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National Provident Fund Final Report [Part 6]

August 12, 2015 1 comment

Today we re-publish the 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.

NPF Final Report

This is the sixth extract from the Nationa-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 severa-high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michae-Somare.

Failed attempt to sel-Waigani land shares to NPF

Jimmy Maladina and Herman Leahy then attempted to sel-the shares in Waim No.92 to NPF and other PNG institutions. To reverse an unfavourable decision by NPF, Mr Maladina brought about or took advantage of changes made in the membership of the NPF board to re-submit the proposa-to buy the Waigani land.

He was assisted in this scheme by Mr Leahy and Henry Fabila who arranged the meeting so that two trustees, John Paska and Mr Nana who had previously opposed the purchase, were unable to attend.

The NPF board approved the purchase of the Waigani land at an exorbitant price but before it progressed much further, the news of the purchase broke in the press and it was called off at the direction of then Prime Minister Bil-Skate.

Sale of Waigani land share to Trinco No. 6 Pty Ltd

Having failed to sell-the Waigani land to the NPF or any other PNG institution the shares of the land holding company (now known as Waigani City Centre Ltd), Mr Maladina utilised the services of Simon Ketan of Ketan Lawyers to sell-to Trinco No.6 Pty Ltd (a company owned by the Rimbunan Hijau group).

The sale was agreed, subject to certain conditions attached to the lease document being modified. To organise this, Mr Maladina arranged for Land Board chairman Mr Guise to be bribed as wel-as the new Lands Minister Dr Fabian Pok.

By this means, he arranged for minutes of a former Land Board hearing to be altered to achieve the desired alterations to the lease conditions, which the Lands Minister Dr Pok, duly approved (Dr Pok subsequently received the benefit of a motor vehicle and the sums of K10,000 (paragraph 32.8.4.2) for his part in this fraudulent scheme (Schedule 5, paragraph 32.8.9)). Dr Pok also appears to have received the sum of K220,000 to his company, Biga Holdings, which was received from Mr Maladina’s Niugini Aviation Consultants company in Hong Kong (which payment should be referred to the Ombudsman Commission for investigation).

“Cover-up” activities

When the commission commenced investigating these matters, Mr Maladina and Mr Eludeme both left PNG to reside in Australia (Mr Eludeme returned much later and gave evidence under summons on February 19 and 20, 2002 (Transcript pp. 10346-10404 & 10407-10444). Mr Maladina has not returned and has given no evidence).

At Mr Maladina’s instruction, lawyers Jack Patterson and Simon Ketan both concealed and fabricated documents on Mr Maladina’s instruction in order to protect Mr Maladina. They have been referred to the Commissioner for Police to consider prosecution for fabricating documents contrary to Section 122 of the Crimina-Code.

Mr Eludeme and Mr Lightfoot and Ms Perks of Carter Newel-(now Pacific Lega-Group) have also been referred to the Commissioner for Police to consider their part in the cover-up. The ful-details of these direct referrals directed by the commission are set out at Executive Summary 5, paragraph 2.7, Section B.

The Waigani land fraud deprived the NPF of only K120,000 for the valuations and lega-costs because the sale of the WCC Ltd shares to the NPF was stopped before money changed hands. It is significant though because it clearly revealed the crimina-intentions and conduct of Mr Maladina and Mr Leahy and the depth of corruption in the Lands Ministry.

Term of Reference 1(l) and 1(m) Term of Reference 1(l)

“The purchase of Crocodile Catering and the role of any trustee or manager of the fund or of any other person or entity”

These two terms of reference are reported upon as one item as there is so much overlap between them.

Crocodile was a fully owned subsidiary of Crocodile (Australia) Pty Ltd. Its business was to provide catering services to the canteens of mining and exploration companies in remote areas of the PNG mainland.

When NPF acquired the shares in Crocodile, it was operating pursuant to severa-catering contracts, such as the Porgera Joint Venture in the Enga Province and Tolukuma Gold Mine in the Goilala region of the Centra-Province.

Crocodile Catering

The purchase of Crocodile Catering is reported upon fully in Schedule 4L. Easy access to the commission’s deliberations and findings is accessible through the executive summary to Schedule 4L, which summarises the main points, with references to paragraphs in the schedule for a more detailed report.

