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• COMMISSION OF INQUIRY INTO ASPECTS

  OF THE

  FOREST INDUSTRY

  INTERIM REPORT No. 2

  THE GADAISU TIMBER PERMIT – ANGUS (PNG) PTY LIMITED

  PART ONE

• Page 2 of 70

• COMMISSION OF INQUIRY INTO ASPECTS

  OF THE

  FOREST INDUSTRY

  INTERIM REPORT NO.2

  THE GADAISU TIMBER PERMIT – ANGUS (PNG) PTY LIMITED

  PART ONE

  I

  January, 1988

• Page 3 of 70

• ( 3 )

  FOREWARD

  This Interim Report is divided into two parts.

  PART 1. This Part sets out in simple narrative form the history of the Angus group of companies’ involvement in the Papua New Guinea timber industry; particularly in the Gadaisu permit area of Central Province. It also sets out findings of fact relevant to the Commission’s Terms of Reference.

  An attempt has been made to keep the narrative free from technical and legal jargon and not to clutter it with the documentation which supports the findings. This docu- mentation is set out in appendices however, and there are frequent references throughout the text to these numbered Appendices.

  Part 1 includes also a list of matters which I have recommended should be referred to the Commissioner of Police and to other authorities for follow-up action.

  _ PART 2. The Appendices are a11 set out in Part 2 as a separate volume of this Interim Report. Most of the appendices consist of photocopies of some of the key

  documents which were tendered during the Commission’s hearings. Some appendicies however continue, and form an important part of, the Part 1 narrative and have their

  own schedule of supporting documents. I have adopted this

• Page 4 of 70

• – approach where the subject matter is a side issue which only merits a passing mention in the main text (such as liquor smuggling) or where the full expansion of the

  subject matter in the main text required the introduction

  of technical jargon (such as Transfer Pricing).

  The following appendices are of this nature and require careful study by those interested in reading the continuation of the narrative which on these topics

  has merely been introduced in Part 1.

  Appendix 8 – “Mani ulation of Sharehoidin s and Directorships in Angus’ ONG Subsidiaries”

  The manipulations referred to were complex and require

  a study of lawyers’ instruction sheets and various company

  documents. These are set out as a schedule to the Appendix.

  Appendix 35 – “Angus PNG’s Transfer Pricing Schemes”

  To adequately describe the way the Angus principals

  set about constructing and implementing their schemes

  for transfer pricing on various log shipments required reference to the relevant letters of credit, inter-company

  correspondence and financial calculations. It is a story in itself. After a general introduction in Part 1, the full

  detailed story of transfer pricing is told in Appendix 35

  with key documents attached as a Schedule.

• Page 5 of 70

• Appendix 39 . – “Allocation of Kupiapo Permit TP3-4 to Goodwood Pty Ltd – Some Key Dates”

  Although this Interim Report concerns inquiries into

  Angus some disturbing evidence was given in the closing stages of the Angus inquiry concerning the Allocation of a

  Permit to Goodwood over the Kupiano permit area. As this involved two key figures in the Angus investigation, Messrs E R Diro and 0 Mamalai, and’ as it occurred contem-

  poraneously, and also involved the Gadaisu permit area,

  it was given a brief mention in the ‘text of Part 1.

  Appendix 39 elaborates that text by setting- out key dates.

  The supporting dodumentaflOp is not appended as I hope to make the allocation’of the perMit . , to Kupiano/Goodwood Pty Ltd the subject of a separate report.

  Appendix 50 – “Apparant Liquor Smut:ft:ai m:

  The way duty free liquor was smuggled into Papua New Guinea on the Angus log ships is tenuously connected to the Commission’s Terms of Reference as an improper benefit which has been obtained by those involved in the timber industry. It receives a brief, passing mention in the text of Part 1.

  As there is evidence that this practice also exists in some

  other operations I have included a full description of the

  evidence uncovered in this Inquiry and a Schedule of

  supporting documents.

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• 1

  Appendix 51 .- “The’Jimuar Vehicle”

  The complicated story and documentary evidence involved in the importation and use of this Jaguar motor car has been elaborated upon in this appendix so as to avoid cluttering up the narrative in Part 1.

  T E BARNETT, COMMISSIONER.

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• (v)

  CONTENTS

  Page.

  (i) Foreward (i) – (iv)

  PART 1

  1. INTRODUCTION ……………………………. 2. EARLY ATTEMPTS TO EXPLOIT GADAISU FOREST …… 3 3. THE BIRTH OF ANGUS ………………………. 6 4. WORKING FOR ANGUS (SINGAPORE) …………….. 9 5. MINISTERIAL APPOINTMENT- DIRO’S DILEMMA …… 11 6. MANIPULATING MAGI:WOPfEN …………………. 13 7. THE ANGUS PROPOSAL ……………. 15 8. NEGOTIATING PERMIT CONDITIONS …………….. 18 9. OWNERSHIP OF ANGUS (PNG) PTY LTD ………….. 20 10. FINANCE PROBLEMS ………………………… 23 11. EARLY MARKETING CONSPIRACY — TRANSFER PRICING 24 12. ‘ REGULARISING’ ANGUS …………………….. 27 13. ON-GOING TRANSFER PRICE AGREEMENT …………. 29 14. TRANSFER PRICING PROPOSAL FOR SECOND SHIPMENT .. 34 15. F.I.C. MANAGEMENT – FIGHT FOR SURVIVAL …….. 34 16. CUTTING LOOSE FROM SINGAPORE ……………… 35 17. DIRO TURNS AGAINST ANGUS …………………. 37 18. THE TORATO APPROACH ……………………… 38 19. OFFICIAL MANAGEMENT ……………………… 39 20. THE ROLE OF EDWARD RAMU DIRO ……………… 40 21. RELEVANCE OF FINDINGS TO COMMISSION’S TERMS OF REFERENCE ……………………………… 50 22. POSSIBLE CRIMINAL AND OTHER OFFENCES ……….. 56 23. CONCLUSION ………………………………. 61

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• ( vi)

  PART 2

  List of Aopendices

  Appendix 1 Letter Diro to Mamalai 20-12-84 Appendix 2 Letter Gabina to Lucas Waka 25-07-84 appendix 3 Telex Cc’nstantinou to Mamalai 20-09-84 Appendix 4 Letter Vanuawaru to Lucas Waka 14-02-85 appendix 5 Telex Bougainville Development Corp. to G. Goldings :24-09-85 Appendix 6 Memo E Bates to Secretary DOF 08-10-85 Appendix 7 Letter Diro to Waka 14-10-85 Appendix 8 Manipulations of Shareholdings and Directorships in Angus’ PNG Subsidiaries Appendix 9 J Kasaipwalova’s “Newsflash” telex to Angus Singapore 21-11-85 Appendix 10 Details of Diro Companies Appendix 11 Kassman instruction sheet Appendix 12 Telex Kasaipwalova to PNG Ambassador Brussels 08-11-85 Appendix 13 Telex Cheah to Angus Singapore 26-11-85 appendix 14 Letter Magi Wc’pten to Secretary Dept. of Forests 02-12-85 Appendix 15 Minutes of Meeting Central Province Leaders 04-12-85 Appendix 16 Letter Mamalai to Cheah 20-12-85 Appendix 17 Memo Diro to Secretary D.O.F. 09-01-86 Appendix 18 Letter Kasai pwal ova to Mamalai 20-12-85 appendix 19 Memo to Secretary D.O.F. 24-12-85 appendix 20 Memo FAS Ops. to Mamalai 02-01-86 appendix 21 Letter Cheah and Kasapwalova to Secretary Dept. of Forests 13-01-86 Appendix 22 Memo Secretary to FAS Operations 14-01-86 Appendix 23 Memo Kar i to Secretary D.O.F. 17-01-86 appendix 24 Memo Secretary to Deputy Secretary 27-01-86 Appendix 25 Memo McNeill to Secretary D.O.F. 30-01-86 Appendix 26 Memo Kari to Secretary 04-02-86 appendix 27 Mamalai to A/Deputy Secretary 11-02-86 appendix 28 Letter Ka;aipwalova to Diro 25-02-86 Appendix 29 Telex Mamalai to Angus (PNG) 25-02-86 appendix 30 Telex Diro to Angus (PNG) 25-02-86 appendix 31 Memorandum Cheah to Chan Lang Wai 01-03-86 Appendix 32 Letter Magi Wopten to Diro 21-04-86 appendix 33 Fax Kasaipwalova to Cheah setting 17-03-86 out Questions in Parliament by Jack Genia, MP and Mr Diro’s answers

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• ( vi i )

  Appendix 34 Reports on inspections of Angus Operations Appendix 35 Angus Transfer Pricing Schemes Appendix 36 Travel Lodge Memo to Charlie Koh 17-08-86 Appendix 37 Letter Cheah to Ang 25-10-86 Appendix 38 Memo Mamalai to Diro 23-10-86 Appendix 39 Allocation of Kupiano Permit to Goodwood Pty Ltd – Some Key Dates Appendix 40 Letter to Sir Tore Lokr’l oko 10-02-87 Appendix 4! Memo Secretary DOF to Minister 18-02-87 Appendix 42 Secretary DOF to First Legislative Counsel 03-03-87 Appendix 43 Advice to Governor GenorAl 05-03-87 Appendix 44 Letter O. Mamalai to 13-03-87 Appendix 45 Angus (PNG) Pty Ltd – Statement of Affairs Feb. ’87 Appendix 46 List of , An06- Creditors Appendix 47 Notice to ShoW.taUse Appendix 48 Extracts from Mr 066dmay’s final submissions on behATI:of E R Diro Appendix 49 Minutes of Angus •PNG jMeeting 30-09-86 Appendix 50 Apparant Liquor Smuggling Appendix 51 The Jaguar Vehicle

  – 0 00 0 00 0 –

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• THE GADAISU TIMBER PERMIT — ANGUS (PNG) PTV LTD

  1. INTRODUCTION

  The Angus timber operation at Gadaisu in Central Province was selected for the Commission’s first detailed inquiry because it was a recently commenced operation close to Port Moresby and something had obviously gone very

  seriously wrong. Available evidence suggested that the Permit had been issued to Angus in a way which contravened

  forestry policy and the N.I.D.11. ‘Oct and that, during the operation, the resource had been severely damaged. There were persistent rumours also of ministerial misconduct, official corruption and transfer pricing on a large scale

  associated with the operation. After only nine months of operation, the company had gone into official management owing K1,600,000 with assets of only Ki93,000.

  all the company’s record would be freely available to the Commic:..sion as Angus .PNG) Pty Ltd was under official

  management and the Manager, Mr Graham Parker, had promised

  full cooperation.

  At the commencement of the inquiry I summonsed all , the business records of ngus (PNG) Pty tJ:d and Commission

  staff ‘Analysed them mot carefully. The documents studied

  supported thf. , tmours a. indicated very serious misi:onduct

  hv Mr P Di/o, the formcyr Minister tor i’ocests who at the .. mmenf:em9nt was minister for Foreign Affairs Rid leade, rct the rPonl..=!i, Aclion Party. Thev also sho , ,, ed , th,,kt thP- former r:iovernor General, Sir Tore Lok k)1“,), was involved as Chairman of Annus, that MY Gerard Kassman,

• Page 11 of 70

• former President of,the PNG Law Society had Hi. ,Ayid a significant rple, that Mr Oscar Mamalai, thn Se , retary of

  the Department of Forests, had questions to answer and that

  some notable foreigners would be implicated in the InquirV.

  For these reasons I directed that the roles of those

  key people be traced through the documentary evidence and

  that they be then made aware ‘of the nature of the evidence

  concerning them and that they be given an – opportunity to come forward. Consequently, at the comITTO,cement of the

  public hearings, the following persons – were. either notified . or given a copy of the Opening Address and invited to make statements or to bg represerfted-beforethe Commission:

  E R Dirt,

  Tan Sri Ghazali Shafei

  M A Ang

  J Kasaipwalova

  F C Cheah

  Sir Tore Lokoloko

  Gerard Kassman

  Only Sir Tore came forward voluntarily to assist the

  Commission. Tan Sri Ghazali Shafei’s lawver sought relevant

  transcripts and Messrs Kasaipwalova and Cheah visited the

  Commission and indicated statements would be provided but

  submitted nothing. Mr Diro came to be a major focus of the

  Inquiry because he was the former Chairman of Angus and was

  Minister for Forests at the material times. He was the only

  person who sought lea’,.? ‘o appear before the Commission. ,, Leave to appear by Couns l granted. He wa s firstly

  represenF,ed hy Mr peter ‘3teele and later by Mr Michael

  Goodman, 6 , it h Cl Steeles Lawyers.

