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National Provident Fund Final Report [Part 68]

November 9, 2015 Leave a comment

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

This conclusively showed that Mr O’Neill had definitely benefitted from the proceeds of the NPF Tower fraud.

NPF Final Report

This is the 68th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary: Schedule 6 Continued 

(b) The K250,000 paid to Bank of Hawaii was for the benefit of South Super Stores Limited and both Peter O’Neill and Nathaniel Poiya received a direct benefit as this payment reduced their direct personal liability under their respective guarantees given to Imak International Limited;

(c) The K60,000 came from Carter Newell and was credited to this Ledger 18. The evidence of Mr Barker regarding that money was false and knowingly false. It is recommended that if Mr Barker ever returns to PNG he should be referred to the Commissioner for Police with a view to his being charged with perjury under the Commissions of Inquiry Act;

(d) The K60,000 paid into Ledger 18 from Carter Newell was part of the proceeds of the Waigani Land fraud. It was later combined with other moneys to enable Mr O’Neill’s children’s company LBJ Investments (see paragraph 12.4.20.9) to buy Remington Ltd from Baradeen Holdings.

Mr O’Neill’s rental income 

In attempting to explain the expenditure of apparently excessive sums for his personal benefit Mr O’Neill claimed they were funded from rental income on his properties, which had been paid into PMFNRE on his behalf. At paragraph 12.4.25, the commission reported upon the procedures whereby PMFNRE accounted by monthly rental statements to Mr O’Neill for rental receipts.

Accordingly, payments were not made out of rentals unless they are detailed in the monthly rental statements.

Free rent for Minister Zemming 

While investigating the rental payments, the commission discovered that rent was not charged for unit 105 Pacific View Apartments, which was occupied by Hon Mao Zemming, a Minister in the National Government. Mr O’Neill said Unit 403 was occupied by Mr Zemming’s first secretary Sam Basil and that Mr Basil’s company paid the rent for both apartments by one cheque.

Findings 

At paragraph 12.4.25.1, the commission has found:

(a) Mr O’Neill’s statement that the payments out for his benefit are balanced by rental receipts from his rental properties managed by PMFNRE is not true; and

(b) Mr Zemming was occupying Unit 105 owned by Mr O’Neill rent free.

Money from Niugini Aviation Consultants and links to Chelsea Ltd 

At paragraph 12.4.27 (12.4.21(f)), the commission revisited the Waigani land matters concerning money allegedly paid into Carter Newell Trust Account Niugini Aviation Consultants in Hong Kong. After the deposit was made large cheques were paid to PMFNRE, Biga Holdings and also a cheque for K333,200.00 for Chelsea Ltd.

A search of Chelsea Ltd shows probable links to Mr O’Neill (represented again by Jack Awela and other significant links).

Findings 

At paragraph 12.4.26.1, the commission has found:

(a) There are clear links between the money from Hong Kong and each of PMFNRE and Mr O’Neill; the company Chelsea Security Limited and M Basil and Wandi Yamuna and the company Biga Holdings Limited owned by Ms Iaraga Asi (Mr Pok’s current partner);

(b) There are also rental arrangement links between Mr O’Neill, Chelsea Security and Mr Sam Basil and Hon. Mao Zemming and the commission so finds.

The relationship between Mr O’Neill and PMFNRE

At paragraph 12.5.2, the commission lists the many links between Mr O’Neill and PMFNRE, the many benefits he received from that company and the controls he exercised over the accounts and funds held by PMFNRE. The commission points out at paragraph 12.5.2.3 that:

(a) Mr O’Neill used PMFNRE as his banker with massive numbers of transactions treated as “Adjustments” and many entries on numbered sales ledgers attributable to Mr O’Neill and persons and companies associated with him and the commission so finds;

(b) Mr O’Neill also received funds for his personal benefit from sales “commissions” said to be earned by PMFNRE on property sales and which there were efforts to conceal;

(c) Mr O’Neill also borrowed large sums of money from PMFNRE, which were treated as “Adjustments” and many of which were not reimbursed even as late as 31st May 2001; and

(d) Mr O’Neill made, requested or gave directions to PMFNRE on multiple occasions concerned not only with his own funds but with funds derived from the NPF Tower fraud (credited to PMFNRE Ledgers 8, 9 and 18) and with transactions derived from those funds – one sees so often “REF P.ON” or “REF PO” or similar expressions that it is perfectly plain Mr O’Neill had dominion over these funds and gave directions in relation to them.

At paragraph 12.5.2.4 the commission describes how Mr O’Neill gave detailed directions to PMFNRE’s accountants on accounting matters. At paragraph 12.5.2.5, the commission reports on Companies Office records which show Mr Awela as owning 90 per cent of the shares in PMFNRE. Granted the commission’s previous findings that Mr Awela is a nominee for Mr O’Neill in Mecca No.36 Ltd, and Nama Coffee Exports Ltd, it is quite clear that Mr O’Neill himself owns the 90 per cent of shares in PMFNRE attributed to Mr Awela.

There are many reasons why Mr O’Neill would want to conceal his interests in PMFNRE including:

1. First, it would avoid the need for disclosure to the Ombudsman Commission during the time Mr O’Neill was executive chairman of Finance Pacific Group and subject to the Leadership Code;

2. Second, it would avoid the need for disclosure during the same period to PNGBC, which was a lender to each of these companies;

3. Third, it would conceal the fact that Mr O’Neill would receive benefits from the work that was directed to PMFNRE from the various Commercial Statutory Authorities; and

4. Fourth, it would mask Mr O’Neill’s connection with moneys that were being laundered through PMFNRE and used for purposes such as the acquisition of RIFL and the purchase by Bethgold Pty Limited of the Kanimbla property from Mr and Mrs Reynolds.

Findings

At paragraph 12.5.2.6, the commission has found that the:

(a) evidence is overwhelming that the true owner of PMFNRE is and was Mr O’Neill and that Maurice Sullivan and Mr Barker acted in accordance with his instructions.

(b) The commission recommends that the Prime Minister refer Mr O’Neill to the Ombudsman Commission to consider whether Mr O’Neill’s concealment of his interests in Nama Coffee Exports Pty Ltd and Port Moresby First National Real Estate Pty Ltd constitutes a breach of his duty under the Leadership Code and the need to submit full and honest Leadership Returns.

Concluding comments on the second acceleration claim 

The investigation into the spurious second acceleration payment has clearly demonstrated that it involved a carefully planned fraud on the NPF, instigated and carried out by Jimmy Maladina, with the active involvement and support of Herman Leahy. Mr Leahy’s wife Ms Angelina Sariman played a supporting role as a principal offender.

Ken Yapane was also involved, at least as an accessory and receiver of fraudulently obtained money. The two managers of Kumagai Gumi were reluctant participants and are also principal offenders. Mr Fabila had knowledge of what was occurring. He failed to stop it and signed documents which helped to perpetrate the fraud.

The tracing of the NPF money, paid as six progress payments by Kumagai Gumi, plus the K150,000 personal commission for Mr Maladina shows quite clearly who the beneficiaries of most of the Tower fraud moneys were.

These included Mr Maladina and his wife and companies, Mr Leahy and his wife and companies and Mr Yapane.

Substantial amounts were paid into PMFNRE accounts and substantial parts of these moneys were paid for the benefit of Mr O’Neill.

This finding was vigorously denied by Mr O’Neill, who argued that although it appears on paper that payments for his benefit came from ledgers containing NPF Tower fraud money, he in fact had other moneys of his own in other PMFNRE accounts, which were the true and “innocent” source of moneys paid out to himself, his companies and his family company.

To assess Mr O’Neill’s claim, the commission made a thorough study of PMFNRE’s accounts and traced all moneys paid in and out on account of Mr O’Neill.

This conclusively showed that Mr O’Neill had definitely benefitted from the proceeds of the NPF Tower fraud. It also showed that, despite his denial’s, Mr O’Neill is the beneficial owner of PMFNRE and that Mr Sullivan and Mr Awela are his nominee shareholders.

It is quite clear that there is a relationship between Mr Maladina and Mr O’Neill whereby they have benefitted jointly from the NPF Tower fraud.

The Proposed Sale Of 50 Per Cent Of NPF Tower To PNG Harbours Board 

1. In paragraph 13 of Schedule 6, the commission describes the failed attempt by NPF to sell a 50 per cent ownership in NPF Tower to the Papua New Guinea Harbours Board (PNGHB) for K40 million.

The idea of selling off an interest in the uncompleted NPF Tower was a good one because it would enable NPF to pay off some of its K59 million debt to the PNGBC, the interest on which was a crippling burden to NPF.

The commission reports how a small group of conspirators plotted and manipulated events hoping to ensure that:

  • Maurice Sullivan of PMFNRE would be appointed NPF’s agent to arrange the sale but this was without the knowledge and approval of the NPF board;
  • NPF management would agree to pay 2.5 per cent commission to Mr Sullivan, which was then raised to 5 per cent, (K2 million) without the knowledge or approval of the NPF board;
  • Mr Sullivan would take advantage of the inexperience of the PNGHB chairman John Orea to obtain his signature to a contract of sale;
  • The board of the PNGHB would then approve the purchase of 50 per cent of the NPF Tower for K40 million with the responsibility to pay the K2 million commission to PMFNRE being shared between NPF and the PNGHB;

2. Fortunately, the management of the PNGHB, under managing director Bobby Kaivepa, resisted the political pressure and prepared an excellent brief to the members of the PNGHB pointing out that:

(a) PNGHB had no legal power to enter the agreement;

(b) the proposal was not financially viable; and

(c) PNGHB lacked the required funds and had no power to borrow for this purpose.

3. The sale to PNGHB was then dropped by NPF. Throughout the negotiations Mr Leahy and Mr Fabila had deliberately refrained from mentioning the unauthorised agency agreement entered into with PMFNRE and the 5 per cent commission, which had already been agreed by Mr Fabila and Mr Sullivan.

On the evidence, it is clear that this idea was being promoted in NPF mostly by Mr Maladina and Mr Leahy, with Mr Fabila’s support.

Mr Sullivan was obviously a principal in the conspiracy.

