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National Provident Fund Final Report [Part 52]

October 16, 2015 1 comment

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

NPF Final Report

This is the 52nd extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 5 Continued 

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

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

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

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

Findings 

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

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

Findings

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

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

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

Findings 

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

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

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

Findings 

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

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

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

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

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

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

Findings 

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

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

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

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

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

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

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

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

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

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

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

Findings

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

Referral

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

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

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

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

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

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

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

TO BE CONTINUED

National Provident Fund Final Report [Part 51]

October 15, 2015 1 comment

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

NPF Final Report

This is the 51st 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 4O Continued

NPF’s Investment In NGPHL/NGPL 

The two companies are essentially one enterprise. NGPHL was formed to purchase coconut plantations in the New Guinea Islands, some from the old Burns Philip Company and one plantation in the Central Province. The intention was for NGPHL to re-develop the old coconut plantations in the New Guinea Islands into cocoa plantations. A development plan was drawn up and costed by the proponents.

The Commonwealth Development Corporation (CDC) was interested in investing in the plantations in the New Guinea Islands but not the Robinson River Plantation in Central Province. In an attempt to accommodate this requirement, the company NGPL was formed and CDC then invested in 20 per cent of this company.

NGPHL and NGPL made submissions inviting the three major private superannuation funds, NPF, POSF, and DFRBF and the Investment Corporation of PNG (ICPNG) to invest in the two companies. In addition, there was a public issue of shares. The response to the share issue was poor. NPF invested in 250,000 shares in NGPHL and also took up 250,000 shares in NGPL.

With the initial capital in place, the project proceeded and went quite well in Bougainville with annual cocoa production reaching 13,000 tonnes per year. Outside of Bougainville, operations were not proceeding as well as expected. When the unrest situation in Bougainville reached crisis point in 1989, the companies became unviable and the creditors (Westpac Bank and CDC) took over.

Evidence suggests that even at this point, when the companies were unviable due to the crises in Bougainville, NPF bought all the NGPHL and NGPL shares, which were held by the other three institutions POSF, DFRBF and ICPNG. The commission has not been able to confirm the price NPF paid for the shares.

Investment In Walmetke Ltd

This company was formed to take over from the Agriculture Bank’s three plantations in the Baining area of the East New Britain Province. The three plantations are Stockholm, Kuriendahl and Manimbu. The company issued a formal prospectus and raised just under K2 million. Kina Securities handled the share issue. NPF subscribed to this share issue and bought 250,000 shares in Walmetke Ltd at the issue price of K1.

The Selldown Of NGPHL, NGPL And WALMETKE

In the period after 1995 covered by this commission’s terms of reference, NPF was seeking to extricate itself from its investments in the three companies. At the 99th board meeting on February 23, 1996, the NPF board resolved to sell its interest in these companies. Mr Kaul wrote to Mr Tony Gilbank on October 23, 1996, offering the shares on the three companies to Kina Gilbank, for one toea per share giving a total of K29,571.00. Kina Gilbanks accepted this offer.

At the 104th board meeting on December 9, 1996, the NPF board passed a resolution to have the loss from the sale of these shares written off in 1996 to claim the tax benefits and credit the payment received from the sale, if the payment was made in 1997, as profit for 1997.

Findings 

This resolution as to tax treatment was clearly wrong. The proper tax treatment is to include the loss in the year it occurred, which, in this case, was 1997. This matter is serious in the sense that Noel Wright, an accountant, was present at this meeting, yet the minutes do not record him advising against what the board approved.

This treatment would also impact on management bonuses by bringing an overstated loss to book in 1996 (where bonuses were at the upper threshold) and a false profit to book in 1997 (where bonuses were below that threshold).

Conclusions

The board of trustees, prior to the period covered by this commission of inquiry, inherited those investments and the associated problems, which rendered them essentially worthless. NPF invested more than K1 million in these three companies. It received no dividend, and then it sold all its shares for K31,237.67.

Findings 

In difficult financial circumstances, which were not of NPF’s making, the selldown was orderly and appropriate.

Investment In New Guinea Islands Produce Company (NGIP) 

Background 

NGIP was originally based in Rabaul and Kokopo in the East New Britain Province. After the 1994 volcano eruptions, its main base shifted from Rabaul to Kokopo. The company is an agriculture company involved in plantation management, cocoa buying and processing and commercial property development. It is also a 50 per cent shareholder in Papua New Guinea’s largest cocoa exporter, Agmark Pacific Ltd.

NPF invested 100,000 shares in NGIP in 1987, well before the period covered by this commission’s terms of reference.

Sell-down of shares in NGIP 

In August 1999, when NPF was urgently trying to solve its cash crisis, NPF management decided to sell all shares in NGIP.

Quite clearly, board approval was not requested for the sale of these 100,000 shares in NGIP. The sale of these shares was at a unit price of K3.03 per share.

Findings 

(a) NPF management and, in particular Rod Mitchell and Henry Fablia, acted in excess of their authority and their financial delegation in authorising and completing the sale of these shares without the NPF board’s prior approval;
(b) The board of trustees was also remiss in simply noting the sale as a fait accompli and not reprimanding management for acting without authority and selling assets without the requisite board approval; and
(c) A fair market value was obtained for the shares sold.