• Page 12 of 70

• 2. EARLY ATTEMPTS TO EXPLOIT GADAISU FOREST

  Although there had been previous unsuccessful attempts

  to exploit the forests of Bonua-Gadaisu-Magarida in the

  Amazon Bay Area of Central Province this Inquiry has

  focussed on the attempts which were made from 1984 onwards.

  Attempt by Magi Wopten and Magi Manda:

  During 1984 there appears to have been a concerted push to gain the rights to exploit the Gadaisu forest area.

  There were two local contenders for the permit: a group

  known as Magi Wopten, which was being advised by the Member

  for Central, Mr E R Diro and a rival group known as Magi Manda which was being advised by Mr John Kasaipwalova.

  Mr Dino was then supporting the concept of the Timber Permit being issued to Magi Wopten Development Pty Ltd

  (Appendix 2). Amazon Bay Sawmilling and Timber Pty Ltd was already established (illegally) nearby at Magarida and it

  negotiated an agreement with Magi Wopten Development Pty Ltd to act as its manager and logging contractor to log Gadaisu.

  Amazon Bay Sawmilling and Timber Pty Ltd (supported by another local member Mr Jack Genia, MP) then assisted Magi

  Wopten to apply for a Timber Permit over the Gadaisu area. Although the timber rights purchases were not yet completed the political pressure was such that Minister Lucas Waka finally granted Permit No.TP3-17 to Magi Wopten in April

  1985. (See Appendices 2,3,4 demonstrating the political pressure). On receiving the State Solicitors’ advice that the permit was invalid, it was cancelled on 16 May 1985.

• Page 13 of 70

• Attempt by MOIC Investment Pte Ltd: ,

  The large Malaysian government supported, Malaysian Overseas Investments Corporation (M.O.I.C” (KL)) became interested in projects in PNG in late 1984. One of the projects suggested to it in February 1985 by the Deputy Premier of Central Province was the “abundance of timber , concessions especially arourydthe Amazon Bay”.

  At this time John Kasaipwalova. was . gl,aiming to be MOIC’s Cultural Consultant and he and.’MOTC’s Port Moresby manager, Foong Chin Cheah commenced the task of preparing the Magi Wopten4)eop1e4on,a partnership with MOIC to exploit their timber reS06r5e, Theaimwas to restructure – the Board of DirectorS of their 18cal fandowners company to achieve a Board favourably disposed towards MOIC. On 14 June 1985 Mr CheaWattended a .meeting of Magi Wopten Directors and Mr George ConS’tantinou of Amazon Bay Sawmilling and Timbers Pty Ltd at which it was agreed to release portion of the area previously tied to Amazon Bay Sawmilling and Timbers Pty Ltd for exploitation by MOIC. A deed of release was later drawn up by Mr Gerard Kassman, a lawyer then employed by Gadens, and executed on the 21 June 1985. The way was thus cleared for MOIC to submit

  a joint propos with MFtcli Wopten over the Gadaisu area.

  It vocv relevant that the third party mentioned in the- deed was MOIC investments Pte Ltd, a Singapore company which h;,d ,Jcppt . ly been formed by M A Ang, the Managing o 4 (MOTC (KL)). i he two companies had no legal connec n tholkgh MOIC In ,zestmots took advantage of market- confsion in the early 04ys to imply a non-existing r7 onnction wLth the preHl. -,iclious MOIL (KL). When he formed , the c:inwArio comptly M A Arm was on the -‘ercle of breakinq away from MOIC (KL).

• Page 14 of 70

• In July 1985, at a meeting in the Malaysian High Commissioner’s residence, Mr Somare appointed Mr Diro as joint head of a task force to help coordinate the MOIC (KL) projects in PNG – including the Bonua-Gadaisu timber project. From then on Mr Diro took a very active interest in promoting this MOIC/Magi Wopten timber operation.

  At that time Mr Diro was the leader of the political alliance known as the Papuan Independent Group and he was formulating plans for his political party which eventually was formed under the name Peoples Action Party. Mr Kasai- pwalova and the lawyer Kassman were LAter’to become active participants in that Party.

  On the 1 August, Mile Investments Pte Ltd and Magi Wopten Development Pty Ltd submitted• . a joint venture proposal to the Department of Foresi.s to exploit the Bonua- Gadaisu-Magarida timber area and to establisha follow-up agricultural project. The proposal itself had been prepared

  in Singapore and was brought into PNG by Deidre Low, a

  former employee of MOIC (KL) who had been recruited to work for MOIC Investments in PNG. The proposal put forward the

  concept of two joint venture companies.

  Company_ A was to exploit the timber and was to be predominantly foreign owned with gradually increasing involvement by Magi Wopten over the years.

  Company A. Ownership Years (Timber) MOIC M.W. 80% / 20% 1 – 5 75% / 25% 6 – 9 70% / 30% 10 onwards

• Page 15 of 70

• Company B was to manage the Agricultural project and was to be owned predominantly by Magi Wopten in the following proportions;

  Company B. MOIC / M.W. (Agriculture) 25% / 75%

  but for the first ten years MOIC Investments would be employed as Manager for a fee.

  Evidence of Mr Diro’s involvement ,can be seen from the fact that the MW/MOIC Joint Venture agreement dated 1/8/85 bears a signed notation:

  “I have read this agreement (Sgd) E R Diro E FRDIRO,, CBE, 0 S,TJ, MP ,

  MP for Ce ,ntral”

  3. THE BIRTH OF ANGUS

  While the proposal was being assessed in the Department of Forests the Malaysian Overseas Investment Corporation was

  failing in Malaysia and went into liquieation in September

  1985. In that same month M A Ang, who had finally severed his links with that corporation, registered Angus

  Investments Pte Ltd and Angus Trading Pte Ltd as the apex of the Angus Group of Companies, which claimed to have subsidiaries in Hong Kong, Nigeria, Malaysia, Thailand, Korea and England as well as in Papua New Guinea.

  In Papua New Guinea, Messrs Diro, Kasaipwalova and Kassman had joined forces with F C Cheah as active members

  of the Angus Group to be controlled from Singapore. Three Gaden’s shelf companies had previously been purchased, named

• Page 16 of 70

• Boomi No.93, Boomi 94 and Boomi No.96. On thf: iq :)c,)Lk,, ifi hpr 1985 these were renamed respectively Angus (PNG) |`’,7 y Ltd, Angus (Joint’Venture) ,Pty Ltd and Marine Resources Pty Ltd.

  They were intended to be subsidiaries of Angus Singapore.

  The evidence is quite clear that the initial

  shareholdings and directorships of these companies as

  at the 19 September was

  Angus (PNG) Pty Ltd

  Shareholders: .;` John Kasaipwalova Gerard Kassman 1 [witi“rust Deed in favour of Tamworth 35 Pty Ltd ,(Diro’s Company) and a Deed of Indemnity from Tamworth 35 in favour of Kassman as Director]

  Directors: John Kasaipwalova Gerard Kassman

  00(445 (Joint Venture) Pty_LtO

  Shareholders: John Kasaipwalova Gerard Kassman 1 [[rust Deed in favour of lamworth 35 Pty Ltd]

  John Kasaipwalova and Gerard Kassman

  Marine Resources Pty_Ltcl

  Shareholders: 6erard Ka man 1 [Trust Deed in favour of Tamworth 35 Pty Ltd] Tamworth 3 1:5 Pty Ltd

  L R and John Ka ,sainw ,-Aloa

• Page 17 of 70

• These were intended to be accepted

  Companies to – avoid the necessity of obtaining approval under the NIDA Act and to gain the more favourable treatment afforded to National Companies in matters of resource allocation and development. Subsequent manipulation of

  share issues however show that there was always an intention to have a secret majority foreign ownership situation. (See Appendix 8)

  The potential importance of Mr Ted Diro’s political

  connections for the Gadaisu timber operation was highlighted when Kasaipwalova telexed Cheah in Singapore on the 24 September 1985 when Central Premier Kone Vanuawaru won a ‘Vote of No Confidence’.

  “Kone Vanuawaru has won the vote. Ted in control of Central Provincial Government. Abau (Gabina) nominated Minister for Forestry.”

  From July to October, Diro’s links with MOIC

  Investments/Angus grew wider and deeper. In July-August

  Diro received considerable fin ial assistance regarding the purchase of a second hand jaguar motor vehicle.

  Mr Diro’ ev i dence reqardinq ownorship of the vehicLe was

  and remains, very confusincl. Under cross examination he , (handed his -. 17: r ry to fiL the facts beinci presented to him by Counsel Assstino. Intorpreting the evidence in the way

  most ta. ,, ourhe t^ Mr OLi0 dlthough it is that he paid the defosit (throltoh one Hardv Lee), MO1C defimtely paid th:, hali4n , L e apicrt .j.olatetv t”.j,”700 and K3,000 for , repair J4rd new hub cap ,; i0″. well ae ha)1 the frelqht charne.

  it’ 1: , 4f)peried, it is that MOTC [ald out aLiout K10,0’m ai least or. Mr Dl`’`’ behalf. (Thu , detailed , r,: deni:e and d:Dcumens are set out dppePcilx

• Page 18 of 70

• Mr Diro was by now strongly cofflmittod NMIL

  Investments/Angus by way of shareholding and dilectol , Thip

  in its PNG subsidiaries and by reason of substantial

  benefits received and other business connections. For

  instance Mr Diro’s company Tamworth No 35 rented its

  apartment No.306 Pacific View to Angus for K400 a month and

  Angus Investments was beginning to make various payments on

  his behalf (and see Appendix 5: Fuel Oil tender in joint venture proposal with HOW for BBC. At this time Mr company TamNorth No 35 was to be renamed INDEC PTY LIMITED),

  Despite the apparant conflictof illt6rest he now accepted also a written authority to “represent the Magi

  Wopten people in securing Forestry’s acceptance of its joint venture proposal with MOIC Invesfii)ents.

  This proposal was in fact being assessed very unfavourably by the Department of Forests as being vague, lacking in details of financial aspects, contrary to

  the 1979 Guidelines, lacking reafforestation or firm agricultura] follow-up proposals and unfair to

  Magi Wopten. (4ppendix 6 – Memo of 8 October 2985).

  Despite Mr Diro’s letter of the 14 October 1905, which

  strongly supoorted the proposal. (Appendix 7) the proposal

  was rejected t .1 October 1985.

  4. WORKING FOR ANGUS_CSINGAPORE,

  t – 21 – zt 0. — ted .) er Dir1 travelLi,?d to Vankit:.0 . an0 ‘ ..ydnt…?v, at 1 r:1. 1 air s expense thfh, , r;awc. AriCA W.F, PI : Ltd and presum:Ablv, to P 1 .1 1 :q 1″1 t r On 1 . , I 1 ‘ IC i • hr 1 I ,”(is x/1

• Page 19 of 70

• office at Gadens and the companies were

  bring in a degree of overt foreign ownership. wa,

  done in the ‘cases of Angus (PNG) Pty Ltd and Anqus (Joint

  Venture) Pty Ltd by issuing one share to the Malaysian

  citizen F C Cheah. To qualify as a national company under

  the N.I.D.k. Pet it is necessary to maintain 75% overt

  national ownership. To achieve this poportion an additional share was issued to Diro’s Company Tamworth 35

  bringing the total number of issued shares in each company

  up to four. For Marine Resources Pty Ltd ,it.,was decided to

  bring in two foreigners F C Cheah and a Vic:tor Lee each”of whom were issued one share. To maintain 75% national ownership in this compapy,,,it was necessary to issue a total

  of six shares to natioh’als:-: This was done by issuing three shares to John Kasaipwalova and one new 2share was issued directly to Tamworth 35. Mr Cheah wasMade managing director and Mr Diro chairman of Directors in all three companies. The full history of this and Subsequent changes

  to shareholdings and directorships in these Anqus companies

  is set out in Appendix 8).

