National Provident Fund Commission of Inquiry Final Report (Serialization Parts 41-85)
Mentions of people and company names in this document
We do not intend to suggest or imply that any of the persons, companies or other entities listed above have necessarily broken the law or otherwise acted improperly. Read our full disclaimer
National Provident Fund Final Report [Part 85]
Executive Summary Schedule 9 Tender Procedures and Nepotism Continued
In paragraph 18.104.22.168, the commission has found that:
(a) The evidence before the commission clearly indicates that Mr Wanji’s conduct in his dealings
with Laiks Printing, a company in which he was a shareholder, director and a cheque signatory,
was improper. Mr Wanji stood to benefit from NPF, when he obtained quotes from Laiks Printing
and recommended Laiks Printing to supply stationery and office supplies. This was not disclosed to
the NPF by Mr Wanji;
(b) It is likely that moneys were paid to Laiks Printing well in excess of the fair value of goods and
services provided by them
Warenam Office Supplies
There were 12 purchases from this company to a value of K80,982.26.
Mr Alopea, the proprietor and manager of Warenam Office Supplies, voluntarily provided details of
16 secret payments to Mr Wanji totalling K12,530 during the period May 3, 1999 to June 14, 2000.
However, in actual fact, Mr Wanji received only K11,280.
Due to a loss of records at Warenam Office Supplies, other payments to Mr Wanji prior to May 3,
1999 could not be ascertained. Mr Wanji has admitted, in his evidence to this commission that
these payments were made to him, personally, by Warenam Office Supplies, before May 3, 1999.
At paragraph 22.214.171.124, the commission has found that:
(a) There was an agreement between Mr Wanji and Joe Alopea of Warenam Office Supplies that
contracts would be awarded to Warenam in exchange for secret commissions paid by Warenam to
(b) On some occasions the secret commission was factored into the price paid by NPF;
(c) The relationship between Mr Alopea and Mr Wanji was criminal in nature. Mr Wanji received
more than K11,280 from which he personally benefited. Mr Alopea and Mr Wanji should be
referred to the Commissioner for Police for investigation.
Country-wide Business Supplies
The commission has found that Mr Wanji received commission from Christopher Enara of Country-
wide Business Supplies.
The commission inquired into Cando Investment and Stephens Enterprises. The investigations
showed Mr Wanji received corrupt commissions from these companies.
At paragraph 126.96.36.199, the commission found that:
(a) Given the weak internal control procedures, Mr Wanji used to decide, almost at will, how much
to buy and from whom during the period covered. These weak controls resulted in Mr Wanji
obtaining benefits from suppliers including the purchase of stationery and office supplies from his
company, Laiks Printing;
(b) The benefits Mr Wanji received from the suppliers were in fact “bribes” or “commissions” and
Page 2 of 190
(c) The commission considers that there is sufficient evidence of criminal offences of the nature of
conspiracy to defraud. The commission recommends that Mr Wanji be referred to the
Commissioner for Police for further investigation.
Funds obtained from NPF housing advances scheme Cando Investments
Mr Wanji applied for and received K2200 from the NPF Housing Advance Scheme for repair and
maintenance work to his house, to be carried out by Cando Investment, which had quoted for the
work. However, this money was not used for the said work on the house.
Mr Wanji claimed he engaged another contractor to do the quote, which was completely different
from the quote used to obtain the money.
He then requested and benefited from the refund from Cando Investments.
At paragraph 188.8.131.52, this commission has found that:
Simon Wanji dishonestly obtained the payment of K2200 from Cando Investments for his own
benefit. The money had been provided by NPF to Cando Investment for a different purpose.
A similar situation occurred with two other NPF officers, Max Noah and Kanora Aua, who requested
money from the Housing Advances Scheme and used the money for other purposes than they
stated in the request form.
At paragraph 13.8.5, this commission has found that:
(a) NPF advanced the funds for specific work to be carried out by Cando Investments. However, Mr
Wanji, Mr Noah and Mr Ava obtained the funds from Cando Investments and either used the funds
for a different purpose or arranged for the work to be carried out by a different contractor or both,
which was contrary to the purpose for which NPF advanced these funds;
(b) Cando Investments appears to have been a facilitator of these arrangements, taking a 10 per
cent commission. The funds should have been reimbursed to NPF but Cando Investments failed to
do this and in repaying funds to the NPF member, enabled that person access to his funds not
available to other members;
(c) The payments from NPF to Cando Investments may have been made on false representation.
Cando Investments may have facilitated obtaining from NPF under this false representation and
later paid those funds (less commission) to the NPF member;
(d) The commission considers that there is sufficient evidence of criminal conduct and
recommends referral of the following persons to the Commissioner for Police for further
investigation as to whether the offence of obtaining money by false pretence or by fraud or
conspiracy to defraud has been committed. Simon Wanji, Max Noah, Kanaro Ava and Pere Enara of
(e) The following matters should also be referred to the Police for investigation:
• Suspicious payments made by suppliers to Mr Wanji;
• Mr Wanji’s dealings with Laiks Printing and Bubia; and
• Mr Koae’s dealings with Bubia.
At paragraph 14, the commission concludes::
The commission’s investigations have shown that at the beginning of the period under review,
there was some attention given to calling for tenders and seeking competitive quotations for
procurement of some of the goods and services examined in this report.
Page 3 of 190
As time went on, these frail attempts to comply with proper procedures lapsed and management
increasingly ignored the concept of obtaining competitive quotations.
Management also ignored the need to keep the NPF board informed or seek its approval.
This gross laxity allowed the development of nepotism and criminal acts to defraud the NPF.
It is a very sad story for which NPF senior management is primarily to blame. The NPF trustees,
however, had a fiduciary duty to ensure the fund was well managed and its finances were
They failed this duty totally. The abuses were so noticeable that the trustees’ failure to notice and
address it, constitutes a breach of their fiduciary duty to the members of the fund and may
constitute a breach of the Leadership Code by all trustees who held office during the period under
review. This matter should be referred for consideration by the Ombudsman.
Schedule 10 Exemptions:
On June 29, 1981, a general exemption was granted to all organisations which were engaged in:
(i) Agriculture industry organisations involved in production of crops or livestock;
(ii) Agriculture processing organisations (including veneer and plywood industries) who are
involved in the first stage of processing of agriculture and livestock products, but excludes
industries involved in the production and/or processing of fish and other forest products.
This exemption was continued by a series of extensions. On September 30, 1993, Sir Julius Chan
exempted all coffee growing and processing establishments “until further notice”.
These general exemptions and extensions for these classes of establishments ignored the very
different types of employees in the industries, which ranged from low paid casual rural workers to
skilled managers and accountants. Under the exemptions all employees were precluded from
joining and contributing to NPF.
Coffee Industry Corporation (CIC) proposes a superannuation scheme
This differentiation in types of employees was highlighted when CIC endeavoured to set up its own
superannuation scheme for its skilled employees in January 1996.
The NPF board directed management to recommend that the Minister should lift the exemption in
relation to the coffee industry so that appropriate employees could join NPF and so employer
contributions could be enforced, but enforced fairly “noting the seasonal nature of the industry”.
Exemption lifted throughout coffee industry
Minister Haiveta lifted the exemption as it applied to all establishments in the coffee industry,
without regard to the different classes of employees, leaving NPF to sort out with individual
employers which employees would be covered.
This ad hoc decision-making was unsatisfactory and did not address the same problem, which
applied to other exempted agricultural industries.
At paragraph 9.1.2, the commission found that:
(a) Because of the predominance of low paid seasonal rural workers and the low product prices, it
was decided to grant relief to this sector by way of a general exemption to those organisations in
the agriculture industry and processing. However, there were other employees who were
employed by these agriculture establishments who were located and employed in urban areas and
were receiving higher urban wages. When granting the exemption to the agriculture sector in
1993, this difference should have been taken into consideration so that those higher paid
employees in urban areas are given the opportunity to contribute to the fund;
Page 4 of 190
(b) When the exemption applying to the coffee industry was lifted in May 1996, the difference
between permanent, urban, casual and rural employees was again not sufficiently addressed and
the lifting of the exemption simply applied across the board to all establishments in the coffee
sector. This led to ad hoc decision making and confusion in the application of the Act.
Specific Exemptions Already Granted
According to documents obtained from the Office of Legislative Counsel, the following
establishments have been exempted by the managing director under Section 42 of the Act, as
they had superannuation schemes at least as favourable as the NPF scheme and the Minister was
satisfied the employees wished the exemption to be granted: Bougainville Copper Ltd exempted in
1984 and again in 1986.
Ok Tedi Mining Ltd was exempted in May 1991. From February 1994 until late 1997, the NPF board
and management made half-hearted attempts to encourage the unions to lead the OTML
employees into the NPF, as OTML management had expressed its willingness. It seems Mr Leahy,
Mr Paska and Mr Leonard failed to follow through on this matter. Despite being exempted under
Section 42 of the Act, OTML remained liable to report on its superannuation scheme as directed
pursuant to Section 43. This was not followed up by NPF.
At paragraph 10.2.1, the commission found:
(a) The statutory instrument does not expressly exempt OTML from Section 43 of the Act;
Management failed to advise OTML of this factor during their discussions;
(b) Trustee Leonard failed in his fiduciary duty to the board and NPF by not completing the task
given to him by the board through a proper board resolution and his failure to advise the board on
the progress or otherwise, about OTML staff move to join NPF.
(c) All trustees and NPF management failed in their duty to proactively pursue the possibility of
engaging OTML employees in the NPF scheme.
(d) The exempted establishments remained bound by Section 43 to report to NPF as directed. NPF
failed to follow through on this aspect.
National Provident Fund Final Report [Part 84]
Executive Summary Schedule 9 Continued
Tender Procedures and Nepotism
Management contract price in excess of NPF Board approval
The total cost of the new AS400 machine was within the amount approved under Section 61 of the
PF(M) Act. However, the amount paid was greater than the earlier quotes provided by Datec to
NPF and on which the board provided its original approval.
Evidence given by Mr Ta’eed and Mr Vere of Datec
Mr Ta’eed gave evidence (Transcript pp. 8128-42) that:
• The AS400 which NPF had was over utilised;
• Datec had advised NPF that a performance analysis of the computer system was required;
• The return advice revealed that the system was too small for NPF’s needs, which was already
Reasons for choosing the AS400
Mr Ta’eed advised that:
• The software NPF required ran only on AS400 machines;
Page 5 of 190
• A different machine with a different software had to have everything converted to the AS400,
which is exactly what happened in 1993 when NPF moved from the McIntosh system to AS400.
• NPF was the only authorised reseller of IBM equipment in PNG and the only service centre in PNG.
At paragraph 184.108.40.206, the commission found that:
(a) Once NPF had committed itself to Datec and purchased both software and sophisticated unique
hardware it, was hooked into Datec/IBM with Datec being the only supplier in PNG. There was then
no scope for seeking competitive tenders; and
(b) NPF management and trustees failed their duty to NPF members in not seeking independent
expert opinion and advice before making this commitment to Datec.
There were imperfections in NPF accounting records for the financial years 1998 and 1999 as
mentioned in paragraph 12.6.
Computer purchase in 1999
See previous table
Disposal of computer equipment in 1999
The fixed asset register did not record any disposal of computer equipment in 1999. However, old
Y2K non-compliant computers were disposed of by tender, restricted only to NPF staff. This
method of disposal of assets can be criticised as a form of nepotism. Clearly, NPF did not
determine the market values of these computers and therefore would have lost substantial income
for its members.
At paragraph 12.7, the commission has found that:
(a) NPF management were in breach of Section 61 of the PF(M) Act by not seeking board and
Ministerial approval for the additional expenditure incurred in the purchase of the new computer
(b) Management failed in their fiduciary duties for not seeking the maximum price for the used
PC’s and other computer equipment sold during this period;
(c) THE Board and Management failed in their fiduciary duties to seek a second opinion about the
new computer hardware they were purchasing;
(d) The sale by tender of PC’s and other computer related hardware to staff, without obtaining a
proper market value for them, is deemed an act of favouritism and nepotism and loss of additional
income to members of the fund; and
(e) Mr Wright exceeded his financial delegation in approving a Bloomberg Screen for his own office
use, costing K41,515.03. He is personally liable for the loss suffered by NPF because of this
Procurement Of Stationery And Office Supplies
NPF’s financial statements for 1995 to 2000, recorded various costs for stationery and office
Costs were constant from 1995 to 1998 but took a quantum leap in 1999.
While the commission understands that some increases can be attributed to the general increase
in cost in the country due to economic factors in 1999, the increased cost in stationery and office
supplies cannot be fully explained by such economic factors.
This view is clearly supported by the fact that stationery and office supplies cost for 2000,
returned to its normal level.
Page 6 of 190
The main report (Schedule 9), seeks, in particular, to identify whether:
• There was failure to comply with tender procedures;
• Such failures benefited any person;
• There was any conflict of interest in the procurement of these services.
• There was any conflict of interest in the procurement of these services.
Summary of suppliers used between January 1, 1995 and December 31, 1999
Out of the total 10 suppliers listed, only four are commonly recognised suppliers. There was also
an increase in the amount of purchases from unrecognised suppliers.
The Finance Department inspectors report also uncovered numerous procedural irregularities and
weaknesses in this area. The same was found by the Auditor-General in his audit of financial
statements for the years ended December 31, 1998 and 1999.
The state of control over procurement, recording and payments — 1995 to 1999
Simon Wanji was responsible for ordering stationery and office supplies. There was no
management control over what Mr Wanji was doing.
The only control at the time was that each order had to be accompanied by three written quotes.
Normally in many companies, the monies for goods received would be recorded in the creditors
ledger and paid after 30 days.
The NPF accounting package used in the period 1995 to 1999 did not have an auditor’s subsidiary
ledger. Creditors were only recommended at year-end for reporting purposes, based on
unmatched work orders, purchase orders and claim forms.
Payment of creditors
Payment of creditors was ad hoc. NPF did not operate a scheduled payment policy.
Review of payments made
Documentation of the procedures in place between 1995 and 1999 in respect of procurement,
recording and payment, reveals crucial weaknesses and in particular, the lack of segregation
between ordering and receiving goods, and recording liability and payment to suppliers. Given this
situation, there was a high risk of nepotism, fraud, theft and errors occurring and remaining
• There was a complete lack of segregation of duties, and functions between ordering, receiving,
recording and payment for goods which were, in almost all instances, performed by one officer, Mr
• The minimum number of three written quotes were not always obtained;
• Payment requisitions did not always indicate that the cheque raised was for goods and services;
• A creditors subsidiary ledger was not maintained.
Evidence before this commission indicated that Mr Wanji derived substantial benefits while in his
position as officer in charge of accounts payable.
It is also evident that Siri Koae, through his wife, might have also derived benefits but it was to a
much lesser degree.
At paragraph 13.5.5, the commission has found that:
Page 7 of 190
(a) There were inadequate procedures in place regarding the procurement, recording and payment
of stationery and office supplies. These weaknesses are a significant break down in the control and
safeguard of NPF finances;
(b) The controls, which were in place for the procurement, recording and payment of stationery
and office supplies, were weak and therefore provided the conditions for nepotism and employee
fraud to occur and remain undetected;
(c) Management failed to address procedures for a long time. Through the review of the payment
vouchers the commission has come across written notes by Ms Dopeke and once by Henry Fabila,
notifying Mr Wanji to obtain three quotes and queries as to why so much stationery was being
purchased. These comments were ignored;
(d) These weaknesses resulted in nepotism, “bribes” and other benefits to staff at the expense of
(e) Mr Wright and Ms Dopeke failed in their duties to the board to identify weaknesses and install
appropriate controls and procedures in the financial management of the fund.
Mr Koae was the manager of the NPF Lae branch between October 1993 and January 1999.
Mr Koae gave stationery and office supplies orders to Bubia, a firm of which his wife, Ms Lari, was
co- owner. Ms Lari was also a director of Laiks Printing, a company that provided stationery and
office supplies to NPF.
Mr Koae maintained that he received no benefits from Bubia or Laiks Printing.
At paragraph 13.7.4, the commission has found that:
While the evidence does not disclose any criminal act by Mr Koae, his actions were in the
commission’s view, improper and dishonest in that he disclosed quotes of other competitors to
Bubia and failed to disclose his clear conflict of interest to NPF management.
There is a clear case of nepotism.
Examination of benefits received by Mr Wanji
Mr Wanji was a director of Laiks Printing as well as a cheque signatory on its cheque account.
Ten of 15 quotes from Laiks Printing were obtained verbally by Mr Wanji and he recommended
that NPF purchase from Laiks Printing.
National Provident Fund Final Report [Part 83]
Executive Summary Schedule 9 Continued
Ken Yapane & Associates
Ken Yapane & Associates were employed to refurbish an office on the ground floor of NPF’s Head
Office. This work was not tendered and Ken Yapane was paid an exorbitant K40,000 contract sum
in advance without any work being done on the office refurbishment. He paid half this amount
back to Mr Maladina.
This same Ken Yapane was also involved in the NPF Tower fraud when Mr Maladina utilised Mr
Yapane as a notional contractor and laundered money through his bank account to transfer money
from Kumagai Gumi to Carter Newell’s office.
Mr Maladina paid Mr Yapane a generous commission for his service. The similarities between Mr
Yapane’s role in the Tower fraud and this office refurbishment contract are compelling. In both
Page 8 of 190
cases, the payment from Mr Yapane to Mr Maladina was laundered through the Carter Newell John
Losuia account then paid to Mr Maladinas company, Kuntila No. 35 Pty Ltd.
The commission has found that the advance payment to Mr Yapane of K40,000 for work he did not
do was improper, that Mr Leahy was knowingly involved and that the ultimate beneficiary was Mr
At paragraphs 9.3.5 and 9.6.1, the commission has found that:
(a) The advance payment to Mr Yapane & Associates was improper. Management, and more
specifically, Mr Leahy should be held responsible as he was the one responsible for authorising this
(b) Mr Leahy was responsible for fabricating the minutes of a fictitious NPF board resolution
increasing his financial delegation to K50,000 in order to enable him to authorise the payment of
K40,000 to Mr Yapane;
(c) Mr Leahy should be held accountable for improperly paying K40,000 to Mr Yapane because no
work had been or was done;
(d) Management failed in their fiduciary duties to properly tender this job and obtain board
approval for this expenditure;
(e) The fact that Mr Maladina demanded and received at least K20,000 of the fees paid to Mr
Yapane is grossly improper;
(f) The evidence of criminal interest and association coupled with the evidence of similar conduct
in the NPF Tower fraud involving the same persons strongly suggests that there was a criminal
conspiracy to cheat and defraud the NPF involving Mr Maladina, Mr Leahy and Mr Yapane which
was successfully implemented; and
(g) MR Maladina, Mr Leahy and Mr Yapane should be referred to the Commissioner of Police to
consider whether criminal charges should be laid against them.
In September 1996, Hon. Chris Haiveta wrote to Mr Kaul and requested a donation towards the
payment of sing-sing groups that were to perform at an NEC meeting in Vanimo.
Mr Haiveta has given evidence (Transcript p. 8477) that he asked NPF management if they could
He was not told that NPF was not able to help. He said (Transcript p. 8479) that at the time he
requested NPF to help, NPF had previously given donations and sponsored other activities like
Mr Kaul responded positively to this request.
At paragraph 9.7.1, the commission has found that:
(a) MR Haiveta’s request for K1600 was improper and he should be referred to the Ombudsman
Commission to consider taking action for a breach of the Leadership Code;
(b) THE decision by Mr Kaul and Mr Wright to agree to the payment was a breach of their duty to
the members of the fund and amounted also to improper conduct;
(c) AS Mr Kaul was subject to the Leadership Code, he also should be referred to the Ombudsman
Disposal Of Assets
During the period covered by this enquiry, NPF disposed of some office furniture and equipment
through tenders restricted to NPF staff members and by “in-house” raffles to fund Christmas
parties and the like. This action by management deprived members of the fund from realising
maximum financial benefits from the sale of these assets.
In paragraph 10.3, the commission has found that:
The sale of NPF assets, such as the Kwila table and television and video deck, to staff without
determining a reserve price for the items and without open tender, can lead to accusations of
Page 9 of 190
nepotism against NPF management. This method of disposal is also contrary to Government
procedures on disposal of assets by organisations like NPF.
Procurement Of Computer Hardware And Software
It is relevant to note that the underlying data of members records were held in the Niugini Assets
Management (NAM) operated system. At the February 18, 1993 board meeting, it was noted that
NPF were in discussion with NAM to purchase NAM’s system. At the July 30, 1993 board meeting,
the board resolved for management to explore other alternatives.
At the August 30, 1993 board meeting, the minutes show that management had negotiated a
lease arrangement with McIntosh Securities in respect of computer hardware and software. Datec
were appointed as advisers to NPF in late 1993, and undertook to review NPF’s software
requirements. Datec recommended in their proposal, that following Datec’s development of the
new software, NPF would be entitled to a 50 per cent interest in the proprietary rights, and that
Datec would market the software to other clients.
At the June 29, 1995 board meeting, the minutes record that NPF had shifted over to the new
computer system with effect from May 12, 1995. Datec recommended that NPF utilise an AS400
platform and that Datec would develop software tailored to NPF requirements. The suitability of
this recommendation was not challenged by NPF.
Cost of computers
The decision to develop the company’s own software on the AS400 platform, came at a significant
cost to NPF.
As at December 31, 1999, the following computer costs, including consumables, had been
Software development costs between January 1, 1995 and December 31, 1999 were as follows:
At no point did NPF management seek board or Ministerial approval for the extra expenditure,
other than obtaining original approval to utilise K219,000 for the first phase of this project.
Computer hardware 1995
From the authorised auditors files, NPF had the following computer hardware as at 1st January
Page 10 of 190
According to the fixed assets register, NPF only acquired one computer and disposed of two
computers in 1996. The disposed computers were fully written down in the books. The commission
has been unable to determine what happened to these two computers.
The table below shows the status and value of computers held by NPF in 1997.
The table below shows computers purchased in 1997.
At paragraph 220.127.116.11, the commission has found that:
From the commission’s review of the pattern and manner in which NPF purchased computer
equipment, we find that:
(a) The purchase of computer equipment was adhoc and did not comply with annual budgets or a
specific IT plan;
(b) There is no evidence that NPF sought to negotiate better than normal prices with any supplier;
(c) From 1998 onwards, NPF purchased predominantly from Tanorama Limited and Datec, with no
documented attempts to extract better prices from these suppliers; and
(d) Judging by the payment requisition records, the purchases from Tanorama Limited and Datec
were made without reference to any comparison of prices from other suppliers.
There are imperfections in NPF’s accounting records for the 1998 and 1999 financial years because
the fixed asset register does not reconcile with the general ledger.
The following computer items “disappeared” from the register without explanation.
Page 11 of 190
• 1 Compliance Section PC;
• 3 IBM PC’s from MD’s office; and
• 1 UPS from operation.
With regard to the acquisition of other computers in 1997, NPF management obtained quotes from
various suppliers before making a commitment to purchase the equipment.
There is no documentary evidence found by the commission that would suggest that NPF
management or the trustees sought to establish a documented and formal purchase policy in
respect of computer equipment.
The purchase of computer equipment, particularly at NPF where IT is a critical function, required
careful scrutiny by management and the trustees, both in terms of enforcing an appropriate and
proper functioning system, but also because of the high level of cost involved.
Computers purchased in 1998
Chq No 20953, 15-Sep, Datec (PNG) Ltd, K587,837.07(amount), K587,837.07 (capital), AS400
hardware, 9406-620-2175, approved by board, See ref 2, no other quotes attached;
Chq No 0952, 15-Sep, Tanorama Ltd K9301.67 (amount), K4789.50 (capital), two P166
multimedia packs for Ms Dopeke / J Sema, approved by Ms Dopeke, within delegation, no other
Chq No 20952, 15-Sep, Tanorama Ltd, K2220 (capital), one P166 mmx 15” monitor, approved by
Ms Dopeke, within delegation and no other quotes;
Chq No 20952, 15-Sep, Tanorama Ltd, K695 9capital), HP Scan jet Desktop scanner, approved by
Ms Dopeke, within delegation, no other quotes;
Chq No 20952, 15-Sep, Tanorama Ltd, K955.75, procurement plus set up, approved by Ms
Dopeke, within delegation, no other quotes;
Chq No 20252, 27-May, Tanorama Ltd K21,060.86 (amount), 26,450.40 (capital), 12 P166MMX
16Mb RAM 2.5gb, 15”, approved by Mr Wright, see ref 1 below, no other quotes;
Chq No 20253, 28-May, Tanorama Ltd, K9146.40 (capital), four P166MMX 32Mb RAM 2.5gb, 15,
no other quotes;
Chq No 20254, 29-May, Tanorama Ltd, K700.40 (capital), software, no other quotes;
Chq No 20255, 30-May-98, Tanorama Ltd, K1814.86 (capital), procurement charges, no other
Cheq No 20256, 31-May-98, Tanorama Ltd, K3840 (capital), set up costs, no other quotes;
Chq No 20256, 31-May-98, Tanorama Ltd, K169.65 (capital), sales tax, no other quote;
Chq No 19892, 27-Mar-98, Tanorama Ltd, 21,060.86 (amount), items detailed above, approved by
Mr Wright, see ref 1 below, no other quotes
Chq No 19665, 26-Feb-98, Datec (PNG) Ltd K8667.56 (amount), K5065.54 (capital), two Datec
Millennium internet and monitor, approved by Mr Wright, within delegation, no other quotes;
Chq No 2108, 24-Jun-98, Datec (PNG) Ltd, K64,129.97 (amount), K64,129.97 (capital), 10 per
cent deposit on AS400 machine, approved by Mr Wright, see ref 2, no other quotes.