In relation to the attempted sale to the PNGHB, at the paragraphs in Schedule 6 referred to below, the commission has found that:

At paragraph 13.1.3: 

(a) Mr Leahy was not in direct discussion with Mr Emilio;

(b) Mr Leahy, without any authority from the NPF board or Mr Fabila, engaged PMFNRE as NPF’s agent to sell equity in The Tower Pty Limited;

(c) Mr Leahy suppressed the fact that he had engaged PMFNRE from Mr Fabila and the NPF board.

(d) Mr Leahy provided false information to the NPF board that he was holding direct discussions with Mr Emilio and in failing to disclose his engagement of PMFNRE;

Paragraph 13.1.5: 

(a) Mr Leahy exceeded his authority in entering arrangements with PMFNRE in August 1998 without the approval of the NPF board or Mr Fabila;

(b) Mr Leahy was the recipient of Mr Sullivan’s letter of March 5, 1999, and the author of Mr Fabila’s letter of March 10, 1999. Mr Leahy exceeded his authority in entering into these altered arrangements with PMFNRE in March 1999 without NPF board and Ministerial approval. Mr Leahy was remiss in his duty to fully and properly inform Mr Fabila of the content and legal effect of the letter of March 10, 1999, which he arranged for Mr Fabila to sign;

(c) Mr Fabila was remiss in his duty as managing director of NPF in signing the letter of March 10, 1999, without properly reading and understanding it and without apprehending that the letter constituted a contract beyond his approved financial delegation, which required both NPF board and Ministerial approval;

(d) February/ March 1999 was a time of financial crisis at NPF and concurrently with this arrangement, Mr Leahy was heavily involved in the Waigani Land proposal and the NPF Tower claims with Kumagai. In those contexts, Mr Leahy also wrote and arranged for Mr Fabila to sign other letters in respect of which Mr Leahy also did not fully and frankly brief Mr Fabila; and

(e) MR Leahy, Mr Sullivan and Mr Fabila should be referred to the Commissioner of Police to consider whether charges of criminal conspiracy, attempted fraud or other offences should be brought against them.

Paragraph 13.4.1: 

Both Mr Fabila and Mr Leahy failed in their duties in not fully and frankly informing the board of this contractua* obligation they had entered into to pay 5 per cent commission to Mr Sullivan and by not openly seeking board ratification of their action despite the clear opportunity to do so.

Paragraph 13.5.5.1: 

The commission finds, on the balance of probabilities, that it is likely that this approval was prepared in Carter Newell’s office after March 25, but backdated to March 22.

There are at least two possible explanations for the sense of urgency about obtaining the Minister’s approval for the sale of 50 per cent of the Tower to the PNGHB. Firstly, NPF desperately needed the money. Secondly, the conspirators were greedily awaiting payment of the 5 per cent commission.

The three identical approvals by Ministers Lasaro, Pok and Auali, which were sent to the PNGHB were also dated 22nd March 1999, but were worded differently from the approval faxed from Carter Newell on 1st August 1999.

Paragraph 13.15: 

(a) THE approval for the sale of 50 per cent equity in the NPF Tower signed by Minister Lasaro dated March 22, 1999, which was faxed by Carter Newell Lawyers to NPF on April 1, 1999, was drawn up by Carter Newell and backdated to March 22, 1999;

(b) The approvals to sell to the PNGHB which were given by Ministers Lasaro, Pok and Auali, dated March 22 and 24, 1999, were also drawn up by Carter Newell, for the purpose of applying pressure on the management and members of the PNGHB to approve the purchase of 50 per cent of the NPF Tower;

(c) Mr Leahy acted unprofessionally in drawing up a certificate recording a circular resolution of the NPF board dated March 26, 1999, without indicating that it had not been ratified by the board at a properly constituted meeting and that it was therefore not a valid board resolution;

(d) THE payment to Kumagai authorised by Mr Fabila on March 31, 1999, was part of a fraudulent scam involving Mr Leahy and Mr Maladina to fraudulently obtain K2,505,000 for the benefit of Mr Maladina. On the face of the documents Mr Fabila was also involved;

(e) The responsibility for the scam involving the 5 per cent (K2 million) commission to Mr Sullivan of PMFNRE lies with Mr Leahy, Mr Maladina and Mr Sullivan. On the face of the documents, Mr Fabila was also involved;

(f) MR Fabila as managing director and Mr Maladina as chairman, knowingly withheld from the NPF board the fact that Mr Fabila had signed an agreement to pay Mr Sullivan of PMFNRE a 5 per cent commission on the sale of the 50 per cent interest in The Tower. This was a breach of fiduciary duty by Mr Fabila and Mr Maladina.

(g) In relation to the attempted sale to PNGHB, it is recommended that the Prime Minister should refer the following people to the authorities named:

(i) TO the commissioner for Police – Herman Leahy, Jimmy Maladina, Henry Fabila, Maurice Sullivan, and Angelina Sariman to consider criminal charges;

(ii) TO the Papua New Guinea Law Society – Mr Leahy and Mr Maladina and Ms Sariman to consider disciplinary measures.

TO BE CONTINUED

National Provident Fund Final Report [Part 66]

November 5, 2015 1 comment

Below is the sixty-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 66th 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

(j) Cheque #36707 – K25,000 – January 13, 2000;
(k) Credit – K25,000 – January 14, 2000;
(l) Credit – K2,794,342 – January 15, 2000;
(m) Cheque #36710 – K29,675.77 – January 18, 2000;
(n) Credit – K413.73 – January 18, 2000;
(o) Cheque #36727 – K2000 – January 27, 2000;
(p) Credit – K31,262.04 – February 2, 2000;
(q) Credit – K3,216.92 – January 21, 2000;
(r) Reversal – K3,216.91 – January 26, 2000;
(s) Cheque #55411 – K10,000 – February 1, 2000;
(t) Cheque #55515 – K10,597.47 – February 2, 2000;
(u) Credit – K10,597.47 – February 3, 2000;
(v) Cheque #55530 – K5000 – February 3, 2000;
(w) Credit – K5000 – February 4, 2000;
(x) Credit – K90,000 – February 11, 2000
(y) Cheque #55444 – K63,793.19 – February 16, 2000; and
(z) Credit – K63,793.19 – February 16, 2000

Findings 

At paragraph 12.4.19.4, the commission has made the following findings regarding these items:

When the 26 “off-book” or “Adjustment” transactions during the period January 1 to February 16, 2000 and related earlier transactions are examined it is clear that:

(i) two transactions (being (d) and (e) above) concern PMFNRE investing rent moneys on IBD with PNGBC and obtaining interest thereon from PNGBC;

(ii) three transactions (being (g) (h) and (i) above) concern PMFNRE investing moneys on deposit with RIFL and we have yet to see who obtained the interest on those moneys;

(iii) one transaction involving the purchase of RIFL (see (b) above) was entered to eliminate an “Adjustment” item which had been transferred to Ledger 24;

(iv) THE remaining 20 transactions concerned Peter O’Neill personally or companies associated with Mr O’Neill including two debits each of K10,000 which were unreimbursed at May 31, 2000, (see (f) and (s) above), a cash payment of K25,000 which was reimbursed by Ilimo Poultry Products Limited in strange circumstances and a credit of K90,000 from Hunter Real Estate Limited which was unallocated as at May 31, 2000.

“Off-Book” adjustments February-May 2000

At paragraph 12.4.19.5, the commission then considered 35 “off book adjustments” during the period between February 16 to May 31, 2000 numbered (a) to (ii) as follows:

(a) Cheque #55446 – K500,000 – February 16, 2000;
(b) Credit – K500,000 – April 12, 2000;
(c) Cheque 36613 – K5000 – February 18, 2000;
(d) Credit – K5000 – February 18, 2000;
(e) Cheque #55459 – K5000 – February 23, 2000;
(f) Cheque #55460 – K2000 – February 23, 2000;
(g) Cheque #55567 – K3000 – March 2, 2000;
(h) Credit – K10,000 – March 7, 2000;
(i) Credit – K18,200 – February 24, 2000
(j) Dish cheque – K18,200 – February 28, 2000;
(k) Cheque #55461 – K674.93 – February 24, 2000;
(l) Cheque #55465 – K50,000 – March 1, 2000;
(m) Credit – K50,000 – March 16, 2000;
(n) Cheque #55584 – K7100 – March 10, 2000;
(o) Credit – K7100 – March 14, 2000;
(p) Cheque #55598 – K9570.43 – March 16, 2000;
(q) Cheque #67015 – K5640.40 – March 30, 2000;
(r) Credit – K15,210.83 – April 6, 2000;
(s) Cheque #67010 – K10,000 – March 29, 2000;
(t) Credit – K5000 – March 31, 2000;
(u) Cheque #67103 K1,000,000 – April 3, 2000;
(v) Credit – K1,000,000 – May 1, 2000;
(w) Cheque #67124 – K29,102.40 – April 12, 2000;
(x) Cheque #67152 – K10,669.60 – April 20, 2000;
(y) Cheque #67164 – K100,025 – May 1, 2000;
(z) Cheque #89467 – K57,000 – May 2, 2000;
(aa) Credit – K25 – May 2, 2000;
(bb) Credit – K122,900 – May 2, 2000;
(cc) Credit – K4100 – May 15, 2000;
(dd) Credit – K12,646.45 – May 19, 2000;
(ee) Debit – K50,000 – May 17, 2000;
(ff) Credit – K50,000 – May 19, 2000;
(gg) Cheque # 9488 – K14,398.69 – May `9, 2000;
(hh) Unidentified credit – K1668.34 – May 24, 2000; and
(ii) Cheque #89500 – K70,497.16 – May 31, 2000.

Findings 

At paragraph 12.4.19.17, the commission has found that: Of the 35 “off-book” or “Adjustment” transactions during the period February 16, to May 31, 2000 (including four related earlier transactions) the commission finds that:

(a) FOUR transactions (being (a), (b), (u) and (v) above) concern PMFNRE investing rent moneys on deposit with PNGBC and Bank of Hawaii and obtaining interest thereon from PNGBC and Bank of Hawaii;

(b) two transactions (being (c) and (d) above) appear only to correct an error;

(c) two transactions (being (i) and (j) above) concern an unrelated third party’s dishonoured cheque;

(d) one transaction ((w) above) involves payment of legal fees for a property management contract dispute between PMFNRE and Finance Pacific Investments Limited;

(e) one transaction (being (hh) related to a deposit which could not be identified;

(f) the remaining 25 transactions concerned Mr O’Neill personally or companies or persons associated with Mr O’Neill including a number of transactions for South Super Stores and a number of transactions that were unreimbursed as at May 31, 2000, and the commission so finds.

