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Commercial banks ‘the largest facilitators of corruption and fraud’ in PNG say the police

January 5, 2016 Leave a comment
PNG's four commercial banks

Commercial banks not only facilitate most of the corruption in Papua New Guinea – they actually profit from laundering the proceeds of crime

PNG has four commercial banks – Bank South Pacific (BSP), Westpac, ANZ and Kina (formerly Maybank) – which is owned by Rimbunan Hijau.

The Papua New Guinea Financial Intelligence Unit has described these banks as “the largest facilitators or ‘gatekeepers’ of corruption and fraud” in PNG and detailed their resistance to assisting authorities to do more to disrupt corruption.

This is explained  in a paper – Applied Forensic Accounting – Experiences from PNG Financial Intelligence Unit [520kb] – published by the FIU in 2012.

The paper also outlines the enormous scale of the corruption in PNG, the devastating impact of the routine theft of public funds on service delivery and poverty and the inability of the police to do anything about the problem as there is a complete breakdown in the law and justice sector.

The Financial Intelligence Unit was set up as part of the PNG Police in 2007 under the Proceeds of Crime Act. It has a tiny staff of only six – and not all those positions are always filled. The FIU was established, not as part of a coordinated effort to tackle domestic corruption, but in response to PNG’s obligations to the South Pacific Forum to tackle transnational crime. The FIU is very limited in its scope, supposedly focusing just on cash transactions and the proceeds of crime – rather than the far more obvious and serious disbursement of illegally acquired funds and the misuse of government cheques.

The paper describes corruption as systemic and systematic in PNG. This is backed up by PNG’s ranking of 145th out of 175 countries in Transparency International’s 2014 Corruption Perception Index.

According to the FIU, the Public Accounts Committee has stated there is a culture of impunity and no fear or risk of detection or punishment for those who steal public funds. This has created a situation where an impoverished and disillusioned people are deprived of basic services. Illegal and improper practices are rife across the entire spectrum of government and at every level. The police seem incapable or unwilling to investigate or prosecute financial crime.

The FIU paper says corruption flourishes because those in positions of responsibility have the motive – very low wages compared to cost of living and family / wantok pressures – rationalization – everyone else is doing it so why not me – opportunity – very weak or non-existent controls, lax governance and poor diligence in the banking sector – and capability – the necessary knowledge and ability to commit fraud.

The FIU says it can do little to reduce motive or capability and has therefore focused on altering the rationalization by trying to reduce the perception that nobody notices the corruption and there is no risk of detection and by restricting the opportunity for corruption through banking rules that make it harder to place the proceeds of corruption into the banking system.

The greatest challenge facing the FIU it says has not been detecting the offences and offenders but dealing with the huge number of offenders and preventing repetition of their offences. The number of offenders is too large, the FIU too small and the court system too slow to have any measurable effect using criminal prosecutions.

The lack of motivated and adequately resourced police force and court system also means that trying to control the corruption by going after the money and seizing the proceeds of crime is not seen by the FIU as a viable option as it would rely on a sufficient number of cases going through the court system. This in turn would also need a functioning public service that could provide access to sufficient information, documentation and other evidence.

Therefore the FIU has concluded the most practicable method of addressing corruption is to tackle the facilitators of the fraud – the commercial banks.

The FIU focused on two methods, encouraging the banks to report significant cash transactions and exercising due diligence in relation to government cheques.

Significant cash transaction reports focus on public servants who make large deposits well in excess of legitimate earnings. A first round of reporting identified a significant number of government employees who were repeatedly depositing amounts well in excess of their annual salary. However the banks did very little in response.

Due diligence on government cheques is a response to the fact that huge amounts of money are stolen using these instruments by people obtaining the cheques by illegal means. According to the FIU the banks claim they do not have the staff, skills or systems to allow them to differentiate between legitimate and illegitimate cheques and do not have the resources to vet them all.

The FIU implies the banks have effectively refused to cooperate and feel they are being asked to act as policemen when it should be the government’s responsibility to stop corruption. This is contrary to the fact that under the law the banks have an obligation to seek all the information they need to ensure funds they receive are not the proceeds of crime.

A collapsed public service and inadequate legislation and funding means the FIU has been forced to try and develop processes to disrupt corruption that do not rely on the criminal justice system, the agencies of the public service or require significant funding. Unfortunately the commercial banks have put up their own barriers that have further undermined the efforts of the FIU.

