Ending last week’s respite, former Central Bank of Sri Lanka (CBSL) Governor Arjuna Mahendran faced further intense questioning yesterday, as Acting Solicitor General Dappula de Livera recommenced his cross-examination of the former CBSL chief on a number of matters pertaining to the controversial bond issuance before the Presidential Commission of Inquiry investigating the matter.
Among the suggestions made to the witness by the senior legal official was that the former Governor had contradicted his own testimony regarding an urgent funding requirement by the Government.
Mahendran had previously testified that a requirement of funds amounting to Rs. 75 billion had been made to him concerning planned road development projects, as substantiated by a letter purportedly written by then Finance Minister Ravi Karunanayake that was furnished to the Bond Commission as evidence (document No. AM22). The Prime Minister, however, in a statement to Parliament on 17 March 2015, had made reference to an urgent requirement of Rs. 15 billion only. This was later clarified by Mahendran as an initial requirement of Rs. 15 billion needed immediately, followed by a further Rs. 75 billion.
ASG de Livera suggested in yesterday’s proceedings that Mahendran had changed his position, giving a “different flavour” to his previous testimony, accusing him of never having mentioned Rs. 15 billion. Mahendran denied this, however, claiming to have definitely mentioned it and saying it could be found in the transcripts.
Referring to testimony given by Mahendran to the first COPE inquiry on the bond issuance, running up to 61 pages over a period of two days, de Livera said the former Governor had not made reference to any urgent funding requirement there either.
“You did not utter one word of an urgent funding requirement of the Government which had to be met [at the 27 February] auction,” said the Acting Solicitor General.
“I disagree,” said Mahendran, adding that he’d have to check the transcripts.
According to de Livera, as per the minutes of the Cabinet Subcommittee on Economic Affairs meeting held on 24 February, chaired by Prime Minister Ranil Wickremesinghe, a decision had been made to prioritise and implement all road development projects with available funds, with no specific funding requirement having been voiced or decided upon.
Mahendran disputed the minutes, stating that he could not agree with the reference made to available funds, as those funds were simply not adequate.
There was another meeting held on 3 March 2015, according to de Livera, again without any decision being reached on an urgent funding requirement to finance any road development project.
Mahendran’s attorney President’s Counsel Romesh De Silva argued that the document de Livera was referring to, in fact, did not contain the minutes of the said meeting but rather a list of decisions taken.
It was an incomplete document, he said, that did not reflect whatever discussion that would have taken place at the meeting proper.
De Livera, however, maintained that Mahendran’s testimony of an urgent funding requirement of the Road Development Authority (RDA) was unsubstantiated by any documentary proof barring AM22.
Proceeding to question the witness on his relationship to Perpetual Treasuries Ltd. (PTL) former Director Arjun Aloysius, the Acting Solicitor General then asked Mahendran if he thought it was surprising that his son-in-law had bid 15 times the offered amount of Rs. 1 billion - 75% of the volume (that is, 15 out of 20 billion). Mahendran said it was indeed an unusually large bid that would have bankrupted the company had it been accepted.
‘Gift’ of information
PTL received 50% of the accepted volume (Rs. 5 billion out of Rs. 10.058 billion), pointed out de Livera, asking Mahendran if he would consider this a “lifetime achievement’ for the company as a standalone, small-time primary dealer, given its track record up to that point.
“I have no knowledge of PTL’s performance,” said Mahendran.
The Acting Solicitor General then suggested that the witness had given Aloysius a “gift” of market sensitive information, and stated that the former Governor had not initiated any process internally to inquire into the controversial auction.
Continuing his testimony, Mahendran told the commission that the Prime Minister had instructed him to stop making direct placements at the 24 February Subcommittee meeting. De Livera then recalled that on the day of the auction, the former Governor had communicated to the Public Debt Department (PDD) of CBSL that direct placements would be stopped.
In a meeting held a week later, on 6 March 2015, said de Livera, Mahendran had informed the Monetary Board of the decision. However, he said, there was no decision taken by the Monetary Board, which is required to take policy decisions in terms of the Monetary Law Act, to stop direct placements.
Mahendran disagreed with this suggestion, stating that Monetary Board members had agreed with him on the decision. However, referring to the board’s meeting minutes, de Livera maintained that it had taken no such decision.
At this point, Commissioner Prasanna Jayawardena noted that this was the first time Mahendran had told the commission that the Prime Minister had given him a direct instruction that private placements should be stopped. Seeking clarification, Justice Jayawardena asked Mahendran if he chose to act without referring the matter to the Monetary Board. Mahendran answered in the affirmative.
De Livera then suggested that, between 24 February, when Mahendran had received instructions from the Premier, and 6 March, when he conveyed it to the Monetary Board, it was only his instructions that had prevailed. Mahendran responded that one member of the Board was privy to the conversation he had had with the Prime Minister.
“The decision to stop direct placements was yours, and that responsibility you ought to take,” said de Livera. Mahendran agreed, but added that it was his understanding that it was policy.
