The Big Skim: Peter O’Neill Inc meets Don Sawong and Tos Barnett (The Midas Touch Part 2)

The big skim: Introduction

‘These things happened 15 years ago and it’s been cleared. Why don’t you talk about today’s issue instead of wasting your time on past doings?’

–  Dr Fabian Pok, Minister for Defence_[1]

Papua New Guinea has a history of expansive anti-corruption investigations.

From Tos Barnett’s ground breaking probe into the forestry industry through to the more recent Commission of Inquiry into the Department of Finance, they have exposed a vast catalogue of abuses.

But that is often where it ends.

Inquiry recommendations clash against under-qualified and under-resourced law enforcement agencies, who fail to consume, much less digest or act on, the findings.

So the reports gather dust. Those censured move on with their life. Often in an upward trajectory.

Peter O’Neill is living proof that earning the condemnation of Commissioners, is no impediment to a long and illustrious political career.

In 2002 and 2007 O’Neill came under the respective gaze of two of Papua New Guinea’s most respected legal minds, former Supreme Court judge, Tos Barnett, and the recently retired Justice Don Sawong.

They accused O’Neill of being part of a corrupt network of actors, appointed to administer state enterprises and statutory bodies by Prime Minister Bill Skate. The Commissioners claim that under the leadership of O’Neill’s alleged first cousin, Wandi Yamuna, and a close commercial affiliate, Jimmy Maladina, this predatory network employed executive power to defraud the bodies they were entrusted to manage.

O’Neill is accused of being a key player and beneficiary of the scams.

The first Commission of Inquiry – led by Tos Barnett – centred on the National Provident Fund (NPF), now NASFUND. Governed by a 1995 parliamentary Act, the NPF was a compulsory pension fund for all private sector companies with over 20 employees._[2]

Although tabled in parliament, Barnett’s report has long been suppressed from the public. All that has been seen is an edited summary, serialized in the Post-Courier, and the inquiry transcripts, available for a time on the Prime Minister’s website during the Somare years. Both those sources have now been made available again, on the PNGi Portal, together with the main body of the Final Report.

The second Commission of Inquiry – led by Don Sawong – focused on the Investment Corporation of Papua New Guinea (ICPNG), and the Investment Corporation Fund of Papua New Guinea, an investment fund managed by the ICPNG._[3] ICPNG was set up in 1971 to help Papua New Guineans acquire a larger stake in financial and investment markets, which had been historically dominated by foreign enterprises._[4]  Like Barnett’s report, Sawong’s findings have never been made accessible to the public (but can now be accessed on the PNGi Portal).

Echoing the concerns of Fabian Pok, it is worth asking though, is there any contemporary value in reflecting upon findings published a decade ago?

O’Neill and his co-accused, would argue both reports were flawed from beginning to end. To evidence this claim, Peter O’Neill might point to the fact charges relating to the so called ‘NPF fraud’, were dismissed by a magistrate, after his then lawyer, Rimbink Pato, made a no-case submission._[5] O’Neill’s alleged conspirator, Jimmy Maladina might draw attention to the recent Supreme Court decision_[6] overturning his criminal conviction.

These are valid points. There are, however, counterbalancing arguments.

Principally, the Commissions of Inquiry were led by two of the countries most experienced and decorated judges, supported by legal and administrative staff. Although the Commissions did encounter some privations,_[7] arguably they enjoyed the sort of experience, expertise and resources, often found lacking in the police and prosecution service.

Certainly the time it took prosecutors to mount cases against some of the key ring leaders in the NPF inquiry, point to systemic failings within the office. For example, the case against Herman Leahy, NPF’s former Company Secretary, was permanently stayed by the National Court in 2014 on ‘human rights grounds’, owing to the significant time elapsed, and prosecutorial errors._[8]

We also often find serious discrepancies in the quality of prosecutions. For example, charges against Jimmy Maladina relating to a Waigani land deal, were dropped in 2007, ‘due to insufficient evidence in the police file’. Yet two years before, his co-accused was successfully prosecuted and sentenced to six years hard labour._[9]

And while Jimmy Maladina’s convictions relating to the NPF tower fraud were overturned in 2016,_[10] the original National Court sentencing put forward details suggesting that Maladina had actually confessed to the crime._[11]

So on the one hand, there is evidence to suggest that both Commissions of Inquiry were conducted with judicious oversight by senior legal professionals, with trenchant Supreme Court experience; on the other hand, it appears that those agencies charged with responsibility to enact Commission recommendations lacked the resources, expertise and resources to robustly discharge their duties.

There is also the point, that it is only now, in 2017 with the advent of the PNGi Portal, that the findings of both Commissions of Inquiry are publicly available for the first time and can be searched by keywords. Given the reports have yet to be public scrutinised, now is the time to launch the conversation.

Accordingly, there is merit then in carefully considering the findings of both Commissions, even if we do so with caution, given that the allegations were not adequately tested in court.

Once closely examined these Commissions of Inquiry open up a rare window into how state enterprises and statutory bodies, in command of significant financial assets, are administered.

If we accept the accuracy of their findings – with the above noted caveats – the Commission reports document in granular detail how corporate managers, in league with political patrons, conspired to exploit these assets for private gain, using a range of illegal techniques.

Rigged property transactions, inflated consultancy fees, bribery of public officials, forged documents, and beneficial interests hidden behind proxy shareholders, are all alleged to have been part of the core repertoires used by a predatory network of actors.

And it is claimed these illicit enterprises were conducted with support from the legal fraternity, who helped to set up front companies and launder the illicit proceeds.

Peter O’Neill, both Sawong and Barnett allege, was at the centre of these scams. To understand the substance of these claims, this instalment of The Midas Touch will catalogue key findings from the Commissions of Inquiry, beginning first with the 2007 report on the conduct of ICPNG executives and its agents.