Rimbunan Hijau silent on its takeover of Maybank

May 22, 2015 4 comments

RH boycott sticker, 2003

maybank

There has been plenty of media coverage this week about the sale by Maybank of its Papua New Guinea banking interests. The story has made headlines in both PNG and Malaysia and been featured extensively in the business pages right across the the Asian and Pacific regions. A few examples of the media coverage are copied at the foot of this post.

But one crucial detail has been missing from all the media coverage. Nobody has mentioned that the company taking over Maybank’s interests in PNG is in fact the notorious Malaysian logging company Rimbunan Hijau.

Rimbunan Hijau has logging operations all across PNG

Rimbunan Hijau has logging operations all across PNG

RH has already used the profits from its extensive illegal and destructive logging operations in PNG to expand its interests into property development, media, retail, shipping, aviation, travel and the financial sector. But it is remaining very coy about its involvement in the Maybank deal – presumably because land grabbing (RH was slammed in the recent Commission of Inquiry into the unlawful SABL land scam), illegal logging, environmental destructionhuman rights abuses and the use of the police to terrorize landowners are somewhat frowned upon in the offices and board rooms of the banking world. And how many Maybank customers will want to stay with the bank when they realise their monies are in the hands of Rimbunan Hijau?

the national 20 May 2015

Even The National, Rimbunan Hijau’s own newspaper, failed to mention it is RH who has taken over Maybank

Even Rimbunan Hijau’s own newspaper, The National, has failed to mention RH’s role in the deal, despite splaying the story of the Maybank sale across its front page on Wednesday, including two more articles on the deal on its inside pages and running two further stories yesterday, including one featuring opposition leader Don Polye endorsing the takeover.

All that we have learnt about the Maybank sale from the media is that Maybank has been sold to a company called Kina Ventures and Kina Ventures is a wholly owned subsidiary of Kina Securities.

But who owns Kina Securities? Well it is Rimbunan Hijau. But that ownership is carefully hidden behind a veil of secrecy and deception involving various off-shore companies and hidden shareholdings.

According to the Investment Promotion Authoriy, Kina Securities is 94% owned by Fu Shan Investment Ltd with Columbus Investments and Wayne Golding each holding small 3% share parcels.

Fu Shan Investment is a Hong Kong registered company with address at Level 28, 3 Pacific Place, 1 Queens Road East, Hong Kong.

RH has a long history of covering up its ownership of Kina Securities

RH has a long history of covering up its ownership of Kina Securities

But the first real clue as to Rimbunan Hijau’s ownership comes from looking at Kina’s Board of Directors. Alongside Wayne Goding, Sid Yates, Don Manua and Rabbie Namaliu sit Peter NG, General Manager for Corporate Finance and Investment for the Rimbunan Hijau Group in Malaysia, and Chin ‘James’ Yap, of Rimbunan Hijau PNG. Former directors also include direct members of the Tiong family, the owners of Rimbunan Hijau.

Fu Shan acquired its shares in Kina Securities in November 2011, buying  1,190,000 from a company called Flensburg Inc and 600,000 from Primeco Limited. Both Flensburg and Primeco have previously been exposed as Rimbunan Hijau subsidiaries. Colombus acquired its 100,000 shares from Flensburg in December 2006

Those with a long memory may remember we have been here before. In 2006, when Rimbunan Hijau’s ownership of Kina Securities was first exposed, the company went to extraordinary lengths trying to deny the claims and cover-up the evidence. The lies and deception, particularly from Sid Yates, was all extensively detailed online by PNG’s first web based corruption watchdog – Masalai i Tokaut.

Masalai

Masalai revealed that the company Kina claimed as its owner was not even a real, registered company and that the women Kina said was the ultimate shareholder was actually the wife of the brother of Rimbunan Hijau’s founder and a director of several RH subsidiary companies. Masalai also exposed how Kina was operating its huge superannuation business without a licence and was defrauding the State of million of kina in fees.

Some of the recent media coverage

Malaysia’s Maybank exits Papua New Guinea for $117 mln
Source: Reuters
Malayan Banking Bhd (Maybank), Malaysia’s largest bank by assets, said on Monday it will sell its commercial banking units in Papua New Guinea for 418 million ringgit ($117.15 million).
The sale of Maybank (PNG) Ltd and Mayban Property Ltd to Kina Ventures Ltd follows a decision to re-focus Maybank’s resources into ASEAN and China, where it can achieve better synergies and investment returns, the bank said in a statement.
“While we have been operating profitably and successfully in Papua New Guinea over the years, we have had to evaluate how best we can use our capital going forward, especially in light of new and more stringent requirements under the Basel III regime,” Chief Executive Abdul Farid Alias said.
The sale is expected to conclude in the second half of this year.