Conclusion On NGIP 

NPF purchased 100,000 shares at K3 per share in the capital of NGIP at a cost of K300,000 in 1987 and sold for a net K301,030.50 in 1999. NPF also receive dividends totalling K75,000 from this investment between 1996 and 1998.

Mr Bell, the current general manager of NGIP, has informed the commission that the current trading price for NGIP shares is K6. It is not appropriate to use hindsight to criticise NPF for the price at which it sold these shares in August 1999.

It is appropriate, however, to criticise management for not obtaining board approval for the sale.

Executive Summary Schedule 5 Waigani Land And Related Matters 

Introduction 

Sometime in late 1997, a plan was formulated to acquire the Waigani land cheaply and on favourable terms in order to entice the NPF and/or other PNG statutory bodies to use member’s (or public) funds to buy the land for an exorbitant price, with some of the proceeds being used for political purposes related to an anticipated vote of no confidence in the Skate government (paragraph 3).

Jimmy Maladina, a partner with the firm Carter Newell Lawyers, acquired Waim No. 92 Pty Ltd in February 1998 to be the corporate vehicle to acquire the lease over the Waigani land. The directors became Philip Eludeme (representing Mr Maladina) and Mr Maladina’s wife Janet Karl.

By August 1998, Prime Minister Skate decided to press for Mr Maladina to be appointed chairman of NPF and Mr Maladina then concealed his interest in Waim No. 92 by appointing an associate, Philip Mamando, to replace his wife as director. This was to conceal Mr Maladina’s conflict of interest in the event that NPF could be persuaded to acquire interests in the Waigani land (paragraph 3.6).

Findings

(a) Mr Maladina purchased Waim No. 92 Pty Ltd from Ram Business Consultants (Ram) as a shelf company. He exercised control through the appointment of his wife, Ms Karl, as a director;
(b) Mr Eludeme gave false evidence in order to hide Mr Maladina’s involvement with Waim No. 92 Pty Ltd; and
(c) The commission has referred Mr Eludeme to the Commissioner of Police to investigate whether he has committed the crime of perjury.

To ensure Waim No. 92 was allocated the lease of the Waigani land cheaply and on favourable conditions, Mr Maladina bribed the chairman of the Lands Board Ralph Guise and the Lands Minister Viviso Seravo.

Mr Maladina used Mr Eludeme as his agent in some of these activities (see paragraphs 4, 5 & 7). The records of the Land Board indicate it notified Waim No. 92 that it had been recommended as the successful applicant and on September 28, 1998, Waim No. 92 received notice that a corruptly reduced purchase price of K1,724,726.10 was payable before title would issue, with annual rent to be K17,000 (instead of the legally correct amounts of K2,866,000 and K143,000 respectively).

Further corrupt dealings occurred and a second substitute notice was signed in October but backdated to September 28, 1998, allowing payment by instalments of K50,000 every second month, with title to issue after the first instalment.

Findings 

(a) Mr Eludeme performed free professional work, valued at approximately K100,000, for Minister Viviso Seravo, before the Land Board sat on June 19, 1998;
(b) The Land Board advised Waim No. 92 on August 10, 1998, that it had recommended that the Minister should grant the lease over Waigani land;
(c) On September 28, 1998, Mr Eludeme was advised by notice that the purchase price of K1,719,600 was payable with annual rental of K17,000, both to be paid in full, before the title would be issued;
(d) A second notice was prepared afterwards and backdated to September 28, 1998. It showed the same purchase price but advised that the amount payable before title issued was K50,000 with the balance of the purchase price payable by instalments of K50,000 every second month; and
(e) There was no legal basis to vary the amounts below the tendered price nor to allow payment of the purchase price by instalment or to issue title before the payment of the full purchase price. Mr Maladina funded the sum of K50,000 on October 6, 1998 (he had already paid the original K500 application fee to the Lands Department) but trust statements were fabricated on Carter Newell file no 970625 (Phillip Eludeme – general matter, investment advice) to make it appear that the money came from Mr Eludeme’s funds (see paragraph 7.3).

It appears that a criminal offence under Section 122 of the Criminal Code Act – fabricating documents – has been committed and the commission has referred this file to the Commissioner for Police for investigation.

The corrupt activities in the Land Board and the Office of the Minister became clearer after Mr Guise gave evidence “in camera”.

