''So we have a High Commission in the Seychelles where there is a population of only around 90,000. We have a branch of the Bank of Ceylon in the Seychelles. And we have Mihin Air flying direct.
Would you say that is a complete supply route?
Yes.''
Would you say that is a complete supply route?
Yes.''
Exposing the ‘Seychelles Strategy’ - An interview with Dr. Harsha de Silva
Maheen Senanayake
I was lucky. He didn’t have anything else in his diary for the remainder of the day. Upstairs and over a cup of tea we began.
It’s been three and half years and one report. What is happening at the Public Accounts Committee?
"Let me be very honest", he says. "In real democracies the PACs are not headed by the executive arm of the government. It is always headed by by an opposition member. Even as recently as the previous government, the 2001-2004 short lived government of Ranil Wickremesinghe, the chair of the PAC was with the then opposition. It was only changed by the incumbent government. I have a lot of respect for Dr. Sarath Amunugama and this is nothing personal. Sarath Amunugama happens to be the current chair of the PAC and happens to be a minister first and then the deputy minister of finance and Minister (Senior) for International Monetary Co-operation. A lot of the matters brought before the PAC are matters connected with finance and matters falling within his purview. While not placing any personal blame, I fault the system. I am perhaps one of the most active and involved members of the PAC and you can verify that in many ways including attendance. If the chair is not around for whatever reason, in many instances I have chaired the PAC. Even then, in instances where I would chair the PAC in the absence of the chairman, a government minister would walk in and want to chair the PAC. Another issue is that the PAC has so many ministers, which is not healthy for the object of the Public Accounts Committee. (He corrects himself quickly). It’s now called the Committee on Public Accounts or COPA. So this is a systemic issue. But at the same time we have tried to get the job done within these constraints.
Tell us what the progress is.
Like you said, one report was released. The next one is being made ready. We have now started looking at trying to understand the issues and try to help these state institutions to move forward, find ways in which they can do better. Whether it is the education ministry or agriculture department or local government authority etc. One particular problem entity has been the EPF, which should have been called up by the COPA has avoided being called up and I have fought hard to make it appear. Unfortunately the meeting was abruptly postponed on February 6, 2013. After numerous attempts we have been able to get them to appear once again next month to finish that meeting. This is not a healthy situation. Meanwhile there are multiple allegations of complicity and fraud, of the EPF purchasing shares of dud companies and making massive losses, so the debate goes on in the media. Under the accounting standards that have to be practiced, EPF losses are in the billions.
What about the Auditor General’s department and their reports on the EPF?
The last report is for 2011. That was released last month. This is 2014.
How does the EPF provide the members’ returns without audited accounts?
They are not audited.
What about the series of advertisements that appeared in the national newspapers regarding the EPF by the EPF?
Those were total fabrications and an absolute lie. I am therefore telling you with absolute responsibility that the last audited report is for 2011 and that was submitted only about a month ago to Parliament. The EPF is answerable as is any other public institution, and specifically to COPA. Therefore, the audited accounts for 2012 and 2013 are not available. Until last month the audit of the 2011 accounts were also not available. There is also allegation of fraud in 2010, 2011 and part of 2012 where EPF participated in pump and dump schemes. In these instances shares of dud companies were ‘pumped’ from for instance, Rs. 50 to Rs. 250 per share.
So how is this done? Does the EPF provide the money for the ‘pumping’ or does it take the hit on the ‘dump’
Let’s say A and B are crooks. A and B start purchasing a share and push the price up. A and B know very well that when the ‘pumping’ stops the shares will have to settle at the previous or lower rates. The EPF funds are used to dispose of the now ‘pumped’ up shares. A and B make a lot of money and the EPF takes the hit when the shares revert to their previous or lower than previous market price.
Can you give us an example?
The pump and dump of shares
Take for instance a company called Ceylon Grain Elevators, a useless piece of ‘chicken shit’ – literally. It has no value. It is absolute and crystal clear that EPF participated in fraud.
So you are in effect saying that the Central Bank was party to a fraudulent transaction!
Yes. And it is not only me. It’s just that the people who need to look into this are turning a blind eye. The regulator is turning a blind eye. The trade unions went to the Supreme Court and the case was thrown out, they were not even given leave to proceed. This happened around last year under the new Chief Justice’s tenure.
In this backdrop, it must be miserable to know all this and struggle. My question to you: `is there anything that can be done and if so what can be done?’