The executive summary also reproduces the main findings of the commission concerning Crocodile Catering.

The main feature of the purchase of Crocodile was its folly. It was never going to be a good idea for NPF to buy 100 per cent of the shares in a remote catering business and then seek to run it. NPF management had absolutely no experience or skil-in the difficult task of catering for a series of mining camp messes in remote areas.

The idea seems to have been strongly supported by trustee Copland and Mr Wright and Mr Kaul. It was not a flourishing and profitable business when NPF acquired the company from its near bankrupt Australian parent company. There was a serious failure of due diligence by NPF management into the profitability of Crocodile’s existing contracts or how Crocodile was to be funded. NPF was aware that Crocodile had an obligation to build a warehouse at Paiam in the Enga Province as an incident of its catering contract with the Porgera Joint Venture. They assumed that the cost of construction would be funded by the former owners and failed to ascertain the scale of the project. Consequently, Crocodile was unexpectedly obliged to itself fund the construction of a warehouse at a cost of K4 million which had not been allowed for in the budget. No consideration was given to how Crocodile’s future funding would be organised or from whence it would come.

Without assessing Mr Jewiss’ qualifications or manageria-skills or his previous performance as a manager of Crocodile in PNG, the Crocodile board simply appointed Mr Jewiss as managing director of Crocodile.

He was a very unsuitable appointment as he was a very poor manager who failed to establish and maintain even a proper system for recording Crocodile’s accounts or for planning its business and financia-future. His reporting to the Crocodile board and the NPF board was seriously over optimistic, misleading and dishonest.

Within two months of his appointment, he relocated himself and family to live on Bali Island so he could seek business for Crocodile in Indonesia. He unsuccessfully tried to manage Crocodile’s PNG mainland projects from Bali.

He soon became distracted by the dream of constructing a large resort complex at Maluk Bay on nearby Sumbawa Island.

At paragraph 2.1, of Executive Summary 4-and at paragraph 4.2 of Schedule 4L, the commission sets out its findings condemning Mr Wright for his failure to perform due diligence and al-the trustees for breaching their fiduciary duty to the members of the NPF by not critically assessing this proposal, not seeking expert advice, not checking out the Crocodile management team and for not determining where future funds were to come from.

Allowing Mr Jewiss to remain in Bali as his headquarters was a major failing of the NPF and Crocodile boards.

At Executive Summary 4L, paragraph 4, the commission criticises NPF management, particularly Mr Kau-and Mr Wright for secretly organising transfer of capita-and loan funds from NPF to Crocodile without NPF board approval.

The trustees were in breach of duty to the members by meekly ratifying these unauthorised transfers or funds without reprimanding management or bringing them under board contro-(See forma-findings at Executive Summary paragraph 5.1; Schedule 4L).

When Mr Wright provided $US2 million bridging finance to Crocodile without board knowledge or approval, it was a serious breach of duty and it was an illega-exercise of power, of which Mr Copland must have been aware, as he was the very actively involved chairman of both NPF and Crocodile boards (See Schedule 4L, paragraph 4.7.3).

Mr Maladina makes unauthorised appointments

As chairman of NPF from January 1999, Mr Maladina abused and exceeded his power by appointing Ram Business Consultants as investigators and interna-auditors of Crocodile in early 1999 (Executive Summary paragraphs 9 and 9.1 and Schedule 4L, paragraph 4.9.6).

He also exceeded and abused his authority as chairman in Apri-1999 by appointing his friend, Peter Petroulas of Precise Strategies to perform an interna-review of Crocodile in Indonesia and by appointing another friend, Ray Barredo, as managing director of Crocodile in Apri-1999 and personally approving and illegally sealing his contract conditions, which included annua-transfers of 150,000 Crocodile shares in an attempt to give Mr Barredo ownership of Crocodile within a few years.

NPF suffered a loss of K7.4 million as a result of poor management decisions and breaches by al-trustees of their fiduciary duties. They may be personally liable for some of these losses.