  The instructions for these changes were given to lawyer

  Kassman by Kasaipwaiova. All the necessary documents were

  prepared anr1 forwarded by Kassman to Kas&ipwalova to be

  kept f,n the various corporate registers. (A copy of the

  documents prepared in relation to Angus (PNG) Pty Ltd is

  attached as Xippendix 8.03). Before the Returns concerning

  the 1 November 1905 gene,.al meeting were filed at the

  Company’s Office, howeve, – there was a change of government.

• Page 20 of 70

• 5. MINISTERIAL APPOINTMENT – DIRO’S DILEMMA

  On 21 November 1985, Mr E R Diro was appointed to

  the Ministry of the Wingti Coaliation government and on 27 November he was appointed Minister for Forests,

  to the obvious delight of his associates at Angus

  (See Kasaipwalova’s and Cheah’s telexes in November – 10pendices 9 & 13).

  Mr Diro now faced a moment of choice. He had become Minister for Forests at a time when he was already heavily involved, originally with MOIC Investments Pte Ltd, and now with the foreign owned Angus Group of Companies. He had already received substantial benefits from MOIC/Angus in the form of assistance with the jaguar motor vehicle,

  payment of vehicle repair bills and diners card expenses. Only a few days before he had become Chairman of the three Angus subidiary f_ompanies in PNG and, through his company Tamworth 35, he was legal and beneficial owner of shares in those companieF,. Angus was renting his Pacific View

  Apartment (through Tamworth 35) and he was hopeful it would rent his duplex in Moonbi 9treet (owned by his Company ,. Tamote House Pty Ltd). ; 3 ,E.E. Pppendix 10 for details

  of Diro’s curopanic:5), He had already made a trip to Vanuatu at Thiair expense but on Angus’ business and he

  had esth11 ,:,(/Pd close business and personal relationships 4 . ki4J 6 Anciw; principaLs; M A And and Tan E; i Ghazali Shafei. , ( Throug Talift). ct.h 35 to be renamed INDEC) he had tendered

  for a fuel oLl 5u,3ply contract with Boudainville Copper Ltd.

  This w;.1 to he a jcilnt venture with MOIL Investments Pte

  Ltd but came to n , Ahinci as their tender was too high

  (Xlppepdic 5 & II – Kass:pa 1D5tract3op .sheet/^ He was

  als« involvd with the proposed purchase of Mamai E s tate as

  also indicated in Pppepdix 11,

• Page 21 of 70

• Other deals in the pipeline involvinq Mr ot MOIC/Angus included an agency arrangement for

  firm manufacturing vehicles under the trade name “Roman”.

  This project was being pursued in conjunction with

  Bougainville Development Corporation then under Leo Hannett

  as Chairman (Appendix 12).

  Mr Diro knew that MOIC/Angus was committed in its

  endeavour to exploit the Bonua-Magarida-Gadaisu timber

  concession. As Minister for Forests he was now bound, , under Section 6 of the Organic Law on the Duties and

  Responsibilities of Leaders, to sever his links with Angus and to disclose the whole situation to the National Executive Council and to the Ombudsman Commission.

  “Section 6. – Personal interest.

  (I) A person to whom this Law applies who fails to reveal to the Ombudsman Commission and the appropriate authority the nature and extent of his interest, or the interest of an associate, in a matter with which he has to deal in his official capacity is guilty of misconduct in office.

  (2) A person to whom this Law applies –

  (a) who, or an associate of whom, has an interest in a matter which he has to deal with in an official capacity and

  (b) who does deal with that matter ( whether by vntjnq on a question concerning it or otherkuse),

  .F] object to Subsection (3), quiltv of miscon- duct in officc:.”

  On the other hand he also knew that as Minister for

  Forets ho would be in a position to substantially assist

  Angus to :;cquire , the Gadaisu Timber Permit and to become a

  very prof0:able enterprle.

• Page 22 of 70

• Despite Mr Diro’s cover-up and blocking tactics throughout this long inquiry the evidence clearly shows, and at the end he finally admitted, that he chose to retain, and in fact to increase, his beneficial ownership in Angus, to hide that fact by a series of trust arrangements, and to

  make no disclosures to anyone. To clean up the public record Mr Diro resigned as Chairman of the Angus (PNG) subsidiaries but he continued to receive substantial benefits. He also began actively to use his position as Minister to promote the interests of Angus (PNG) Pty Ltd.

  6, MANIPULATING MAGI WOPTEN DEVELOPMENT PTY LTD.

  The Angus Group immediately appreciated the importance to it of Diro’s appointment and realised that it put the group in a very favourable position, but that Diro would now have to “maintain a very low profile” in company affairs (Appendix 13 Cheah notifies lingas HO). Instructions were sent to all Angus offices in other countries to delete all reference to Diro’s name. From now on he is referred to in Angus Group correspondence and documents as “Andrew” – a codename which Mr Diro ultimately admitted referred to

  him.

  On the 2 December 1905 the Chairman of Magi Wopten

  wrote 1-1E? Dep ar tment with a new sense of confidence and in untypicafly correct landuade, surldestlnq perhaps the

  penfflor,;H – . c of johri Kasaipwalova of Anclus (i4ppepdlx 14). On the 4 December, at a meetniQ in Mr Dir . ‘ s office attended

  ,. bv the :.s. ac etary of the Depa(tineht of Forests, Mr Mamalai, – the HE,! , niec, CprarA Prc.vini e, Mr 6enla, the national member for Abau ele riAte, prcJvincia[ membecs, J Kasaipwaiova,

• Page 23 of 70

• 7. THE ANGUS PROPOSAL

  The pr o – I.; o sal which was prepared by Angus was basically the previously rejectedMOIC proposal verbatim except that

  the company details of Angus (PNG) Pty Ltd. and the Anqus

  Group were substituted for those of MOIC Investments Pte Ltd. Another difference was that in the Anqus proposal the

  permit holder was to be Angus (PNG) Pty Ltd itself not a joint venture company with Magi Wopten Development Pty Ltd. The function of the joint venture company seemed to have been forgotten. (Angus (Joint Venture) Pty Ltd remained a

  shelf company until August 1986 when there was an attempt

  to activate it for the purpose of transferring to it some

  K550,000 book debts owed by Angus (PNG) Pty Ltd).

  While the Department was urgently trying to find out some details about Angus (PNG) Pty Ltd, and assessing the

  proposals, Mr Diro and his wife Veitu Diro accepted an

  invitation by Angus Singapore and flew to Singapore and

  Malaysia with the new Angus PNG Chairman, Sir Tore Lokoloko,

  at Angus’ expense. ( Mrs Diro did not travel to Malaysia).

  In Port Moresby the senior officers assessing the Angus

  proposal were unanimous in their recommendations that it

  must be reject e d. They pointed out that Anguu 0:’11(3) Pty Ltd

  was not known and not preregistered with Forestry. Another

  was that b(,, on planned that Gadaisu should

  be allo.:ated to Ulabo Timber Cc:impany, a Forest Development , C:o povaic.n …) hich was rapidly cunning out of resource on an

  adjacent conceion c.”..; ppndix Z2), (Appepdix 20),

• Page 24 of 70

• 16

  Three – day’s after his return from Singapore Mr Diro, on the 9 January 1986, directed Secretary Mamalai to “take

  immediate steps to issue the Timber Permit in due course”

  (Appendix 17) and, in his evidence, Mr Mamalai swore that he accepted that as the Minister’s final decision. Diro’s direction was issued four days before Angus’ proposals were

  even received by the Department. (appendix 21)

  When the proposal did arrive Mamalai made it clear to

  his staff that a permit’woul4 be issued firstly over the – . Gadaisu TRP area only, but that the Bonua-Magarida area

  would be included when purchases were completed. (appendix 22).

  The staff found the proposal quite unsatisfactory for

  a number of reasohs.,and again, recommended that it be

  rejected, (appendix 23) but Mr MaMal0 persisted in his intention to issue the permit (kppiindi* 24). On the 30 January the Secretary received a detailed report from senior officer McNeill setting out compelling reasons why

  the proposal should be rejected, as it failed to comply with the 1979 Policy Guidelines in many respects:

  (a) Angus (PNG) Pty Ltd had no experience

  or expertise;

  (b) There were insufficient details of

  financial status;

  (c) There was vagueness about structure

  and contracting arrangements;

  (d) Angus was not registered with Department of Forest. (14ppendix 25)

• Page 25 of 70

• 1. ‘7

  Mr McNeill noted the fact that the proposal showed that Anthony Diro, was a 35% shareholder in Angus ( PNG) Pty Ltd and that hi had queried this on the 29 January by telephone with Kasaipwalova and Gadens, Lawyers.

  On 4,February the Secretary received another report from acting Deputy Secretary Kari (Appendix 26) which pointed oUt that the Angus proposal , fell far below the ideal. He said that the idsealwouLd_i- hclude a large sawmill, follow up landuse or rkihff Ation and clearly – defined infrastructure requirements pe&ilying an extension oil the Magi Highway, with bridges and feeder roads to villages. Mr Kari .supported i McNeill’s criticisms and his Minute provides a 600d *afiMent of Forestry Policy as it should have worked in “relation to ttiis application. He also commented on the Minister’:poSsible conflict of interest regarding Anthony Diro’s shares. Mr Kari also objected to the fact that the proposal was not for Gadaisu only but also for Bonua-Magarida which he felt was forcing the Department to wrongly allocate that additional resource.

  Mr Mamalai’s difficulty in reconciling the Minister’s decision (that the permit be issued) with the department’s correct, but contrary, view is obvious from his Minute of

  11 February 1986. (Appendix 27) which directed that a Permit in favour of Angus (PNG) Pty Ltd be prepared,

  incorporating some of the additional matters suggested by his staff. His attempt to justify his direction, put at its hicihest. seems to be pure waffle.

• Page 26 of 70

• •i 3

  S. MCGOTIATINS PERMIT CONDITIONS

  Having decided, on very dubious grounds, that the permit would be issued to Angus, the Secretary now proceeded to conduct the detailed negotiations with Angus in a way which was most unusual. Firstly he took the task upon himself, bypassing the staff who would normally have performed the det a iled work. Secondly he conceded almost every point pressed by Angus and finally he allowed the final permit document to be typed up outside the Department under Angus’ supervision. The final version was then given to the Minister by Kasaipwalova for:signlnq before being proof-read by the Secretary. The Minister signed without the Secretary being present and eventually a copy of the signed permit was delivered to the Department by Mr Kasaipwalova. The original permit was found amongst the Angus files produced to the Commission on summons.

  During the negotiations, while Minister Diro waS being briefed and consulted by the Secretary, the Minister was

  also in regular, secret, contact with Mr Kasaipwalova.

  Even at this early stage the financial difficulties of Angus : PN3) Pty Ltd were acute and, for this reason, its

  principals were already trying to sell off 20% of the equity

  to foreigners, in order to raise working capital to get the

  operation started. They were negotiating with several parties, including a party in mainland China, and in order to emphasise the financial attractiveness of the Angus

  operation Angus successfully persuaded both Mamalai and

  Minister Diro to telex the intention of adding Bonua- Magarida tk) the concession in the near future. (Appendix

  In his evidence Mamalai said that he tried to make his telex sound 13ke a “less than full commitment” (Appendix 29) but N. Di – c had no heitation in making a full commitment 30. Oh 1 Mar,:h 1986 F C Cheah immedlate1Y

• Page 27 of 70

• 9

  brought the telexed decision to extend the Permit to the attention of Angus (Hong Kong) in order to help in the negotiations for Chinese capital. The Gadaisu area was expected to be cut out in five years but by claiming rights over Bonua and Magarida Cheah was able to offer a thirteen year operation to potential purchasers. This was the basis for his calculations in the 1 March facsimile message in which he proposed a price of USD3 million for the sale of 20 percent of the equity in Angus (4ppendix 31). On 24 April 1966, in a letter most probably drafted and typed by Angus, Magi Wopten referred again to the two vital telexes in a letter to Minister Diro, requesting him to include their subject matter “in a clause of intent within the Timber Permit No.3-22”. (4ppendix 32). On the back of the Magi Wopten letter Mr Mamalai scribbled out a draft of the clause which was later included in the permit in accordance with this request.

