Recent international and local media reports, including that of ours, were abuzz with the news of the arrest of Sri Lankan born but US based international fund manager Raj Rajaratnam and five others for alleged insider trading of stocks listed in the USA, where the former is alleged to have had made over US $ 20 million in illegal profits.
Rajaratnam who manages the multi billion dollar Galleon Fund has also invested in local stocks, some, if not most of his investments being in premier blue chip companies here.
He began investing in the local stock market during the tenure of the then Ranil Wickremesinghe government, in 2002-3 and made waves here.
The value of Sri Lanka’s stock market is US $ 10 billion, just a little bigger than Rajaratnam’s Galleon Fund which manages assets to the tune of US $ 3.7 billion according to reports.
Its exposure to the local stock market is tiny, when compared with the total value of this Fund, according to reports. Funds in general spread their risks, and don’t put all their eggs in one basket.
They invest in various international markets, with their investments not necessarily confined to equities, but may also comprise a mix, including investments in government treasuries in various markets worldwide as well.
Rajaratnam, who is listed among Forbes 400 richest Americans was arrested and released on US $ 100 million bail awaiting charges, while both his Sri Lankan and US passports were impounded according to reports, with his case pending.
US laws against insider trading are so strong, that it even allows law enforcement officers to tap telephone conversations (so much for human rights and privacy) of perpetrators of such acts, the results of which led to Rajaratnam’s arrest.
Him being brought to justice is an example of how stringent US law is on insider trading. Insider trading gives an unfair advantage to the person who is privy to such information about a company or companies, over and above that which the market knows, thereby giving him an advantage in the trading of such stocks and shares.
US law, on such matters, does not care about violating an individual’s privacy, due to its abhorrence of fraud, where public funds are involved, superseding all rights, in this land which is supposed to be the champion of global human rights, and, paradoxically a country that thinks that gun culture is right, despite so many shootings and killings by mentally unsound persons, on the grounds that the right to possess a gun is a human right.
In the developed world, in countries such as the USA, systems are so perfected, that, by and large the rule of law prevails, despite the complexities of understanding that system, in particular to the South Asian mind.
The law, truly, in those countries, is no respector of persons. “Kissing goes with favour” does not seem to apply to such states.
Rajaratnam’s prosecution has to be looked at in the context of our own Securities and Exchange Commission filing charges of insider trading against a local multi millionaire businessman, but which was recently dismissed by the Attorney General’s Department for reasons seemingly known only to it, while cases against others charged for a similar offence in connection with this case have either been compounded or are proceeding, with hefty fines paid.
The Colombo stock market is poised to take off with the end of the war. And reports are, that several foreign funds are now looking to invest in the local market.
Therefore it is essential that in addition to strong laws to guard against offences such as insider trading, effective prosecution against miscreants caught in such acts be dealt with without fear or favour.
Such actions will only help to strengthen investor confidence in Colombo, within and without, but this, sadly, seems to be precisely what Sri Lanka appears to be lacking, or not doing enough, to show that our legal systems are just and fair.
Strong laws complemented by strong institutions are the need of the hour for Sri Lanka to reach its full potential after the end of the 26 year terrorist war, and this is not an under-statement.
Singapore is a shining example in relation to this.
No sooner it finished its 10 year internal conflict with the Marxist Chinese guerillas in 1960, it put in place strong institutions and had zero tolerance on corruption that helped place Singapore on a pedestal in Asia, with only a few other countries in this part of the world such as Japan being but a step ahead of it, as far as the prosperity of their respective peoples are, compared to the rest of Asia.
Virtually every known multi-national company (MNC) has invested in Singapore, a market comprising a few million people and an island nation which is the size of Colombo.
Those MNCs however are not necessarily concentrating only on the island nation’s market, but has made that country its regional headquarters, with some of those MNCs, though operating in Sri Lanka, probably having as their regional base, Singapore.
Strong, anti-corruption legislation, complemented by its implementation, without fear or favour, has, no doubt made Singapore to be what it is, in the global economy.
Sri Lanka however seemingly has to traverse a long way before those objectives could be met and those goals reached.
But the danger in not making a start or of being slow to make a start, is the possibility of being left behind, in the fiercely competitive global market place.
And by being so left behind, there is a possibility of not being able to regain that lost ground, perhaps forever.
Sri Lanka’s strength, just like that of Singapore’s, appears to lie in the services sector, be it leisure, financial or shipping.
And if it is aspiring to be a regional hub, aimed at attracting global companies to set-up office here, with the purpose of especially catering to India’s 1.2 billion populace, it will need to have strong and independent institutions, specifically so in the legal sector, that are second to none, not even to those that are in Singapore and in the USA, to make this dream a reality, and be a centre to attract globally recognised companies.
Lessons from Rajaratnam’s prosecution, of alleged share trading fraud, from the world’s largest economy, are also lessons for Sri Lanka, that zero tolerance in corruption, pays and enhances investor confidence in such countries that give foremost priority to the rule of law.