If Perpetual is not relieved of its profits bond saga will be a pus vedilla

When the Bond Commission was set up I wrote an article on 8 September 2017 titled ‘If at the end of the enquiry Perpetual gets to keep the vast amount of profit it made, then it is a pus vedilla’. Now the Bond Commission Report is out but the spectre of a pus vedilla has not gone away! The profits are still with Perpetual.

The clever ones know that if one is accused of some dishonest action, the best thing is to get a committee of enquiry set up. A committee of enquiry has no power to dish out any punishment. The Bond Commission too had no power to hand out any penalty/confiscate or tax the profits of Perpetual. They could only recommend further action. 

So the Commission has recommended that the Attorney General and other authorities consider whether Perpetual Treasuries has done this that and the other (all specified by the Commission). In the meantime Perpetual keeps their profits frozen or unfrozen.

Past history

We know from past history that when the CID or Bribery Commission or any of the new organisations probe frauds, nothing happens for a long time. So when a commission suggests that some agency should investigate and take action, those accused will have a smile on their faces.

I can picture the smile of the Perpetual people. Maybe they will discreetly crack a bottle of bubbly. They know that the investigating authorities will find it all very complicated to unravel and to create a case that will succeed in court as clever people who indulge in dodgy practices make sure that it will be difficult to unravel.

When you add to this inadequate human resources in the investigating agencies, we know that more often than not nothing happens. That seems to be the fate of many so-called frauds that have taken place. Even if a case eventually comes to court it will be postponed many times, with the accused on bail and if there is a verdict it can be appealed, etc.

A brief look back at the bond scam

As so much has been written about the bond scam a “cannot see the woods for the trees” scenario has emerged. The bond scam is really a simple story. It is useful to go back to the beginning so to get it all into the correct perspective.

The Central Bank issues bonds to raise money for the Government. Only licensed bond traders can buy at the auctions. There are a number of licensed traders who have to come to the auctions and bid for bonds. They are all informed prior to the auction of the amount of bonds that will be up for auction. 

The bond traders were informed that one billion bonds would be up for auction. They therefore came prepared to bid for one billion bonds. Lo and behold at the auction the Central Bank put 10 billion bonds for auction. All but one bond trader were unprepared to bid for 10 billion. The one that came prepared was Perpetual, Governor Arjuna Mahendran’s son-in-law’s firm. So that is part one of the first scam.

Converting bonds into profits

Getting a large volume of bonds did not mean that Perpetual had made a large amount of money. They had bonds in one hand and an equivalent amount of debt to banks in the other. They could convert this into vast profits only and only if they could sell these bonds to someone else at a higher price than what they paid for the bonds. Part two of the scam was successfully selling them to the EPF. That is how they made their vast profits.

I wrote an article setting this out clearly in February 2017. What was not in the public domain at the time was the jiggery-pokery that had gone on behind the scene to make to make the EPF buy the bonds that Perpetual had bought at auction. The evidence extracted at the commission sheds light on this dark world of bribery and manipulation.

What is missing in the Perpetual saga

What is missing is any clear plan that can be implemented instantly to relieve Perpetual of the profits they have made by directly or indirectly selling bonds to the EPF. What is totally reprehensive in this saga is robbing the EPF by selling them bonds at profit.

The EPF are also licensed bond traders and can always go to auction and buy bonds themselves. The EPF belongs to the workers in this country. It is the repository of their savings, which will finance their lives when they retire. They also hope that those managing the EPF will make their savings grow in value. This creates the further need to give back to the EPF the profits they have lost by buying bonds from Perpetual.

As I suggested in my article on 3 February 2017, there was indeed a very simple solution to do the important thing of relieving Perpetual of the profits they made. Parliament should approve a new tax with retrospective effect to tax at 95% profits made by any organisation selling bonds to EPF, ETF and NSB. The taxes so collected should be credited to the relevant organisation. This meets both objectives. To relieve Perpetual and others of the profits they have made and to return this back to the EPF. Retrospective tax legislation must generally be viewed as not desirable unless there are good reasons. In this particular saga there is every good reason for doing so as it is a sacrilege to make money from an institution owned by the workers to keep their savings. By making it applicable to all and any, it is also not a discriminatory tax aimed solely at Perpetual. I also said in my article that if the Government does not pass legislation to tax these profits, the opposition should propose the necessary legislation in Parliament

The simple solution

As I suggested in my article on 3 February 2017 there was indeed a very simple solution to do the important thing of relieving Perpetual of the profits they made. Parliament should approve a new tax with retrospective effect to tax at 95% profits made by any organisation selling bonds to EPF, ETF and NSB. The taxes so collected should be credited to the relevant organisation. This meets both objectives. To relieve Perpetual and others of the profits they have made and to return this back to the EPF.

Retrospective tax legislation must generally be viewed as not desirable unless there are good reasons. In this particular saga there is every good reason for doing so as it is a sacrilege to make money from an institution owned by the workers to keep their savings. By making it applicable to all and any, it is also not a discriminatory tax aimed solely at Perpetual.

I also said in my article that if the Government does not pass legislation to tax these profits, the opposition should propose the necessary legislation in Parliament.

Politicians have a question to answer. Why has no politician of stature made a proposal in Parliament to approve a new tax that will capture the profits made by Perpetual? Mahinda Rajapaksa as he is now the head of the forces that oppose the Government should state his position on the profits made by Perpetual. Should they be allowed to keep them? If not should they be taxed? And if so why did he not propose in Parliament the simple solution of taxing at 95% the profits made by Perpetual?

Is it that he never thought of this simple solution? Is it that his advisors also never thought of it? There is something very troubling here and difficult to understand. We the public should not be pushed into nurturing disturbing thoughts about his silence on taxing Perpetual forthwith. He should state unambiguously his position on why he did not initiate steps as a leader in the opposition to tax the profits made by Perpetual.

Prof G.L. Peiris, he is a clever man. I know he is, as he was my Minister when I was Chairman of the Board of Investment. Why did he not make the suggestion to tax the profits made by Perpetual? His explanation will be appreciated.

GLP did something very curious. He has gone on and on (which is his style) wanting the Prime Minister to resign, knowing fully well that it will not happen. Even if the Prime Minister resigned, Perpetual would still keep their money. Surely he cannot be content to let Perpetual keep their profits? If so why has this clever man not said anything clever about a bomb proof method of relieving Perpetual of their profits? Is it just age catching up or is there some reason we don’t know?

Dinesh Gunawardene and Wimal Weerawansa are forever criticising everything done by the Government. We seldom see any new constructive suggestions from them. True to form they have not made any constructive suggestion about how to tax and take away the profit made by Perpetual. They too owe the public an explanation as to why they who probably make the most noise in Parliament have been silent about a tax to take away Perpetual’s profits.

Anura Kumara and the JVP are good at organising protests. Why have they been silent? Why have they not demanded that the profits made by Perpetual should be taxed and the funds returned to the EPF?

The Perpetual mystery

It is a mystery as to why the Government or the opposition has not endeavoured to change the tax law and tax the profits at 95% and return the money to the EPF. Each of us will have to try and guess the probable reason.