It should also be remembered that the period to which these reports relate, was one of sudden growth for Peter O’Neill. At the time, he had been appointed by Prime Minister Bill Skate to head numerous state-owned entities – starting in August 1997 – which included taking the helm at the Finance Pacific group of companies (the ancestor of the Independent Public Business Corporation, IPBC, now known as Kumul Consolidated Holdings), as well as PNG Banking Corporation and its different entities, to name just a few._[12]

However, it is O’Neill’s private dealings in the real-estate market that earned the ire of Don Sawong and Tos Barnett. 

 ______________________________________________

_{FOOTNOTES
[1] Parliament Hansard, Tuesday 12 February 2013, p5
[2] Barnet, T. (2002) Commission of Inquiry into the National Provident Fund, Final Report, p19
[3] Sawong, D. (2007) Report of the Commission of Inquiry into the Management of the Investment Corporation of Papua New Guinea and the Investment Corporation Fund of Papua New Guinea and all matters relating to the Conversion of the Investment Corporation Fund of Papua New Guinea to Pacific Balanced Fund, p.xi
[4] Sawong, D. (2007) Ibid, p4.
[5] Krau, D. (2005) ‘O’Neill cleared of NPF charges,’ PNG Post Courier, January 12 2006.
[6] Maladina v Independent State of Papua New Guinea  SCRA 11 OF 2015; SC 1495 (20 April 2016) accessed on 7 June 2017 at http://www.paclii.org/pg/cases/PGSC/2016/11.html
[7] Sawong, D. (2007) Ibid, p.ix
[8] Leahy v Kaluwin [2014] PGNC 163; N5813 (7 November 2014), accessed on March 27 2017 at http://www.paclii.org/cgi-bin/sinodisp/pg/cases/PGNC/2014/163.html
[9] State v Veraga [2005] PGNC 103 (2 June 2005) http://www.paclii.org/pg/cases/PGNC/2005/103.html and  State v Veraga [2005] PGNC 43 (17 June 2005) http://www.paclii.org/pg/cases/PGNC/2005/43.html
[10] Maladina v Independent State of Papua New Guinea  SCRA 11 OF 2015; SC 1495 (20 April 2016) accessed on 7 June 2017 at http://www.paclii.org/pg/cases/PGSC/2016/11.html
[11] State v Maladina [2015] PGNC 146 (13 August 2015) at paragraph 37 accessed on 7 June 2017 at http://www.paclii.org/pg/cases/PGNC/2015/146.html
[12] See The Midas Touch Part 1} 

Selling off the country’s silver – The ICPNG Commission of Inquiry

Following the election of Bill Skate as Prime Minister in 1997, Minister Fabian Pok was given responsibility for ICPNG._[13]  Its Managing Director, John Ruimb, was replaced by Wandi Yamuna_[14] in February 1998. The following year, in August 1999, Vincent Auali became the Minister responsible.

Yamuna is alleged in the Commission reports to be Peter O’Neill’s first cousin._[15] From 1996 to 2010 he served as a Director at Pangia Enterprises, a company owned by Peter O’Neill, along with O’Neill’s then wife Cheryl O’Neill. Yamuna is now reported to be working directly for Peter O’Neill as his Deputy Chief of Staff._[16]

_{Network Map: O’Neill’s network of early core associates}

The Commission of Inquiry claims that Peter O’Neill benefited from corrupt transactions executed by ICPNG’s management, primarily through the corporate vehicle, Port Moresby First National Real Estate (PMFNRE), which the Commission says was owned or controlled by O’Neill_[17], a finding which also features in the NPF Commission of Inquiry.

On paper PMFNRE’s shareholders included:

• Jack Awela (90%); and
• Ann Sullivan (10%).

Sullivan is the daughter of O’Neill confidant, and family friend, Maurice Sullivan,_[18] while Awela is alleged to be O’Neill’s uncle. PMFNRE’s Directors have included Jack Awela, Maurice Sullivan, Joseph Kup and Rupa Siba._[19]

Despite denials by O’Neill, the NPF Commission of Inquiry concluded that the ‘evidence is overwhelming … the true owner of PMFNRE is and was Mr O’Neill’._[20]

When questioned by the NPF Commission of Inquiry, Bill Skate opined: ‘Without really knowing whether Peter O’Neill owns the company or not … the impression generally that was widespread was Mr O’Neill was the owner of PNG [sic] First National Real Estate’._[21]

The ICPNG and NPF reports together detail a pattern of illicit activity prosecuted by a network of interlinked individuals, in which PMFNRE was a central node. The activity exhibited a number of core features:

1. Ensure the untendered appointment of PMFNRE to manage state properties and assets, while granting them generous commissions in the event that these assets are sold.
2. Exploit the financial difficulties of the fragile and debt-ridden state entities to justify a quick disposal of assets.
3. If sold to persons or private companies that play a role in the network, ensure the property is undervalued. When the potential buyer is another state entity, ensure the asset is overvalued.
4. Redistribute the fraud’s proceeds to the network of actors who helped set up the scheme.

The Commission alleges that through these mechanisms, senior managers and corporate agents used the garb of legitimate commercial deals to hide rigged transactions designed to illegitimately transfer wealth from a state enterprise – ostensibly belonging to the PNG public – and place it in private hands.

The NPF inquiry also suggested such behaviour may not have been limited to just the NPF and ICPNG:

While investigating these matters and while examining bank accounts of the companies and persons involved, the Commission located evidence that other very large sums of money were being “laundered” during that period through the books of Carter Newell and PMFNRE and that similar scams involving the Investment Corporation, the PNG Harbours Board and the DFRBF [Defence Force Retirement Benefit Fund] were occurring._[22]

We will now examine, in summary form, the particularly cases of alleged corruption, involving PMFNRE and ICPNG, documented by the Commission of Inquiry.

