In June 2011, Sri Lankan whistleblower, chartered accountant and public interest activist Nihal Sri Ameresekere sat down with GAP Executive Director Bea Edwards to discuss international corruption and fraud. Ameresekere is the author of six books on these subjects, and is known for exposing corruption, fraud and nepotism within the Sri Lankan government. He also served as a key player in the implementation of the UN Convention Against Corruption.

In his talk, Ameresekere is adamant that auditors must be held to higher levels of accountability. They should be the watchdogs, not the lapdogs, of organizational resource managers. International development organizations -- especially multilateral development institutions such as the International Monetary Fund, World Bank, Asian Development Bank -- promote openness and transparency in their rhetoric, but are often complicit in these economic crimes.

This post was written by GAP International Reform Director Beatrice Edwards for her Daily Kos Blog.

On Friday, October 16th, Raj Rajaratnam, a Sri Lanka national and hedge fund manager was arrested at his Manhattan home and charged with insider trading by the US Justice Department and the Securities and Exchange Commission (SEC).  As the manager of  Galleon Management LP, a  Wall St. hedge fund, Rajaratnam is accused of running a network of IT and health care company insiders who helped him amass $20 million in profits in the past three years.

As it turns out, in addition to benefiting from private information while making trades for his fund’s hedgers, Rajaratnam also cashed in on public largesse through his corporations’ access to generous loans from the World Bank Group.

Rajaratnam, who is now US-based, is one of the largest foreign investors in publicly traded Sri Lankan corporations.  He is the second principal investor in John Keells Holdings, Ltd. (JKH), the largest Sri Lankan conglomerate in the country, and he's an important investor in Dialog, the national telecom firm.  Rajaratnam’s hedge fund also is a principal stockholder in the National Development Bank of Sri Lanka (NDB) and the Commercial Bank of Ceylon (CBC).  All four companies collected credit from the International Finance Corporation (IFC) – the private sector lending arm of the World Bank Group – over the past two years. The NDB established a risk-sharing facility with the IFC for up to $30 million two months ago. The CBC collected an investment from the IFC of $60 million in July 2008; JKH finalized a lending facility for up to $100 million in February, 2008, and Dialog’s most recent IFC loan amounted to another $100 million in August, 2007.

Well before the IFC loans were approved for companies in which Rajaratnam had a major stake, his reputation was, well, dubious. He had been investigated and fined nearly $2 million by the SEC in 2005 for "improper short-selling" of 17 stocks.  In 2007, a charity he had strongly supported was closed down for funneling donations to the Tamil Tigers insurgency in Sri Lanka.

At the time the IFC loan for JKH came Rajaratnam’s way, the company’s reputation for integrity was also highly suspect.  The corporation had effected an extremely smelly privatization deal that was under review by the Supreme Court of Sri Lanka, and four months after the IFC finalized its loan to JKH, the company’s Chairman was found to have worked "to secure illegal advantages....adverse to the public interest."  The privatization deal manipulated by JKH was reversed by the Court as ‘unlawful.’  The Sri Lankan Secretary to the Treasury admitted violating the Sri Lankan Constitution as well as his oath of office for handing over to JKH a prosperous, revenue-producing state asset  for a fraction of its real value, and structuring the deal as a private monopoly on essential port services.

Despite its history of backing Rajaratnam's Sri Lankan investments well after serious questions had been raised about the hedger's ethics, the IFC posts the following statement on its website:

"The IFC is at the forefront of the market and of development institutions in guarding against fraud and corruption in its projects. This approach complements and supports IFC's determination to act as a leader on sustainability. Avoiding fraud and corruption is necessary to ensure that IFC's investments are successful, that its resources are being used effectively, and that its development objectives are met."

Oh, please.

by the Sunday Times (Sri Lanka)

PricewaterhouseCoopers has sent a letter with reference to last week’s article with the above title in the Sunday Times FT.

It said the report, mostly a reproduction of a report by the US-based Government Accountability Project (GAP) provides incomplete and misleading information. The letter says the Supreme Court states that on 4th June 2009, it gave its findings with regard to only executive or administrative action that led to the sale of SLIC.

by the Sunday Times (Sri Lanka)

The Government Accountability Project (GAP), a 30 year old nonprofit public interest group that promotes government and corporate accountability and is the leader whistle blower protection organization in the United States, recently published a report on the role of the auditors in the unlawful privatizations in Sri Lanka. Highlighted in the report is the misconduct of auditing firms PricewaterhouseCoopers (PWC) and Ernst & Young (E&Y) who forfeited their reputations Sri Lanka Insurance Corporation (SLIC) privatization.

by the Sunday Times (Sri Lanka)

The Government Accountability Project (GAP), a 30-year-old nonprofit public interest group in the US that promotes government and corporate accountability based in Washington D.C, and has published reports on unlawful privatizations in Sri Lanka, this week wrote on the 'shocking decision' handed down on September 24 by the Supreme Court of Sri Lanka, allowing former Treasury Secretary P.B. Jayasundera to return to public office. The GAP report states that the Supreme Court overturned its own previous ruling allowing Jayasundera to return to public office despite his orchestration of the unlawful privatization of the former public enterprise Lanka Marine Services (LMS) in August 2002.

