By Ranjith Jayasundera
Investigations stemming from a Central Bank
probe have revealed a circus of brazen
violations of banking regulations by the
state-owned People's Bank in entering into
its hedging contracts with the Ceylon
Petroleum Corporation.
The Sunday Leader's own investigations have
found that atop the scathing seven point
sheet of charges levelled by the Central
Bank against People's Bank, the state-owned
institution has been hiring consultants at
salaries of over Rs. 1 million per month
plus perks, dipping into its employees'
pension funds to solve its financial woes
and sending officials to Dubai on Business
Class on the account of Standard Chartered
Bank.
The Central Bank's probe into the faults of
People's Bank goes on the basis of the
Financial Derivative Products Direction
issued by the regulatory authority on
December 21, 2005, which became operative on
January 1, 2006.
This newspaper acquired a copy of the letter
sent by Bank Supervision Director, B.D.W.A.
Silva to People's Bank (PB) General Manager
M. Wickremasinghe on December 4, 2008
wherein he outlined the irregularities in
the bank's deal with the CPC.
PB chastised
The Central Bank chastised PB for failing to
carry out "an adequate credit risk, market
risk and operational risk assessment in the
case of CPC in line with" its own "internal
policies and procedures."
"Had such a review been carried out, it
would have been clearly known by you as to
whether the CPC had put in place transparent
and adequate controls which were necessary
to identify, understand and assess the
substantial risks" that the CPC was
undertaking, Silva wrote.
He also pointed out that PB "failed to
assess the creditworthiness of the CPC to
fulfil its obligation arising from the
downside risk" of the hedging contract, and
that it "failed to set an appropriate policy
limit before entering into a contract as
required" by Section 6 of the Central Bank's
December 2005 direction.
People's Bank had further exposed itself to
grave operational risk the Central Bank's
Bank Supervision Director revealed in his
letter, by not having signed the
International SWAP Dealers Association (ISDA)
Agreement with the CPC, which is a standard
risk mitigating procedure for entering into
hedging transactions.
The Central Bank examination also revealed
that the CPC Chairman "had been keen to
realise short term and relatively small
speculative profits from the increasing oil
prices," and that it is "highly unlikely"
that PB officials were unaware that the CPC
had entered into several hedging contracts
for such reasons.
Mandatory
The importance of this fact is that Section
5 (b) of the Central Bank Direction on
Derivatives such as hedging is clear that
transactions should be made "only in respect
of the risk exposures arising from permitted
underlying transactions or genuine balance
sheet exposures," adding that this
requirement is "mandatory for customer
transactions."
Thus People's Bank had no right to aid and
abet in Asantha de Mel's apparent urge to
gamble with world crude oil prices. Hedging
and dabbling with complex financial
derivatives is not a trip to the casino, and
it is incumbent on the bank as a regulated
institution to take responsibility for the
transactions it enters into and to educate
its customers of the procedures and risks
involved.
The casino strategy of getting players drunk
on the house before they place their bets
has no place in the world of financial
derivatives, and that this is what People's
Bank did to the CPC is the message that
B.D.W.A Silva has hit home in his scathing
letter to that bank.
The Central Bank also showed that napkin
math alone could prove the CPC's inability
to honour the obligations of a hedging
contract should the deal have gone sour. The
debt ridden public company which profited by
US$98 million in 2005 made a US$18 million
loss in 2006 followed by a weak profit of
US$ 36 million in 2007.
Questionable
"In view of such weak earnings, it is
questionable as to how your bank could have
concluded that the CPC would have been in a
position to absorb losses with magnitudes of
over US$ 300 million - 400 million in the
event of a downturn of oil prices," Silva
wrote to the People's Bank General Manager.
The bank had also failed to "apprise the
board of directors of CPC of the conditions
and inherent risks associated with hedging
contracts adequately, and obtain an
undertaking that they have clearly
understood" these, the Central Bank also
found.
Crucially, the regulator accused People's
Bank of not ensuring a "high level of
transparency" in the deal. "Banks are
expected to ensure the highest level of
transparency to avert any reputational risk
to banks due to the information asymmetry on
the part of their customers."
