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Setting up Batti campus: Gross negligence by central and local govt. institutes, says audit report
Every central and local Government institution that aided the founding of the controversial Batticaloa Campus violated, ignored or bent laws, rules and regulations to allow it to be set up–including a major State-owned commercial bank that neglected basic compliance checks, an explosive special audit has found.
Between 2013 and 2019, multiple approvals were sought, and granted, to set up an institution that was variously named University College of Batticaloa, Batticaloa Campus (Pvt), or Batticaloa Campus Private College or Malik Abdullah bin Abdulaziz University College of Batticaloa. The applicant was former Minister M L A M Hizbullah through his Sri Lanka Hira Foundation, of which he is Chairman.
The Hira Foundation calls itself a non-Government organization and sought registration from the NGO Secretariat in 2011. The request was rejected after the State Intelligence Unit said it had “unfavorable indications” regarding “other members” of the Foundation.
The National Audit Office (NAO) conducted a special check on how the Batticaloa Campus was established. The 51-page report was presented to Parliament last week.
The controversial campus. Pic by Amila Gamage
Lack of basic compliance by leading bank
The Bank of Ceylon (BOC) disregarded regulations and guidelines under the Exchange Control Act and the Financial Transactions Reporting Act (FTRA) to allow accounts associated with the Hira Foundation and Batticaloa Campus to receive billions of rupees in foreign exchange and to conduct business, the audit said. BOC also evaded Central Bank of Sri Lanka (CBSL) rules and some of its own internal requirements. The NAO’s findings were conveyed to the BOC for response before the report was released, as is the practice.
In the space of one year—between 2016 and 2017—four BOC accounts maintained in favour the Batticaloa Campus received more than Rs 4.123bn in forex with largely no questions asked. The names of the accounts were Sri Lanka Hira Foundation, Batticaloa Campus (Pvt) Ltd, A M A Lanka (Pvt) Ltd and Malik Abdullah bin Abdulaziz University College of Batticaloa.
CBSL guidelines mandate that all information relating to the purchase and sale of forex be reported. But the regulator was not told of at least 21 remittances totaling over Rs 3.6bn received through the Batticaloa Campus or affiliated institutions.
In its reply to the NAO, the BOC said it didn’t need to check the source of funds because the norm was for the bank accepting the monies to collect such information at time of deposit. Therefore, remittances from these international banks could be deemed as being received through legal sources.
On instruction, the funds were credited by BOC to the beneficiary accounts. As to what they were used for, the respective bank managers deemed the monies were correctly deployed towards the intended purpose of constructing a university, the BOC said.
FTRA rules require banks to have Governor Board approval when a politically exposed person (PEP) applies for a business relationship. The BOC did not fulfill this when organisations tied to Mr Hizbullah and his son, Hiras, entered into dealings through 14 bank accounts. The Bank admitted to the NAO that just top-level management approval had been obtained and only for four bank accounts.
Financial institutions must doubly verify the source of funds when received into accounts maintained by PEPs. Again, no information was obtained on the source, objectives and legality of 30 foreign remittances of Rs 4.123bn to four accounts belonging to institutions managed by the Hizbullah family. The BOC “did not provide the Audit with a sensible explanation on this observation”.
Business activities of PEPs must be continuously regulated. The BOC’s own internal guidelines call for the material information of such persons and for client consent to be obtained once every six months. This was not done in relation to the 14 accounts, the NAO said, adding that the Bank had “not furnished a reply consistent with the said observations”.
There was “unusual receipt” of over US$ 2.8 million (at a time) in seven instances to the BOC account of the Batticaloa Campus. There was no action on these “unusual and complex transactions”. Neither did the BOC offer the NAO a “proper explanation” in this regard.
The FTRA requires depositor name, address, identification and objective to be entered into a bank’s information system when over Rs 200,000 (at a time) is placed in an account by a third party. This was not done in respect of 11 deposits totaling over Rs 59 million into an account of the Batticaloa Campus. The BOC admitted to this shortcoming in the case of ten such payments.
To ensure accounts owned by a social welfare organization don’t receive monies from banned outfits or persons, the bank must review its links to verify the legality of the deposits. But BOC account under the name of Sri Lanka Hira Foundation was not regulated as required. Local and foreign remittances of over Rs 313mn were credited in 15 installments to this account. The BOC did not provide “a reply consistent with the observation”.
The CBSL bars financial institutions from allowing accounts to be opened anonymously, under an alias or for a bogus person. But on a request made by Mr Hizbullah through the letterhead an institution named Malik Abdullah bin Abdulaziz University College of Batticaloa–which had no business registration certificate–the BOC’s Kattankudy branch permitted an account to be opened and maintained “under a fake name”. The bank did not tender “acceptable reasons” for allowing an account to be set up without a certificate of registration.
