Michael Nali Part 1: A Bad Penny Returns?

Career summary

Born in 1961, Michael Nali was schooled in Mendi and attended Goroka Technical College. According to his Parliamentary Profile, Nali was self-employed before entering politics.

In 1992, he was elected for the first of three consecutive terms as MP for Mendi in the Southern Highlands.

Between 1992 and 2007 Nali held several key Ministerial positions and also appeared before two leadership tribunals. Nali was accused of inciting a riot, misusing his position as a leader, and misappropriating K650,000.

After defeat in the 2007 election, Nali concentrated on growing his business interests, while never straying far from the centre of power.

Michael Nali has been a close business associate of the current Prime Minister, Peter O’Neill since 2004, and his business partner since 2009.

During his 10 years away from political office, Nali’s private companies befitted from contracts from various State entities worth at least K75m. They will be examined further in Part 2.

He also profited from some lucrative land deals including the infamous Paga Hill real estate development, which has been spearheaded by the controversial Icelandic-Australian figure Gudmundur Fridriksson.

Nali & Paga Hill

By 1996 the young Icelandic businessmen, Gudmundur Fridriksson, had already attracted his fair share of controversy.

A recent arrival in Papua New Guinea, Fridriksson made waves when he secured a K2.5 million contract from the national government to publish the now infamous Destination PNG book. Leading Australian journalists uncovered evidence of illicit transactions and a corrupt payment.

This echoed claims made in the Hong Kong and Icelandic press. Fridriksson had been implicated in a failed liquorice venture, counterfeit jeans sales, and alleged non payment of rent and room tariffs.

The hapless Icelandic national – now residing in Australia – found no luck when he asked the Physical Planning Board to approve his grandiose plans for Paga Hill. Fridriksson wanted to turn the national park into a luxury mega-estate through the development vehicle, Paga Hill Land Holding Company Limited (PHLHC).

PHLHC was owned by two PNG nationals, Rex Paki, Felix Leyagon, and an Australian company Fidelity Management. Fidelity Management allegedly held the shares on behalf of Gudmundur Fridriksson and his Australian business partner Byron Patching.

The Physical Planning Board rejected the proposal during October 1996, citing breaches of procedure. Gudmundur Fridriksson’s dream for Paga Hill was seemingly over. Then PHLHC found Michael Nali, who was Minister for Civil Aviation, Culture and Tourism.

Undeterred by Fridriksson’s considerable baggage, Nali agreed to sponsor the Paga Hill Estate in Cabinet as a project of national significance.

A year later PHLHC had its state lease over the Paga Hill national park. It was awarded in contravention of the Land Act 1996. The land was still zoned open space. However, PHLHC had government backing, so a blind eye was seemingly turned to this flaw in the lease. And there was no private party with the considerable financial reserves and motivation required to have the illegal decision judicially reviewed by the national court. So PHLHC powered on.

However, the project’s political sponsor, Michael Nali, hit turbulence. In October 1998 he was fired from government.

Nali’s commitment to the Paga Hill development and Fridriksson’s vision was unshaken. During this moment of professional grief, he came out fighting for the development.

In a statement given to the media, Nali described the project as one ‘of immense national importance, duly cleared and supported through all established governmental process’ (The National 23/10/1998). The Public Accounts Committee later disagreed. They would claim that the state lease was awarded illegally through ‘corrupt dealings’.

Nevertheless, Nali petitioned the Prime Minister ‘not to be vindictive and personal in these matters by proposing a scrap’ of Paga Hill.

According to The National, Nali also ‘called on all cabinet ministers not to allow themselves to be influenced by rival groups with vested interest in the Paga Hill project … Mr Nali said the kind of investment in the Paga Hill project could enhance PNG’s financial and economic prospect’.

_{Video: The Opposition documentary traces the contested history of Paga Hill.} 

Nali rejected any allegation he had a personal interest in the Paga Hill venture.

It is accurate that at the time Nali was not the legal owner of  shares in the venture, although he did subsequently acquire legal ownership of a 9% shareholding during 2011. Nevertheless, at the time he sponsored the project in Cabinet, Nali was in business with two of PHLHC’s three shareholders.

The two shareholders were Felix Leyagon, and his boss at Ram Business Consultants, Rex Paki – a firm at which Fridriksson also worked.