Purchase of AS400 machine
The purchase of the new AS400 computer hardware seems to have resulted from concerns about
the “Year 2000 Bug” and the capacity and efficiency of NPF’s current computer system to cope
beyond the year 2000.
Failure to seek analysis by an Independent expert
Quite glaringly, NPF did not seek independent advice about the AS400 machine. However, it is
apparent that NPF relied on Datec’s recommendation. There is no evidence that NPF sought a
second opinion on its proposal to purchase this AS400 machine from an independent computer
Page 12 of 190
National Provident Fund Final Report [Part 82]
Executive Summary Schedule 9 Continued
Fees Paid to accountants in 1996 1997 and 1998
The situation in 1998 remained basically the same as the previous three years. However, as far as
outsourcing of accounting work was concerned, a significant part of the costs at the end of 1998
was charged to 1999 accounting cost.
When Noel Wright (a qualified chartered accountant) left in January 1999, the responsibility for the
accounting positionmoved to Salome Dopeke.
Page 13 of 190
The commission finds that Ms Dopeke was not suitably qualified and experienced and lacked
appropriate skills to take on this role. A draft section 8 letter prepared by the authorised auditors
for the year ended December 31, 1998, included items that deal with weaknesses in the
accounting area and requested NPF to address these weaknesses.
NPF therefore sought out accounting firms to assist them in having their accounts brought up to
Appointment Of Ram Business Consultants (Ram)
Jimmy Maladina engaged this firm as auditors and investigators for Crocodile Catering. The
engagement was made without reference to the Crocodile board or the shareholders, (the NPF
board). This appointment was made contrary to proper tender procedures. This firm was also most
expensive. This commission considers the fees charged by Ram were excessive for the actual time
they worked for NPF.
Appointment Of Pricewaterhouse Coopers (PwC)
Fees paid to PwC were related to several distinct engagements. This commission found that work
performed by PwC was agreed to in advance between NPF and the firm, and was confirmed by a
letter of engagement. It is noted that NPF sought quotes before engaging PwC.
Fees paid to Accountants in 2000 relating to 1998 and 1999 financial statements
In 1998 and 1999, KPMG billed additional audit fees direct to NPF for additional work in assisting
NPF in the preparation of their annual financial statements in a format compatible with
International Accounting Standards.
Tender Procedures Adopted In November 1999.
From 1995 to 1999, NPF management used its discretion to appoint key advisors and professional
service providers. Then in early 1999, chairman Mr Maladina made the appointments without
reference to the NPF board. This is contrary to normal procedures used by NPF in the procurement
of professional services, including accountants.
At paragraph 8.9.6, the commission has found that:
Page 14 of 190
(a) During the period January 1, 1995 to December 31, 1999, NPF engaged the services of the
following accounting firms for various accounting and tax related services:
• Ernst & Young in the period 1995 to 1998 as tax agents and tax advisers;
• Deloitte Touche Tohmatsu in 1999 as tax agents and tax advisers and to do sundry accounting
services with regard to the Ambusa Copra Oil Mill Project;
• PwC in 1999 as business advisers including inter alia a review of the fund’s investment portfolio
and a review of the financial position at December 1999;
• Ram in 1999 for accounting assistance (and in particular the completion of bank reconciliations for
• Auditor-General — for the 1995 to 1997 financial years authorised auditor was Deloitte Touche and
for 1998 to 1999, the authorised auditor was KPMG;
(b) Almost without exception, NPF did not seek to tender the fund’s tax and accounting related
work and as such NPF management failed to ensure the fund received the most cost effective
service during the period 1995 to 1999;
(c) Following the departure of Mr Wright in January 1999, the weaknesses in the fund’s accounting
systems and resources resulted in the need for the fund to out source accounting and business
advice from the abovementioned professional accounting firms;
(d) These weaknesses in the accounting function also resulted in the significantly high level of
additional audit costs levied by the authorised auditors, KPMG. In relation to the 1998 and 1999
financial statements, KPMG billed NPF direct contrary to normal procedures where audit fees are
usually billed by the Auditor-General;
(e) With the exception of Ram, there is no evidence that favouritism or nepotism existed in the
appointment of any of the professional firms. However, the lack of transparency and tender
procedures in the appointment of these professional firms leaves a general suspicion that
favouritism may have existed in relation to non-audit services, particularly with regard to Ram;
(f) There is considerable evidence connecting Rex Paki of Ram and Mr Maladina during the time
that Mr Maladina and Mr Leahy were actively conspiring to defraud the NPF. Mr Paki also received
benefits in the form of cash and airfares from the proceeds of those frauds;
(g) Examining the process of appointing Ram to provide services for NPF, the commission finds
that it was similar to Mr Maladina’s improper appointment of Ram as financial consultant for
Crocodile (see Schedule 3A);
(h) On all the evidence, the commission finds that the appointment of Ram by the NPF board,
which was not properly briefed, was strongly influenced by Mr Maladina. Mr Maladina’s co-
conspirator in the criminal conspiracy to defraud NPF, Herman Leahy, then proceeded to approve
the payment of Ram’s excessive fees without seeking the required NPF board approvals.
(i) The commission finds that the appointment of Ram and the payment of their excessive fees on
the approval of Mr Leahy constituted nepotism within the meaning of the commission’s terms of
(j) There also exists a significant level of concern as to the probity or otherwise of fees charged by
Ram. The limited documentary evidence in the form of the working papers, fees and
correspondence files, produced under summons to this commission by Ram, to support the fees
paid by NPF, indicates that the fees charged by Ram were excessive.
(k) Management acted in excess of their delegated financial authority by approving Ram’s fees
without referring them to the board.
Other Professional Services
During the period covered by this review (1995 to 1999), NPF hired other firms to carry out
specific work requirements. These firms are:
Page 15 of 190
1. Hay Group of Companies;
2. Ken Yapane and Associates
3. Freehill Hollingworth and Page;
4. E&S Groups;
5. Minao Surveys; and
6. Sogu Works.
The finance inspectors closely scrutinised the arrangements between NPF and the above firms and
concluded they were in order, with the exception of Ken Yapane and Associates. The commission
accepts and agrees with those findings.
National Provident Fund Final Report [Part 81]
Executive Summary Schedule 9 Continued
Mt Tapi Brothers
Mt Tapi Brothers Ltd (MTB) had associations with Mr Skate as it provided security services for the
Prime Minister’s residence and family and for some of his Ministers. The telephone contact number
MTB provided NPF was one of Mr Skate’s official numbers. Also at a later date, Mr Skate actively
intervened on behalf of MTB (see below).
Mt Tapi Brothers Forceful Initial Approach
On February 23, 1999, MTB offered to provide security for all of NPF’s properties. In its initial
letter it pointed out its close connections with the Prime Minister and enclosed a draft contract. Mr
Fabila received the letter on February 24, 1999 and immediately granted a contract to MTB, in the
full knowledge that NPF was contractually bound to Metro and Kress.
On February 26, Mr Fabila wrote to Kress and Metro arbitrarily terminating their contracts as from
February 28, enclosing cheques for payments due to that date.
Mr Fabila also wrote to MTB granting a 12-month contract, with a three-month probationary
period. He then wrote to Century 21, which was still managing NPF properties, directing them to
terminate any current security contracts for the investment properties and to make way for the
new security guards to commence work from 1st March 1999.
Metro accepted the termination of its head office contract without a fight.
Kress on the other hand demanded K199,844.80 for wrongful termination of its contract. Kress
received K8283.60 from NPF for the Nine-Mile properties for January and February and
K22,754.40 for its other contracted properties prior to its contract being terminated. Its claim for
breach of contract was eventually settled out of court for K40,684.80 (being three months
payment in lieu of notice plus costs).
Mr Leahy prepared a contract on March 29, 1999 granting the security services for all NPF
properties to MTB. The contract followed the draft presented by MTB with a few very minor
The first invoice for the period March 3, 1999 to April 7, 1999 was a phenomenally high K45,792,
yet reports were being received that the service was very poor. When Mr Fabila complained about
the exorbitant cost, the number of guards was cut from 52 down to 17. From March to August
1999 the complaints about the MTB security guards were pouring in.
NPF records show that the following payments were made to MTB in 1999: (See table)
Page 16 of 190
In October 1999, the NPF board resolved to terminate
the services of MTB for the properties being sold off by NPF and the purchasers were advised that
they could contact MTB if they wished to reemploy that firm. This resulted in MTB instituting court
proceedings claiming K200,000 from NPF, which had been rejected by the NPF board.
On June 21, 2000, Shirley Marjen noted on an NPF file:
“File Note — Tapi Bros Security Service Bill Skate phone me at home on 20/06/00 at about
8.00pm asking me if I could assist with Mr Tapi Bros claim of about K200,000.00 I told Mr Skate
that it would not be possible as NPF had objected to the claim and that Mr Tapi Bros can proceed
to sue NPF if it wished to.
“I also told Mr Skate that if the matter went as far as the National Court, NPF would defend the
matter vigorously.” (Exhibit N401)
In evidence to the commission on December 12, 2001 (Transcript pp. 9897-9902), Mr Skate
admitted that the head of MTB Mr Okil, was employed on his Prime Ministerial staff and that MTB
provided security services for himself and his family. He denied holding any interest in MTB or
putting pressure on NPF to employ MTB. He said that if MTB played upon its close association with
the Prime Minister, it was without his knowledge or authority.
(a) Both Mr Fabila and Mr Leahy failed in their duty to NPF in the way they handled the security
services arrangements. As a result of these failures, NPF:
(i) suffered a K41,684.80 loss, paid to Kress Security, plus the related legal costs paid to
(ii) may well be at risk of a similar claim or suit by Metro Security;
Page 17 of 190
(iii) paid the very large security bill for the period March 3 to April 7, 1999 (K45,792) which, as
later costs show, was for services vastly in excess of NPF’s reasonable security service needs; and
(iv) faces possible further risk in the pending litigation with MTB.
(b) Mr Fabila and Mr Leahy face personal liability to NPF in relation to their failures outlined above
which led to NPF’s loss. They would have great difficulties pleading a defence of “acting in good
(c) Mr Fabila and Mr Leahy disregarded the proper tendering process when engaging MTB;
(d) The commission finds that nepotism and political interference were operating in the actions of
Mr Fabila and Mr Leahy in their handling and engagement of security firm MTB; and
(e) The action by Prime Minister Skate in telephoning Mrs Marjen on behalf of MTB was improper
conduct. The commission recommends that the constituting authority refer this matter to the
Ombudsman Commission to investigate Mr Skate’s conduct and his possible links to MTB to
consider possible breaches of the Leadership Code by Mr Skate.
As MTB’s legal proceedings in the National Court against the NPF are still pending, the commission
refrains from further comment about the roles of the various persons involved.
The finance inspector’s report, which examined and detailed irregularities in the security contracts,
is summarised in paragraph 7.8.1. The finance inspectors focused on the failure to call tenders;
failure to verify invoiced charges; advance payments; overpayments; extra legal amendments and
failure to obtain the authority of the NPF Board of Trustees. The schedules to the finance
inspectors report contain details of persons who authorised all the payments referred to and
detailed calculations of the overpayments made to Kress Securities of K7632 (Schedules 3.1 and
3.2) and overpayments to MTB of K16,896 (Schedule 3.5). No attempt has been made by NPF
management or the board to recover these amounts.
The commission records its agreement with the finance inspectors findings on these matters.
120th NPF Board Meeting
At the NPF board meeting on September 29, 1999, Trustee Jeffery and Mr Mitchell asked detailed
questions about the failure to tender security contracts; the termination of Kress and the
appointment of MTB without competitive tenders. Mr Fabila’s answers were very unsatisfactory
and it was resolved that:
“It was resolved that all security contracts adhere to proper tender procedures. It was further
(i) THAT the vendor for each property sold be advised in writing after contracts of sale be
exchanged and that security on the property then becomes the purchasers responsibility;
(ii) THAT MT Tapi Brother be advised that their services are no longer required for each property
when sold, however, allowing for the appropriate time for vendors to engage new security
(iii) THAT NPF put out tenders for the Tower and remaining properties;
(iv) THAT at the end of the property rationalisation that MT Tapi Brothers be given three months
notice of termination.” (Exhibits N423-4)
The now active NPF board held a special meeting on October 8, 1999 to consider a special report
by Mr Jeffrey and Mr Mitchell. Mr Leahy was given time to answer searching questions. His reply,
when it came, was evasive.
The changing of security arrangements in 1999 entailed breaches of contract and unnecessary cost
to NPF. As corporate secretary, legal counsel and operations manager Mr Leahy had a duty to give
proactive advice to Mr Fabila and the NPF board on these matters. He failed in that duty.
Page 18 of 190
At paragraph 7.8.4, the commission has found:
(a) NPF paid Metro Security K6830.20, Kress Security K8283.60 and MTB K199,560 for security
services in 1999, aggregating K214,673.80. In addition, the payment of damages and legal costs
made to Kress Security of K41,684.80, increased this total to K256,358.60 (It is necessary to deal
with a single total, as the payments to MTB have not been split, in the commission’s calculations,
between head office and other properties);
(b) The actual security costs included in the 1999 Income and Expenditure Account are; K223,223
for “Rental Property Expenses” and K54,542 for “Head Office Expenses”, aggregating K277,765.
The difference of more than K21,000 cannot be explained by adopting a cash against accruals
basis of calculation and the commission is not able to explain a difference of this magnitude;
(c) The decision by Mr Fabila to terminate the less costly services of Metro and Kress and to
appoint the more expensive MTB was made in two days, without competitive bidding or advice. It
cost NPF dearly in terms of:
(i) A payout to Kress of K41,684.80 for breach of contract;
(ii) AN enormous initial bill of K45,792 from MTB for the first month for services, which were
massively in excess of NPF’s actual needs;
(iii) THE legal risk to NPF of a like wrongful termination suit from the second terminated contract;
(iv) litigation now pending before the National Court by MTB whose services, under a legally
deficient contract, were also subsequently terminated.
(d) MR Leahy was remiss in his duty in not proactively advising Mr Fabila against the foolhardy
course on which he was embarking; (e) The contract awarded, without contest, by Mr Fabila to
MTB Ltd was politically influenced by the close association with that company of Mr Fabila’s
political appointer, the former Prime Minister Hon. Bill Skate and constitutes an example of
nepotism in the award of that contract.
The commission concluded that:
“As with other topics in this report, it does seem that in 1994-5, both the NPF board and senior
management appreciated the need to tender and obtain competitive bids for the provision of
security services for the NPF Head Office and for the NPF properties rented to third parties.
Even then, when tenders were obtained and considered in March/ April 1995, there were
competitive tenders for the rental properties only, but not for the head office. The board of
trustees made the decision to contract in this instance.
Thereafter and until the end of 1999, all NPF security service contracts were let without tender and
without any competitive bidding process and contrary to Government procedures for the
procurement of services.
The board of trustees was only consulted once during this period — in October 1996 — over the
change of security provider at NPF’s head office. On that occasion the board delegated the decision
Otherwise, all other decisions about security services were made at management level.
The situation reached absurd proportions in February/March 1999 when Mr Fabila made a hasty
decision to terminate the services of the two contracted security providers in favour of a single
more expensive alternative — Mt Tapi Brothers Limited.
He did this without seeking advice or making inquiries and did so without referral to the NPF
Procurement Of Accounting Services Background
Page 19 of 190
In house accounting capabilities during the period under review were as follows.
Noel Wright, a qualified Chartered Accountant who was originally employed as compliance
manager, later became finance and investment manager and deputy managing director. He
resigned from NPF in January 1999. He was replaced by Rod Mitchell who is not a qualified
accountant. This was the time when NPF struggled to come to “grips” with its financial crisis.
Salome Dopeke was the chief accountant — she was a graduate accountant but had not passed all
her PNGIA examinations and as such was not a formally qualified accountant.
It is therefore important to note that the accounting capabilities of NPF were weak and lacked
professional efficiency and effectiveness. There were other specialised accounting requirements,
which were outsourced to local accounting firms in Port Moresby.
Fees Paid To Accountants — 1995
Other than the above fees and audit related fees there were no external accounting fees incurred
in 1995 and it is inferred all other accounting needs were satisfactorily handled in-house.
NPF utilised the services of the accounting firm Ernst & Young as tax agent from 1995 to 1998.
There is no evidence of favouritism or nepotism in the appointment and continued engagement of
Ernst & Young.
The audit of the financial statement of NPF is the responsibility of the Auditor-General’s office
(AGO). In the case of NPF, the AGO subcontracted Deloitte Touche Tohmatsu to audit NPF’s
accounts until the year ended December 31, 1997. There was scope for nepotism by NPF in this
National Provident Fund Final Report [Part 80]
Executive Summary Schedule 9 Continued
Outsourced legal fees for 1999 are reported in paragraph 6.4.7.
The state of the NPF records makes it difficult to separate fees for general work from investment
related legal work so they are considered together.
The total comes to K442,648.12 plus $A871.90 paid to 11 different firms.
The massive amount of K202,023.46 went to Carter Newell (and an extra K17,602.58 described at
Maladinas Lawyers was paid K17,653.50 for work which should have been handled “in-house”,
including K5000 for fees relating to the Employers Federation challenge to Mr Maladina’s
appointment, which should not have been paid by NPF at all.
Both large and small matters were briefed to Carter Newell in 1999.
Page 20 of 190
(a) Substantial fees were again paid to offshore legal firms in relation to the $A bond (Allen Allen &
Helmsley) and the Cue Energy Resources situation (Freehill Hollingdale & Page) on the basis of
their complexity and the need for specialised legal expertise;
(b) Fees paid domestically for board restructure advice (from Allens Arthur Robinson) and some of
the work referred to Maladinas, Fiocco Posman & Kua and Carter Newell, were properly outsourced
because of the complexity and the need for specialised legal expertise;
(c) There is insufficient detailed evidence to enable the commission to comment on matters
referred to other firms;
(d) There is a discernable trend whereby more work was referred out to external lawyers, which
should have been capably handled by NPF’s “in-house” lawyers; and
(e) The level of fees suggests that matters of lesser significance were also referred to Pattersons,
Henaos and Young & Williams.
The commission summarises the evolving situation regarding outsourcing legal frees at paragraph
In the period under consideration, external legal fees paid by NPF for work outsourced grew in the
period under review as follows:
To a very large extent, the massive increases in 1998 and 1999 reflected the need to obtain
expert and specialised advice in relation to legal transactions in which NPF became involved.
It is equally apparent that there was an increasing trend to brief out to external lawyers matters,
which should have been within the competence of NPF’s “in-house” legal staff. This was reflected
in the legal fees paid in 1998 and 1999.
The clear major beneficiary of that trend was Carter Newell Lawyers and, to a lesser extent, Fiocco
Posman & Kua and an even lesser extent, Maladinas.
At paragraph 18.104.22.168, we said there may have been further legal fees paid to Blake Dawson
Waldron and Carter Newell after August 31, 1999 and that this might explain the difference of
about K21,000 in fees referred to on that page.
From NPF’s cheque payment records, the commission further extracted the following payments,
which were made after August 31, 1999, and not included in earlier material.
Gadens Lawyers (Adding to paragraph 22.214.171.124 and Transcript p.7589)
A payment of a further K2342.95 was made on December 21, 1999 for advice for Ambusa on its
copra oil purchase and sales agreement and operations management contract.
Blake Dawson Waldron (Adding to paragraph 126.96.36.199 & Transcript p.7592)
Two further payments were made:
(a) on November 8, 1999, for K9995.56 for advice as to a dispute with Boroko Motors; Pacific
Finance Superannuation Fund; debt restructure and a review of Garry Jewiss’ contract with
Page 21 of 190
(b) on December 6, 1999, for K26,743.77 payable to Blake Dawson Waldron Melbourne Australia
office, for advice on the sale of shares in Cue Energy Resources.
Carter Newell (Adding to paragraph 188.8.131.52 and Transcript p. 7595)
Three further payments were made:
(a) on November 8, 1999, for K6048.04 for advice as to exemptions under Part VII of the NPF Act
and for Mr Mitchel’s employment contract;
(b) on December 2, 1999, for K4087.79 for advice on NPF’s Investment Portfolio involving
Deutsche Morgan Grenfell; and
(c) on December 21, 1999, for K7466.75 for advice and work done on the sale of shares to NPF in
Kundu Catering; general matters on NPF Tower leasing and a claim by Cue Energy Resources.
The supporting vouchers and invoices are Part M of CD1226. The aggregate of these further
payments was K56,648.56 and results in the difference of K21,000 becoming an excess of
The commission’s accounting advisors have stated that this difference is probably explained by the
manner in which NPF has treated the VAT component in the payments made.
In late 1999, the finance inspectors and then the NPF board itself, carried out inquiries into
irregularities concerning Mr Maladina and Mr Leahy which included questions about their conflict of
interest in briefing legal work to Carter Newell, in which firm Mr Maladina was a partner and Mr
Leahy’s wife, Angelina Sariman, was employed.
Although their clear conflict of interest was raised with them, Mr Maladina and Mr Leahy vigorously
denied any conflict. Failure to put legal outsourcing out to tender was not, however, raised by the
As reported in paragraph 6.6.3, NPF started to brief Carter Newell only after Ms Sariman
commenced work with that firm. She was recorded as the work author for 46 of the first 50 new
files Carter Newell opened for NPF.
A calling for tenders for legal work was belatedly raised in October 1999 by Mr Giregire and an
advertisement was placed in the newspapers.
(a) Mr Leahy’s conflict of interest regarding outsourcing legal services to Carter Newell is clear.
When Mr Leahy briefed out work to this firm where his wife was employed as a lawyer. This
amounted to nepotism.
(b) When Mr Maladina became chairman of the NPF Board of Trustees, a further conflict of interest
clearly arose, as he was also a partner in Carter Newell;
(c) When Mr Leahy referred legal work to Carter Newell, of which the chairman, Mr Maladina, was
a managing partner, it was clearly nepotism. This was also improper conduct by Mr Leahy and a
breach of his common law duty to the NPF board;
(d) Mr Maladina never declared his conflict of interest to the board of trustees. This amounted to
improper conduct and a breach of his fiduciary duties to the members of the fund;
(e) Mr Maladina, as an equity partner in Carter Newell, benefited from legal work being referred by
Mr Leahy to Carter Newell;
(f) Mr Leahy benefited by having his wife employed and continuing to be employed for reward by
Page 22 of 190
(g) Paying overseas law firms through NPF’s account with Wilson HTM Brisbane, breached the
BPNG Foreign Currency Exchange Act and was therefore illegal; and
(h) Management breached normal government tender procedures by not going out to public tender
for the provision of legal services.
Procurement Of Security Services Pre-1995
The commission’s terms of reference requires it to examine the procurement of security services
for the period commencing January 1, 1995 until December 31, 1999. To understand the situation
at the beginning of 1995, however, it is necessary to look briefly at earlier events.
Awarding and terminating NPF’s contract with Kress Securities
On October 7, 1993, Mr Kaviagu, the NPF financial controller, awarded a contract to Kress Security
Services beyond the scope of his delegated authority and without following proper tender
procedures and evaluation. On December 8, 1993, Mr Kaul issued a memorandum directing that
tenders for security services must be submitted to him, with recommendations, for his approval.
On December 21, 1993, Mr Kaul declared the Kress contract to be null and void and put the
contract out for be re-tender. Kress refused to tender but sued NPF for breach of contract instead.
This matter was eventually settled out of court, with NPF awarding a 12-month contract to Kress,
(plus K4000 damages in March 1994), for all NPF’s investment properties except head office. NPF
also paid K4000 to Kress in damages.
Thus, at the commencement of the period under review, on January 1, 1995, there were two
security firms contracted to NPF.
• Moresby Guards — head office; and
• Kress — all other properties.
