BY EDWARD THEOPHILUS

I attempted to find a copy of the forensic audit report on the central bank bond scam, but I could not find it, most probably, the speaker of parliament may want to maintain confidentiality on the contents of the report. If it is opened to the public different views would have aroused on the contents as there are experts in Sri Lanka who have more knowledge of bond dealings and its dishonest aspects in the process. We can see that there were considerable points, which related to the deal.  It was eventuated with the knowledge of authorities who had obligation to exercise due care and attention as bank executives when dealing with various transactions and the consent of authorities who made the covering approval or originally authorized the deal had a fidelity to exercise authority on good faith and discretion in term of applicable administrative law of Sri Lanka. The deal was deemed to be cheating and eventuated without good faith that they were doing the right thing. On this basis, the bond scam was a crime against the government or people of Sri Lanka.  Many mistakes happening in day to day banking activities, but they don’t amount to treat as crimes.

The following points are serious in the case and the public need knowing whether the auditor considered the points. Mr. Ajith Nivard Cabral also made public statements on this matter.

• The borrowing to the government at a higher rate of interest than the decided rate or prevailing rate of the market by the government was cheating and as a result of this action, additional cost incurred to the government and the responsible officers who authorized the deal with knowing the consequences would be guilty on this transaction.
• The borrowing more than the amount required at a higher rate was also cheating and the bank officers were responding to question about this and without considering the problem, authorized to borrow a large sum of money was dishonesty and what did the government authorities do with such additional money.  This action also amounts to a crime.
• There was no consultation of the ministers in charge, who were supposed to use borrowed funds and the leader of the cabinet, the president of Sri Lanka on the rate of interest and the volume of borrowing.  The leader of the cabinet should have questioned this abnormal transaction at the cabinet meeting and would have taken remedial actions to indemnify the potential loss to the government at first instance and to prevent a future repeat. The records indicate that borrowing happened twice. It was amount to misleading and misappropriation.
• The government auditor was responsible to advise the government about the transactions and advise the government to take legal actions against the culprits.  Did the auditor General at that time or after that play the role?  If the auditor general did not play the role it could be treated as his negligence, which could be treated as abetting to commit crimes and the auditor general also would be an accuse of the case.
• The issuer of Bonds (Central Bank) and an investor of the bonds (EPF managed by the Central Bank) is procedurally wrong according to banking procedures and reflect a conflict of interest.
• The government procedures rules that the government cannot borrow funds without the approval of the secretary to the treasury and did the central bank as a government-owned organization obtain the approval of the treasury to borrow funds and to issue bonds to the public for the borrowing purpose.  What was the treasury opinion on this matter?

I don’t know whether forensic auditors considered above points when they preparing the audit report. Lateral thinking on the forensic audit report is essential and hiding the report from the public is not appropriate.

The central bank bond scam indicate that the superannuation management in Sri Lanka is in a crisis and my article since the year 2000 indicated that the central bank is a regulatory authority of the financial system of Sri Lanka and the management of superannuation, collecting premiums, insurance, and investments of fund markets playing role, which is subject to regulations of the authority, the central bank.  Sri Lanka regulator has become a market player and it is a disgraceful act in Sri Lanka’s financial system.  Since the year 2000, I have been pointed out this issue and the government or the policy-makers have failed to correct the problem giving the confidence in the financial system of Sri Lanka.

The government needs to separate superannuation management from the central bank and establish a separate organization to do it consolidating all super funds to a single organization.  The proposed organization would be a large corporation, which lifts Sri Lanka’s economy and provide more than 10000 jobs for educated youths. Such a new organization could give a long-term solution to the unemployment problem of university graduates and boost to the construction industry.

The president, Mr. Gotabaya Rajapaksa should investigate my suggestion and take action to solve the economic issues of the country. 

The proposed new organization to manage super funds in Sri Lanka can open two accounts in Bank of Ceylon and Peoples’ Bank for operation purpose and such action will be a good solution to liquidity problem (Money base problems) in two major government banks and the banks would not need to borrow from outside for liquidity problem.

The central bank of Sri Lanka can freely play its role especially regulation and supervision of banks, non-bank finance companies and other market players such as insurance, merchant banking, stock market dealing and many other market dealings.  The central bank also can supervise the proposed super management organization.  Then the monetary policy will successfully implement in the country and the original purposes of the central could be achieved.