Possible Perjury 

During the public hearing concerning the source of funds for the purchase of the Manamatana flats, the commission considers that Mr O’Neill gave deliberately false evidence. At paragraph 12.4.19.7, the commission found:

(a) Cheque #55465 for K50,000 was sourced from funds of K690,000 held in Ledger 32, over which Mr O’Neill had dominion and was for Mr O’Neill’s benefit;

(b) Mr O’Neill gave false testimony to the commission on June 28, 2001 (Transcript pp. 8632-8633);

(c) After hearing Mr O’Neill’s counsel on the subject on October 28, 2002, the commission directed counsel assisting to refer Mr O’Neill and copies of all relevant documents to the Commissioner for Police to consider whether Mr O’Neill should be charged with perjury; and

(d) THE commission also recommends that Mr O’Neill be referred to the Ombudsman Commission to investigate whether there has been a breach of the Leadership Code because of his concealed interest in Bluehaven No.67, the company which purchased the shares in RIFL while Mr O’Neill was executive director of the vendor of the shares, Finance Pacific.

Ledger 18 to February 2000 

The commission also considered further transactions in ledger 18 between January and February 2000 as follows:

Findings 

AT subparagraphs 12.4.20.1, the commission made the following findings:

Receipt #707129 related to the payment by RIFL cheque #12117 (BoH) for K1,781,824 being part refund of the K2,671,824 previously paid out for the purchase of RIFL shares by Bluehaven No.67 Ltd.

AT subparagraphs 12.4.20.2, the commission made the following findings:

The payments of cheque #36723 for K250,000 (and #67164 for K100,000 and #89500 for K70,496.16) were clearly made for the direct benefit of South Super Stores Limited and both Mr O’Neill and Nathaniel Poiya received a clear direct benefit from the making of these payments in that the payments reduced their personal liability under their respective personal guarantees given to Imak International Pty Limited.

AT subparagraphs 12.4.20.3, the xommission made the following findings:

The payments of PMFNRE cheques #55413 for K29,262.04 and #55414 for K2000 were made for Mr O’Neil’s benefit to reimburse payments earlier made on his behalf which had been treated “off-book” as “Aadjustments” and to bring those payments “on-book”.

AT subparagraphs 12.4.20.4, the commission made the following findings:

The receipt 707199 for a payment of K49,218.74 from RIFL recorded the money as interest on an IBD held for PMFNRE. It has not been possible to determine which IBD funds produced this interest.

AT subparagraphs 12.4.20.5, the commission made the following findings:

Cheque #55443 for K2000 was paid to LBJ Investments for the benefit of Mr O’Neill;

AT subparagraphs 12.4.20.6, the commission made the following findings:

The receipt 707369 for of K60,000 recorded the payment of K60,000 by Carter Newell cheque #800449 of K60,000 obtained from the Waigani land fraud. The money was subsequently expended from Ledger 18 for Mr O’Neill’s benefit (see paragraph 12.4.20.7 below);

AT subparagraphs 12.4.20.7, the commission made the following findings:

The K80,000 funds were used to pay Baradeen Holdings regarding the purchase of Remington Ltd by Mr O’Neill’s children’s company LBJ Investments (see paragraph 12.4.20);

AT subparagraphs 12.4.20.8, the commission made the following findings:

This payment of cheque #55454 for K200,003.70 was made for the benefit of LBJ Investments Limited as part of the process of buying Remington Ltd.

Conclusions regarding Ledger 18 – transactions January and February 2000 

The commission presents conclusions and review on Ledger 18 to February 2000 at paragraph 12.4.20.9.

At paragraph 12.4.20.10, it makes the following broad findings:

(a) Apart from the K250,000 which went to Bank of Hawaii and the K1.5 million in face value in Treasury Bills all the other expenditure from Ledger 18 in this period was for Mr O’Neill’s personal benefit or for the benefit of his children’s company LBJ Investments Limited;

(b) The K250,000 paid to Bank of Hawaii was for the benefit of South Super Stores Limited and both Mr O’Neil and Mr Poiya received a direct benefit as this payment reduced their direct personal liability under their respective guarantees given to Imak International Limited. It is recommended that Mr Poiya be referred to the Ombudsman Commission for breach of the Leadership Code in that as a trustee of the NPF he received a direct benefit from the trust funds which had been obtained from by fraud;

(c) THE K60,000 came from Carter Newell and was credited to this Ledger 18. The evidence of Mr Barker regarding that money was false and knowingly false. It is recommended that if Mr Barker ever returns to PNG he should be referred to the Commissioner for Police with a view to his being charged with perjury under the Commissions of Inquiry Act; and

(d) Mr O’Neill benefitted from the K1,781,824 paid by RIFL to PMFNRE as a return of money for Bluehaven No.67 to purchase RIFL.

Ledger 31 

Ledger 31 was the new “sales ledger” which replaced ledger 18 in February 2000 and was then used as Mr O’Neill’s ledger (see paragraphs 12.4.21.1 and 12.4.21.10).

There were 60 transactions between March 6 and May 31, 2000, as follows:

66 b

TO BE CONTINUED

National Provident Fund Final Report [Part 60]

October 28, 2015 1 comment

Below is the sixtieth 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 60th 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 

Of major concern to the commission were large payments to Mecca No.36 Pty Ltd (now South Supa Store) owned by Peter O’Neill and NPF trustee Nathaniel Poiya.

Findings

The commission finds the deposit of K10,833.33 was in respect of Mr O’Neill’s rental allowance for April 1999 and in consequence that K10,833.33 of Mr O’Neill’s funds were held in this account.

In paragraph 12.3.2.2, the commission made the following findings:

(a) PMFNRE cheque # 266923 for K45,000 was sourced from the NPF Tower fraud money;

(b) As a consequence, K5,000 of the Tower fraud funds remained in this account;

(c) As we have said earlier, we will come back to the payments to Williams Graham & Carman shortly. Mr O’Neill’s evidence was that none of these earlier payments had been made for his benefit so his K10,833.33 should still have been held plus the K5,000 of NPF Tower fraud moneys aggregating K15,833.33;

(d) The cashbook balance according to PMFNRE (Exhibit T1017) was only K10,854.68. Again it is clear either PMFNRE was “using” this money or Mr O’Neill’s or the NPF Tower fraud funds had been used to pay other cheques;

In paragraph 12.3.2.3, the commission made the following findings:

The two cheques each for K50,000 presented on May 4, 1999, were funded from the NPF Tower fraud money;

In paragraph 12.3.2.4, the commission made the following findings:

(a) After considering the whole of the available evidence, the commission finds that the sum of K102,300 paid by the Carter Newell cheque # 788441 which was derived from the NPF Tower fraud money was placed under the control of Maurice Sullivan and Ken Barker of PMFNRE upon its deposit on May 4. 1999, and that in exercise of the control so placed in him Mr Barker on the same day directed payment out of such funds of the two cheques # 266924 and 266925 each for K50,000 to PNGBC the first to make an International Money Transfer of the equivalent of K50,000 to Williams Graham & Carman, Solicitors of Cairns Australia and the second to make an International Money Transfer of the equivalent of K50,000 to Mr O’Neill’s former wife Cheryl Caley;

(b) The commission further finds that the bank fees of K36 were also paid from this deposit and that all of these payments were from funds derived from the NPF Tower fraud.

(c) It follows from these findings that of the funds remaining in this PMFNRE No.1 Trust Account after such payments and the debit of bank charges the residue of this K102,300 deposit amounting to K2264 plus the earlier residue of K5000, aggregating K7264 were held out of the NPF Tower fraud moneys and that K10,833.33 was held on behalf of Mr O’Neill;

In paragraph 12.3.2.5, the commission made the following findings:

The commission finds that this deposit of K10,833.33 was in respect of Mr O’Neill’s rental allowance for May 1999 and in consequence of its other findings that the funds of Mr O’Neill held in this account increased to K21,666.66;

In paragraph 12.3.2.6, the commission made the following findings:

There is insufficient evidence for the commission to make any definite finding in relation to these two payments of K6000 and K5000.

In paragraph 12.3.2.7, the commission made the following findings:

The only source from which this cheque for K100,000 could have been fully funded was the deposit of K300,000 on the same day (see (m) above), which was derived from the NPF Tower fraud;

In paragraph 12.3.2.8, the commission made the following findings:

(a) Cheques # 266930 and # 266931 aggregating K17,379.11 were paid from Mr O’Neill’s own funds;

(b) The dilemma, as we have said earlier, is that if the K10,833.33 of Mr O’Neill was applied in the earlier payment of K50,000 to his former wife, then there would not have been sufficient of his funds to cover this second payment to his former wife;

(c) Again the situation is confused by the use of the MJS/KB code on deposits of both NPF Tower fraud moneys and Mr O’Neill’s moneys and the payment out of moneys for the benefit of Mr O’Neill as well as others;

(d) Later investigations support the possibility that the various credits formed one common fund;

In paragraph 12.3.2.9, the commission made the following findings:

(a) It is totally clear that the deposit of K300,000 on Friday, May 14, 1999, derived from the NPF Tower fraud was banked with the “MJS/KB” code; that the K100,000 transfer to PMFNRE No.2 Trust Account on the same day was sourced from this deposit; that the K100,000 transfer to Mecca (No.36) Pty Limited the following Monday also with the “KB/MJS” code was also sourced from this deposit and finally that the cash withdrawal of K100,000 on the following Friday yet again with the “KB/ MJS” code was also sourced from that deposit;

(b) As will be seen later in this report, the K100,000 transferred to PMFNRE No.2 Trust Account was also converted to cash on May 14, 1999, and could not be traced further;

(c) On the evidence before the commission, it is clear that the second K100,000 was received by Mecca (No.36) Pty Ltd and that such money was not earned;

In paragraph 12.3.2.10, the commission made the following findings:

(a) The payment of K100,000 to PMFNRE No.2 Trust Account on May 14, 1999, derived from the NPF Tower fraud and could not be traced further;

(b) The cash withdrawal of K100,000 on May 21, 1999, was derived from the NPF Tower fraud and was received by Ken Barker and later paid to Jimmy Maladina;

(c) The payment of K100,000 to Mecca No.36 on May 17, 1999, was derived from the NPF Tower fraud and it was unearned by Mecca No. 36;

(d) Mr Poiya was a substantial shareholder in and director of Mecca No.36 Pty Ltd (now South Super Stores Ltd). At the time of the K100,000 payment to Mecca No.36 Mr Poiya was a trustee of the NPF;

(e) MR Poiya and Mr O’Neill benefited from the payment to Mecca;

(f) THE benefit received by trustee Poiya was improper and the commission recommends that he be referred to the Ombudsman to consider whether there had been a breach of the Leadership Code by Mr Poiya; and

(g) The benefit received by Mr O’Neill was improper and at the time he was subject to the Leadership Code, being executive director of Finance Pacific.