  The fact that both the Minister and the Secretary were well aware of Angus’ financial plight, which was obliging it to try and sell off equity to meet commencement expenses, is yet another reason why the permit should never have been granted to Angus (PNG) Pty Ltd.

  The reasons for Mr Dirci’s determination to grant the permit to Angus are easy to see. He was a 35% beneficial owner of the company and, as will be shortly shown, he held very high hopes of making a great deal of profit for himself

  personally and possibly, as he later claimed, for his

  political party. If it is true, as he now claims, that he

  also had high hopes of benefiting the Magi Wopten people, I can see no evidence of it. In fact the evidence suggests

  he was party to the reckless destruction of their forests, by virtue of the logging practices adopted, and party to a plan to systematically cheat them of their rightful profits, by the marketing schemes adopted.

• Page 28 of 70

• It is not sO4asy to decide upon th* , (T,6tives of Secretary, Otcar Mamalai, who seems to have been unusually compliant. As a professional forester and head of the Department he was under a duty to put the professional view strongly ‘to a new Minister. 046it 16’,stage does he appear to have done this.

  The permit was eventually signed by Mr Diro on the 29 April 1986.

  4

  , •,, Ok, OWNERSHIP WV ),PTY LTD ‘

  9. –

  ` ft:;0„

  A great deal of theCommis*VOOs time was spent in ° backgrbund investigations ‘irid:Oublic hearings trying to establish the beneficial ownership of the Angus companies especially the permit holder Angus (PNG) Pty Ltd, which was also the logging and marketing company until this role was eventually taken on by the Forest Industries Council and its appointed contractor Santa Investments Pty Ltd.

  The fact that the original pruprisal showed on its face that Mr £ P Diro’s broth(q – Anthony held 35% of the shares raised the prIsibality that this bloc1 was actually held in trust h 1’ Diru himself or for nne cut his companiet:. , The Department queric. d Anthony Diro’s holdlngs because of a possihiP conflict interest for the Minister.

  Mr Diro’s sworn .,, vidence about the 3nclusion Anthony nirli’c; name in the propos,Al walk that when he ‘saw it hf. 4:, urprised and angry. He swore that he directed 1-asalpwal A/a and Mamalal to ‘remove his brother’i – namEa.

• Page 29 of 70

• 21

  Right up until the last few days ofthe”public hearing he maintained, on oath, that he held no,Oterest legal or beneficial in Angus (PNe) Pty Ltd. The*Oimission summonsed Sedan’s files and lawyer G Kassman’s files to try and uncover the true situation. When confronted with the evidence from these files Mr Diro finally admitted that 35% of Angus (PNG) Pty Ltd shares were indeed held by Kasaipwalova in trust for him* r 4 r 4

  The result of the painstakistayresearc rough those files disclosed what had happined SO- tleatiAlhat there was” really no room left for evasi;061k and ‘411 4s. The embar assi ng question by the uoirtOtaritcpised Kassman to , rewrite the Minutes of the 1 Novembe4Okitting and the fh associated companlcdocr qtli,to show Anthony Diro’s 35/. shareholding. Even dittObOMOieammAngqmpstions ‘ were asked 0 01 “4 b by Mr Jack eenia in Palqtamtint OntVitt;rigli’March 1986, including a question abotrWAngus’ eholders which threatened public disclosure of the improper connection between the Minister and Anthony Diro (Appendix 33 which includes Mr Diro’s answers). Mr Genia’s questions caused a flurry of activity as recorded in Kassman’s file from Gadens. After unsuccessful attempts to contact Diro and Kasaipwalpva on the 19 March, Kasaipwalova was contacted on 25 March and Kassman was instructed to hide Minister Dirols shares under deeper cover “Delete Diro Anthony in total”. The Minutes of the 1st November 1986 were re-written yet again to delete all reference to Anthony Diro. This version of the 1 November Minutes also recorded the appointment, at that meeting, of Sir Tore Lokoloko an a director and Chairman of the Board, though this clearly must have happened at a later date.

• Page 30 of 70

• I

  The Return of Allotment of Shares and Partie – ularT,

  of Directors, etc, which eventually found its wav to the

  Registrar of Companies was this third and patently false version pripared by Gerard Kassman on the instructions of J Kasaipwalova and forwarded to the Registrar on 25 March 1986. (appendix 8 sets out the full story of the manipulation of shareholding in Angus (PNG)).

  On the last day of the Commission’s public hearing into Angus, through his Counsel, Mr Diro made the following admission about his beneficial interests in Angus (PNG) Pty Ltd.

  “Secret retention by Mr Diro of a block of shares being 357. of the issued capital of Angus (PNG) Pty Ltd … Mr , Diro concedes that this allegation is substantially true subject to the qualification that the block of shares was for the use of the party.”

  I find as a matter of fact that at all material times the percentage beneficial ownership of Angus (PNG) Pty Ltd was as tollows:

  Angus Investment Pte Ltd (Singapore) 51%

  direct 20% Kasaipwalova (& later Sir Tore) in trust 317.

  E R Diro (held by Kasaiowalova in trust) 35%

  J lasaipt,, alova 5%

  F C f:Theah (a Malaysian it 9% Oirc? , : t 5% )Llid by VialpwailDva in trust 47. 100%

• Page 31 of 70

• -5′ 22 c_

  The Return of Allotment of Shares and Partii – uiar,

  of Directors, etc, which eventually found its way to the Registrar or Companies was this third and patent]y false version prepared by Gerard Kassman on the instructions of J Kasaipwalova and forwarded to the Registrar on 25 March 1986. (4ppendix 8 sets out the full story of the manipulation of shareholding in Angus (PNG)).

  On the last day of the Commission’s public hearing into Angus, through his Counsel, Mr Diro made the following admission about his beneficial interests in Angus (PNG) Pty Ltd.

  “Secret retention by Mr Dire of a block of shares being 35% of the issued capital of Angus (PNG) Pty Ltd … Mr , Diro concedes that this allegation is substantially true subject to the qualification that the block of shares was for the use of the party.”

  I find as a matter of fact that at all material times the percentage beneficial ownership of Angus (PNG) Pty Ltd was as follows:

  Angus Investment Pte Ltd (Singapore) 51%

  direct 20% Kasaipwalova (& later Sir Tore) in trust 31%

  E R Diro (held by Kasai pwal ova in trust) 357.

  J Kasaipwalova 57.

  F c Cheah (a Malaysian citizen) 9% djro=7t 5% held by le ,asaipwalciva in trust 47. 100%

• Page 32 of 70

• Thus, when the Gadaisu permit was issued, Angus was 60% foreign owned and should have been registered with N.I.D.A. and 35% of thecompany was held at the direction and use of the Minister for Forests through J Kasaipwalova.

  1 0. EMANGLAUBLIRS

  The scheme to sell off twenty:percent of the equity came to nothing and Angus PNG was tacing a desperate liquidity problem. It was having difficulty meeting basic requirements such as the payment of wages, insurance on equipment and the K76,000 guarantee required by the Department of Forests as a condition of the permit. Angus Singapore itself was now;Jacing a financial crisis also and, far from being able to lavishly finance the initial expenses of the PNG operation, it was already beginning to look to Angus (PNG) for financial assistance.

  Angus’ first attempts at running a timber operation were not successful. The Company had no road construction skills and it followed no forestry working plan. Early reports by Forestry Inspectors show that the logging techniques caused great wasteage and environmental damage. This was made worse by the fact that they were threatened by fear of imminent financial collapse both in Singapore and Papua New Guinea. To keep its creditors happy Angus needed large profits from log shipments quickly. To achieve this

  its operators chased after pockets of the highly priced

  rosewood wherever they were reasonably accessible and left the less valuable species. As a consequence the timber

  resource has been badly and unnecessarily damaged. (Appendix 34). To gain quick access to a site for the log pond the company bulldozed Sabiribo Village from its peaceful situation on the beach and left the people to

• Page 33 of 70

• i= ,

  rebuild a temporary “shanty” village perched on bare

  hillside. In the process the church was destroyed, graves were desecrated and the pastor’s house was occupied by the company as its headquarters. The company has not honoured its promises to rebuild the village on a suitable site and to provide it with electric power and reticulated water.

  In order to survive, Angus desperately needed to start receiving log payments. It was crucial that the logs could be harvested quickly and that marketing could be arranged satisfactorily. While the expatriate Malaysian and Philipino operators floundered in mud on poorly constructed roads, the headquarters people from Port Moresby and Singapore planned the marketing.

  1 1. — • – Y MARKETING CONSP R V — T AN FE ICI (First Shipment)

  _ It is quite clear from the documentary evidence that from the very early days of the Gadaisu timber operation there was a conspiracy between M A Ang, Tan Sri Ghazali Shafei, F C Cheah, J Kasaipwalova and, once he joined the group a bit later, Charlie Koh. The conspiracy commenced with the very first contract and it involved transferring USD10 of the true priY:e per cubic meter, across the total contra0;ed shipment, to Angus Singapore.

  The speclfic details of this and other transfer pricing sheme!1, on subsequent contracts are set out in Pppendix 35 which includes scheduiel,, of documents ro7,ated

  to each scheme.

• Page 34 of 70

• At the beginning of operation Angus ( PNG) Pty Limited

  attempted to manage the loggingo:peration and to do its own marketing. There were several ttintracts entered into – all with the Japanese firm Sanyo Nagoya.

  Angus’ inefficiency however resulted in there being a shortfall in making up the first contracted shipment. This caused a delay and in’ fact the first shipment did not finally load until October 1986, and it loaded under the terms of the second c6ntract;.-

  The simple basis of the scheme for transferring part of the profits on this contract was for Angus (PNG) Pty Ltd to receive in PNG a modest price based on the minimum export price per species (MEP), as published regularly by the Department of Forests. The actual price paid however would be far higher than that, but the difference between total price and PNG price would be paid to an account in Hong Kong. The potential for transferring such profits was greatest for Rosewood because there was a great difference between MEP for Rosewood and actual market price. Rosewood thus formed the basis for illegally transferred profits from the first shipment.

  For this first shipment the scheme involved using

  back to back letters of credit and back to back invoices. The letter of credit and the invoice between Sanko and the

  proposed middle company showed the true agreed price of

  Rosewood at USD161.25 per m3 whereas the letter of credit

  between the proposed mid , Ile company and Papua New Guinea showed USD117 por m3. loe difference t be taken offshore

  USMY..) 7 41-1.7b9. The letters of credit were already in place from the first, not yet fulfilled, contract and merely

  needed adjusting.

• Page 35 of 70

• 26

  A problem for Angus (PNG) Pty Ltd occurred when Charlie Koh, the Angus Group Manager in Singapore, decided to intercept. the advance money due to Angus (PNG) through the Bank of South Pacific. The whole arrangement had been set up by three way negotiations between Angus (Singapore), Angus (PNG) and Sanko and this is manifestly obvious from studying Angus files. (See exalples in Appendix 35) Koh arranged for the full USD300,000 advance, which Angus (PNG) was awaiting in PNG, to be telex transferred to the account of Angus Trading Pte Ltd at the Bank of Credit and Commerce Hong Kong. He then creamed off USD200,000 and forwarded on only US100,000 to Angus (PNG). This left the Bank of South Pacific over-exposed as it had already allowed Angus (PNG) overdraft accommodation to K350,000. This “treachery” by Angus Singapore brought-forth,a heartfelt cry from F C Cheah to Chairman M A Ang in whicW,har accurately summarises the financial straits of Angus (PNG). (Appendix 35.25).

  To save the credibility of Angus (PNG) Pty Ltd with the banks, and in fact to save the company itself, Tan Sri Ghazali Shafei established a personal credit line of USD150,000 with the BCC Hong Kong which then made the necessary advances to Bank of South Pacific Port Moresby to cover its advances to Angus (PNG).

  The result of all this was that the Transfer Pricing scheme worked and a tax free profit of USD59744.644 was taken in Hong Kong by Angus trading Pte Ltd. This was later set off against the debt owed by Angus (PNG) Pty Ltd to Angus (Singapore).