The contracts were to expire in March 1995 and tenders were called from a list of firms. The only
tender received for the head office was from Moresby Guards. Kress was the lowest of five
tenderers for the other properties.
At the NPF board meeting on April 27, 1995, Kress was awarded the contract for all properties,
including head office, at a cost per guard of K14,892 per annum.
(a) The only security contract let in 1995 was to Kress Security for all NPF properties. Tenders
were called and Kress Security was the lowest tenderer. Only one tender was received for NPF
head office security and no competitive bids were sought, even from Kress Security. There was
non-conformity with prescribed tender procedures but it seems clear that the rate offered by Kress
Security was the lowest;
(b) The NPF Board of Trustees was clearly informed and involved and itself made the decision to
contract Kress Security.
Kress Security was the only security provider for all NPF’s properties throughout 1996, however,
Mr Kaul became dissatisfied with Kress’ performance at the head office.
On July 29, 1996, Mr Kaul received a letter from a firm called Metro Security Services Pty Ltd with
a proposal to provide security at a cheap rate of K1.70 per hour. Without performing any due
diligence, Mr Kaul then recommended to the NPF board that Metro Security replace Kress at head
office. At the 103rd board meeting, on October 10, 1996, the Board resolved:
“to replace the current security service with another security service organisation to be decided on
by the management”.
This was a full delegation of its role in this matter to management.
Page 23 of 190
On October 25, 1996, Mr Kaul gave Kress three months notice, terminating its head office contract
from January 26, 1997. He expressly assured Kress it would continue to provide security for NPF’s
The commission has examined records of the payments to Kress throughout 1996 and finds that
they were in order. The details are set out at paragraphs 184.108.40.206 and 220.127.116.11.
(a) The amounts paid to Kress Security for head office security services in 1996 was K29,142.80.
This compares to the figure shown in the 1995 Income and Expenditure Statement and the same
figure for the comparables in the like statement for 1997;
(b) The amount shown by Century 21 statements for rental property security in 1996 was
K148,226.41 as against K149,491 shown in the Income and Expenditure statements. Again, the
minor differences are probably explained by the fact the commission’s figures are on a cash basis
and those in the Income and Expenditure statements were probably made on an accruals basis;
(c) No new security contract was actually let in 1996, but after being fully informed the NPF board
delegated the decision to management.
Contract with Metro
Mr Kaul awarded the head office contract to Metro on November 19, 1996, to commence on
January 26, 1997. Mr Frank then wrongly drafted the contract to also include five other NPF
properties over which the Kress contract was still in force. This resulted in double security for
some weeks until Metro agreed to withdraw from the extra properties on payment by NPF of
The commission’s research into payments for security in 1997 is set out at paragraphs 7.5.4,
7.5.5, 7.5.6 and 7.5.7. There appear to be no anomalies except two unexplained payments
totalling K11,800 to a company named Phantom Security Services Pty Ltd. No invoices exist for
this alleged service. The documents show that Mr Leahy was involved in this matter.
(a) Tender procedures and requirements were totally ignored by NPF management in the letting of
security services in 1997;
(b) The amounts paid for head office security in 1997 were K5395.80 to Kress Security and
K35,770.95 to Metro Security aggregating K41,166.75. This compares to the figure shown in the
1997 Income and Expenditure statement of K38,593 and the same comparable figure in the like
statement for 1998;
(c) The amounts paid for other security services were Kress Security K11,372.40 (for Nine-Mile)
and Phantom Security K11,800 for the Kaubebe St property plus the amount shown in the Century
21 statements for rental property security in 1997 of K150,112.80 aggregating in all K169,435.20.
This matches the figure shown in the 1997 Income and Expenditure statement of K169,435 and
the same comparable figure in the like statement for 1998;
(d) The only changes which took place in the area of continuous security work in 1997 were:
(i) Metro Securities replacing Kress Security as the provider of security at the NPF head office; and
(ii) Kress Security being given additional security work at Nine- Mile housing project.
(e) No tenders were called in 1997 to provide security and there was no competitive bidding
obtained for either of the changes in (c) above; and
Page 24 of 190
(f) There was no competitive bidding for the “one-off” job of “Eviction/Demolition” for which
Phantom Security was paid.
This was a stable year in security services. Metro continued to provide security services for the
head office throughout 1998 for a total fee of K51,246 and the payments disclose no anomalies.
Security services for all other NPF properties were provided by Kress. Kress received the sum of
K145,702 through Century 21 for providing this service.
(a) The amount paid to Metro Security for NPF head office security in 1998 was K31,905.60. This
matches the actual figure of K31,906 shown in the 1998 Income and Expenditure statement but
not the comparative figure of K33,361 shown in the statement for 1999. The probable reason is
that the latter figure for the second half of December 1998 was probably included even though it
was paid in 1999; and
(b) The amount paid to Kress Security for all other security services in 1998 was K145,702.
As previously discussed in paragraphs 3.4.1 – 3.4.5, 1999 was the year when NPF property
management services were totally restructured with the termination of Century 21’s long standing
exclusive management contract.
This was replaced by the awarding of contracts to Gemini and Haka and the lucrative NPF Tower
contract to PMFNRE.
This process was marked by Mr Leahy’s interference in the competitive tendering process, which
Mr Fabila accepted and facilitated.
1999 was also the year when Mr Maladina was appointed chairman of NPF at the instigation of the
then Prime Minister Hon Bill Skate and it was the year when Mr Maladina and Mr Leahy pursued
fraudulent schemes against the NPF with the knowledge and acceptance of Mr Fabila.
These same lawless tendencies also characterised the arrangements for security services in 1999.
National Provident Fund Final Report [Part 79]
Executive Summary Schedule 9 Continued
Property mentioned at the 99th NPF Board meeting
The property was mentioned at item 5.10 of the minutes of the 99th NPF Board meeting on 23rd
February 1996 but not in relation to the proposed sale to Mr Paska, which was consequently not
discussed at Board level.
Mr Paska contracts to buy
Mr Leahy prepared a contract of sale and forwarded it to Mr Paska who signed the contract and
returned it to the NPF Managing Director, Mr Kaul, on 6th December 1996, saying he had rented
the property to tenants and that all rent collected would be remitted to NPF. He said that he was
anticipating final settlement 2 weeks from the date of his letter.
Mr Paska makes part payment and seeks Ombudsman Commission approval
There was some delay while Mr Paska sought to obtain a bank loan but, meanwhile, he paid
K24,000 to NPF on 10th July 1997 as a deposit on the purchase.
On the same day, he wrote to the Ombudsman Commission seeking approval to buy the property.
He stated that the NPF Board had “approved consideration of my interest in acquiring the
Page 25 of 190
property”. He also said he had obtained legal advice that there was no conflict of interest. Mr
Paska did not advise the Ombudsman Commission that he had already signed the contract of sale
and been receiving rent on the property since December 1996 and that he had paid K24,000
towards the purchase price.
Mr Leahy communicates with Ombudsman Commission
On 11th July 1997, Mr Leahy wrote to the Ombudsman Commission in support of Mr Paska, saying
that following his expression of interest, Mr Paska had been asked to make an offer to the Board
and that he had offered K96,000. Mr Leahy falsely said that this offer had been approved by the
Board in Mr Paska’s absence. At this stage, the Board had not considered Mr Paska’s offer.
During early August, the Ombudsman Commission sought details from Mr Leahy of the Board
resolution approving the sale to Mr Paska (These inquiries were followed up by a formal letter on
22nd August 1997). As there had not yet been such a resolution, Mr Leahy proceeded to
manipulate the NPF Board in order to bring such a resolution into existence.
Mr Leahy manipulates NPF Board to retrospectively create a resolution approving the
sale to Mr Paska
The NPF Board held its 108th meeting in Kavieng on 22nd August 1997, and it seems as though a
late item was introduced, orally, as there was no mention of it in the pre-prepared management
papers. The item sought to amend the minutes of the 99th Board meeting held some 18 months
earlier on 23rd February 1996. This meant that Item 5.10 of the earlier minutes was replaced with
a new item 5.10 that purported to describe how Century 21 had been listing the property for
K110,000, that there were interested buyers but “the sale price appeared to be beyond market
valuation”, that an offer of K96,000 to purchase from Mr Paska was tabled and discussed by the
Trustees to ensure it was fair market value and that it was resolved to accept Mr Paska’s offer
(Century 21 later refused to confirm its alleged role as stated in the amended minute).
It is recorded that the Board resolved at the 108th meeting to approve the amendment to item
5.10 of the minutes of the 99th meeting and that Mr Paska was not present during the 108th
Mr Leahy provides misleading statement to the Ombudsman Commission
In answer to the Ombudsman’s letter of 22nd August 1997, Mr Leahy replied on 23rd September
1997, enclosing a signed extract of item 5.10 of the minutes of the 99th NPF Board meeting held
on 23rd February 1996. The extract was certified by Mr Leahy on 23rd September 1997, as if it
were an item recorded at the 99th meeting on 23rd February 1996.
The item so certified, was the amended item, which had been resolved on the 27th August 1997,
at the 108th Board meeting.
Quite clearly, this was a false representation deliberately designed by Mr Leahy to deceive the
Ombudsman Commission. Mr Leahy’s conduct was unprofessional. This Commission has
recommended that he be referred to the President of the Papua New Guinea Law Society and the
Ombudsman Commission for further investigation.
Mr Paska withdraws offer to purchase and PNGTUC becomes the purchaser
Despite these false representations designed to encourage the Ombudsman to approve the sale to
Mr Paska, the Ombudsman Commission still delayed its ruling. Mr Paska then withdrew his offer to
purchase the property at the 110th meeting on 11th December 1997. He requested that the sale
be made to the PNGTUC instead for K96,000. Mr Paska, who is the General Secretary of the
PNGTUC, was present at that meeting and did not declare his conflict of interest.
Delay in executing contract
PNGTUC paid a deposit of K9,600 in February 1998 and remained in possession of the property
receiving rent for it. Despite considerable correspondence between NPF and PNGTUC and exchange
of documents, the contract was not finally executed until 6th November 1998. This was an
Page 26 of 190
extraordinary long delay, considering that the PNGTUC had already been allowed to take
possession (which was highly irregular) and was receiving rent for the property.
The settlement of this transaction was continually postponed as the PNGTUC experienced difficulty
securing the required financing. Meanwhile, however, the rent received accumulated and they
enjoyed the benefit of it.
On 18th September 2000, NPF’s new legal counsel, Mr Kamburi, issued a “Notice to Complete
Settlement” to PNGTUC. On 11th October 2000, PNGTUC responded that K61,950 had been
collected in rent, that K4,000 had been spent on improvements and K52,000 was held in trust.
PNGTUC (unsuccessfully) sought a rent sharing agreement with NPF.
The sale was finally settled on 20th October 2000 and PNGTUC paid the full balance of the
K96,000 purchase price. There had been no independent valuation of the property and the 1995
proposed purchase price of K96,000 had not been reassessed during the 5 years to the settlement
Reluctant payment of rent by PNGTUC
On 10th January 2001, after NPF had instituted legal proceedings, PNGTUC paid NPF K50,000 of
the rentals they had previously collected. The letter enclosing the bank cheque for that partial rent
“the balance will most probably be in the vicinity of K10,000 – K15,000 … Hopefully this amount
will be settled sooner rather than later”.
(a) The disposal of Allotment 13 Section 73 Korobosea failed to comply with Government tender
procedures. The Board and management staff may be held responsible by members of the Fund
for any loss incurred in the sale of this property.
(b) No valuation of the property was made to determine the commercial value of the property.
(c) The sale of this property to PNGTUC and the conduct of NPF management in their handling of
this sale in the face of Mr Paska’s conflict of interest was nepotistic and improper.
(d) Although Mr Paska had previously declared his conflict of interest as a Trustee and contracted
purchaser, he was also General Secretary of the PNGTUC but did not abstain from discussing on
the sale of this property to PNGTUC and was therefore in a conflict of interest situation.
(e) The long delay in completing the conveyancing enabled PNGTUC to rent the premises and
receive K61,000. NPF instituted legal proceedings against PNGTUC. In January 2001, PNGTUC still
owed between K10,000 – K15,000 to NPF.
(f) Mr Leahy engineered the approval by a new Board resolution on 22nd August 1997, which
created a substitute minute of the meeting of 23rd February 1996 intending to mislead the
Ombudsman Commission. He should be referred to the PNG Law Society to consider whether
disciplinary measures should be imposed upon him.
(g) The Ombudsman Commission should be notified about the events leading up to the amended
Board minute, which was created specifically to mislead the Ombudsman Commission. They should
be asked to consider whether an offence has been committed and / or whether there is a gap in
the legislation, which may require legislative amendment.
Mr Paska’s initial expression of interest to purchase the property was done openly and he disclosed
his conflict of interest in a frank and refreshing manner. Based on his own evidence to the
Commission and on the evidence of contemporaneous documents produced, he was acting
honestly and transparently, though he was clearly not aware of the law of Trusts.
Page 27 of 190
At that stage, Mr Leahy should have pointed out that it would be inappropriate for Mr Paska as a
Trustee to buy any portion of the Trust property and it would amount to a breach of fiduciary duty
by Mr Paska and a breach of duty by management to sell it to him.
In any event, it would have been particularly necessary, in these circumstances, to get an
independent valuation and to advertise for tenders. Instead, Mr Leahy struck a purchase price
based on the land and construction costs and prepared contract documents, without doing either
and without referring the matter to the Board. Mr Paska was allowed into possession before
executing the contract documents, well before settlement took place. He then rented out the
property taking the benefit of the rent for himself. It would have been a simple and inexpensive
procedure to have placed an advertisement calling for tenders at that time, but that was not done.
Mr Paska’s disclosure to the Ombudsman was not complete and Mr Leahy’s manipulation of the
NPF Board to be able to provide the Ombudsman Commission with a “manufactured” resolution
apparently approved 18 months earlier in February 1996, was improper.
When Mr Paska withdrew from the purchase in December 1997 and “handed it on” to the PNGTUC
as purchaser, he ignored the fact that he remained in a position of conflict as a Trustee of NPF (the
vendor) and general secretary of the PNGTUC (the new purchaser).
The fact that the NPF management and Trustees allowed the completion of the settlement to drag
on until 20th October 2000, with rent of K61,000 accumulating in PNGTUC’s hands, was a very
serious beach of common law and fiduciary duty to the members of the Fund. That this neglect of
duty was occurring in favour of Trustee Paska, initially as purchaser and then as secretary general
of the substituted purchaser, was nepotistic and improper conduct.
PROCUREMENT OF LEGAL SERVICES
The Commission makes a detailed analysis of NPF’s “in-house” legal service capacity from January
1995 through to December 1999, noting that there were always two full time “in-house” lawyers
and sometimes three. Having studied the individual experience and capabilities of the “in-house”
lawyers employed during the period, the Commission concludes that throughout this entire period,
NPF had the capacity to carry out all routine PNG domestic legal work, “in-house”. There was,
however, always the need to brief out work of more complexity or involving specialist skills or
NPF had no system or practice of monitoring the legal work briefed out to external lawyers or of
calling for tenders. It was simply left to Mr Leahy’s discretion.
Outsourced legal services during 1995 & 1996
The study each matter outsourced to each firm, year by year.
For 1995 and 1996, outsourcing was modest and justifiable, considering the nature of the matters
Analyses outsourcing of general matters and investment related matters. Outsourcing of general
matters was very modest and mostly, appropriate.
The Commission has found:-
(a) The general pattern for legal fees in 1997 was to outsource complex matters or those matters
requiring specialised legal expertise.
(b) Goroka matters were briefed out to Pryke & Co.
(c) Fees paid to Warner Shand and for a ‘lost certificate’ to Carter Newell, should have been
handled “in house”.
Page 28 of 190
Investment related matters in 1997 are reported upon in paragraphs 6.4.4 to 18.104.22.168, which
analyse the fees paid to each firm involved. By far, the greatest fees were paid to Carter Newell.
However further study showed that K38,376.12 of these fees were for services provided by Carter
Newell for the ANZ Bank regarding loans to NPF. The Bank billed these fees to NPF in the normal
course of banking business.
It is notable, however, that the first record of NPF itself briefing Carter Newell, occurs soon after
Mr Leahy’s wife commenced working for Carter Newell, after their return from Mr Leahy’s study
leave in July 1997.
(a) The general pattern regarding investment related fees in 1997, was to outsource complex
matters or those requiring specialized legal expertise, coupled with the “briefing out” of the
conveyancing settlement in Lae.
(b) The Bomana conveyancing matter, the Gordons lease and the insurance policy documentation
could have been done in-house.
(c) The Commi-ssion cannot explain why the accounts show an expenditure on outsourced legal
services of only K61,483 when the voucher evidence clearly shows that an expenditure of K68,646
The general fees for 1998 are reported in paragraph 22.214.171.124 through to 126.96.36.199. After commenting
upon figures which had been wrongly recorded, the only matter of significance is the sizeable sum
of K27,389.84 paid to Carter Newell for which NPF was not able to supply vouchers.
(a) After deducting disbursement and similar fees NPF’s total expenditure on outsourced general
legal fees in 1998 was K29,705.34.
(b) By far, the greatest fees were paid to Carter Newell (K27,389.84) for a mixture of specified
and unspecified matters. As the vouchers were not available, the Commission is unable to
determine whether the fees paid to Carter Newell were for complex matters or matters requiring
specialized legal skills. Evidence from other sources indicates that at least some of these matters
should have been done by NPF’s in-house lawyers.
(c) The outsourcing to Fiocco Posman and Kua and to Pryke & Co. were in order.
The investment related outsourced legal fees for 1998 are reported in paragraphs 6.4.6 to 188.8.131.52,
firm by firm. After wrongly recorded items were deducted, they still totalled a massive K244,780
plus a further A$33,541.65 and US$24,183.39.
On a firm-by-firm basis, the aborted AUD Bond issue accounted for over K72,000 of the Kina fees
and another heavy expenditure concerned Crocodile Catering (Some of this was sourced from
funds held offshore with Wilson HTM).
A large part of the K27,389.84 briefed out to Carter Newell was capable of being handled “in-
house”. Once again, NPF was unable to produce vouchers for matters briefed out to Carter Newell.
(a) A substantial part of these 1998 investment related legal fees paid both onshore (to Gadens
Ridgeway and Allens Arthur Robinson) and offshore (to Clifford Chance, Corrs Chambers Westgarth
and Troy & Gould) were related to the AUD Bond.
Some part of the fees paid onshore (to Carter Newell) and offshore (to Deacon Graham James)
were related to the Maluk Bay venture.
Page 29 of 190
(b) These referrals were clearly made on the basis that the matters were complex and required
specialized legal expertise.
(c) There are also some instances of domestic referrals where, in our view, the work should have
been able to be performed by NPF’s in house legal staff and should not have required reference to
National Provident Fund Final Report [Part 78]
Executive Summary Schedule 9 Continued
Their failure to ensure this was a breach of their fiduciary duty to the members of the fund. The
successive managing directors, as trustees and as managers, were in breach of the same duty in
allowing such lax and inappropriate procedures to be followed.
Procurement And Disposal Of Property And Property Management Services Property
Many of NPF’s “lesser” properties were sold during 1998 and 1999 as part of NPF’s asset disposal
The sales have been examined by the commission and found to be in order, with the one
exception of Allotment 13 Section 73 Pipigari S Korobosea, which was sold to the Papua New
Guinea Trade Union Congress (PNGTUC). The further investigation into this matter is dealt with at
paragraph 3.6 below.
Property management services
Many irregularities have been discovered in management services contracts where proper tender
procedures have not been followed and nepotism has clearly been occurring.
Long standing relationship with Century 21 Siule Real Estate (Century 21)
Since well prior to 1993, Century 21 was NPF’s sole agent, managing and marketing NPF’s various
It is not known how this relationship developed, however, the commission is aware that Century
21 employed Noel Wright’s wife, Helen Copland.
In late 1997, as the NPF Tower neared completion, the question of marketing and managing it
came up for consideration and this was clearly to be lucrative business for the chosen agent.
In August 1997, the exclusive marketing rights for the NPF Tower were granted to Century 21 as a
matter of course, without following any form of competitive tender procedures. At the 114th NPF
board meeting on September 1, 1998, Mr Fabila, supported by Mr Leahy, challenged that
arrangement. Mr Wright’s failure to disclose his interest in Century 21, through the fact that his
wife was employed there, formed part of the discussion.
In August/ September 1998, after obtaining legal opinion about the power to do so, Mr Fabila
cancelled Century 21’s exclusive marketing rights over the Tower and called for competitive quotes
from Graeme Dunnage and Associates, The Professionals, Port Moresby First National Real Estate
(PMFNRE), L J Hooker and Century 21.
Mr Fabila also notified Century 21, in October 1998, of NPF’s intention to terminate Century 21’s
contract for the exclusive management of all NPF’s properties and to call for tenders. This matter
was not put before the NPF board and seems to have been an initiative of Mr Fabila and Mr Leahy.
Century 21 seems to have accepted the termination of its exclusive marketing and management
contract, which took effect on 22nd December 1998 and then participated in the tendering process
in January 1999 for a new contract.
Page 30 of 190
Advertisements, calling for tenders to manage all NPF’s properties as one contract, were published
on January 15, 1999 with January 31, 1999 set as the closing date.
Tenders were called for the management of the following properties:
• The four blocks of units at Allotment 7 section 142, Tokarara;
• The NPF Head office Allotment 7 Section 58 Boroko;
• One house at Allotment 18 Section 34 Lawes Rd;
• One house at Allotment 26 Section 34 Ela Makana;
• Eight units at Allotment 26 Section 34 Ela Makana;
• Three units at Allotment 83 Section 51 Davetari Drive; and
• The warehouse at Allotment 16 Section 62 Gordons.
Tenders were received from Gemini Holdings Ltd, Haka Holdings Ltd and Century 21 within time.
Possible collusion between Mr Leahy and PMFNRE
A proposal from PMFNRE was also considered although initially neither NPF nor PMFNRE was able
to produce under summons a formal tender document from PMFNRE.
In April 2001, PMFNRE later produced some correspondence between Mr Leahy and Mr Sullivan of
PMFNRE, which indicates that Mr Leahy was providing information to assist Mr Sullivan to prepare
a tender in January 1999.
One of the documents he provided to Mr Sullivan was a list of NPF’s property portfolio, as follows:
The papers included a document purporting to be a tender which contained promotional material
about PMFNRE and a one page sheet listing the quoted fees as “6 per cent of the total monies
It acknowledged that tenders for the Tower were not then being called for but expressed an
interest in tendering for that contract when it came up. The PMFNRE unsigned and undated
document entitled “Tender for NPF Property Management” cannot be seriously treated as a formal
tender but it seems that it was accepted by NPF as such.
Mr Leahy intervenes in the tender process
After the tenders from Gemini, Haka and Century 21 were received and, possibly, the PMFNRE
“tender” also, Mr Fabila left PNG for a short period. While he was away, and before any formal
decision had been made to accept the best tender, Mr Leahy communicated with Haka, Gemini and
PMFNRE. He advised Haka and Gemini that each had been accepted to manage a few of the
properties for which they had tendered and asked them to again list the services they would
supply and to, again, quote their fees.
Page 31 of 190
As a result each restated the services and quoted substantially higher fees than previously
(perhaps because the property portfolio to be managed was smaller). Haka complained bitterly at
the limited portfolio it had been granted, and this was subsequently increased.
Mr Leahy grants management of the Tower to PMFNRE
On February 11, Mr Leahy also wrote to PMFNRE advising that it had been awarded:
• Section 34: Allotment 26 Granville — 8 units;
• Section 62: Allotment 16 Gordons — 1 x Archives shed; and
• Section 5: Allotment 11 Granville — (The Tower)
The letter requested PMFNRE to provide a description of the scope of the service as well as a
quotation of their fees.
Mr Leahy’s intervention in the competitive tender process changed it to that of non-competitive
negotiated contracts with the three successful applicants.
Mr Fabila negotiates with the successful tenderers
On February 26, 1999, Mr Fabila formally notified Gemini of the list of properties it had been
awarded at the higher fee, though he negotiated the fee down slightly. On the same date, Haka
was similarly notified, but because of its complaints that the portfolio awarded by Mr Leahy on
February 11 was too small, it was also awarded the management of the Ela Makana units (which
were taken back from PMFNRE).
Also on the same day, Mr Fabila also confirmed the good news to PMFNRE that it had won the
management contract for the NPF Tower, which had not even been on the list of properties for
which tenders were called.
Finally, on February 26, 1999, Mr Fabila also notified Century 21 that its tender bid had been
unsuccessful. Because of the way NPF handled this matter, the handover arrangements from
Century 21 to the successful tenderers, were messy and unprofessional.
