright and false certification of Board minutes by Mr Leahy.

In 1998, as NPF descended into financial difficulties, BSP conferred with ANZ and both Banks began tightening up their credit arrangements with NPF. This led to BSP insisting that NPF repay its loan.

In paying off the outstanding balance in 1999, NPF management again acted outside the authority of the NPF Board.

SHORT TERM K7 MILLION LOAN

NPF first borrowed from the BSP in December 1995 by accepting a loan of K7 million. The loan was sought, agreed, executed, received and repaid entirely by management, specifically Messrs Kaul and Wright, without the knowledge or approval of the NPF Board.

The funds were almost certainly used to purchase Government Inscribed Stocks and were repaid in less than one week. The cost in interest (22 percent) and stamp duty aggregated K24,806.13, far exceeding the coupon rate on the stock, of 11.625 percent.

Findings

(a) BSP did not undertake any due diligence to ascertain whether NPF had the power to borrow or to pledge assets, and it did not determine whether this loan was NPF Board approved or whether Ministerial approval was granted.
(b) Mr. Noel Wright and Ms. Salome Dopeke acted beyond their authority in accepting the terms of the borrowing from the BSP.
(c) Mr. Wright and Ms. Dopeke failed to provide any adequate information to the Board and the Board and managing director failed to question the loan arrangements.
(d) Mr. Wright and Ms. Dopeke failed to seek Ministerial approval and without the Board’s authority or the Ministers approval, both of which were required, entered into these loan arrangements with BSP.
(e) Mr. Wright and Ms. Dopeke failed to seek or obtain the Board’s and the Minister’s approval to pledge NPF assets as security for this loan.
(f) Mr. Wright and Ms. Dopeke are personally liable for any loss suffered by NPF as a consequence of this loan venture and neither would, in the Commission’s view, have the “good faith” defence available to them.

K30 MILLION LOAN FACILITY

Hidden purpose not disclosed to BSP or the Minister

In October 1996, NPF applied for and obtained a BSP loan facility for K30 million. NPF management advised the BSP, Bank of Papua New Guinea (“BPNG”) and the Minister, that the purpose of the facility was to fund NPF’s on-lending to the State for local projects, such as the Poreporena Freeway project and approvals were granted on that basis. Mr Wright’s additional purpose, stated only to the NPF Board, was to purchase shares in Orogen Minerals Limited (“Orogen”).

After mix-ups over the Ministerial approvals, the facility was put in place and drawdowns were to be utilised to on-lend to Curtain Burns Peak for the Freeway project.

Findings

(a) BSP did not carry out any due diligence regarding NPF’s power to borrow or to grant security over the K30 million in term deposits, which were to constitute security for the loan.
(b) NPF management did not give adequate advice to the NPF Board about the danger inherent in entering arrangements where NPF was borrowing funds at a variable interest rate (ILR) to on-lend at a fixed interest rate for the Freeway, NCD Water & Sewerage and Eda Ranu projects.
(c) Clearly, both BSP and the Minister were told by NPF that the proceeds of the K30 million facility were to be used for local infrastructure projects – specifically the Freeway, NCD Water & Sewerage and Eda Ranu. Neither was told, as Mr. Wright told the NPF Board, that it was envisaged that the facility would be used to fund the purchasing of Orogen shares.
(d) The application for Ministerial approval was not made by NPF but by BSP. This was not clearly pointed out to the Minister and the Minister was also not advised of the inherent risk in borrowing at a variable interest rate and on-lending at a fixed rate of interest. The Minister’s letter of approval was sent, however, to NPF.
(e) The letter from BSP to the Minister sought approval under Sections 56 and 61 of the PF(M) Act and the letter from the Minister to NPF granted approval under Sections 55 and 61 of the PF(M) Act. No one appears to have considered and concluded, as is the case, that neither Section 55 or Section 56 apply to NPF as it is not a public body “to which this (PF(M)) Act applies”.

Mr. Wright directs drawdown be paid into NPF’s ANZ account to enable funds to be spent on purpose not approved by BSP

In November 1996, NPF sought to drawdown K3 million for on-lending to NCD Water & Sewerage pursuant to the Ministerial approval of 7th November 1996, which limited the use of funds to local projects. This limited approval was an impediment when NPF management sought to drawdown K11.6 million on 20th November, of which K9.6 million was to be used to purchase Orogen shares. BSP refused the drawdown as it was not in accordance with the Ministerial approval.