• Page 36 of 70

• k • 12 – ‘ ROW* VW WINOs While n6gotiatibns were continuing to get the first shipment away a substantial re-arrangement or as Ang expressed it, a “regularisation” of Angus (PNG) was being planned by M A Ang and Charlie Koh in Singapore.

  They came to Port Moresby on the 15 August 1986 and while Koh proceeded on to inspect the operation at Mamai, Ang remained in Moresby at the Travelodge. This was just after Angus (Singapore) had intercepted the USD300,000 advance expected by Angus (PNG) Pty Ltd and feelings were very high. Ang came to remove Kasaipwalova as Company Secretary and to replace him with Gerard Kassman. He also wished to transfer the 31% of shares which Kasaipwalova held for Angus (Singapore) to Sir Tore Lokoloko to be held in trust for Singapore.

  Mr Ang held meetings with Kasaipwalova, Sir Tore Lokoloko and Mr Ted Diro and, while at the Travelodge, wrote a memo to Charlie Koh setting out the substance of the agreements and the instructions which were to be given

  to 6erard Kassman. The full text of the memo was as follows:

  “17/8/86 Charlie,

  Andrew, myself, John K & F.C. Cheah agreed to appoint Gerard Kassman as our Company Secretary. (He is now a director of Anqus PNG) and appoint TOUCH ROSS as our Company Auditor.

  At present Anqus PNG shares are:-

  1) Angus Investment Pte Ltd 20% 2) F C Cheah 5% 3) John 75%

• Page 37 of 70

• 28

  Please instruct Gerard Kassman to re-issue share as followsi-

  • 1) Angus Investment Pte Ltd 20% 2) F ,C Cheah 5% 3) John K. 9% 4) John K. – (This to hold for Andrew, John K. will let us have the blank transfer form & Share Certificate to retliOct-:25%) 357

  5) Sir Tore 31% (ThOseistollitild for Angus Inviiitmeht Pte Ltd & Sir Tore wilL let us – have the blank Shar*.Certificate to reflect 31%)’- Charlie, we need also both John K. & Sir Tore to effect the trust deed of these shares of 35% & 31% respect- ively.

  Kindly study with F.C. Cheah & John K. on the day to day policy of Angus PNG to conform with local law and to keep in line with Angus Group policy.

  SIGNED BY:

  M A ANG F C CHEAH JOHN K.”

  This memo is clear evidence of the beneficial ownership of Angus PNG Pty Ltd and specifically highlights Mr Diro’s 35% held by Kasaipwalova for him in the Code name “Andrew”. The document is clearly genuine, is signed by Ang, Cheah and Kasaipwalova and was in fact acted upon. (See photocopy at Xlppendix 36). Mr Diro admitted in evidence that he did meet Mr Ang at the Travelodge on the morning of the 17th but denied that they discussed the subject matter of that memo except for some discussion about replacing Kasaipwalova with Kassman as Secretary and appointing Touche Ross as c auditor. On the other hand Sir Tore Lokoloko swore that Anq gave him the original of the memo and that he discussed it with Diro the same day

• Page 38 of 70

• over “lunch” at the I lander Hotel poolside. All;hounh )tro

  later denied that con ersation Sir’Tbre was never r.ro ,Ls- examined or thallenge on it. I ha ■)e no hesitatton in accepting Sir Tore’s xplanation as that of a man whom I

  believe was honestly rying to tell the truth over that of

  Mr Diro who was evadi 41 the truth whenever it was in his

  interests to do so° ccordingly this document is further evidence of Diro’s ow ership of Angus Shares and of his continuing involvemen in in the management of Angus’ affairs.

  On his return to Singapore after this trip M A Ang was arrested on charges o f criminal breach of Trust concerning MOIC (KL) for which h was extradicted to Malaysia, convicted and sentenc d to eight (8) years imprisonment.

  13. ON-GOING TRANSF PRICE AGREEMENT

  While efforts we e still being made to solve the

  practical difficultie s concerning the first shipment Angus’

  leaders in Singapore and Papua New Guinea were already well advanced in planning, with Sanko and the Bank of Credit

  and Commerce in Hong Konn, a far more ambitious transfer

  pricing scheme. The second shipment (combining the first and third contracts • ith Sanko) was already agreed upon. lhe new ambitious s0 eme was to be applied to contracts four to nine iHvoivinq a t of shipments of b000 m3 each.

  On hQ dokA.Ameni. aly evidence, ‘iii”, OMP of which is set out

  35, it i ear that fan Sri Ghazali ShAfPi, Voh, r C Cheal- and J Kas3pwalova were all deepiv Lroi”ed tr. anniuu this scheme, which was based

• Page 39 of 70

• ,. 1 d on a revolving letter of credit from b .1. nki.:t ”

  real potential for rasing a non disclosed offsn.;,re, tc:x- free profit of USp9.4)8jMillion as well as a substantial

  disclosed onshore p;rofit for Angus (PNG) Pty Ltd of

  1JSD$5.071 million, aftter tax. The Angus files clearly show

  the scheme developing/and then it is made quite explicit by a fax transmission from Angus (Singapore) to Angus (PNG) ,

  of 26 September, 1986 (Appendix3$4;). „,, This describe . the scheme and’discus es the4StabljAiiitent of a Jersey , ‘ ‘ •

  Island Company, Valou e Ltd into, whose ‘Oong Kong account – T at BCC the offshore p ofiti were tb -bercialir. A draft of , a proforma revolving letter , ,of creditwa s.communicated s ,/ for comment and the preci e theprojOcted offshore profits per cubic metre were set ‘out. The – fax also –

  illustrated how the ailing Sinpapcire parent company was by then looking to An”4 – 47NG) for,financial support. , . – There is no dire ct evidence that Minister Diro knew, in September, about t he details of this scheme being worked up. On the 17 Octobe r 1986 however Tan Sri Ohazali Shafei, Charlie Koh and Mr Da roowala of the Bank of Credit and Commerce in Hong Kong aU flew to Port Moresby. It is most likely that the party brought with them a memo – dated the 14 October 19,86 which had been typed in Singapore (Appendix

  35,45). From studyin g the document and the evidence of other documents tiped in the same series I am quite sure

  it ls a nennine docum ent. This crucial document, which was tenileced as exhib it ‘”103″, was subjected to minute ,

  examination and detai led discussion during the hearings.

  Fx’libit 102 spec ifies that the Directors of Valouse Ltd t„):: . 1.1 be ;

  ANDPLW (Di , E7 ) sh a 1 ‘1E3 ( . 1 kr. 1 . -1) – s o – ivi A6 ) 1:3

• Page 40 of 70

• It estimates that the offshore profits tu he transferred to Valouse will be USD240,000 per morkth when

  Angus’ produdtion rate is increased from 6,000 m3 to 15,000 m3 per month.

  The memo continues –

  “Manaaement and Profit Sharing

  6. Running of this company will be done by two nominee directors from Arthur Young acting on a standing instruction from the beneficiary shareholders that all funds received by Valouse Ltd will be paid out to five separate accounts as follows:

  A ANDREW’S Account – 35% 8 1/S’s Account – 25.5% C MAA’s Account – 25.5% D F.C.’s Account – 9% E .I.K’s Account – 5%

  7. For payment under paragraph 6, it is suggested that each shareholder establish separate nominee companies on personal accounts to receive your funds on your behalf.

  Re: _….r.p_jacted_ or_ Annus_ (.1_46)

  1. The production plan for Angus PNG is that wef December, production will be increased from 6,000 m3/mth to 9,000 m3/mth with a further increase of 6,000 m3/mth wef January through sub-contlactors. Please see cash flow prepared by AG PNG at nymex, B.

  or Based on this figure. profits for Angus PN6 is projected to be US$19.399m for the duration of the permit. (Se Xinnex. C)

• Page 41 of 70

• 3. The above profit is based on p.e.tit of US$39/m3 wef January 190 7 , US$16/m3 of this US$39/m3 retained in HKG and balance US$23/m3 retained in PNG. Of this US$23/m3 retained in PNG, actual profit to AG PNG is US$17.25/m3 (75% equity in JV Co), before tax 4. For projected timing and value of profit disbur%em@mts to shareholders, after tam; please see Annex. D.”

  On the evidence I am satisfied beyond all reasonable doubt that Tan Sri discUSeed this memo with Cheah and Kasaipwalova. A trusted Angus employee, who gave “in camera” evidence of having helped prepare materials that annexed to the document, wPre Cheah showed the document to that witness in Port Moresby at the time of Tan Sri’s visit in Octobers

  Throughout the hearing Mr Diro categorically denied all knowledge of Exhibit 103, its contents and the scheme itself. On the 2 November 1987, however, in cross examination and after being faced with compelling circumstantial evidence, Diro finally conceded that he did have discussions with Tan Sri at that time and that they ma ‘y have included general discussions about the

  proposed scheme.

  Mr )it ‘ s own firiancial situation at that period was Pt -Lte desperate. Evidence from his bank files and income 17 . returns shows he was facing bankruptcy from having re.cklesslv “mitked” hls wrivate companies for political purposEs His financial situation was ir=trlcalely involved with that of Angus (PNO) as its inability to pay the rent on

• Page 42 of 70

• his Pacific View Apartment was a major cause of Mr Pirc’!.. own liquidity problems. From his own evidence he s. stretched in’September/October that he was forced to obtain 1(2000 from Angus to pay his wife’s confinement expenses.

  During the hearing I reached the conclusion that Mr Diro was not a witness of credit and that in order to put forward apparently innocent explanations he was prepared to lie on oath to whatever extent he thought he could get away with. On this question I am convinced that Tan Sri discussed this very document with Diro. In fact it is quite likely that it was prop4red in such 4n4%mally explicit terms precisely in order to pt it to Diro and gain his approval. Of those intended td profit from the scheme, all except Diro already were fully aware of the details. Diro was to be the

  major beneficiary, sharing in the same proportion as that of his admitted ownership in Angus.

  As a matter of fact therefore I find that Mr E F Diro as well as Tan Sri Ghazali Shafei, C Koh, F C Cheah and J Kasaipwalova all had full knowledge of, and participated in the planning of, this scheme.

  It was not merely a theoretical idea. On the evidence

  before me it appears to have been a detailed conspiracy to

  cheat and defraud the State of income tax and customs duties

  and to cheat Magi Wopten Deve)opment Pty Ltd of its share of the true profits. Clear steps were taken to put this scheme into effect. ‘file coniract between Sank ,: and Angus (PN(3)

  Ptv L .tc1 for siy. shipments each of 6000 m3 was concluded. . lhe comnanv ValQuI:e Ltd w As purchased and the directors aopointed were raTingdon ‘2.ompnv Ltd and Silvercreek Ltd L-Jth of Hong Kong. An assoriote of Mr Div°, Mary Jean Kayo, signed d$,-eds of indemmTh, as bene .nciAj owner, to those

  nmiinee share-lcdders and both documents were witnessed b.,/ j KasaLri’vJal va.

• Page 43 of 70

• I have recommended that this matter ue reie-?e6 tc ,

  Commissioner – of Police to consider whether all or any of

  those involved should be charged with a criminal offence.

  14. TRANSFER MINS PROPOSAL FOR BKONROIENENT

  While that, ambitious continuing scheme was being set in place, negotiations continued between Angus (PNG), Angus (Singapore) and Sanyo to combine the unfulfilled first contract and a third contract to make up the second shipment. The way the scheme was set in place, adjusted and confirmed is fully set out in appendix 35 under the Headings “A. FIRST CONTRACT” and C. THIRD CONTRACT”. At the final stages of negotiations the contemplated price transfer was ) to be USU$52,536.05.