In plain speak: the bank's job is not to
play smiley salesman, but instead to soberly
explain all the pros and cons of derivatives
to customers before signing them on.
Where People's Bank went over the top here
is the now infamous clause in the hedging
agreements that protected banks from
absorbing too much loss should oil prices
have skyrocketed, without similar protection
being applied to the CPC should oil prices
plummet as they have done.
Revelation
The most damning revelation of the Central
Bank's investigation however was that
People's Bank was not in a position to have
legally entered into any hedging agreements
at all. In order to trade in financial
derivatives, the Central Bank requires
licensed commercial banks to have a capital
adequacy ratio (proportion of its assets
against its risks) of at least 11%.
The Central Bank found that People's Bank's
Capital Adequacy Ratio to be below even the
normal requirement for commercial banks of
10% highlighting that the institution is in
dire straits. Our own investigation looks at
how the bank got there, outlines desperate
attempts by the government and donor
agencies to rescue the bank, and exposes how
brazenly extravagantly bank officials have
behaved through the institution's trying
times.
To begin with, People's Bank was a sinking
ship in 1993 and its many holes were only
plugged by an unprecedented Rs 10.541
billion given to the bank by the government
in the form of treasury bonds.
After sailing through most of the People's
Alliance government's tenure in relative
mediocrity People's Bank between 2001 and
2007 hired a group of "consultants," a.k.a.
politically appointed crony bankers from all
walks of life with a mandate to set the
bank's activities straight.
Sinking ship
Despite the efforts of these nine
individuals People's Bank has remained a
slowly sinking ship with its capital
adequacy still well below accepted norms for
a commercial bank. This would be forgivable
if the nine individuals concerned did not
draw a total of Rs 5.59 million per month (Rs
67 million per year) in salaries alone from
People's Bank.
In 2004, the newly formed Strategic
Enterprises Management Agency (SEMA)
formulated an action plan to revive People's
Bank and get it back on track, as further
action was needed atop the Rs 10.5 billion
given to the bank by the government 11 years
prior.
The SEMA plan gave People's Bank a letter of
undertaking from the General Treasury,
agreeing to underwrite all the bank's
liabilities should the proverbial faeces hit
the fan and the bank be unable to honour its
obligations.
Apart from this blank confidence building
cheque, SEMA also oversaw an agreement
between the government, Asian Development
Bank (ADB) and People's Bank which saw the
ADB provide Rs 4.5 billion to date in the
form of tranches.
People's Bank was also allowed a revaluation
of its assets, which added a further Rs 1.9
billion to its balance sheet. Despite all of
these handouts - amounting to over Rs 16.9
billion - the bank was still Rs. 4.7 billion
short of its 10% capital adequacy
requirement as at end 2007 despite being
supposed to achieve this target by June that
year.
Poor performer
With such poor performance it is
unconscionable that the management of
People's Bank could justify paying well over
half a million dollars per year in salaries
to consultants who were mandated to steer
the bank back onto a profitable course.
The highest paid as of December 2007 was one
Kapila Ariyaratne, who drew a monthly salary
of Rs 906,500 and a Provident Fund
contribution of Rs 181,300 a month.
Ariyaratne today serves as the bank's Senior
Deputy General Manager (Corporate and
Institutional Banking, Domestic and
Development Credit.)
Kapila Ariyaratne joined the bank in March
2001 along with N. Vasantha Kumar and six
other highly paid "consultants." In December
2007, Kumar was on a salary including
Provident Fund of Rs 868,000 per month. He
is now Senior Deputy General Manager
(Treasury and International Business,) and
the two worked hand in glove to put the
hedging deal through with the CPC.
In fact, The Sunday Leader has uncovered
damning evidence that these two People's
Bank employees were flown to Dubai on
Business Class on a junket to learn more
about oil hedging. Readers, before you let
your blood boil at the thought that your tax
rupees footed the bill for their comfy
seats, relax, for this was not the case.
These two Senior Deputy General Managers of
People's Bank were flown to Dubai and the
bill was footed by none other than Standard
Chartered Bank (SCB), the institution in the
spotlight of the hedging scandal. We have
published on this page invoices to SCB from
Hemas Travels for the flights of Ariyaratne
and Kumar to Dubai.
