On Cabraal’s conflict of interest
The BDO India report said that in investments through direct placements, during January 1, 2003 and February 28, 2015, in 2,028 (tender value Rs.3,554 billion) out of 2,673 Direct Placements by the PDD (tender value Rs. 5,888 billion), the EPF has not made any investments in approximately 60 per cent of total offered by the PDD.
The EPF participation from June 2013 increased significantly post the then Governor expressing his concern to actively participate in the Secondary Market to the members of the Investment Committee and the top management of EPF on June 4, 2013.
On the loss on purchase of Treasury Bonds in the Secondary Market, the report said that in 177 out of 651 purchase transactions, it was noted that the purchase price of the EPF was higher than the Secondary Market price resulting in loss of Rs. 620.81 million.
Investments made during 2014 contributed 91.03 per cent of the total loss incurred by the EPF amounting to Rs. 565.15 million. The difference between the purchase yield rate and prevailing market yield rate was ranging between 1 to 80 basis points.
It was noted that the loss from transaction with PTL, PABC and WTL in 2014 amounts to approximately Rs. 321 million (52 per cent on the overall loss for the period) with the variance in the yield rate ranging from 4 to 80 basis points.
In the analysis of transactions with PTL, PABC and WTL in 2014, the report said that the overall loss from trades through PTL (directly / through intermediary) amounted to Rs. 222.76 million (which is 36 per cent of the loss incurred due to higher purchase price paid in comparison with the Market price).
Voice recordings for 55 dates requested from PTL, PABC and WTL for the period 2014 were not received. From the voice recording of Seylan Bank and First Capital Treasuries Ltd dated October 30, 2014 and October 31, 2014, it is evident that the EPF had majorly transacted with PTL and acted as facilitator to PTL in the Secondary Market with Mr. T Udayaseelan (EPF dealer) being the point of contact. The latter was named ‘Charlie” in the conversations between dealers.
The report said “that it was apparent that the top management of the EPF had been inefficient in identifying the pattern of transaction executed between PTL and the EPF. Further, the EPF was referred to as friend of Perpetual in one of the voice recordings”.
The EPF’s loss from transactions in the Primary Market (Auctions and Direct Placements) was Rs. 9,074.33 million and loss from transactions in the Secondary Market (Investments and Divestments) was Rs. 751.61 million.
On comparison of the price offered by the counterparties with the price paid by EPF to PTL, it was observed that in 27 out of 30 transactions executed with PTL, it is indicated that PTL had sold the Treasury Bonds at a higher price to the EPF as compared to the other counterparties (including the price at which PTL had sold to other counterparties) as detailed in the subsequent paragraph.
The report also referred to the conflict of interest in the case of the former Governor Mr. Cabraal explaining in detail the interests that his spouse, sister, son, sister-in-law, first cousin and brothers-in-law had by being directly or indirectly involved in banks and insurance agencies.
A potential conflict of interest noted during the period July 2006 to January 2015 when Mr. Cabraal was the Governor and his family members in Primary Dealers including banks under the supervision of CB.
The report quotes the evidence of retired Deputy Governor Dr. W.A. Wijewardena before the Presidential Commission of Inquiry as saying that “…if Mr. Nivard Cabraal has disclosed it to the Monetary Board and if he had refrained himself from any dealings with PTL that would have been fine, but of course I know after my retirement from the Central Bank, Mr. Cabraal’s sister was appointed chairperson of the HDFC Bank, one of the banks that needs to be regulated by the Central Bank and (one) will have to examine whether the correct Governance practices had been followed by him…”