Mr. Wright overcame this set back by altering the wording of his draw down request so as to comply with the more limited scope of the Minister’s approval. He then directed BSP to remit K9.6 million of the drawdown to NPF’s ANZ account, which was then used to purchase K9.6 million Orogen shares.

Findings

(a) In the process of considering the approval of the BSP K30 million facility for NPF, none of the advisors in the Bank, Department of Finance (“DoF”) or NPF considered NPF’s power to borrow or to pledge assets.
(b) There was considerable confusion surrounding the 20th November 1996 drawdown of K11.6 million, caused by Mr Wright’s attempt to use the drawdown to purchase Orogen shares which was outside the Ministerially approved purposes of the K30 million facility.
(c) Mr. Wright misled the NPF Board in earlier stating the facility could be used to purchase Orogen shares.
(d) Mr. Wright and Mr. Kaul did not advise the Board of the changing circumstances of the drawdown and how the Orogen purchase was actually financed.
(e) Mr. Wright used the K9.6 million drawdown to purchase Orogen shares, outside the terms of the applicable Ministerial approval of 7th November 1996.

Further unauthorised drawdown for Freeway project

On 9th December 1996, NPF resolved to on-lend a further K15 million for the Freeway project as the Public Officers Superannuation Fund (“POSF”) had backed out of its promised support.

K2 million of this was funded from a maturing Interest Bearing Deposit (“IBD”) held by BSP. The remaining K13 million was funded from the ANZ Facility. There seems to have been a further drawing of K3 million for the same purpose, which the NPF Board was not notified about).

By the end of December 1996, the BSP K30 million facility was drawn to K17.678 million.

Further unauthorised K12 million drawdown for Freeway project

In March 1997, Mr. Kaul drew down a further K12 million to finance the Freeway project but this left the facility overdrawn by K88,242.67, with interest therefore accruing at double rate. The Board was not advised of this problem.

BPNG caps BSP’s exposure to NPF at K22 million

In July 1997, Mr. Wright exceeded his authority by negotiating with BSP to redeem K18.8 million worth of IBD’s and substituting Orogen shares as security.

During the negotiations, BPNG imposed a limit on BSP’s exposure to NPF, which resulted in the facility limit being capped at K22 million. None of this was disclosed to the NPF Board.

After BPNG’s imposed prudential guidelines effectively reduced NPF’s BSP facility limit to K18 million, Mr. Wright pledged more Orogen shares, in order to increase the limit.

Again, this was done without consulting the NPF Board or obtaining their approval.

Mr. Leahy certifies false Board resolution

In early October 1997, NPF was under pressure from the State to obtain a further drawdown on its BSP facility for the Freeway project.

Ministerial approval was urgently obtained from Vice Minister for Finance, Mr. Ganarafo (as Finance Minister Lasaro was out of Port Moresby). Mr. Wright applied to drawdown K5 million from the BSP facility but BSP required evidence of a NPF Board resolution approving the loan agreement between NPF and Curtain Burns Peak, as this was a condition of the drawdown under clause 3.1(b) of the agreement.

As there had been no such NPF Board resolution, Mr. Leahy solved the situation by certifying a false resolution (see paragraphs 4.2.12).

This may be short of criminal conduct but it certainly amounted to professional misconduct and improper conduct within the terms of his contract. The Commission recommends to the constituting authority that Mr Leahy’s conduct in this regard be referred to the President of the Law Society of Papua New Guinea.

Unauthorised activities of Mr. Wright and breaches of fiduciary duty by Mr. Kaul and the NPF Board of Trustees

Throughout 1997 there was a great deal of interaction between Mr Wright (and to a lesser extent, Mr Kaul) and the BSP managers in which various transactions and agreements were entered into or discussed.

Very, very little of this was communicated to the NPF Board. From the documents available to the Commission, it appears that Mr Wright was making decisions for NPF as though it was his own personal Fund. These matters are discussed in paragraphs 4.2.1 to 4.2.14 of the report.