Paki has generated his own infamous public footprint. Paki has appeared in multiple Commissions of Inquiry and Public Accounts Committee investigations. Most recently he has been put at the centre of the Cloudy Bay Forestry scandal.

Back when Nali agreed to promote PHLHC in Cabinet, Paki and Leyagon were directors of Waim No. 54 Limited. Waim No.54  was jointly owned by Michael and Mary Nali. It also shared a registered address with PHLHC.

Nali did not disclose these relationships to the media, it appears from reporting at the time.

When Nali did formally acquire shares in the Paga Hill development during 2011 through Kwadi Inn Ltd, the property development firm’s networth was K10,053,201. However, the venture not only recruited a new shareholder, it recruited a powerful Southern Highlands political figure who was a close business partner of Prime Minister O’Neill.

In 2012 the Prime Minister directed his government to give the developer full support.

O’Neill should have recused himself from any matter involving the Paga Hill Estate, as he had multiple conflicts of interest. First, O’Neill and Michael Nali were partners in a number of businesses. Second, Kwadi Inn, was a shareholder in the Paga Hill development, and in Peter O’Neill’s company NIU Finance, where O’Neill was also listed as Managing Director.

Prime Minister O’Neill did not recuse himself.

When Nali gradually sold his Paga Hill shares off to the developer’s lawyer Stanley Liria in 2016, the networth of the company had leapt to K261,631,067.

If the information contained within the company’s annual return is accurate, that means Nali’s own shareholding, potentially now worth at least K23m, was approx. 26 times more valuable than when he acquired it, just five years earlier.

Of course we do not know the conditions of the sale. It could be that Nali sold off his beneficial interest in the company in its entirety, or he may have only passed legal ownership over the shares to a trustee, while retaining beneficial ownership.

Because companies in PNG are not required to publicly disclose individuals and entities who have a beneficial interest in the firm, we have no way of knowing who currently has a beneficial interest in this development which Nali got off the ground back in 1997.

Two Leadership Tribunals

Michael Nali has faced two Leadership Tribunals during his political career.

The first tribunal attracted international media attention due to its bizarre nature. Nali, an elected MP at the time, was accused of stripping to his underwear in public, inciting a riot and interrupting counting during a 1999 by-election. He was found guilty on three charges and fined a total of K3,000.

One element in this case received little attention at the time. Prior to the sentencing decision, Justice Les Gavara-Nanu revealed that the Tribunal Members received threats during their three-week deliberation. Gavara-Nanu stated the the tribunal would not be swayed by intimidation.

The second Leadership Tribunal decision relating to Michael Nali is not publicly available. Some of its content is summarized in a 2006 National Court ruling on Nali’s judicial review challenging the Tribunal findings.

Nali faced seven charges of misconduct relating to the misappropriation of two sums of money. First, there was the matter of K50,000 that was given to Nali in 2000 by the then Governor of Southern Highlands, Anderson Agiru. The second amount was K460,000, which came from the 2001 and 2002 District Support Grants for the Mendi Open Electorate. Both sums were deposited in Nali’s personal bank account and were never acquitted.

Although Nali was originally found guilty of misappropriation by the Leadership Tribunal he successfully overturned the decision, not on the grounds that the findings of misappropriation were wrong but because of apprehended bias by the Tribunal members.

It is worth then looking at some of the facts presented by the Leadership Tribunal.

The K50,000

First, there is the K50,000 paid by Agiru to Nali. According to the Tribunal, it was sourced from an illegal Trust Account that did not comply with the Public Finance Management Act. Therefore, the funds themselves were deemed ‘illegal’.

The Leadership Tribunal suggested that the illegal Trust was in effect a slush fund ‘set up by the former Governor of Southern Highlands province, Mr Anderson Agiru to transfer funds out of the Southern Highlands Provincial Government Allocation and away from the Provincial Treasury and bureaucratic process into an account where he would retain the sole management, control and discretion over its use’.

In total the account was used to manage over K2.3 million.

Whether Nali knew the funds were from an illegal source was never established. However, the tribunal did find that Nali deposited into his personal bank account the K50,000 taken from the trust fund. Within three weeks it had allegedly been totally spent.