______________________________________________

_{FOOTNOTES
[13] Sawong, D. (2007) Ibid, p15
[14] Sometimes also referred to as Oscar Yamuna or Oscar Wandi Yamuna
[15] Sawong, D. (2007) Ibid, p224
[16] The date of his appointment is not known but his role was reported in September 2014: http://www.thenational.com.pg/nbc-in-strife/
[17] Sawong, D. (2007) Ibid, p224
[18] Evidence of Maurice Sullivan to the NPF Inquiry, Transcript of Proceedings of 14 December 2000
[19] Port Moresby First National Real Estate Limited Limited, Company Extract as of 3 November 2016, Investment Promotion Authority and, Notice of change of Shareholder, Investment Promotion Authority
[20] Barnet, T. (2002) Commission of Inquiry into the National Provident Fund, Serialised Extracts, p242
[21] Barnet, T. (2002) Commission of Inquiry into the National Provident Fund, Transcript of Proceedings into the NPF Inquiry of 1 February 2002, p31
[22] Barnet, T. (2002) Final Report, Ibid, p41}

When failure is success – The tale of four real-estate sell-offs

Presented below are four major real-estate property sales, conducted by the ICPNG at the behest of Wandi Yamuna. Each example contains a common pattern. Yamuna, against advice, executes transactions which are to the detriment of the ICPNG, but are largely to the financial betterment of intermediaries and purchasers. O’Neill’s alleged firm, PMFNRE, was argued to have been a central player.

1. Cascade Apartments

Property: Cascade apartments (10 three bedroom apartments), owned by ICPNG subsidiary Cascade Apartments Limited._[23]
Vendor: ICPNG
Purchaser: Lease Rite Limited, a company owned by Southern Highlands businessman Johnson Tia.
Sales agent: PMFNRE, awarded a 2% Commission, K37,080.
Legal agent: Mai Lawyers
Sale Price: K1.8 million
Date of sale: September 1998

Irregularities cited by COI:

• No board approval was given to dispose of shares in Cascade Apartments Limited to Lease Rite Limited.
• ICPNG Managing Director, Wandi Yamuna, rejected the advice of ICPNG’s investment analyst to seek a fresh valuation of the property. Instead, he allegedly insisted on using an old June 1996 valuation (K1.82 million), stating ‘not to drag [the deal] on and [instead] proceed with sale of the properties’._[24] The Commission noted rising property prices in Port Moresby meant a ‘fresh valuation … [was] necessary’.
• In May 1998, PMFNRE is appointed sole agent for the sale, without a proper tender process.
• After Cascade Apartments is publicly tendered, the highest bidder, Australian concern Baltimore Pty Limited, inexplicably withdraws its original offer of K2 million, reducing it to K1.4 million.
• The property is then awarded to the second highest bidder, Johnson Tia, for K1.8 million._[25]
• Johnson Tia resold the undervalued property two years later for K2.5 million, returning a 39% profit._[26]
• Yamuna signed ‘a deed of indemnity between the Corporation and Mr Tia which indemnified Mr Tia for a period of one year after the completion of the contract of sale of shares against all liabilities and claims’,_[27] without first assessing the liabilities of Cascade Apartments Limited, or obtaining formal ministerial approval from Iaro Lasaro.
• Mai lawyers was contracted to provide legal services without tender. K93,850 in legal fees were paid. An extra K100,000 was ‘withheld for completion costs’. The Commission recommended that IPBC investigate this.
• According to the NPF Commission of Inquiry and IPA documentation, Johnson Tia enjoyed direct commercial ties with, Jack Awela, Peter O’Neill’s alleged uncle and proxy shareholder in PMFNRE. This tie was established on 9 December 1998, when Johnson Tia acquired a one-third stake in Chelsea Limited, from Jimmy Maladina. On the same day, Jack Awela acquired a one-third stake in the company, along with current opposition leader Sam Basil. All three shareholders were appointed directors. Later in June 2000, Wandi Yamuna joined the board after losing his post at ICPNG.
• It is alleged by the NPF Commission of Inquiry that Chelsea Limited was used to potentially launder K322,200 from the NPF frauds. According to the Commission the sum eventually ended up in the personal bank account of Sam Basil, who transferred K109,631 to PMFNRE. _[28] 

_{Network Map: The Cascade Apartments sale}

2. ANG Haus

Property: ANG Haus, a 12 story office block.

Vendor: ICPNG
Purchaser: Cascade Apartments Limited, ultimately owned by Johnson Tia.
Sales Agent: PMFNRE, awarded a 2% Commission, K68,640.
Legal Agent: Mai Lawyers
Sale Price: K3.2 million
Date of Sale: December 1998

Irregularities cited by COI:

• Ministerial approval for the sale was not obtained _[29]
• Wandi Yamuna faced opposition over the sale from ICPNG management. ANG Haus was used by ICPNG for office accommodation. As a result, moving location posed a ‘high risk of getting locked out from rented premises for non-payment of rentals thereby disturbing the shareholders’._[30] The disposal of ANG Haus would thus have ‘serious financial ramifications’._[31] Yamuna evidently ignored this advice.
• PMFNRE advised Wandi Yamuna that a businessman, Johnson Tia, was ready to bid K3 million for the property, outside the formal tender process. ICPNG’s Deputy Managing Director strongly advised Yamuna against the sale, suggesting a minimum sale price of between K4,3777,000 (1996 valuation) and K5.4M. Similarly, the ICPNG board resolved ‘to sell the ANG Haus at a price no less than market value.’_[32]
• The property was finally sold to Cascade Apartments Limited, a concern ultimately owned by Johnson Tia [see above re Cascade Apartments sale], for the price of K3.2 million (a reduction from K3.3 to K3.2 was made by Yamuna, for repair and maintenance work).
• In addition to its K68,640 Commission, PMFNRE is alleged to have improperly retained an extra K47,840 from the sale._[33]
• Mai Lawyers are appointed to complete the legal work, without tender. They charge K70,148 in legal fees. An additional K100,000 is kept, evidently without account.
• The Commission concluded that ‘unless evidence to the contrary is provided, it would also appear that Cascade Apartments and PMFNRE’s actions would amount to theft of the funds of the Corporation’.