Findings 

(a) Waim No. 92 Pty Ltd was at all relevant times beneficially owned by Mr Maladina and he paid all the necessary application fees, costs and the required K50,000 instalment on the purchase price to acquire the lease over the Waigani land;
(b) Mr Eludeme was, at all material times, acting as an agent and representative director/ secretary of Waim No. 92 on behalf of Mr Maladina;
(c) Mr Mamando acted as a director representing Mr Maladina;
(d) Waim No. 92’s application was lodged after the closing date of May 6, 1998, and, by law, should not have been considered;
(e) The decision to list Waim No. 92 as a late application was made on direct instructions from Minister for Lands, Viviso Seravo;
(f) Land Board chairman Ralph Guise, accepted direct instructions from Minister Seravo that the Land Board should consider that Waim No. 92’s application was sponsored by the NEC and should be supported. He ensured that it would be received and considered by the board as a late application. He then ensured that it was one of two alternative recommendations sent to the Minister for approval;
(g) Mr Guise participated in the activities to retrospectively vary the conditions of the Letter of Grant and signed a minute to the Minister which had been prepared in the Minister’s office. It falsely stated that the Land Board had recommended reduction in the purchase price and annual rental and that the purchase price be paid by instalments, with title to issue upon payment of the final instalment.
This enabled Minister Seravo to subsequently sign and backdate the document to June 1999. Mr Guise was present at a meeting when a fabricated substitute letter of grant was placed before Secretary Alaluku for signature and thereby added the support of his apparent authority to what was being done;
(h) Prior to the Land Board hearing, Mr Eludeme had approached Minister Seravo seeking favourable consideration for Waim No. 92’s application and, at Mr Seravo’s request, had performed, free of charge, accountancy services for Minister Seravo valued at K100,000 at the Minister’s request;
(i) At the Land Board hearing on June 19, 1998, chairman Guise and members Yanepa and Wak voted for Waim No. 92’s invalid application. The two official representatives voted for the preferable application by MDP Pty Ltd;
(j) There was no discussion at the meeting about reducing the purchase price or the annual rental or about allowing the title to issue after partial payment of the purchase price (contrary to the Statutory provisions);
(k) When Minister Seravo approved the non-legal application by Waim No. 92, he was influenced by bribes received and in anticipation of future bribes;
(l) After the grant of the lease to Waim No. 92 by Minister Seravo, the Minister was approached by Mr Maladina (and possibly by Mr Eludeme with Mr Maladina’s knowledge) who requested successive variations to the terms of the lease to lower the total purchase price, lower the annual rental and to provide a new term that title would issue after the first K50,000 instalment of the purchase price was paid. The balance to be paid at the rate of K50,000 every second month;
(m) Mr Seravo, Mr Guise and Mr Maladina conspired to illegally reduce the terms of the lease and to persuade Lands Secretary Alaluku, to sign a false lease offer letter, on October 2, 1998, which set out the illegally varied terms of the lease;
(n) After the Waigani land was eventually disposed of (by sale of shares in Waigani City Centre), Mr Maladina paid the sum of K49,598.49 to Mr Seravo after it was laundered through the accounts of Carter Newell Lawyers, in consideration of his assistance in the allocation of the lease to Waim No. 92, on favourable terms (paragraphs 32.8.6.3 & 32.8.6.13).

Once the lease was allocated for a reduced purchase price payable by instalments, Mr Maladina entered into a criminal conspiracy with Herman Leahy, the corporate secretary and legal counsel of NPF and valuers Iori Veraga and Mariano Lakae.

The agreement was for NPF to engage the valuers to value the Waigani land (and the NPF Tower) for an exorbitant fee. Mr Leahy acted from within NPF to ensure that Mr Fabila signed the contract on behalf of NPF. Mr Maladina, meanwhile, reached an agreement with the valuers for them to pay half their fees to him.

As a result of this scheme, valuation fees totalling K235,000 were paid to Mr Maladina/ Carter Newell of which K226,175.13 was received into the Carter Newell Trust account (Mr Maladina taking K8864.87 as “expenses”). The valuers put a grossly inflated value on the Waigani land of K14.7 million (Mr Veraga) and K17.6 million (Mr Lakae). They valued the NPF Tower at K87,854,500 (Mr Veraga) and K86 million (Mr Lakae). Each estimated valuation amounted to approximately twice the true value (see paragraphs 10 and 11).

Mr Maladina then briefed Pacific Capital to prepare proposals for POSF and other PNG institutions, to encourage them to acquire interests in the Waigani land.

Findings 

(a) As soon as the amended letter of offer was approved on October 2, 1998 (backdated to September 28, 1998), Mr Maladina briefed Mr McIntyre of Pacific Capital to prepare an investment memorandum to be submitted to POSF to purchase 40 per cent of the shares in Waim No. 92. If successful, this would raise sufficient money to pay the purchase price of K1.7 million, the cost of preparing development proposals and Carter Newell’s costs of K100,000 for “attending to” legal aspects of the Waigani land tender procedures;
(b) POSF wished to write off its losses on the Waigani land and the Pacific Capital investment proposal was delivered to NPF instead in about late October 1998.
(c) Mr Maladina and Mr Leahy conferred about obtaining valuations on the Waigani land (and the NPF Tower) prior to any discussions with the NPF board and for no proper reason;
(d) Mr Maladina entered into arrangements with valuers Mariano Lakae and Iori Veraga to pay him a 50 per cent commission on fees received;
(e) At the instigation of Mr Leahy, Mr Fabila, in excess of his delegated authority, signed the valuation contract with Mr Lakae and Mr Veraga without NPF board knowledge or approval and without any tender procedure being followed.

TO BE CONTINUED

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

National Provident Fund Final Report [Part 2]

August 6, 2015 1 comment

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.

This is the second 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 chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Sale of the Waigani Land and tracing the proceeds

The commission investigated the subsequent sale of the Waigani land to a Rimbunan Hijau subsidiary company by sale of shares in Waigani City Centre Ltd (formerly Waim No.92) and reported upon further corrupt procedures and crimes in the Lands Ministry and the Lands Board involving Dr [Fabian] Pok, Mr [Ralph] Guise and Mr [Jimmy] Maladina, for which all have been recommended for referral to the Police and the Ombudsman Commission (See Schedule 5, paragraph 31.4 and the list of referrals below at paragraph 15.6).

