Enter Arjuna Mahendran!

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By 2017-09-24

By Kavindya Chris Thomas

After Arjun Aloysius's daring escape last week, it was the former Central Bank Governor Arjuna Mahendran's turn to take the witness box to give evidence before the Presidential Commission of Inquiry into the issuance of Treasury Bonds at the Central Bank. And that's exactly what happened this week which saw several previously surfaced matters arising once again, following the conclusion of Perpetual Treasuries Ltd CEO Kasun Palisena's evidence.

On Tuesday (19) Mahendran's testimony began after his counsel claimed that he would testify, although not being legally required to so, as he is a 'foreign citizen'.

Mahendran's Counsel Romesh de Silva PC making a statement prior to the witness's arrival claimed that his client is giving his testimony, as a Singaporean citizen, to prove his innocence and to support the Commission. He also added that his client should be treated with "respect, dignity and decorum" when cross-examined by counsel of the Attorney General's office, failing which he reserves the right to withdraw from the proceedings at any point.

The Commission acknowledging the statement responded that Mahendran will be treated as every other witness who appeared before the Commission, with utmost respect. Accordingly, Mahendran's testimony wasled by his Counsel where he moved to establish clarifications on several allegations which had been levelled against him.

Singaporean citizenship

On the following day – Wednesday (20) – however, the Commission issued an order stating that despite the fact that the former Governor holds Singaporean citizenship, he is not outside the law of the country. The Chairperson of the Commission, Supreme Court Judge K. T. Chitrasiri, reading out the order, said "Mahendran being a foreign citizen does not take him outside our jurisdiction and he had to obey the summons. Especially after accepting the appointment as the Governor of the Central Bank of Sri Lanka (CBSL), Mahendran cannot claim that he is outside of our law."

Commissioner Chitrasiri further conceded that Mahendran cannot take the same position Perpetual Treasuries Arjun Aloysius took previously, where he refused to give evidence on the basis that he might be incriminating himself. The Commission noted that compelling Aloysius to give evidence could have led to a review of the case in Superior Courts. Noting that Mahendran cannot resort to the same position, the Commission claimed that his evidence will continue as usual. The Commission made the order to clarify their actions, in the face of recent media reports.

Not held any positions

Mahendran testifying before the Commission noted that prior to his appointment as the CBSL Governor, he had vacated the directorial positions of all the companies he had chaired. He also said he had not held any positions while holding the Governor's positions and had not maintained shares from other companies too.

Mahendran's Counsel also said that his client had maintained an 'open door policy' during his tenure at the CBSL, where he had had a casual relationship with his colleagues.

However, he also noted that after taking up the position he had been informed of a Rs 39 billion loss since 2013 and 2014 at the CBSL, which he had remedied by reconstructing several departments. Accordingly, he had established three clusters which were divided among the three Deputy Governors.

On his relationship with his son-in-law Arjun Aloyisus, of the Perpetual Treasuries Ltd., Mahendran was asked whether he had discussed official matters with him on any occasion. This he completely denied. He also noted that the fact that Aloysius had married his daughter back in 2012 was common knowledge among the country's decision-makers as many politicians and members of the business community had been present at the wedding.

The case of the letter

The issue regarding the meeting between Mahendran, then Finance Minister Ravi Karunanayake, Minister Kabir Hashim and Malik Samarawickrama was also brought up. Here Mahendran claimed that the meeting that took place on 26 February – one day prior to the controversial Treasury Bond auction – was to inform the CBSL of the Government's requirement of Rs 75 billion for uncompleted road development projects. Consequently, he noted that he had requested a letter confirming this meeting from Karunanayake prior to his appearance before the second Committee on Private Enterprises (COPE) in June 2016.

This matter surfaced initially when Karunanayake was giving evidence before the Commission earlier this year. The issue of this undated letter was questioned and was clarified as to have been an oversight according to the former Finance Minister.

'Absolute contradiction'

On Friday during the cross-examination of Mahendran the matter of the letter resurfaced. Acting Solicitor General de Livera alleged there's an 'absolute contradiction' in the statement made to Parliament by Prime Minister Ranil Wickremesinghe on 17 March 2015 and a letter issued by the former Finance Minister Ravi Karunanayake with regard to funds said to have been requested from the Central Bank.

De Livera went as far as to suggest that Mahendran had "concocted" his testimony about two Government Ministers, namely Karunanayake and Kabir Hashim, asking the Central Bank to raise Rs 75 billion for urgent road development projects, leading up to the 27 February 2015 auction.

The Prime Minister had in his statement, de Livera recollected, that there had been an urgent funding requirement of Rs 15 billion, which he said was a 'glaring contradiction' to Karunanayake's statement in the letter. Mahendran disagreed, claiming that there had been references to medium-term and short-term requirements. Rs 15 billion had been initially needed by at least the beginning of the following week, and a further Rs 75 billion subsequently.