_{Network Map: The ANG Haus sale}

3. Manamatana apartments

Property: Manamatana apartments, seven stories, 24 apartments.
Vendor: Investment Corporation Fund (managed by ICPNG)
Purchaser: Bluehaven No. 42
Sales Agent: PMFNRE, awarded a 3.5% Commission, K77,000.
Legal Agent: Unspecified
Sale Price: K2 million
Date of Sale: Contract of sale June 1999, completion May 2000.

Irregularities cited by COI:

• Wandi Yamuna, it is alleged, unilaterally increased the proposed sales Commission from 2% to 3.5%, which would be awarded to PMFNRE, for the sale of Manamatana apartments. The Commission of Inquiry observes: ‘Mr Yamuna stated that the current rate of Commission of 2% was too low and an increase of 1.5% was proper and fair. There are no records to indicate that PMFNRE had requested an increase’._[35] The Commission found the increase contrary to the fund’s interests.
• In December 1998 an evaluation priced the apartments at K2,245,000. Yamuna was told by ICPNG’s property manager that ‘the Corporation had informed PMFNRE to use the valuations as the reserve prices for the sale of the Fund’s properties’._[36]
• In February 1999, Yamuna informs Ken Barker from PMFNRE that the bids made for the property were below the reserve price. Bluehaven No. 42 Limited, nonetheless, managed to acquire the property. The Commission found this occurred outside a competitive tender process and without board approval.
• To obtain ministerial approval for the sale, from both Fabian Pok (the Minister responsible) and Iaro Lasaro (the Minister for Treasury), Yamuna ‘failed to furnish relevant and appropriate information’._[37] Furthermore, both ministers failed to seek a ‘detailed and relevant submission’, while the Commercial Investments Division of the Department of Treasury provided no assessment._[38]
• Bluehaven No. 42 Limited paid K2 million for the property. This was K245,000 below the market valuation.
• Bluehaven No. 42 Limited’s two shareholders were Margaret Henao Aria and Eunice Dauge.
• The NPF Commission found that on the 23^rd of June 1999, a document was signed by Margaret Henao Aria and Eunice Dauge, wherein they agreed to hold the shares in Bluehaven on trust for Peter O’Neill.
• According to Peter O’Neill ‘Blue Haven 42 Limited was a shelf company bought solely for the purposes of purchasing Manamatana Apartments. The purchase of shelf company was arranged by our solicitor, Mr Greg Lay of Young & Williams. He was communicating with Mr Sullivan who had the carriage of the file to sort out the transfer of shares to his own company and to myself. I requested Mr Lay to hold my shares in Trust while I was sorting out the setting up of a family holding company, LBJ Investments Limited. It was for that reason alone that I signed the trust arrangements to protect Mr Lay or his staff’._[39]
• Aria and Dauge transferred their shares in Bluehaven on 8 March 2000 to LBJ Investments. Peter O’Neill had noted in an earlier hearing that ‘LBJ is a company formed in late 2000_[40] to hold a number of investments on behalf of my children Loris, Brian and Jo-Anne. Mr Gregory James Lay formerly of Young & Williams now Norton White Lawyers incorporated the company and held its shares in trust for my children.’_[41]
• It appears from the Commission of Inquiry findings, that Peter O’Neill was the beneficial owner of the sale agent, while the company purchasing Manamatana was an O’Neill family trust.
• PMFNRE received a commission of K77,000 as sales agent. The responsible salesperson at PMFNRE was Iaraga Asi, the wife of the responsible Minister, Fabian Pok. O’Neill also claims that his own wife worked on the sale, and won a commission of K40,000,_[42] (although the Commission has questioned the credibility of this claim, given O’Neill himself has also stated Lynda Babao did not start work for PMFNRE until six months after the sale was concluded at contract stage, and her name is not mentioned in any of the sale documentation_[43]).
• The NPF Commission alleged the Manamatana acquisition was used to launder funds from the NPF frauds and directed Mr. O’Neill be referred to the police ‘to investigate whether he should be charged with perjury concerning his evidence on this issue’. _[44]

_{Network map: Manamatana apartments sale}

4. Investmen Haus

Property: Investmen Haus, nine story office building.
Vendor: ICPNG
Purchaser: Nusaum Holdings Limited
Sale Agent: PMFNRE, awarded a 2% Commission, K134,930
Legal Agent: Carter Newell (firm part owned by Jimmy Maladina)
Sale Price: K6,550,000
Date of Sale: 24 July 1998

Irregularities cited by COI:

• Owing to its strong investment yield, ICPNG management recommend keeping Investmen Haus. The sale, it was claimed, ‘would result in cash deficiency of K125,000 per month’._[45] This advice, again, was rejected by Wandi Yamuna.
• A 1996 valuation priced the asset at K5,802,000._[46] Wandi Yamuna was advised to seek a new evaluation. This did not occur. Ministerial approval for the sale was also deemed deficient by the Commission.
• PMFNRE was hired as sole agent for the sale in May 1998, with a 2% Commission. In total K134,930 was paid to PMFNRE.
• In contrast to the other cases, where evidence was presented by the Commissions of Inquiry suggesting collusion between vendor and purchaser, in this instance there is no allegation that the purchaser enjoyed links to ICPNG or its agents.
• The board refused undervalued bids and asked the successful bidder to increase their offer to at least K6.5M. It is complied with by Nusaum Holdings Limited from the Monian Group of companies, which won the contract for K6,550,000._[47]
• Carter Newell advised the corporation that their legal fees would not exceed K50,000. The Commission cautioned the ICPNG, K755,000 was apparently retained by the law firm (including the 10% deposit of K655,000). Although the law firm’s records were summoned by the Commission, the files were not furnished._[48] 

_{Network Map: The Investmen Haus sale}

VULTURE CAPITALISM?

