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Private bank bypasses CBSL freeze on PTL, Rs 400m of OD settled
The Attorney General’s (AG) Department has moved the Fort Magistrate’s court to issue an order on Perpetual Treasuries Ltd (PTL), Arjun Aloysius and Kasun Palisena to tender to court a comprehensive assets declaration in terms of a prepared template which includes references, not only to ownership, but to beneficial interest.
Magistrate Lanka Jayaratne reserved the order after Defence Counsel Jeewantha Jayatilleke objected. The AG’s Department request came pursuant to submissions made to court by Additional Solicitor General Yasantha Kodagoda that WM Mendis and Company (WM M & Co) was using an overdraft (OD) facility given on one of its accounts at a leading private bank.
WM M & Co is among 24 Perpetual Group companies whose bank accounts were frozen earlier this year by the Central Bank of Sri Lanka (CBSL). In total, the operations of around 100 accounts remain suspended. However, the information available to prosecutors led only to the freezing of these accounts.
They were unaware at the time of the existence of fixed deposits. The respective OD account was overdrawn beyond Rs 500mn at the time the CBSL’s Financial Intelligence Unit (FIU) froze the accounts of the Perpetual Group. Thus, it remained within the total overdraft facility accorded by this private bank to WM M & Co.
The bank then freed up to Rs 400mn from two fixed deposits–which were not frozen –and partly resolved the overdraft amount by depositing that money into the OD account. This brought the bank’s exposure towards WM M & Co down to around Rs 150mn.
Prosecutors have now found they may need to go behind all the assets of the Perpetual Group because of such fluidity in transactions. Previously, only the accounts and assets of Perpetual Treasuries Ltd were frozen. The assets of WM M & Co were not similarly suspended — only their accounts were — as “having done so would have been viewed as prosecutorial overreach”.
“Even now, it is difficult to justify before a court of law moving for the freezing of all assets of all subsidiaries of the Perpetual Group, including WM M & Co, unless a nexus can be shown between those assets and the earnings of PTL through the Treasury bond transactions,” a senior legal source said, reiterating the difference between bank accounts and all assets including fixed deposits. “This is why the CBSL has been advised to get a comprehensive forensic audit done.”
Meanwhile, the private bank used contractual provisions of the OD facility without informing the CBSL. However, it was within its rights to do so and was “possibly not obliged to reveal” its actions. WM M & Co, judging by its use of the OD facility, appears to have been in financial difficulty before the suspension of accounts, the source said. The company’s accounts were frozen because there was found to be a money trail from PTL to these accounts.
Prosecutors, therefore, proceeded on the footing that illegal earnings from the irregular bond transactions had gone from PTL accounts to WM M & Co. The company also allegedly used that track to pay informants and patrols.
Against some of the money that was channeled from PTL to WM M & Co, cash cheques had been drawn by WM M & Co and the money encashed by PTL employees and handed over to PTL CEO Kasun Palisena. That evidence was led by the AG’s Department before the Presidential Commission of Inquiry.”
Further debits from the OD account were frozen. However, depositing money into the OD account was not stopped. This facilitated the transactions that were taken up in court this week. Separately, two PTL accounts at the Central Bank containing a total of Rs 12.5bn–including Rs 7.5bn in cash and the rest in securities–remain frozen. They are likely to go towards confiscation and forfeiture when the prosecution is over and during final settlement of the matter.
Owing to the accounts freeze, 323 employees of WM M & Co, 40 employees of PTL and some others of associated group companies have not received salaries since January. However, the directors of PTL remain without disclosing their assets, including earnings and profit shares, through the controversial bond transactions.
Meanwhile, CBSL sources said a senior PTL official and the CEO of WM M & Co recently wrote to the regulator asking for permission to make third party payments due, including electricity bills. The grand total of Rs 300mn included a schedule of legal fees to be met since October 2017. Four lawyers have sent in invoices amounting to Rs 48mn, Rs 24mn, Rs 25mn and Rs 15mn respectively, they revealed. Some of the legal fees relate to representation before the Presidential Commission of Inquiry, the sources said, adding that CBSL is consulting the AG’s Department on the requests.