‘Bond Scams’ Reflect A Broken Bond Market 

By Arjuna Mahendran – MAY 29, 2020

Arjuna Mahendran

The Mawbima and Ceylon Today has printed sensationalist headlines that I have changed my name, quoting the Sri Lanka Police and Interpol. This story is a blatant falsehood. In fact it is a metaphor for how low sections of the media in Sri Lanka have fallen because of unprincipled politics and the constant striving of some media barons to trample on the reputations of others to please their political masters. I therefore think it is time for me to break my silence and shed some light on the so-called ‘Bond Scam’ of Sri Lanka, which has prompted unscrupulous political operatives to continue slinging mud at me hoping it will discredit their political enemies.

It is well known that what passed for the Sri Lankan government between 2015 and 2019 was in fact a rag tag bunch of politicians from various parties who pretended that they had a coalition government. The jostling behind the scenes for power by the various factions of the government resulted in a zero-sum game. A politically motivated campaign by the former Sri Lankan President and his political group, the SLFP, to discredit the ex-Prime Minister and his political party, the UNP, resulted in, amongst other things, myself being treated as a convenient bogey for the ex-President to attack the ex-PM and discredit him. 

When the Supreme Court of Sri Lanka dismissed a case in 2015 alleging irregularity in the issue of Government Bonds by myself and the Central Bank of Sri Lanka, the ex-President deliberately sought to bypass the highest judicial authority by re-referring the case to Parliament and a Commission of Inquiry (COI) appointed by him. The Supreme Court chose to dismiss the case because the petitioners, when instructed by court to show any illegality or irregularity on the bids by a primary dealer or the auction, were unable to point to any violation of the rules or statutes governing the issue of bonds. It was submitted by my counsel, with facts and figures obtained from the Central Bank, that, out of the six prior 30-year bond auctions, this particular bond auction came at the lowest cost to the Government, calculated on the weighted average yield.

Nevertheless, the ex-President alleged that I passed price-sensitive information to my son-in-law whose company was a primary dealer in treasury bonds issued by the Govt of Sri Lanka. I have strenuously denied this in submissions to the Supreme Court of Sri Lanka, the Committee of Public Enterprises of the Parliament of Sri Lanka and a Commission of Inquiry (COI) appointed by the ex-President of Sri Lanka. All these fora have seen evidence that the alleged price-sensitive information was already shared with the primary dealer community from sources other than myself. The ex-President made a public statement in front of a gathering of Buddhist clergy that he wanted me charged with a criminal offence, even before the COI had commenced it sittings!

Accordingly, the COI duly arrived at the conclusion that I had committed a criminal breach of trust, in keeping with its (unwritten) Presidential mandate. Not even the Supreme Court of Sri Lanka came to such a conclusion. The COI did so on a speculative premise that since I was occupying the guest room of my daughter’s house in February 2015, pending renovation of my official residence, I would have passed price-sensitive information to my daughter’s husband who was a primary dealer. Not a shred of actual objective evidence was produced to prove such an assertion. I have strenuously denied sharing price-sensitive information with anyone.  It would have made absolutely no sense for me to do this and thus jeopardize a hitherto unblemished career working for the public sector as well as several international banks in high managerial positions for over 35 years.

What is even more puzzling is the blatant disregard shown by the COI to verbal testimony under oath by the CEO of the Primary Dealer Company that, prior to the auction of Government Bonds in question, he had received a telephone call from a staff member of the Central bank of Sri Lanka in which price sensitive information may have been passed (COI report p.282 para14). The COI never saw it fit to summon the concerned Central Bank officer to establish whether the information could have come from this source. 

The COI also raised the issue of my appointment as Central bank Governor while being a Singapore national as being a flawed judgement on the part of the Prime Minister. This was despite the Prime Minister in his evidence to the COI citing several cases of other countries employing foreign nationals as Governors of Central Banks. The irony that the ex-President himself signed my appointment letter seems to have been lost on the COI. Plus the fact that the very first Governor of the central bank was an American national, John Exter, and Sri Lanka law has absolutely no prohibition on foreigners being appointed as governor of the bank.

The two law enforcement officers who prosecuted me in the COI were duly rewarded by the ex-President. One was elevated into the Supreme Court and the other elevated to the post of Attorney General. A forensic audit into bond auctions conducted by the central bank dating back to 2006 pointed out a raft of deficiencies in the manner in which the bond market in Sri Lanka functions. It also found absolutely no evidence of wrongdoing on my part. The forensic audit was suppressed by the central bank and remains unexamined despite being produced at great expense. A USD 75 million World bank loan negotiated during my Governorship to further modernize the bond market and broader capital markets in Sri Lanka remains barely utilized. 

On 10 Jan 2018 the ex-Prime Minister made a statement to parliament where he noted that there had been no loss to the government of Sri Lanka as a result of the alleged criminal breach of trust attributed to me. He went on to state that the COI report had stated that Perpetual Treasures Ltd, the firm owned by my relative, had earned unconscionable profits amounting Rs 9.2 billion from the issuing of these bonds. He said that these could be recovered from the funds amounting to Rs 12 billion belonging to Perpetual Treasures Ltd retained by the Central Bank.

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