BSP was having difficultly reconciling NPF’s drawdown requests with the wording of the Ministerial approvals. BSP’s insistence on strict compliance with Ministerial approvals was impeding Mr Wright’s intentions. This required urgent action in order to obtain amended Ministerial approvals to match up with Mr Wright’s drawdown requests to BSP.

Much of the problem related to Mr Wright’s desire to use the funds approved for other purposes – mainly to acquire Orogen shares. There was much juggling with share scrip to patch up security requirements.

In August 1997, BPNG intervened to limit BSP’s exposure to NPF (paragraph 4.2.7). In fact, BPNG refused to approve BSP’s proposed K30 million line of credit to NPF.

There are records of Mr Wright seeking a K1 million drawdown by telephone to fund a payment to Kumagai Gumi but hanging up the phone when the approval was made subject to compliance with the terms of the Ministerial approval.

There were large transactions involving millions of Kina and large quantities of share scrip, which were all handled by Mr Wright (well beyond his authority) without reference to the NPF Board.

Paragraph 4.2.11 discloses details of the unauthorised pledging of Orogen shares by Mr Wright as security for an K8 million drawdown of the Freeway project. This strategy obliged Mr Wright to obtain urgent approval from Minister Ganarafo on 9th October 1997.

TO BE CONTINUED

National Provident Fund Final Report [Part 5]

August 11, 2015 2 comments

Today 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.

NPF Final Report

This is the fifth 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.

Term of Reference 1(g)

“All investment transactions including those relating to Highlands Pacific Limited, Itemus Inc. (formerly Vengold Inc.), Lihir Gold Limited, Cue Energy Resources N.L., Macmin N.L., Steamships Trading Company Limited and Collins & Leahy Limited and the failure to inform the full Board of Trustees of the transaction”

Each of these investment is reported upon in a separate schedule to this report, each of which has its own executive summary.

The major loss making investments of STC and CXL, HPL and Vengold are briefly covered also in this report at paragraph 11 above, as are the smaller investments in Macmin and Cue. As pointed out repeatedly in the schedules, the failure by management to inform the full Board of Trustees of the transactions was endemic. This is illustrated by the tables in the schedules.

Term of Reference 1(h)

“The decision to finance the Poreporena Freeway, and the role of any trustee or officer or employee of the fund or of any other person or entity in reaching this decision”

Creation of intermediary company Curtain Burns Peak

The full report on the loans provided by NPF to finance the construction of the Poreporena Freeway is set out in Schedule 7B. The executive summary is quite comprehensive and refers to relevant paragraphs in the schedule.

It describes how the State initially intended to borrow the necessary funds offshore but faced opposition from the World Bank.

To overcome this opposition, it decided to set up a company to be jointly owned by the State and the construction company (Curtain Bros Papua New Guinea) to be called Curtain Burns Peak Pty Ltd, which would then borrow the funds and finance the construction work, with the State providing a guarantee to the lender.

The State sought loans from DFRBF, POSF and NPF. It was a difficult situation for the State, which had recently failed in a lawsuit with Curtain Bros.

The other superannuation funds refused to be involved because their lawyers pointed to possible constitutional problems with the way the State proposed to fund the construction by off-budget, non-appropriated payments through Curtain Burns Peak Pty Ltd as an intermediary.

Blake Dawson Waldron had advised POSF and DFRBF that this method of funding, with a guarantee being given by the State, violated Section 209(1) of the Constitution.

State applies pressure despite conflict of Interest

The Minister for Finance Mr [Chris] Haiveta, the Secretary of DoF Gerea Aopi, and the First Secretary of DoF’s Commercial Investments Division Vele Iamo were all actively seeking funds to commence the troubled venture and NPF effectively became the banker of last resort.

Mr Aopi and Mr Iamo were also chairman and Public Service representative trustee of NPF respectively, so their conflict of interest was acute. 

The first loan agreement for K3 million was worked out in discussions between Mr Aopi and NPF managing director Robert Kaul.

From then on, it was clear that the State was pushing hard for NPF to provide further funding. The next K10 million loan was approved by Minister Haiveta even before the NPF board had resolved to seek it.

This was a large commitment for NPF, which rose eventually to a loan of K62 million. There were real doubts about the constitutional validity of the loan and whether the way the loan was structured could eventually be disadvantageous to NPF, as there was a mismatch between the terms of the loan agreement between the NPF and the lender bank (ANZ) and the terms on which NPF on-lent to Curtain Burns Peak.

