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National Provident Fund Final Report [Part 61]

October 29, 2015 Leave a comment

Again, Peter O’Neill features heavily…

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

NPF Final Report

This is the 61st extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 6 Continued 

At paragraph 12.3.8.4, after exhaustive investigations, the commission found that:

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

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

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

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

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

At paragraph 12.3.8.5.3, the commission finds:

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

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

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

At paragraph 12.3.8.6.7, the commission has found:

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

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

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

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

61 table 1

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

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

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

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

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

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

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

(i) Carter Newell Lawyers K420,000

(ii) Nambawan Finance Limited K100,000

(iii) Recipients of cash:

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

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

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

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

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

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

Findings 

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

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

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

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

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

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

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

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

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

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

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

Subsequent cover up of the money trail 

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

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

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

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

Findings 

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

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

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

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

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

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

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

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

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

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

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

Referrals 

A – To the Commissioner for Police 

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

(b) Mr Leahy: For being party to all or some of the above mentioned offences and/or of criminal conspiracy with Mr Maladina in relation to any or all of such offences. (Paragraphs 5.3.6.1 and 5.3.6.7);

(c) (Transcript pp. 3280-3332) Henry Fabila: For being party to all or some of the above mentioned offences and/ or of criminal conspiracy with Mr Maladina in relation to any or all of such offences. (Paragraphs 5.3.6.4 and 5.3.6.7);

(d) Mr Taniguchi: For being party to all or some of the above mentioned offences and/or of criminal conspiracy with Mr Maladina in relation to any or all of such offences. (Paragraph 5.6 and related sub- paragraphs);

(e) Mr Kobayashi: For being party to all or some of the above mentioned offences and/or of criminal conspiracy with Mr Maladina in relation to any or all of such offences. (Paragraph 5.6 and related sub- paragraphs);

(f) Mr Yapane: For being party to all or some of the above mentioned offences and/or of criminal conspiracy with Mr Maladina in relation to any or all of such offences. (Paragraphs 5.5.3.1 and 5.5.4);

(g) Mr Lightfoot: To consider whether there is criminal culpability in relation to the fraud against the NPF such as to warrant charging him with an offence against the Criminal Code. (Paragraph 5.5.3, 5.5.3.1 & 5.5.4); and

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

B – To the Ombudsman Commission 

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

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

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

Mr O’Neill’s explanation 

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

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

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

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

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

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

Findings 

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

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

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

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

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

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

TO BE CONTINUED

National Provident Fund Final Report [Part 59]

October 27, 2015 1 comment

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

NPF Final Report

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

Executive Summary Schedule 6 Continued 

At paragraph 11.5.18.1, the commission has found that:

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

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

At paragraph 11.5.20.1, the commission has found that:

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

At paragraph 11.5.21.1, the commission has found that:

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

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

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

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

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

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

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

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

59 image a

Findings

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

At paragraph 11.6.1.1, the commission has found that:

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

At paragraph 11.6.2.1, the commission has found that:

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

At paragraph 11.6.3.2, the commission has found that:

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

At paragraph 11.6.3.5, the commission has found that:

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

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

At paragraph 11.6.4.1, the commission has found that:

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

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

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

At paragraph 11.6.5.1, the commission has found that:

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

At paragraph 11.6.6.1, the commission has found that:

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

At paragraph 11.6.6.2, the commission has found that:

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

At paragraph 11.6.6.3, the commission has found that:

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

At paragraph 11.6.6.4, the commission has found that:

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

At paragraph 11.6.6.5, the commission has found that:

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

At paragraph 11.6.6.6, the commission has found that:

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

At paragraph 11.6.6.7, the commission has found that:

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

Further Tracing Of Money paid Into The Accounts Of PMFNRE 

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

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

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

(c) Carter Newell by cheque or cash.

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

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

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

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

59 image b

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

59 image c

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

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

59 image d

TO BE CONTINUED

National Provident Fund Final Report [Part 58]

October 26, 2015 1 comment

Below is the fifty-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 58th 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.