The commission recommends that Mr O’Neill be referred to the Ombudsman Commission to consider whether there has been a breach of the Leadership Code.

The payments made to Williams Graham & Carman were all from NPF Tower fraud money and all were paid to the lawyers in relation to the purchase by Bethgold of the Kanimlba property. The K50,000.00 to Cheryl Caley on May 4, 1999 was from the same source and for the same purpose.

Although Mr Barker and Mr Sullivan are shown as the directors and shareholders of Bethgold Mr Maladina and/or Mr O’Neill had beneficial interests in that company held for him/them by Mr Barker and Mr Sullivan.

The commission’s investigations clearly showed the criminal activities of Mr Barker and Mr Sullivan, former PMFNRE managers who had fled to Australia. At paragraph 12.3.4.1, the commission has found:

(a) Both Mr Sullivan and Mr Barker were involved in the laundering and disposal of the proceeds of the NPF Tower fraud through the PMFNRE No.1 Trust Account and the use of a code in that process strongly suggests “guilty” knowledge which may render both men accessories after the fact to that fraud;

(b) The commission recommended that Mr Sullivan and Mr Barker both be referred to the Commissioner for Police to consider charges for aiding the offence of fraud and any other offences;

(c) The commission also considered that Mr Barker:

(i) LIED on oath regarding the refund of K99,000 to Mr Maladina;

(ii) falsely denied knowledge of payments of K102,300 and K300,000 made by Mr Maladina to PMFNRE No.1 Trust Account; and

(iii) falsely stated that K60,000 and K690,000 were used to purchase Treasury Bills (see paragraph 12.3.4).

As Mr Barker is now permanently residing in Australia it would be a waste of resources to refer him to the Commissioner for Police to consider charging him with perjury under the Commissions of Inquiry Act. If he ever returns to PNG, he should be so referred.

As the commission’s inquiries continued it became clear that many payments were made to or at the direction of Mr O’Neill, that these payments far exceeded the total funds legitimately held by PMFNRE and that a significant portion of these additional payments were sourced from funds which demonstrably were the proceeds of the NPF Tower fraud.

In trying to explain these matters, some of Mr O’Neill’s explanations were unacceptable, internally inconsistent and contrary to clearly documented factual evidence. As inquiries progressed further and the successive ledgers were examined in more detail it became clear that Ledgers 18 and 31 were Mr O’Neill’s own ledgers.

At the end of the day the commission was forced to conclude that Mr O’Neill actually owned PMFNRE. To test Mr O’Neill’s unsatisfactory evidence, the commission constructed an extension of the cashbook as at paragraph 12.3.6 as follows:

The reconstructed extension of cashbook from May 30, 1999 to September 29, 1999.

60 image a

60 image b

60 image c

It was then able to make the following further findings.

Findings 

This deposit of K10,833.33 was in respect of Mr O’Neill’s rental allowance for June 1999;

At paragraph 12.3.7.2, the commission found that:

(a) The two cheques for K55,120 and K920 account exactly for the proceeds of the Nambawan Finance cheque for K56,040 banked the previous day and the commission so finds;

(b) The receipt of K55,120 into the No.2 Trust Account was kept “off book”;

At paragraph 12.3.7.4, the commission found that:

The cheque #028585 for K275,000.00 obtained by Hunter Real Estate Limited was proceeds of funds paid out of IBD held by the Registrar of the National Court, which was the subject of litigation between Mr O’Neill and Mr and Mrs Donald.

At paragraph 12.3.7.5, the commission found that:

The deposit was in respect of Mr O’Neill’s rental allowance for July 1999;

At paragraph 12.3.7.6, the commission found that:

The deposit of K275,000 into PMFNRE No.1 Trust Account on July 16, 1999, was paid into the No.2 Trust Account in three separate cheques and receipted as a deposit on PMFNRE sale of property by Hunter Real Estate.

The evidence of Mr O’Neill’s involvement with regard to the No.1 Trust Account is discussed at paragraph 12.3.8 and it is clear that the only funds paid into or held in the No.1 Trust Account for Mr O’Neill aggregated K32,449.99 or on the view most favourable to Mr O’Neill the total would be K57,499.99. Yet quite clearly the sum of at least K167,397.11 was paid out for his benefit or at his direction.

At paragraph 12.3.8.1, the commission has found that:

(a) Given the above explanation, the commission is compelled to conclude that the source of the differentials was Mr Maladina’s funds from the NPF Tower fraud and the explanation given by Mr O’Neill does not withstand testing and cannot be accepted. (Mr O’Neill’s explanation is further reported below at paragraph 12.3.8.2).

(b) The PMFNRE No.1 Trust Account appears to have been treated as a common account containing the funds of Mr Maladina and Mr O’Neill and some other transactions. Mr O’Neill’s explanations included claims that some of the payments were sourced from or paid as rental on his properties but his claim did not withstand scrutiny as other arrangements for rent were actually in place as recorded in detail in paragraph 12.3.8.3 of the Schedule.

TO BE CONTINUED

National Provident Fund Final Report [Part 40]

September 30, 2015 1 comment

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

NPF Final Report

This is the 40th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 4D Continued Investments – 1999 

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

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

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

Advice from Ben Semos of Wilson HTM 

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

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

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

Unsuccessful Attempts To Sell CXL Shares 

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

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

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

NPF Moves Away From Substantial Holdings Into Smaller Passive Holdings 

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

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

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

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

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

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

CXL Share Valuation

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

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

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

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

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

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

Department Of Finance Recommendation On CXL Selldown 

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

“NPF’s Acceptance of the Offer.

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

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

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

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

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

NPF’s Realised Loss On CXL Investment

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

npf 40 a

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

Sell-Down Of STC Shares Negotiations With Swires 

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

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

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

Negotiations With Bromley Group (Lemex International) 

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

Acceptance Of Lemex Offer

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

Realised And Unrealised Loss On STC Investment

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

npf 40 b

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

Complaints By Swires

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

Findings

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

Concluding Comments

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

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

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

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

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

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

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

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

Executive Summary Schedule 4E Macmin NL

Introduction 

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

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

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

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

TO BE CONTINUED

National Provident Fund Final Report [Part 9]

August 17, 2015 1 comment

This week 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.

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 ninth 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

Three Employee Representative Trustees
Position: Trustee
Name: Henry Leonard
Period: May 18, 1995 to May 17, 1998 and January 1, 1999 to December 21, 1999

Irregularity
The only irregularity is that after his first term expired on May 17, 1998, a period of seven months was allowed to elapse before his reappointment. During that period, there were only two employee representative trustees.

Three Employer Representative Trustees
Position: Trustee
Name: Graham Hogg
Period: February 12, 1993 to February 11, 1996

Irregularity
No irregularities

Position: Trustee
Name: Isikeli Taureka
Period: February 12, 1993 to December 1997

Irregularity
Mr Taureka apparently resigned in about December 1997. It was not gazetted as required by the NPF Act. The vacancy was not filled for over 12 months.

Position: Trustee
Name: David Copland
Period: September 1, 1998

Irregularity
Mr Copland was allowed to continue as an employer representative trustee long after he ceased to be an employer – in contravention of the Act. The stated ground for termination was not a prescribed ground under the Act.

Position: Trustee
Name: Tau Nana
Period: February 8, 1996 to February 7, 1999 and April 20, 1999 to December 31, 1999

Irregularity
Once again, there was a gap between the end of Mr Nana’s first term and his reappointment. For a period Mr Nana was the only employer representative trustee. Mr Nana’s second appointment was invalid as there was no vacant employer trustee position available.

Position: Trustee
Name: Nathaniel Poiya
Period: January 19, 1999 to December 31, 1999

Irregularity
No irregularity

Position: Trustee
Name: Jimmy Maladina
Period: January 19, 1999 to December 31, 1999

Irregularity
This controversial appointment was opposed by the employers federation on the ground that his name had not been put forward by an organisation representing employers. Court action was settled on the basis that Mr Maladina would resign as trustee. He did not do so.

Position: Trustee
Name: Wayne Golding
Period: February 18, 1999 to March 13, 1999

Irregularity
Mr Golding was appointed by Minister Lasaro as an employer’s representative trustee. The appointment was invalid as there was no vacancy for an employer’s representative trustee and because his name had not been put forward by an organisation representing employers. When the employers federation threatened court action, his appointment was terminated.

Position: Managing Director
Name: Robert Kaul
Period: July 5, 1993 to May 5, 1998

Irregularity
His initial appointment was in accordance with the NPF Act but his conditions of employment were agreed by way of a personal contract of employment, with generous early termination clause. This was contrary to the provisions of Section 15 of the NPF Act, which required a Ministerial determination after prior consultation with the NPF board.

Revocation of his appointment by Minister Lasaro was improper and ineffective. It coincided with conflict between Mr Kaul and Mr Lasaro over claim for exemption by Masurina Group of Companies.

Position: Managing Director
Name: Henry Fabila
Period: ?

Irregularity
His initial appointment was invalid as Mr Kaul had not vacated the position. The signing of personal contract of employment was contrary to the NPF Act.