The commission also traced the way the moneys obtained by the NPF Tower fraud were “laundered” through the books of Carter Newell and PMFNRE. This showed up the involvement of Peter O’Neill as one of those who benefitted from the Waigani Land and NPF Tower frauds.

The investments that caused the greatest losses and those which illustrate outstanding examples of corporate maladministration will be examined briefly below in paragraph 10.

BORROWINGS

Commissioner Manoa’s conflict of interest

From the mid 1990s to 2000, Commissioner Manoa was a member of the Board of ANZ. He declared this to the commission at a public hearing on August 9, 2000 (Transcript p.1352) and thereafter took no part in hearing or deliberations involving the ANZ.

Features of the borrowings

Each of the main borrowings (from PNGBC, ANZ and BSP) is reported upon in the Schedules in category 2. The features common to all the borrowings include:-

(a) The banks failed to perform adequate due diligence and so entered into loan facility agreements without ascertaining that NPF lacked the power to borrow or to pledge its assets (Schedules 2A, 2B and 2C). ANZ eventually obtained this advice from Allens Arthur Robinson on May 26, 1999, (Schedule 2E paragraph 19.6 – Appendix 6).

Being ultra vires the NPF Act, the loans were invalid and it is doubtful whether interest was payable. As a result of the loans, which were advanced for specified purposes agreed between the banks and the NPF, money was spent on those purposes, interest payments were made and, during 1999, the NPF was obliged to sell off shares and other assets at a massive loss in order to repay the banks. This applied particularly to the ANZ, which obliged NPF to transfer share scrip as securities and to embark upon the big asset selldown.

It is possible that ANZ would be vulnerable to a suit brought by or on behalf of the NPF members directly for losses suffered by way of interest and bank charges and possibly for losses incurred as a result of ANZ’s pressure on NPF to sell off its assets at a loss (Schedule 2E see discussions at paragraph 11.2 and the criticisms of ANZ in paragraph 17).

The NPF Trustees were also in breach of their fiduciary duty to the members by entering the loan agreements with the various banks without obtaining independent expert advice about NPF’s power to borrow. They also could be liable to the members for losses suffered by their breach of duty (unless they can establish that they acted in good faith). If such an action was brought by the members as a class action against the NPF board, the bank could perhaps be joined as a third party (Executive Summary 2E, paragraphs 10.5, 13).

(b) On many occasions, management failed its duty to fully inform the board and seek approval before entering the loan facility agreements and before making drawdowns (Schedule 2A, paragraph 8.4,

Schedule 2E, paragraph 5.10 and paragraph 5.21 and 6.2). For instance, the PNGBC overdraft, which had risen to K6.77 million by 1998, had been in existence for several years before management made even partial disclosure of its existence to the board. In fact, its existence had been hidden in the NPF books of account by incorrect accounting procedures (Schedule 2A, paragraphs 4.1.9 & 4.3).

(c) There were several instances when loans were agreed or drawdowns were approved by the bank concerned without required ministerial approval (Schedule 2A, paragraph 9.3 and Schedule 2E, paragraph 5.15).

(d) NPF management rarely kept the board informed about the state of the loan accounts (Schedule 2E, paragraph 5.10 failure to advise board of additional K20 million facility obtained from ANZ; Executive Summary, paragraph 8.5.1). It was normal, for instance, that ANZ managers had far more knowledge of NPF management’s plans and strategies for using the drawdowns than had been disclosed to the NPF Board.

(e) Mr [Noel] Wright frequently pledged large parcels of share scrip to banks as security without consulting or advising the NPF board (Executive Summary 2E, paragraph 8.5.1(d)).

(f) The DoF was rarely consulted by NPF or the Minister and provided minimal input (Executive Summary 2E, paragraph 8.7.1).

(g) The ANZ’s review of the loan facilities extended to NPF were often superficial, without considering obvious risk factors (Executive Summary 2E, paragraph 8.10).

ATTEMPT TO ISSUE $A54m BOND

Management fails to advise NPF Board about negative expert advice

In October 1997, Mr [David] Copland and Mr Wright supported by then chairman Gerea Aopi, proposed issuing an $A54 million bond. If this happened, it would be the first such bond issue in PNG and NPF management lacked the necessary skills. It was also commercially impractical.

Expert advice from Consultant Jacob Weiss, BPNG and the ANZ opposed the idea, believing NPF could lose heavily if the kina depreciated in value. Mr Copland and Mr Wright persevered, however, and gained the NPF board’s immediate approval of the idea on a simplistic board submission, without disclosing the cautionary advice from the experts. The board accepted the idea enthusiastically, without insisting on expert opinion.

The dubious Canadian Jai Ryan (associated with Ambusa Sawmill) introduced an even more dubious Canadian Rudi Cooper, of Warrington International, a company registered in the tax haven of Antigua. Warrington became the proposed purchaser of the bond.

Every inquiry and every step taken raised further suspicion about Warrington, which was pointed out by NPF’s international lawyer, Clifford Chance. However, Mr Copland and Mr Wright kept up the pressure to proceed with the bond.