The NPF board was divided whether to provide the loan or not.

Contrary Legal opinion withheld from NPF Board

The Blake Dawson Waldron opinion was provided to NPF management and it then sought and obtained a contrary legal opinion from John Batch on November 7. Although Mr Batch felt the loan was not unconstitutional, he pointed out that if the court decided otherwise, the loan would not be repayable to NPF nor would the State guarantee be enforceable in favour of NPF.

When the NPF board deliberated on the matter, management did not advise it of the very worrying Blake Dawson Waldron opinion. Nor was any expert investment advice given to, or sought by the NPF board.

Mr Aopi and Mr Iamo played an active part in the NPF board’s deliberations, without disclosing the conflicting double role they were playing. The employee representatives, Mr Paska, Mr Gwaibo and Mr Leonard, voted against providing the loan. Had Mr Aopi and Mr Iamo refrained from voting because of their conflict of interest, as they should have, the resolution may not have been carried.

The key players in initiating this loan were Mr Aopi and Mr Iamo, both of whom were in breach of their fiduciary duties to NPF members by taking part in the vote and by not disclosing their conflict of interest. Another key player was managing director Robert Kaul who must have witnessed that conflict of interest in action yet failed to seek independent investment advice for the Board of Trustees. Noel Wright also failed to advise the NPF that there was senior legal opinion that the loan would be unconstitutional and that NPF risked losing the amount of the loan and the interest owing.

Advantages and disadvantages of the investment

As reported in Schedule 7B, successive loans raised the amount to K62 million and it seriously distorted NPF’s investment portfolio by creating an over exposure to the State. When economic conditions turned against NPF, it proved difficult to “sell” the loan as the State guarantee was not transferable. As the “mismatch” problem did eventuate, making the loan no longer favourable to NPF, it was eventually transferred to the Bank of Hawaii, at a discounted profit. Later again, the Bank of Hawaii transaction had to be unravelled.

In fairness to those who supported these loans to the State, it needs to be said that they genuinely believed that NPF was getting a good deal. In fact, these Freeway loans turned out to be far more profitable than most of NPF’s investments.

All these matters are fully reported in Schedule 7B and its Executive Summary.

Term of Reference 1(i)

“Whether there was any manipulation or attempted manipulation of the fund’s financial results or its financial position and whether any such transaction benefited any trustee, officer or employee of the fund or any other person or entity”

The two main instances of manipulating the funds financial results have been discussed above under term of reference 1(c) namely the:-

  • Bank of Hawaii transaction when the K18.5 million profit was all brought to book in 1997, thereby contributing to the payment of a bonus to senior management (Schedule 1 Appendix 20 paragraph 20.7.2.1) and; The K10 million “reserve” provision where, by using incorrect accounting, K10 million of the 1996 large profit was taken out of the 1996 accounts (when maximum bonus was already payable) and brought to account in the less profitable 1997 accounting year which boosted the book value of the 1987 end of profit. This enabled the payment of a bonus of K52,941 for senior management which would not otherwise have been payable.

This contributed to an increase in senior staff bonus payments (Schedule 1 Appendix 20 for a detailed discussion of problems associated with the bonus scheme. The K10 million reserve is reported at paragraph 20.6.4(d)(vi) and findings at paragraph 20.7.2).

Term of Reference 1(j)

“The construction, contract negotiations and renegotiations of the Tower building and the role of any trustee or officer or employee of the fund or of any other person or entity”

deloitte-tower

The commission’s investigations into the NPF Tower were greatly facilitated by an excellent report provided by the DoF Finance inspectors who had previously investigated many matters connected with the construction of the Tower.

They pointed the way for this commission to follow, using its greater powers of investigation. Schedule 2B and 6 contain different topics of the report on the Tower.

Schedule 2B – NPF Tower Financing and Construction

Schedule 2B reports on the decision to construct the NPF Tower, the construction contracts and the PNGBC loan facility which financed its construction. The decision to borrow K50 million for this purpose was taken by the NPF board on a very poor briefing by management, which failed to explore the commercial viability of the large project.