The methods of tracing

The commission has traced the expenditure of these moneys by cheques drawn on the Carter Newell No.2 general account and has noted how these payments were reimbursed from the trust account. By matching the items of expenditure with the trust account transfers, by physically examining cheques and receipts and any other documents and other evidence it has in most cases been possible to make accurate findings for whose benefit the fraudulent moneys were expended. (See Carter Newell general account No.2 John Lousia at paragraph 10.2).

Findings

In paragraph 10 of the Schedule, the commission has thereby been able to make the following findings regarding moneys, which had been received into the Carter Newell John Lousia Trust Account.

At paragraph 10.3.8.3, the commission has found that:

(a) Ram Business Consultants received improper benefits of K10,000 and K87,397.30 from the Tower fraud (and see paragraphs 11.3.1 & 11.3.1.3);

(b) These matters should be referred to the Commissioner of Police for further investigation as to whether any person should be prosecuted as a knowing recipient of part of the proceeds of the NPF Tower fraud; and

(c) Ram Business Consultants and its principals Rex Paki and Ango Wangatau should be referred to the Papua New Guinea Institute of Accountants for investigation as to whether the fees obtained were excessive for the work said to be done and whether the conduct of any institute member or accountant in these regards has been unprofessional.

At paragraph 10.3.9.1, the commission has found that:

The sum of K10,000 paid by cheque number 500275 into Jimmy Maladina’s ANZ Port Moresby branch account was derived from Kumagai progress payment number three and laundered through Ken Yapane’s account and Carter Newell accounts. It was therefore part of the money obtained from the Tower fraud and was paid eventually for the benefit of and was received by Mr Maladina.

At paragraph 10.3.10.1, the commission has found that:

Cheques referred to in (d), (e), (f), (h), (i), (j) and (k) were cashed and the cash was picked up by Carter Newell employees directly under the control of Mr Maladina. The amounts, which totalled K151,000, were derived from Kumagai payment No.3 and laundered through Mr Yapane’s personal account and Carter Newell account. The payments were therefore part of the Tower fraud and were received by or for the benefit of Mr Maladina.

At paragraph 10.3.12.1, the commission has found that:

The close matching of the transactions following Kumagai fraudulent payments one and three, which were processed through Carter Newell trust account John Lousia file were overwhelmingly for the benefit of Mr Maladina with some for his associates like Mr Leahy and some pay-offs to lesser participants like Nathaniel Poiya and Ram Business Consultants.

Tracing money in Kerowa Tiki file 990393

The commission similarly traced the fraud payments, which had been received into the Kerowa Tiki file 990343.

Reconstructing Carter Newell Accounts – birth of attempted “cover-up” 

At paragraph 11.1, the commission describes a scheme hatched by Mr Maladina for Mr Yapane to give false evidence to the commission to protect Mr Maladina. It records a statement prepared by Barbara Perks for Mr Yapane to present to the commission. At paragraph 11.2 is a reconstructed Trust Account Ledger prepared by the commission for Kerowa Tiki file 990393.

The Carter Newell No.2 General Account is reconstructed in paragraph 11.4.

Findings

By matching the reimbursements from the trust account with payments from the general account and by considering all the documentary and oral evidence as described in paragraph 11 of Schedule 6, the commission has been able to make the following findings and referrals as recorded in the various subparagraphs of paragraph 11.