Governor of the BPNG intervenes under pressure

For a while the BPNG delayed the scheme when its Foreign Exchange Controller Benny Popoitai withheld essential approvals. This blockage was removed when Mr Copland, using his influence as a former director on the BPNG board, approached the Governor of the BPNG Mr Tarata directly and applied pressure. Mr Popoitai was then overruled by the Governor, who signed the approval papers himself (Schedule 2F, paragraphs 14.15, 13.1 and 13.2). Similar pressure was later brought successfully on Mr Tarata’s successor as Governor, John Vulupindi, when NPF was seeking an extension of the approval given by Mr Tarata (Schedule 2F, paragraph 14.15).

Mr Wright acts without authority

Negotiations to complete the agreement with Warrington proceeded for many months. During this process, Mr Wright frequently exceeded his authority in his desperate endeavours to complete the deal (He needed the money to pay outstanding interest on NPF’s debts and to provide more securities for the banks). Mr Wright’s unauthorised actions included-

  • Approaching Nara Investments (Mr Ryan) and granting a 5 per cent commission (Schedule 2F, paragraph 6.1);
  • Paying Mr Ryan an unauthorised advance of $US15,000 (Schedule 2F, paragraph 6.3);
  • Assuring Warrington that its profits would be tax free and giving a guarantee that NPF would itself meet any tax liability imposed on Warrington
  • Offering NPF share scrip worth $A77 million as security for the bond (Schedule 2F, paragraph 11.3) and transferring share scrip without authority (Schedule 2F, paragraph 14.3 & 14.8).

Advised by Clifford Chance, NPF’s lawyers held out against Warrington’s pressure by insisting that an appropriate security guarantor must be found.

Brown Bai leads NPF to terminate negotiations

When Warrington notified NPF it intended to assign NPF’s securities to a shady entity known as the RH Foundation of Anacirema, Mr Leahy and Mr Fabila confronted Mr Wright and Mr Copland in an endeavour to have NPF withdraw from the negotiations. Eventually, on the eve of the signing of the agreement, Mr Bai, who had recently become chairman of NPF, guided the NPF board to terminate the agreement with Warrington at the 115th NPF board meeting on November 6, 1998.

It had, however, been a wild and giddy ride and Mr Wright and Mr Copland almost succeeded in exposing NPF to a dubious international organisation, which may well have been involved in illegal activities and money laundering.

Had the bond been issued, there seems no way that NPF could have met the $A54 million bond plus 14.67 per cent interest in nine years time. This would have endangered NPF assets.

Mr Wright, Mr Copland and Mr Leahy and all NPF Trustees at the time were in serious breach of fiduciary duty to the members of the Fund (See comments and findings Schedule 2F, paragraph 16 titled concluding comments and paragraph 17 which discusses the roles and responsibility of the major participants).

Fortunately, it did not succeed but in the process it showed the BPNG can be moved by insistent lobbying. The attempt to issue the bond cost the NPF K244,762 in legal fees and a great deal of management time and effort.

The commission has found that Mr Wright was guilty of improper conduct by making false representation and by exceeding his authority on many occasions. There were numerous serious breaches of fiduciary duty by the trustees and by Mr Leahy, who failed to advise the trustees that NPF had no power to borrow or issue a bond and by Mr Wright for not passing on Gadens lawyers advice that NPF lacked the power to borrow.

FUNDING THE STATE

Occasions arose throughout the period under review when the NPF was called upon to provide money to the State to fund infrastructure projects and to meet other requirements or obligations of the State. Occurrences of this nature which the commission was asked to investigate were the:

  • Loans to fund the Poreporena Freeway (Schedule 7B)
  • NCD Water and Sewerage loan (Schedule 7C)
  • K17 million Southern Highlands 4 Roads Project (Schedule 7D) and
  • Niugini Insurance Corporation K2 million loan (Schedule 7A).

There was also a loan component associated with the transfer of former POSF members to NPF upon the corporatisation of Air Niugini, PostPNG Ltd and Telikom PNG Ltd. This was because the State was unable to fund its obligation to pay its unpaid employer’s contributions and, in effect, NPF “loaned” back the K24.4 million due to NPF at a commercial rate of interest (Schedule 8).

In each of these loan to the State projects, there were common features:

(a) The Government’s need was great and considerable political pressure was therefore applied to NPF to provide the funds.

(b) NPF had to borrow the funds from the commercial banks at a commercial rate of interest in order to be able to on-lend to the State.

(c) There were serious conflicts of interest when senior DoF officials made recommendations to the Minister advising the Minister to approve loans from NPF to the State. Both the Minister and the public servants had duties to consider the interest of the State as well as to the NPF.

The conflicts of interest were particularly acute for the Secretary of DoF, who was also the chairman or nominator of the chairman of NPF as well as being responsible for administering the finances of the State. Vele Iamo as Deputy Secretary for DoF and a very long time Trustee of the NPF had a similar conflict.

(d) The loan arrangements and even the ministerial approvals were often put in place between DoF officers and NPF management prior to consultations with the NPF board.

(e) NPF management failed to keep the NPF board properly informed and to always obtain board approval.

(f) NPF management and trustees failed to seek independent expert advice outside of DoF (which in these situations was biased in favour of the State and unable to give truly independent advice to NPF).