Each of these cases, as documented by the Commission, contain a running theme. ICPNG’s Managing Director is said to have sold financial assets belonging to the state enterprise, against advice, using improper means. The majority of these sales, were below value. Given that, by definition, the ICPNG was not benefiting from flawed commercial decisions, the primary beneficiary of these transactions, as evidenced in the Commission report, was the sales and legal agents, along with the purchaser, in those cases where the sale was under-value.

The findings of the Commissions of Inquiry, indicate that PMFNRE was a key beneficiary of these illicit transactions, as sales agent, while its alleged principal Peter O’Neill, also benefited through his involvement in Bluehaven No. 42 Limited, which acquired the Manamatana apartments.

The Commissions did not speculate on the motivation standing behind these illicit transactions. However, in oral evidence submitted to the NPF Commission by former Managing Director of ICPNG, John Ruimb, it is alleged that Fabian Pok and Peter O’Neill intended to use the illicit proceeds for a slush fund, which would help to stabilise Skate’s turbulent governing coalition.  Recalling a meeting convened with O’Neill and Pok in late 1997, Ruimb states:

[These] further conversations were a follow up on various other project that Peter O’Neill had made to me suggesting that all the Investment Corporation properties be given to Port Moresby First, sorry, it was Hunter Real Estate at that time to manage the properties. And in that meeting, in the presence of Dr Pok he talked about the need for them to make more money enough to sustain the members they had in Parliament to remain in government. And that if I did not cooperate they would determine my future._[49]

The Commission took ‘judicial notice’ that perhaps some funds raised in the alleged frauds were intended for ‘political purposes’ but said it lacked the evidence to make such a finding._[50]

However, in the NPF Commission of Inquiry, close scrutiny was given to the destination of the proceeds alleged to have been acquired through fraud. It was claimed in this case, to which we will now turn, that Peter O’Neill and his alleged co-conspirator Jimmy Maladina, were among the primary beneficiaries of two major illicit transactions.

_________________________________________

_{FOOTNOTES
[23] Sawong, D. (2007), Ibid, p82
[24] Sawong, D. (2007), Ibid, p83
[25] Sawong, D. (2007), Ibid, p84-87
[26] Sawong, D. (2007), Ibid, pp 87
[27] Sawong, D. (2007), Ibid, p85
[28] Barnet, T. (2001), Commission of Inquiry into the National Provident Fund, Transcript of Proceedings into the NPF Inquiry of 8 November 2001, pp14-17
[29] Sawong, D. (2007), Ibid, p96
[30] Sawong, D. (2007), Ibid, p93
[31] Sawong, D. (2007), Ibid, p92
[32] Sawong, D. (2007), Ibid, p92
[33] Sawong, D. (2007), Ibid, p95
[34] Sawong, D. (2007), Ibid, p96
[35] Sawong, D. (2007), Ibid, p98
[36] Sawong, D. (2007), Ibid, p98
[37] Sawong, D. (2007), Ibid, p99
[38] Sawong, D. (2007), Ibid, p99
[39] Barnet, T. (2001), Commission of Inquiry into the National Provident Fund, Transcript of Proceedings into the NPF Inquiry of 27 November 2001, p31
[40] Investment Promotion Authority records indicate the company was actually formed in November 1999.
[41] Barnet, T. (2001), Commission of Inquiry into the National Provident Fund, Transcript of Proceedings into the NPF Inquiry of 10 May 2001, point 41 of O’Neill’s defence, p24
[42] Barnet, T. (2001), Commission of Inquiry into the National Provident Fund, Transcript of Proceedings into the NPF Inquiry of 29 November 2001, pp33-35.  
[43] Barnet, T. (2001), Commission of Inquiry into the National Provident Fund, Transcript of Proceedings into the NPF Inquiry of 4 February 2002, p12
[44] Barnet, T. (2001) Serialised Extracts, Ibid, p224 and p237
[45] Sawong, D. (2007) Ibid, p89
[46] Sawong, D. (2007) Ibid, p88
[47] Sawong, D. (2007) Ibid, p90
[48] Sawong, D. (2007) Ibid, p90
[49] Barnet, T. (2001) Commission of Inquiry into the National Provident Fund, Transcript of Proceedings into the NPF Inquiry of 31 January 2001, pdf p22-23
[50] Barnet, T. (2002) Final Report, Ibid, p42}

The ‘NPF tower fraud’ - Dining out on PNG’s retirement savings?

_{Network Map: The ‘NPF tower fraud’}

The NPF, it will be recalled, was a compulsory pension fund for all private sector companies with over 20 employees. By the late 1990s it had entered a dangerous debt spiral, which was married to a high risk speculative investment culture.

Its investment portfolio, for example, changed ‘alarmingly’. In 1994, only 8% of NPF’s assets were invested in high-risk investments. By 1998 it has reached 60%. Most of the investments were poorly executed, which resulted in colossal losses of K153 million in 1998 and 1999._[51]

In the same period the debt as a percentage of net assets rose from 5% to 70%. The NPF Commission of Inquiry claimed that Herman Leahy, the fund’s corporate secretary and legal counsel, had given his employer ‘totally wrong advice that it was within NPF’s powers to borrow’._[52] Furthermore, no consideration was evidently given to the possibility that interest rates on the loans could rise.