Term of Reference 1(m)

“The participation in the resort complex in Indonesia, and the role of any trustee or officer or employee of the fund or of any other person or entity”

Maluk Bay Resort

Prompted by friends employed by PT Cikoba Konseptama Bangunmutra on Sumbawa Island near Bali, Mr Jewiss somehow persuaded the Crocodile board of the merits of constructing a smal-bar and gril-complex, with simple cabin type accommodation at Maluk Bay on Sumbawa Island to service the rest and recreation needs of the employees of the nearby mining company.

The germ of this idea spread in Mr Jewiss’s imagination unti-it became a plan to build a major 70-room resort complex at Maluk Bay with his friends, Patrick Goodfellow and Keith Wilson, in charge of construction and the training of loca-staff.

Mr Jewiss’ accounting records, his estimates of cost and time of construction, of future occupancy rates and profitability were so flawed that they may wel-have been figments of his imagination.

They were sufficient, however, to persuade the Crocodile board and the interlinked NPF board to go along with the idea.

Pursuing this dream of constructing, owning and managing a major resort on a tropica-island in Indonesia was a serious distraction of Crocodile management’s focus away from its catering contracts in Papua New Guinea.

Crocodile did not even have title to the land at Maluk Bay when construction started, it had no source of funds for the venture except NPF and it had no Indonesian bank account or legitimate means of transferring funds to Indonesia to finance this unregistered venture, which was illega-under Indonesian law. How “informal” and illega-methods of funding the Indonesian venture were arranged on an ad hoc basis, through travellers cheques, persona-bank accounts and transfers from NPF’s overseas account with its stockbrokers Wilson HTM are described in detail in Schedule 4L, paragraphs 8 and Executive Summary, paragraphs 11 and 12. The story is set out in broad outline in the Executive Summary 4L.

Both the schedule and its executive summary are presented in two parts: the first dealing with Crocodile’s PNG operations and the administrative and financial relationship between the boards of NPF and Crocodile and the second part dealing specifically with the financial and managerial morass of the Maluk Bay project.

The two aspects are, however, inextricably related. The failure to define clear legal and financial boundaries between NPF (the legal entity which was established to invest and safeguard members’ funds) and Crocodile (a trading enterprise acquired to make profit from PNG catering contracts, which was now wafting into an Indonesian island resort dream) would seriously endanger the assets of NPF which NPF management and trustees were obliged to protect.

Term of Reference 1(n)

“Whether there was any non-disclosure of a conflict of interest by a trustee or officer or employee of the fund in respect of any investment or transaction to which the fund or the any of the subsidiary companies was a party”

Many instances of non-disclosure of a conflict of interest can be discovered by studying this term of reference in the “Findings in the Context of the Terms of Reference” paragraph at the end of each Schedule.

The most serious examples of such non-disclosure included:-

  • Mr Maladina’s failure to disclose his interest in Waim No.92 Pty Ltd when the company was trying to sell the Waigani Land to the NPF.
  • The failure by NPF’s purchasing officer Simon Wanji to disclose the interest of himself and his wife in the stationery companies that were selling stationery to NPF (Schedule 9, paragraph 13.5 and Executive Summary paragraph 10);
  • The failure by Mr Copland to disclose that he was sitting as an independent member of the board of Cue (Schedule 4C, paragraph 11);
  • The failure by Mr Copland, Mr Kaul and Mr Wright to disclose that they held personal interests in Cue Energy N.L. and Vengold (Schedule 4C, paragraph 13.8);
  • The failure by trustee Vele Iamo and other public service representative trustees to disclose the extent of their conflict of interest when continuing to participate in NPF board deliberations on transactions with DoF, with which they were intricately involved, as part of their service as DoF officers. In some instances, their undisclosed conflict of interest was acute (Executive Summary 7B, paragraph 4.1).

The employee representative trustees voted against lending to the State for the freeway — Mr Aopi and Mr Iamo, who were intimately involved as DoF officers in securing the loan for the State, did not disclose their conflict of interest and voted as NPF trustees for NPF to agree to the loan. Without their vote, the motion would have been lost.

  • David Copland’s failure to always disclose his conflict of interest as managing director of Steamships and his failure to withdraw from NPF board deliberations on the purchase of motor vehicles from Toba Motors — a STC company.

At one stage, virtually all new vehicles were being purchased from Toba Motors with no proper system of open tenders in place (Schedule 9, paragraph 4.7 and Executive Summary paragraph 2.7).