(g) There was a mismatch between the arrangements between NPF and the lending banks on the one hand, which were at variable rate of interest repayable at call and the arrangements between NPF and the State on the other hand, which were at a fixed interest rate for a fixed term of years. There was thus a potential risk for NPF if interest rates payable by NPF to the bank rose, as it would erode the profit on its fixed rate of interest from the State.

This potential risk eventuated and these “investment loans” became less and less profitable for NPF.

There was also the problem that the so called “road stock”, which NPF acquired through the Poreporena Freeway loans aggregating K62 million, were not readily assignable, as the State guarantee was not transferable.

(i) Because of Government pressure for NPF to provide funding in this way NPF distorted the balance of its portfolio in favour of this government “stock”.

(j) Despite these problems these investment loans were “safe” and provided a reasonable return, in marked contrast to most of NPF’s other investments.

Each of these loans to the State is reported upon in detail in a separate schedule. The executive summaries provide easy access to the schedules by stating main themes and giving references to relevant paragraphs in the schedules.

The transfer of members from POSF to NPF described in Schedule 8, raises many other issues as well as the issue of the loan which NPF was reluctantly obliged to provide.

The whole transfer process was badly planned and it started before basic political and administrative decisions had been made. The State had not been paying its employer contributions to POSF so members transferring to NPF were justifiably anxious about their entitlements and did not trust the State’s intention or ability to pay them. This stimulated demands for extra-legal payouts of entitlements under threat of industrial action. NPF was pressured by the Sate to agree to payouts to some employees, which were contrary to the NPF Act. This raised serious questions of improper political interference (Schedule 8, paragraphs 4.22, 4.22.1). Having reluctantly organised the lending of K24.4 million of borrowed funds to the State, NPF management was negligent in administering the loan, causing a loss of K4 million.

As further corporatisation of public institutions is likely, these issues need to be addressed. See concluding comments (Executive Summary 8, paragraph 33).

THE BIG LOSS-MAKING EQUITY INVESTMENTS — STC and CXL – Schedule 4D

Acquisition of STC shares “on-market”:

NPF commenced to buy STC and CXL shares on-market in March 1996. The NPF board had approved by circular resolution, the purchase of K1 million worth of STC shares in 100,000 share lots for a price between $A2.85 and $A3 per share. Mr [Robert] Kaul, however, misrepresented this resolution and obtained Minister [Chris] Haiveta’s approval to buy one million shares at that price. He also failed to mention the limitation on the size of the parcels, which had been imposed by the board. Mr Haiveta approved the application without seeking or obtaining DoF or any other expert advice. Management then proceeded to buy one million shares in larger sized parcels. This was far more shares and at far greater cost than the board had authorised.

The authorisation had been by circular resolution, which was not a valid means of decision-making. The purchase was not subsequently ratified by the board at a face-to-face meeting. This single approval demonstrated many of the faults which plagued NPF investments throughout the period:

(a) It was a risky and inappropriate investment.

(b) The NPF board approved the resolution by way of illegal circular resolution with little briefing by management and no expert financial advice.

(c) Management then misrepresented the limited nature of the board’s approval and obtained ministerial approval for the expenditure of a far larger sum

(d) Mr Haiveta neither sought nor received expert advice from DoF or elsewhere before granting the excessive approval.

(e) Management then purchased the excessive number of shares at prices, which sometimes exceeded the maximum price approved by the board

(f) the circular resolution was not ratified by a subsequent face-to-face board meeting

(g) The NPF Board of Trustees did not criticise or reprimand management for failing its duty to the board by exceeding their authority

(h) BPNG foreign currency exchange approval was not obtained for all of the transactions (Schedule 4D, paragraphs 4.1 and 4.2).

Acquisition of CXL shares “on-market”

Also in April, the NPF approved, by circular resolution, the purchase of up to K1 million worth of CXL shares. Again, Mr Kaul twisted the wording of the board’s resolution and obtained Mr Haiveta’s approval to buy one million CXL shares. This time the DoF did provide a recommendation to the Minister. However, it contained no critical analysis of NPF’s request but merely repeated the points made by NPF.

Mr Haiveta then gave an open-ended approval for NPF to acquire CXL shares for prices between $A2.20 and $A2.50 in 100,000 share lots without setting a total purchase limit. Again, management acquired many more shares than authorised by the board for significantly more cost.

CONTINUED TOMORROW

The National Provident Fund Commission of Inquiry Report tabled in Parliament

August 4, 2015 3 comments

Yesterday we announced our intention to republish over the coming weeks the findings of the National Provident Fund Commission of Inquiry (2000-02) and we presented a summary of the background to the whole NPF saga.

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!

Tomorrow we will publish the first installment from the serialization of the Commission of Inquiry Report that first appeared in the Post Courier newspaper from November 2002.

But first, by way of further introduction, below is the speech given by Prime Minister Michael Somare on presenting the Commission Report to Parliament…

NPF – NATIONAL PROVIDENT FUND – TABLING OF THE FINAL REPORT OF THE COMMISSION OF INQUIRY INTO THE NATIONAL PROVIDENT FUND

by RT HON SIR MICHAEL SOMARE GCMG CH, PRIME MINISTER 

NATIONAL PARLIAMENT, WEDNESDAY 20 NOVEMBER 2002

Mr Speaker,

I rise to table the findings of the Commission of Inquiry into the National Provident Fund that was established in April 2000, after a special audit report showed that the NPF had suffered enormous losses in excess of K155 million, that it had failed to honour its reporting obligations and that it faced a 50 per cent write down in members funds.

