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How a multimillion-dollar loan dairy cow bid turned sour and left the industry high and dry
View(s):By Namini Wijedasa
Sri Lanka’s multimillion-dollar loan to buy dairy cows from Australia in a failed bid to boost local milk production was borrowed from a Dutch bank now at the centre of a money laundering investigation.
The Dutch Public Prosecutor’s Office or Openbaar Ministerie (OM) has announced that it would subpoena Rabobank U.A. as it had “structurally violated the Money Laundering and Terrorist Financing (Prevention) Act”.
“For years, the bank failed to conduct customer due diligence and report unusual transactions,” a statement said, adding that the investigation was prompted by a report from De Nederlandsche Bank, regulatory and supervisory body for the Dutch financial sector.
“The investigation focused on the period from October 2016 to the end of 2021 and “is in its final stage,” it continued.
Trincomalee harbour 2017: When the Australian ship with cattle landed
Rabobank has said it is fully cooperating with the investigation and has discussed an out-of-court settlement with the Public Prosecutor. It said there was a difference of opinion regarding a settlement and that the Public Prosecutor will present the case to the court.
Advance paid, no cattle
A scathing special report from Sri Lanka’s National Audit Office has revealed that in 2017 the National Livestock Development Board (NLDB) paid US$ 11,093,108 to an Australian company named Wellard Rural Exports (Pvt) Ltd as an advance for milch cow imports. This was over Rs. 1.7bn at the time, or Rs. 3.3bn at the current rate of exchange.
The sum was disbursed during the Yahapalanaya government as part of a “Diary Cow Importation Project,” initiated under the previous Rajapaksa administration. But the 15,000 cattle due to be imported under this phase were never procured. Neither was the advance recovered, incurring a massive loss to the government.
The agreement for this phase was signed in October 2014 between Wellard and the Economic Development Ministry, which was then headed by Minister Basil Rajapaksa. Initially, 5,018 cattle were imported in 2017. Another 15,000 were to be shipped to Sri Lanka by Wellard subsequently.
Serious concerns
The NAO points out that the government had awarded the contract to Wellard despite documented concerns regarding the outcomes of earlier cattle purchases from the company; and without initiating a fresh, open tender.
The US$ 11mn advance paid in 2017 was 15 percent of the total contract value, the NAO states. But only 2,500 cattle worth US$ 8mn were scheduled to arrive the following year.
Even by February 2025, Sri Lanka had not got the cattle and the government had “not maintained an acceptable security for the said advance”. “The opportunity to somehow cover the idle cost paid to a foreign company without any benefit was also lost due to the non-availability of advance security,” the NAO maintains.
The Auditor General reiterates that even farmers who obtained cattle under previous phases had faced “numerous problems.” A Cabinet memorandum was subsequently presented seeking financial relief for them.
Totally, therefore, the Sri Lankan government spent over Rs. 2.1bn, including forex loss, the report states, warning that interest expenses and further foreign exchange losses could be incurred in future when settling the loan.
Rabobank’s Sri Lanka connections
The advance of US$ 11mn was obtained from Rabobank U.A. as a commercial loan, underwritten by the Export Finance and Insurance Corporation (EFIC) of Australia, at an interest rate of five percent per year. There was a grace period of two years and six months. The repayment tenure was three years and six months.
But the agreement with Rabobank covered the total contract fee of US$ 73,954,054.83. By May 2020, US$ 18.4mn of the facility had been used to import 5,000 cattle under the first phase. The value of the phase in question was US$ 55.55mn, also lent by Rabobank.
It was also revealed to audit in official documents that the price of a cow under this stage was US$ 665 higher than previously imported.
The Sunday Times reported in March this year that the Dutch authorities were also investigating deposits made by a Netherlands-based healthcare firm involved in two Sri Lankan hospital projects into the offshore account of British Virgin Islands-registered company whose beneficial owner is a prominent Sri Lankan businessman.
The Dutch Fiscal Intelligence and Investigation Service (FIOD) targeted two companies confirmed by the Dutch financial daily, Het Financieele Dagblad (FD), to be Enraf-Nonius and AKM-International Project Development.
The Sri Lankan projects are hospital constructions in Hambantota and Nuwara Eliya, for which an agreement was signed between EN-Projects and the Ministry of Health in Colombo in June 2011. EN-Projects is a subsidiary of Enraf-Nonius of the Netherlands.
While probing possible fraud in the lease of land in Fort to Krrish Transworks Colombo (Pvt) Ltd, Sri Lanka’s Financial Crimes Investigation Division (FCID) stumbled upon several large deposits into the Singapore bank account of a company named Sabre Vision Holdings Ltd (SVHL). According to documents, its beneficial owner and account holder is businessman Wannakawattawaduge Don Nimal Hemasiri Perera.
Records revealed several payments were made into SVHL’s accounts from August 21 to October 31, 2012. And one of these deposits was from the Rabobank Nederland account owned by Enraf-Nonius (EN-Projects).
Wellard backs out?
In July 2021, Wellard wrote to the Sri Lankan government notifying that the agreement between the company and the Economic Development Ministry signed in October 2014 had been terminated and that the institution had also closed all its obligations thereunder.
Wellard claimed it had incurred losses in preparations to export cattle to Sri Lanka under the relevant phase including in the setting up of quarantine farms, signing of irrevocable purchase agreements for the cattle with farmers, carrying out veterinary and animal health inspections, and so on.
Despite all this, there was “many delays” on the part of the Sri Lankan government in obtaining approvals, Wellard maintained. Consequently, “all the selected animals had to be sold or disposed of at an additional loss.”
“It had further stated that during the delay caused by the failure of the Government of Sri Lanka to fulfil its contractual obligations, the initial financing arrangements between the Government, EFIC and Rabobank had lapsed,” the NAO cites Wellard as saying.
The company rejected the contention that US$ 11mn was an advance; and held that all payments had been made under a schedule in the payment contract.
Audit observations
Among the NAO’s observations is that evidence was not presented to show that clearance of the Attorney General was obtained for the original agreement between the Ministry of Rural Development and Wellard.
A Cabinet decision was not taken for the payment of the advance. Neither had the relevant Steering Committee discussed and arrived at a conclusion regarding it. The disbursement was made to Wellard on instructions to the lender, Rabobank, issued by Sri Lanka’s Treasury after the Secretary to the Ministry of Rural Economic Affairs gave the go-ahead to his Finance Ministry counterpart. (P. Harrison was the Minister of Rural Economic Affairs at the time).
NAO also notes that, while a disagreement had arisen between the two parties regarding the contract, there was no sign of steps being taken to resolve it through negotiations.
The Department of Animal Production and Health, Peradeniya—which quarantined pregnant cows imported from Wellard—had recommended by a letter dated February 2018 the cows were infected with bovine viral diarrhoea and fasciola hepatica, which could be transmitted to local cattle and people. It recommended urgent measures to prevent the spread of the diseases, among other urgent actions.
Nevertheless, the advance had been paid to import 15,000 more pregnant cows, the NAO states.
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