The Commission also alleged that the banks were complicit in the NPF’s debt crisis. In August 1998 and May 1999 respectively, PNGBC and ANZ were advised by law firms that the NPF lacked the legal power to borrow. ANZ, it is alleged, took care ‘not to alert’ NPF and instead organised an exit strategy._[53] PNGBC – under O’Neill’s leadership – also failed to share this legal advice with the NPF Board, and instead continued to lend to the fund, the Commission claimed. The Commission noted this potentially exposed the state banking institution to a class action from NPF members._[54]

The resulting debt spiral accrued by NPF’s management was alleged to have been concealed from the NPF Board: ‘Not only did NPF management not keep the board informed about the continued use and increasing size of the overdraft facility but it adopted wrong accounting methods which concealed the existence of it’._[55]

It was against this backdrop that the ‘NPF tower fraud’ evidently took place. In 1997 the NPF debt financed the construction of Deloitte Tower, in the heart of Port Moresby’s CBD. The credit was obtained through a 1997 PNGBC K50 million loan, which was later increased to K59 million in 1999._[56]

Japanese firm, Kumagai Gumi, was contracted to build the tower. Owing to currency fluctuations, which devalued the contract price, Kumagai made two devaluation claims. The first request, approved in 1998, the Commission concluded was justified. This brought the contract to K47 million._[57]

A second request was made by Kumagai to increase the contract price to K51.3 million in January 1999. NPF’s counsel, Herman Leahy, is alleged to have concealed the proposed sum from the board, in a conspiracy with Jimmy Maladina. According to the Commission, Pacific Architects Consortium – the project architects – and NPF advisers, were removed from negotiations by Leahy._[58] An overinflated claim was then agreed with Kumagai, wherein the contract would be repriced at K54 million,  K2.7M ‘more than what Kumagai had requested as full payment.’_[59]

According to the Commission:

The result was that an extra K2.5 million of NPF’s funds was paid to Kumagai. This had previously been agreed by Kumagai management at the insistence of Mr Maladina just prior to his appointment to the NPF Board of Trustees. He had threatened to deny Kumagai the currency depreciation payment (after his expected appointment) unless they cooperated. The agreement between Mr Maladina and Mr Leahy with Kumagai managers was that Kumagai would return the extra K2.5 million of NPF funds to Mr Maladina plus an extra K150,000 of Kumagai’s own money as Mr Maladina’s personal “Commission”. An elaborate scheme was put in place, including the fabrication of false documents, so that Kumagai’s return payments to Mr Maladina could be laundered through the personal account of Ken Yapane and the account of his company Ken Yapane and Associates._[60]

Attempts were made by the Commission to document the money trail, in order to determine who benefited from the alleged fraud. It is claimed that the illicit proceeds were laundered through the accounts of:

• PMFNRE, a real-estate company said to be owned by Peter O’Neill.
• The law firm Carter Newell; and
• Ken Yapane.

In the following diagram, data presented by the Commission, and National Court, has been used to map six tranches of money alleged to have been laundered from the tower fraud.

_{Network Map: The alleged money trail}

There are a number of noteworthy transactions contained within this graph:

• Part of the first and sixth payments, which transited through Yapane and Carter Newell’s accounts, appears to have been used for the acquisition of A$515,000 in Australian real-estate during June 1999, through the company Bethgold Pty Ltd._[61]
• It is alleged by the Commission that the shares in Bethgold Pty Ltd were held on trust by PMFNRE’s Kenneth Barker and Maurice Sullivan for Jimmy Maladina and/or Peter O’Neill._[62] When questioned by the Commission Sullivan acknowledged ‘I did not provide any funds out of my pocket’._[63] Nevertheless, Sullivan claimed he was under the ‘impression’ of owning the firm. Sullivan stated, ‘I was under the impression that this was to be a superannuation type of arrangement for Ken Barker and myself’.
• Part of the second alleged fraudulent payment said to be laundered through the accounts of Ken Yapane and PMFNRE (K150,000 out of K652,421), was evidently used for the Manamatama property acquisition by Bluehaven No. 42, a company which appears to have been beneficially owned by the O’Neill family (see above).
• The Commission of Inquiry also claimed that three portions of the illicit proceeds (K100,000, K112,768, and K566,832) ended up in the general accounts of Carter Newell Lawyers, a firm then controlled by David Lightfoot, Kelly Naru, John Donald Beattie and Bernard Avery, practising with Jimmy Maladina._[64] Australian national, John Donald Beattie, remains one of Peter O’Neill’s closest business associates,_[65] while Kelly Naru, a former Chairman of the Defence Force Retirement Benefit Fund,_[66] is the current governor for Morobe._[67]
• The third payment of K595,453, after passing through the accounts of Carter Newell and PMFNRE, was allegedly paid in part to Mecca No. 36, a company owned by Peter O’Neill and Nathaniel Poya. The latter was then an NPF trustee.

_____________________________________

_{FOOTNOTES
[51] Barnett, T. (2002) Final Report, Ibid, p3 and p4 and Serialised Extracts, Ibid, p61
[52] Barnett, T. (2002) Final Report, Ibid, p35
[53] Barnett, T. (2002) Serialised Extracts, Ibid, p104
[54] Barnett, T. (2002) Serialised Extracts, Ibid, p76
[55] Barnett, T. (2002) Serialised Extracts, Ibid, p75.
[56] Barnett, T. (2002) Final Report, Ibid, p35
[57] Barnett, T. (2002) Serialised Extracts, Ibid, p81
[58] Barnett, T. (2002) Serialised Extracts, Ibid, p22, p33 and p202
[59] Barnett, T. (2002) Serialised Extracts, Ibid, p202
[60] Barnett, T. (2002) Serialised Extracts, Ibid, p22
[61] Barnet, T. (2001) Commission of Inquiry into the National Provident Fund, Transcript of Proceedings into the NPF Inquiry of 23 February 2001, pdf p53
[62] Barnett, T. (2002) Serialised Extract, Ibid, p216
[63] Barnet, T. (2001) Commission of Inquiry into the National Provident Fund, Transcript of Proceedings into the NPF Inquiry of 14 December 2000, page 60
[64] National Provident Fund Board of Trustees -v- Jimmy Madina and others, OS. No.83 of 2001, Pacific Islands Legal Information Institute website, accessed on 21 June 2017
[65] See The Midas Touch Part 1 
[66] Barnett, T. (2002) Final Report, Ibid, p42.
[67] National of Parliament of Papua New Guinea, Hon Kasiga Kelly Naru profile, accessed on March 27 2000} 

The one that got away – The failed sell-off of Deloitte Tower

Following the alleged Kumagai fraud, the NPF Commission argued, Jimmy Maladina and Herman Leahy conspired to sell a 50% stake in Deloitte Tower, through holding vehicle The Tower Pty Ltd. The purchaser was another state-owned entity, PNG Harbours Board. An engorged Commission of 5% would then be paid to PMFNRE, without the NPF Board’s knowledge._[68]

Jimmy Maladina, it is alleged, conspired with professional valuators to organise overinflated valuations. The contracted valuators, the Commission argues, charged ‘exorbitant’ fees_[69] for these services, half of which was paid directly to Jimmy Maladina. In this instance – the tower valuation – it is alleged Maladina received a kickback of K175,000._[70] One of the valuers, Iori Veraga was sentenced to six years hard labour by the National Court in 2005 for his role in the scheme._[71] The other alleged perpetrators appear to have escaped criminal prosecution.