Questionable licensing as a higher education institution
Mr Hizbullah used his position as MP and Deputy Minister to act on behalf of a private organization called the Hira Foundation, the NAO found.
The Foundation first applied to the Tertiary and Vocational Education Commission (TVEC) in early 2013 to register the Hira Vocational Education Institute. This was turned down on the basis that it did not satisfy the required criteria.
Mr Hizbullah, who was Deputy Minister of Economic Development, then applied afresh to the TVEC to register a vocational training institute centre called the University College of Batticaloa. (At various times, he used his Parliament letterhead). The TVEC wanted to see the course content before pre-registration.
Disregarding the Commission’s concerns, however, the Youth Affairs and Skills Development Ministry signed a three-year memorandum of understanding (MoU) with the Hira Foundation to set up the University College of Batticaloa, giving it “pseudo-legality”. The Ministry did not even verify whether necessary criteria were fulfilled. But five days later, it appointed a three-member committee which confirmed there was no evidence that the University had the required qualifications to function as a higher education institute.
The Ministry did nothing beyond appointing two representatives to the University Council. The NAO found no indication that they ever attended or were called to meetings. It could also not establish whether the third party to the MoU, the State-run University of Vocational Technology, had many any contributions towards the Batticaloa Campus activities.
Nevertheless, the Ministry approved a request by the Batticaloa Campus Chairman to publish newspaper advertisements to enroll students–without TVEC registration which is mandatory for the conduct of national vocational qualification (NVQ) courses.
Then, the Chairman of the same three-member committee that verified that the Batticaloa Campus didn’t qualify to run a higher educational institute presented a paper at the Council of the Commission seeking approval for registration without the need for a re-evaluation. Registration was not only granted in July 2015, it was backdated to March that year.
The newspaper advertisements calling for students falsely claimed the Batticaloa Campus was established by the Ministry with Hira Foundation assistance. The State emblem was used “to build up a “fake image” that it was owned by the Government.
The following year, the TVEC issued certificates to 49 students who had completed courses. But there was “no evidence whatsoever on the coverage of syllabus relating to those courses, evaluation of courses, and recommendations & approvals required for awarding certificates, had been filed”, the NAO said.
Illegal land releases
Before 35 acres were handed over to the Batticaloa Campus, recommendations were not obtained from the Mahaweli Authority’s Regional Physical Planning Committee and the Director (Land Use). While it is prohibited to release State lands on annual lease to be converted to a long-term lease later, this was permitted for the project in question.
The Mahaweli Authority sanctioned the construction of buildings for this long-term, large-scale project despite land being released on an annual licence. The subsequent conversion to a long-term lease was a deliberate violation of the State Lands Ordinance, the NAO held. What’s more, the deed of that lease was signed on Feruary 1, 2018, but the effective date was backdated to July 12, 2013.
The three land parcels are deemed by the Survey Department to be “paddy lands”. One of them even has a canal. But regional officers of the Mahaweli Authority amended the term “paddy land” to “other” through the Survey Department “in a well-planned manner to release a paddy land to the Hira Foundation for a commercial activity…”
The NAO faults the Mahaweli Authority on several other grounds while the Batticaloa Campus has encroached on 9 additional acres of land beyond what it leased. No environment impact assessment was done and the Central Environmental Authority was invited for an inspection well after the project was underway.
The Board of Investment also attracts criticism. The first application it received from the Hira Foundation through Mr Hizbullah claimed a foreign investment of US$ 40.2mn would be made, without even mentioning the name of the financier. This was drastically lowered to US$ 3.2 million in a second application based on which BOI approval was granted.
A BOI official evaluated the investment and pointed out that project land must be taken on long-term lease of at least 30 years for approval to be granted. The Board disregarded his recommendation and approved the initiative “no clearance whatsoever” about land ownership. The agreement between the BOI and Batticaloa Campus was signed on May 19, 2016. The Mahaweli land was taken on long-term lease under the project only on February 1, 2018.
The BOI backed the Batticaloa Campus without a survey plan with legal rights; building plan approved by the local authority; certificate of street lines; and landlord consent. These documents were essential to determine the project feasibility. There was also no environmental impact report.
The BOI breached its own laws, rules, regulations and practices, thereafter providing tax exemptions totaling Rs 48.51mn on goods imported by the Batticaloa Campus on 143 occasions.
The project should’ve been implemented under complete supervision, according to standard BOI practice. But the Board made “no query whatsoever” as to how the invested funds were received by the project, the NAO states.