At paragraph 11.3.1.2, the commission has found that:

No payment was made to or for the benefit of Delta Seafood Limited, which was derived from these funds;

At paragraph 11.3.1.3, the commission has found that:

Ram Business Consultants received a benefit of K87,397.30 from the Tower fraud. Its principals Mr Paki and Mr Wangatau be referred to the Commissioner of Police to consider whether criminal charges should be laid and to the institute of accountants to consider disciplinary action for professional misconduct;

At paragraph 11.3.6, the commission has found that:

Payments of at least K1,187,387.21 of the reimbursements paid into Carter Newell No. 2 account were sourced from moneys derived from the NPF Tower fraud;

At paragraph 11.5.2.1, the commission has found that:

The sum of K400,000 paid to Mr Maladina by Carter Newell cheque # 500491 was sourced from the NPF Tower fraud;

At paragraph 11.5.4.1, the commission has found that-

(a) The sum of K87,397.30 paid to Ram Business Consultants on August 4,1999, from Carter Newell Trust was sourced from NPF Tower fraud money;

(b) Mr Paki and Mr Wangatau should be referred to the Commissioner for Police (see paragraph 11.3.1.3);

At paragraph 11.5.5.1, the commission has found that:

The cheques listed in (a) total K6,232.70. They were drawn and paid for the benefit of Mr Maladina and the funds were sourced from the NPF Tower fraud;

At paragraph 11.5.6.1, the commission has found that:

The payment of K17,000 paid by Carter Newell cheque # 788518 was sourced from the NPF Tower fraud money and was for the benefit of Mr Maladina;

At paragraph 11.5.7.1, the commission has found that:

The payment of K45,000 by Carter Newell cheque # 788527 was sourced from the NPF Tower fraud and was paid for the benefit of Mr Maladina.

At paragraph 11.5.8.1, the commission has found that:

These payments aggregating K555,630 for a total of K554,151.57 was sourced from proceeds of the NPF Tower fraud and the residual K1,478.43 was from another source which is not identified;

AT paragraph 11.5.13.1, the commission has found that:

(a) K1,775.10 part of the funds so transferred from Carter Newell Trust Account to Carter Newell N.22 Account was transferred in reimbursement of the payments made by Carter Newell 2 Account cheques # 788507 and # 788511 and that such payments as so paid were sourced from the NPF Tower fraud;

(b) THE residual K2,011.88 so transferred and paid out appears to have been sourced from other funds;

At paragraph 11.5.15.1, the commission has found that:

The payments totalling K7,124 as so paid, were sourced from the NPF Tower fraud.

TO BE CONTINUED

National Provident Fund Final Report [Part 57]

October 23, 2015 Leave a comment

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

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

NPF Final Report

This is the 57nd extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 6 Continued

The Fraudulent Payments 

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

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

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

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

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

Six progress payments made by Kumagai 

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

npf 57a

Tracing The Money Trail The tracing process

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

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

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

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

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

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

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

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

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

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

Kumagai Payment No.1 for K401,032.30

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

He subsequently left PNG and the jurisdiction of the commission.

Findings 

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

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

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

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

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

Kumagai Payment No. 2 for K652,421.29 

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

Findings 

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

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

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

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

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

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

Kumagai Payment No. 3 for K595,453 

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

Findings

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

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

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

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

Kumagai payment no. 4 for K446,841.84 

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

Findings 

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

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

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

Findings 

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

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

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

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

Total K77,792.13 

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

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

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

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

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

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

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

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

Tracing money in John Lousia file 980246 

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

npf 57 b

npf 57 c

National Provident Fund Final Report [Part 56]

October 22, 2015 1 comment

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

NPF Final Report

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

Executive Summary Schedule 6 Continued 

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

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

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

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

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

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

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

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

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

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

The documents that were manufactured were:

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

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

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

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

Findings

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

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

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

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

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

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

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

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

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

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

npf 56 a

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

npf 56 b

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

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

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

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

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

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

This clearly reflects the agreed fraud.