De Livera then accused the former Governor of not directing the PDD to conduct a study on the matter, to which Mahendran said there was no need for a study as the data was very clear and that the Public Debt Manual clearly stated the modus operandus that had to be adopted in such a situation.
“I had conveyed this to the Prime Minister,” he said.
Pointing to a record of the 33rd meeting of the Monetary Board held this year, de Livera said it had at no time made a decision to stop direct placements, adding that even during Mahendran’s tenure it had never taken a decision to do so. Mahendran disagreed, countering that in June 2015 a proposed return to private placements had not occurred.
The Acting Solicitor General then referred to the minutes of the 24 February Cabinet Subcommittee meeting, arguing that they did not indicate or refer to any discussion with regard to stopping direct placements.
“These minutes are sketchy,” said Mahendran, as, according to him, they did not capture the essence of what had transpired at that meeting.
In the Prime Minister’s statement, said de Livera, he had remarked that he “insisted” on public auctions as private placements had led to corruption and lack of transparency. In that context, said de Livera, it was incumbent on Mahendran, as Governor, to start an investigation and obtain a report on the prevailing situation that existed in the direct placement system.
“I disagree. The urgency in raising funds for the Government was adequate justification to change the system,” said Mahendran, adding that, however, CBSL had decided to investigate what had gone wrong with private placements in the past.
“But to hold up the entire changeover in order to conduct an inquiry would’ve delayed the fundraising effort,” which he claimed was his highest priority.
Conflict of interest
Touching on the potential conflict of interest with regard to Mahendran’s son-in-law Arjun Aloysius, de Livera said that the decision to go for public auctions had not been conveyed to the market until 6 March 2015 - information that Mahendran had been privy to since 24 February.
“This information went to your son-in-law between 24 and 27 February,” he said.
“I can’t speak for him,” said Mahendran.
This explained PTL’s bid of 15 billion, continued de Livera, suggesting that it was Mahendran that had conveyed this market sensitive information to his son-in-law.
“I wouldn’t have done such a foolish thing. I have been in banking for 35 years. I know exactly what good governance is and what price sensitive information is,” responded Mahendran.
Having worked in markets all over the world, he went on to say, it would have been foolish of him to destroy his career by leaking such “silly information” in one fell swoop.
“I never did any such thing,” he said.
De Livera countered that Mahendran had not anticipated the situation he now found himself in, giving evidence to a Commission of Inquiry.
Mahendran insisted that, prior to his appointment as Governor of CBSL, social media commentary about a potential conflict of interest had prompted him to discuss with Prime Minister Wickremesinghe and other ministers, including then Finance Minister Ravi Karunanayake, about the situation, regardless of which he had been appointed.
Subsequently, he said, he had made every effort in his capacity to keep a complete “arm’s length” with regard to the activities of PTL, adding that he has a personal policy of never discussing business with family.
De Livera, however, maintained that there was no other tenable explanation for PTL’s unusually high bid, suggesting that Mahendran had communicated to Aloysius that private placements were going to be stopped - an allegation that Mahendran denied.
On 16 January 2015, Aloysius had resigned from the post of Director at PTL. According to testimony given by Mahendran before the Commission, his son-in-law had told him there was a possibility of a conflict of interest and therefore it would be prudent of him to step down as CEO.
However, argued de Livera, Mahendran was not Governor on 16 January, the day Aloysius had resigned. Where was the conflict of interest, he asked.
The Prime Minister had already indicated to him that he would be appointed Governor, said Mahendran, adding that though he was given the letter of appointment on 23 January, by the 16th, he was already packing his bags in Dubai.
At which point, de Livera asked, “The public of this country did not know. How did your son-in-law come to know?”
“I would’ve told him,” answered Mahendran.
“You told him? You started telling him things?” said de Livera. Mahendran argued, however, that this was not price-sensitive information, adding that he knew the distinction between price-sensitive information and announcing a new job.
As the conflict of interest debate went on, Justice Jayawardena noted that, while he was not dismissing any points raised by de Livera, it was also important to note that Former CBSL Governor Ajith Nivard Cabraal, too, had a sister that served as a director of the company in question. Acknowledging that two wrongs certainly don’t make a right, Justice Jayawardena said that this kind of conflict of interest has arisen in the past, observing that what’s good for the goose is also good for the gander.
“It’s certainly no excuse for it to happen in the future,” he said, however.
Continuing his cross-examination, de Livera, suggested that knowing full well that conflict of interest was a matter that had to be properly addressed, Mahendran had not disclosed to the Monetary Board his relationship with the standalone primary dealer, challenging him to produce one document proving that he had done so.
“You have acted with impropriety at the outset,” said de Livera.
Rejecting this, Mahendran said that he had recused himself from any discussion in the Monetary Board involving the affairs of his son-in-law’s company, and told the commission that he would provide documentary evidence.
The cross-examination continues today.