There was also an indication that there had been gross abuses regarding an attempt to sell some property known as the Waigani land to NPF at a grossly excessive price and similar abuses regarding the construction and attempted sale of the NPF Tower (now known as the Deloittes Tower).

The Commission was established with wide terms of reference to examine all NPF’s equity investments, its purchases and management of a company called Crocodile Catering (PNG) Pty Ltd and other investments.

The Commission was asked to examine the conduct of the NPF Trustees and management to see if there were breaches of duty and other abuses and to look specifically at the Waigani land deal and the NPF Tower.

Finally, the Commission was asked to report upon the legislative structure governing the NPF and to make recommendations for structural reform.

The first Chief Commissioner, Sir Charles Maino, resigned early in the piece to contest a by-election and he was replaced with former National and Supreme Court Judge, Mr Tos Barnett. The other Commissioners were Lady Whilhemina Siaguru and Mr Donald Manoa.

The Commissioners, with Mr John Reeve as Senior Counsel assisting the Commission, set about their investigations vigorously calling in documents on 34 major topics to be investigated as well as summonsing hundreds of witnesses to give evidence.

In order to be transparent, the Commission published the Transcript of its daily hearings on the Prime Minster’s website, and gave everyone implicated an opportunity to appear and be heard.

The Commission has found that the losses suffered by the Fund were even worse than has been suspected.

The report, states that by far the main cause of the losses was NPF’s outrageous investment strategy during the 5 years under review by the Commission – 1995 to 1999. Under the chairmanship of Mr David Copland (former managing director of Steamships Trading Company Limited) NPF formulated a policy to borrow massively from the commercial banks to fund its investments in PNG resource stock, mining and exploration companies.

It bought into these investments when prices were high and it borrowed the funds when the interest rate was low. But these were volatile, risky, non-income producing investments and their price was about to tumble as the South East Asian financial crisis of 1997 – 1998 loomed.

The report also states that the NPF also invested more than K40 million of borrowed funds in a doomed attempt to take over Steamships Trading Company and Collins & Leahy Holdings, paying top market price for the stock, which was also about to fall in value.

Then three things happened: –

  1. the share prices fell;
  2. the interest rate on NPF’s borrowed funds rose and
  3. the Kina depreciated against the Australian dollar.

NPF was trapped. As its interest rate burden rose to K1 million per month, it was obliged to transfer more and more share scrip to the banks for security.

Much of this debt was with the ANZ Bank. Just as it was becoming difficult to meet the interest payments and to honour the agreement with ANZ about the value of shares pledged as security, NPF borrowed a further K40 million from PNGBC to construct the NPF Tower.

According to the report, the NPF’s management failed to perform due diligence in relation to the investments and failed to keep the NPF Board of Trustees informed. Frequently management acquired shares without the Board’s authority and also entered agreements without authority.

The Commission has found that NPF’s senior officers – the managing directors, Messrs Robert Kaul and Henry Fabila, the Investment Advisor, Mr Noel Wright and the Corporate Secretary/Legal Adviser, Mr Herman Leahy, were in breach of duty and suggests that in some instances the actions of some of them were criminal.

The Commission has made recommendations that many people be referred to the Ombudsman Commission and some to the Commissioner of Police for further investigations.

Similarly, it has found that the Trustees are in breach of their fiduciary duty to the members for not keeping management in check and for not seeking independent expert advice before investing multi millions of Kina in risky stock.

The commission also found that the NPF management and Trustees ignored and sometimes deliberately violated the Investment Guidelines, which were laid down by Sir Julius Chan in 1993. These were designed to make sure that this superannuation fund (NPF) invested members’ funds carefully and prudentially.

One of the strangest things found by the Commission is that NPF never had the power to borrow money in the first place. The banks failed to make proper inquiries and made these vast loans, which were illegal and probably not recoverable.

When NPF’s cash crisis had brought it to the verge of bankruptcy it was obliged to sell off its assets to repay the debt, which it could no longer service. By that time, however, the share price for NPF’s narrow range of PNG resource stock was very low and when NPF tried to sell down large volumes of those shares, it brought the price down even further so that NPF realised massive losses.

The Commission has reported that while NPF was facing and addressing this crisis in 1999, its newly appointed chairman Mr Jimmy Maladina and the Legal Officer, Mr Herman Leahy (assisted by the late Mr Henry Fabila) set about defrauding the NPF of some K5 million by means of the Waigani land fraud, which the Commissioners say involved the bribery of Lands Ministers Viviso Seravo and Dr Fabian Pok and Lands Board Chairman, Mr Ralph Guise.

The Commission has laid out the evidence against these people in Schedules 5 & 6 and many others in great detail – most of it documented – and has recommended that I should refer them to the Commissioner for Police and to the Ombudsman Commission.

The Commission’s report includes charts, which trace the trail of money from the original fraudulent payments through many transactions and in and out of the books of Carter Newell Lawyers and Port Moresby First National Real Estate, to the ultimate beneficiaries, their families and companies.