Findings regarding the  appointment of chairmen to the NPF Board

Appointment of Evoa Lalatute

Minister Haiveta’s precipitate conduct in purporting to appoint Mr Lalatute, as chairman of the NPF board was improper and ineffective. The proper way to make the appointment was for the Secretary of the DoF Rupa Mulina to nominate him as chairman and for the Minister to then approve the nomination. Mr Mulina’s attempt to regularise the appointment by way of a backdated nomination may be ineffective.

Findings

(a) Minister Haiveta had no legal power to appoint a chairman to the NPF board. His appointment of Mr Lalatute as chairman on December 13, 1995 was therefore illegal and improper.
(b) It is not appropriate for NPF management to be involved in giving advice to the Minister and DoF on the appointment of a trustee and to draft the required legal documents.
(c) The improper appointment resulted from Mr Haiveta’s enthusiasm for achieving results by exercising power and because DoF and Mr Mulina did not insist on asserting DoF’s primary role as Ministerial advisor and implementer of Minister’s decisions. There was nothing sinister in the replacement of Mr Mulina by Mr Lalatute, however.
(d) In an attempt to regularise Mr Lalatute’s appointment, Mr Mulina nominated Mr Lalatute to replace himself as chairman on January 19, 1996 pursuant to Section 6(1)(b) of the NPF Act. The instrument of nomination was however, backdated to December 1, 1996, in order to give the appearance that the initial appointment of Mr Lalatute had been done in accordance with the Act.

The validity of Mr Lalatute’s appointment is questionable.

Revocation of Mr Lalatute’s appointment as Chairman

The proper way to revoke this appointment was for Mr Lalatute to resign or else for the Secretary of the DoF Mr Mulina, to withdraw his nomination. Instead, Minister Haiveta purported to rescind the appointment and published a notice in the Gazette approving the revocation of Mr Lalatute’s appointment as chairman.

Mr Mulina did not withdraw Mr Lalatute’s nomination as chairman and there is no documentary evidence that Mr Lalatute ever resigned in writing given to the Minister, as required by the Act. No termination of Mr Lalatute’s appointment was ever gazetted. Nor is there evidence that Mr Lalatute’s appointment as a trustee was ever properly terminated.

The uncertainty about Mr Lalatute’s termination as a public service representative trustee and as chairman throws up doubts about the legality of the appointments of his successors as chairman and trustee.

Findings

(a) Mr Lalatute’s appointment as chairman of the NPF board on the nomination of the previous chairman Rupa Mulina was never properly revoked or otherwise terminated prior to the appointment of his replacement as chairman – David Copland.
(b) The appointment of Mr Copland as chairman of the NPF board was not valid as the position was not vacant.
(c) The appointment of Mr Lalatute as a trustee representing the public service was not validly terminated.
(d) The appointment of Gerea Aopi to replace Mr Lalatute as a public service representative trustee was not valid as there was no vacancy in that category of trustee position at that time.
(e) The managing director of NPF had no power to recommend trustees to the Minister and DoF to be appointed to the NPF board.
(f) DoF failed to assert itself as the prime authority to advise and support the Minister in these matters. This left a bureaucratic vacuum, which NPF management attempted to fill.
(g) In consequence there is serious doubt about the legality of Mr Lalatute’s vacating the office of chairman and consequently there is also doubt about the validity of Mr Copland’s appointment as chairman.

Role of Morea Vele

The new Secretary of the DoF assumed the role of chairman by revoking Mr Copland’s nomination but then failed to attend meetings.

Findings

(a) Mr Vele’s failure for a period of almost six months (February 15 to August 4, 1998) to attend to his duties as NPF chairman or, alternatively, to nominate a person to occupy the position of chairman at and between meetings was a breach of his fiduciary duty to the members of the fund.
(b) There is no evidence that Mr Vele was under any political or other external pressure to not perform his role as chairman.

David Copland – termination of appointment as a Trustee 

In the absence of Mr Vele from meetings, Mr Copland was repeatedly appointed acting chairman, even after he ceased to be an employer. When he was finally terminated as a trustee no valid ground was stated. The correct grounds for terminating Mr Copland should have been under Section 10(1)(h) of the Act (ceasing to be an employer).

Findings

(a) After Mr Copland ceased to be a representative employer in PNG he was allowed to continue as a trustee in contravention of Section 10(1)(h) of the NPF Act.
(b) The reason given in the letter to Mr Copland for his termination was not one of the reasons for termination prescribed in the NPF Act. This illustrates the inherent dangers of relying on NPF management for advice instead of taking advice on matters about the appointment and termination of trustees from the appropriate line department or agency, to ensure action is taken on proper legal grounds.

Brown Bai

After Mr Bai became Secretary of the DoF on September 1, 1998, he performed actively as chairman of the NPF board. He stood down reluctantly and nominated Jimmy Maladina as chairman under pressure from Minister Lasaro and Prime Minister Bill Skate, who exerted strong and improper pressure to have Mr Maladina appointed as a trustee and as chairman.

Findings

(a) The nomination of Mr Maladina to be an employers’ representative trustee was not from an organisation of employers and hence did not satisfy the requirements of Section 6(1)(e) of the NPF Act.
(b) Mr Leahy’s legal advice on this subject was seriously flawed in favour of the appointment of his friend and fellow conspirator, Mr Maladina.
(c) The involvement of NPF management in giving advice to the Minister regarding Mr Maladina’s appointment as a trustee and in preparing instruments for gazettal was inappropriate. It led to wrong advice, faulty instruments, legally ineffective appointments and great confusion.
(d) There was direct contact and plotting between Mr Leahy and Mr Maladina during the struggle to achieve Mr Maladina’s appointment as trustee and chairman of the board. This was inappropriate and improper.
(e) Minister Lasaro and Prime Minister Skate exercised improper influence to obtain the appointment of Mr Maladina as a trustee and then as chairman of the board.
(f) Mr Bai’s decision to stand down as chairman of NPF and to nominate Mr Maladina in his place was due to the improper pressure exerted by Minister Lasaro and Prime Minister Skate.
(g) It is recommended to the constituting authority that Mr Skate and Mr Lasaro be referred to the Ombudsman Commission to investigate whether there has been a breach of the Leadership Code in connection with the nomination and appointment of Mr Maladina as a trustee and then as chairman of the NPF Board of Trustees.
(h) Mr Bai’s failure to attend meetings of the NPF board after his appointment as a trustee in February 1999 was a breach of his fiduciary duty to the members of the fund.
(i) Mr Maladina’s failure to formally resign his position of employer representative trustee, as he had promised, casts doubt about the legality of Mr Jeffery’s subsequent appointment, as there was no vacancy for him to fill.

Findings regarding appointments of Trustees to the NPF Board

Vele Iamo

Mr Iamo’s repeated absences from NPF board meetings deprived the board of the benefit of his expertise. Even though it was caused by pressure of other important work it was a breach of his fiduciary duty to the members of the fund. After absenting himself without permission of the chairman for more than three consecutive meetings, it was obligatory for the Minister to terminate Mr Vele’s appointment. This did not happen for several years.

The belated termination of Mr Iamo’s office of trustee was irregular.

Findings

(a) Mr Iamo failed in his fiduciary duty to NPF when he failed to regularly attend board meetings.
(b) Mr Frank and Mr Leahy failed in their fiduciary duties by not advising the board about the legal position concerning Mr Iamo’s continuous absences from board meetings.
(c) Minister Lasaro failed to make a clear-cut and publicly gazetted termination of Mr Iamo’s appointment, before advertising for applications to fill the non-existing vacancy in his position.
(d) Mr Iamo’s frequent absences from NPF board meetings were because of his extremely busy schedule as a senior officer of the DoF, which obliged him to attend a great many board and other meetings. Expecting senior officers to hold responsible positions on so many boards amounted to a structural weakness in the NPF Act.
(e) There were many instances where Mr Iamo’s role as a senior officer of DoF was in direct conflict with his role as a trustee of NPF, especially when he was promoting the Government’s interests while advising/requesting NPF to assist the State by, for instance, purchasing Government bonds or road stock.

Evoa Lalatute

There was confusion about Mr Lalatute’s position as a trustee after he ceased to be chairman because proper procedures were not followed.

Findings

As Mr Lalatute never resigned as a trustee and as his appointment was never formally terminated, it throws legal doubt about the subsequent appointment of Gerea Aopi as a public service representative trustee, as there was no vacancy in that category of trustee at the time of his purported appointment.
Gerea Aopi

Mr Aopi’s appointment as a public service trustee occurred before there was a vacancy, as Mr Lalatute was still a public service trustee. There were, therefore, too many public service trustees for over 21/2 years, from February 8, 1996 until August 28, 1998.

Findings

(a) The failure to follow the prescribed procedures in the NPF Act regarding appointment and termination of trustees continued to undermine the constitutional validity of the NPF Board of Trustees up until Mr Aopi’s resignation on August 28, 1998.
(b) Primary responsibility for this situation is the failure of DoF to accept responsibility for managing these changes to the NPF board and Mr Leahy’s failure to proactively provide timely and professional advice as legal counsel and corporate secretary.
(c) It seems there was more than the maximum allowed number of public service representative trustees for more than 21/2 years throwing doubt on the legality of the NPF board and all its decisions in that period.

Abel Koivi

Mr Koivi was appointed as a public service representative trustee because he held a position with Air Niugini when it was Government owned. The appointment was invalid because there was no vacancy for a public service representative trustee at that time.

When Air Niugini was privatised, Mr Koivi was no longer a public servant and therefore he was not qualified to hold this position.

Mr Leahy attempted to “qualify” him by arranging for his job with Air Niugini to be declared an office in the public service.

Findings

(a) Mr Koivi was initially appointed to the NPF board on April 1, 1996, when there was no vacancy for a public service representative trustee and without following prescribed procedures. His appointment was therefore invalid.
(b) This irregularity became known to Mr Leahy who on August 5, 1997, advised managing director Kaul of the fact and the legal consequences, but did not pursue the matter to rectification.
(c) When an attempt was made to regularise Mr Koivi’s appointment as a public service representative trustee he was no longer in the public service.
(d) Following Mr Leahy’s advice, NPF management sought to overcome this impediment by declaring the position to be a public service office by declaration under Section 3(5) of the Interpretation Act. This was done surreptitiously, without notifying DoF or the Minister about the reasons for this deft legal manoeuvre. It is not certain whether or not this finally regularised Mr Koivi’s appointment, two years and five months after it had been made.
(e) When it was decided to terminate Mr Koivi’s appointment, he was given no notice and it was done by Prime Minister and Acting Minister Skate, irregularly and not upon any grounds specified under Section 10 of the NPF Act, as required. The effectiveness of the formal termination of appointment is therefore in doubt.