Maybank to exit Papua New Guinea
Source: The Rakyat Post
Malayan Banking Bhd (Maybank) has entered into an agreement with Kina Ventures Ltd and Kina Securities Ltd of Papua New Guinea for the proposed disposal of Maybank’s entire equity interest of two subsidiaries incorporated in Papua New Guinea for a total cash consideration of about RM418 million.
The sale of both Maybank (PNG) Ltd (MPNG) and Mayban Property (PNG) Ltd (MPPNG) is expected to be completed in the second half of 2015, Maybank said in a statement today.
MPNG and MPPNG have been involved in commercial banking activities and property investment respectively.
The disposal will not have any effect on the issued and paid-up share capital as well as shareholdings of the substantial shareholders of Maybank.
It is also not expected to have any material effect on the earnings per share, net assets per share and gearing of the Maybank Group for the financial year ending Dec 31, 2015.
Maybank group president and chief executive officer Datuk Abdul Farid Alias said the sale is part of Maybank’s continuous effort to evaluate its international operations with a specific focus on maximising capital use as well as optimising resources in the most efficient manner.
“This decision to dispose of our operations in Papua New Guinea is a result of strategic reviews carried out regularly at the group to reprioritise our capital and resources with the intention of focusing our growth agenda in target regions where we can achieve the best returns from our investments.
“While we have been operating profitably and successfully in Papua New Guinea over the years, we have had to evaluate how best we can use our capital going forward, especially in light of new and more stringent requirements under the Basel III regime.”
Ultimately, he said, greater value creation can be achieved for all stakeholders by re-focusing resources in the Asean and Greater China regions where greater synergies and better returns on capital investment can be realised.
Abdul Farid said despite the share sale agreement, Maybank would still be committed to serving customers in Papua New Guinea who have cross-border requirements given the banking group’s vast network in the region and in key international centres.

Kina takes over Maybank
Source: The National, Wednesday May 20th, 2015
KINA Bank will become the country’s fourth largest bank following the Kina Group’s K319 million-plus acquisition of Maybank PNG.
Kina Group chief executive officer Sydney Yates said Maybank and the Kina Group customers could now access a broader range of banking and financial services and products under one roof.
Kina Group is the country’s largest non-banking financial institution. “Cornerstone investors that have agreed to provide funding in connection with the transaction include PNG superannuation funds Comrade Trustee Services Limited, Nambawan Super Limited and National Superannuation Fund Limited,” Yates said.
“Kina Group is presently considering options to fund future growth, including a possible stock exchange listing.”
Yates said Maybank PNG was an attractive banking business with a solid capital and liquidity position. The transaction is being undertaken in consultation with the Central Bank of PNG and should be completed in July.
Yates said Kina Group would pay about  K319 million, plus the difference in the value of the net assets of Maybank PNG at the completion of the proposed acquisition, compared to December 31, 2014.
“The acquisition allows Kina to enter into electronic banking, leveraging Maybank PNG’s client base and the growing demand for electronic banking services,” Yates  said.
“Kina Group already services the financial and investment needs of our 8000 lending clients, 3000 stockbroking clients and 150,000 fund administration clients, as well as acting as a licensed investment manager with approximately K4.7 billion in funds under management.
“Maybank PNG’s business provided a natural fit to Kina, enabling it to extend its reach in PNG’s financial sector market with an established and profitable company that had all necessary licences and an established client base.”
Yates said the acquisition “further reinforces our commitment to provide the PNG community with an alternative to the big banks and offers our combined customers access to a wider range of products and services”.
He said Maybank PNG was identified as an attractive acquisition for Kina due to its established infrastructure, conservative capital structure, and client base which offered exposure to PNG’s growing middle class, small-to-medium enterprise sector and high net-worth individuals.
“Kina Group intends to extend its physical presence in PNG, through expanding its branch network following the acquisition,” he said.
“Providing greater access to financial services to residents in isolated areas will be critical in tapping into this growth opportunity.”
Maybank PNG was established in 1994 as a subsidiary of the largest Malaysian banking and financial services business, the Maybank Group.
It offers a range of products including loans, overdrafts, trade financing, foreign exchange, banker guarantees, current accounts, savings and fixed deposit accounts.
Yates said a key benefit for Kina Group of a full banking licence would be the lower cost of wholesale funding.