NPF went into this project with no expert advice about the demand for office space in Port Moresby, no pre-agreed “signed-up” tenants and no expert advice about the dangers inherent in the terms of the loan agreement.

The PNGBC entered the agreement without carrying out adequate due diligence into those matters and above all, without assuring itself that NPF had the power to borrow funds for this purpose.

It was initially intended that PNGBC would lend funds to the Tower Ltd, a company incorporated by NPF to build and own the Tower building. At the last moment, however, the loan agreement was signed with the NPF itself and this invalidated the agreement because NPF had no power to borrow.

Schedule 2B reports upon management’s poor performance in reporting to the board on the administration of the loan and in particular its failure to obtain board approval for increases in the loan facility, which eventually expanded to more than K59 million. The schedule introduces six (6) suspicious matters, which the Finance inspectors thought required special investigations. The commission’s investigation into those matters is reported at Schedule 6.

The executive summary provides a detailed summary of the main themes and paragraph references to Schedule 2B.

Schedule 6 – NPF Tower Investigations

Schedule 6 reports upon the six matters, which the Finance inspectors had reported required specific investigation, as follows:-

In-ground works variation costs of K3,006,270.26

These costs were incurred on top of the agreed construction cost because of engineering problems in the foundations caused by the difficult soil substrata on the building site.

The commission concluded that the costs were genuine and recommended no further action.

Builders and other works variations

The commission accepted the professional opinion of Rider Hunt and Pacific Architects Consortium (PAC) and found that the variation costs were genuine and recommended no further action.

The first acceleration fee – K1.4 million

This fee of K1.4 million was paid in order to speed up the work in order to recover time lost because of the in-ground work delays.

Though there is reason to doubt whether NPF gained much benefit from this expenditure, the commission is satisfied that the decision to seek the acceleration was genuinely made and that the acceleration costs agreed upon were within reasonable bounds.

Professional fees

The commission investigated to see whether NPF had been overcharged pursuant to the consultancy agreement for professional fees. It found that there is ambiguity in the terminology used in the 23-page consultancy agreement and its appendices on the one hand and the wording in an appendix to a letter dated August 23, 1994, which is referred to in the consultancy agreement. The ambiguity has caused a difference of opinion about whether or not NPF has been overcharged for professional services.

The commission finds that it is a genuine dispute, common to such projects, which may need to be resolved through court processes.

A Kina fluctuation claim

A second acceleration claim

The contract was a fixed cost agreement with no provision to vary it because of fluctuations in the value of the kina.

The kina did, however, undergo significant devaluation, which seriously eroded the builders profit margin.

NPF’s consulting engineers, Rider Hunt, and PAC, advised NPF that it would be advisable to pay Kumagai an appropriate amount to compensate for the kina devaluation as otherwise it could mean cessation of work on the project.

Negotiations occurred which made it clear that an increase in the contract price to K51.5 million would satisfy Kumagai.

At that stage, however, Mr [Jimmy] Maladina and Mr [Herman] Leahy removed PAC from the negotiations, and discussions continued between them and Kumagai direct. At this stage also a spurious second acceleration claim was introduced.

After hearing evidence from the senior managers of Kumagai and PAC and after thoroughly studying the relevant correspondence and documentation, the commission found that Mr Leahy deliberately misled the (newly appointed) NPF board members to agree to a settlement price between K53 million and K55 million to settle both the kina devaluation and the second acceleration claim; when K51.5 million was on record as being Kumagai’s agreed settlement price.

The result was that an extra K2.5 million of NPF’s funds was paid to Kumagai. This had previously been agreed by Kumagai management at the insistence of Mr Maladina just prior to his appointment to the NPF Board of Trustees.

He had threatened to deny Kumagai the currency depreciation payment (after his expected appointment) unless they co-operated. The agreement between Mr Maladina and Mr Leahy with Kumagai managers was that Kumagai would return the extra K2.5 million of NPF funds to Mr Maladina plus an extra K150,000 of Kumagai’s own money as Mr Maladina’s personal “commission”.

An elaborate scheme was put in place, including the fabrication of false documents, so that Kumagai’s return payments to Mr Maladina could be laundered through the personal account of Ken Yapane and the account of his company Ken Yapane and Associates.