Brown Bai

When appointed a trustee after he stood down as chairman, Mr Bai continuously failed to attend meetings. His appointment was not terminated as required by Section 10(1)(d) of the NPF Act.

Findings

(a) Because of slackness in the way appointments and terminations of office of trustees were handled, the NPF board of trustees was improperly constituted for almost two years and five months from early 1996 until August 28, 1998.
(b) This situation was known by Mr Vele, Mr Kaul, Mr Fabila and mr Leahy.
(c) It raises doubts about the legality of NPF board decisions and contracts during a period when there were very significant transactions involving many millions of kina.
(d) Mr Leahy failed in his duties by not taking immediate and appropriate action to ensure the board was properly constituted as far as public service trustees are concerned.
(e) The DoF failed in its duties by not ensuring that the matter of the constitution of the NPF board under Section 6(1)(c) of the NPF Act was properly managed.
(f) The commission recommends that the monitoring of the constitutional integrity of statutory corporations should be the responsibility of a single agency and that the statutory instruments should always be prepared in the office of the First Legislative Counsel.

Findings regarding the appointments of three employee representative Trustees

There were no substantial irregularities in the appointment and terminations of appointment of the employee representative trustees — Mr Paska, Mr Gwaibo and Mr Leonard. The only serious irregularity was that for substantial periods, there were only two employee representative trustees instead of the prescribed three.

Findings regarding the  appointments of three employer representative

Trustees Graham Hogg
There were no irregularities.

Isikeli Taureka

Mr Taureka resigned for personal reasons about December 1997. There is an air of uncertainty, as his resignation was not gazetted as required under Section 10(3) of the NPF Act. The vacancy caused by his departure was allowed to remain vacant for 12 months.

David Copland

After being illegally allowed to continue as an employer representative trustee, after ceasing to be an employer, Mr Copland’s appointment was terminated on a ground, which was not prescribed in Section 10 of the NPF Act.

Findings

(a) After Mr Copland ceased to be a representative employer in PNG, he was allowed to continue as a trustee in contravention of Section 10(1)(h) of the NPF Act.
(b) The reason given in the letter to Mr Copland for his termination was not one of the reasons for termination prescribed in the NPF Act. This illustrates the inherent dangers of relying on NPF management for advice instead of taking advice on matters about the appointment and termination of trustees from the appropriate line department or agency, to ensure action is taken on proper legal grounds.

Mr Copland’s vacancy was not filled immediately and for a period, Mr Nana was the only employer representative trustee on the board.

Tau Nana

There were no irregularities except the two-month delay in reappointing him. For a period, Mr Nana was the only employer representative trustee.

Jimmy Maladina

There was considerable controversy surrounding Mr Maladina’s appointment as employer representative trustee as for a long while no valid organisation representative of employers was willing to nominate him for consideration by the Minister. It involved much political pressure and contrived nominations.

In evidence before the commission, Mr Skate and Mr Lasaro each blamed the other for the appointment of Mr Maladina.

Findings

(a) The nomination of Mr Maladina to be an employers’ representative trustee was not from an organisation of employers and hence did not satisfy the requirements of Section 6(1) (e) of the NPF Act.
(b) Mr Leahy’s legal advice on this subject was seriously flawed in favour of the appointment of his friend and fellow conspirator Mr Maladina.
(c) The involvement of NPF management in giving advice to the Minister regarding Mr Maladina’s appointment as a trustee and in preparing instruments for gazettal was inappropriate. It led to wrong advice, faulty instruments, legally ineffective appointments and great confusion.
(d) There was direct contact and plotting between Mr Leahy and Mr Maladina during the struggle to achieve Mr Maladina’s appointment as trustee and chairman of the board. This was inappropriate and improper.
(e) Minister Lasaro and Prime Minister Skate exercised improper influence to obtain the appointment of Mr Maladina as a trustee and then as chairman of the board.
(f) Mr Bai’s decision to stand down as chairman of NPF and to nominate Mr Maladina in his place was due to the improper pressure exerted by Mr Lasaro and Prime Minister Skate.
(g) It is recommended to the constituting authority that Mr Skate and Mr Lasaro be referred to the Ombudsman Commission to investigate whether there has been a breach of the Leadership Code in connection with the nomination and appointment of Mr Maladina as a trustee and then as chairman of the NPF Board of Trustees.
(h) Mr Bai’s failure to attend any meetings of the NPF board after his appointment as a trustee in February 1999 was a breach of his fiduciary duty to the members of the fund.
(i) Mr Maladina’s failure to formally resign his position of employer representative trustee as he had promised, casts doubt about the legality of Mr Jeffery’s subsequent appointment — as there was no vacancy for him to fill.

The employers federation strongly resisted the appointment of Mr Maladina as an employer representative trustee on the nomination of Waghi Mek Plantations, saying this was not an organisation of employers representing employers and a Writ was issued. It was settled on the basis that Mr Maladina would resign as an employer representative trustee, allowing for the appointment of Mr Jeffery in his place, with Mr Maladina to remain with NPF solely in his capacity as chairman. When Mr Maladina failed to carry out the formalities required in order to validly resign, it threw doubt on the legality of Mr Jeffery’s subsequent appointment — as there was no vacancy for him to fill.

Wayne Golding

Mr Golding’s appointment by Minister Lasaro was invalid from the start. He was not nominated by an organisation of employers representing employers, nor was there a position for him. Nevertheless, he assumed duties and voted at meetings before his appointment was terminated in the face of threatened court action by the employers federation.

Findings

(a) The appointment of Mr Golding as an employer’s representative trustee by Mr Skate as Acting Minister for Finance, without a nomination by an organisation of employers representing employers, was improper and invalid, being contrary to the requirements of Section 6 of the NPF Act.
(b) It was inappropriate that Mr Fabila and Mr Leahy were dealing directly with the Minister in organising the appointment of Mr Golding, by-passing the DoF.
(c) The DoF failed to assert itself by insisting on advising the Acting Minister on this appointment. This is understandable considering that Mr Skate had already indicated he would act despite DoF’s contrary advice.
(d) The procedures adopted by Mr Lasaro and Mr Fabila to terminate the (invalid) appointment of Mr Golding were not in accordance with the NPF Act and were very confusing.
(e) It seems that Mr Golding participated in NPF decision-making, despite his initial appointment being invalid and after steps had been taken to terminate the appointment.

No independent monitor of statutory compliance

Many of the irregularities which occurred regarding the appointment and termination of trustees arose from the fact that no agency of government assumed responsibility for ensuring that the NPF board was properly constituted at all times.

It was left to the NPF corporate secretary/legal counsel to monitor the completion of terms of appointment, to ensure nominations for appointment and reappointment occurred in compliance with the Act and to prepare instruments of appointment for signature by Prime Minster or Minister and to organise gazettal as appropriate. Similarly, it was left to Mr Leahy and NPF management to ensure that all categories of trustee position were filled, with the prescribed number of trustees of that category.

This system clearly broke down.

As neither DoF nor the First Legislative Counsel had clear responsibility in these matters, the gross constitutional defects which occurred in the composition of the NPF board throughout the period under review were not noted and corrected.

Findings

(a) The failure of DoF or any other government agency to advise the Minister and manage appointments and termination of trustees continued to undermine the constitutional validity of the NPF board when the resignation of Mr Maladina as an employers representative trustee did not proceed as agreed.
(b) The appointment of Mr Nana and Mr Jeffrey on June 3, 1999, resulted in there being four trustees in that category and consequently the board was invalidly constituted from June 3, 1999, until the end of the period under review on December 31, 1999.
(c) The fact that there was no validly appointed NPF board of trustees casts legal doubt upon the validity of the major board decisions made after June 3, 1999, which included the transfer of NPF assets. There is no validating clause in the NPF Act to protect decisions made by an unconstitutional board containing too many members in any one category of trustee (Section 11 only validates decisions of a board which has two few trustees in a particular category).
(d) The primary responsibility for ensuring that the trustees are validly appointed to the NPF board and that the composition of the board is in accordance with the requirements of the Act lies with the corporate secretary and principle legal officer Herman Leahy. Mr Leahy was in serious and repeated breach of that duty.
(e) The DoF did not accept responsibility to oversee and monitor the process of appointments to the board.
(f) Mr Lasaro and his advisors within the NPF, Mr Fabila and Mr Leahy as well as the DoF, which failed its responsibility to advise and manage this process, are all responsible for the serious legal confusion.
(g) The commission recommends that all instruments of appointment or termination of appointment should be prepared by the office of the First Legislative Counsel.

Appointment of  Managing Director

Legislation

Section 15 provides that the appointment of the managing director is by the Minister after prior consultation with the NPF board. Under Section 16, termination is by the board. Terms and conditions are as determined by the Minister after prior consultation with the NPF board.
Robert Kaul

Mr Kaul’s initial employment in 1993 was regular but his terms and conditions were agreed to by a contract of employment with NPF rather than by Ministerial determination as required by Section 15(2) of the NPF Act. This was repeated on his reappointment on July 4, 1996, with generous payout terms for early termination.

His early termination in 1998 was a result of improper political direction from Minister Lasaro and Prime Minister Skate, which resulted in a significant payout of his unexpired contract. Proper procedures were not followed. The termination was the result of a political scheme involving Mr Skate and Mr Lasaro, assisted by Mr Leahy, to appoint Henry Fabila to the office of managing director.

The irregular termination of Mr Kaul’s appointment was legally ineffective, which in turn invalidated Mr Fabila’s appointment, as the position of managing director had not yet become vacant.