We can enlighten the people about these. I have told this country about the EPF. This is a pension fund and by the time you need it there is no other recourse. I have been saying that the debt situation is very bad, that the Government is hiding the debt numbers. There was this big debate between the Central Bank and Mr. Wijewardena, the former Deputy Governor about the actual debt situation of this country. The Central Bank unfortunately is given time to twist the story now. Now the latest thing is the Seychelles.
What about the Seychelles?
The Seychelles now has a Sri Lanka High Commission. President Mahinda Rajapaksa, declared it open during a state visit there on June 28. Seychelles has 90,400 people. And Mihin Lanka flies direct to the Seychelles. Does that make sense to you?
No! I respond.
Have you heard of the ‘Seychelles Strategy?’
No! I say again. `What is that?’ I ask him.
People who study international economics and international finance will come across this term called the Seychelles strategy. The Seychelles strategy is to compete for black money. The strategy is to go so low that you become the preferred money launderer. That is to say for instance if you deposit US$ 10 million in any of our banks you will get ‘immunity’ from criminal prosecution in the Seychelles. When you go so low to get ‘dirty’ money then it s called ‘The Seychelle Strategy’.
I do my homework and I find an article titled ‘2014 a challenging year for Seychelles’ international financial services sector’ that states that The year 2014 will be a challenging one for Seychelles’ international financial services sector, especially in light of recent developments vis-à-vis the OECD (Organisation for Economic Development). Finance, Trade and Investment Minister Pierre Laporte said this in his budget speech delivered in the National Assembly on Tuesday and noted that the country is confident the sector will recover through the measures already taken and those expected early next year to strengthen compliance with the organization’s standards. Only last month, Seychelles was labeled non-compliant in two sectors – bearer shares and availability of records of companies and agencies in Seychelles – of the 10-criteria phase two of the process of becoming party to the multilateral convention on mutual administrative assistance in tax matters.
So it appears to be true.
Tell me more, I probe on.
Yanikovich, the former Ukraine strongman, through trusts, through foundations, through shell companies, through Isle of Man has hidden millions in the Seychelles and from Seychelles outside. Money laundering is not a single step activity. It has several steps. One is to take the loot out to a particular location. Then you have to disperse that loot to other locations. You are looking for countries who have water tight secrecy, in bank accounts, shell companies and trusts. I heard today the Governor of the Central Bank saying that the Bank of Ceylon has opened an overseas branch in the Seychelles so that Sri Lankan investors can use that as a platform to go to Africa. I mean give me something more serious. Don’t Sri Lankan’s do more business in other countries? He laughs out loud.
It’s funny. I join in.
Do we have trade with the Seychelles? I am perturbed.
The Seychelles is a money laundering hub
No. The Seychelles is a money laundering hub. The OECD has termed it non compliant due to Non-transparency of tax accounts. You can open a company with US$350 in a day. You can open a bank account with one unit of some currency as long as it is more than one Seychelles currency. The economist carried this story and figured some very popular international names in shady deals. Another name has been that of the Tunisian dictator, Zine El Abidine Ben Ali and his son. Look at the names, these are all deposed dictators. You see as long as Yanikovich was the strongman no one looked into these things, it all starts when they fall. Remember Marcos and his shoe loving wife – Imelda was also there. Only when they fall do they start looking. And I say now asset recovery is going to be difficult. There is this concept called STAR, Stolen Asset Recovery by the World Bank and they are helping developing countries to track monies from former dictators. In the case of Yanikovich it all started when he had to throw a box of documents into a lake when he had to leave in haste. The box didn’t sink and was recovered and that implicated him in various deals and the people are now following up on these things.
So we have a High Commission in the Seychelles where there is a population of only around 90,000. We have a branch of the Bank of Ceylon in the Seychelles. And we have Mihin Air flying direct.
Would you say that is a complete supply route?
Yes.
I or we constantly hear of growth in this country. Can you tell me where it is coming from?
The problem in this country is where is this growth is coming from? Only a couple of days ago they reopened this place called the Arcade. They sell these Hublot watches, and I saw full page advertisements in the newspapers for these watches. There are Lamborghinis for sale. Do you know that the largest number of models of registered vehicles were S400 Mercedes?
I didn’t.
Forty S400 Mercedes were registered last month.
Where is this wealth?