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

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

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

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

Findings 

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

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

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

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

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

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

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

Findings

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

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

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

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

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

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

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

npf 56 c

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

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

Findings

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

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

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

TO BE CONTINUED

National Provident Fund Final Report [Part 55]

October 21, 2015 1 comment

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

NPF Final Report

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

Executive Summary Schedule 6 Continued

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

npf 55 a

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

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

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

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

npf 55 b

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

Findings

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

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

Builders Other Works Variations:

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

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

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

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

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

Kina Devaluation Claim And Negotiation Between Parties 

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

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

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

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

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

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

The inspectors concluded, on this topic:

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

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

Professional Fees

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

npf 55 c

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

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

Commission’s Investigations Into Professional Fees Paid By NPF

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

npf 55 d

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

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

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

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

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

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

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

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

Findings

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

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

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

Commission’s Investigations Into The Kina Fluctuation Claim

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

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

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

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

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

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

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

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

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

TO BE CONTINUED

National provident Fund Final Report [Part 54]

October 20, 2015 1 comment

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

NPF Final Report

This is the 54th 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.

Some Concluding Comments

Although the planned scope of the Waigani land fraud was very serious, the actual loss suffered by NPF and its members was reduced to the loss on the valuation fees and legal costs because at the last moment, NPF withdrew from the purchase agreement. Members have mainly journalist Ruth Waram (Editor’s Note: Ms Waram was the business editor of the Post-Courier at that time) and the national press to thank for this partial reprieve.

This report demonstrates the amoral greed of the conspirators who preyed upon the NPF when its finances were in a desperately weak state and the depths of official corruption which existed in the Lands Ministry and the Land Board.

Some positive aspects which emerged from the inquiry were:

(a) THE benefit of a free and courageous press;
(b) THE effectiveness of the finance inspector’s inquiry;
(c) THE energetic and effective inquiry carried out by the NPF board of trustees after August 1999, which led to the termination of Herman Leahy and Jimmy Maladina from the NPF.

One matter of great public concern was the attempt by professional people to interfere with and undermine this commission of inquiry in order to protect Mr Maladina and his fellow conspirators. It is particularly disturbing that some of those people were lawyers, whose profession imposes upon them a duty to serve the court as their primary responsibility.

Executive Summary Schedule 6 NPF Tower Investigation Introduction 

The commission’s inquiries into the financing and construction of the NPF Tower, reported upon in Schedule 2B to the commission’s report, disclosed several matters which required further detailed investigation.

Those investigations are reported upon in Schedule 6, of which this is an executive summary.

The matters requiring further investigation, which are reported upon in Schedule 6, are:

  • THE in-ground works variation of K3,006,270.26;
  • THE resultant acceleration claim of K1.4 million;
  • THE currency fluctuation claim of K3.3 million;
  • THE second acceleration claim of K2.505 million;
  • THE professional fees of K3,568,298.84; * WHERE the K2.65 million from the arrangements made by Mr Maladina with Kumagai Gumi Company Ltd (Kumagai) went; and
  • THE proposed sale to PNG Harbours Board (PNGHB).

Overview 

In 1999, the Secretary for the Department of Finance (DoF) directed that there be an investigation by finance inspectors under Section 64 of the Public Finances (Management) Act 1995 (PF(M) Act). Among other matters, the inspectors were to investigate and report upon the NPF Tower construction.

Schedule 6 quotes the finance inspector’s report in full by way of an overview (paragraph 3.1). The lack of planning and critical financial analysis by NPF management and the board is criticised by the inspectors who blame chairman David Copland, general manager Robert Kaul and deputy managing director Noel Wright as being primarily responsible for this.

They were also primarily responsible for the failure to properly obtain the approval of the NPF board for the full amount of the preliminary expenditure that cost K1.93 million which Mr Kaul asked the Minister to approve. The trustees had approved a lesser expenditure of K1.50 million as professional fees for the feasibility studies conducted during the pre-tender stage.

The finance inspectors criticised the trustees for authorising the expenditure of such a large sum before basic calculations regarding the likely construction costs, sources and costs of funding as well as the availability of joint venture partners and estimated rental returns had been put before the board and considered. The inspectors also criticised the role of the DoF, particularly its senior officers serving as NPF trustees, for not providing a professional critical analysis of NPF’s proposals for initial expenditure, and for meekly supporting those proposals and recommending Ministerial approval. The commission fully endorses all these criticisms.

