Arjuna Mahendran

Government bonds controversy

In February 2015 CBSL advertised the sale of Rs. 1 billion in 30 year government bonds at a coupon of 12.5% ^[14] though several accounts erroneously cite an indicative rate of 9.5%.^[15][16][17] The sale was oversubscribed with 36 bids of totaling Rs. 20 billion.^[15] The majority of bidders, 26, bided for Rs. 100 million or less at a rate of 9.5%–10.5%.^[15] However, a few bidders, including Perpetual Treasuries Limited, wanted interest rates of 11%–12%.^[15] On 27 February 2015 the CBSL accepted Rs. 10 billion in bids at rates of 9.5%–12.5%.^[15][17] The issuing of ten times the advertised bonds, and at a higher than expected rate, was alleged to cost the Sri Lankan government an additional Rs. 1.6 billion ($ 10.6 million), though this alleged loss was disputed by the Leader of the House of Parliament.^{[18][19][20][21]} A petition was lodged in the Supreme Court of Sri Lanka contesting the methodology used to allege such a loss.^[22] Perpetual Treasuries was issued, directly and indirectly, with Rs. 5 billion in bonds at 12.5%.^{[23][24][25][26]} Perpetual Treasuries was one of the primary dealers in the sale and is owned by Mahendran's son-in-law Arjun Aloysius.^[16][27][28] The primary dealer had also appointed the sister of the former Central Bank Governor Ajit Nivard Cabraal onto the Board of its holding company.^[29]

This situation became a controversial political issue in Sri Lanka as the newly elected Sri Lankan Government of President Maithreepala Sirisena came to power with a slogan of good governance in the country.^[15] A three-member Committee of eminent lawyers was appointed to investigate the issue and the report produced by the committee claimed that there was no direct involvement by Mahendran in the deal.^[30] The Supreme Court of Sri Lanka did not grant leave to proceed in a fundamental rights case that requested a separate inquiry into the bond issue, as no laws were broken.^[31]

Mahendran denied any wrongdoing in the controversial bond auction and asserted that he was ready to face any inquiry to prove his innocence. He also said he had been made a victim due to his own transparency. ^[32]

On the other hand, former governor of the Central Bank of Sri Lanka, Ajith Nivard Cabraal who preceded Mahendran charged that a higher hand was involved in the scandal given the scale of the cover-up attempts by the Sri Lankan government.^[33] Cabraal himself is the subject of several investigations by the law enforcement authorities on alleged misconduct during his tenure as Governor.^[34][35][36]

On 28 October 2016 the Committee On Public Enterprises (Sri Lanka), after a lengthy investigation, found Mahendran responsible for the Bond Issue Scam and recommended legal action be taken against the above.^[37][38] However President Maithripala Sirisena has announced that he has appointed a Commission of Inquiry to further investigate the case.^[39] During the inquiry, Mahendran defended his actions before the Commission stating that he had not acted in a manner detrimental to the interests of the Government.^[40].

The commission handed over the report on Central Bank bond issuance to the President Maithripala Sirisena on 30 December 2017 ^[41]. This commission consisted of commission’s chairman Justice K. T. Chitrasiri and members Justice P. S. Jayawardene and retired Deputy Auditor General, V. Kandasamy. The full report in PDF form is available for public viewing through the Presidential Secretariat web page ^[42]. In the findings of the report, Arjuna Mahendra was held directly responsible for causing a loss of LKR 11,145 million to public institutions ^[43]. However, Prime Minister Ranil Wickremesinghe has announced that 'No financial loss will be caused to the government on account of the Central Bank Bond issue since the government will recover the Rs 9.2 billion involved from Perpetual Treasures Ltd. according to the procedure recommended by the Presidential Commission. The Central Bank functioning under the Ministry of National Policy has already blocked and retained a fund of Rs 12 billion belonging to the Perpetual Treasures Ltd'^[44]

The prolonged nature of the inquiry may be linked to a growing rift between Sri Lanka's President and Prime Minister and the two political parties they each represent in an increasingly fraught coalition government^[45]. A group of ministers from the President's party along with opposition MPs failed in a recent attempt to pass a motion of no-confidence against the Prime Minister in Sri Lanka's Parliament^[46]. A key issue in the motion was the Prime Minister's alleged interference in the Central Bank^[47]. The President has subsequently had to prorogue Parliament^[48]

Arrest order quashed

On 15 March 2018 Colombo Fort Magistrate’s Court issued an arrest warrant on Arjuna Mahendra on charges of criminal breach of trust for allegedly providing confidential information of the Central Bank of Sri Lanka to Perpetual Treasuries Limited, a primary dealer connected to and owned by his son-in-law Arjun Aloysius who was arrested on 4 February 2018 along with Kasun Palisena, who was the CEO of Perpetual Treasuries Limited ^[49]. Arjuna Mahendra has not to date surrendered himself to the court and continues to abscond himself. The Supreme Court of Sri Lanka had earlier rejected a similar petition ^[50]. News reports state that Mr Mahendran has challenged the order through the International Police (Interpol).^[51]Prime Minister Wickremesinghe made a statement in the Sri Lanka Parliament on 5 June 2018 stating that the Singapore government has refused to arrest Mahendran ^[52]Lawyers of the accused have made submissions to court contending that the presentation of the Commission of Inquiry CCOI) report in a court of law as evidence is not aadmisible as the COI does not formally follow the judicially recognised law of evidence.^[53]