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Government bonds controversy

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In February 2015 CBSL advertised the sale of Rs. 1 billion in 30 year government bonds at a coupon of 12.5% [1] though several accounts erroneously cite an indicative rate of 9.5%.[2][3][4] The sale was oversubscribed with 36 bids of totaling Rs. 20 billion.[2] The majority of bidders, 26, bided for Rs. 100 million or less at a rate of 9.5%–10.5%.[2] However, a few bidders, including Perpetual Treasuries Limited, wanted interest rates of 11%–12%.[2] On 27 February 2015 the CBSL accepted Rs. 10 billion in bids at rates of 9.5%–12.5%.[2][4] The issuing of ten times the advertised bonds, and at a higher than expected rate, was alleged to cost the Sri Lankan government an additional Rs. 1.6 billion ($ 10.6 million), though this alleged loss was disputed by the Leader of the House of Parliament.[5][6][7][8] A petition was lodged in the Supreme Court of Sri Lanka contesting the methodology used to allege such a loss.[9] Perpetual Treasuries was issued, directly and indirectly, with Rs. 5 billion in bonds at 12.5%.[10][11][12][13] Perpetual Treasuries was one of the primary dealers in the sale and is owned by Mahendran's son-in-law Arjun Aloysius.[3][14][15] The primary dealer had also appointed the sister of the former Central Bank Governor Ajit Nivard Cabraal onto the Board of its holding company.[16]

This situation became a controversial political issue in Sri Lanka as the newly elected Sri Lankan Government of President Maithreepala Sirisena came to power with a slogan of good governance in the country.[2] A three-member Committee of eminent lawyers was appointed to investigate the issue and the report produced by the committee claimed that there was no direct involvement by Mahendran in the deal.[17] The Supreme Court of Sri Lanka did not grant leave to proceed in a fundamental rights case that requested a separate inquiry into the bond issue, as no laws were broken.[18]

Mahendran denied any wrongdoing in the controversial bond auction and asserted that he was ready to face any inquiry to prove his innocence. He also said he had been made a victim due to his own transparency. [19]

On the other hand, former governor of the Central Bank of Sri Lanka, Ajith Nivard Cabraal who preceded Mahendran charged that a higher hand was involved in the scandal given the scale of the cover-up attempts by the Sri Lankan government.[20] Cabraal himself is the subject of several investigations by the law enforcement authorities on alleged misconduct during his tenure as Governor.[21][22][23]

On 28 October 2016 the Committee On Public Enterprises, after a lengthy investigation, found Mahendran responsible for the Bond Issue Scam and recommended legal action be taken against the above.[24][25] However President Maithripala Sirisena has announced that he has appointed a Special Presidential Commission of Inquiry to further investigate the case. This commission consisted of commission’s chairman Justice K. T. Chitrasiri and members Justice Prasanna Jayawardena and retired Deputy Auditor General, V. Kandasamy.[26] During the inquiry, Mahendran defended his actions before the Commission stating that he had not acted in a manner detrimental to the interests of the Government.[27].

The commission handed over the report on Central Bank bond issuance to the President Maithripala Sirisena on 30 December 2017 and the Presidential Secretariat made available the full report in PDF form from its website for public viewing.[28][29]. In the findings of the report, Arjuna Mahendra was held directly responsible for causing a loss of LKR 11,145 million to public institutions [30]. However, Prime Minister Ranil Wickremesinghe has announced that 'No financial loss will be caused to the government on account of the Central Bank Bond issue since the government will recover the Rs 9.2 billion involved from Perpetual Treasures Ltd. according to the procedure recommended by the Presidential Commission. The Central Bank functioning under the Ministry of National Policy has already blocked and retained a fund of Rs 12 billion belonging to the Perpetual Treasures Ltd'[31]

The prolonged nature of the inquiry may be linked to a growing rift between Sri Lanka's President and Prime Minister and the two political parties they each represent in an increasingly fraught coalition government[32]. A group of ministers from the President's party along with opposition MPs failed in a recent attempt to pass a motion of no-confidence against the Prime Minister in Sri Lanka's Parliament[33]. A key issue in the motion was the Prime Minister's alleged interference in the Central Bank[34]. The President has subsequently had to prorogue Parliament[35]