The pretext for these payments was to be a spurious sub-contract between Kumagai and Ken Yapane and Associates whereby Mr Yapane would pretend to provide extra labour and to do fictitious on-site work.

Kumagai duly received the “padded” K2.5 million as settlement of its kina devaluation/second acceleration claim and in return, made six progress payments for Mr Maladina’s benefit.

The first four payments were to Mr Yapane or his firm. The last two payments went directly to Mr Maladina’s law firm Carter Newell (After Mr Yapane refused to allow his bank account to be used to launder these payments).

The “cover-up”

After the Commission of Inquiry was established in April 2000, there was an attempt to “cover-up” what had occurred by fabricating false documents and correspondence between Kumagai and Ken Yapane and concealing Mr Maladina’s involvement.

Ms [Barbara] Perks and David Lightfoot of Carter Newell were involved in providing false documents to the commission and they have been referred to the Commissioner of Police to investigate whether their involvement was criminal.

Mr Lightfoot has also been referred to the PNG Law Society.

Mr Yapane initially gave false evidence to the commission in support of these false arrangements. When confronted with the consequences of his statements, and after receiving good legal advice, Mr Yapane changed his testimony and disclosed what had really happened.

The commission has recommended that he be referred to the Commissioner for Police to investigate his part in the fraud committed against the NPF.

The money trail

The commission embarked upon an intensely detailed exercise to trace the money paid by Kumagai’s six progress “payments”, totalling K2,649,999.70 to the ultimate recipients.

The tracing is described in paragraphs 7.1 to 7.6.2 in Schedule 6 and is also depicted diagrammatically by charts, which are attached to both Schedule 6 and its executive summary.

In essence, the commission has found that the money was “laundered” through the books of account of Carter Newell Lawyers and PMFNRE.

The investigations showed that PMFNRE is actually beneficially owned by Peter O’Neill and that he and Mr Maladina obtained substantial benefits from the proceeds of the NPF Tower frauds, either personally or through their companies and families.

Other beneficiaries of the NPF Tower fraud money can be ascertained by following the money trail on the NPF Tower charts, which are attached to Schedule 6 and its executive summary.

Term of Reference 1(k)

“The Waigani land proposal, and the role of any trustee or officer or employee of the fund or of any other person or entity taking account of the Department of Finance and Treasury inspectors’ recent investigation report”

By Term of Reference 1(k), the commission was specifically directed to investigate the attempted sale of land at Allotment 2 Section 429 Hohola, referred to here as the Waigani Land.

It was a long and difficult investigation, which was made more difficult by the “cover-up” activities of the parties involved and lawyers acting on their behalf.

Allocation of Waigani Land lease to Waim No.92 Pty Ltd

At Schedule 5, the commission reports how Mr Maladina before and during the time he was chairman of NPF, was the secret owner of Waim No.92 Pty Ltd the shares of which he initially owned through his wife Janet Karl, and an accountant Phillip Eludeme.

Ms Karl’s share was later transferred to Phillip Mamando who resided at the Mr Maladina’s residence.

Mr Maladina was responsible for bribing Land Board chairman Ralph Guise and Lands Minister Viviso Seravo, to ensure Waim No.92 was granted the lease of the Waigani Land on very favourable terms.

Part of the bribe was the performance by Mr Eludeme of free professional services for Mr Seravo prior to the allocation of the lease in order to obtain the Minister’s support.

Inflated land valuations and valuation fees

Mr Maladina then organised two inflated valuations of the land from valuers Mariano Lakae and Iori Veraga.

He arranged for NPF to pay the valuers a “double fee” which he then shared with them.

Mr Maladina’s secret commission on the valuation fees, amounting to K60,000, was paid into the account of Carter Newell and subsequently paid for his own benefit and to pay off Mr Guise and Mr Seravo and for the benefit of Herman Leahy, his co-conspirator.

At approximately the same time, Mr Maladina was also using the same two valuers to obtain inflated valuations of the NPF Tower as part of a scheme to sell off 50 per cent of the Tower (Schedule 6). He organised for NPF to pay them double fees for the Tower valuations and took half of it for himself, amounting to K175,000.00.

Mr Maladina’s was laundered through the accounts of Carter Newell and PMFNRE.

The Tower valuation fees are reported in Schedule 5, along with the Waigani Land valuation fees.

Continued tomorrow