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Bigger than the bond scandal!
View(s):Golden Key Depositors – Is the proposed bail-out by the Government and the Central Bank justified? What is this Government’s extraordinary interest in the biggest financial scam in the history of this country?
Can the use of Treasury funds to the tune of Rs.8.2 billion for an unauthorised, unlicensed, illegal deposit taking company be warranted in the present meagre financial circumstances the Government finds itself in?
Have the chairman and GK directors been made accountable for what is considered to be the biggest financial scam in the history of this country and for the numerous other failed finance companies of this group?
Why is GK being treated differently from Sakvithi where the chairman is languishing in jail. Both were illegal deposit taking companies.
How many other companies in the same group of companies as GK, headed by the same chairman, have been either recapitalised by the Central Bank, or have been merged with other stronger institutions, in an attempt to save them from the brink of failure, e.g. to name those that we know of:
1. The Finance was given Rs.6 billion from the liquidity support scheme of the Central Bank’s Deposit Insurance Fund; What is the current financial condition of this company? What were the terms of this assistance. Have the assets of the company been frozen?
2. Standard Credit Finance depositors, as reported in the June 21st edition of the Business Times, also belonging to the same group, where the depositors have not been paid neither interest nor their capital, for the past six years, have not received the promised liquidity support as yet.
What are the conditions under which this group of companies has been bailed out with taxpayers’ funds and what action has been taken to seize the assets of the companies and of the chairman and the directors?
Should not this be the first course of action by a government which is deemed to be committed to good governance?
Why and how have GK depositors been given such privileged treatment and attention from the highest echelons of government and the Central Bank, when there are so many other depositors of failed, licensed, finance companies, who have still not been paid their dues.
On the contrary, the immense time and effort of senior government ministers and other government officials to bail out the depositors of GK, smacks of underhand deals made by this government, with the chairman and directors of this company and of vested interests of the government ministers and, indeed of the Cabinet of Ministers that approved this bailout proposal, which is directly in conflict with the basic tenets of good governance.
It is indeed shocking that the bailout of GK depositors, as proposed, is a top priority of this Government, especially of the Minister of Finance, in a situation where almost every day we hear that the Government is seriously short of revenue to meet current and recurrent expenditure for the economic needs of the country which should be the highest priority of any credible government.
The Central Bank’s annual report, apart from reporting the progress of the repayment plan for GK under different phases, is silent about the course of action to be taken against the chairman and directors. After seven long years since the collapse of GK, the assets of the company are only now being attempted to be identified on the direction of court.
It is the obligation of the Central Bank to publish a full account of the assets and liabilities of the company, as audited by Ernst & Young and to report the progress of the identification and proposed liquidation of the assets of this company, before it commits public funds to an unlicensed, unauthorised and illegal deposit taking company.
It is incumbent upon the Central Bank to publish a complete list of all the finance companies that have been recapitalised by it, how many depositors have, to-date, not been paid their dues, and what action has been taken, or is proposed to be taken, to make the directors of these companies accountable.
The Central Bank is seriously lacking in transparency in not reporting this information in the 2014 annual report. Was this information made available to the Cabinet of Ministers when the proposed use of Treasury funds to the tune of Rs.8.2 billion was recommended and passed?
It would do well for this government to see how the US government dealt with the Ponzi scheme operated by Bernie Madoff who was sentenced to 150 years in jail and where all the available assets of Madoff and of his family, including his wife’s mink coat, were seized and sold and approximately US$ 1 billion at least, was realised.
Are we to assume that there are members of the Cabinet of Ministers and of the Central Bank and their kith and kin who will benefit from this extraordinary interest taken by this Government to pay the GK depositors out of taxpayers’ funds?
Golden Key was an unlicensed, unauthorised, illegal, institution, which accepted public deposits through dubious means to evade regulatory capture. This was a well-known fact to all those who chose to risk their deposits with GK. The unrealistic high interest rates paid ranging from as much as 20 to 40%, made it evident that the company was luring depositors away from the licensed, legal, financial system, by offering interest rates well above the prevailing market rates, which few depositors found it hard to resist, including those with the financial savvy to know that the institution was fraught with risk and that these excessive interest rates were not sustainable. The company deftly manipulated every attempt by the Central Bank, over many years, to bring it under the regulatory umbrella. The ploy used was to project the deposits purported to have been solicited from the public, as advances for credit card facilities enjoyed from GK, which was one of the first companies to introduce credit card facilities to the public in Sri Lanka. Was this even a licensed activity at that time subject to regulation? Can non-bank, unlicensed, companies, issue credit cards?
Has any attempt been made to compute the interest these depositors have already earned on their deposits, which in most cases, may have exceeded their capital, when one considers the excessively high rates of interest already paid. They are therefore in a much better position than the depositors of licensed institutions, who have not been paid their interest or principal for many years.
The President should ensure that good governance is practised not only in words, but in spirit and that accountability which underscores good governance, is ensured above all else.
It is imperative that the Central Bank publish a full report of the action hitherto taken against all illegal deposit taking companies, to ensure that his government is not getting political mileage out of bailout plans for GK depositors, just prior to the forthcoming elections.
- A financial analysts