By the time the project was presented to the NPF board again in October 1996, K3 million had already been spent on pre-tender documentation (double the amount the board had approved). Management recommended that the board authorise the commencement of the project on the strength of a preliminary feasibility study by Rider Hunt and Partners (Rider Hunt). The board gave its approval on the basis that:

  • The total cost would be under K50 million;
  • The expected rate of return would be 10 per cent;
  • THE proposed residential floors would be converted into rentable office space; and
  • Funding would be partly by cash and partly from borrowings, repayable in approximately eight years.

The commission fully agrees with the inspector’s comments that an expected return of only 10 per cent on such a high-risk venture was far too low; funding partly by borrowing was unwise because of the significant cost of borrowing over eight years (The commission adds the overriding criticism that, legally, NPF lacked the power to borrow); NPF had dropped its previous requirement that joint venture partners must be found and this significantly increased NPF’s exposure to risks and cost blow-outs.

The inspectors were very critical of DoF Deputy Secretary (and NPF trustee) Vele Iamo and First Assistant Secretary, Commercial Investments Division Salamo Elema, for not recommending against this proposal.

On their recommendation, the Minister approved the construction of the Tower, at a cost not exceeding K40 million.

The accepted tender by Kumagai was for a construction cost of K45,447,388 and this required further Ministerial approval for a revised cost of K50 million on May 27, 1997. A contract was entered into with Kumagai for a construction cost of K45,447,388 which Mr Kaul signed on behalf of NPF on June 2, 1997.

This was signed prior to NPF board approval for this amount being obtained, which was not given until August 22, 1997.

The inspectors go on to describe how the concept of partial funding through members’ contributions was set aside as management negotiated a K50 million fully drawn down loan facility (FDL) with PNGBC which was later increased to K59 million.

Findings 

The irregularities in obtaining board and Ministerial approval for this facility and for the subsequent variations are described in Schedule 2B at paragraphs 4.3 and 4.8-4.10, where the commission has found that:

(a) Mr Kaul’s request to Minister Konga for NPF to borrow K50 million from PNGBC had not been considered or resolved upon 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 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 Mr Kaul and Mr Frank in applying the NPF seal to and executing the loan facility agreement without the authority of the NPF board, was improper conduct;
(h) The improper conduct and breach of duty by Mr Kaul and Mr 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”.

The inspector’s report goes on to describe how the cost of the project increased because of a successful kina fluctuation claim by Kumagai and how Mr Fabila, the new general manager of NPF, used this to justify an increase in the FDL.

They point out that Ministerial approval was for an increase to K55 million but that NPF exceeded this limit by obtaining from PNGBC, an increase to K59 million of which K58,122,757 had been drawn down by November 30, 1999.

The inspector’s report shows that when construction was completed in October 1999, the total costs incurred by NPF to develop and build the Tower amounted to K72,890,199.73 broken up as follows:

npf 54 image c

The inspectors comments on this table were:

“It will be noted that since the inception of the project in 1994 and up to September 1999, the expected overall cost of the development of the NPF Tower had increased tremendously, by as much as 2.43 times – from K30.0 million in August 1994; to K39.30 million in December 1995; to K48.14 million in September 1996; to K54.80 million in September 1997; to K58.03 million in January 1998; to K59.68 million in March 1998; and to K72.89 million (see Table 1 above) as at October 1999. This investigation notes that while the maximum development costs approved by the Minister was K50 million, actual development cost incurred amounted to almost K60 million. These exorbitant costs incurred in the project with no definite sign of profitability reflect the financial mismanagement and inefficiency by the involved NPF management and board.”