There is no evidence that the various tenders were ever comparatively analysed to choose the best
On the face of the documents, it seems that Century 21’s tender was probably the best,
considering its experience, prior successful service and fees quoted.
(a) The termination of Century 21’s exclusive property management agreement with NPF was a
management decision Mr Fabila made without the authority of the NPF board;
(b) The exclusive property management contract for all NPF properties (other than the NPF Tower)
was put out to tender. The lowest and best tender was that of Century 21;
(c) Mr Leahy acted improperly by contacting each of the three companies (Gemini, Haka and
PMFNRE) while the tender procedure was in progress, asking them to specify a job profile and to
quote a price to manage a portion of the properties originally put out to tender. This resulted in
NPF paying a higher price than the tenders initially received;
(d) The Century 21 tender was rejected by management without proper analysis of the competing
(e) The appointment of Gemini, Haka and PMFNRE as management agents for NPF properties
(shared between them) was not arranged under any proper or approved tenders procedures, but
was the result of non-competitive contract negotiation;
(f) The awarding of property management contracts to Haka, Gemini and PMFNRE was a
management decision made without board authority or approval; and
Page 32 of 190
(g) Mr Fabila negotiated directly with each of the tenderers to agree upon a lower price than
Management agreement for the NPF Tower
The agreement was between PMFNRE as agent and the Tower Ltd as owner. The directors of the
Tower Ltd, appointed by the NPF board on February 8, 1999, were Henry Fabila (chairman), Jimmy
Maladina and and Herman Leahy (also secretary) although NPF was sole shareholder, its approval
was not legally required for the terms of the management agreement, which was signed by Mr
Leahy and Mr Fabila.
As these three persons were all involved in schemes to defraud the NPF at the time, it is not
surprising that the terms of the management agreement were very generous to PMFNRE at the
expense, of course, of the members of the fund. This generosity was built in by:
(a) Providing a 5 per cent commission, not only on rent paid, but also on rent plus the tenants
(b) Providing for a minimum commission in the early days, when the occupancy rate would still be
low, of K199,999.92 or 5 per cent of gross rentals, whichever was the greater; and
(c) The termination clause provided that PMFNRE would be entitled to its full commission for the
whole of the three-year term unless the agent had breached a fundamental term of the
False report to the NPF Board
In his report to the NPF board at its meeting on April 20, 1999, Mr Leahy pointed out the
important details of the contract as:
“(i) Three-year term; and;
(ii) Fee = 5 per cent of the gross monies collected from tenants; and
(iii) Subject to board approval”.
Mr Leahy failed to point out that:
(a) In the early years when the rental income would be low because the building would be only
partly tenanted, the commission would be a guaranteed minimum of K199,999.92 per annum.
(b) In the event of wrongful termination, the agent would be entitled, not just to damages, but to
the whole of the management fees for the rest of the term; and
(c) As the contract had already been executed on March 23, 1999, it was too late to make it
subject to NPF board approval.
Sub paragraph (a) and (b) above amounted to a misrepresentation to the board. Sub paragraph
(c) was simply false.
The commission views all these arrangements with suspicion because of its findings in relation to
the NPF Tower fraud and the Waigani Land deal in which the same characters were involved in
either the fraud itself or the subsequent laundering of the money — Mr Maladina, Mr Leahy, Mr
Fabila, Mr Barker, Mr Sullivan and PMFNRE.
(a) The management contract between the Tower Pty Ltd and PMFNRE was negotiated directly by
Mr Fabila, Mr Maladina and Mr Leahy as directors of the Tower Ltd and the management of
(b) The awarding of contracts in this way justifies the commission’s suspicion of nepotism,
Page 33 of 190
• MR Maladina and Mr O’Neill have direct interests in PMFNRE and used PMFNRE as a vehicle to
defraud the NPF regarding the NPF Tower and Waigani Land, NPF Tower Investigations and,
• THE property management contract between PMFNRE and the Tower Ltd (signed for the Tower Ltd
by Mr Maladina and Mr Leahy), was excessively favourable to PMFNRE.
• MR Leahy provided false information to the NPF board regarding the property management
contract, which understated the benefits payable to PMFNRE under the contract.
Sale Of The Non-Core Properties Using Multiple Agents
In July 1999, NPF resolved to sell off all non-core properties and part of the NPF Tower. This was
in accordance with the PwC report on NPF’s losses. It was decided to use multiple agents and the
existing exclusive managing agents accepted this.
NPF Board Challenges Management Over Tender Procedures
In October 1999, the NPF board, led by trustee Jeffery and acting managing director Rod Mitchell,
challenged Mr Maladina and Mr Leahy over a number of issues, including failure to follow tender
procedures and nepotism. This led to the termination of Mr Maladina and Mr Leahy.
(a) The decision to enter into one-year and (for the Tower) three- year management contract for
the properties in early 1999, when NPF was considering selling those properties was inappropriate
and could have resulted in NPF facing a claim for damages in breach of contract.
(b) The questions posed by Mr Jeffery and Mr Mitchell regarding the failure to follow proper tender
procedure when awarding property management contracts were valid questions which required
(c) Mr Leahy’s responses to the questions were false and evasive.
Sale of NPF Property to PNGTUC
Expression Of interest by Mr Paska
NPF built a three-bedroom house on its land at Allotment 13 Section 73 Pipigari St, Boroko. As
construction of the house was nearing completion in September 1995, it was recorded that trustee
John Paska was interested in purchasing the property. Mr Paska was the general secretary of the
PNGTUC and was one of three people appointed to the NPF board as a representative for
employees on the NPF board.
Under the law of Trusts, it would be a serious breach of trust for a trustee to buy Trust property
but this did not occur to anyone, not even the fund’s corporate secretary and legal counsel
Herman Leahy, who should have advised Mr Paska and the NPF against this proposed purchase. In
fact, Mr Leahy took very improper action to facilitate the sale to Mr Paska, as described below.
Mr Paska wrote to Mr Leahy in September 1995 expressing his interest to buy the property and
advising that he had received legal advice that his conflict of interest would not be an impediment
to the sale. His offer of K96,000 had been worked out in conjunction with Mr Leahy based on the
cost of land and of constructing the house thereon. He wrote again in November saying he was
prepared to pay the (higher) valuation placed on the property by the bank, which was financing
him and would seek Ombudsman Commission approval.
* PART 77 is missing and has not been published in this series
National Provident Fund Final Report [Part 76]
Executive Summary Schedule 8 Continued
Page 34 of 190
This was primarily a failure of duty by Mr. Wright and his successors regarding this duty, Mr
Mekere, Mr Mitchell and Mr Gire. It was also a failure of fiduciary duty by the trustees who allowed
this situation to continue for some 14 months.
Failure To Properly Implement The Deed Of Acknowledgement Of Debt
After the deed was signed on October 29, 1998, NPF failed to:
• adjust prior billings to reflect the terms of the deed;
• request the 1997 interest or obtain acknowledgement of its capitalisation;
• BASE subsequent calculations on the higher principal sum and an interest rate of 14.67 per cent or
15.67per cent as appropriate; and
• exercise its rights under the deed resulting from the State’s default in payment of interest.
The Auditor-General notified NPF of the understated interest in September 1999 and Mr Mitchell
subsequently advised DoF that the cumulative underpayment for the period to December 31, 1999
was K4,000,510.91. This related only to the interest differential between 12.67 per cent and 14.67
The commission finds that this figure must be increased to take account of:
(a) The applicable interest rate under the deed should often have been 15.67 per cent — with a
discount rate of 14.67 per cent.
(b) The use of the incorrect principal sum in the calculations; and
(c) Penalties for late payment of interest.
The commission has given careful and detailed consideration to the underpayment of interest as
set out in paragraph 8 of the report. It finds that the underpayment of interest (not including
penalty interest) amounts to K4,288,674.
(a) The NPF management particularly Mr Wright, Mr Mekere, Mr Mitchell and Mr Gire failed in their
• they failed to apply the correct interest rate and principal amount resulting in the interest being
• when DoF defaulted on numerous instances, NPF management failed to exercise its rights granted
by the deed; and
• their administration of the deed was careless resulting in loss of income to NPF;
(b) The trustees failed in their fiduciary duties to the members where:
• they have failed to apply the correct interest rate and principal amounts, resulting in the interest
amount being under-billed;
• when DoF defaulted on numerous instances, NPF failed to exercise its rights granted by the deed;
• they failed to detect and correct management’s mishandling of this matter. Concluding Comments
The transfer of members and members’ entitlements from POSF to NPF consequent upon
corporatisation of NAC and PTC was badly mishandled by NPF and also by the State and POSF. The
transfer was characterised by a failure to anticipate and provide for the problems which would be
encountered, with the result that basic policy decisions and administrative arrangements were not
in place before the date of corporatisation and the implementation of the transfer of membership
from POSF to NPF on 1st January 1997.
This unnecessarily caused great and understandable concern among the transferring members and
led their unions to adopt a hardline and unreasonable stance. Faced with strong inappropriate
demands for the payout of employee contributions to members who transferred to Air Niugini, NPF
decided to honour an extra legal agreement between employees and Air Niugini management,
despite the fact that it was in breach of the NPF Act.
Page 35 of 190
Subsequently, when faced with strike action by communication workers unions for payout of the
State’s contributions, NPF again capitulated. This was illegal and unfair to other NPF members as it
allowed this group of transferred members to avoid the effects of the eventual write down of NPF
member’s entitlements. It is clear that NPF’s decision to make the extra legal payment of the State
share to former PTC employees was influenced by political pressure to settle the strike action.
Faced with the failure by POSF and the Sate to resolve the problems caused by the State’s
longstanding failure to pay POSF the State’s contribution to the fund, NPF initiated a loan to the
State to fund the transfer without seeking investment advice or performing due diligence on the
State’s ability to meet its commitments. This was of great concern because NPF was already
massively exposed to the State through the freeway loans.
Having entered into the loan to finance the transfer of the State’s contribution, NPF management
and trustees demonstrated negligence and ineptitude in administering the loan. They under-
charged the interest rate and applied it to an understated principal sum, resulting in a loss of more
than K4 million to NPF members. This was gross mismanagement of the trust fund and a serious
breach of fiduciary duties.
SCHEDULE 9 – Tender Procedures and Nepotism
Terms of Reference and Finance Inspectors Report
The commission’s term of reference Number 1(0) requires the commission to investigate and
“The failure to comply with prescribed tendering processes, and whether such failure benefited any
person and if so who, and the role of any trustee or manager of the funds or of any other person
The finance inspectors provided an excellent report on these topics, on December 15, 1999,
exposing irregularities in the National Provident Fund’s (NPF) financial management.
This was one of the big issues, which led to the setting up of this commission of inquiry. The
finance inspectors drew attention to the deficiencies in the procedures used by NPF in the
procurement of goods and services and the disposal of assets.
The commission chose not to make a full and detailed investigation into every possible irregularity,
as the task would be massively beyond this commission’s resources. Instead the commission
examined the following topics in detail for the whole period under review, January 1995 to
(a) Procurement and disposal of motor vehicles;
(b) Procurement of property management;
(c) Procurement of legal services;
(d) Procurement of security services;
(e) Procurement of accounting services;
(f) Procurement of computer and computer services;
(g) Procurement of other professional services; and
(h) Procurement of stationery and office supplies.
The results of the commission’s own investigation into these matters are presented in the main
report (Schedule 9). That report shows a worrying lack of formal tendering procedures and many
serious financial irregularities. The corrupt practices of NPF staff and instances of nepotism are
also noted in the main report.
The law applicable to tender procedures
The commission has found, in paragraph 3, that Section 59 of the Public Finances Management Act
(PF(M) Act) does not apply to the NPF but that the NPF must nevertheless follow financial
Page 36 of 190
instructions issued from time to time. In addition, all NPF trustees were under a fiduciary duty to
ensure proper management of the fund’s assets and this would include the need to follow suitable
tender procedures for the acquisition and disposal of assets, goods and services.
On the evidence, it is clear that management (wrongly) assumed that NPF was bound by Section
59 of the PF(M) Act and that, in 1989, a Supply and Tenders Committee had been established.
Mr Wright, Mr Leahy and Mr Tarutia were members of the committee, which ceased to operate
before January 1995 (the commencing date set by the Commission’s terms of reference).
In March 1989, a NPF board resolution established a Supply and Tenders Committee and
procedures and financial delegations for tenders. Although this resolution remains in force, it fell
into disuse before January 1, 1995.
The commission has found that there were no clear procedures being followed between January
1995 to December 1999 and that this was a failure of duty of both management and the trustees.
We will now report upon each of the selected topics in turn.
Procurement And Disposal Of Motor Vehicles
Policy on use of motor vehicle
The procedure for acquiring and disposing of motor vehicles followed no clear policy. There was a
formal policy adopted on October 27, 1994 regarding the use of motor vehicles which allowed
vehicles supplied as part of an officer’s contract entitlement (“employment contract vehicles”) to
be used on a 24-hour basis by the managers to whom they were allocated and to be replaced
every four years. All other vehicles were to be used for official duty only and to be replaced every
four years or “on reaching 150,000 kilometres whichever is the earlier”.
The policy did not deal with acquisition and disposal procedures.
The commission found that the standard of NPF’s documentation, regarding acquisition and
disposal of motor vehicles, was extremely poor.
A study of the Fixed Assets Schedule provides evidence of what vehicles were held at the
beginning of 1995, how many of those were still held at the end of 1995 (or had been disposed of
during the year) and how many new vehicles were acquired and became part of the NPF fleet
during 1995. That evidence discloses that:
(a) NPF owned the following vehicles throughout the whole of 1995:
(b) NPF also owned the following other vehicles in 1995, but disposed of them during the year:
Page 37 of 190
(c) NPF also purchased the following vehicles in 1995, which showed up on the capital asset
schedule as at December 1995:
In addition to the outline of evidence provided by the Fixed Assets Schedule, the commission
sought other evidence located in NPF’s poor record system in order to flesh out the outline.
The Fixed Assets Schedule indicates that during 1995 NPF disposed of four Suzuki Vitara’s used by
divisional offices and a Nissan Pathfinder used by the managing director. Three of these were
traded in — three Mitsubishi L200 4×4 single cabin utilities.
It seems that competitive quotes were obtained from Boroko Motors, Toba Motors, PNG Motors
and Ela Motors. The Toba Motors quote was accepted. Toba is a subsidiary of STC and Mr Copland,
who was managing director of STC at the time, declared his interest
Toba’s quote for supplying the three L200’s was K74,514 less K19,000 on the three traded
Suzuki’s. The fixed asset schedule shows that NPF allowed K83,314 (K20,000 higher).
Although the Mt Hagen Suzuki was dropped off the fixed asset schedule by December 1995, it was
not actually disposed of in that year. It seems that it was involved in a fatal accident and sold by
internal tender among Mt Hagen NPF staff in 1996, though it was not carried forward onto the
fixed asset schedule for that year.
Some documentary detective work shows that the managing director’s Nissan Pathfinder was
stolen during 1995 and K29,500 was put towards the purchase price of K41,499 on a Mitsubishi
Verada from Toba Motors.
No competitive quotes were obtained for similar vehicles from other firms this time and Mr
Copland did not record his conflict of interest nor is he recorded as abstaining from discussions.
(a) NPF’s records on procurement and disposal of motor vehicles were fragmented and inadequate
and it is necessary to use inference and deduction in order to make findings;
(b) Three area office Suzuki Vitara’s were traded in on the purchase of three Mitsubishi L200 4X2
single cabin utilities.
• Competitive quotes were obtained;
• Mr Copland declared his interest and abstained from discussions; and
• THE fixed asset schedule records the purchase price paid as K20,000 higher than the quote. This
could not be followed up, as NPF could not produce the vouchers;
(c) A fourth Suzuki Vitara was damaged at Mt. Hagen. It dropped off the Fixed Asset Schedule as
at December 1995, but was not carried forward onto the 1996 Assets Schedule, though it was still
owned by NPF (It was sold during 1996 by internal staff tender). This procedure was improper and
amounted to nepotism;
(d) The Nissan Pathfinder allocated to the managing director was stolen and replaced by a
Mitsubishi Verada from Toba Motors;
• No competitive quotes were obtained; and
• Mr Copland did not declare his interest or abstain from discussions;
Page 38 of 190
This was improper procedure and nepotistic. Mr Copland’s conduct was improper.
Again, based on the evidence of the Fixed Asset Schedule:
(a) NPF owned the following vehicles throughout the whole of 1996: (See Table 1 below)
(b) NPF also owned the following (Head Office) vehicles in 1996, but disposed of them during the
(c) NPF also purchased the following (Head Office) Vehicles in 1996, which were recorded on the
Fixed Asset Schedule at the end of 1996: (See Table 2 below)
Changes in motor vehicle policy
The board amended the Motor Vehicle Policy regarding the change over of vehicles during their
101st board meeting on June 28, 1996, and resolved to reduce the mileage limit for change over
of vehicle from 80,000km to 50,000km.
The reason given to justify this change in policy was the current condition of roads.
Page 39 of 190
The resolution was based on a false premise, as the previous mileage limit was 150,000km, not
80,000km. The resolution also removed the four-year rule, leaving the 50,000km mileage limit as
the only criteria for replacement.
The Fixed Asset Schedule for 1996 records that NPF disposed of two Suzuki Vitara, a Mazda 626
and a Mazda Bus and purchased two Mitsubishi Double cabs, a Mitsubishi bus and 4 Mitsubishi
Lancers, all from Toba Motors.
National Provident Fund Final Report [Part 75]
Executive Summary Schedule 8 Continued
Air Niugini Employees Demand Payout Of Their Employee Contributions/Communication
Unions Demand Payouts of State’s Contributions
The PTC(C) Act provided the employers of the old PTC with an option of a payout of their own
component of the benefits from POSFB.
No such option was provided for the Air Niugini employees, but there were numerous requests
from Air Niugini employees for payout of their own share of contributions. This was related to the
fact that Air Niugini management, including trustee Koivi, had reached an extra legal agreement
with the union that NAC employees who continued in employment with Air Niugini would be
offered the payout of their contributions previously made to POSF.
Mr Kaul advised the NPF board during their 111th board meeting on February 20, 1998 that it was
anticipated Air Niugini employees would demand payout of their own contributions following the
transfer of funds from POSF. The board resolved to offer Air Niugini employees payout of their own
contributions during this meeting. This was contrary to the NPF Act and not sanctioned by any
On February 24, 1998, Mr Kaul informed Air Niugini that the NPF board had resolved in their 111th
board meeting on February 20, 1998, to payout the employee contributions to the employees. On
the same date, the NAEA was also advised of the NPF board’s decision.
The NAEA acknowledged Mr Kaul’s letter and responded with requests for clarification on other
issues raised by Mr Kaul in his letter of January 24, 1998.
PNGCWU Queries Timing Of The Payout Of The State’s Share And Drafting Of The Deed
On March 3, 1998, Mr Kaul responded to PNGCWU queries regarding the payout to former PTC
employees of the State’s share of contributions.
Mr Kaul explained to the PNGCWU that there was no provision in the PTC(C) Act 1996 for the
payout of the employers (State) component of the contributions.
In any event without receipt of funds from the state, NPF could not and would not payout the
State’s share of contribution in the manner being requested by the unions. NPF’s current legal
obligations were limited to withdrawals, which were permitted under the NPF Act (i.e. on
retirement, death or retrenchment).
Mr Kaul directed Mr Leahy on March 25, 1998, to immediately finalise the amendments to the
The draft deed records that the State’s total unpaid contribution amounted to K23,785,056.23.
POSFB wrote to NPF on April 16, 1998 confirming the total funds being transferred to NPF as:
“The total fund share of the transfer is K17,625,057.02 and this has already been paid to NPF. The
State share component is K24,475,074.65, which has increased from the previous amount of
Page 40 of 190
K23,785,056.23 as advised per our letter of 7 November 1997. The increase has come about as a
result of another lot of transfers effected on 21/04/98 for a few employees of the above authorities
whose balances were never transferred in the previous transfers. This is a matter, which the NPF
management will deal directly with the National Government through your department.
Please refer enclosure.” (Exhibit T2)
Unions Heighten Demands For The State To Pay Its Share of Contributions
The PNGCWU wrongly believed that the execution of the deed would enable NPF to payout the
State’s share of contributions to its members. When they realised that this was not to happen,
they threatened industrial action in mid 1998.
113th Board Of Trustees Meeting
At the 113th board meeting held on July 22, 1998, Mr Leahy informed the board that NPF had paid
out K3,279,952.20 to those Air Niugini employees wanting payouts of their own contributions.
At the same meeting, the minutes record that Noel Wright advised the board of a K4 million
overdraft for the purpose of covering the payout of Telikom, Post PNG and Air Niugini employees.
Mr Wright’s reason given as explanation for the overdraft facility of K4 million was misleading and
Mr Fabila Seeks The Involvement Of DOF To Assist In Negotiations With PNGCWU
Because of the slow progress in the negotiations with the unions, Mr Fabila requested the DoF to
assist with the negotiations.
Minster Briefed On The Deed
Ori Avea of DoF provided a brief to Minister Lasaro on July 17, 1998, on the status of the deed and
the outstanding issues concerning the finalisation of the deed.
Mr Fabila’s Brief To The Minister
Mr Fabila wrote a brief to Minister Lasaro on August 3, 1998, setting out the background to the
dispute and at the same time requesting the Minister to reject the unions claim for full payout of
the States share of contributions.
114th Board Of Trustees Meeting
On August 18, 1998, NPF instructed Carter Newell Lawyers to write to the PNGCWU requesting
them to clarify and justify their demands for the payout.
At the 114th board meeting on September 1, 1998, Mr Leahy advised the board that NPF had not
received any advice about the deed.
Mr Fabila advised the board that there was no legal entitlement for NPF to payout the State’s
share of its contributions. The board endorsed Mr Fabila’s stand.
Strike Action By Unions
The union went out on strike during September/ October 1998. Telikom instigated legal action
against the union for loss of income associated with the strike.
The deed was finally signed on October 29, 1998.
The Negotiated Settlement Of Strike Action
The board resolved in their 115th board meeting on November 6, 1998 to continue to resist the
Page 41 of 190
The legal action and strike were, however, amicably settled through the signing of two agreements
involving the State, the various communications entities POSF, NPF and PNGCWU, which agreed
that the State share would be paid to the communication employees in three tranches during
December 1998 and 1999.
To enable this to happen, the State paid the required funds to NPF in November 1998, May 1999
and November 1999 and the funds were paid out to the former PTC employees by NPF soon after
they were received. (See full details at paragraph 29 below).
At paragraph 4.22.1, the commission has found that:
(a) THE trustees failed in their fiduciary duties to the members by:
• ALLOWING payments to Air Niugini employees of the employee contributions in breach of the NPF
Act. These payments were made preferentially and not equitably to other members; and
• ENTERING into a memorandum of agreement, which was contrary to the NPF Act;
(b) Despite the board resolution of December 11, 1997, which resolved to payout the State
contributions to the transferred employees NPF management and board subsequently maintained
a strong and legally correct resistance to PNGCWU’s claims for payout of the State share;
(c) After the Deed of Acknowledgement of Debt was executed, which (technically) meant that NPF
began to receive the benefit of the transferred State share of contributions (the benefit being in
the form of interest payments on the NPF loan to the Sate) the PNGCWU took strike action to
obtain payout by NPF of the State share to former PTC employees who had continued in
employment with the new corporate entities;
(d) Under the pressure of the strike action, (and pressure from the Government) NPF capitulated
to union demands and agreed to pay out the State share in three tranches to all former PTC
members who had transferred to NPF and continued in employment;
(e) The trustees would probably be liable in any future action brought by affected members
regarding the preferential treatment accorded to transferred former NAC and PTC employees that
effectively enabled them to avoid the write down (if they remained NPF members through to the
end of 1998 and 1999); and
(f) Noel Wright provided misleading and false information to the board of trustees when he
informed the board that K4 million overdraft was secured in June 1998 for the Post PNG, Telikom
PNG and Poreporena Freeway loans.
Deed Of Acknowledgement Of Debt And MOA
The deed was drafted by DoF and reviewed by NPF. It was finally signed on October 29, 1998.
