Proceedings at the Presidential Commission of Inquiry on the controversial bond issuance heated up yesterday as former Central Bank Governor Arjuna Mahendran was cross-examined aggressively by the Attorney General’s Department.
Mahendran denied any knowledge of meetings said to have been called by former Finance Minister Ravi Karunanayake where the latter had allegedly instructed the chairmen of the three state banks to bid at lower-than-market yield rates at Treasury bond auctions held in late March 2016.
A telephone conversation purportedly held between a People’s Bank official and the then Superintendent of the Public Debt Department (PDD) of the Central Bank of Sri Lanka (CBSL) was played before the Commission by Deputy Solicitor General Milinda Gunatillake. In the call, the People’s Bank official can be heard telling the PDD Head that the state banks had been instructed to bid at a particular level, and adding that if bids above the instructed levels were accepted, the state banks would suffer.
At first, the Superintendent can be heard saying it was a decision for the committee, but subsequently agrees to convey the People’s Banks concerns to the decision-makers at CBSL.
Mahendran, responding to questions by DSG Gunatillake, said he was not aware of the meeting – referring to the meeting said to have been chaired by former Minister Karunanayake – and added that his impression was that this had been a “frivolous” conversation that did not warrant comment.
Expressing surprise, Gunatillake asked Mahendran if nobody had told him that Karunanayake had summoned the chairmen of Bank of Ceylon, People’s Bank and the National Savings Bank for this meeting.
“Didn’t anyone tell you that, as a result of this, your son-in-law-’s company [Perpetual Treasuries Ltd. (PTL] benefited?” he asked.
“Never,” said Mahendran.
Continuing his cross-examination, Gunatillake then asked that, since a cut-off rate for a bond auction could not be predetermined, if Mahendran’s son-in-law Arjun Aloysius was heard telling someone that anything up to 14.80% would be accepted (referring to a recorded call between Aloysius and PTL CEO Kasun Palisena on 29 March 2016), could that information not be considered price-sensitive?
“If it was correct, but I don’t see how you can make such a statement. We determine our auctions on the volume we want to take, not on the price,” responded Mahendran.
The former Governor denied any knowledge of “powerful friends” referred to in Aloysius’ conversation with Palisena, and echoed his own testimony from a few days ago when he said these types of conversations take place in deal rooms all the time, where [dealers] pretend to have information they don’t actually possess. This cannot be ruled out, in this particular instance, said Mahendran.
“Just because this man got it correct in one instance, to say that he had inside information requires a much higher degree of proof,” he added.
Gunatillake then suggested to the witness that he was responsible for providing the information in question to his son-in-law.
“I wasn’t aware of any of these meetings. To me they’re frivolous meetings that shouldn’t have been taken seriously in the first place,” responded Mahendran, stating categorically that he had “absolutely no inkling” of the information that was supposed to have passed.
“I totally reject the point made by the learned Counsel,” he said.
“You’re lying to the commission,” charged Gunatillake.
“I’m not lying at all,” said the witness.
“No further questions,” concluded the Deputy Solicitor General.
Senior Additional Solicitor General Dappula de Livera then questioned the former Governor, somewhat relentlessly, on how he could not have known about the two meetings chaired by the former Minister of Finance and, according to the testimony of state bank senior officials, attended by officials of the CBSL of which Mahendran served as Governor.
Treasury officials and CBSL officials including Deputy Governor P. Samarasiri, said ASG de Livera, had been present at the first meeting held on 28 March 2016.
“Are you telling the commission to believe that you did not know anything about this meeting?” he demanded, pressing the witness on whether the Finance Minister had not informed him that the chairmen of the three state banks along with CBSL and Treasury officials were to be summoned.
“The Finance Minister is not obligated to ask me anything,” said Mahendran, adding that Karunanayake could have called the chairmen anytime he wanted.
“I categorically state that I knew nothing about these meetings, full stop,” he added.
The former Governor denied having had any conversation with his Deputy Samarasiri or anybody else about the meeting.
Asked de Livera: “Subsequent to the meeting, did [Samarasiri] inform you about what had transpired?”
Mahendran, in a noticeably louder than usual but not impolite voice, said: “I have not had any conversation about this meeting with anybody ever.”
“How did your officials sit at this meeting without your knowing?”
“I have no proof that they were there,” said Mahendran, suggesting that mere testimony was insufficient.
De Livera, however, noted that Mahendran’s counsel had failed to contradict the presence of the CBSL officials, at which point Commissioner Justice Jayawardena interjected to say that the commission will decide who is telling the truth.
“Three witnesses testified to [Samarasiri’s] presence. You’re lying,” de Livera went on to say, going to the extent of suggesting that Mahendran had in fact nominated his Deputy Governor to attend the meeting.
The former Governor’s attorney President’s Counsel Romesh De Silva objected to this line of questioning, which resulted in a heated exchange of words between the two legal teams.
The Senior Additional Solicitor General then suggested to the witness that his answer that he did not know about the meeting was a “deliberate falsehood” in view of the fact that his Deputy Governor and senior officials had been present at both meetings.
“I totally reject that,” said Mahendran, adding that there was no evidence of any factual nature to confirm that any CBSL officials had been present.
Former Deputy Governor Samarasiri’s counsel Attorney-at-law Harsha Fernando, meanwhile, said that only two of the several state bank officials had testified that his client had been at the meeting, one of whom he said was “gracious enough” to withdraw his statement if it would create any controversy.
None of the senior officials in their affidavits or in their testimony, he said, had been able to identify Samarasiri.
The evidence to the effect that his client had been there, Fernando went on to say, was “somebody’s attempt – if that meeting took place – to justify an otherwise frivolous meeting.”
“[Samarasiri] was never there,” he said, adding that an affidavit will be filed to that effect.
Justice Jayawardena, briefly recounting the evidence of some of the state bank chairmen, said the Commission will decide if Samarasiri had been there or not when it sits down to write the report.
ASG de Livera, however, argued that there had been other senior CBSL officials present at the meeting, evidence that had not been challenged. He suggested that, given this, there was “no way [Mahendran] could be ignorant of these two very important meetings.”
Referring to a statement made by Prime Minister Ranil Wickremesinghe in Parliament in March 2015, de LIvera said that the statement seems to have “exonerated” Mahendran of any wrongdoing.
Mahendran disagreed, recalling that the Prime Minister had appointed a committee to look into the matter, after which the COPE had also started its own inquiry and then subsequently the second COPE following the general election.
The ASG was referring in particular to a portion of the statement that the claim that the former Governor had interfered with the work of the Tender Board was without basis.
“Isn’t this to exonerate you?” asked de Livera.
“You have to ask that from the Prime Minister,” said Mahendran.
President’s Counsel Romesh De Silva again objected to the questioning, asking how his client could be expected to answer such a question.
De Livera then asked if an inquiry against Mahendran had been conducted by the time the PM’s statement was made in Parliament. The former Governor responded that he had submitted a report.
“Are you saying the Prime Minister considered your explanation and exonerated you?”
“I can’t speak for the Honourable Prime Minister,” said Mahendran, adding that he would have consulted various officials both within and without the CBSL.
“Please ask him,” he reiterated.
The hearing continues today.