On June 4, 2009, the Supreme Court of Sri Lanka annulled the sale of the Sri Lanka Insurance Company (SLIC) to private interests, causing the ownership of SLIC to revert to the government. As a result of the court case, documents establishing the complicity of auditors from Price Waterhouse Coopers and Ernst and Young in the unethical and illicit transaction came to light. To date, however, neither company has been sanctioned and none of the individuals responsible has been held to account.

In a shocking decision handed down September 24th, however, the Supreme Court of Sri Lanka overturned its own previous ruling and will allow P.B.Jayasundara to return to public office despite his orchestration of the unlawful privatization of the former public enterprise Lanka Marine Services, Ltd. (LMSL) in August, 2002.

In the wake of the decision handed down by former Chief Justice Sarath N.Silva on July 21st, 2008, Jayasundara filed an affidavit with the Court in which he promised to refrain from taking any government position in the future. The court accepted this commitment after ruling that Jayasundara had been party to an alleged fraud that awarded 90 percent of the shares of LMSL to John Keell's Holdings, Ltd. (JKH), a private corporation in Colombo.

At the time of the sale, Jayasundara had been Chairman of the Public Enterprise Reform Commission (PERC) of Sri Lanka , and the Court ruled that his conduct had been systematically biased in favor of John Keell's Holdings. In its 2008 decision, the Court reversed the privatization of LMSL and declared that Jayasundara had colluded with S. Ratnayake of JKH, to provide the corporation with financial advantages that were contrary to the public interest. Evidence clearly shows that the value of LMSL was artificially lowered to the advantage of the buyer (JKH) and the disadvantage of the seller (the government).

A year after committing himself to refrain from serving again in government, however, Jayasundara filed a motion with the Supreme Court requesting that he be allowed to return to a high-level position in the public service. He had been requested by the President to accept the post of Secretary to the Treasury and Secretary to the Ministry of Finance.

On July 27, 2009, Nihal Sri Ameresekere filed an affidavit with the Court showing that at no time had Jayasundara contested the allegations that he had operated as Treasury Secretary and Chairman of the PERC in a manner contrary to the public interest. Ameresekere pointed out that Jayasundara's own affidavit contained only vague assertions of his integrity and ethics and that Jayasundara’s commitment to ethical conduct was factually contradicted by transactions to which he had been a party in the privatization of LMSL.

In its September 24th ruling on Jayasundara’s motion, the Supreme Court did not contest the facts in Ameresekere’s affidavit, which still stand. Nor has the fine paid by Jayasundara for misconduct been refunded. On September 25, Ameresekere filed a motion requesting that the Court prevent Jayasundara from returning to public office until the criminal investigation of the privatization of LMSL is concluded

If and when Jayasundara assumes his new public position, it will mean that no government official responsible for the unlawful sale of a revenue-producing public asset at an artificially low price to a private corporation has been meaningfully penalized for his conduct. Only the minimal fine paid by Jayasundara remains as a symbolic sanction. This Supreme Court decision also undermines the fundamental authority of the judiciary in Sri Lanka by allowing a new bench of judges to overturn the decision of a former Chief Justice without presentation of new evidence.. When interviewed, former Chief Justice Silva observed, "This is an unprecedented act and has never before happened in Sri Lanka , or for that matter, in any part of the world.” Silva explained by saying, "Under the Constitution, the Supreme Court judgment is final, and the decisions of the superior courts of any country are final and conclusive."

Jayasundara argued that his services are required by government to help to implement new development projects in the north of the country. Such an assignment returns him to a position where it is difficult to monitor the use of public funds and the potential for abuse of the public trust is high.

Click here to read a GAP report about unlawful privatization in Sri Lanka
Click here to read correspondence of Ameresekere
Click here to read the previous Supreme Court decision
Click here to read SLIC Supreme Court submission from Ameresekere

by the Sunday Times (Sri Lanka)

Second Installment

The first part of the US-based Government Accountability Project (GAP) report, published last week in the Sunday Times FT, examined the Lanka Marine Services (LMS) privatization. GAP is a 30 year old non-profit public interest group that promoted government and corporate accountability and is the top whistle blower protection organization in the US.

This section looks into the privatization of Sri Lanka Insurance Corporation (SLIC) following the June 2009 judgment by the Supreme Court which named several high ranking past and present public officials as having been involved in the corrupt transaction. The GAP report gratefully acknowledged the research and contributions to this paper of Consultants 21 Limited, Colombo, Sri Lanka, www.consultants21.com.

Vasudeva Nanayakkara, petitioner in the SLIC case rejoices after the SC verdict

SLIC

The GAP report states that on June 4th, 2009, the Supreme Court of Sri Lanka reversed the privatization of SLIC after determining that the company’s sale had been improperly concluded six years ago. The Court expressed its opinion strongly, writing that the improper way in which the sale of SLIC took place “shocked the conscience.”