The summary of the deed is as follows:
• It recognised that on January 1, 1997, all assets, rights, liabilities and obligations of PTC and NAC
were transferred to the corporatised entities Post PNG Limited and Telikom PNG Limited and Air
Niugini Limited respectively;
• IT recognised that the superannuation of the corporatised entities came under the NPF Act and
therefore these entities were required to register and contribute to NPF;
• THE State unconditionally acknowledged its liability to NPF effective from January 1, 1997 for its
unpaid share of contributions for the employees of the corporatised PTC and NAC. The total debt
acknowledged was K23,531,053;
• IT said that the State would repay the principal sum in full on December 31, 2006, but allowed for
repayment prior to that date;
• THE State agreed to pay interest at a rate of 15.67 per cent. A discount of 1 per cent was allowed
if it was paid within three business days of the interest payment falling due date. It stated that
Page 42 of 190
interest was payable at the end of each quarter and that the interest for 1997 was due on
December 31, 1997;
• IT stated that interest on the unpaid interest was to be calculated daily and compounded monthly
at the rate of 15.67 per cent; and
• THE State agreed that the security for the principal sum would be a charge over its interest in Post
PNG Limited, Telikom PNG Limited and Air Niugini Limited.
It is noted that:
• POSF advised that the State’s final total unpaid share transferred to NPF on May 1, 1998 was
K24,475,074.65 (commission document 1171), however, the deed only acknowledged a debt of
K23,531,053 to NPF. This error was carried over by NPF when billing the Sate for interest payable
under the loan, which resulted in significant shortfalls in interest being paid. (See paragraph 29
The State’s unpaid share of contributions assumed by NPF was in effect a long-term commercial
loan by NPF to the State. Long-term loans are a permitted type of investment for NPF.
There was a request dated October 24, 1997 for Ministerial approval of this loan.
The commission has been unable to ascertain whether Ministerial approval was granted.
In paragraph 5.1.2, the commission has found that:
(a) Management failed in their duties to the members because:
• THE deed understated the State’s liability to NPF by K944,022;
• NO attempt has been made to seek repayment of the K944,022 and no interest has been paid by
the State on this amount;
• NO agreement or arrangement was in place for the State to repay the K944,022 and interest
• NO attempt was made to enforce interest payable for 1997 as stipulated by the Deed
(b) MR Leahy failed his duty when he instructed the DoF to capitalise the 1997 interest on the
POSF State share loan without board approval. He also failed to ensure that this amount was paid
or that it was stipulated in the Deed of Acknowledgement of Debt;
(c) THE board of trustees failed in their fiduciary duties to the members because:
• THE State’s liability to NPF, as acknowledged in the deed, was understated by K944,022;
• NO attempt had been made to seek repayment from the State of the K944,022 and the interest
payable on this amount;
• NO agreement or arrangement was in place in respect of the State repaying the K944,022 and
interest thereon; and
• NO attempt was made to enforce payment interest payable for 1997 as stipulated by the deed.
Payout Of State Share To PTC Employees — 1999
Of the total K15,049,421 State’s share due to the employees of Telikom and Post PNG, K6 million
was received on November 11, 1998 and was payed out to the former PTC employee members on
December 4 and 7, 1998. The balance remaining to be paid by the State was K9,049,421.
The second payout of K6 million from the State was paid into the NPF bank account on May 18,
1999, and was paid out to Telikom and Post PNG employees in June and July 1999.
NPF received the final instalment of K3,049,412 on November 15, 1999.
Two payouts totalling K966,073.05 were made out of this final instalment.
This commission has not been able to determine when the remaining K2,083,338.95 was paid out
to the employees.
Page 43 of 190
In paragraph 6.1, the commission has found that:
(a) THE trustees failed in their fiduciary duties to the members because payments of the State
share of contributions made to Post PNG and Telikom PNG employees were made in breach of the
(b) THE trustees are open to actions brought by affected members in respect of the preferential
treatment accorded to Post PNG and Telikom PNG employees, which effectively enabled these
employees to avoid the write-down suffered by other members.
In order to understand the make up of interest income due under the deed, it is important to note:
• Interest was payable effective from January 1, 1997;
• 1997 interest accrued was payable December 31, 1997;
• THE deed was signed on October 29, 1998, which set the interest at a rate of 14.67 per cent if it
was paid within three business days of the due date, or 15.67 per cent as set out in Clause 3 of
• Between January 1, 1997 and October 29, 1998 (the date the deed was signed), it is apparent
from correspondence that there was an expectation by both the NPF and the State that interest
was to be charged at 12.67 per cent with a default rate of 14.67 per cent.
Interests Income Due To NPF — Error In Principal Sum
In 1997, the correct principal sum representing the true value of the State’s share of contributions
The correct interest rate chargeable was 12.67 per cent as this was the common understanding of
Instead, NPF calculated the 12.67 per cent on an incorrect principal sum of K23,785,056.
On this principal sum, which was short by K690,019, NPF then billed the State for interest of only
When the State failed to pay this amount on the due date, Herman Leahy, without NPF board
authority to do so, agreed that the interest be capitalised and that this fact be written into the
In fact, the 1997 capitalisation of interest was not recorded in the deed.
This miscalculation of the principal sum in 1997 was carried over into 1998 and 1999 during which
period’s interest was charged on a principal sum, which was considerably less than the actual
amount of the loan outstanding from time to time.
Error In Interest Rate Charged
The deed signed on October 29, 1998, specified an interest rate of 15.67 per cent with a
discounted rate of 14.67 per cent for prompt payment within three business days of the due date.
In fact, Mr Wright and his successors continued to bill the State at the former rate of 12.67 per
cent even when payment was made outside the three-day period of grace.
This resulted in very substantial underpayment of interest by the State throughout the period
Page 44 of 190
National Provident Fund Final Report [Part 74]
Executive Summary Schedule 8 Continued
Transfer of members of Corporatised State Entities and their entitlements from POSF to
This is a summary of the commission’s report which deals with the transfer of employee and State
contributions from POSF to NPF, following corporatisation of Post and Telecommunication (PTC)
and the National Airlines Commission (NAC).
Unless otherwise stated, paragraph numbers referred to in this summary are references to
paragraphs in Schedule 8.
On April 17, 1996, the National Executive Council (NEC) approved the corporatisation of PTC and
NAC under the Companies Act. This NEC decision resulted in the transfer of all assets, rights and
liabilities from PTC to two separate entities namely Post PNG Limited and Telikom PNG Limited.
The transfer from NAC was to Air Niugini Ltd.
This move also required the transfer of both the employees’ and employers’ (State’s) contributions
from POSF to NPF.
The State, however, had not been paying its share of contributions to POSF on an annual basis. It
had merely been paying its share on an individual basis when an employee became entitled on
retirement or death, so a large accumulated amount was owing by the State to POSF as the State
contribution under the POSF Act.
At the date of corporatisation on December 31, 1996/January 1, 1997, the State was unable to
meets its share of contributions. Subsequently, the State entered into an agreement with NPF and
POSF acknowledging its debt to NPF. The total of the State’s contribution was acknowledged as
K23,531,053, a sum understated by some K944,023. The actual total should have been
NPF Considers The Transfer
The board, at its 102nd board meeting on August 27, 1996, was briefed by managing director Mr
Kaul on the progress of the awareness campaign by NPF for Telikom, Post PNG and Air Niugini
employees. Mr Kaul also requested the board to consider providing a loan to the State to cover the
transfer of the State’s share of contributions.
Delay In Transferring Of Funds From POSF To NPF
The NPF board was advised during their 103rd board meeting on October 18, 1996, of the
progress of the transfers, which included some administrative problems at POSF. The delays in
transferring contributors funds from POSF to NPF was attributed also to the POSF’s poor record
keeping and the fact that the Post and Telecommunication (Corporatisation) Act 1996 (PT(C) Act)
had not been passed.
The NPF board was advised at its 104th board meeting on December 9, 1996, that the registration
of Air Niugini employees was progressing well. The minutes of this meeting also reported that the
PTC Workers Union was demanding a payout of their POSF contributions rather than having the
contributions transferred to NPF.
(a) The NPF board of trustees resolved to offer a loan to the State to cover the amounts owed by
the State as employer of the PTC and NAC employees, as a consequence of their transfer from
POSF to NPF.
This loan offer was made without seeking independent investment advice or performance of due
Page 45 of 190
The NPF board of trustees acted as “banker of last resort” to facilitate the transfer of the PTC and
NAC employees funds to NPF and to assist the State to extricate itself from a politically and
economically difficult position.
The commission finds that the board’s conduct was improper and the trustees failed to fulfil their
fiduciary duties to the NPF members; and
(b) Trustees Vele Iamo and Abel Koivi were in a conflict of interest position regarding this issue, Mr
Iamo as the State’s representative and Mr Koivi as personnel manager with Air Niugini.
There is no record that the board excluded these trustees from discussions, or that the board took
this fact into account. In fact, both trustees played active roles in board deliberations and active
roles in their positions with DoF and Air Niugini, respectively.
Mr Iamo and Mr Koivi also did not remove themselves from this conflict of interest position.
Status Of Transfer Of Funds From POSF
On December 31, 1996, PTC and NAC ceased to operate and on January 1, 1997, the newly
incorporated bodies, Telikom PNG, Post PNG and Air Niugini came into effect.
This also means that the employees of these organisations were to commence their contributions
to NPF on January 1, 1997.
The arrangement to transfer funds from POSF to NPF was not clear-cut and the State was not able
to pay its share of unpaid contributions owed to POSF.
105TH Board Of Trustees Meeting
At the 105th NPF board meeting held on February 27, 1997, the board was advised that the
contributions due from POSF to NPF with respect to the employees of Post PNG, Telikom and Air
Niugini had not been effected.
The PTC(C) Act became effective on January 21, 1997.
Contributions From Employees Of newly Incorporated Entities Commence
At the 106th board meeting on May 5, 1997, the board was advised that the transfer of funds from
POSF was still outstanding but employee contributions to NPF from the three organisations had
The board also discussed and resolved to suggest to POSF that POSF should offer a commercial
loan to the State to cover the State’s share of contributions.
Unions Become Agitated Over Slow Transfer Of funds
Due to the slow progress in the transfer of member’s funds from POSF, the Papua New Guinea
Communications Workers Union (PNGCWU) and the National Airlines Employees Association
(NAEA) wrote separately on June 13, 1997, to POSF demanding action on the transfer of the
contributions within 30 days.
Ereman Ragi managing director of POSF responded to the letters explaining the reasons for the
He said that it was a legal requirement for the Minister for Finance to approve the transfer amount
before the transfer is effected; and that the audit of the 1996 accounts was only recently
completed. This had resulted in a final interest of 15 per cent to the members being declared by
the POSF board. The employees would have missed out on this 15 per cent interest if their funds
were transferred before the completion of this audit. He explained that the delay was not
NPF Board Advised Of Difficulties With The Transfer
Page 46 of 190
At the 107th board meeting on July 4, 1997, the NPF board was advised of the difficulties faced in
the transfer and also that POSF board will not cover the State’s share of contributions.
The board also resolved at this 107th meeting to discuss the difficulties faced in the transfer of
funds to NPF with the organisations and POSF, and if that failed, then the managing director was
authorised to examine the possibility of NPF itself providing a commercial loan to the State to
cover the State’s share of contributions.
The NPF board was also advised that contributions from the employees of the three new entities
NPF Assumes State Liability
At the 108th board meeting on August 22, 1997, Mr Kaul advised the board in his report that the
only serious option available to address the unpaid State share of contributions to POSF was for
NPF to provide a loan to the State.
He also requested the trustees to set the terms and conditions for this loan.
Noel Wright then requested, through a circular resolution dated October 23, 1997, that the board
assume the State’s debt.
This was approved and subsequently ratified by the board at its 109th board meeting on October
28, 1997. Mr Wright wrote to Minister Lasaro on October 24, 1997, requesting Ministerial approval
for the loan to the State.
On the same day, the Commercial Investments Division of the DoF (CID) briefed the Secretary
recommending that the State enter into a deed of acknowledgement of debt with NPF
acknowledging the amount owed by the State to POSF as the unpaid State share of contributions.
Ministerial Determination Under POSF Act 1993
Minister Lasaro, in a notice in the National Gazette (G87) dated October 1997, directed the
transfer of funds to be effected within 21 days.
The board also ratified Mr Wright’s circular resolution on October 23, 1997.
(a) The NPF board, through a circular resolution, approved the assumption of the State’s liability.
Although subsequently ratified by the board, this was an unsatisfactory manner in which to make
such an important decision.
The commission finds that the board of trustees failed in their fiduciary duty to NPF members
because the decision to lend funds to the State was made by trustees via circular resolution and
without the benefit of appropriate investment advice;
(b) The proposed interest rate for the loan was 3 per cent less than other loans NPF had provided
to the State;
(c) Trustee Isikeli Taureka opposed the loan as minuted. The board of trustees failed to properly
take cognisance of his views, which the commission finds were correct;
(d) Trustee Copland’s reported comment that “whilst the risks as outlined by trustee Taureka
should be considered, they need to be weighed up against the cash benefit the NPF was receiving
now” was slightly misleading. There was no direct linkage between the granting of a loan to the
State (to fund the State’s obligations as employer for the payment of contributions due to
members leaving the POSF) and the receipt of cash from POSF, because the payment from POSF
was the employees contributions (excluding the State’s contributions due) which would be paid by
POSF in any event.
Page 47 of 190
(e) Despite a clear conflict of interest, the State’s representative Trustee Vele Iamo was permitted
to and did participate in the NPF board’s decision regarding the loan funding to the State. This
practice is inconsistent with good corporate governance, which would require those in a conflict of
interest position to abstain from participating in any decision-making process. The trustees failed
in their fiduciary duty to exclude those in a conflict of interest position from participating in any
decision-making process. Similar conflict of interest existed for Mr Koivi;
(f) Trustee Taureka’s objections were valid and seem to have been dismissed by the remaining
board members. A proper consideration of the loan would have led a prudent and rational investor
to consider the State’s ability to meet the financial commitments and to fully assess the risks of
the investment against its returns; and
(g) Mr Wright’s brief was woefully inadequate and failed to critically and objectively inform the
trustees. In particular, it failed to highlight the risk of a concentrated association with this
investment as NPF was already heavily exposed to the State through its loans to Curtain Burns for
the Poreporena Freeway.
Mr Wright’s comment that “we believe the yield of 12.67 per cent with sovereign risk is a good
return given that no funds have been committed by NPF to achieve the yield”, was misleading in
that NPF was obliged to meet any liabilities as they fell due.
The question was whether this investment (the loan to the State) was providing NPF sufficient
returns for the risks of tying up these funds. NPF would be obliged to meet all liabilities associated
with the acknowledgement of this debt (including the possibility of paying the employers share);
(h) It is important to note that the commission is not saying that this was an inappropriate
investment, but rather that the board failed to properly assess the investment. The approval that
was performed was not objective and most importantly, no professional advice was sought.
Transfer Of The PTC And NAC Employee Contributions Completed
Ereman Ragi, the managing director of POSF, wrote on November 7, 1997, to the Secretary for
Finance advising him that the transfer of funds to NPF was now complete and enclosed details of
the funds transferred and their calculations.
At the 110th board meeting, the NPF board was advised by management that funds had been
received from POSF.
Deed Of Acknowledgment Of Debt
By the time the transfer of funds from POSFB had been finalised, the deed was not yet executed.
On November 10, 1997, DoF forwarded a draft of the deed to NPF. Mr Leahy responded, on
November 14, 1997 to DoF, informing Mete Kahona of NPF’s suggested changes to the deed. At
the NPF board meeting on December 11, 1997, it was noted that NPF had assumed the State’s
debt to POSF of K23,785,056.23 and that funds had been received from POSF for the employee’s
However, despite the fact that there was no signed deed of acknowledgement of debt, the NPF
board went ahead and approved the payout of the State’s share of contributions to the employees.
There was no legal basis for this resolution, which appears to have been ignored between the
months of March and August 1998 during which NPF management and the board strongly resisted
demands by the communications unions for a payout of the State’s share.
(a) NPF management failed in their duty by not performing a critical analysis and not providing the
board with a detailed brief that would facilitate a critical assessment by the board of the
investment decision where:
• THERE was doubt as to whether the State could service the debt and meet capital repayments;
Page 48 of 190
• the security available was contingent on the successful completion of privatising State entities,
something beyond the control of NPF;
• the investment risk profile of the fund increased as this additional investment in the State brought
NPF’s total exposure to the State to K83.4 million as at December 31, 1997.
• THREE was no proper evaluation of the returns achieved compared to the risks involved. NPF
management should have sought independent investment advice where these skills were not
available in- house;
(b) The NPF management and the trustees failed in their duties because the transfer was not
adequately planned and important issues were not settled prior to the transfer being effected;
(c) The trustees failed in their fiduciary duties to the members by failing to:;
• perform a critical analysis and assessment of the additional loans to the State;
• exclude Mr Iamo and Mr Koivi from discussing and participating at the board meeting despite their
clear conflicts of interest;
• have the initial approval of the loan through a proper board meeting rather than by way of a
• properly plan the transfer by ensuring that all issues were settled and sorted out between the
POSF, the State and the members, prior to the transfer.
(d) Trustees Mr Iamo and Mr Koivi failed in their fiduciary duty to the members by failing to
disclose their conflict of interest to the NPF board and failing to abstain from discussions and
involvement at the NPF board meeting, when the loan to the State was discussed;
(e) The DoF failed to perform its function responsibly because:
• no objective and critical appraisal of the proposed loan from NPF’s perspective was performed.
• even though it was clearly in a conflict of interest position, it failed to provide an independent
review of the NPF loan proposal and proceeded to recommend to the Minister that S61 approval be
(f) The resolution to payout the State’s share of contributions to all the transferred employees was
contrary to the NPF Act and without any legal foundation.
NPF’s Accounting Of The Funds Transferred As At December 31, 1997
NPF’s end of the year trial balance showed that the full amount of employee contribution including
the State’s unpaid share had been taken up in their books.
However, because the deed had not been signed, NPF was not liable to payout the State’s share to
employees, even though NPF had assumed the State’s liability for their unpaid share of
National Provident Fund Final Report [Part 73]
Executive Summary Schedule 7c Continued
(b) NPF’s source of funding for the second tranche of the loan to Eda Ranu was deliberately
obscured by Mr Wright who was deceiving the BSP about the purpose of a drawdown intended to
finance an unauthorised purchase of Orogen shares.
Decision To Sell Down
NPF’s finance report for the months of May 1997 discussed the option to convert the loans to the
Poreporena Freeway project and the K5 million loan to Eda Ranu to bonds. Instead, the loans were
eventually assigned to the Bank of Hawaii on December 8, 1997.
Request For A K1 Million Loan
Page 49 of 190
At the 106th board meeting on May 5, 1997, Noel Wright informed the board that Eda Ranu had
requested a second loan of K1 million. The board resolved to reject this request. At the 107th NPF
board meeting held on July 4, 1997, the K1 million loan request was revisited and the board
eventually approved the loan.
NEC, however, had already approved the grant of a Government guarantee to NPF for the K1
million loan at its meeting on April 24, 1997. In this same meeting, NEC advised the Governor-
General to approve the purpose of the loan pursuant to Section 37 of the PF(M) Act. This
premature decision by the NEC amounted to political interference with the management of the
The purpose of this second loan was for the payment of termination benefits to former NCDC
A brief by Salamo Elema dated September 18, 1997, to the Minister and acting Secretary
explained the facts surrounding the NEC decision and at the same time recommended approval for
Eda Ranu to enter into a K1 million loan agreement with NPF. Again there is clearly a conflict of
interest where the DoF recommended approval for Eda Ranu to enter into a second K1 million loan
agreement with NPF without considering NPF’s interest.
The action of DoF and NEC shows clear political interference with the administration of NPF. The
second K1 million was paid to Eda Ranu on June 12, 1998.
(a) The NPF Board of Trustees and management failed to critically analyse this additional K1
million loan funding when K5 million had already been lent;
(b) The Finance Department treated the NPF as a bank, making frequent requests and supporting
of loans for Government initiated projects and entities to be sourced through NPF without due
consideration for the effect on members’ funds and the financial position of NPF, especially when it
was borrowing the money at commercial interest rates to on-lend to the institutions recommended
by the DoF;
(c) There was a conflict of interest situation, within DoF where they supported and recommended
NPF to lend funds to Eda Ranu.
Interest Received By NPF
Clause 5 of the Fixed Rate Loan Agreement required the borrower to pay interest to NPF on the
amount of each advance outstanding from time to time at the interest rate of 15.67 per cent.
However, if payment was made within three days of the due date, interest would be payable at the
concessional rate of 14.67 per cent.
These interest payment dates fell due at the end of the month of each quarter in each year.
The theoretical total income receivable by NPF at the end of 1999 from interest payments at the
concessional rate of 14.67per cent was K2,522,018.93.
The amount actually received was K2,480,035.39, which shows an underpayment of K36,976.46.
This discrepancy occurred because NPF failed to bank the cheque received for the interest paid for
the last quarter of 1998. After that was pointed out by this commission and rectified, the full
amount of interest receivable at the concessional rate balanced.
There were, however, also instances of interest being paid outside the three-day grace period,
when the higher rate of interest should have been 15.67 per cent but it was not applied by NPF.
There were also instances when the daily and compound interest on the unpaid interest was not
calculated. These instances were not included in the calculation of the total amount of interest
theoretically receivable by NPF as stated above.
Page 50 of 190
If the additional interest for late payment and compound interest had been strictly imposed, NPF
would have been entitled to a further K45,000 to K46,000 approximately in addition to the
theoretical interest receivable figure of K2,522,018.93.
(a) NPF did not enforce Clause 5 of the Fixed Rate Loan Agreement to situations where interest
payments were made outside the three-day grace period, which resulted in loss of interest income
to NPF of between K45,000 to K46,000;
(b) NPF management’s administration of the loan was careless in that they failed to bill interest
when due and they failed to charge higher interest on the default amount when DoF failed to pay
by the due date.
The outstanding features of the NPF’s two loans to Eda Ranu were:
(a) the acute conflict of interest faced by DoF senior officers and the Minister for Finance when
advising NPF and recommending and approving transactions in matters where significant State
interests were involved;
(b) the State’s failure to recognise and deal with these conflicts by ensuring that NPF was given
independent and objective advice;
(c) the way the State’s urgent need to find finance for Eda Ranu was allowed to dominate
arrangements and negotiations so that proper legal and financial arrangements were rushed and
not properly in place before the drawdowns were made;
(d) The behaviour of the NEC and its advisers, which led to NEC approval being given to guarantee
a loan which NPF had not yet even considered, amounted to political interference with the
management of the fund;
(e) The failure by NPF management and board of trustees to resist these political pressures and
insist that due diligence be performed and that due process be followed, with all required
approvals and all security arrangements in place;
(f) Even though NPF’s investment in these loans to Eda Ranu turned out to be sound, the way they
were handled by management and trustees put NPF at risk and was a breach of duty by
management and of fiduciary duty by the trustees; and
(g) There was serious failure by management to keep the NPF board adequately informed.
Executive Summary Schedule 7d Southern Highlands Four Roads Project
In 1998, at a time when NPF was in financial difficulties with the Australian & New Zealand
Banking Group (PNG) Limited, (ANZ) the Department of Finance (DoF) was actively promoting a
proposal that NPF would agree to lend K17 million to the Southern Highlands Provincial
Government (SHPG) for major roadworks.
The proposal was being “worked up” by Mete Kahona working with the State’s Infrastructure
Development Group (IDG), which was acting as paid consultants to the SHPG. Clearly, the IDG
had the interest of the State and its paying client (the SHPG) primarily in mind — not the interests
DoF’s Conflict Of Interest
When NPF was considering these proposals, its chairman Morea Vele was Secretary for Finance
and trustee Iamo Vele was a senior officer of the DoF. Both participated in the NPF decision-
making process despite their undisclosed conflict of interest.
It was a very bad time for NPF to be lending K17 million as it was itself suffering a severe cash
crisis and its lender banks were reducing NPF’s credit facilities. Neither NPF management nor the
Page 51 of 190
trustees considered a specific funding plan for this loan. They seemed to rely upon the vague
possibility that it could be funded from the $A54 million bond that NPF was fruitlessly trying to
Concern About Security For The Loan
Initially, the NPF board refused to approve the loan because it had major concerns about the
security being offered, as the loan was not going to be guaranteed by the State (as the Freeway
loans had been). NPF would not accept a guarantee by the SHPG as sufficient security. Mr Kahona
and the IDG worked out an alternative security proposal, which included SHPG giving NPF a charge
over its share of the conditional grants from the State for infrastructure purposes.
NPF Approves Loan To SHPG
NPF approved the loan in principle “subject to availability of funding” and subject to legal counsel
(Mr Leahy) checking the adequacy of the security documents.
Mr Leahy sought advice from Carter Newell lawyers who responded with an alternative proposal,
saying the draft charge prepared by the State was worthless. The State rejected Carter Newell’s
draft but amended its own draft charge in order to address Carter Newell’s concerns. Mr Leahy and
NPF management did not advise the board about these matters.
When the loan agreement was drawn up, the security provided for was the amended version
proposed by the State. Mr Leahy failed to ensure that the formal agreement was made conditional
upon the availability of finance to enable NPF to fund the loan.