Findings

(a) Gerea Aopi and the NPF management and board ignored the provisions of Section 15 of the NPF Act regarding appointments and the conditions of a managing director and inappropriately appointed Mr Kaul in 1993 pursuant to a personal contract of employment, containing generous payout provisions for early termination.
(b) After the formation of the “Skate” government in 1997, Prime Minister Skate and Minister Iairo Lasaro wished to replace Robert Kaul with Henry Fabila as managing director NPF.
(c) Prime Minister Skate had strong personal links with Mr Fabila and Minister Lasaro had strong personal reasons for replacing Mr Kaul, who was strongly resisting the Minister’s improper pressure to grant an exemption to the Masurina Group of Companies.
(d) Minister Lasaro gave an improper direction to the chairman of the NPF board/Secretary DoF Mr Vele to terminate the appointment of Mr Kaul without any prescribed grounds, which was beyond his power as this power lay with the board.
(e) Minister Lasaro’s direction to NPF to submit a list of names, including the name of Mr Fabila for his consideration, in circumstances where he had already made up his mind to appoint Mr Fabila and had issued a press release to that effect, did not constitute prior consultation with the NPF board as required by Section 15(1)(a) of the NPF Act.
(f) It was not possible to appoint Mr Fabila until Mr Kaul’s appointment had been terminated. This early termination required a payout to Mr Kaul of K141,983.51 for early termination according to his contract of employment.
(g) The DoF gave inadequate and incorrect advice to the Minister on the termination of Mr Kaul and appointment of Mr Fabila.
(h) Mr Leahy failed his duty as legal counsel and corporate secretary to advise the NPF board as to its rights and duties and that the Minister was exceeding his power in directing the termination of Mr Kaul’s appointment.
This was a serious breach of duty for which Mr Leahy, as a qualified and practising lawyer, was professionally liable. He may be personally liable for damages at the suit of the NPF board, including liability for loss suffered by NPF members caused by the excessive payout to Mr Kaul.
(i) The decision to terminate Mr Kaul and appoint Mr Fabila amounted to improper interference with the management of the NPF for which both Minister Lasaro and Prime Minister Skate were responsible.
(j) The commission recommends that the constituting authority refer William Skate and Iairo Lasaro to the Ombudsman Commission to investigate whether there have been breaches of the Leadership Code in relation to the termination of Mr Kaul’s appointment and the appointment of Mr Fabila as managing director of the NPF.
(k) The action of Acting Minister Sir Mekere Morauta in signing the instrument of appointment of Mr Fabila to the position of managing director of the NPF was not improper, as he acted in good faith, on the advice of the DoF, that the appointment was appropriate and in order.
(l) The statutory instrument of appointment of Mr Fabila was not prepared by the office of the First Legislative Counsel. It was probably prepared by Mr Leahy at the NPF. The instrument fails to recite the words of section 15(1)(a) “after prior consultation with the board” and there had been no such prior consultation — merely directions given by the Minister.
(m) The commission recommends that the office of First Legislative Counsel be given clear authority to prepare all instruments of revocation and appointment.
(n) Carter Newell were remiss in their professional duty for simply producing a contract for Mr Fabila’s terms and conditions, without proper research and without taking account of statutory provisions including Sections 16 and 17 of the Act, which set out grounds for termination.

continued tomorrow

National Provident Fund Final Report [Part 7]

August 13, 2015 Leave a comment

Below is the 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.

NPF Final Report

This is the seventh 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.

Borrowings

All the borrowings were illegal and unsuitable because NPF had no power to borrow. When Noel Wright or the managing director of NPF exceeded their delegated authority to obtain a loan for NPF or to draw down on an existing facility, this amounted to an inappropriate intervention, as these actions were the function of the NPF board.

Examples were:

  • The agreements with PNGBC to utilise an overdraft facility (Schedule 2A, paragraph 4.3 and Executive Summary paragraph 4);
  • The agreement between NPF management and the ANZ to grant an additional K20 million facility without the knowledge or approval of the NPF board (Schedule 2E, paragraph 4.3 and Executive Summary, paragraph 7.1); and
  • Many examples when NPF management exceeded their authority by making drawdowns or transferring securities on the loan facilities without NPF board approvals.

Investments

The schedules dealing with NPF’s equity investments contain many, many examples when NPF management (Mr Wright and Mr Kaul mostly) acquired shares on-market, way beyond their delegated powers. These were inappropriate interventions in the functions of the NPF board.

Examples include:

  • STC and CXL – Executive Summary 4D, paragraph 6.1
  • Cue – Executive Summary 4C, paragraphs 6 & 7
  • Macmin – Executive Summary 4E, paragraph 5 and 6

Sometimes these inappropriate interventions by management to acquire shares were subsequently ratified by specific resolutions of the NPF board. Many times there was no such ratification. For example, Mr Kaul’s unauthorised action in sealing an irrevocable offer to sub-underwrite a Cue share placement to the extent of A$25 million (Executive Summary 4C, paragraph 2.5).

Directions by Ministers Intervention by Prime Minister  Bill Skate

The intervention by Prime Minister Bill Skate to direct DoF Secretary Brown Bai, to stand down as chairman of NPF and to appoint Jimmy Maladina in his place (Schedule 1, paragraphs 4.3.6.1 and 4.3.6.2).

The intervention by Prime Minister Skate and Minister Lasaro to arrange for the termination of Robert Kaul’s appointment as managing director and to secure the appointment of Henry Fabila in his place (Schedule 1, paragraphs 4.4.13 and 4.4.1.4).

The intervention by Prime Minister Skate by directing NPF managing director not to travel overseas.

Intervention regarding the purchase of Government stock

It seems that almost annually the NPF was asked to take up government stock or Treasury Bills for the purposes of the national budget by the Minister responsible for NPF.

Such requests are, in the commission’s view, improper and an interference with the investment powers of the NPF board.

Intervention by Jimmy Maladina

Before his appointment as a trustee of the NPF, Jimmy Maladina intervened in December 1998 to force Mr Taniguchi of Kumagai to agree to participate in the NPF Tower fraud, threatening him that he would otherwise deny Kumagai payment of its existing claims when he became chairman of NPF in the near future.

Intervention by Herman Leahy

When preparing to implement the NPF Tower fraud, Mr Leahy intervened in existing contractual arrangements by directing PAC to withdraw from the negotiations process it was conducting with Kumagai on NPF’s behalf. This enabled Mr Leahy to take over the negotiations and arrive at a settlement price which was inflated by K2,505,000.

Intervention by Noel Wright

There were many instances when Mr Wright intervened in the lawful functions of the NPF board by taking actions way beyond his delegated authority.

Examples include:

  • Dealing in Lihir options, despite a board resolution to desist from the practise (Schedule 4I, paragraph 4.4.2);
  • Directing Wilson HTM to transfer funds to Crocodile in Indonesia (Schedule 4I, paragraph 7.5.7(g);
  • Securing an additional K20 million facility from ANZ; and
  • Pledging and transferring huge volume of NPF share scrip as security for ANZ loans

Intervention by Henry Fabila

Mr Fabila and Mr Leahy intervened in the lawful tender process for awarding contracts for managing NPF properties, which included awarding the lucrative contract to manage the NPF Tower to PMFNRE (Schedule 9, paragraph 5.6.1(c).

Agreeing to appoint PMFNRE as NPF’s agent to sell 50 per cent of the NPF Tower to the Papua New Guinea Harbours Board (PNGHB) and to pay a 5 per cent commission worth K2 million to Mr Sullivan – without the knowledge or approval of the NPF board (Schedule 6, paragraphs 13 to 13.1.4).

Term of  Reference 3

“Whether in connection with action or failure to act of any trustee, officer or employee of the fund or any other person should be referred to the relevant authorities for investigation with a view to criminal prosecution or other action”

To the Ombudsman Commission

Throughout its investigation, the commission has made many findings about the conduct of trustees and other leaders, which it considers constitutes a breach of the Leadership Code, which has been promulgated pursuant to the Organic Law on the Duties and Responsibilities of Leadership.

In many cases, this has led the commission to recommend to the Prime Minister that those leaders be referred to the Ombudsman Commission. In some cases, the leader is referred to by name for a particular failure by that leader personally. In some cases, the referral has been in respect of all trustees in office at the time because the failure has been a collective failure of such magnitude that it constitutes a breach of the Leadership Code, not merely a breach of fiduciary duties to the members of the fund. Examples of individual referrals to the Ombudsman Commission include:

  • Minister Haiveta’s repeated failure to obtain expert independent advice from DoF or elsewhere before granting approvals for transactions having a significant impact on the affairs of NPF.

For example general approval for NPF to invest in companies registered on stock exchanges up to K1 million per transaction (Schedule 1, paragraphs 14.4.3 and 14.4.4.1(a). Approval for NPF to invest in STC and CXL up to K40 million as part of a take over strategy (Schedule 4D, paragraph 4.4.1).

  • Trustee Nathaniel Poiya’s acceptance of K150,000 paid to him personally (Schedule 6 paragraph 12) and another payment of K100,000 to the company Mecca No.36 Ltd (Schedule 6 paragraph 12.4.9.2.7(v), which was jointly owned by himself and Peter O’Neill, was from proceeds of the NPF fraud.

Examples of the trustees being referred to the Ombudsman Commission as a group include their repeated failure to supervise, reprimand and control NPF management’s unauthorised activities.

To the professional regulatory bodies

When people have been guilty of professional misconduct as a lawyer, accountant, valuer, etc, the commission has recommended that they be referred to the body responsible for investigating professional misconduct – such as the PNG Law Society and the PNG Institute of Accountants.

To the Commissioner for Police

If the commission finds that there is substantial evidence that a person has committed a crime it has recommended that the Prime Minister refer that person to the Commissioner for Police for investigation and to determine whether the person should be charged with a criminal offence.

Direct referrals

In cases where a person has committed an offence, in effect, against the commission itself – such as fabricating documents, committing perjury and generally interfering with the investigation, contrary to the Commission’s of Inquiry Act or the Criminal Code, the commission itself, through counsel assisting, has referred the matter directly to the Commissioner for Police or other relevant authority.

Method of reporting referrals

Each of the referrals is reported in the schedule, which deals with the topic under investigation. The referrals are therefore listed in the body of the schedule as a “finding”. They are also mentioned in the paragraph at the rear of the schedule, which brings together all findings in the context of the commission’s terms of reference. These referrals are listed in those paragraphs under the heading of Term of Reference 3.

