Business Times

Sri Lanka loses race in hedging payments

‘President personally assured that payments will be met’ – former SCB CEO

Sri Lanka lost a crucial verdict in London vis-à-vis the Standard Chartered Bank case (SCB) for denied payments from the Ceylon Petroleum Corporation (CPC) over controversial oil hedging deals but political analysts say even more damaging was a statement by former SCB CEO in Colombo, Clive Haswell.

Mr Haswell, at the centre of the controversy with SCB senior officer Rukshan Dias, in a statement to the British court has in the ‘overview of SCB’s business in Sri Lanka’ said that when he arrived in the country (in end June 2006) Sri Lanka was entering the final phase of the civil war that arose due to tensions between the “ethnic Tamil minority and the majority Buddhist Sinhalese.” He said, “in 2006, the Government was pursuing a military victory over the LTTE and its supporters which caused difficulties for certain Sri Lankan business people and some SCB customers and staff. The war also held up development by diverting resources and cash.”

He went on to say, in a ‘witness statement’ to the court that “whilst Parliament and civil society did function in the ordinary way, the real power in Sri Lanka lay with the Presidency and its inner circle was the primary concern of politicians. Though some parts of Sri Lankan society, particularly within the private sector, had a more modern outlook, it was rare for anyone openly to speak against this presidential power.”

Mr Haswell, currently SCB’s Chief Information Officer for the Middle East and North Africa, said in his December 21, 2010 statement that he was making it on behalf of SCB and detailed the events in the bank and outside that led to the hedging deals and its aftermath.

“It is fair to say that Sri Lanka had a reputation for corruption within the civil service and the political establishment, as reported in a Government effectiveness risk report from the Economist (magazine),” he said, adding; “This was an issue that coloured the business environment and as such, the bank sought to avoid its influence. As the Economist noted, the credibility of the judiciary had also often been called into question in the past.”

Political analysts raised the question whether it was correct for a current serving SCB officer to be critical of the Government, even though he was raising issues that the public is well aware of. “This could look bad on the bank as a whole,” one analyst said, adding: “individuals and/or foreigners have their own views on the country’s political situation and normally discuss this internally, however raising it in a public forum makes it an issue.” SCB officials in Colombo were unavailable for comment on Mr Haswell’s statement.

Mr Haswell also said that, at a February 2, 2009 breakfast meeting with President Mahinda Rajapaksa, the latter (President) had “personally reassured me and the Citibank CEO (Dennis Hussey who was also present along with Treasury Secretary Dr P.B. Jayasundera) about both the legitimacy of CPC’s hedge contracts and the Government’s willingness to meet its payments obligations. Specifically he (President) said that these were legal contracts and that he had no desire to fall out with international banks.”

Central Bank sources said SCB had appealed against the hefty fine of US$340 million imposed by the Central Bank earlier this year for violating foreign exchange rules in transmitting initial payments made by the CPC without permission. The appeal has been made to the Ministry of Finance while the Supreme Court has also been petitioned against the CB ruling.

These sources said an inquiry into six SCB officials including Rukshan Dias under the ‘fit and proper’ provisions is also underway. Mr Dias is one of the main officials who structured the deal whom the court said had a close (cosy) relationship with then CPC chairman Asantha de Mel but saw it justified on the grounds that it was his (Dias’) job as relationship manager to cultivate that kind of contacts with clients. Other banking sources said the SCB was likely to transfer these officials on foreign postings.

The SCB ruling could jeopardize the CPC’s hopes in two other cases (Deutche Bank and Citi Bank) where a similar payment rulings are likely. It was the Sunday Times that, in October/November 2008, exposed the flawed hedging deals handled by inexperienced CPC officials which has resulted in a huge payment claim. The opposition and others then took up the issue.

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