Failure To obtain Independent Investment Advice
Management and the trustees were in serious breach of their duty to the board and members of
the fund for not obtaining independent investment advice before entering into this loan, especially
as the DoF, which had the duty to consider NPF’s best interests and to give impartial expert advice
on the proposed loan to the Minister, was employed by SHPG to look after its interests.
When SHPG sought two drawdowns of K500,000 each, NPF management had great difficulty
finding the funds — eventually sourcing the money from its member’s contributions account.
Management made payments to SHPG in accordance with drawdown requests, without obtaining
After the first two drawdowns in August and September 1998, respectively, SHPG proved to be an
unreliable borrower and had to be “chased up” for payment of interest and fees.
NPF Terminates The Loan Agreement
This proved to be a boon for NPF as it enabled Mr Fabila to seek out details of the various defaults
in SHPG’s performance under the agreement. This enabled NPF to terminate the agreement and
institute legal proceedings to recover the principal and outstanding interest.
As at December 1999, the NPF had received K110,728.35 in interest payments from SHPG and
was owed K221,057 in outstanding interest. NPF has now commenced action to recover the
principal of K1,000,000 and outstanding interest.
This investment by NPF in this commercial loan to the SHPG highlighted the severe unaddressed
conflict of interest faced by the DoF, which was advising both SHPG and NPF. The conflict was
particularly acute for the public service representative trustees Morea Vele and Vele Iamo.
The NPF board demonstrated a rare streak of independence when it initially refused to approve the
loan and commissioned legal advice on the security aspects. After this, however, it adopted a more
compliant attitude, Mr Leahy failed to ensure NPF’s interest were safeguarded by the loan
Page 52 of 190
agreements and management and the trustees failed their duty to seek independent investment
(a) The concept of NPF lending K17 million to SHPG seems to have originated from within the DoF,
which called for expressions of interest from ANZ Bank, PNGBC and NPF. DoF actively supported
and facilitated the establishment and funding of the project;
(b) The CID of DoF favoured the NPF offer because it was the offer most favourable to SHPG. DoF
did not seem to consider whether making the loan would be in the best interests of NPF;
(c) DoF trustees on the NPF board, including the Secretary of DoF were in a conflict of interest
situation, pulled between their duty as trustees and their duty to DoF to implement National
(d) The NPF board had not expressly resolved to approve the loan to SHPG before Cabinet and
SHPG had given approval. DoF had input to the Cabinet submission;
(e) After Cabinet and SHPG approved the project, NPF management sought and received
Ministerial approval for NPF to create a loan facility of K17 million for SHPG. Again DoF advised
Ministerial approval; (f) NPF board approval was then obtained and it was given subject to legal
counsel checking the adequacy of the securities to ensure repayment. The board specifically
directed legal counsel to ensure a fixed charge was granted over the conditional grants, which
were to secure the loan;
(g) NPF board approval was made “subject to availability of funds”;
(h) The NPF board and management did not seek independent investment advice before approving
this loan or have it independently evaluated;
(i) Legal counsel Mr Leahy, prepared a draft charge document and sought external legal advice
from Carter Newell who advised the charge in its then form was worthless as an enforceable
security. Carter Newell recommended taking a legal assignment of SHPG’s entitlement to royalties
from the Kutubu project and prepared appropriate documents;
(j) DoF rejected Carter Newell’s suggestion and Mr Leahy did not advise the NPF board of this
situation. Mr Leahy and Mr Wright signed the loan agreement and fixed charge document, the
latter amended to accommodate the main criticisms made by Carter Newell;
(k) Mr Leahy should have advised the NPF board of Carter Newell’s concerns that NPF’s securities
for this loan may not be adequate. Mr Leahy and Mr Wright may be personally liable for losses
incurred by NPF from their signing of the loan agreement and charge, to the extent they were not
in accordance with the board’s approval conditions and direction regarding security;
(l) From the outset, NPF had not established its source of funding to provide this loan. Its facilities
with PNGBC were insufficient; ANZ was calling in and capping its facilities to NPF. For NPF to rely
on the eventual success of the $A54 million bond issue was reliance on fantasy, in view of the
difficulties being encountered in bringing the bond issue to fruition;
(m) Even at the time of the first drawdown of K500,000, it was clear that NPF lacked the funds to
fulfil its commitment under the loan agreement it had entered into;
(n) The approval by the NPF board was explicitly made “subject to availability of finance”. Mr
Leahy as legal counsel failed to ensure that the loan agreement also contained a “subject to
finance” clause. This was a failure in his professional duty to NPF;
(o) SHPG defaulted in its interest payments under the agreement. NPF successfully obtained three
of the quarterly payments from the State pursuant to the undertaking and charge over the
conditional grant money. This satisfied interest payments for the December 1998, and the March
Page 53 of 190
and June 1999 quarters, totaling K110,728.35. As at December 1999, there was K221,057 owing
and no further payments were received;
(p) From July 2, 1998 until April 1999, NPF management did not adequately advise the NPF board
regarding SHPG’s breaches of the loan agreement. This was a failure of management’s duty to the
(q) HAD the SHPG not defaulted in its obligations under the loan agreement, which provided NPF
with grounds to terminate the agreement, NPF risked being in breach because of its inability to
meet drawdown requests due to a lack of funds and because there was no protective “subject to
finance” clause in the loan agreement.
(r) NPF board allowed itself to be drawn into this loan agreement without obtaining adequate
advice from management about the source of funding, the reliability of the borrower or the
adequacy of its securities to protect NPF against possible default by SHPG. This was a breach of
fiduciary duty by the trustees.
(s) NPF management, particularly Mr Fabila, Mr Leahy and mr Wright, failed in their duty to
provide necessary and timely information and advice to the NPF board;
(t) Mr Leahy, as legal counsel, failed in his duty to ensure the loan documentation was adequate,
was subject to NPF having available funds and that adequate security was provided to protect NPF
against possible default by SHPG. He failed in his duty to advise the NPF board that he may have
been unable to ensure adequate security was in place — despite having received Carter Newell’s
detailed professional advice on that subject.
National Provident Fund Final Report [Part 72]
Executive Summary Schedule 7b Continued
(e) NPF management, specifically Mr Mitchell and Mr Mekere, were in breach of their common law
duty to the NPF board in failing to obtain and provide this expert opinion;
(f) The NPF trustees were in breach of their fiduciary duties to the members of the Fund in failing
to obtain this advice.
(g) The NPF management were remiss in not providing the Minister and the DoF with the contrary
advice given by PwC and FPK that NPF would be better off continuing with the BoH assignment
(h) The DoF review and assessment was detailed but it followed NPF’s own line of reasoning
closely and failed to address whether it might be best for NPF to retain the BoH agreement and
(possibly) to sell the BSP shares separately;
(i) The Secretary of the DoF was in a conflict of interest situation as adviser to the State on the
one hand, which would benefit if Finance Pacific gained from the deal. On the other hand, the
Secretary also had a duty to ensure that the best interests of NPF and its members were
safeguarded. The Secretary and his senior officers were remiss in not ensuring that independent
advice, focusing entirely on NPF’s best interests, was obtained;
(j) The Minister, Sir Mekere Morauta, was also in a similar conflict of interest situation as he was
required to consider the best interests of both the State (through Finance Pacific) and NPF. He was
not advised that PwC and FPK had advised NPF against unwinding the BoH assignment
Page 54 of 190
(k) Sir Mekere acted in accordance with the NPF request, after considering a detailed brief from
DoF in support of it. His approval was properly granted, in the circumstances.
Possible ulterior motives behind the Finance Pacific offer
At the time the Finance Pacific offer was being considered, the executive chairman of Finance
Pacific was Peter O’Neill. The chairman of the NPF was Jimmy Maladina and the NPF corporate
secretary/legal counsel was Herman Leahy.
The commission’s investigations into the NPF Tower fraud, which are reported upon in detail at
Schedule 2, have disclosed a criminal conspiracy to defraud NPF to which these three persons
The conspiracy, in fact, succeeded in illegally obtaining K2.5 million from NPF and it was
contemporaneous with this proposed purchase of Roadstock and BSP shares by Finance Pacific.
The deal came to nothing because Mr O’Neill was terminated from Finance Pacific before it was
completely in place.
In the light of the other evidence linking Mr O’Neill, Mr Maladina and Mr Leahy, the commission is
very suspicious of the bona fides of this proposed purchase and of Mr Leahy’s role in ignoring the
PwC and FPK reports and of his role in strongly advocating that NPF approve unwinding the BoH
transaction sale, despite the negative expert advice.
As the sale did not eventuate, the commission did not pursue these inquiries any further.
Payment Of Interest And Management Fees To NPF Interest
On the commission’s calculations, the State has honoured its obligations under the Freeway loans,
in fact there has been a small over payment of interest of approximately K25,000.
For each loan agreement, an annual management fee of K10,000 was payable to NPF.
The State failed to pay and the NPF failed to collect these fees. At March 5, 2001, the NPF took
action to recover the sum of K283,932.35 from the State.
At paragraph 11.3, the commission found:
The failure by NPF management to seek payment of management fees, payable on each of the
Freeway loan agreements, was a serious failure of duty.
The investment in the Poreporena Freeway loans turned out to be one of NPF’s more profitable
investments as it returned a comfortable dividend of 14.67 per cent per annum plus management
and line fees.
There have, however, been some very worrying features.
Firstly, there was the failure of NPF management and trustees to seek independent expert advice
(a) the structure of the loans which resulted in the mismatch between the interest rate and
maturing conditions of NPF’s loan facilities with the banks from which it borrowed compared with
the interest rate and maturing conditions of the on-lending to Curtain Burns Peak.
The mismatch left NPF in a losing situation during the period when the ILR interest it was paying
to the lender bank, exceeded the fixed interest rate it was receiving from the borrower. As the
period of the loan to Curtain Burns Peak was a fixed 10-year term. NPF was persuaded to assign
the loans to the Bank of Hawaii at a considerable discount in order to extricate itself from this
Page 55 of 190
(b) the “off balance sheet” revised funding arrangements whereby Curtain Burns Peak (instead of
the State) became the borrower. Before seeking advice on this legally controversial arrangement,
NPF had already lent K10 million’
(c) The Bank of Hawaii transaction proposal;
(d) The proposed sale of the Freeway (and other State loans) together with NPF’s BSP shares to
Secondly, the conflict of interest situation facing DoF senior officers who had “State”
responsibilities to obtain funding for the Freeway Project and who also “put together” the loan
arrangements with NPF and applied pressure on NPF to borrow the money to on-lend to the State
(directly and through Curtain Burns Peak). The same officers were also involved in making
recommendations to the Minister to approve NPF’s loan arrangements.
The conflict was particularly severe for officers like Vele Iamo who was also an NFP trustee with a
fiduciary duty to act only in the best interests of the members of the NPF, yet he was also a
member of the State committee responsible for keeping up the supply of necessary funds so the
State would not be in breach of its project agreement with Curtain Bros.
The failure of these public service representative trustees to declare their conflict of interest and
refrain from voting on the Freeway loan resolutions at NPF board meetings was also a breach of
Thirdly, management on some occasions failed to consult the board and acted without board
authority. This included Mr Wright’s unauthorised activities in August 1997 to redeem deposits and
alter security arrangements. Mr Wright also acted improperly by applying incorrect accounting
principles to book K18.5 profit in 1997 on the BoH transaction, which resulted in an incorrect
bonus being paid to senior management.
Finally, Minister Haiveta who failed on several occasions to seek advice of the DoF before granting
approvals under Section 61 of the PF(M) Act, was possibly guilty of improper conduct under the
Executive Summary Schedule 7c
NCD Water and Sewerage Ltd/Eda Ranu Loan Funding
This is a summary of the commission’s report Schedule 7C which deals with NPF’s loans to the
National Capital District Water & Sewerage Ltd (NCD W&S). Unless otherwise stated, paragraph
numbers referred to in this summary are references to paragraphs in Schedule 7C.
Following a Cabinet submission from the then Minister for Finance Chris Haiveta, the NCD W&S Ltd
was set up under NEC decision No. 85/96 of May 31, 1996. Its purpose was to take over
responsibilities for water supply and sewerage from the National Capital District Commission
(NCDC). The trading name of this new organisation is Eda Ranu.
The same NEC decision also directed the Department of Finance (DoF) to review various options
for the funding of this newly created entity.
Department Of Finance Submission
The Department of Finance policy submission to the Minister in support of the Minister’s Cabinet
paper details the background to the loan as follows:
• ON September 3, 1996 (SIC) (NPF Board approved K5 million loan to Eda Ranu on August 27,
1996, at meeting No.102) the board and management of NPF agreed to provide a commercial loan
of K5 million to NCD Water and Sewerage Pty Ltd under the same terms and condition as the
Poreporena Freeway loans.
Page 56 of 190
• It was advised that the option to convert the loan to equity could be considered at a later date but
at that stage the NPF board had no interest in being part owner of the water supply company;
• IT was said that the terms and conditions were “quite favourable” to Eda Ranu and the State.
The wording of this policy submission brought out clearly the latent conflict of interest facing the
DoF and the Minister, as DoF and the Minister also had a duty to take into consideration the
interest of NPF. In this case, they did not do that sufficiently.
NPF’s Decision To Lend Funds To NCD Water & Sewerage Ltd
NPF board approved a K5 million loan to Eda Ranu in their meeting held on August 27, 1996. The
terms of this loan were similar to the loan NPF had given to the Poreporena Freeway project.
NPF’s Funding Of The K5 Million Loan
NPF’s original intention was to fund this loan through its current loan facility with the ANZ bank.
However, NPF eventually sourced funds to meet this loan commitment of K5 million through its
BSP loan facility of K30 million. The K30 million facility is dealt with in Schedule 2C “Borrowings”.
NPF Seeks Legal Advice About Reliance On State Guarantee
The State guarantee for the K5 million loan to Eda Ranu was dated October 31, 1996. NPF sought
legal advice from Gadens Lawyers about its reliance solely on the State guarantee, given the
State’s current cash restrictions in meeting its ordinary budgetary expenses. The legal advice they
received stated that it was dangerous for NPF to rely solely on the State guarantee and NPF was
advised to ask Eda Ranu to grant a fixed and floating charge over the borrower’s assets in addition
to the State guarantee. Establishment Of A Debt Sinking Fund
In order to address NPF’s concern about the Government guarantee, Eda Ranu was to establish a
debt sinking fund by way of a trust account with a commercial bank. NPF was advised of this move
in a letter dated October 11, 1996, from Salamo Elema of the DoF. This same letter also advised
that the first drawdown was required by November 4 to enable Eda Ranu to meet is payroll
(a) The pace at which the preconditions to the initial drawdown were being addressed shows
clearly the apparent failure by the Department of Finance to critically analyse this loan funding,
due to it’s attitude of serving the State’s interest first, even though they have a responsibility to
protect the interest of NPF as well;
(b) The execution of the loan agreement was done without the inclusion by NPF lawyers of
provisions for the establishment of a trust account and the Finance Minister’s approval for Eda
Ranu to borrow from NPF as a precondition;
(c) The execution of the loan agreement was also done contrary to the PF(M) Act, which covered
the NCD Water and Sewerage Pty Ltd and therefore required the prior approval of the Minister for
Finance for Eda Ranu to borrow the funds.
Concerns Raised About Proposed Trust Account
Following conversations between NPF and Gadens Lawyers, NPF instructed Gadens on November
8, 1996, to write to Eda Ranu and DoF about its concerns regarding the trust account. Stephen
Lewin of Gadens wrote to Young and Williams pointing out NPF’s concerns regarding the Trust
Instrument on November 8, 1996.
These concerns include:
(a) Part Ill of the Public Finances (Management) Act 1995 (PF(M) Act) is not intended to be used
for trust accounts of the type proposed;
(b) Notice by Minister for Finance arguably purports to amend and/or does not comply with the
provisions of Part Ill of the PF(M) Act;
Page 57 of 190
(c) Incorrect reference to section 10 (should be section 15);
(d) Poorly drafted notice;
(e) As lawyers for NPF, Gadens Ridgeway have not sighted any executed documents;
(f) Amend the Governor-General’s approval to specifically refer to section 37 of the PF(M) Act; and
(g) Declaration by existing shareholders of NCD W&S Pty Ltd that they hold shares in trust for the
Independent State of Papua New Guinea.
Eda Ranu and DoF addressed the above concerns in a letter to NPF dated November 8, 1996. In
this letter, Eda Ranu gave an undertaking that:
“1. IF the trust account established pursuant to a deed of trust executed by the Minister for
Finance is declared invalid for any reason or the operation of it causes any difficulties, it will
execute a new trust instrument with you in relation to the account upon request;
2. THAT it will use its best endeavours to obtain an amended executed approval from the
Governor- General within 30 days after drawdown whereby the GG will approve the purpose of the
loan pursuant to section 37 of the Public Finances (Management) Act, the loan being clearly stated
to be made to NCD W&S Pty Limited.
3. THAT it will obtain a declaration by the existing shareholders of the company that they hold the
shares in NCD W&S Pty Limited in trust for the Independent State of Papua New Guinea and will
forward executed copies of those declarations of trust to your lawyers and that it will within 30
days satisfy you that 100 per cent of the issued share capital in the company is held legally and
beneficially by the Independent State of Papua New Guinea or officers of the State on behalf of the
State”. (Exhibit E74)
Lack Of Due Diligence
Right up until the day before the K3 million was advanced by NPF, there were still serious concerns
about the legal validity of NPF lending money to NCD W&S Pty Ltd as a means of avoiding
restrictions on direct state borrowing from NPF. Right up until the last day, NPF did not have
details of the shareholders in the borrower company and whether they were acting as trustees for
the Sate pursuant to valid declarations of Trust.
NPF, however, released K3 million of the K5 million to Eda Ranu without confirming who Eda Ranu
At paragraph 12.1, the commission has found that:
(a) NPF lent money to Eda Ranu without the benefit of knowing who the directors and/or
shareholders of the company were and before legal due diligence had been completed; and
(b) The speed at which this loan was being arranged, under pressure from DoF and Eda Ranu,
resulted in NPF entering into commitments prior to completion of basic aspects of due diligence
and despite expressed concerns about the legality of the arrangements and the effect of hastily
prepared trust arrangements designed to avoid doubts about the State’s power to borrow without
an Act of Parliament. Drawdowns
The drawing notice from Eda Ranu to NPF predated the loan agreement and guarantee. It was
dated October 22, 1996.
In an attempt to correct the drawing notice, Kenneth Frank wrote to Salamo Elema on December
4, 1996, enclosing a substitute drawing notice signed by Eda Ranu dated November 18, 996 (sic)
for Mr Elema’s signature.
Page 58 of 190
This action by Mr Frank was improper and risky as it may have legal implications in the sense that
Eda Ranu could choose not to pay the interest and principal because the drawing notice predates
the loan agreement.
In a letter dated November 8, 1996 to Chris McKeown of BSP, Mr Wright of NPF requested a draw
down of K3 million. BSP released K3 million the same day to Eda Ranu.
The second K2 million was presented to Eda Ranu on November 20, 1996. This was sourced from
a maturing IBD although Mr Wright made out that it was sourced from the BSP K30 million facility.
At paragraph 14.1, the commission has found that:
(a) The drawing notice predated the loan agreement and guarantee. While this matter was
corrected by Mr Frank in his letter to Mr Elema on December 4, 1996, such action was not proper
and it may have legal repercussions in the sense that Eda Ranu could choose not to pay the
interest and principal because the initial drawing notice predated the loan agreement.
* PART 71 is missing and has not been published in this series
National Provident Fund Final Report [Part 70]
SCHEDULE 7B Poreporena Freeway Loan
After a troubled history leading to a Supreme Court order against the Independent State of Papua
New Guinea (the State), a contract was executed between the State and Curtain Bros (QLD) Pty
Ltd (Curtain Bros) to construct the Burns Peak and Waigani Drive project on March 3, 1995.
The contract was made conditional upon funding. It was originally intended that the State would
borrow money offshore to fund the project but the Government was advised that this would
contravene World Bank guidelines.
On July 13, 1995, the contract was declared unconditional and the Government proposed to
contribute equity of K12.7 million with the balance of K48 million to come from commercial loan
funding from PNG banks and superannuation funds.
When Curtain Bros refused to receive the loans directly, a special entity, Curtain Burns Peak Pty
Ltd (Curtain Burns Peak) (jointly owned by the State and Curtain Bros.) was incorporated to
receive the borrowed funds.
Having trouble raising the money from the commercial banks, the State turned to the PNG
superannuation funds. On legal advice, the other funds refused to participate and it was left for
NPF to become, in effect, the lender of last resort.
In all, NPF provided loans totalling K62 million to Curtain Burns Peak. This loan funding is referred
to here as the Poreporena Freeway loan.
The loans were as follows:
Page 59 of 190
K9 Million Loan — September 7, 1998:
This loan was made using contributor’s funds and was made directly to the State.
The details and conditions of the K9 million loan appear to have been worked out and agreed to in
discussions between Mr Kaul and the First Assistant Secretary (FAS) of the Commercial
Investment Division (CID) of the Department of Finance (DoF) Vele Iamo.
Mr Iamo was also a Public Service representative trustee on the NPF board.
The NPF board approved the loan on June 29, 1995 and Mr Iamo briefed the Secretary for Finance
Gerea Aopi and the Minister for Finance on July 18, 1995, recommending approval and saying that
the DoF had been fully involved in the decision-making process.
The brief was forwarded to Minister Haiveta on July 17, 1995, and he approved the K9 million loan
that same day on the recommended terms. He also gave approval for NPF to provide “additional
funding of K10 million in 1996 and or 1997 under the same terms and conditions as above”.
Conflict of interest
Mr Aopi and Mr Iamo were Secretary for Finance and FAS (CID) of the DoF respectively, with the
responsibility of protecting the State’s financial interests. They were also chairman and trustee,
respectively, of the NPF Board of Trustees, with strict fiduciary duties to look after the interests of
members of the fund.
Their conflict of interest was, therefore, acute.
K10 Million Loan — June 27, 1996:
Approval for the additional K10 million had not been resolved by the NPF board or requested from
the Minister. Mr Haiveta’s premature approval was, therefore, irregular. It perhaps indicates his
keenness to secure the funds that the Government required to fulfil its contractual obligation to
The additional K10 million loan was required by the State because the Public Officers
Superannuation Fund (POSF) and Motor Vehicles Insurance Trust (MVIT) had withdrawn from their
intention to make loans.
The proposal was subsequently approved by the NPF trustees, initially by circular resolution and
later ratified at a board meeting on August 29, 1995.
Failure to disclose conflict of interest and to abstain from voting
At that meeting, three employee representative trustees voted against the proposal. Chairman
Aopi and Trustee Iamo voted in favour, despite their undisclosed conflict of interest, mentioned
Had they refrained from participating in the vote, the motion to advance the K10 million would not
have been approved.
Page 60 of 190
At paragraph 4.10 of the report, the commission has found:
a) NPF’s investment appraisal and decision-making process, concerning this loan, was inadequate;
(b) To be able to make a prudential assessment of the investment, this matter warranted a full
board discussion and a formal documentation of that appraisal. The decision to advance such large
sums of money to the State should have been based on a critical appraisal of risk and return.
The clear existence of conflicts of interest with regard to the State representative trustees, should
have led the board to seek independent advice as to the merits and appropriateness of this
Judging by what was recorded in the minutes (Exhibit G3 and G10 and the board papers (Exhibit
P2)), NPF did not carry out any critical appraisal on this investment proposal and its management
did not obtain or offer the trustees any independent advice;
(c) The trustees and management failed respectively in their fiduciary and common law duties by
using a circular resolution to approve a transaction that involved substantial amounts of members’
(d) The commission notes that Trustees Gerea Aopi (who was the chairman of the NPF board at
that time) and Vele Iamo were, at that time, Secretary and FAS CID, respectively, of the DoF.
Minutes of the National Executive Council (NEC) meetings found in the DoF files (commission
documents 5A), record that the DoF was charged with the responsibility of procuring funds for the
Poreporena Freeway project. Both Mr Aopi and Mr Iamo were also members of the Poreporena
Freeway Project Management Group, which was responsible for providing advice to and liaison
with the NEC in respect of this project.
Mr Aopi and Mr Iamo were clearly in a position of conflict of interest and therefore should have
withdrawn from participating at the NPF board meeting when the board considered the Freeway
project funding request.