Attempts to contact both bank officials - to
ascertain who authorised their junket to
Dubai sponsored by Standard Chartered Bank -
failed. Neither returned repeated calls to
their offices seeking comment on this
matter.
In a pickle
When the Supreme Court scuttled the hedging
deal and barred the CPC from honouring
further payments on November 28, People's
Bank was placed in a mighty pickle as it was
liable to pay Commercial Bank around US$ 1.5
million on December 5 and Commerzbank of
Germany an additional US$ 577,950 on
December 18.
At the eleventh hour on December 4, People's
Bank General Manager/CEO M. Wickremasinghe
wrote to the Treasury and Central Bank for
advise on whether it was required to honour
these enormous payments to the banks it was
doing business with or if there was a way it
could weasel out of its mess.
The Central Bank replied on the same day
instructing People's Bank to seek the advice
of the Attorney General's Department, and so
the bank's chief law officer wrote to the AG
seeking his department's advice on whether
they were required to honour these payments
after the Supreme Court order.
Wickremasinghe waited until the next day,
December 5, to write to Commercial Bank and
inform them that they have sought the
Attorney General's opinion on the Supreme
Court decision, promising to revert to
Commercial Bank with the AG's advice.
Commercial Bank responded within hours
insisting that they be paid in full on the
same date, and threatening to serve a letter
of demand on People's Bank on Monday,
December 8, should the payment not have been
made on December 5.
People's Bank received a response from
Deputy Solicitor General Sanjay Rajaratnam
advising the bank that should payment be
demanded by Commercial Bank (as indeed
turned out to be the case) that the bank
should honour the commitment with the
concurrence of its board of directors.
Stalling time
Having informed Commercial Bank of the AG's
opinion and bought some stalling time,
People's Bank rushed to the Supreme Court
and obtained an order allowing them to not
pay Sri Lanka's Commercial Bank and
Commerzbank Germany. By doing so, People's
Bank has now put in jeopardy a US$ 6.5
million deposit kept at Commerzbank as
security for the hedging deal.
A move by People's Bank that has slipped
under the radar of the Central Bank was its
dabbling with its own employees' pension
trust funds. Moneys that were previously
allocated to high yield treasury bills and
bonds were diverted to People's Bank
debentures purely in order to help bolster
the bank's own balance sheet.
Whether the bank will be able to survive the
heat from its brazen mismanagement and the
Supreme Court torpedo into the hedging deal
is a question that may affect the entirety
of the country's financial system.
The Central Bank too has some explaining to
do on why it remained in complete slumber to
the entire madness of the hedging deal until
the Supreme Court ruffled its feathers
months after the damage was done.
Unless every regulatory authority takes all
necessary steps to brace Sri Lanka's
financial system for the sure shocks to come
this year, the folly of People's Bank may be
just the beginning of a nation-wide
financial meltdown.
The price of media freedom
is death
|
Lasantha — paid the supreme price
fighting
for the right for people to know the
truth |
Everyone's worried about stopping terrorism.
Well, there's a really easy way. Stop
participating in it.
- Chomsky
By Dilrukshi Handunnetti
The year 2009 was doomed from the beginning.
The shadows of 2008 in which the media
practitioners of this country suffered
immense hardships under the jackboots of the
present day administration and its military
apparatus cast its ugly dark shadow on this
year as well.
Just on to the 8th day of the new year, Sri
Lanka scored a dubious first. The
internationally renowned editor of The
Sunday Leader was gunned down in broad
daylight. Needless to say what the plight of
the average journalist of this country would
be, as the reward for choosing a pen or a
camera in this land of barbarians is now to
have either the institution set on fire - or
worse till, have a bullet pierce one's head.
The year 2008 dawned with the assassination
of a minority parliamentarian, T. Maheswaran
on January 1. This year dawned with an act
of vandalism that destroyed the Main Control
Room (MCR) and the MBC/MTV station complex
in Pannipitiya setting the trend.
Ugly scenario
It was followed by the assassination of The
Sunday Leader Founder Editor and Director
Editorial, Lasantha Wickrematunge.