Each transaction shown on the charts carries the paragraph number in the Schedule where that transaction is described.

Although the amounts lost to NPF from criminal activities are said to amount to only about K5 million of the approximately K170 million losses, it is still a significant sum which the Commission has found was stolen from NPF by those responsible for managing and safeguarding the members assets.

The Commission has presented tables of all those persons it has recommended that I should refer to the Commissioner for Police or to the Ombudsman Commission, the Law Society and other professional bodies.

I now commend this report to the house and call on the appropriate authorities to take action forthwith

The National Provident Fund Commission of Inquiry

August 3, 2015 5 comments

It is 13 years since the National Provident Fund Commission of Inquiry reported its findings on the fraud and mismanagement in our national superannuation provider through the late 1990s.

This means there is now a whole generation of young people  who know almost nothing about the corruption that defrauded over 50,000 ordinary people of their savings and which involved many of our current leaders and public figures, including the Prime Minister, Peter O’Neill.

To try and close this important gap in our collective memory and to remind us all of the Commission Findings and the lack of subsequent action against many of those implicated in the corrupt loans and fraudulent building projects, PNGExposed is embarking on a major exercise to republish the Commission findings.

The full report of the Commission of Inquiry has never been publicly released, but over the next few months we will republish the serialization of the Report findings that first appeared in the Post Courier newspaper in 2002.

We begin though with a short summary of the history of the National Provident Fund and the Commission’s main findings (adapted from Wikapedia).

Tomorrow we will publish the Statement made by the Prime Minister Michael Somare when he tabled the Commission of Inquiry Report in Parliament. On Wednesday we will begin the republication of the Post Courier’s serialization of the Commission findings.

History

The National Provident Fund (NPF) of Papua New Guinea was established in 1980.

In the late 1990s there was concern about NPF’s financial liabilities and several allegations of fraud and mis-management.

Between 1996 and 1997, the NPF had increased its debt by approving illegal loans from both domestic and foreign commercial banks as well as engaging in two fraudulent projects; the attempted purchase of the Waigani land and the construction of the NPF tower, which further contributed to its losses.

As a result, in early 2000, NPF fund managers announced a write down of 50 percent in all member contributions made before December 1999, equal to almost K114 million. But a special audit report revealed that the total losses were actually in excess of K155 million.

As a result of these findings the government established a Commission of Inquiry in April 2000 to examine the financial dealings and the allegations of fraud.

The Commission was chaired by former Judge, Tos Barnett, who had previously chaired the inquiry into the logging industry. Barnett was assisted by commissioners Donald Manoa and Lady Wilhemina Siaguru.

The Commission reported its findings in November 2002, but.to date that report has never been made publicly available

The Fund was finally dissolved in 2002 and its assets transferred to NASFUND

Waigani Land Fraud

The Commission of Inquiry found that in 1999 NPF Chairman, Jimmy Maladina had influenced the Fund to purchase a piece of land in Waigani, which he secretly held an interest in, at an exorbitantly inflated price.

Maladina had acquired the lease for the Waigani land in 1997, via his company Waim No.92 Pty Ltd, at a reduced price of PGK1.4 million, instead of the market value of PGK2.87 million. The Commission found that Maladina negotiated this reduction by bribing the chairman of the Lands Board, Ralph Guise, and the Lands Minister, Viviso Seravo.

Following his appointment as Chairman of the NPF in January 1999, Maladina with NPF’s Legal Advisor, Herman Leahy, arranged for NPF to purchase the rights to the Waigani Land, by purchasing a 100 percent shareholding in Waim No.92 for an inflated price of PGK10 million. Maladina had not declared that he held an interest in Waim No.92.

However, when news of the proposed acquisition was published in the national media, the ensuing outcry against the exorbitant price led Prime Minister Bill Skate, to force NPF’s withdrawal from the purchase.

NPF Tower Fraud

deloitte-tower

The Commission of Inquiry also found that Jimmy Maladina, Herman Leahy and Peter O’Neill had profited by K2.5 million in a fraudulent scheme involving Japanese construction firm, Kumagai Gumi.

Kumagai Gumi was contracted by NPF to build what is now known as the Deloitte Tower in Port Morseby, in 1997. The project was beset by delays and overran its initial schedule, which when coupled with the devaluing of the Kina in 1998 and 1999, reduced the profitability of the project for Kumagai Gumi and led it to register a devaluation claim against NPF.

Maladina agreed with Kumagai general manager, Shuichi Taniguchi, that he would ensure that NPF pay out a K5.8 devaluation settlement provided that K2.5 million of this then be paid to Maladina, by way of commission. The monies were paid as agreed and the PGK2.5 million was shared between Maladina, O’Neill and Leahy.

The Deloitte Tower is now owned by NASFUND.

Charges against Jimmy Maladina and Peter O’Neill

As a result of the Inquiry findings, Maladina was referred to the Commissioner of Police, but fled to Australia to avoid arrest. The government of PNG applied for the extradition of Maladina from Australia, but he returned to PNG voluntarily.

The Commission also referred then Treasurer Peter O’Neill to the Commissioner of Police for his involvement in both the NPF Tower fraud and the Waigani land case. O’Neill was brought before the Waigani Committal Court in 2005 and charged with misappropriation, but the charges were dropped.