The same day that the Arcade was opened, you would have read in the papers that a father and a daughter committed suicide because four consecutive crops failed. They are saying that people are no longer committing suicide because they cannot live anymore. They say that that doesn’t happen anymore. But it is happening. There is a particular person who is the chairman of a farmer association in Buttala who had found my number and kept calling me. They were desperate because they had no water to cultivate 42 acres of land. They were pleading and crying. What they said was that they actually could get some water if only they could get a water pump because they could tap the river with it. But the government says apparently that they have no facilities to give them a water pump. So I actually spoke to the Director General of Irrigation. I told her that these 42 acres are going to get destroyed and that these people should be helped. And The lady, Dr. Badra Kamaladasa, instructed me to pass her number along to these people I was not able to follow up on this but I hope they get their water pump.
So how would you sum this
situation up?
This is the great contradiction in this country. In the Uva province where the next election is going to be they have brought container loads of sewing machines and are distributing to people. That is completely illegal but they are doing it. On the other hand people in Buttala want a single water pump to save 42 acres and their livelihoods, but the government is busy bringing container loads of sewing machines for distribution in the Uva province for votes.
So how do things connect?
World’s most expensive single track railway system
Financial corruption, money laundering, stock market pump and dump deals, they all connect. Because now you see, the world’s most expensive single track railway system is being built in Sri Lanka - the Matara-Beliatta rail track. Dr. de Silva shows me a few annexures from a Tyler Von Brown paper based on his PhD thesis titled ‘A planning methodology for railway construction cost estimation in North America’ a copy of which I was also able to download from the internet. He looks at many factors and estimates costs per kilometre. Our train is supposed to go at 120 kilometres an hour. Even though we don’t expect it to go that fast let us assume this is right. So for flat land single track it is estimated that a kilometer will cost Us$ 3,495,000. We also have 27 kilometres. But two kilometres of the 27 km had already been built by Mr. Premadasa in 1991. He had actually taken the train from Matara to this station. Tudor Wijenaike, General Manager of the State Engineering Corporation, wrote a very interesting piece some time back on the same subject. According to estimates the cost is to be US$14.7 mn. per kilometer. The point being made is that the government is spending US$ 14.7 mn. per kilometer on this track. Since the USA is still operating on miles the cost estimate for this type of railway track by Von Brown has to be turned into km. It’s really US$ 2.1 per kilometer. But the government is spending US$14.7 mn. Where is that money going is the question. So this cannot be. US$ 270 million is coming in from the Chinese Exim Bank for this project. The point is that this is the story. The growth as calculated on these figures. The guy with the hard hat working on the track gets Rs. 800 per day. Because it’s built at this hyper-inflated amount the man on the track doesn’t get more than Rs. 800 day he would have got if it had been built for the right amount. The first question is therefore, where is that money going? The second question is at what rate is the economy growing? It expands by fourteen point six million dollars per kilometer. That gets registered as the value added to the economy. How much really stays with the people. Only the salaries. That is why you cannot see or feel this growth. That is the quintessential story. There is absolutely massive corruption, the scales of which we have never seen before and it is now complex. Why is there a Bank of Ceylon in the Seychelles? – the Seychelles Strategy. Mihin flies direct to Victoria, Seychelles. It may take people some time to figure out what we say but they will notice it.
One more question, the SriLankan Airlines Bond issue? Why would people buy corporate debt from a company that is repeatedly posting losses even though it comes with a sovereign guarantee?
Seychelles Strategy! What do they do with the money? Who bought the NSB’s 9% bond issue?
I don’t know.
Seychelles Strategy, my friend!
Step one. Take the loot from here to a destination. Step 2 – take it from the destination to various other places. Step 3 – invest in various other real estate, paper. Interestingly this can be circular too. So clean money in various places. For instance what is the biggest revenue for a casino?
I don’t know, I say again.
It’s money laundering
It’s money laundering. A casino can even get up to 15% to launder money. Cool money. Without a regulator this is a super deal. By the way The National Savings Bank’s annual report was out this week. It’s profits fell by 69%. And they wrote off its entire investment in SriLankan Airlines. Fully impaired. The whole thing is gone, Rs. 1.3 Billion. Last year alone SriLankan airlines lost Rs. 29 Billion. So the Seychelles Strategy is where the guys bring money to SriLankan airlines at 6% also guaranteed by the government. Now its white and they get a thumping return. Ordinarily you would have to pay around 15% to launder it but here you get a return also then they get paid but the poor NSB with 20 million accounts loses. So the growth they are talking about is only for a few people close to the regime.
And as Dr. Harsha De Silva sums up the Seychelles Strategy, it turns out his diary wasn’t that free after all. Its time for me to leave him – contemplating but more knowledgeable about the growth that I do not see and the growth I do not feel.
The Island