  15. EALP. MANAGEMENT F I FOR SURVIVAL

  On the 3 November 1986 however the Angus Group in

  Singapore went into liquidation and the liquidator began

  to inquire about the debts owed to it by Angus, (PNG)

  Pty Ltd. The PNG company was also in very bad shape

  and clearly unable to pay its creditors. (See Cheah’s

  letter to Xin9’6f 25 Octobe)- 1986 Pppendix 37). It was actually facing cancellation of its permit. This was

  recommended by Seretz.;yy Mamalai on 23 October cappendl 38) but Minister Dirc) rejected the advice and instead he . – (:J opreved a .:? se_ e operation which involved the Forest

  indkur.es r,ouncil miimagind Angus. When it tot:4k over . nei:clotiation t th , A shioffl ont (fi rsA/third contract)

• Page 44 of 70

• 35

  the F.I.C. dropped the transfer price scheme and renegotiated prices in a way which ensured that the full Legitimate price was to be payable in PNG for Angus (PNG)Ps benefit (skim Appendix 35 p 8). The gross price for that second shipment received by Angus (PNG) Pty Ltd was U8D487 # 023.03 from which FIC deducted 3.5% Commission amounting to USD12,523.21.

  Angus however was still unable to pay royalties or to furnish.the K76,000 bank guarantee required by the Department. Mr Diro finally approved the issue of a ‘ Show Cause Notice’ allowing one month to show cause why the permit should not be cancelled. This was served on the 5 November 1986.

  16. GUEMECIaggiag—MWShegng.

  The principals of Angus (PNG) must have been growing desperate at this stage. They knew of the immense illegal profits which could flow from the transfer price agreement with Sanko if they could only hold on and somehow find the funds to trade out of their financial difficulties.

  During November 1986, with the F.I.C. managing Angus PNG and its Singapore parent company being then in liquidation, a scheme to raise equity capital was hatched which. would dilute Singapore’s controlling interest away to almost nothing. It seems that the PNG directors first turned upon Singapore’s man F C Cheah and demanded his resignation.

• Page 45 of 70

• A General Meeting on the 19 November, frfo was absent, then approved an increase in autho od cawltal

  from K10,000. to K400,000. On 4 December 89,900 shares were allotted to Chairman Sir Tor Lokoloko and 127,600 one kina shares were allotted to John Kasaipwalova. Kasaipwalova raised and actually paid cash K225,000 for these shares but K7,500. was applied by G Kassman against the initial issue of 7,500 shares not yet paid for.

  The legal advice for the share issue was provided by

  Angus’ lawyer 6 Kassman but his involvement did not stop there. As a Director of the Company, and as Company Secretary, Kassman must also accept personal responsibility for what happened.

  In the witness box Mr Kassman eventually admitted that

  proper notice of the meeting to increase authorised capital,

  and of the massive share issue, was not given to Angus

  (Singapore)., He must have known Angus Investments Pte Ltd was then in liquidation and that fact may well have given him confidence that the fraud about to be attempted would

  either go unnoticed or would not be pursued by the Singapore liquidator.

  The effec.t of the . December share issue was to reduce

  the 51% controliing inte est peviouslv held by Angus (Ihnqapore) down to 226 norcnt.

  Even 11 thr share,, 1 ,: sue was not valid, becJmAse of the lack of nropf::r not ji wrAdd appear that at least an cAttempt tO e:JiriM3t; SP(30uS offE. , ocp made and – – and • h w- ,- cy ommended l’i atter also be referred . to the Commii,sioner of PcJice to corlii.2e whethe( cr1mnal charges

• Page 46 of 70

• 17. DIRO TURNS AGAINST ANGUS

  By the 5 December deadline no reply to the ‘Notice to Show Cause’ had been received. Unknown to himself Mr Diro

  had only four more days to serve as Minister for Forests before the sudden reshuffle of portfolios which occurred on the 9/10 December. In his own evidence Mr Diro conceded that he thought Angus “was a gonner” and that he had lost interest in th& Company. He was in fact working with the very compliant Oscar Mamalai to cancel Angus’ permit and to issue a new permit, in record time, to a company previously unknown in Papua New Guinea, Goodwood Pty Ltd which wished to operate both the Gadaisu (including Bonua-Magarida) and Kupiano permit areas. The speed with which this was being

  arranged was absolutely astounding and highly suspiciOus.

  Time permitting it should be the subject of a further separate investigation. (,Opendix 39)

  On the 10 December Mr Diro did in fact sign an Advice to the Governor General to cancel Angus’ permit over Gadaisu. He also signed an Advice to Cancel the A.N.G. Permit 3-4 over Kupiano on the 11 December and on that same day signed a document qranting that Permit to Goodwood Pty

  LTd. )(11 Instruments of Advice to Cancel were dated

  the 10 anti 11 December respectively but for technical

  reasons they were returned by the Governor General, through

  the First Legislative Lounsel. unsigned. (9e 2. dppepd.IN

• Page 47 of 70

• 3B

  18. THE TORATO APPROACH

  After his eppointment as Minister fIA For ts on the ‘L;1/[cAh Decumbpy Mr Tort:’, ,ter receivirg a full tr’lefino Mr ivom Mamala]. apParantly vasci)lated about the cancellation of Angus’ Permit. Men, on t1, 10 1987 he seemed to make up his mind and Angus was allowed to continue, with its opertions being conducted by the – F.1.C-‘s newly appointed contractor Santa invc , . 1.1,. ,! c. Pty Limited. (appendix 40)

  This decision took the Department by surprise. Former Minister Diro had previously advised the Governor General to cancel the permit and had without waiting for the Governor General to act on the Advice, then issued a Letter of Intent to allow Goodwood Pty Ltd to develop the resource. Consequently Mr Mamalai again recommended cancellation of the Angus Permit on 18 February (dppendix 41). In March Mr Torato again turned against Angus and directed the necessary instruments to be drawn up to cancel the permit. This was put in motion (fippendix 42) and the Advice to the Governor General and the instrument itself were actually drawn up (Appendix 43) Then on 13 March 1987 Mr Torato jumped the other way and instructed the Secretary to allow Angus to continue. (appendix 44) Angus was by that time under official management and Santa Investments was still the logging contractor.

  The circumstances of Minister Torato’s changes of mind are now being investigated in the light of certain documentary evidence which was discovered after a police raid on the offices of Santa Investments Pty Ltd.

• Page 48 of 70

• 19. OFFIPIAL MANAGEMENT

  Towards the end of February the inevitable could be postponed no longer and a Meeting of Angus’ creditors resolved to place Angus (PNG) Pty Ltd under official management. Mr Parker took over as official manager on 2g February 1987. At that stage Angus had assets of only K193,000 against debts of K1.6 million. (Appendix 45 – Stategent of Affairs). The equipment was owned by Credit Corporation the main creditor. Sixty national employees were found abandoned at Sabiribo village without wages or food (Parker arranged urgent food parcels and K60 for each family and then repatriated them all). The Philipino staff who had long been unpaid, had all left sometime before. No royalties had been paid under Angus’ management and there was some K27,000 outstanding. Likewise the premium due to Magi Wopten of K6 per m3 had not been paid.

  On the other hand the very high salaries of F C Cheah and J. Kasaipwalova (K50,000 p.a.) plus very generous

  expense accounts and benefits were being paid. Parker immediately termlnated their employment and paid out their entitlements. (A list of Angus’ creditors prepared by the Offic3a1 Manager is set out at Appendix 46).

  Santa’s ioggino operation was almost at a standstill because most of the equipment had been stood doWn by Credit

  Corporation and because of the poorly constructed roads, which were unusable after even light rain. In April for

  i nstance total production was 750 mD and in July it was 270 m3, well below the targeted 6000 m3 per month.

  The resource itself was badly lamacied, with hloci , ed and

  polluted 5t: 30V,, and a .;uhstantlal Amount of wasted tiqber , both :tandinq c7-nd felLed.

• Page 49 of 70

• 4)

  A recent survey shows there is only abe:.ut 10 months of logging reft to be done at a rate of 6000 m3 per month – far

  less than was expected.

  Under the official manager Angus began to trade out of its difficulties and paid royalties and the Premiums due to Maisi Trust, a Group which has split off from Magi Wopten.

  It then faced another ‘ Show Cause Notice’, however, served

  on the 8 September 1987. This is attached as ,4ppendix 47

  and it should be noted that most of the alleged permit breaches occurred when Angus was still under its former

  mantq nt. Angus’ Permit was fnally cancelled on

  31 January 1987.

  20. THE ROLE OF ‘EDWARD RAMU DIRO

  It was inevitable that the Commission would focus

  on the activities of Minister for Forests, E R Diro.

  This is because, firstly, he was Minister for

  responsible for allocating and attempting to cancel Angus’

  timber permit and, being Minister , the Commisslon’ Terms

  o ! ,ce ref:, 1r .- Id that he be investigated with regard o possihie benerit ,: rel) . elved, .-i econdly the inquiry was

  i nto Angus and, on his own belated admissions he held a

  subs’ .!i$.41 1,Art thr , ?gu!taPie owversip Angus’ (Pr,J13)

  skttpLidiaries ,)nd until his appointment a…, Minister,

  the r:.airman of fho.).,f..A companje. Thirdly Angus’ financial , reco).us dis4:closed many 1111…,tJmr:et:: whpre he, hi:4, dife cir one comp,Anie received heneflts from Angus. Finally,

  through his companies or his wifetc4i . compan , . D1r o was

• Page 50 of 70

• 41

  involved in various business dealings with AnQus th: ,,e

  included rental arrangements, tendering for contracts. the attempt to’purchase Mamai Estates and a proposed agency deal with a Rumanian firm.

  After the Commission completed its preliminary investigations, which included studying all the Angus business records which had been produced on summons, ft was obvious that Mr Diro could play a key role in the Inquiry. At face value those preliminary investigations suggested that he may have been deeply and improperly involved with Angus during his term as Minister for Forests; that he may indeed have been the person code named “Andrew” under which name Angus kept a “Research and DevelopmvInt” account which recorded many payment’s.

  On the 6 August 1987 he was summonsed to produce all relevant documents in his possession but said that he had noft. For his opening address on the Angus inquiry, given on 6 August 1987, Mr Reeve prepared a very detailed

  document. On that day Mr Diro was served with a copy of the Commission’s Terms of Reference and a transcript setting

  out all allegations which were to be made during the Inquiry

  about Angus and his involvement in Angus. Each gift and benefit allegedly received was specified including Ow ft t.

  that he was the per son coden amed “Andrew” in the Angus accounts records. The opening address accused Mr Diro of

  ! , eing at all times the owner of 35% of the shares of Angus

  ( PNO) f:N,/ Ltd and of us-ing his position as Minister to , improperly grknt it t’nf Gadals timber perm3t. 1 he fourth malor a)leqaton levelied at him in the opening ad’Aress was

  that e.e w;,. p.• v to Angt.m” sc’leTes to mae ii legal oft re proflt., by triwisrey i5ri(ing. Nothing was held hack; the evidence supiorAno thcp al’egations was outlined

  -_,

• Page 51 of 70

• 42

  so he could consider his position. As he wa’; enior

  Minister in the government it was hoped that till orun

  approach might lead him to come forward to offer

  explanations or make admissiors.

  lir Diro however applied for and was granted representation before the Commission. He then briefed counsel, at public expense, and began a long fight to

  cover up his involvement.

  Initially he adopted an aggressively defensive posture, denying all allegations. Counsel assisting the Commission waF- then obliged to search out every voucher, airline ticket, accounting record, telex, facsimile, and restaurant bill to put together a conclusive case based largely on circumstantial evidence. This was done meticulously by

  working day and night but it added some two months to the t ength of the proceedings. Only when confronted with an overwhelming volume of documentary evidence did Mr Diro begin to mai4 oncessions and he did Sc’ grudgingly, fact by

  fact, admitting only as much as he was obliged to at any one time. In the process he told a mixture of reluctant truths,

  hat If truths and untruths.

  Only when applications were made that he be charged

  with six separate acts of perjury did Mr Diro begin to make substantial concessions. Then in the last few days, during cross examination, while making revised statements and finally by concessions made by his counsel in final address Mr Diro admitted virtually every fact which had been alleged

  against him during the opening address and every additional significant matter which had 5een raised during the

  hearings. C:: – ,,n , ‘t: – cts ‘- , :, ..T el)- Goodman’s final submisions );)i diA . 48), With reclard 1•,:+7) hi !; nowt edge of and

  2

• Page 52 of 70

• involvement in Angus’ pricing Si: heme ,i, howeve

  Mr Diro made only a partial admission in that, through

  Mr Goodman, he admitted:

  was in possession of sufticient [Arts tc

  establish that there was A um of morev

  was to be created by virtue of tr3nsfey pYJciri offshore and which was ALso t wder his control as leader of the Parliamentary Wing with ccntrol over the expenditure of fonds. The evidence is

  that Mr Diro did not consent to the transfe-r pricing activities and his fault was to fail to

  further investigate matters which came to his notice in relation to transer pricing and he accepts that to that extent he is at fault”.