Fortunately for NPF stakeholders, the plan failed. Political pressure was allegedly placed on PNG Harbours Board to proceed with the sale by three Ministers, Iaro Lasaro, Fabian Pok and Vincent Auali – each wrote identical letters in favour of the deal. Legal threats were also issued by NPF’s legal counsel Herman Leahy. Nevertheless, the Commission observed that the PNG Harbour Board’s Managing Director and Legal Officer, were ‘men of integrity who realised it would be against the best interest of PNGHB’.

As a result, ‘this brought to a close Mr Maladina’s fraudulent scam to obtain the K2 million Commission through Mr Sullivan of PMFNRE’, which would have been subsequently ‘laundered through the accounts of PMFNRE and Carter Newell lawyers and then divided between the conspirators and Mr Peter O’Neill’._[72]

_{Network Map: The failed sale of Deloitte Tower}

____________________________________________

_{FOOTNOTES
[68] Barnett, T. (2002)Serialised Extracts, Ibid, p83
[69] Barnett, T. (2002) Final Report, Ibid, p80
[70] Barnett, T. (2002) Serialised Extracts, Ibid, p192
[71] State v Veraga [2005] PGLawRp 13; [2005] PNGLR 607 (17 June 2005) accessed on March 27 2017 at http://www.paclii.org/cgi-bin/sinodisp/pg/cases/PGLawRp/2005/13.html
State v Veraga [2005] PGNC 103; N2849 (2 June 2005)accessed on March 27 2017 at http://www.paclii.org/cgi-bin/sinodisp/pg/cases/PGNC/2005/103.html
[72] Barnett, T. (2002) Serialised Extracts, Ibid, p83 and p84}

Inside the Waigani land deal

A second major property transaction scrutinised by the NPF Commission of Inquiry centred on land in Waigani. According to the Commission, Jimmy Maladina, conspired with others, to acquire the land at a reduced rate using bribery. They then planned to resell the plot to the NPF.

At the centre of this alleged scam was the company, Waim No.92 Limited. The Commission alleged that the company was beneficially owned by Jimmy Maladina. Proxy shareholders Philip Eludeme and Philip Mamando – the latter of whom was residing at Maladina’s property – were said to have been used by Maladina to conceal his involvement._[73]

To secure the state lease under favourable conditions, Jimmy Maladina is accused by Tos Barnett of bribing the Land Board Chairman, John Guise, and the Lands Minister Visiso Seravo.  The Commission observed that Guise retrospectively varied conditions set out in the Letter of Grant, and signed false minutes stating that the Land Board recommended a reduction in the purchase price and annual rent. As a result, Waim No.92 Limited acquired a state lease for K1,724,726, with annual rent set at K17,000. The Commission of Inquiry suggested the correct sale price should have been K2,866,000, while annual rent should have been set at K143,000.

The Commission further claimed that ‘trust statements were fabricated’ on a Carter Newell file, in order to ‘make it appear that the money [for the sale] came from Mr Eludeme’s funds’, which if true is an offence under section 122 of the Criminal Code Act.

Once the State lease had been allocated, it was alleged by the Commission that Jimmy Maladina and NPF’s Company Secretary, Herman Leahy, ‘entered into a criminal conspiracy’ with the valuers Iori Veraga and Mariano Lakae. Through this conspiracy, grossly inflated valuations of the Waigani land were issued by the valuers –  K14.7 million and K17.6 million_[74] – who accrued excessive fees._[75] In this instance, the Commission asserts, Maladina was provided with a K60,000 kickback by the valuers._[76]

Despite Maladina and Leahy’s efforts to persuade the NPF board to acquire a 100% stake in Waim No. 92, through the preparation ‘of false and misleading papers’, in this instance the NPF Board rejected the proposal during December 1998.

In the end, Maladina allegedly used Ketan lawyers, to sell the land on to Trinco No. 6 Pty Ltd, a subsidiary of the Malaysian giant Rimbunan Hijau, for ‘a drastically reduced price of K3.3 million’._[77] It is claimed by the Commission that the profits were disbursed by Simon Ketan lawyers, using the accounts of Carter Newell. The proceeds were credited to a file for Jimmy Maladina’s Hong Kong based company, Global Halshaw Consultants, and paid out ‘to the benefit of those who had assisted him in organising the Waigani land (or NPF tower valuation) fraud.’_[78]

According to the Commission, the proceeds were distributed as follows:

• K700,000 went to Ferragamo Limited, a company owned by Jimmy Maladina;
• K50,000 was paid to Herman Leahy;
• K20,000 was paid to Phillip Eludeme;
• K20,000 was paid to Ram Business Consultants;
• A further K3,000 was ‘said to be for Mickey Tamarua’,_[79] an NPF board trustee
• K220,015.20 went to Biga Holdings Limited, a company owned by Iaraga Asi, the wife of the Minister for Lands Fabian Pok
• K15,000 was paid to Phillip Mamando;
• K60,000 went to PMFNRE, which ‘appears’ to have been received by PMFNRE on behalf of Peter O’Neill;
• K10,000 was paid to Jack Patterson;
• K49,598.49 was paid to Viviso Seravo, the Lands Minister.
• Another K100,000 was paid to an unknown recipient said to be for the ‘Lands Board claim’