Mr Aopi and Mr Iamo did not declare their obvious conflict of interest position to the NPF board nor
did the board consider the implication of this conflict. The NPF Board of Trustees failed in their
fiduciary duty in this respect;
(e) The NPF management (particularly Mr Kaul, Mr Wright and Mr Leahy) failed to properly brief
the board on this issue;
(f) NPF’s use of borrowed funds to on-lend in this way was not sanctioned by the NPF Act or any
other law. It was, therefore, illegal as well as being thoroughly inappropriate for a provident fund;
(g) In light of this clear conflict of interest within the DoF, an independent review of the NPF loan
proposal was required. DoF did not attempt to isolate its review process through the use of
“Chinese Walls” or similar methods to ensure that an independent review of the investment, from
NPF’s perspective, rather than from the State’s perspective was achieved. This shortcoming, in a
structural sense, persists; and
(h) Trustees Paska, Gwaibo and Leonard voted against making the additional K10 million loan. Had
Mr Aopi and Mr Iamo refrained from voting because of their conflict of interest, the motion to
approve the additional K10 million loan would, on the numbers, not have been passed;
(i) The loans provided by NPF were long-term loans and long-term loans are approved
investments, under NPF’s investment guidelines.
The approval given for the K10 million loan had the State as the borrower.
Borrower becomes Curtains Burns Peak
Page 61 of 190
The new arrangement, to lend through Curtain Burns Peak as intermediary, was put to the NPF
board on April 26, 1996. No independent or expert advice was given or sought about the effect on
NPF’s security of this “off balance sheet” transaction. The Minister approved this new arrangement
on the same day.
Management allows early drawdown
The NPF board approval was that the K10 million could be drawn down in two tranches of K5
million each in 1996 and 1997. The K10 million loan was signed on June 27, 1996. Management
allowed both tranches to be drawn down in 1996. This was because the State had applied pressure
on NPF to advance the second drawdown date because POSF and the Defence Force Retirement
Benefits Fund (DFRBF) had sought legal advice about the validity of the changed arrangements
and would not commit their funds to the Poreporena freeway funding. This left a shortfall, which
NPF was asked to fill.
The source of funds for this on-lending was NPF’s loan facility with the Australia & New Zealand
Banking Group (PNG) Limited (“ANZ Bank”).
At paragraph 6.4, the commission has found:
(a) Management was in breach of its common law duty to the board in not obtaining independent
expert advice regarding the State’s revised “off balance sheet” loan arrangements, using Curtain
Burns Peak as an intermediary to receive the funds;
(b) THE trustees were in breach of their fiduciary duties to the members of the fund by failing to
insist on obtaining independent expert advice about the loan agreement as well as an assessment
of NPF’s security for the loan;
(c) NPF management acted beyond their authority by allowing Curtain Burns Peak to drawdown
the entire K10 million loan in 1996, contrary to the loan agreement. This was a failure by Mr Kaul
of his fiduciary duty as a trustee. He and Mr Wright also failed their common law duties to the NPF
(d) THE trustees failed in their fiduciary duty to the members by not noticing and questioning this
obvious departure from the terms of the loan agreement;
(e) Minister Haiveta’s approval of the loan agreement between NPF and Curtain Burns Peak,
without seeking advice from DoF, was a failure of his duty as a Minister.
In view of the conflict of interest situation that he and senior officers of the DoF were in, it was
impossible for them to properly advise and consider the best interest of both the State and NPF. In
these circumstances, the Minister should have sought independent advice from outside the DoF.
His apparent failure to seek and take any advice at all was improper conduct; and
(f) NPF’s use of borrowed funds to on-lend in this way, was not sanctioned by the NPF Act or any
other law. It was, therefore, illegal, as well as being thoroughly inappropriate, for a provident
K15 Million Loan — November 14, 1996
Management fails to disclose constitutional problems to NPF board
During August and September 1996, Mr Wright was negotiating a drawdown on the ANZ loan
facility to enable NPF to on-lend a further K15 million for the project. Bank approval was given in
principle, subject to the ANZ obtaining legal advice that a charge over the inscribed stock would be
The Government’s need to obtain the further K15 million from NPF at this stage was because POSF
and DFRBF were holding back from their lending commitment while seeking legal advice, from
Page 62 of 190
Blake Dawson Waldron, as to the constitutionality of the new “off balance sheet” loan to Curtain
Burns Peak and of the State’s proposed guarantee.
Even though Mr Wright and the NPF management were on notice that this legal question had been
raised, they proceeded to recommend the K15 million loan to the NPF board, without advising the
trustees that such a loan could be illegal and unenforceable.
Failure to obtain independent expert advice
Once again, the NPF board approved this proposal without any formal expert briefing from
management and without any independent expert advice. On September 26, 1996, Minister
Haiveta gave his approval.
Despite the clear conflict of interest affecting the DoF senior advisers and the Minister, no attempt
was made to ensure that expert independent advice was made available to NPF.
Before the K15 million loan agreement was signed by NPF, POSF and DFRBF received their legal
opinion from Blake Dawson Waldron dated October 10, 1996. The opinion stated that the proposed
method of funding, by Curtain Burns Peak borrowing from PNG institutions and the State issuing a
guarantee, violated Section 209(1) of the Constitution as it would constitute a loan raised by the
State, without the authority of an Act of Parliament. Only at this late stage did NPF management
see fit to obtain its own legal opinion. That opinion, provided by John Batch SC, was contrary to
that of Blake Dawson Waldron.
Opposing legal opinion
Mr Batch felt that the arrangement did not contravene Section 209 (1), though he conceded that if
there was a contravention, the loan may not be recoverable against Curtain Burns Peak and that
NPF would not be able to enforce the State guarantee in the Courts. Mr Batch’s opinion was dated
November 7, 1996 and the K15 million loan agreement between NPF and Curtain Burns Peak was
signed on November 14, 1996.
The K15 million loan agreement was executed on November 14, 1996, between Curtain Burns
Peak and NPF. Again, it was fully drawn down ahead of the agreed dates. The management and
facility fees totalling K85,000, were paid to NPF.
At paragraph 6.8, the commission has found:
The Board of Trustees did not critically appraise the provision of further loans to the State and
thereby failed in their fiduciary duties, in that:
(a) No consideration was given to the impact this further loan would make on NPF’s investment
(b) The impact on NPF’s debt management and cash flow planning was not considered and
(c) No assessment was made of the ability of the Government and Curtain Burn Peak to fulfil their
(d) No assessment was made of how the World Bank would view the State’s use of NPF funding for
the State’s infrastructure projects, as political influence had clearly been brought to bear;
(e) NO consideration was given to the risks and returns or to other possible investment
(f) There was a mismatch in the arrangements because the borrowed funds advanced to the State
to finance the project, were repayable by NPF to ANZ “on demand”, whereas NPF’s loan to the
State was not repayable for 10 years;
Page 63 of 190
(g) THE trustees did not seek independent investment advice concerning this additional loan, nor
was a critical investment appraisal of the additional loan to the State made;
(h) THERE was no documented input from NPF’s investment division.
Of the K48 million which the State had expected to raise in order to fund the original Freeway
contract between 1995 and 1997, NPF provided K42 million. This was K23 million more than had
been planned in 1995.
Second K15 Million Loan — March 13, 1997
Board and Minister approve further loan without any expert advice
As a result of the Blake Dawson Waldron advice, POSF and DFRBF resolved not to participate in
the Poreporena Freeway loan and pressure was put on NPF to make good the funding shortfall.
NPF management eagerly accepted this challenge. Chairman Copland sought the board’s view at
the 104th Board meeting, on December 9, 1996, about advancing another K15 million for the
Freeway project. On the strength of a mere verbal proposal, without any attempt at appraising the
investment, the board gave its immediate approval.
Minister Haiveta approved the proposal on January 28, 1997, without seeking advice from DoF.
National Provident Fund Final Report [Part 69]
Executive Summary: Schedule 6 Continued
(ii) To the Papua New Guinea Law Society — Mr Leahy and Mr Maladina and Ms Sariman to
consider disciplinary measures;
(iii) To the Ombudsman Commission — Mr Maladina and Mr Fabila to consider whether they were
in breach of the Leadership Code;
(h) The scam to defraud the NPF over the sale of the NPF Tower amounted to a criminal conspiracy
involving Mr Leahy, Mr Maladina, Mr Fabila, Sullivan and Ms Sariman.
IN relation to the commission’s inquiries into the six matters investigated in Schedule 6, the
commission recommends that the Prime Minister makes the following referrals:
Referrals recommended by the commission to the constituting authority:
To the Commissioner for Police:
(a) Demanding money (K150,000) from Kumagai with threats to stop work on the Tower and
reject payment claims if the demand was not met (Criminal Code Act, Section 389);
(b) Conspiring with Mr Taniguchi and Mr Kobayashi and probably with Herman Leahy to defraud
the National Provident Fund Board of Trustees of K2.505 million ((Criminal Code Act, Section 407);
(c) Forging or causing to be forged a writing (being the signature of Ken Yapane & Associates) on
the subcontract (Criminal Code Act, Section 462(1));
(d) Knowingly and fraudulently uttering a false writing (being the signature of Ken Yapane &
Associates on the subcontract) to Kumagai (Criminal Code Act, Section 463(2));
(e) Fabricating evidence with intent to mislead a tribunal in judicial proceedings (the two false
retyped letters produced to this commission by Mr Yapane) (Criminal Code Act, Section 122);
Page 64 of 190
(f) Attempting to induce a person called as a witness in judicial proceedings (Mr Yapane as called
before this commission) to give false testimony or withhold true testimony (Criminal Code Act,
Section 123); and
(g) Possibly attempting in his telephone conversation with Mr Taniguchi (Transcript p.2977) to
induce a person to be called as a witness in judicial proceedings (Mr Taniguchi before this
commission) to withhold true testimony (Criminal Code Act, Section 123).
To consider breaches of the Leadership Code in relation to his activities concerning the fraud
against the NPF and related activities.
PNG Law Society:
Commissioner for Police
(Transcript pp. 3280-3332) Mr Fabila: for being party to all or some of the above mentioned
offences and/or of criminal conspiracy with Mr Maladina in relation to any or all of such offences.
To consider breaches of the Leadership Code in relation to his activities concerning the fraud
against the NPF and related activities.
Commissioner for Police
For being party to all or some of the above mentioned offences and/ or of criminal conspiracy with
Mr Maladina in relation to any or all of such offences.
PNG Law Society Professional misconduct.
Commissioner for Police
For being party to all or some of the above mentioned offences and/ or of criminal conspiracy with
Mr Maladina in relation to any or all of such offences.
Commissioner for Police
For being party to all or some of the above mentioned offences and/ or of criminal conspiracy with
Mr Maladina in relation to any or all of such offences.
Commissioner for Police
(a) FOR being party to all or some of the above mentioned offences and/ or of criminal conspiracy
with Mr Maladina in relation to any or all of such offences; and
(b) Fabricating documents.
Commissioner for Police
Aiding the office of fraud or receiving.
PNG Institute of Accountants
Commissioner for Police
Aiding the office of fraud
PNG Institute of Accountants
Page 65 of 190
Commissioner for Police
To consider whether there is criminal culpability in relation to the fraud against the NPF such as to
warrant charging him with an offence against the Criminal Code.
PNG Law Society
Commissioner for Police
To consider whether there is criminal culpability in relation to the fraud against the NPF such as to
warrant charging her with an offence against the Criminal Code.
(a) The concealment of his interest in Bluehaven No.67 which purchased RIFL from ICPNG;
(b) The receipt of K100,000 fraud money by his company Mecca No.36; and
(c) The concealment of his interest in Nama Coffee Exports Pty Ltd.
Commissioner For Police
(a) To be referred for perjury if he returns to PNG; and
(b) Aiding the offence of fraud.
Commissioner for Police
Aiding the office of fraud.
The commission has already directed that the following persons be referred to the Commissioner
Direct referrals by the commission
Commissioner for Police
Possible perjury regarding source of funds to purchase Manamatana apartments.
Result of the investigation
After thorough and painstaking investigations, the commission has concluded that no further
action is required regarding:
• The inground works variation costs of K3,006,270.26 as the costs were justifiable and there were
• Builders other works variations because sound professional opinion establishes there were no
• The first acceleration fee of K1.4 million because the decision to pay the fee was justifiable and the
cost was within reasonable bounds; and
• The professional fees, because there is a genuine dispute caused by ambiguity in the contract
documents and there are no irregularities.
Page 66 of 190
However, the commission’s investigations uncovered criminal malpractice requiring the following
matters and referrals to the Commissioner for Police and other authorities have been
The Kina devaluation claim of K3.3 million:
This payment was agreed upon by Mr Maladina so he could receive the fraudulent payment of
K2,505,000 from Kumagai. That was part of the “deal” with Mr Taniguchi. NPF may be entitled to
recover the refund of this K3.3 million;
THE second acceleration claim of K2,505,000:
This claim was spurious and was agreed upon between Mr Maladina and Kumagai Gumi managers
(under pressure from Mr Maladina) to enable the money to be channelled through Kumagai Gumi
and on paid for the benefit of Mr Maladina, with shares for Mr Leahy and Mr O’Neill (through the
account of Carter Newell and PMFNRE).
NPF is entitled to recover this K2.505 million.
Tribute to Finance Inspectors
The commission once again commends the finance inspectors who were directed by DoF Secretary
Brown Bai under Section 64 of the PF(M) Act to inquire into aspects of the NPF Tower financing
In every respect their inquiries and findings had validity and it amply demonstrates what a
powerful tool Section 64 is if the inquiry into a public body is carried out by professional Finance
Inspectors acting with perseverance and integrity.
Niugini Insurance Corporation K2 Million Loan
The commission has carefully considered counsel’s opening submissions and all statements,
evidence and submissions given in reply.
For ease of reference this report is presented generally in the same sequence as opened by
counsel. The commission’s findings are set out at appropriate places within the text and also in the
schedule of findings at the rear of the report as answers to the terms of reference given to the
Addresses by counsel and evidence in relation to this topic can be found in the transcript of
proceedings as follows:-
The initial decision by the National Provident Fund of Papua New Guinea (NPF) to loan funds to
Niugini Insurance Corporation (NIC) derived from the 93rd NPF board meeting on February 9,
At that meeting, finance and investment manager Noel Wright informed the board of NIC’s request
for a loan to complete its Lakosi Place development.
A paper was also circulated to the board members in which the managing director Robert Kaul
recommended board approval of a debt facility of K2 million at a fixed interest rate of 13 per cent
for a term of 10 years.
The board, however, resolved not to approve the loan on the terms recommended by the
managing director but instead resolved that the managing director offer the loan to NIC under the
Debt facility — K2 million;
Interest rate — PNGBC Indicator lending rate plus 4 per cent;
Page 67 of 190
Term — 10 years; and
Security — first registerable mortgage over Lakosi place property. (Exhibit N1)
Although we were unable to locate a copy of the board paper that was circulated at the 93rd board
meeting, it seemed that Mr Kaul brokered the deal with NIC as evidenced at the 94th board
meeting on April 24, 1995.
The board meeting resolved to ratify the NPF management’s decision to loan up to K2 million to
NIC on the following terms and conditions:
Borrower: Niugini Insurance Corporation Limited;
Amount : Up to K2 million;
Term: 10 years;
Interest Rate: PNGBC Indicator Lending Rate (ILR) plus 4 per cent payable monthly;
Grace Period: Eight months from date of signing agreement;
Drawdown Period: First drawdown after five days from date of signature of the loan agreement to
and including up to 10 months from such date;
Commitment charges: No commitment charges within six months of the date of signature and 0.5
per cent of undrawn balance for the remaining drawdown period for each day undrawn;
Prepayment penalty: Provided no prepayment is made within three years, otherwise the charge
equal to the default rate will apply on the prepaid amount before the expiration of the said period;
Default penalty: 2 per cent charge on unpaid amount remaining un-remedied within five working
Repayment: Repayments of the principal amount shall be made monthly equal installments, the
first monthly repayment commencing on the eighth month after the signing of the loan agreement
and the final repayment being on the 112 month after the signing of the loan agreement;
Management Fee: 1 per cent flat of the total facility in advance for the first K1 million drawn and
for the balance of the drawdown in arrears; and
Security: First mortgage over the property. (Exhibits N2 and N3)
Although the minutes do not make reference to it, the managing director’s report for the 94th
board meeting reads:
“v) NIC Loan
After NIC consented to the 4 per cent margin, Ministerial approval has been received and
documentation is now proceeding smoothly. First drawdown is expected this month”. (Exhibit N4)
Mr Kaul failed to attach a copy of the Ministerial approval in his board report and it seemed his
report might have been misleading.
We have not sighted any Ministerial approval for this loan even though the finance report for the
period ending March 1995 advised of the Ministerial approval as being received (Exhibit N5).
The NPF Files on “Letters to the Minister” (Commission Document 55) and “Letters from the
Minister” (Commission Document 54) do not contain any letter granting Ministerial approval.
The documents produced by the Department of Finance and Treasury (DoF) in respect of
Ministerial approval granted in 1995 (Commission Document 5A) contain no documents indicating
Ministerial approval was either sought or given.
Consequently, there is no primary evidence of approval either being sought or given, only third
party reports from Mr Kaul and Mr Wright.
The legal counsel/corporate secretary’s report for the months of April/ May 1995, reads: “Niugini
Insurance Corporation Limited— Long Term Loan — K2 million Allotment 9 Section 62 Granville. I
table the following loan and security agreements.
Page 68 of 190
(i) Loan Agreement dated 28 April 1995
(ii) Memorandum of Mortgage dated 28 April 1995
The Memorandum of Mortgage was registered on the certificate of title to allotment 9 section 62
Granville on 17 May 1995. The certificate of title has now been lodged in the NPF safe”. (Exhibit
The above report was for the 95th board meeting held on June 2, 1995. The minutes of that
meeting record the corporate secretary tabling both documents (Exhibit N7).
The 95th board meeting was the last board meeting during which the NIC Loan was actually
As was the case with the Ministerial approval letter, the commission was unable to locate copies of
the signed loan documents.
In the managing director’s report for the 96th board meeting held on August 2, 1995, (Exhibit N8),
Mr Kaul discussed NPF’s investment in the Bank South Pacific (BSP). Mr Kaul advised the board of
NPF’s large deposit of K28 million with BSP and stated that although NPF is receiving healthy
returns from this investment, the deposit will be reduced considerably in the next 12 months due
to the withdrawal of funds to meet NPF’s loan commitments to, among others NIC.
With the K2 million already being committed the finance reports for the months of September and
October 1995 attached the 1996 budget. The projection of interest from, the NIC loan was as
follows: The interest projection was based on the assumption that the Indicator Lending Rate (ILR)
averaged 13 per cent in 1996 (Exhibits N9-N12).
By the end of 1995, NPF’s projection of interest income from the loan for the year 1996 was
The first mention of the NIC loan in 1996 was at the 101st board meeting on June 28, 1996.
The finance manager informed the board that NIC was willing to repay its K2 million loan.
The board resolved to accept early repayment subject to the terms and conditions governing the
However, by the 103rd board meeting held on October 18, 1996, the board noted that NIC had
decided against early retirement of the loan (Exhibits N13-N15).
In commission document 1144 is a schedule of loan repayments for the years 1996 to 1999
detailing monthly payments of K14,583.33 beginning January 1996 till December 1999. This
standard payment of K14,583.33 was to retire the principal amount.
Therefore, a total of K699,999.84 had been received by NPF to retire the principal amount (i.e.
K174,999.16 per year from 1996-1999) (Exhibit N16).
NPF could not locate documents evidencing payment of interest on the loan and it seemed that
such payments were not forwarded to NPF.
(a) The NPF management failed to seek Ministerial approval for the loan to NIC;
Page 69 of 190
(b) THE board reports by Mr Kaul and Mr Wright were misleading as no ministerial approval was
sought or granted;
(c) NPF management and Board of Trustees failed to ensure that Ministerial approval had been
received before allowing NIC to commence drawdown of the loan funds; and before allowing NIC
to commence drawdown of the loan funds; and
(d) THE NPF management failed to ascertain and ensure that interest payments were made by
National Provident Fund Final Report [Part 68]
Executive Summary: Schedule 6 Continued
(b) The K250,000 paid to Bank of Hawaii was for the benefit of South Super Stores Limited and
both Peter O’Neill and Nathaniel Poiya received a direct benefit as this payment reduced their
direct personal liability under their respective guarantees given to Imak International Limited;
(c) The K60,000 came from Carter Newell and was credited to this Ledger 18. The evidence of Mr
Barker regarding that money was false and knowingly false. It is recommended that if Mr Barker
ever returns to PNG he should be referred to the Commissioner for Police with a view to his being
charged with perjury under the Commissions of Inquiry Act;
(d) The K60,000 paid into Ledger 18 from Carter Newell was part of the proceeds of the Waigani
Land fraud. It was later combined with other moneys to enable Mr O’Neill’s children’s company LBJ
Investments (see paragraph 184.108.40.206) to buy Remington Ltd from Baradeen Holdings.
Mr O’Neill’s rental income
In attempting to explain the expenditure of apparently excessive sums for his personal benefit Mr
O’Neill claimed they were funded from rental income on his properties, which had been paid into
PMFNRE on his behalf. At paragraph 12.4.25, the commission reported upon the procedures
whereby PMFNRE accounted by monthly rental statements to Mr O’Neill for rental receipts.
Accordingly, payments were not made out of rentals unless they are detailed in the monthly rental
Free rent for Minister Zemming
While investigating the rental payments, the commission discovered that rent was not charged for
unit 105 Pacific View Apartments, which was occupied by Hon Mao Zemming, a Minister in the
National Government. Mr O’Neill said Unit 403 was occupied by Mr Zemming’s first secretary Sam
Basil and that Mr Basil’s company paid the rent for both apartments by one cheque.
At paragraph 220.127.116.11, the commission has found:
(a) Mr O’Neill’s statement that the payments out for his benefit are balanced by rental receipts
from his rental properties managed by PMFNRE is not true; and
(b) Mr Zemming was occupying Unit 105 owned by Mr O’Neill rent free.
Money from Niugini Aviation Consultants and links to Chelsea Ltd
At paragraph 12.4.27 (12.4.21(f)), the commission revisited the Waigani land matters concerning
money allegedly paid into Carter Newell Trust Account Niugini Aviation Consultants in Hong Kong.
After the deposit was made large cheques were paid to PMFNRE, Biga Holdings and also a cheque
for K333,200.00 for Chelsea Ltd.
Page 70 of 190
A search of Chelsea Ltd shows probable links to Mr O’Neill (represented again by Jack Awela and
other significant links).
At paragraph 18.104.22.168, the commission has found:
(a) There are clear links between the money from Hong Kong and each of PMFNRE and Mr O’Neill;
the company Chelsea Security Limited and M Basil and Wandi Yamuna and the company Biga
Holdings Limited owned by Ms Iaraga Asi (Mr Pok’s current partner);
(b) There are also rental arrangement links between Mr O’Neill, Chelsea Security and Mr Sam Basil
and Hon. Mao Zemming and the commission so finds.
The relationship between Mr O’Neill and PMFNRE
At paragraph 12.5.2, the commission lists the many links between Mr O’Neill and PMFNRE, the
many benefits he received from that company and the controls he exercised over the accounts and
funds held by PMFNRE. The commission points out at paragraph 22.214.171.124 that:
(a) Mr O’Neill used PMFNRE as his banker with massive numbers of transactions treated as
“Adjustments” and many entries on numbered sales ledgers attributable to Mr O’Neill and persons
and companies associated with him and the commission so finds;
(b) Mr O’Neill also received funds for his personal benefit from sales “commissions” said to be
earned by PMFNRE on property sales and which there were efforts to conceal;
(c) Mr O’Neill also borrowed large sums of money from PMFNRE, which were treated as
“Adjustments” and many of which were not reimbursed even as late as 31st May 2001; and
(d) Mr O’Neill made, requested or gave directions to PMFNRE on multiple occasions concerned not
only with his own funds but with funds derived from the NPF Tower fraud (credited to PMFNRE
Ledgers 8, 9 and 18) and with transactions derived from those funds – one sees so often “REF
P.ON” or “REF PO” or similar expressions that it is perfectly plain Mr O’Neill had dominion over
these funds and gave directions in relation to them.
At paragraph 126.96.36.199 the commission describes how Mr O’Neill gave detailed directions to
PMFNRE’s accountants on accounting matters. At paragraph 188.8.131.52, the commission reports on
Companies Office records which show Mr Awela as owning 90 per cent of the shares in PMFNRE.
Granted the commission’s previous findings that Mr Awela is a nominee for Mr O’Neill in Mecca
No.36 Ltd, and Nama Coffee Exports Ltd, it is quite clear that Mr O’Neill himself owns the 90 per
cent of shares in PMFNRE attributed to Mr Awela.