The parallels are ugly. And the words that
emanate from government quarters appear
uglier. For example, in his address to the
nation on Friday, President Mahinda
Rajapakse declared not just the capture of
Elephant Pass yet again, but he also had the
audacity to state that there was a
conspiracy behind the recent media attacks
to discredit the government with pledges to
reveal all soon.
An unbiased Sri Lankan would surely know
that such a day would never dawn and all
these barbaric acts of violence and mayhem
would remain unresolved crimes. There need
not be any doubt as to why Sri Lanka was
rated the fifth deadliest place for
journalists to live in just last January.
Wickrematunge's assassination is proof
enough of this factor.
Dictatorships
Elsewhere in this newspaper, the chronology
of events to highlight the number of
occasions when Leader Publications Pvt Ltd,
its editor and journalists have come under
severe threat have been listed.
In 2008, there had been frivolous
litigation, threats and intimidation. It is
an understatement to declare that if any
single organisation and its head had come
under repeated attacks, it was no other but
Leader Publications.
As Sri Lanka continued to slide in every
international index on media status, in
October 2008, Reporters Sans Frontiers (RSF)
stated that Asia had the biggest
representation in the 10 countries at the
boomeranging. Most of them were described
as dictatorships, but they also included -
please note - for the first time, Sri Lanka
(165). That's an awful record when the list
includes only 173 nations.
Issuing a statement of International Press
Freedom Mission to Sri Lanka in late
October, five international media
organisations expressed shock that Sri Lanka
has indeed fallen to the lowest ever press
freedom rating that year.
It recorded the alarming trend of using anti
terror laws for the first time in the
democratic world, to punish journalists
purely for what they have written in the
case of J. Tissainayagam and others. They
have been in custody for over 300 days now.
The mission also recorded how the media in
the northeast were threatened by all parties
to the conflict in an effort to curtail
independent and critical reporting. The
mission condemned the murder of P. Devakumar
in Jaffna last May as well as over a dozen
other murders documented since 2005.
Strong exception
It noted that the LTTE controlled areas
lacked freedom of expression and freedom of
movement preventing diverse opinions and
access to plural sources of information.
The mission took strong exception to the
gazetting of rules in October listing out
contingencies under which broadcasting
licenses could be cancelled, including seven
different grounds relating to broadcast
content.
Significantly, it noted with shock elected
representatives and government ministers
using violent and inflammatory language
against media workers and institutions. It
noted further the Defence Ministry website
contributing to the vilification of
independent media and journalists.
It is in this backdrop that 2009 dawned, on
a completely negative note. Beginning with
the MTV/MBC station attack, the culmination
was the assassination of The Sunday Leader
Editor, Lasantha Wickrematunge, described
onetime by a racial website as one of many
'traitors,' or "Jathiye Drohiyo."
Post Wickrematunge, already the fear
psychosis has set in. Shutting down its
website Friday, Lankadissent.com editorial
panel posted the following:
"In this land of the most compassionate Lord
Buddha...
Sinhala Buddhists who believe this land
belongs to the most compassionate Lord
Buddha and constitutionally calls it the
Democratic Socialist Republic of Sri Lanka,
sing with pride 'In wisdom and strength
renewed / Ill-will, hatred, strife all ended
/ In love enfolded, a mighty nation /
Marching onward, all as one / Lead us,
Mother, to fullest freedom' as their
National Anthem.
And... in this compassionate, democratic
Buddhist land enfolded with love, in wisdom
and fullest freedom, media is forbidden to
raise a dissenting voice. Media is forbidden
to criticize the 'law' of the ruling regime.
The media is forbidden to speak for the
people.
Many who thought they as the media have a
right to freedom of expression, they have a
right to information, that the people also
have the same right and that it is a
fundamental right in a modern civilised
society, have been told very bluntly and at
times most brutally, that it isn't so in
this land of the compassionate, democratic
republic, run by a 'patriotic' regime.
The Tamil media in the north were the first
to have been told this bluntly and
ruthlessly while the Colombo media did not
want those dissenting voices in the north,
heard elsewhere. They had to learn that
lesson, first hand.
And..that was a lesson learnt by some, who
are not with us to tell their story. That is
a lesson learnt by some, who don't have the
right to say it, because they have a right
to live some time more. For a lot, it was
their station Sirasa that went ablaze with
that lesson. It was their station that was
smashed and set on fire to teach a lesson.