_{Network Map: The Waigani land deal and its proceeds.}

_______________________________________________

_{FOOTNOTES
[73] Barnett, T. (2002)Final Report, Ibid, p76
[74] Barnett, T. (2002) Serialised Extracts, Ibid, p189 and p190
[75] Barnett, T. (2002) Serialised Extracts, Ibid p189 and p190
[76] Barnett, T. (2002) Final Report, Ibid, p77
[77] Barnett, T. (2002) Serialised Extracts, Ibid p193
[78] Barnett, T. (2002) Serialised Extracts, Ibid p194
[79] Barnett, T. (2002) Serialised Extracts, Ibid, p195}

A jewel in O’Neill’s crown

The direct links between Peter O’Neill’s businesses past and present, are not always easy to sketch, owing to convoluted and opaque money trails. However, in one instance, the NPF Commission of Inquiry traced the illicit proceeds to an asset, which is now among O’Neill’s most prized possessions.

In particular, the NPF Commission of Inquiry argued that the tower fraud proceeds were in part used to acquire the prestigious state enterprise, Resources & Investment Finance Limited (RIFL)._[80] The company’s most recent annual return for 2015, shows more than K70M worth of assets._[81]

According to the Commission, back in 1999 RIFL was owned by the Papua New Guinea Banking Corporation (PNGBC). In June of that year it was transferred to Finance Pacific for little more than K2.2M. One of the signatory to the share transfer was Peter O’Neill, _[82] who was both executive chairman of PNGBC and executive chairman of Finance Pacific._[83] It is alleged by the Commission that the rationale behind the transfer was to prepare RIFL for privatization, ‘RIFL was now ready for sale to a private buyer.’

The purchaser was Bluehaven No. 67 Limited. Although it appeared Bluehaven was purchasing on behalf of Pacific Helicopters, whose principal was Malcom Smith Kela, the Commission claimed that Peter O’Neill held ‘a substantial interest … in Bluehaven No. 67’ and ‘the other interested party was Jimmy Maladina’._[84]

Upon examining PMFNRE’s accounts, it is alleged by the Commission that much of the NPF tower fraud money was used for the acquisition._[85] The Commission explains what it concluded pushed the parties to acquire a state financial institution:

The “lure” which motivated the parties concerned to collect these funds together and purchase the shares in RIFL was that it was a cash rich company available for a very cheap price which could subsequently be stripped of its assets to repay the moneys contributed by Mr Smith Kela, Mr O’Neill and Mr Maladina who would then have acquired a licensed financial institution for virtually no cost._[86]

That financial institution, of course, has now become one of the most highly successful company’s in O’Neill’s stable. IPA records show that RIFL is presently majority owned by Peter O’Neill companies,_[87] LBJ Investments Limited, Remington Technology Limited, and Paddy’s Hotels & Apartments Limited.

_________________________________________________

_{FOOTNOTES
[80] Barnett, T. (2002) Serialised Extracts, Ibid, p233, 234, and 238 and Transcript of Proceedings for 1 November 2001, point 11, p5-7.
[81] Resources & Investment Finance Limited, Annual return 2015, Investment Promotion Authority
[82] Barnett, T. (2002) Serialised Extracts, Ibid, p233
[83] Barnett, T. (2002) Serialised Extracts, Ibid p237
[84] Barnett, T. (2002) Serialised Extracts, Ibid, p233
[85] Barnett, T. (2002) Serialised Extracts, Ibid, p234
[86] Barnett, T. (2002) Serialised Extracts, Ibid, p234
[87] Resources & Investment Finance Limited, Company Extract as of 19 October 2016, Investment Promotion Authority}

The big skim - State power in service of private interests?

The Commission of Inquiry reports produced by Don Sawong and Tos Barnett are among the most difficult to locate in Papua New Guinea.

Many of the key protagonists condemned in their findings, now hold high office and significant business interests.

Peter O’Neill is chief among them. It appears O’Neill was parachuted into high seats of commercial power by his mentor, Prime Minister Bill Skate.

Then, working in league with his first cousin, and business partner, it claimed by the Commissions that Peter O’Neill helped fix and execute commercial transactions designed to defraud state agencies and statutory organisations of their financial assets.

Tos Barnett in the NPF report, argues that a portion of the illicit proceeds was used by O’Neill to invest in Port Moresby and Australian real-estate, along with prime corporate assets. An allegation was also aired during both hearings, that the proceeds were being used to prop up the Skate government.

Supporting the predatory network, it was argued, were a range of law firms and accountancy companies, that helped launder the money and conceal the ultimate beneficiaries, through convoluted transfers, forged documents and proxy shareholders.

If accurate, the findings of these Commissions indicate that senior corporate managers, have worked in league with businessmen, government officials, law firms and accountancy companies, to set up sham sales contracts, that are designed to deliver illegal commissions and windfalls to beneficiaries, preying on vulnerable assets.

All of this occurs though dozens of skims – agent fees, withheld assets, deflated/inflated sale amounts – which then add up to sizable sums.

And there are important lessons which can be learnt from the Commissions’ findings, if we accept their veracity. The PNG national economy and state power, is, like in most countries, closely interlinked. The national government has the power to:

• Engage in industrial, commercial and financial activity, through state enterprises, statutory bodies, and investments in private enterprise.
• Purchase a significant range of high-value goods and services, through a system of public procurement.
• Mediate access to national economic assets, including land, forestry, mineral, oil, gas and fishing resources.
• Issue valuable licenses and certifications to private enterprises.
• Regulate market and non-market activity, through laws, regulations and public administration.

Where politically connected networks can abuse this public power to rig markets and commercial transactions, a lucrative opportunity structure is generated to illicitly skim wealth. If done frenetically and with impunity, this can buttress political and economic power.

Of course, it ought to be remembered that Peter O’Neill would reject the findings of Tos Barnett and Don Sawong.

It will be up to readers of the reports to decide whether they are great works of fiction, or great works of fact.