TO BE CONTINUED

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 20]

September 1, 2015 1 comment

Below is the twentieth 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 20th 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 2c Continued 

Findings 

(a) Management, particularly Mr Kaul and Mr Wright, were in serious breach of their duty to the NPF board and NPF members by failing to disclose and seek board approval for the negotiations with BSP, the substitution of security arrangements and the acceptance of a K30 million loan facility;
(b) The NPF board minutes for 1997, up to the 109th board meeting on October 28, 1997, record:

(i) The brief mention of the Poreporena Freeway loan at the 105th meeting held on February 27, 1997 (Exhibit B1011)
(ii) The brief mention of the Poreporena Freeway, NCD Water and Sewerage and Eda Ranu loans – but not the source of funds for them – at the 106th meeting held on May 5, 1997;
(iii) a resolution to loan a further K1 million to NCD Water and Sewerage – but not the source of funds for it – at the 107th meeting held on July 4, 1997.
(iv) a brief mention that BPNG approval for BSP to loan K30 million to NPF had not been obtained by the time of the 108th meeting held on August 22, 1999 (Exhibit B1036) and at the same meeting, the Eda Ranu loan was mentioned but not the source of funds.

There is, otherwise, not a single mention in the board minutes of all the events earlier catalogued in this report.
There were no board approvals sought or given for the drawdowns on the BSP facility, the altered security arrangements with BSP or acceptance of the new BSP facility arrangements contained in the facility letter of October 10, 1997;
(c) The drawdowns on the BSP facility, the altered security arrangements (which involved pledging NPF assets) and the entry into the new facility arrangements in October 1997, were all matters beyond any financial or other delegated authority of any member of the NPF management team and all required board approval.
The 109th NPF board meeting held on October 28, 1997, afforded a clear opportunity for management to brief the board and to obtain board ratification of what had been done and board approval of the BSP facility letter of October 10, 1997 but this was not done;
(d) Mr Kaul, as managing director, was clearly in breach of his duties in not curbing these management excesses and requiring that the requisite board approvals be obtained.
(e) Mr Wright was clearly in breach of his duties in exceeding his delegated authority and not obtaining the requisite board approvals; (f) Herman Leahy was remiss in his duties in:

(i) Signing the false board minutes of October 9, 1997. For this it is recommended that Mr Leahy be referred to the PNG Law Society to consider whether to impose disciplinary measures and
(ii) Not advising of the need to obtain board approvals.

(g) The NPF Board of Trustees were in breach of their fiduciary duty in not questioning NPF management about where the money for substantial investments was coming from, what the borrowed funds were being expended on and what security NPF was giving BSP for this substantial facility.
(h) The DoF (Mete Kahona, in particular) had a serious conflict of interest as it represented the State’s interest in urgently securing funding for the freeway as well as having the function of making recommendations regarding NPF’s requests for approval. It failed to address the danger of NPF borrowing at a variable (ILR) interest rate and then on-lending to Curtain Burns Peak at a fixed rate.

Drawdown paid through NPF’s PNGBC account: BSP co-operates with NPF management regarding unauthorised transactions 

BSP paid the K3 million balance of the K8 million loan approved by the Minister to NPF’s Papua New Guinea Banking Corporation account before it was on-loaned to Curtain Burns Peak on November 20, 1997.

Payment through another account, in this way, has made it difficult to trace the source of the freeway project loan funding.

In January 1998, NPF’s drawdown balance was K20,092 and the accrued interest totalled K19,926.

In February 1998, Mr Kaul agreed with BSP about rearranging NPF securities and also drew down K1.8 million for payments on the NPF Tower. The board was not informed of these transactions.

At the same time Mr Kaul asked BSP to act as security custodian for NPF’s proposed $A54 million bond issue while Mr Wright sought the release of Orogen shares to bolster NPF’s security requirements elsewhere.

These moves were necessary as NPF’s finances were being seriously affected by the fall in the value of its shares and the rise in interest rates.

Again, management kept the NPF board in the dark in relation to these activities.

BSP TIGHTENS ITS CREDIT ARRANGEMENTS, 1998 

In March 1998, BSP did release seven million Orogen shares but ensured it maintained a 4.5 per cent differential between the rate it paid on borrowed funds and the rate it charged.