The Tribunal claims Nali failed to properly account for how the public money was spent. An acquittal form he produced  to the tribunal was deemed to have been fabricated ‘in the course of these proceedings’. The tribunal found Nali had ‘applied a significant part of the money for his personal use’. It was observed:

The Leader is alleged to have applied a significant part of the K50,000 to his personal use. This allegation is without direct evidence. However it is clear from the evidence that leader made numerous drawings from his personal account (…) after he deposited K50,000 into the account. The tribunal considers that, the leader in depositing the K50,000 into his personal account, he is treating it as his own and had thereby converted the money into his personal property. He had unrestricted access to that account and transacted on his on at his own time and would distributed it at his own choosing. He may not have personally benefited from the public money but the inference is overwhelming that the money were used for his own benefit having improperly and illegally received it in the first place.

These findings of fact by the tribunal were endorsed by Justice Salika in his decision on the judicial review:

The fact that the money was deposited into his personal account and that he was the sole signatory to the account and that the monies were withdrawn and depleted quite speedily were reasons enough for the tribunal to draw inferences against the leader. Moreover a copy of the acquittal form to Anderson Agiru was treated as being fabricated recently. For the Tribunal to have come to that finding is a matter that was within the ambit of its powers and discretions to either accept it or reject it. It was open to the Tribunal. Likewise I am of the view that it was open on the evidence that was before the Tribunal to draw inferences it did.

The K460,000

In relation to the K460,000, the Leadership Tribunal found that Michael Nali:

• Deposited the money in his personal bank account.
• Failed to ensure this public money was applied to the rural infrastructure project for which it had been allocated.
• Applied a significant part of that public money to his personal use and the use of his associates.
• Failed to acquit the public money.

Unfortunately there is not much further detail on the use of the K460,000 in the subsequent National Court decision. It is only noted that the monies came from the Finance Department and the Office of Rural Development.

it was the Finance Department and the ORD that were responsible for those unlawful payments in the first place so that it can be said the payment into [Nali’s] private account was intended by those two bodies.

Given that the National Court endorsed the Leadership Tribunal’s findings of fact, why was the tribunal’s decision quashed?

Nali was successful in his judicial review on the ground that the tribunal held a ‘real appearance of bias’. This allegation arose from the Tribunal’s comments on Nali’s defense tactic of calling the leader as its final witness. This allowed Nali to be present during during the testimony of his own witnesses.

In our view, that course [of appearing last] was inappropriate. It invites suspicion that the presence of [Nali] during the testimony of his witnesses was to assist, encourage or prompt them in their story. It may even be intended to intimidate the witnesses. We consider it highly probable for the reasons set out below that the leader’s choice to hear out his witnesses first was a deliberate and calculated act to ensure consistency in a defence that appear to be most recent. First, the line of defense the witnesses were called to support was not raised initially during cross-examination of the prosecution witnesses until it became obvious that the leader had to explain aspects of the evidence that tend show misappropriate of funds. Second, during the testimony of the witnesses, we observed brief moments of hesitancy and eye contacts between some of the witnesses and the leader and others we assumed to be supporters of the leader in the public gallery. It was apparent that some of the witnesses were being “assisted” in their evidence. And thirdly, having heard the testimony of his witnesses, the chances are that the leader would tailor his own testimony to harmonize or improve the witnesses’ version. There were traits of that when the leader was in the witness box. We consider that the leader was entitled to adduce evidence in the order he preferred but his election to hear his witness first before he gave evidence is inherently inappropriate.

The comments of the Tribunal on Nali’s tactics echo earlier claims made by Justice Gavara-Nanu over intimidation.

Justice Salika, however, was of the view that instead of adversely commenting on the defense strategy, the Tribunal should have taken a decision to prevent it. Salika J noted:

If the Tribunal thought the calling of other witnesses first and the leader was inappropriate it ought to have made a ruling on that point and gave directions or orders when the tribunal queried it right at the onset instead of allowing him to proceed. It was inappropriate for the tribunal to make the statement (…). That in my respectful view was a fundamental flaw. That must affect the validity and integrity of the decision as it offended the applicants right to a fair trial

There is one very important end note to this saga.

Althought the decision of the Leadership Tribunal to find Nali guilty was quashed due to the perception of apprehended bias, the National Court ordered a new Tribunal be appointed to rehear the allegations.

It appears that the re-hearing never took place and instead, Michael Nali resumed his position in Parliament as MP for Mendi Open.

In Part 2 PNGi looks in greater detail at Mr Nali’s business network; his friends, allies and partners; and the lucrative government contracts awarded to his companies.