  During this Inquiry it has been my duty pursuant to Terms of Reference 8, to consider whether Mr Diro received any direct or indirect benefits during his period as Minister for Forests and, if so, whether it was improper After ca4;,,ful onsideration I have re a ched the foll6wing conclusitorls

  // / hcimill_pgnmikts Received: /

  Mr Diro received very substantial benefits from or r Aated to the Angus Group of Companie, CinclUding MOIC

  Singapore) both before and after his apipointment as Minister

• Page 53 of 70

• 4*

  ,, ,e- Forests. idecl hy hlmselt. ,

  These benefits which were rr,, his wife or his companies included, but were riot Iimiied t.:;„

  the f- ‘ 1. , ‘ , ): 11.4g

  “(a) use of a Jaclu(tr XJL Saloo, which Mr Diro conceded was owned ;.1; the time of its jmportation int.- Papua New Guinea in Ortober 1’-485 by MOIC Investments Pte Limited, and payment by Angus of costs and expenswF associated with such vehicle amounting to at least K10,000. (see ,I., ppePdj); 5/)

  ( b) payments by MOIC Investments Pte Ltd and Angus Trading Pte Ltd charged on intercompany loan accounts to Angus (PNG) Pty Limited of:-

  i. airfares for Mr Diro & Mrs Veitu Diro from Port Moresby to Singapore and return in December 1985 amount- ing to S$8,622.20 (K3,919.10),

  ii. airfares for Mr Diro from Singapore to Kuala Lumpur and return in January 1986 amounting to S$365.00 (K165.91)

  iii. accommodation expenses for Mr Diro & Mrs Veitu Diro in December 1985/ , January 1986 amounting to USD1,500 (K1,418.18)

  (c) payment by Angus Trading Pte Limited charged on intercompany loan accounts to Angus (PNG) Pty Limited of airfares for Mr Diro from Port Moresby to Vanuatu (via Australia) and return in February 1986 amounting to S$3,439 (K1,563.18)

  (d) payment in October 1985 by Angus (PNG) Pty Limited of K1,600 rent for Unit 306 Pacific View Apartments for the month pf October 1985.

  e) p.tyment in June 1986 by Angus (PNG) Pty Limited of K4,800 rent in respect of the said Unit 306 for the months of November and December 1985 and January 1986.

• Page 54 of 70

• 4

  (f) payment in September 1985 b.! An I N() Pty Limited of K4,000 in respect of an unauthorised transfer of interest to Angus (PNG) Pty Ltd of Toyota ICorolla AEQ 374 which was then under tease from AGC (Pacific) Limited to Tamwc’rth No.35 Pty Limited which payment was made to Meridien Motors Pty Limited as part payment of deposit on Mercedes Sedan AEL 810. (g) payment by Angus (PNG) Pty Limited in September 1985 of Diners Club charges of K300. 00

  (h) payment in December 1985 by Angus (PNG) Pty Ltd of. Directors fees of K300.00

  (i) payment by Anqus (PNG) Pty Ltd of service charges in connection with Nissan Patrol AEL 19.0. of K231.45 in October 1965, and in December 1985 of K166.84

  (j) payment by Anqus (PNG) Pty Limited of airfares for Mrs Veitu Diro in May 1986 and July 1986 from Port Moresby to Sydney and return amounting in each case to K632.00

  (k) Nvment by Angus (PNG) Pty Ltd of Talair flights for Diro’s associates.

  (1) payment by Angus ( PNG) Pty Ltd of Golden Bowl Restaurant bills.

  (m) payment by Angus ( PNG) Pty Ltd of Veitu Diro’s confinement expenses.

  (n) payment by Angus (PNG) Pty Ltd of Port Moresby-Brisbane return fares for Diro and Mr Keith Anderson.

  (o) nAvments hy Anws (P06) Pty Ltd of Boroko Motors bills on Mr Diro’s Nissan Patrot vehicle.

  (p) payment by Pars Pam Puni $A1,500-00.

  (o• payment by Talair ot airfares en route to Van’iatu and return.

• Page 55 of 70

• 129kential

  Through his company Tamworth 35 then through his brother Anthony Diro and finally through John Kasaipwalova Mr Diro was at all material times the beneficial ownt.:: of

  . 35% qf the issued share capital of Angus PNG Pty Ltd. With this holding he stood to benefit directly from the company’s onshore and offshore profits. His estimated

  share of the offshore profits from the proposed continuing transfer price scheme was to be USD3,292,800. and his

  share of the profits taken in Papua New Guinea was to be USD1,774,700.

  am fully satisfied that he had knowledge of the

  details of this scheme and approved it.

  Mr Diro’s claim that the block of 35% of the was to be held in trust for the Peoples Action Party I treat

  with some scepticism. On this matter he first denied knowledge of the shares, then said they were to be held in

  truci for the people of Central Province and only when those

  ;1′; , were proved to be untenable did he offer up the P.A.P. as the true beneficial owner. It appears also that

  to Parliament on this issue. (See his ansiv!–2, to Jacktpeniais question – Appendix .73). I do not find it to make a firm decision on this issue because,

  even if his claim is true, it would still be a benefit indirectly by him. If money was receivr,=! to

  be received for the political party of which Mr Diro was

  Lo be the Parliamentary leader I consider that would be a direct or indirect benefit to Mr Diro within the meaning , h Reference b. At the time of the scint . – 0;: ihe Party had not yet been formed and Mr Dlro admitted that

  he intencieJ to hav(- c. , L e ci,ntrc!I over those funds.

• Page 56 of 70

• v

  Whatever the propriety of receiving benefits before

  being appointed as Minister there is no doubt that all benefits received after that appointment were highly improper. As soon as he was appointed Minister for Forests Mr Dirt, had a duty under the Leadership Code to sevrr all links with Angus/MOIC and to disclose his interests and all benefits received to the National Executive Council and to the Ombudsman Commission. In view of the fact that he had just resigned as Chairman of Angus I consider he should also ,

  have made special arrangements with the Prime Minister which would have allowed him to openly stand back from all decisions relating to Angus. Instead of that he not only retained his Angus interests but took active steps to cover them up behind a series of trust arrangements.

  Then, as has been shown, he continued to receive substantial benefits and, worse still, he used his position as Minist;.!r to grant very substantial favours to Angus.

  Favours to Angus:

  The very allocation of the Permit in the unchecked “fast run” way in which it was done was a completely improper favour given to Angus. Had it not been :1_,Ir

  Mr Diro’s express directions there is no way Angus would have receivel that Permit if established forestry policy had been followed.

  Another favour granted to the financially aiiiiig At !us was !, 4. ; ‘ . , 4 it to occupy his company’s apartment even after rent was at least eleven months and K17,600.00 in arrears. . , C.t -, f:,..d to this debt owed to Tamworth 35 uncle this

  improper lease agreement when attempting to put forward some

  justification Tor reolvinq one K2,000 paymen+ personally from Angus).

• Page 57 of 70

• Finally, when it was clear to the senior officers in the Department of Forests that the Angus permit should be cancelled before irrepairable harm was done to the resource and its owners, still Diro refused advice to revoke it.

  When he was painfully aware of Angus’ financial difficulties, and that it had commenced an apparantly irreversible descent into debt, he actually chaired a meeting on the 30 September /986 in Angus’ offices where he tried to obtain assistance for Angus from a Mr Pars Ram Punj regarding the Vanimo Timber extension area. (Mr Pars Ram Punj is a businessman from Brisbane who three weeks earlier had delivered a $A1,500 “gift package” to Mr Diro in Brisbane at the telexed request of Mr Cowan of the ForP ,;t Industries Council. At the time Mr Diro was travelling on air tickets purchased for him by Angus. In evidence he claimed that he later repaid the money to Pars Ram but

  quoted a lesser amount). At the 30 September meeting Mr Diro put up two proposals to Mr Punj both of which would

  be of great benefit to the collapsing Angus. (appendix 49 – Minutes of Meeting). This meeting clearly showed that Mr niro was prepared to help Angus by improperly allocating the Vanimo extension resource either to Mr Punj’s group

  which would pay royalties to Angus, or to Angus itself,

  after Punj had injected it with substantial funds in return

  roe the exclusive right to buy Kwila 10QS. (Mr Punj gave

  i)) camera evidence in Brisbane).

  Ruaniftty of Mr Diro’s Conduct:

  o’s conduct in relation to Angus, while he

  was Minister for Forests, was disgraceful and dishonest.

  His co 1,) relation to some other matters, as disclosed

• Page 58 of 70

• 49

  during cross examination as to credit, was equally ,. disgraceful. Before the Commission hp wa . .lso dishonest

  as he ciearly lied on oath and, to a large extent eventually admitted those lies. In addition to his lies before the Commission he gave evidence which shows he has deliberately made false declarations in his annual returns to the – Ombudsman Commission and in his income tax retli e ns, both of which are criminal offences.

  While trying to explain various payments which he received Mr Diro gave evidence which seriously compromises the government of Vanuatu, probably without justification. At first he swore that he received consultancy fees from the Vanuatu Government while he was a Minister of State. He subsequently “revised” this evidence and said it was received from a firm known as “Mr Juicy”.

  One of two alternative explanations given for receiving cash sums amounting to US134,000 dollars seriously compromised General Benny Murdani, the Chief of the Indonesian Defence Force. The other explanation was that thE money was raised for him t-, an Australian Company, of which he is or was a Director, and which was seeking a timber concession on behalf of Chinese clients. He swore,

  i ,1 thi .1:!rsion, that the money was brought in secretly for

  him by an Indonesian Military Attache stationed in Port Moresby. The implications of this Indonesian connection are sinister and its disclosure was followed by Mr Diro’s

  resignatic , n from the Ministry and had ramifications in Papua New Guinea’s foreign relations and within tht Der;1′-:e Force.

• Page 59 of 70

• Although evidence given to thc? Commission r: arinot be used as evidence in subsequent criminal or civiJ proceedingci I recommend that these matters should be referred to the Chief Ombudsman and to the Chief Collector of Taxes for independent investigation and follow up.

  21. RELEVANCE FoRmoiLionQERgEgRENPE

  The Commission’s inquiries are limited to matters which are directly or indirectly related to the Terms of Reference given it by th*:, Prime Minister. A full coverage of the terms of reference will be given in the Commission’s final repQrt but in relation to Angus the following comments are offered in this interim report.

  Terms l_ang 2 (F.I.C. involvement in marketing and the benefits to PN6)

  At a time when Angus (PNG) Pty Ltd was clearly insolvent and flagrantly in breach of many of its per conditions the Secretary of the Department of Forests,

  very belatedly, recommended the cancellation of its permit.

  Io a 10- I. r,i sperate attempt to keep the company tradirig however Minister Diro allowed the F.I.C. to manage Angus, as had heen requested by the Credit Corporation. The Forest Industries Council commenced as marketing manager on

  27 October 1986. In its capacity as manager the F.I.C. took full responsibility for marketing and charged 3.5 .rot commission for its services. By December 1986, the FA„C. had taken over the full management and in this ‘,.-ii gned an aoreement with Santa investments Pt ,/ Ltd- ,i.mpo)ntinq banta as the logging .:ontractor.

• Page 60 of 70

• r;:t

  The Forest Indul.tries Council also took over management of Angus’ financial affairs controlling the disburEwqh..iit of

  the proceeds-of log sales paid through the F.I.C’s bank account.

  The Forest Industries Council took responsibility for marketing at a time when Angus and Sanko Nagoya h;ml alroady carried out transfer pricing arrangements on the first shipment, had put in place another scheme for the second shipment and had commenced setting more sophisticated transfer pricing arrangements into contracts for future shipments. The evidence available at this stage indicates that these transfer pricing arrangements were dismantled once the F.I.G. took over the management. If this is the case then Papua New Guinea’s foreign earnings and perhaps its revenue was increased by the F.I.C. involvement.