An attempt has been made to list all people who have been referred from the schedules in the following Table of Referrals. Part 1 lists referrals recommended to the Prime Minster by the commission. Part 2 lists referrals made by the commission itself to the relevant authority.

Term of  Reference 4

“Whether in connection with any failure to act in good faith, any trustee or officer or employee of the fund or any other person should be held personally responsible for decisions and outcomes”

If a trustee fails in a fiduciary duty or an officer fails a common law duty to the NPF board, that person may face personal liability for any loss caused by that failure of duty depending upon the circumstances. It may be a defence to an action claiming personal liability brought by the NPF board or members of the fund, if the trustee or officer can establish that he or she acted in good faith.

Throughout the schedules, the commission has found many, many instances where management as a whole, individual officers, the trustees as a whole and individual trustees, were in breach of fiduciary or common law duty. The commission has noted that fact.

In instances where the failure of duty has led to loss suffered by the fund and by its members, this is pointed out by the commission in the text and in the findings.

The commission has not, however, proceeded to determine whether or not there is personal liability or whether a defence of “acting in good faith” would succeed. This matter is left for the current NPF board, individual members and the membership as a “class” to consider.

There may be circumstances where it would be appropriate to institute court proceedings but it is not the commission’s role to make findings about personal liability.

Term of  Reference 5

“Whether, under the Constitution or any Act, the responsible government agencies, including the Department of Finance and Treasury and the Auditor-General and failed in their regulatory, supervisory or reporting responsibilities, and what was the extent of this failure”

This matter has been fully reported in Schedule 1, paragraph 15 and it is outlined in Executive Summary 1, paragraphs 9 and 15.

By legislation, the NPF was obliged to invest only in accordance with the investment guidelines and had strict obligations to make quarterly and annual reports and to maintain and work to a five-year plan updated annually.

It failed to perform on all these obligations throughout the five-year period under review.

The fact that these failures persisted unrectified for five years enabled the NPF to pursue its reckless investment policies to the brink of financial ruin and somewhat over the brink, in that it suffered losses in excess of K150 million.

No agency of Government accepted the clear responsibility to supervise, report on and enforce NPF’s compliance with its planning, investing and reporting obligations.

Department of Finance

Under the PF(M) Act, the DoF was not obliged to perform this role in relation to the NPF (because it was not a “public body” for the purpose) unless so directed by the Minister, and no such direction was given.

The DoF did, however, have an obligation to make recommendations to the Minister when required by the Minister to do so. This included the duty to give the Minister sound, analytical, expert advice on applications for approval by NPF. In most cases, it conspicuously failed its duty in this regard.

Mostly, its advice to the Minister consisted of parrot-like summaries of NPF’s submissions, lacking any critical analysis.

Evidence from senior DoF officers showed that DoF lacked the professional expertise to provide expert advice on investments and it failed to brief this role out to independent expert consultants.

Under Section 64 of the PF(M) Act, the Secretary of the DoF was empowered to oblige the NPF (and other public bodies) to report to him on the state of their finances. Under Section 64, the Secretary could instigate an investigation into its affairs.

Brown Bai utilised this section with great effect in 1999, by commissioning the Finance Inspectors’ inquiry and report. Prior to this, however, this effective tool, which could have been the salvation of NPF, was left unused.

The Minister

The Minister for Finance was the Minister responsible for NPF and under the PF(M) Act, was Minister responsible for monitoring all public bodies which for some (but not all) purposes, included the NPF. The Minister was also empowered to issue guidelines on investments and to give broad policy directions.

Sir Julius Chan promulgated carefully considered and appropriate guidelines in 1993.

After that, the power was unused except for one hasty and ill-advised variation by Minister Haiveta in 1996, which allowed NPF to acquire equities in companies listed on registered stock exchanges up to K1 million per transaction, without the need to seek his approval.

This opened the door to a massive increase in investments in equities in a series of less than K1 million transactions.

Mr Haiveta sought no expert advice before making this decision (Schedule 1, paragraphs 22.3.9.1, 22.3.10.1, Executive Summary, paragraph 15.12).

Accounts and audit obligations

The obligations and the breakdown in their performance are briefly described in Executive Summary 1 at paragraph 1 and fully reported in Schedule 1 paragraph 15.

Because NPF failed to present its annual reports from 1997 onwards, the Auditor-General was unable to perform the annual audit for presentation to the Minister and tabling in the National Parliament. This was a complete systemic breakdown from 1997 onwards.

The commission’s finding at Schedule 1, paragraph 15.4.3 are repeated in Executive Summary paragraph 9.8.

Term of Reference 6 – Structural Reforms

“Whether the present reporting, monitoring and supervisory regime is adequate and whether any, and if so what, structural reforms should be implemented”

The commission was asked to report upon the adequacy of NPF’s reporting, monitoring and supervisory regime under the NPF Act and has done so at paragraphs 21 and 22 of Schedule 1, which are summarised at Executive Summary 1, paragraph 15.

After the completion of the commission’s inquiries and public hearings into structural matters were completed, the Superannuation Act 2000, was brought into force.

The NPF has registered under the new Act as Nasfund and the NPF Act has been repealed.

The commission has nevertheless published its report about structural weaknesses and problems under the NPF Act and its recommendations for reform, which had been worked up prior to the coming into force of the new Act. This approach has validity, partly because some of the previous weaknesses and problems may still persist and our findings may therefore have direct relevance.

Also, in many ways, the NPF’s problems were not caused by weaknesses in the formal structure established under the legislation and directions made under it.

The problems were mainly caused by the way the NPF was able to ignore and disobey the clear structural requirements – regarding such things as its investment policies and reporting obligations and there was no agency to monitor its non-compliance.

The effectiveness of the Superannuation Act 2000, will to a large extent depend upon whether an effective monitoring and enforcement agency is put in place.

Throughout the schedules to this report, the commission has pointed to weaknesses caused by the power of the Minister over some of NPF’s affairs and occasional inappropriate intervention. Other weaknesses described include the inadequacies of the NPF Board of Trustees and the lack of an effective supervision and monitoring body.

The commission’s recommendations are discussed and recorded fully in paragraphs 21 and 22 of Schedule 1. In Executive Summary 1, paragraphs 15.5 to 15.34 is a full list of the commission’s recommendations for structural reform.

In general terms, the major recommendations are, in essence, to:

(a) Remove the NPF from the detailed control and influence of the Minister and the DoF, as it is a private superannuation fund;

(b) Reduce the degree of external control over the management of NPF’s affairs and investments but increase the capacity of management;

(c) Vest the control in a better-qualified board of trustees;

(d) Establish the BPNG as the external regulator of NPF and give it the staff and powers to regulate effectively;

(e) For matters still requiring imposition of external controls or guidelines the necessary powers to monitor and control should be transferred from the Minister and DoF to the Regulator (the BPNG).

(f) In order to ensure better qualified Trustees:

(i) remove all political interference from the selection and appointments process and vest power of appointment in specified organisations of employers and employees with all appointments to the board and senior management to be approved as fit and proper persons by the regulator.

(ii) Take active measures to help trustees understand and perform their roles and to understand the nature of their fiduciary duty to members of the fund. These measures should include detailed orientation or new appointees, a hand book or manual and seminars on essential aspects of trustees’ functions.

(g) Strengthen the accounting and reporting requirements and require the regulator to accept responsibility to monitor and enforce compliance.

Trustees need such help in order to understand such things as the principles of investment, the relationship between trustees and management, the nature of fiduciary duty, personal liability, the structure of NPF, benefits for members.

(h) Provide for prudential investment guidelines to be promulgated and enforced by the regulator.

(i) Enable NPF to appoint professional fund managers onto the board of NPF or, preferably, to brief investment management to a firm of professional fund managers, which would be obliged to act within the prudential guidelines promulgated by the regulator and within policy directions of the board.

(j) Strengthen and facilitate two-way communication between members and management so that an active and informed membership can find ways to monitor the conduct and performance of management and to monitor the fund’s investment policies and strategies.

CONCLUDING COMMENTS

To a very large extent, the crisis which befell the NPF was caused by a dramatic departure from the normal prudential guidelines applicable to superannuation funds, which had been spelled out explicitly in the 1993 Investment Guidelines. The reasons why this occurred lay in the personalities of the fund’s chairmen, trustees and managers in 1996 to 1999, the reckless high-risk investment strategy they pursued and the fact that they financed the investments with borrowed funds.

When the inevitable down turn in economic conditions occurred in 1997-1998, NPF was trapped.

The rapid fall in the value of its equities meant more and more scrip needed to be pledged to the banks as security for the loans.

As interest rates rose and the value of the kina fell NPF’s interest rate burden, of more than K1 million per month became unbearable. Inevitably, NPF began to default on its loan agreements with the banks and the banks then required the loans to be reduced.

This in turn required NPF’s equity assets to be sold off at a time when they had very little value – leading to massive realised losses in the members’ assets.

More than K150 million of NPF’s funds were lost in this way.

This recipe for financial disaster continued un-remedied for so long because NPF management totally failed to meet its reporting obligations and the board of trustees failed their fiduciary duties to monitor and control management.

On top of this, when NPF was at its lowest point, those charged with its management, namely its chairman Jimmy Maladina its corporate secretary/ legal officer Herman Leahy and to a lesser extent its managing director the late Henry Fabila, were involved in a criminal conspiracy and other criminal conduct. They succeeded in defrauding the NPF of millions of kina by means of excessive valuation fees, a fraudulent second acceleration claim on the NPF Tower, payment of a currency fluctuation claim on the NPF Tower, which was not legally payable and Mr Maladina’s retention of the proceeds of sale of shares in Vengold.

DoF Secretary Brown Bai started the investigation and clean-up process in early 1999 and the new manager Rod Mitchell started to impose appropriate financial and managerial controls by mid-year.

NPF then quickly began to address its problems. With good advice from PwC and KPMG, a rescue package was worked out.

This involved government assistance and increased employer contributions. It also involved members foregoing entitlements.

NPF then commenced the climb back to profitability, which it appears now to have been achieved as “Nasfund” under the regime created by the Superannuation Act 2000.

CONTINUED TOMORROW