For Lasantha Wickrematunge, an editor with a
passion for uncompromising media
professionalism, it was a challenge to face.
A challenge he never minced words, in
meeting. He had his own aggressive style in
meeting the challenge. Admired and respected
but left alone without political backing.
And... he, therefore, could not surmount
this challenge, all by himself.
A lesson learnt, that needs no repeats to
learn. This compassionate Sinhala Buddhist
land does not tolerate 'dissent.' Those who
would not want to learn that living, would
have to learn that in death. We who live,
would come back when 'dissent' comes back as
a democratic right, accepted and enjoyed in
a modern land of compassion.
Till then, good bye!"
And so begins 2009 on a note of fear and
intimidation. It is a year in which more
journalists are doomed to smell their own
blood. One in which Sri Lanka would slide
further in the international ranking and a
worse report card is likely to emerge.
.
|
Killing Lasantha the worst example of
media suppression
An interview with media activist Sunanda
Deshapriya.
Q: How do you view the assassination of
Lasantha Wickrematunge? Is it an
isolated attack on a prominent
journalist for his brand of journalism
or one in a series of attacks to
suppress the media?
A: This is very much a part of a series
of calculated attempts to stifle the
media. Any one who decided to kill
Lasantha must have carefully considered
the consequences of his killing.
Killing Lasantha is not killing some
journalist in Jaffna or Batticaloa where
there is a strong culture of violence
still prevailing together with war
conditions.
Lasantha is an internationally reputed
journalist, an award winning journalist
and also the symbol of dissenting voices
in Sri Lankan media. Whoever who decided
to kill Lasantha wished to silence the
dissenting voices in this country.
This is therefore is a symbolic killing,
not an individual's killing alone. They
want to kill the campaign, it is a
movement suppress the media. I don't
think some lunatic group carried it out
but this is part and parcel of the
ongoing media suppression in this
country.
Q: Sri Lanka according to the IFJ
ranking is the fifth most dangerous
place for journalists.
A: Very much so. Some 17 journalists and
media workers have been killed and
already Tissainayagam and others are in
custody under the PTA for over 300 days
while others too are threatened and
intimidated in many ways.
During the past three years, we have
recorded at least 100 incidents per
annum. That is a terrible record. Dozens
of journalists have been assaulted and
media institutions have been brought
under control through various measures.
Media outlets have been shut down. It is
undoubtedly a very dangerous place for
journalists.
Q: After Lasantha's assassination, how
do you view the threat perception to
other journalists?
A: There is a saying that you kill a
journalist and silence a hundred. By
killing someone like Lasantha, you kill
many thousands. Everyone who wants to be
critical, dig deep into a story,
practice investigative journalism would
now think twice whether they could do
this or not.
Threats would naturally increase and the
fear psychosis will multiply.
In this violent backdrop, one can't sit
back and relax either. Killing Lasantha
is probably the most dangerous
development we witnessed in the recent
past. This trend must be arrested.
Q: Many a journalist here highlights
issues of good governance, media freedom
and human rights in Sri Lanka. Despite
all that, very few journalists tread the
crucial ground of calling for negotiated
peace, creation of a pluralistic society
and a policy of non-racial
administration perhaps where Lasantha
really stood apart. Does this mean that
the media is becoming racially
segregated as well?
A: Certainly. We are truly an ethnically
polarized country. Among those who stood
for non-discriminatory treatment of all
ethnic communities, Lasantha was a
pioneer. He always stood for a political
solution. That was a difficult stance to
adopt and defend. But he did it. He also
looked critically at any military
solution and did not lose sight of the
ravages of war that impacts on
civilians.
Whether we agree with him or not, he had
the courage to criticise the most
powerful people in this country and to
name them and dig deep into those
issues. He embarrassed, ridiculed and
exposed the mighty forces.
While being a very courageous
investigative journalist, the leading
figure in investigative journalism, he
was also a great advocator of a
pluralistic society. He stood fearlessly
for non-discriminatory treatment of all
communities and a political solution. He
abhorred a military solution. That
perhaps was one of the reasons that
caused sinister forces to kill him.