Term of Reference 1(o)

“The failure to comply with prescribed tendering processes, and whether such failure benefited any person and if so who, and the role of any trustee or officer or employee of the fund or of any other person or entity”

As pointed out in Schedule 9, NPF was not subject to the tenders procedures applied to the public service and most other public bodies under the Public Finances (Management) Act (PF(M) Act).

The NPF Board of Trustees did, however, have a duty to ensure that management was applying appropriate procedures to control the purchase of goods and services and the disposal of assets. In order to be even-handed, fair and cost effective and to avoid nepotism, it was necessary therefore, to administer a well run tenders system.

As late as 1993-94, NPF had a tenders committee and NPF managers (incorrectly) believed they were subject to the public service tenders regime.

By 1995, however, the tenders committee had ceased to function and there was no coherent and consistent system of tenders in place.

The commission examined the situation in the following fields of activity, reported in Schedule 9:-

  • Acquisition and disposal of motor vehicles (Schedule 9, paragraph 2);
  • Property and management services (Schedule 9, paragraph 3);
  • Legal services (Schedule 9, paragraph 4);
  • Security services (Schedule 9, paragraph 5);
  • Accounting services (Schedule 9, paragraph 6);
  • Other professional services (Schedule 9, paragraph 7);
  • Computer hardware and software (Schedule 9, paragraph 9);
  • Disposal of assets (Schedule 9, paragraph 8); and
  • Stationery and office supplies (Schedule 9, paragraph 10);

Schedule 9 reports in detail on these matters and the executive summary gives a full outline and sets out the commission’s findings.

At paragraph 14 of Schedule 9, the commission sets out some general conclusions as follows:

“The commission’s investigations have shown that at the beginning of the period under review, there was some attention given to calling for tenders and seeking competitive quotations for procurement of some of the goods and services examined in this report. As time went on, these frail attempts to comply with proper procedures lapsed and management increasingly ignored the concept of obtaining competitive quotations. Management also ignored the need to keep the NPF board informed or seek its approval.

This gross laxity allowed the development of nepotism and criminal acts to steal from the NPF. It is a very sad story for which NPF senior management is primarily to blame.

The NPF trustees, however, had a fiduciary duty to ensure the fund was well managed and its finances were protected. They failed this duty totally. The abuses were so noticeable that the trustees’ failure to notice and address it constitutes a breach of their fiduciary duty to the members of the fund and may constitute a breach of the Leadership Code by all trustees who held office during the period under review. This matter should be referred for consideration by the Ombudsman.”

Term of Reference 2

“Whether there was any inappropriate intervention by persons or entities in relation to illegal or unsuitable borrowings and investments, or other improper actions”.

The commission has reported upon a number of inappropriate interventions in relation to illegal or unsuitable borrowings and investments and other improper actions.

Some of these interventions occurred when a chairman or officer of NPF intervened by some unauthorised activity which was the legal function of the NPF board. Some of the interventions were by people outside of NPF — such as a Minister.

CONTINUED TOMORROW

National Provident Fund Final Report [Part 5]

August 11, 2015 2 comments

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

NPF Final Report

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

Term of Reference 1(g)

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

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

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

Term of Reference 1(h)

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

Creation of intermediary company Curtain Burns Peak

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

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

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

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

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

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

State applies pressure despite conflict of Interest

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

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

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

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

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

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

Contrary Legal opinion withheld from NPF Board

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

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

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

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

Advantages and disadvantages of the investment

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

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

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

Term of Reference 1(i)

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

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

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

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

Term of Reference 1(j)

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

deloitte-tower

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

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

Schedule 2B – NPF Tower Financing and Construction

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

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

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

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

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

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

Schedule 6 – NPF Tower Investigations

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

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

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

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

Builders and other works variations

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

The first acceleration fee – K1.4 million

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

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

Professional fees

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

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

A Kina fluctuation claim

A second acceleration claim

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

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

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

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

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

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

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

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

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

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

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

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

The “cover-up”

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

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

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

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

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

The money trail

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

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

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

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

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

Term of Reference 1(k)

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

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

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

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

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

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

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

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

Inflated land valuations and valuation fees

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

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

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

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

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

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

Continued tomorrow