In order to protect its own profitability, BSP notified NPF that it was tightening its credit arrangements with NPF. BSP also refused to accept the assignment by NPF of IBD’s held at other banks as security and effectively began putting pressure on NPF to find more acceptable security or begin retiring its debt to BSP .

In April 1998, BSP did release K1 million in term deposits to NPF but retained its 4.5 per cent differential and kept the NPF within its K22 million limit. It was keeping a vigilant eye on NPF.

NPF was obliged to accept commercial terms or apply maturing IBD’s to retire the BSP debt. Mr Wright agreed to retire the debt.

In June 1998, BSP conferred with ANZ about NPF’s credit rating and both banks agreed to tighten up their credit arrangements with NPF.

In July, Mr Wright was obliged to apply maturing IBD’s with PNGBC and the Bank of Hawaii (BoH) to retire the BSP debt.

GOVERNMENT PRESSURES NPF TO DRAWDOWN AND ON-LEND TO BUY TREASURY BILLS 

In December 1998, the Government put pressure on the financially ailing and debt-burdened NPF to seek a further K15 million drawdown on its BSP facility in order to purchase Treasury Bills to assist the Government cope with an urgent cash flow crisis.

NPF complied and BSP agreed to the drawdown on the condition that it took a lien over the Treasury Bills.

DoF and Minister’s conflict of interest 

In applying this pressure and then recommending Ministerial approval for the drawdown, the DoF was acting contrary to NPF’s interest and its senior officers were in an impossible conflict of interest situation, as was the Minister for Finance when he gave that approval.

Findings

In relation to all these negotiations and transactions entered into by NPF management, the commission has found at paragraph 4.3.13 that:

(a) Yet again, the NPF board minutes for 1998 do not record any information being given or noted by the board in relation to transactions concerning this BSP facility. No board approvals were sought or given in relation to any drawdown of funds on this facility; the request to fund a payment to Kumagai Gumi for the NPF Tower construction; the release of Orogen shares from BSP to be used as security for another loan; the numerous alterations in the security offered to and held by BSP; the realisation of NPF’s IBD assets to retire debt; the purchase of K15 million in Treasury Bills; the drawdown on the BSP facility to finance that purchase or the pledging of the Treasury Bills as security to BSP;
(b) Yet again the transactions listed in (a) above were beyond any financial or other delegated authority of the NPF management team and all transactions required board approval;
(c) Yet again, both Mr Kaul and Henry Fabila, as successive managing directors of NPF, were each clearly remiss in their duties in not curbing these excesses and requiring that the requisite board approvals be obtained and that for transactions over K500,000, the requisite Ministerial approval be obtained;
(d) Again, Mr Wright was clearly in breach of his duties in exceeding his delegated authority and not obtaining the requisite board and Ministerial approvals and in pledging NPF assets without those approvals;
(e) The NPF Board of Trustees also failed their fiduciary duty by not questioning management’s conduct and not making inquiries about the source of the funds for NPF’s investments and the expenditure or application of the funds, which they clearly knew NPF was borrowing;
(f) In relation to the drawdowns for the freeway loans and the drawdown for the K15 million to buy Treasury Bills, each of the Minister for Finance and the DoF officers (and in particular Mete Kahona) were placed in an impossible position as the interests of the State, which they were obliged to advance, were in conflict with the interests of NPF, which they were obliged to protect (when advising the Minister whether to grant approval under section 61(2) of the PF(M) Act).

RETIREMENT OF BSP DEBT – 1999 

By February 1999, NPF had consulted and been advised by PwC about the massive 1998 losses and the urgent need to reduce assets and retire debt. The maturing K15 million Treasury Bills were accordingly used to retire debt in February 1999.

This was done without board or Minister’s approval or knowledge.

Finally, K8 million of maturing IBD’s were used in April to fully pay off the BSP loan, despite a last minute attempt by the NPF board to “hawk” it around to find an investment at a higher interest rate.

