A group of trade unions has petitioned the Supreme Court demanding action against Treasury Secretary P.B. Jayasundera and Central Bank Governor Ajit Nivard Cabraal among others for misusing and abusing the Employees Provident Fund (EPF) which is worth a trillion (1,000 billion) rupees. The petitioners have specifically raised the issue of EPF investments in loss-making [...]

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FR petition seeks action against Treasury chief, CB Governor

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A group of trade unions has petitioned the Supreme Court demanding action against Treasury Secretary P.B. Jayasundera and Central Bank Governor Ajit Nivard Cabraal among others for misusing and abusing the Employees Provident Fund (EPF) which is worth a trillion (1,000 billion) rupees.

The petitioners have specifically raised the issue of EPF investments in loss-making and doubtful companies in the Colombo stock market, jeopardising the savings of millions of EPF members and also urged the court to direct the Attorney General to launch a criminal investigation into the conduct of these two officials and others on the Monetary Board.

The fundamental rights petition was filed by well-known human rights lawyer J.C. Weliamuna on behalf of the petitioners — Free Trade Zone and General Services Employees Union, Ceylon Bank Employees Union, Inter Company Employees Union, Jathika Sevaka Sangamaya, Lanka Jathika Estate Workers Union, Commercial and Industrial Workers’ Union, Federation of Media Employees Union, Independent Port Employees Union, Insurance Employees Union, United General Employees Union and Ceylon Estate Staffs’ Union, on Thursday. No date has been set for the first hearing.

UNP Parliamentarian and economist Harsha de Silva welcomed the move saying people of this country were not aware of what was going on with the EPF and how it affected them negatively.

“Still many people don’t understand the complex nature by which the EPF is used to meet objectives of certain people at the expense of the members who contribute to the fund every month,” he said adding that this was not a political issue, “and rather than my going to court I always believed that this is a national issue, beyond politics.”

He said all right thinking people and the millions of workers and the companies they work for contributing to the EPF should support this action. “Let the unions present their case to the courts and see if the judiciary agrees with the petitioning trade unions,” he added.

The petition said the EPF was created solely for the aforesaid purpose of superannuation benefits for it members. It was based on the principle that all benefits accruing to the EPF should accrue and/or be able to accrue to the benefit of its members. “Therefore the EPF cannot endeavour to obtain any benefits that will not accrue to or pass on to its members. Thus the MBCB (Monetary Board) is strongly required to act as the Custodian of the EPF funds and is legally and morally bound to ensure that the operations of the fund are within the legal framework. This is because the funds lying to the credit of the EPF are remittances of earnings belonging to its members and thereby becoming ‘Real Savings’,” it said.

There are about 13.6 million EPF accounts of which 2.3 million are active.

The petition said in or around 2002, a fully-fledged policy on investment in securities cleared by the Attorney General was adopted by the Monetary Board. This policy titled Investment Policy Statement & Standards of Professional Conduct was available to the public on the official website of the Central Bank. It is only published policy on investment in equity out of the EPF Funds.

This policy or investment guideline states that ‘unless agreed by the Investment Committee, investment in any company should not exceed 5% of its issued share capital.’

It said that the Fund must make sure that investment in any company is made only with an intention to increase the return of the Fund and not ‘to take control over the company’.

“The Fund cannot invest in stocks of the banking and financial sector since the Monetary Board regulates both EPF and banks/financial institutions,” the policy listed by the petitioners said.

Investment in unlisted equity securities of banks and financial institutions were limited to ‘Blue Chip’ securities and new investment institutions with a long-term motive of the investment.

In mid 2012 it was revealed in Parliament and the media that a certain percentage of the funds of the EPF had been invested in companies which are not blue chip companies. In addition it was revealed that the EPF had invested in lesser known companies  considered less stable for investment.

The petitioners then did a diligent survey and found that the Monetary Board had for some reason resorted to an inexplicable investment pattern without full disclosure.

The petitioners discovered the following; that the EPF had invested in companies such as Laugfs Gas PLC, Light House Hotel PLC, Raigam Wayamba Salterns PLC, Sierra Cables PLC and Vallibel One PLC which are in fact listed on the Diri Savi Board (secondary board) of the Colombo Stock Exchange.

The EPF had also invested in  a  number of other non blue chips such as Galadari Hotels (Lanka) PLC, Ceylon Grain Elevators PLC, Lanka Orix Leasing PLC, Browns & Co. PLC, Hayleys MGT Knitting Mills PLC, Ceylon Hotels Corporation PLC and Browns Investments PLC etc.

On June 5, 2012, the Deputy Minister of Finance and Planning informed parliament that the previous policy had been ‘updated’ and the EPF is now authorised to invest in equities, banks and finance companies and other sectors. However this new policy is not available in the public domain. In the meantime the earlier policy has mysteriously  disappeared from the Central Bank website and there is no disclosure of any new policy, or that the old policy of investment guidelines in invalid.

The petitionors said the current practice of investing the funds of the EPF has resulted in a clear conflict of interest and/or insider dealings because the Monetary Board as a regulator is “privy to the detailed and advance information of banks and finance companies. Thus investments in banks by the Regulator of Banks create a clear conflict of interest, while securing an atmosphere to engage in such dealings using insider information of banks and financial institutions,” the petition said.

The petition cites examples of how EPF funds were misused, referring to the purchase of five million shares of The Finance Company PLC, a company in which the auditors have said that they “have doubts as to whether The Finance Company PLC is a going concern (whether it would collapse).”

The petitioners accused the ‘anyone or more’ of the respondents of having manoeuvred the funds gaining control of private banks by securing control of the shareholding and thereby appointing directors. Some examples of this are – appointment of Lakshman Hulugalle, the Government Spokesperson of the Media Centre for National Security (MCNS) who had been previously convicted by a Court of Law on criminal misappropriation of timber, as a board member of Commercial Bank; and Jeyam Perumal, who operated a failed Finance Company (Translanka Investments Private Limited) and was probed by the Committee of Public Enterprise (COPE) of the Parliament, to the board of DFCC Bank.

The petition also accused the respondents of utilising the EPF funds to artificially raise the share price of some companies which enabled certain shareholders of these companies to sell their shares at the artificially high prices, in a pump and dump method. Here the case of Laugfs Gas was cited where between 4th and 7th October 2011, shares of the Laugfs Gas closed at Rs. 40.70. On 7th October 2011 it shot up to Rs. 48.30. The on 10th October 2011, the EPF bought 33 million ordinary voting shares of Laugfs Gas PLC from Laugfs Holdings Ltd at Rs. 48 per share.

Subsequently within a few days, the share price dropped to its actual value and between 21st October 2011 and 24th October 2011, Laugfs Holdings Ltd purchased 130,000 shares in Laugfs Gas PLC between Rs.38.30 and Rs.41.40.

The petitioners are asking court to restore the original 2002 investment guideline policies; and declare that the policy to invest of any percentage of the EPF can only be made with a proper consultative Process with employees/trade Unions and the full disclosure of the details of the investments; submission of a detailed list of all EPF transactions at the CSE from 1 January 2009 to 31 August 2012. This list “should contain per transaction: name of share; time and date of purchase or sale; volume (amount of shares); market price of share at every transaction; name of seller if EPF was the purchaser; name of buyer if EPF was the seller; broker for each transaction; closing price of the share as at 30th June 2012.”




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