Once described by Sri Lanka’s Attorney General as ‘the greatest financial loss perpetrated on the people” the so-called ‘bond scam’ has returned to the headlines.
On Monday 26 November a Colombo Court ordered a former Governor of the Central Bank to report to Colombo on 25 February 2025.
Arjuna Mahendran the controversial Governor at the time, is a Singaporean national of Sri Lankan origin. Mahendran, having left Colombo during the tail end of the Presidential Commission inquiring into the issuance of bonds, has not returned to Sri Lanka since.
The so-called ‘bond scam’ attracted controversy within weeks of the Sirisena-Wickremesinghe Government which was grandly titled Yahapalanaya governance.
The title meaning, ‘Good governance’, fell far short by the time we exposed the serious conflict of interest that seemingly manifested itself.
The audacity of the actions of the Governor was steadily revealed: it took a lady from the Central Bank to literally stand up to the near Demi-God status enjoyed by Governors of the Central Bank of Sri Lanka.
Deepa Seneviratne was the lady who noted in writing as the auction concluded, that it was on the instructions of the Governor that the CBSL was taking up Rs. 10 billion instead of the previously advertised Rs. 1 billion. It had been suggested that Mahendran had wanted to take up the entire Rs. 20 billion on offer. Seneviratne is now retired and shockingly forgotten by the legislators. There was a time that an appropriate recognition for her was discussed although nothing ever materialised.
In the beginning
On 27 February 2015, newly appointed CBSL Governor Arjuna Mahendran advertised the sale of Rs. 1 billion in 30-year Government bonds at a coupon rate of 12.5%. The sale was oversubscribed with 36 bids totalling Rs. 20 billion. Most of the bidders, 26, bid for Rs. 100 million or less at a rate of 9.5%–10.5%.
However, a few bidders, including Perpetual Treasuries Ltd., wanted interest rates of 11%–12%. On 27 February 2015, the CBSL accepted Rs. 10 billion in bids at rates of 9.5%–12.5%, which meant that the base value of the auction doubled 20 times. The issuing of 10 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.
Perpetual Treasuries was issued, directly and indirectly, with Rs. 5 billion in bonds at 12.5%. Perpetual Treasuries was one of the licensed primary dealers in the sale and was owned by Mahendran’s son-in-law Arjun Aloysius.
Perpetual Treasuries was in effect, ‘the new boy on the block’ having obtained their primary dealer license from the Central Bank some months previously, under the stewardship of Governor Cabraal. It was noted that the participation of Perpetual Treasuries in auctions during the tenure of Cabraal was unremarkable at best – until the appointment of Arjuna Mahendran as Governor.
Several years later
The Presidential Commission setup to investigate the allegations into the issuance of bonds in February 2015 did not have a remit to look at the bonds issued in March 2016 and beyond.
The Commission cleared then Prime Minister Wickremesinghe of any legal wrongdoing. Wickremesinghe admitted that he had been informed by Mahendran of the possibility of raising greater funds – the Commission did not find that the Prime Minister who was also the Minister in charge of the Central Bank, had asked for any rules to be broken. The Commission did point out that the Prime Minister may have been better advised to have relied on counsel other than relying on Mahendran.
Several others were named for their involvement in the episode. The Commission revealed details of large sum of monies having paid out to a variety of recipients. Several persons including Arjun Aloysius, Jeff Aloysius and other members of the Board of Perpetual Treasuries and its owning company were remanded by Magistrates over the matter before being released on bail.
The government of change – November 2024 onwards
The election of Anura Kumara Dissanayake largely on a dual track policy of combating corruption and reducing the cost of living has caused a widespread expectation that Sri Lanka will embark on a real, sustainable, legally-based investigation into a plethora of corruption allegations. The Executive Director of the Centre for Policy Alternatives, a Colombo-based think tank, Dr. Paikiasothy Saravanamutthu recently stated that it was imperative that the Government proceed with the investigation and prosecution of ‘big fish’ if the AKD Government is to satiate the people’s desire for accountability.
Arjun Aloysius was jailed for six months over the non-payment of statutory dues to the Excise Department by another business associated with him, the distiller Mendis & Company. The business was reported to owe the Excise Department Rs. 3.5 billion in unpaid dues. The Government has also announced that all those distillers owing money will have their licenses cancelled.
The bond scam case against Aloysius and others is still pending before the courts with some legal arguments surrounding charges under the Public Property Act.
The Bribery Commission has initiated the latest round of action where the bond scam matter is relative. In a separate but related matter the Government is also being urged to look into the activities of State-controlled funds from for example the EPF and ETF into investments in the purchase of bonds and also shares in the Colombo bourse.
More and more it appears that the NPP Government will have their work cut out for some time yet. The song made famous by ABBA is likely to ring in the ears of the NPP – “Money, Money, Money”.
(The writer can be reached at www.shauketaly.com.)
Central Bank of Sri Lanka bond scandal
Central Bank of Sri Lanka bond scandal which is also referred as CBSL bond scam was a possible financial laundering scam which happened on 27 February 2015 and caused losses of more than $ 11 million to the nation. The bond scam is also regarded as the largest reported financial scam in Sri Lanka despite the country’s reputation of having a visionary banking system over the years.
This was a major blow to the Sri Lankan economy and was also a major setback to the then newly elected Government under the leadership of President Maithripala Sirisena – which commenced its first term as of 8 January 2015. Arjuna Mahendran is acknowledged to have been the nominee of then Prime Minister Wickremesinghe and was appointed as the Governor. Later reports suggested that the Cabinet of Ministers including President Sirisena had opposed his appointment. Nevertheless, as the appointing authority, President Sirisena gave his consent to the appointment.
This bond issue also caused a diplmatic furore of sorts between governments of Singapore and Sri Lanka over the extradition requests of Arjuna Mahendran to Sri Lanka.
In September 2019, Singapore’s Ministry of Foreign Affairs clarified that the Government would consider the extradition request from Sri Lanka once the necessary supporting information and documents were released. Sri Lanka’s President Sirisena complained that Singapore had not responded to his telephone call – only to be rebuffed in the response given in September.