During 1999, although management put more effort into working under the controlling authority of the NPF board, the commission has found at paragraph 4.4.9, that there were shortfalls.

Findings 

(a) Mr Fabila exceeded his delegated authority in applying the K15 million in Treasury Bills to retire debt without board or Ministerial approval and failed to inform the board of his action;
(b) Haro Mekere, inadvertently, provided false information to the board meeting of April 30, 1999 as to the purpose of the BSP loan facility and did not explicitly advise the board whether NPF was free to deal with the maturing K8 million IBD.
He did, however, get the board, rather than management, to make a decision as to what to do with that IBD;
(c) Someone in NPF management exceeded his delegated authority in paying off the approximate K8 million balance of the BSP facility in April/May 1999, without specific board or Ministerial approval and failed to inform the board of his actions. That “someone” is not identified on the evidence before the commission;
(d) Rod Mitchell inadvertently provided false information to the board meeting of May 21, 1999, as to the existence of and need to address the BSP facility when that facility had, unknown to Mr Mitchell, in fact been paid out in full, prior to that date.

CONCLUDING COMMENTS 

The commission’s investigations into NPF’s BSP loan arrangements have revealed that management operated almost totally outside of the control of the NPF board.

For the most part the board was not informed or consulted.

Management sometimes entered into loan agreements entirely without the board’s knowledge and drew down funds without board authority, frequently paying the funds into accounts at other banks rather than spending them directly on BSP approved purposes.

On at least one occasion, when evidence of (a non-existent) board approval was required by BSP, Mr Leahy simply presented a falsified approval resolution.

When NPF management sought approvals for the K30 million BSP facility, BSP, BPNG and the Minister approved the facility be used to fund local “Government” projects – i.e.: Freeway, NCD Water and Sewerage and Eda Ranu. Mr Wright, however, also had an additional purpose to use the facility to fund the purchase of Orogen shares and he disclosed this only to the NPF board. When the Ministerial and BSP approvals did not include this purpose, Mr Wright simply paid the drawdown into another bank account and then used it to buy Orogen shares, despite the lack of Ministerial and BSP approval.

The NPF board was kept in the dark about the fact that various “investments” were financed out of the BSP facility and the purposes for which drawdowns on the BSP facility were applied. Each decision involving over K100,000, required board approval and each decision over K500,000 required Ministerial approval, as there was no delegation of powers.

Mr Wright seems to have thought he had the power to do what he liked and no one in NPF curbed him.

The only partially effective curb was BSP’s insistence on Ministerial approvals to cover the stated purpose of each drawdown.

Many drawdowns were not directed to their approved purpose but were paid to NPF’s ANZ or PNGBC accounts where they were mixed with other funds. This confused the position as it is hard to say what the actual source of funds for a given investment was. This is important in relation to the source of funds for the freeway loans and probably “masked” the payment of K9.6 million for Orogen shares.

Neither the NPF board nor the Minister were adequately briefed as to the risk of borrowing funds at a variable interest rate (ILR) and on-lending at a fixed interest rate. The concessional interest rate on the freeway and NDCW&S loans was 11 per cent after tax (14.67 per cent gross).

The on-loans were profitable only when the ILR was below 11 per cent, when NPF was paying tax or 14.67 per cent when not paying tax. From October 1996, the ILR remained below 14.5 per cent only until April 1998.

Thereafter, it ranged from 17.5 per cent to a high of 23 per cent then back to 19.75 per cent when the loan was repaid in May 1999.

After 1998, NPF was clearly making a loss on the money on-lent for the Poreporena Freeway project.

Not only did management act beyond the control of the board regarding entering loan agreements and making drawdowns, it was equally beyond control in the way it pledged assets for security and redeemed and substituted securities with no reference to the NPF board whatsoever.

Throughout the period of the BSP loan facilities, from January 1996 until early 1999, there is no evidence that the Board of Trustees ever questioned management about what was occurring. All trustees appointed at the time were therefore in breach of their fiduciary duty to the members of the fund.

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