There are many reasons why Mr O’Neill would want to conceal his interests in PMFNRE including:
1. First, it would avoid the need for disclosure to the Ombudsman Commission during the time Mr
O’Neill was executive chairman of Finance Pacific Group and subject to the Leadership Code;
2. Second, it would avoid the need for disclosure during the same period to PNGBC, which was a
lender to each of these companies;
3. Third, it would conceal the fact that Mr O’Neill would receive benefits from the work that was
directed to PMFNRE from the various Commercial Statutory Authorities; and
4. Fourth, it would mask Mr O’Neill’s connection with moneys that were being laundered through
PMFNRE and used for purposes such as the acquisition of RIFL and the purchase by Bethgold Pty
Limited of the Kanimbla property from Mr and Mrs Reynolds.
At paragraph 184.108.40.206, the commission has found that the:
Page 71 of 190
(a) evidence is overwhelming that the true owner of PMFNRE is and was Mr O’Neill and that
Maurice Sullivan and Mr Barker acted in accordance with his instructions.
(b) The commission recommends that the Prime Minister refer Mr O’Neill to the Ombudsman
Commission to consider whether Mr O’Neill’s concealment of his interests in Nama Coffee Exports
Pty Ltd and Port Moresby First National Real Estate Pty Ltd constitutes a breach of his duty under
the Leadership Code and the need to submit full and honest Leadership Returns.
Concluding comments on the second acceleration claim
The investigation into the spurious second acceleration payment has clearly demonstrated that it
involved a carefully planned fraud on the NPF, instigated and carried out by Jimmy Maladina, with
the active involvement and support of Herman Leahy. Mr Leahy’s wife Ms Angelina Sariman played
a supporting role as a principal offender.
Ken Yapane was also involved, at least as an accessory and receiver of fraudulently obtained
money. The two managers of Kumagai Gumi were reluctant participants and are also principal
offenders. Mr Fabila had knowledge of what was occurring. He failed to stop it and signed
documents which helped to perpetrate the fraud.
The tracing of the NPF money, paid as six progress payments by Kumagai Gumi, plus the
K150,000 personal commission for Mr Maladina shows quite clearly who the beneficiaries of most
of the Tower fraud moneys were.
These included Mr Maladina and his wife and companies, Mr Leahy and his wife and companies and
Substantial amounts were paid into PMFNRE accounts and substantial parts of these moneys were
paid for the benefit of Mr O’Neill.
This finding was vigorously denied by Mr O’Neill, who argued that although it appears on paper
that payments for his benefit came from ledgers containing NPF Tower fraud money, he in fact had
other moneys of his own in other PMFNRE accounts, which were the true and “innocent” source of
moneys paid out to himself, his companies and his family company.
To assess Mr O’Neill’s claim, the commission made a thorough study of PMFNRE’s accounts and
traced all moneys paid in and out on account of Mr O’Neill.
This conclusively showed that Mr O’Neill had definitely benefitted from the proceeds of the NPF
Tower fraud. It also showed that, despite his denial’s, Mr O’Neill is the beneficial owner of PMFNRE
and that Mr Sullivan and Mr Awela are his nominee shareholders.
It is quite clear that there is a relationship between Mr Maladina and Mr O’Neill whereby they have
benefitted jointly from the NPF Tower fraud.
The Proposed Sale Of 50 Per Cent Of NPF Tower To PNG Harbours Board
1. In paragraph 13 of Schedule 6, the commission describes the failed attempt by NPF to sell a 50
per cent ownership in NPF Tower to the Papua New Guinea Harbours Board (PNGHB) for K40
The idea of selling off an interest in the uncompleted NPF Tower was a good one because it would
enable NPF to pay off some of its K59 million debt to the PNGBC, the interest on which was a
crippling burden to NPF.
The commission reports how a small group of conspirators plotted and manipulated events hoping
to ensure that:
• Maurice Sullivan of PMFNRE would be appointed NPF’s agent to arrange the sale but this was
without the knowledge and approval of the NPF board;
Page 72 of 190
• NPF management would agree to pay 2.5 per cent commission to Mr Sullivan, which was then
raised to 5 per cent, (K2 million) without the knowledge or approval of the NPF board;
• Mr Sullivan would take advantage of the inexperience of the PNGHB chairman John Orea to obtain
his signature to a contract of sale;
• The board of the PNGHB would then approve the purchase of 50 per cent of the NPF Tower for K40
million with the responsibility to pay the K2 million commission to PMFNRE being shared between
NPF and the PNGHB;
2. Fortunately, the management of the PNGHB, under managing director Bobby Kaivepa, resisted
the political pressure and prepared an excellent brief to the members of the PNGHB pointing out
(a) PNGHB had no legal power to enter the agreement;
(b) the proposal was not financially viable; and
(c) PNGHB lacked the required funds and had no power to borrow for this purpose.
3. The sale to PNGHB was then dropped by NPF. Throughout the negotiations Mr Leahy and Mr
Fabila had deliberately refrained from mentioning the unauthorised agency agreement entered into
with PMFNRE and the 5 per cent commission, which had already been agreed by Mr Fabila and Mr
On the evidence, it is clear that this idea was being promoted in NPF mostly by Mr Maladina and
Mr Leahy, with Mr Fabila’s support.
Mr Sullivan was obviously a principal in the conspiracy.
In relation to the attempted sale to the PNGHB, at the paragraphs in Schedule 6 referred to below,
the commission has found that:
At paragraph 13.1.3:
(a) Mr Leahy was not in direct discussion with Mr Emilio;
(b) Mr Leahy, without any authority from the NPF board or Mr Fabila, engaged PMFNRE as NPF’s
agent to sell equity in The Tower Pty Limited;
(c) Mr Leahy suppressed the fact that he had engaged PMFNRE from Mr Fabila and the NPF board.
(d) Mr Leahy provided false information to the NPF board that he was holding direct discussions
with Mr Emilio and in failing to disclose his engagement of PMFNRE;
(a) Mr Leahy exceeded his authority in entering arrangements with PMFNRE in August 1998
without the approval of the NPF board or Mr Fabila;
(b) Mr Leahy was the recipient of Mr Sullivan’s letter of March 5, 1999, and the author of Mr
Fabila’s letter of March 10, 1999. Mr Leahy exceeded his authority in entering into these altered
arrangements with PMFNRE in March 1999 without NPF board and Ministerial approval. Mr Leahy
was remiss in his duty to fully and properly inform Mr Fabila of the content and legal effect of the
letter of March 10, 1999, which he arranged for Mr Fabila to sign;
(c) Mr Fabila was remiss in his duty as managing director of NPF in signing the letter of March 10,
1999, without properly reading and understanding it and without apprehending that the letter
constituted a contract beyond his approved financial delegation, which required both NPF board
and Ministerial approval;
(d) February/ March 1999 was a time of financial crisis at NPF and concurrently with this
arrangement, Mr Leahy was heavily involved in the Waigani Land proposal and the NPF Tower
Page 73 of 190
claims with Kumagai. In those contexts, Mr Leahy also wrote and arranged for Mr Fabila to sign
other letters in respect of which Mr Leahy also did not fully and frankly brief Mr Fabila; and
(e) MR Leahy, Mr Sullivan and Mr Fabila should be referred to the Commissioner of Police to
consider whether charges of criminal conspiracy, attempted fraud or other offences should be
brought against them.
Both Mr Fabila and Mr Leahy failed in their duties in not fully and frankly informing the board of
this contractua* obligation they had entered into to pay 5 per cent commission to Mr Sullivan and
by not openly seeking board ratification of their action despite the clear opportunity to do so.
The commission finds, on the balance of probabilities, that it is likely that this approval was
prepared in Carter Newell’s office after March 25, but backdated to March 22.
There are at least two possible explanations for the sense of urgency about obtaining the Minister’s
approval for the sale of 50 per cent of the Tower to the PNGHB. Firstly, NPF desperately needed
the money. Secondly, the conspirators were greedily awaiting payment of the 5 per cent
The three identical approvals by Ministers Lasaro, Pok and Auali, which were sent to the PNGHB
were also dated 22nd March 1999, but were worded differently from the approval faxed from
Carter Newell on 1st August 1999.
(a) THE approval for the sale of 50 per cent equity in the NPF Tower signed by Minister Lasaro
dated March 22, 1999, which was faxed by Carter Newell Lawyers to NPF on April 1, 1999, was
drawn up by Carter Newell and backdated to March 22, 1999;
(b) The approvals to sell to the PNGHB which were given by Ministers Lasaro, Pok and Auali, dated
March 22 and 24, 1999, were also drawn up by Carter Newell, for the purpose of applying pressure
on the management and members of the PNGHB to approve the purchase of 50 per cent of the
(c) Mr Leahy acted unprofessionally in drawing up a certificate recording a circular resolution of
the NPF board dated March 26, 1999, without indicating that it had not been ratified by the board
at a properly constituted meeting and that it was therefore not a valid board resolution;
(d) THE payment to Kumagai authorised by Mr Fabila on March 31, 1999, was part of a fraudulent
scam involving Mr Leahy and Mr Maladina to fraudulently obtain K2,505,000 for the benefit of Mr
Maladina. On the face of the documents Mr Fabila was also involved;
(e) The responsibility for the scam involving the 5 per cent (K2 million) commission to Mr Sullivan
of PMFNRE lies with Mr Leahy, Mr Maladina and Mr Sullivan. On the face of the documents, Mr
Fabila was also involved;
(f) MR Fabila as managing director and Mr Maladina as chairman, knowingly withheld from the NPF
board the fact that Mr Fabila had signed an agreement to pay Mr Sullivan of PMFNRE a 5 per cent
commission on the sale of the 50 per cent interest in The Tower. This was a breach of fiduciary
duty by Mr Fabila and Mr Maladina.
(g) In relation to the attempted sale to PNGHB, it is recommended that the Prime Minister should
refer the following people to the authorities named:
(i) TO the commissioner for Police – Herman Leahy, Jimmy Maladina, Henry Fabila, Maurice
Sullivan, and Angelina Sariman to consider criminal charges;
Page 74 of 190
(ii) TO the Papua New Guinea Law Society – Mr Leahy and Mr Maladina and Ms Sariman to
consider disciplinary measures.
National Provident Fund Final Report [Part 67]
Executive Summary: Schedule 6 Continued
Page 75 of 190
Ledger 31 is considered at paragraph 12.4.21 – not all items are analysed. There were five main
sources of credit to Ledger 31:
(i) Interest of K22,287, K22,580, K21,165 and K19,303 on K1.5 million in Treasury Bills;
(ii) Three sums of K897,741.94, K300,000 and K890,368.74 from Carter Newell Lawyers;
(iii) Interest of K41,148, K9299, K40,087 and K6950 on a sequence of four Treasury Bills financed
from the Carter Newell money and other accumulations on the Ledger;
(iv) A transfer of K40,000 from Ledger 32;
(v) Funds said to be provided for or from Mr O’Neill of K109,631.26 and K150,000.
At paragraph 220.127.116.11, the commission has found:
(a) During the period March to May 2000 the K1.5 million face value in Treasury Bills earlier held
to the credit of PMFNRE Ledger 18 was “rolled over” on an approximate monthly basis and at each
“roll over” the interest after tax, paid by the Bank of Papua New Guinea, was credited to Ledger
31, such interest aggregating K85,335.00 over the period;
(b) On March 16, 2000, a sum of K40,000 was transferred to this ledger and paid out on the same
day by a cheque in favour of Mr O’Neill’s wife, Linda Babao. Both the transfer and payment were
made at Mr O’Neill’s request or direction;
(c) On April 5 and 6, 2000, a total of K2,088,110.68 was paid by Carter Newell Lawyers to
PMFNRE and credited to this Ledger 31. Out of these funds and Treasury Bill interest and further
funds provided by or for Mr O’Neill a further K2,235,000 in face value in Treasury Bills was
(d) The other major transactions involved the payment to Mr O’Neill of K102,500 in cash on April
10, 2000, and receipts from or for Mr O’Neill of K109,631.26 on April 11, 2000, and of K150,000
on April 18, 2000, which consisted of K85,000 in cash and K65,000 derived from a “round robin”
of PMFNRE cheques;
(e) On the expenditure side, there were major payments of K2,235,000 for Treasury Bills;
substantial cash payments for Mr O’Neill (and the K40,000 for his wife); the reimbursement of
K25,210.83 in “off book” adjustment items paid for Mr O’Neill and a miscellany of other payments
Page 76 of 190
which appear to have been for the benefit of Mr O’Neill and companies and persons associated
with Mr O’Neill;
(f) Except for the payments for the Treasury Bills, no one but Mr O’Neill can be seen to have
benefitted from payments debited to this ledger;
(g) Ledger 31 was Mr O’Neill’s ledger.
The four relevant entries on this ledger are:
After examining these four items at paragraph 12.4.23, the commission has found at paragraph
(a) This Ledger 32 was used largely as a suspense account to receive the K690,000 paid by Carter
Newell Lawyers and then to transfer K600,000 of that money to Ledger 9 to meet the balance
payable for the Manamatana flats; to transfer the K40,000 to Ledger 31 for payment to Mr
O’Neill’s wife Linda Babao and finally to re-bank to the PMFNRE bank account the sum of K50,000
which reimbursed an earlier payment of K50,000 to Carter Newell which had earlier been treated
“off-book” as an “Adjustment” item;
(b) The K690,000 came into the books of PMFNRE “awaiting further action” as the receipt stated
and the two transfers by journal entries were made at the request or direction of Mr O’Neill;
(c) The payment made earlier to Carter Newell which was reimbursed was also made at the
request or direction of Mr O’Neill;
(d) Mr O’Neill exercised dominion over these funds in Ledger 32 and their disposal.
Ledger 34 has been reconstructed for April 2000 as follows:
Page 77 of 190
The only funds coming into this ledger was interest on Treasury Bills. The major expenditure was
the K30,000 transferred to Ledger 31 for Mr O’Neill’s benefit.
Mr O’Neill seems to have been the only beneficiary of payments out of ledger 34;
At paragraph 18.104.22.168, the commission has found that: Mr O’Neill was the major if not the sole
beneficiary of the interest paid into Ledger 34 which derived from the K1.5 million Treasury Bill
which had been purchased from the funds returned by RIFL to PMFNRE and credited to Ledger
Return of funds from RIFL
At paragraph 12.4.24 the commission examines the transactions between PMFNRE and RIFL in late
1999 and January 2000 when substantial funds were being deposited and withdrawn from RIFL
during and after the purchase of its shares by Bluehaven No.67.
After withdrawing K2,550,000 from its IBD with PNGBC RIFL paid three cheques to PMFNRE
totalling K2,581,04.47 as follows:
Cheque 12117 – K1,781,824;
Cheque 12118 – K150,000;
Cheque 12119 – K49,218.47;
The commission established that cheque 12117 for K1,781,824 was the return of RIFL share
purchase money and investigated which of the contributors to the purchase money received a
return of their funds from this amount.
(a) Apart from the K250,000.00 which went to Bank of Hawaii and the K1.5 million in face value in
Treasury Bills all the other expenditure from Ledger 18 in this period was for Mr O’Neill’s personal
benefit or for the benefit of his children’s company LBJ Investments Limited.
Page 78 of 190
National Provident Fund Final Report [Part 66]
Executive Summary Schedule 6 Continued
(j) Cheque #36707 – K25,000 – January 13, 2000;
(k) Credit – K25,000 – January 14, 2000;
(l) Credit – K2,794,342 – January 15, 2000;
(m) Cheque #36710 – K29,675.77 – January 18, 2000;
(n) Credit – K413.73 – January 18, 2000;
(o) Cheque #36727 – K2000 – January 27, 2000;
(p) Credit – K31,262.04 – February 2, 2000;
(q) Credit – K3,216.92 – January 21, 2000;
(r) Reversal – K3,216.91 – January 26, 2000;
(s) Cheque #55411 – K10,000 – February 1, 2000;
(t) Cheque #55515 – K10,597.47 – February 2, 2000;
(u) Credit – K10,597.47 – February 3, 2000;
(v) Cheque #55530 – K5000 – February 3, 2000;
Credit – K5000 – February 4, 2000;
(x) Credit – K90,000 – February 11, 2000
(y) Cheque #55444 – K63,793.19 – February 16, 2000; and
(z) Credit – K63,793.19 – February 16, 2000
At paragraph 22.214.171.124, the commission has made the following findings regarding these items:
When the 26 “off-book” or “Adjustment” transactions during the period January 1 to February 16,
2000 and related earlier transactions are examined it is clear that:
(i) two transactions (being (d) and (e) above) concern PMFNRE investing rent moneys on IBD with
PNGBC and obtaining interest thereon from PNGBC;
(ii) three transactions (being (g) (h) and (i) above) concern PMFNRE investing moneys on deposit
with RIFL and we have yet to see who obtained the interest on those moneys;
(iii) one transaction involving the purchase of RIFL (see (b) above) was entered to eliminate an
“Adjustment” item which had been transferred to Ledger 24;
(iv) THE remaining 20 transactions concerned Peter O’Neill personally or companies associated
with Mr O’Neill including two debits each of K10,000 which were unreimbursed at May 31, 2000,
(see (f) and (s) above), a cash payment of K25,000 which was reimbursed by Ilimo Poultry
Products Limited in strange circumstances and a credit of K90,000 from Hunter Real Estate Limited
which was unallocated as at May 31, 2000.
“Off-Book” adjustments February-May 2000
At paragraph 126.96.36.199, the commission then considered 35 “off book adjustments” during the
period between February 16 to May 31, 2000 numbered (a) to (ii) as follows:
(a) Cheque #55446 – K500,000 – February 16, 2000;
(b) Credit – K500,000 – April 12, 2000;
(c) Cheque 36613 – K5000 – February 18, 2000;
(d) Credit – K5000 – February 18, 2000;
(e) Cheque #55459 – K5000 – February 23, 2000;
(f) Cheque #55460 – K2000 – February 23, 2000;
(g) Cheque #55567 – K3000 – March 2, 2000;
(h) Credit – K10,000 – March 7, 2000;
(i) Credit – K18,200 – February 24, 2000
(j) Dish cheque – K18,200 – February 28, 2000;
(k) Cheque #55461 – K674.93 – February 24, 2000;
Page 79 of 190
(l) Cheque #55465 – K50,000 – March 1, 2000;
(m) Credit – K50,000 – March 16, 2000;
(n) Cheque #55584 – K7100 – March 10, 2000;
(o) Credit – K7100 – March 14, 2000;
(p) Cheque #55598 – K9570.43 – March 16, 2000;
(q) Cheque #67015 – K5640.40 – March 30, 2000;
(r) Credit – K15,210.83 – April 6, 2000;
(s) Cheque #67010 – K10,000 – March 29, 2000;
(t) Credit – K5000 – March 31, 2000;
(u) Cheque #67103 K1,000,000 – April 3, 2000;
(v) Credit – K1,000,000 – May 1, 2000;
Cheque #67124 – K29,102.40 – April 12, 2000;
(x) Cheque #67152 – K10,669.60 – April 20, 2000;
(y) Cheque #67164 – K100,025 – May 1, 2000;
(z) Cheque #89467 – K57,000 – May 2, 2000;
(aa) Credit – K25 – May 2, 2000;
(bb) Credit – K122,900 – May 2, 2000;
(cc) Credit – K4100 – May 15, 2000;
(dd) Credit – K12,646.45 – May 19, 2000;
(ee) Debit – K50,000 – May 17, 2000;
(ff) Credit – K50,000 – May 19, 2000;
(gg) Cheque # 9488 – K14,398.69 – May `9, 2000;
(hh) Unidentified credit – K1668.34 – May 24, 2000; and
(ii) Cheque #89500 – K70,497.16 – May 31, 2000.
At paragraph 188.8.131.52, the commission has found that: Of the 35 “off-book” or “Adjustment”
transactions during the period February 16, to May 31, 2000 (including four related earlier
transactions) the commission finds that:
(a) FOUR transactions (being (a), (b), (u) and (v) above) concern PMFNRE investing rent moneys
on deposit with PNGBC and Bank of Hawaii and obtaining interest thereon from PNGBC and Bank
(b) two transactions (being (c) and (d) above) appear only to correct an error;
(c) two transactions (being (i) and (j) above) concern an unrelated third party’s dishonoured
(d) one transaction ((w) above) involves payment of legal fees for a property management
contract dispute between PMFNRE and Finance Pacific Investments Limited;
(e) one transaction (being (hh) related to a deposit which could not be identified;
(f) the remaining 25 transactions concerned Mr O’Neill personally or companies or persons
associated with Mr O’Neill including a number of transactions for South Super Stores and a number
of transactions that were unreimbursed as at May 31, 2000, and the commission so finds.
During the public hearing concerning the source of funds for the purchase of the Manamatana
flats, the commission considers that Mr O’Neill gave deliberately false evidence. At paragraph
184.108.40.206, the commission found:
(a) Cheque #55465 for K50,000 was sourced from funds of K690,000 held in Ledger 32, over
which Mr O’Neill had dominion and was for Mr O’Neill’s benefit;
(b) Mr O’Neill gave false testimony to the commission on June 28, 2001 (Transcript pp. 8632-
Page 80 of 190
(c) After hearing Mr O’Neill’s counsel on the subject on October 28, 2002, the commission directed
counsel assisting to refer Mr O’Neill and copies of all relevant documents to the Commissioner for
Police to consider whether Mr O’Neill should be charged with perjury; and
(d) THE commission also recommends that Mr O’Neill be referred to the Ombudsman Commission
to investigate whether there has been a breach of the Leadership Code because of his concealed
interest in Bluehaven No.67, the company which purchased the shares in RIFL while Mr O’Neill was
executive director of the vendor of the shares, Finance Pacific.
Ledger 18 to February 2000
The commission also considered further transactions in ledger 18 between January and February
2000 as follows:
AT subparagraphs 220.127.116.11, the commission made the following findings:
Receipt #707129 related to the payment by RIFL cheque #12117 (BoH) for K1,781,824 being part
refund of the K2,671,824 previously paid out for the purchase of RIFL shares by Bluehaven No.67
AT subparagraphs 18.104.22.168, the commission made the following findings:
The payments of cheque #36723 for K250,000 (and #67164 for K100,000 and #89500 for
K70,496.16) were clearly made for the direct benefit of South Super Stores Limited and both Mr
O’Neill and Nathaniel Poiya received a clear direct benefit from the making of these payments in
that the payments reduced their personal liability under their respective personal guarantees given
to Imak International Pty Limited.
AT subparagraphs 22.214.171.124, the xommission made the following findings:
The payments of PMFNRE cheques #55413 for K29,262.04 and #55414 for K2000 were made for
Mr O’Neil’s benefit to reimburse payments earlier made on his behalf which had been treated “off-
book” as “Aadjustments” and to bring those payments “on-book”.
AT subparagraphs 126.96.36.199, the commission made the following findings:
The receipt 707199 for a payment of K49,218.74 from RIFL recorded the money as interest on an
IBD held for PMFNRE. It has not been possible to determine which IBD funds produced this
AT subparagraphs 188.8.131.52, the commission made the following findings:
Cheque #55443 for K2000 was paid to LBJ Investments for the benefit of Mr O’Neill;
AT subparagraphs 184.108.40.206, the commission made the following findings:
The receipt 707369 for of K60,000 recorded the payment of K60,000 by Carter Newell cheque
#800449 of K60,000 obtained from the Waigani land fraud. The money was subsequently
expended from Ledger 18 for Mr O’Neill’s benefit (see paragraph 220.127.116.11 below);
AT subparagraphs 18.104.22.168, the commission made the following findings:
The K80,000 funds were used to pay Baradeen Holdings regarding the purchase of Remington Ltd
by Mr O’Neill’s children’s company LBJ Investments (see paragraph 12.4.20);
AT subparagraphs 22.214.171.124, the commission made the following findings:
This payment of cheque #55454 for K200,003.70 was made for the benefit of LBJ Investments
Limited as part of the process of buying Remington Ltd.
Conclusions regarding Ledger 18 – transactions January and February 2000
Page 81 of 190
The commission presents conclusions and review on Ledger 18 to February 2000 at paragraph
At paragraph 126.96.36.199, it makes the following broad findings:
(a) Apart from the K250,000 which went to Bank of Hawaii and the K1.5 million in face value in
Treasury Bills all the other expenditure from Ledger 18 in this period was for Mr O’Neill’s personal
benefit or for the benefit of his children’s company LBJ Investments Limited;
(b) The K250,000 paid to Bank of Hawaii was for the benefit of South Super Stores Limited and
both Mr O’Neil and Mr Poiya received a direct benefit as this payment reduced their direct personal
liability under their respective guarantees given to Imak International Limited. It is recommended
that Mr Poiya be referred to the Ombudsman Commission for breach of the Leadership Code in
that as a trustee of the NPF he received a direct benefit from the trust funds which had been
obtained from by fraud;
(c) THE K60,000 came from Carter Newell and was credited to this Ledger 18