Q: Lasantha made strong statements
regarding the attack on the MTV/MBC
stations. He predicted attacks would not
cease and many others would be
victimised. He became the next victim.
Do you see any connection between the
MBC attack and his killing?
A: I do. In fact I see them as two parts
of a single series of events. They are
not two separate incidents from a
layman's view. Both groups were wearing
black and they could be the same group.
They appeared to be comfortable with
weapon handling.
I am personally aware that Lasantha
realised how much he was under threat.
That's where he stands alone again. He
was previously followed, shot at, his
house was attacked and his printing
press was burnt down. He never self
censored whereas the majority of others
are practicing self-censorship for
survival.
He knew he was being followed and that
he would be killed. They were on a
mission to kill him and silence that
powerful voice. But Lasantha too was on
a mission and his mission was his
passion. This was his way of fulfilling
his duty to his country. He was not
doing it for personal gain. It was a
cause he felt deeply committed to.
Q: In a situation like this, naturally
journalists are going to be fearful of
discharging their duties. But what can
be done to mobilize the civil society to
fight for media freedom?
A: I think it is very important that as
a journalists, we stand together. First,
we must shed all our differences. We do
the same job. That alone should be a
binding force.
We should protest against the killing of
Lasantha, a beacon of light in Sri Lanka
journalism. We should stand together and
fight for the freedoms that are now
being denied.
We also need people's organisations and
to say 'enough is enough.' Our silence
is going to breed more criminality, so
we must act fast.
All political parties, both in
government and opposition should come
out in defence of media freedom. We
should together try to arrest this
dangerous trend of killing journalists.
If we remain divided, there won't be a
civilised country left. We should not go
back and sit back after a single
protest. We should do our duty to the
people as journalists and create and
maintain the space that is rightfully
ours.
Final interview by Lasantha
In what was his last interview to the
print media, Editor of The Sunday
Leader, Lasantha Wickrematunge on
December 12, 2008 commented on the
status of the Sri Lankan media as one
that was no longer reflecting dissenting
voices.
He said there was space for the media
despite emergency being invoked, but it
came at a price - such as white vans,
death threats, loss of advertising,
frivolous litigation and sometimes,
death itself. But those who wished to
take the difficult path did so, though
few and far between, he noted.
In a brief interview in which he
commented on the island's status of the
media to form a South Asian media
assessment initiative, he added that if
prepared to take the risk, it was
possible to be read and heard, as there
was no official censorship prevailing -
a fact that the media should make
maximum use of.
He identified the real problem to be
self censorship, not so much due to the
above-mentioned threats but more as a
survival tool.
He believed self-censorship to be more
harmful than state oppression for it
destroyed the spirit within the media
community than due to forces from
outside.
Among the key problems he identified in
the media was the fostering of polarized
concepts - and the recent two years saw
racism being built into the media with
the vernacular mainstream media often
taking extreme lines.
Commenting on recent comments by the Sri
Lanka Army Commander declaring Sri Lanka
to be the land of the Sinhalese and that
others lived at the majority community's
pleasure, he said such comments would
influence many others to adopt a
hardline.
He noted that there were restrictions on
the coverage of war, non-disclosure of
the battle casualties of late,
concealment of human rights violations
and a reduction in the reflection of the
suffering of the IDPs.
Besides, he noted that new perceptions
were being created that every Tamil was
a LTTE sympathizer, that in the
prosecution of war, there appeared to be
rejoicing of aerial bombardment to the
extent of overlooking collateral damage
to civilians.
"That's a horrible mindset to reach. It
is also important to note that when the
southern insurrection was crushed, there
was no hoisting of flags etc., unlike in
this instance when Tamils were made to
feel separated. The media has been
creating this perception," he noted.
Wickrematunge noted that there was
social obligation to journalism that
cannot be ignored - but was being
overlooked because it is assumed to be
not very popular.
"One must state the truth and create
spaces for diversity and democracy. That
may not be a popular choice. But it is a
must," he added.
He noted that the prevailing situation
was not confined to Sri Lanka but the
international community paid less
attention perhaps because they had
little stakes in Sri Lanka as they would
in Serbia or Bosnia. |