Material contradiction

At this point, de Livera accused Mahendran of lying, calling this particular testimony a material contradiction. Citing testimony by senior Treasury officials who, according to de Livera, had said there was no documentation for such a request to their knowledge.

Mahendran denied this.

Asked if Mahendran still advances his assertion that there was this urgent funding requirement in the face of "all this evidence," the former Governor said it was "verbally indicated" to him by the ministers and that it was on the back of his mind on 27 February, the day of the auction.

On the day of the auction

When he was being led on the evidence, Mahendran relayed the occurrences that took place on the day of the auction. He claimed that he visited the Public Debt Department while the auction was ongoing in order to see the results. On both occasions, he had been accompanied by several other officers including two Deputy Governors. He highlighted that until he received the bid sheet later that day he had not been aware of the identity of the bidders in the auction.

Mahendran claimed that the allegations being made against him, by the Attorney General's Department, are based on factually incorrect assumptions which he went on to clarify.

It was during the cross-examination of evidence however, where it was suggested that Mahendran had interfered with the due process in the 27 February 2015 Treasury Bond auction, thereby influencing its outcome. The allegations were completely denied by Mahendran. He claimed that bids were accepted in concurrence with the then CBSL Deputy Governors and senior Public Debt Department (PDD) officials, with the objective of raising funds to meet the unprecedentedly massive requirements of the government.

Manipulated the due process

ASG Dappula de Livera in his cross-examination of Mahendran said the former Governor had manipulated the due process, with an undisclosed motive in mind.

"I totally reject that," said Mahendran.

Suggesting that Mahendran had forcibly accompanied his two deputy governors, Dr. Nandalal Weerasinghe and Ananda Silva with him to the PDD the second time he is said to have visited it, de Livera said the evidence the two had given under oath was that neither of them knew where they were even going.

"We all agreed to go," countered Mahendran, explaining that his two deputies had come into his office "because we had a problem."

A sum of Rs 172 billion had to be raised in March 2015, and Mahendran, he claimed, did not have the "foggiest" idea on how the CBSL was going to do that. The witness claimed that he was expecting guidance from the deputy officers, adding that he had then suggested to them to go along with him to the PDD to see how much money the auction had raised.

'Massive amount'

De Livera, countered that, contrary to Mahendran's pronouncements, Rs 172 billion was not a big amount for the PDD to raise; but Mahendran insisted that, given the Bank's track record the previous two months via private placements, it was a "massive amount."


At this point, Commissioner Justice Prasanna Jayawardena inquired, since Mahendran could not have known how much had bid by way of private placements, if he had testified earlier that he discussed the small amounts raised (through private placements) in his office, would that testimony have been false. Mahendran agreed.

De Livera then recounted that, at the PDD, Mahendran was with the two deputy governors, then Superintendent of Public Debt Deepa Seneviratne and her two Additional Superintendents U. L. Muthugala and Dr. M. Z. M. Aazim. The Acting Solicitor General put to the former Governor that, once Superintendent Seneviratne had told him that some 20 billion had been received, he had instructed her to "take 20." Both Seneviratne and Dr. Aazim, said de Livera, had objected to their Governor's proposition.

Denying this, Mahendran claimed that Dr. Aazim had informed him that taking the whole 20 billion would've raised interest to unacceptable levels due to what is known in the trade as dummy bids – bids placed by primary dealers, according to Mahendran, at "ridiculously high" rates of interest when they don't wish their bids to be accepted. Dr. Aazim, he claimed, had said "we can take something reasonable."

Shock in the market

De Livera, however, maintained that the Additional Superintendent had argued with the Governor on the basis that accepting 20 billion would've created a shock in the market, to which, according to de Livera, Mahendran had said "take 10." "I don't recall that," responded Mahendran, reiterating that he had simply asked Dr. Aazim how much would've been a reasonable amount to accept.

When de Livera suggested that he had insisted on accepting 10 billion, Mahendran said he did not insist on the amount, but had simply asked Dr. Aazim to, once again, suggest a "reasonable" amount as the Central Bank had to raise Rs 13.5 billion by the following Monday.

De Livera then said Mahendran had told the PDD officials to go back to the pre-September 2014 rate and told PDD Superintendent Seneviratne to take 10 billion.

Mahendran denied this, claiming that he had said, "if I were you, I would accept 10 billion" to her and had walked off.

According to Mahendran's testimony yesterday, 13.5 billion was the realistic amount CBSL could've raised, given the fact that private placements had apparently not generated much. He claimed that Dr. Aazim had told him that if a line was drawn at the 10 billion mark, it would've been the rate at which the coupon equaled the highest bid – 12.5 per cent would correspond to the 12.5 per cent of the highest bid under10 billion. The weighted average rate of all the bids would be 11.73 per cent, he said, adding that he had then asked him what the weighted average rate of the previous 30-year bond auction held in May 2014 had been.

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