  The full study of this arrangement will be reported on later in a report on F.I.C. activities. At this stage there seems to be considerable doubt whether there was legal authority in the F.I.C’s charter for it to take. over the management of Angus in this way.

  Terms…4 (Policy), 5 (Functions), 7 (Interference with functions)

  If ( PNG) Pty Ltd had been treated as a foreign

  enterprise involved in a large log exporting operation it

  have been expected to fit, within Part 3 or Part 4

  of the 1979 Guidelines. Under fart 3 (Processing plus snme

  log export;) i. 1 6 , I ary focus would have had to be on 1. f al processing and it would have had to show experience in srlrh

  iq operations and the marketing of the processed , timber. Under Part 4 (log exporting only) its activitio .

• Page 61 of 70

• would have had to be combined with substantial additional activities such as an agro-industrial project. Once again a foreign enterprise would have had to demonstrate sufficient experience, expertise, capital and marketing skill in all aspects of the operation.

  Angus (PNG) Pty Ltd managed to avoid these onerous ‘policy requirements by passing itself off as a national company and by making token proposals for installing a sawmill and for establishing some unspecified type of agricultural project on land yet to be purchased.

  If it had been treated as a foreign controlled enterprise Angus(PNG) Pty Ltd would also have been expected (according to forestry policy) to finance itself largely from overseas capital. In fact, although it commenced with an opening funds injection of about USD250,000. from Singapore, Angus (Singapore) retrieved USD200,000. when Charlie Koh intercepted the money due to Angus (PNG) Pty Ltd from he first shipment advance (see page 26). The bulk of Angus (PNG) funds was actually raised locally from the following sources

  (a) Bank of South Pacific overdraft facility guaranteed by Angus (Singapore) and John Kasaipwalova;

  (b) Lease finance from Credit Corporation guaranteed by J Kasaipwalova;

  (c) Oft extended credit from many and varied trade creditors;

• Page 62 of 70

• 573

  (d) Po.coptance of part salary payifients by staff and executives;

  (e) Non payment of group tax from employees’ salaries.

  The only explanation why the resource was granted to such an inappropriate and foreign controlled company was that Minister Diro directed it and Secretary Mamalai complied with the direction against the unanimous, and correct, advice of all senior departmental officers involved ii considering the proposal.

  Mr Diro’s motives in directing the allocation of the r urco to Angus (PNG) Pty Ltd were for personal gain (either for his personal financial gain or for the political party which would benefit him personally). The conflict between his role as Minister, in which he was expf’cte , 1 to receive and act upon correct departmental advice, and his role as a 35% owner of Angus (PNG) Pty Ltd acute.

  This conflict led him to by-p.1…; dITArtmental advice on some occasions and to ignore it on others. Thus for instance, h,A0 .41yr3ady decided to allocate the Gadaisu permit area to Angus and had actually directed the Secretary to this

  croiA four days before the Angus proposal was received. When contrary, and clearl v correct, departmental advice wa.5 , , received Tay ignored it.

  Term _g (Improper Benefits)

  Edward Ramu Diro: Me D]ro and all his associates , in Amu sought or received direct and – benefits rom the all of the permit to Anous.

• Page 63 of 70

• (Diro’s benefits have been itemised in Section 19 above).

  Oscar Masalai: The only apparant explanation for his actions is that he was receiving some benefit or that he was

  subjected to some outside pressure which resulted in him acting in favour of Angus and contrary to sound forestry

  policy. Although he has admitted receiving improper benefits in relation to other matters no direct evidence of that nature was uncovered in relation to Angus.

  ICA. aipwalova and F C Cheah: They received benefits by way of very high salaries and allowances. To the extent that thei:, wero taken from an ailing company which was unable to pay its creditors and unable to pay the royalties owing to the gc,yernment and landowners these benefits could

  be described as excessive. This however is really a

  question uf moillity in the internal management of Angus

  and not strictly within the Terms of Reference of this

  Commission. :’::h . Anded to benefit from Angus’ transfer

  – pricing schemes.

  Magi Wopten Directors: These directors received a

  ‘,jog stream of minor benefits in the way of tri. ps

  to, and accommodation in, Port Morp , p,c1

  some quite substantial lump mn r nt.s. Under the

  influence of these benefits they supported the application

  h: .A4=4 – for the Gadaisu timber permit and acquiesced in the manouvers which resulted in their own company and people , being push’ d to —.1 ide by Angus and cheated of their

  rightful profit from t!le exploitation of their own tialbc;

  resource.

• Page 64 of 70

• 55

  Michael Cowan: Executive Director, F.I.C. From Angus Mr Cowan apparantly received S$1736. 55 (about K790) for

  accommodation expenses in Singapore in June 1986. What other benefits he may have received through F.I.C. connections is the subject of a separate inquiry.

  Dennis Hoivos This Forestry Officer from Central Provincial Forest Office admitted receiving a bribe of K1,000 to acquiesce in the loading and departure of the first shipment of logs from Angus’ Operation before payment of royalty and export tax.

  Smuggling goods in on timber ships: One of the “side benefits” to persons involved in shipping logs appears to be smuggling duty free goods into Papua New Guinea. The Commission has uncovered evidence of several instances of this. In relation to Angus there is evidence that duty free liquor was smuggled in on log ships loading at Mamai on a regular basis. .The details of this evidence and supporting documents are set out at Appendix 50.

  Term 9 (Transfer Pricing)

  All those who were party to the various Angus transfer pricing schemes described in detail in Appendix 35 have been deliberately frustrating government policy within the

  meaning, of this term of reference. The main people involved

  were: M A Ang, Tan Sri Ghazali Shafei, Charlie Koh, F C Cheah, John Kasaipwalova and E R Diro.

  The purpose of the completed transfer pricing schemes applied to the first two shipments was, apparently, to avoid tax in Papua New Guinea (by creating artifically high early losses), to defraud Magi Wopten Development Pty Ltd and its

• Page 65 of 70

• 56

  shareholders and to benefit Angus (PNG) Pty Ltd as the tax free profits taken by Angus (Singapore) in Hong Kong were eventually credited in the inter company loan accounts against Angus (PNG) Pty Limited debts. This whole arrangement was done contrary to foreign exchange regulations and without reference to the Central Bank. The purposes behind the huge illegal profits anticipated from the proposed six months continuing scheme are not so clear. The beneficiaries were to set up separate personal nominee company accounts to receive their shares. fir Diro states he intended to hold his share in some sort of trust for the Peoples Action Party, but under his own control. Whether any portion would have been used for his own personal benefit (as happened to some of the so-called “campaign” funds in his Boroko US dollars account”) and what would have happened to the shares of his co-conspirators must remain matters for conjecture.

  The transfer pricing arrangements disclosed in the Angus investigations are by no means isolated incidents. The Commission’s investigations so far suggest that many other companies are engaged in similar activities. Angus is unique only in the fact that the whole scheme has been so meticulously documented and that the documents were “captured” by the Commission.

  22. POSSIBLE CRIMINAL AND OTHER OFFENCES

  It is no part – of the Commission’s role to prosecute and convict for criminal offences disclosed during its inquiries. I have taken the view however that where the inquiries disclose the likely commission of criminal or other of fences, and where independent evidence of those offences is available, those matters should be referred to the police or other appropriate authority for investigation.

• Page 66 of 70

• or other offences, and where independent evidence of those offences is available, those matters should be referr the police or other appropriate authority for investigation,

  accordingly recommend that the activities of the following people and the following matters should be so referred for investigation:

  (a) Referral to the Commissioner of Police –

  Mohammad Abdullah Ang, Tan Sri Ghazali Shafei, Foong Chin Cheah, John Kasaipwalova, Charlie Koh, Edward Ramu Diro to consider appropriate criminal charges relating to their conspiracy to defraud the State, Magi Wopten Development Pty Ltd and, perhaps, Angus (PNG) Pty Ltd by completed and attempted transfer pricing schemes.

  (b) Referral to N.I.D.A. –

  J Kasaipwalova, F C Cheah, Gerard Kassman and R Diro for offences committed under the ti..1.4.0,AgA. These offences relate to the failure to declare the foreign interest and ontrol in Angus (PNG) Pty Ltd and fail to for N.I.D.A. registration which resulted

  in Angus (PNG) Pty Ltd carrying on business in

  Papua New Guinea without NIDA approval.

  (c) Referral to the Commissioner of Police –

  C Cheah and J Kasaipwalccia for breaches of the (Foreign Exchange Rcwaation5)

• Page 67 of 70

• This offence concerns the acknowlf7Adqement (finder

  seal) of a foreign debt to Angus Investments Pte Ltd of $(Sinclapore) 529,000 in contravention of the Act. Consideration should be given to charging G Kassman with this offence.

  (d) Referral to the Commissioner of Police, the Registrar of Companies and the Papua New Guinea t aw Society —

  6 Kassman: The circumstances in which three , serly, te and different minutes all purporting

  to be valid Minutes of the Angus (PNG) Pty Ltd Directors Meeting held on the 1 November 1985 were prepared by G Kassman and the lodging of false Returns at the Companies office signed by J Kasaipwalova should be referred to the Registrar of Companies and the Commissioner of Police. The w,fr ional ethics of Mr Kassman’s actions in this matter should be referred to the Papua New Guinea Law Society for attention.

• Page 68 of 70

• C ) Referral to the Chief Collector of Taxes and the Chief Ombudsman Commission –

  E R DIRO: The false Declarations made by Mr Diro in his Returns to the Ombudsman Commission and to the Chief Collector of Taxes, as detailed in this Report, should be referred to those authorities to be investigated for possible prosecution or other follow up action.

  (f) Referral to the Commissioner of Police –

  6 Kassman, J Kasai pwal ova and Sir Tore Lokoloko: These three were involved in the issuing and allocating of new share capital in Angus (PNG) Pty Ltd without giving proper notice to Angus Investments Pte Ltd which was then in liquida- tion. The intention was to reduce that Company’s beneficial ownership in Angus (PNG) Pty Ltd from 51 per cent to 2.266 per cent. It seems that a serious criminal offence was committed at least by Mr Kassman and possibly by all three. It should be referred to the Commissioner of Police for investigation as, even if the purported share issue was legally ineffective, the attempt would constitute a criminal offence.

  (q) Referral to the Commissioner of Police –

  P. ,is Hoivo: Mr Hoivo’s action in receiving the Fum of K1,000 from Angus (PNG) Pty Ltd to clear the first shipment should be investigated -f fence relating to the acceptance of a bribP as apthlic seTvalit.

• Page 69 of 70

• b Ci

  (h) Re4erral to the Collector of Customs –

  F C Cheah: The circumstances surrounding the • importation of the Jaguar motor car, the

  . preparation and presentation of false documents

  and the evasion of duty should be referred to

  the Collector of Customs. It is quite clear

  that a false invoice was prepared at the request

  of F C Cheah and presented to Customs and this

  would be an offence under the Customs Act,

  Ch. No.101. The role of the Customs Agent and

  Mr Diro’s involvement should also be investigated.

  It seems clear that the Jaguar itself should be

  forefeit to the State pursuant to Section 146

  Customs Act.

  (i) Referral to the Collector of Customs –

  The cir whereby duty free lidtlibr was

  apparantiy ,muggled into the country on Angus -,

  WNG) Pty Ltd log ships, as referred to at

  page 52 and detailed in Alppendix 50 should be

  insiestidoted.

• Page 70 of 70

• 61

  23, MICLUMEI

  The months spent on the Angus inquiry confirmed most

  of the suspicions which had originally attracted the

  Commission’s attention and this is shown by the findings.

  The Inquiry has also disclosed valuable information on

  deficiencies in forestry policy and legislation and the

  various devices being employed by some timber companies

  to benefit from these deficiencies. These matters will

  be drawn together in the Commission’s final report.

  Although I have tried to limit this interim report to

  matters relating to the Angus Group of Companies and the

  Gadaisu permit area there is of course considerable overlap

  with other matters being investigated by the Commission.

  Some of the people involved will no doubt appear again in

  later reports.