References

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  1. ^ "Advertisement by the Central Bank of Sri Lanka" (PDF).
  2. ^ a b c d e f "CB Governor faces 'family company' charges; calls mount for probe". The Sunday Times (Sri Lanka). 8 March 2015.
  3. ^ a b "Harsha vows to go after fraudsters". The Nation (Sri Lanka). 8 March 2015.
  4. ^ a b "Sri Lankan central bank chief cleared over bond scandal". Mail Online. Agence France-Presse. 19 April 2015.
  5. ^ Aneez, Shihar (23 April 2015). "Sri Lanka c.bank head resumes duty after bond probe report". Reuters.
  6. ^ "Ceylon Daily News 8 July 2016".
  7. ^ "CB Bond Issue Call For Independent Probe". The Sunday Leader. 26 April 2015.
  8. ^ Fernando, Tharushan (24 May 2015). "Voice Against Corruption Movement condemns PM's statement on CBSL fraud". News First.
  9. ^ "Monk's petition on eve of bond debate in House: Sunday Times 22 Jan 2017".
  10. ^ Samath, Feizal (22 March 2015). "News Bond issue: Probe committee to question dealers on inside info". The Sunday Times (Sri Lanka).
  11. ^ "Primary dealers seek urgent meeting with CB on bond issue". The Sunday Times (Sri Lanka). 15 March 2015.
  12. ^ Shauketaly, Faraz (12 April 2015). "Trying To Stop The Third Force". The Sunday Leader.
  13. ^ Perera, Yohan (11 March 2015). "Finance Minister dismisses bond issue allegations". The Daily Mirror (Sri Lanka).
  14. ^ "Central Bank Governor under fire". The Sunday Times (Sri Lanka). 15 March 2015.
  15. ^ "The Central Bank Bond Fiasco". The Nation (Sri Lanka). 14 March 2015.
  16. ^ "Cabraals sister responds to allegation: The Nation 4 July 2015".
  17. ^ "No direct involvement by Mahendran-Committee". www.dailymirror.lk. Retrieved 31 May 2015.
  18. ^ Court cannot direct CB Governor as no law has been broken: Counsel | The Sunday Times Sri Lanka. Sundaytimes.lk (10 May 2015). Retrieved on 2015-11-19.
  19. ^ I’m a victim of my own transparency – CB Governor Mahendran http://nation.lk/online/2015/06/13/im-a-victim-of-my-own-transparency-cb-governor-mahendran.html
  20. ^ INTERVIEW: Higher hand involved in bond scam http://nation.lk/online/2015/06/20/major-mission-to-cover-up-bond-scam.html
  21. ^ "Daily FT 8 July 2015".
  22. ^ "Newsfirst.lk Oct 6 2016".
  23. ^ "Newsfirst.lk 20 Aug 2015".
  24. ^ Mahendran responsible for CB Bond scam: COPE report http://www.dailymirror.lk/article/Mahendran-responsible-for-CB-Bond-scam-COPE-report--118266.html
  25. ^ Mahendran responsible for CB Bond scam: COPE report http://newsfirst.lk/english/2016/10/cope-report-former-cbsl-governor-arjuna-mahendran-found-accountable-bond-scam/153007
  26. ^ "Daily FT 23 Jan 2017".
  27. ^ http://www.ft.lk/front-page/Mahendran-stands-ground/44-640888
  28. ^ "Bond commission hands over report to President Sirisena". Adaderana. 30 December 2017. Retrieved 23 March 2018.
  29. ^ "REPORT OF THE BOND COMMISSION". Presidential Secretariat. 16 January 2018. Retrieved 23 March 2018.
  30. ^ "Sri Lanka's ex-Central Bank chief Arjuna Mahendran held responsible for bond scam". The Hindu. 3 January 2018. Retrieved 23 March 2018.
  31. ^ http://dailynews.lk/2018/01/19/local/140425/govt-will-recover-rs-92-bn-perpetual-treasuries
  32. ^ http://www.straitstimes.com/asia/south-asia/tumult-in-sri-lanka-the-statesman
  33. ^ http://www.straitstimes.com/asia/south-asia/sri-lankan-pm-defeats-vote-of-no-confidence
  34. ^ http://www.straitstimes.com/asia/south-asia/sri-lankan-pm-ranil-wickremesinghe-survives-no-confidence-vote
  35. ^ http://www.straitstimes.com/asia/south-asia/sri-lankas-president-suspends-parliament-until-may-8
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