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FINAL REPORT| RFP 4 | INVESTIGATION ON ISSUANCE OF TREASURY BONDS AND REMITTANCE OF FUNDS TO THE GENERAL TREASURY DURING 1 FEBRUARY 2015 TO 31 MARCH 2016 THE CENTRAL BANK OF SRI LANKA

8 NOVEMBER 2019

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FINAL REPORT | INVESTIGATION ON ISSUANCE OF TREASURY BONDS AND

REMITTANCE OF FUNDS TO THE GENERAL TREASURY DURING 1 FEBRUARY 2015 TO 31 MARCH 2016

Strictly private and confidential of 272

CONTENTS

GLOSSARY ................................................................................................................... 5

TERMS FOR REFERENCE ................................................................................................... 7

NOTICE TO THE READER ................................................................................................... 9

1. INTRODUCTION ..................................................................................................... 14

1.1. BACKGROUND ................................................................................................. 14

1.2. SCOPE OF FORENSIC AUDIT ................................................................................. 16

2. EXECUTIVE SUMMARY OF OBSERVATIONS ........................................................................ 18

2.1. DEVIATIONS FROM LAWS, REGULATIONS AND GUIDELINES .............................................. 18

2.2. IRREGULARITIES IN CONDUCT OF AUCTIONS ............................................................. 19

2.3. ASSESSMENT OF LOSS IN ISSUANCE OF TREASURY BONDS .............................................. 28

2.4. PUBLIC DOMAIN SEARCHES .................................................................................. 30

2.5. DIGITAL FORENSIC ............................................................................................ 32

2.6. REMITTANCE OF FUNDS TO THE TREASURY OPERATION DEPARTMENT ................................. 34

3. WORK PERFORMED .................................................................................................. 35

3.1. MANAGEMENT DISCUSSIONS AND PROCESS WALK THROUGH ........................................... 35

3.2. REVIEW OF RELEVANT LAWS / REGULATIONS / POLICIES / CIRCULARS / GUIDELINES / MANUALS 38

3.3. REVIEW OF DOCUMENTS FOR ISSUANCE OF TREASURY BONDS ......................................... 39

3.4. DATA ANALYSIS PROCEDURES ................................................................................ 41

3.5. PUBLIC DOMAIN SEARCHES .................................................................................. 42

3.6. DIGITAL FORENSIC ............................................................................................ 43

3.6. COMPUTATION OF LOSS ..................................................................................... 53

3.7. REVIEW OF VOICE RECORDINGS ............................................................................ 53

3.9. REVIEW OF CALL LOGS RECORDS ........................................................................... 59

3.10. REVIEW OF TRAVEL DETAILS ................................................................................ 61

3.11. REVIEW OF BANK ACCOUNT DETAILS ...................................................................... 61

4. PROCESS UNDERSTANDING ........................................................................................ 63

4.1. BACKGROUND ................................................................................................. 63

4.2. PROCESS OF ISSUANCE OF TREASURY BONDS ............................................................. 64

DETAILED OBSERVATIONS ................................................................................................ 79

5. DEVIATIONS FROM LAWS, REGULATIONS AND GUIDELINES .................................................... 80

5.1. SUSPENSION OF DIRECT PLACEMENTS ..................................................................... 80

5.2. COMPLIANCE WITH REGISTERED STOCK AND SECURITIES ORDINANCE ................................ 86

5.3. APPROVAL PROCESS OF THE PDD OPERATIONAL MANUAL ............................................... 86

6. IRREGULARITIES IN CONDUCT OF AUCTIONS .................................................................... 88

6.1. IRREGULAR BIDDING INDICATING POTENTAL LEAKAGE OF INSIDER INFROMATION ................... 88

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6.2. TRANSACTIONS IN SECONDARY MARKET .................................................................. 104

6.3. ANALYSIS OF CANCELLED AUCTIONS ...................................................................... 106

6.4. IRREGULARATIES IN THE ISSUANCE OF TREASURY BONDS .............................................. 111

6.5. ANALYSIS OF SPECIFIC AUCTIONS OF TREASURY BONDS ................................................ 122

6.6. COMPUTATION OF LOSS IN AUCTIONS PROCESS ......................................................... 206

6.7. COMPUTATION OF LOSS IN DIRECT PLACEMENTS ........................................................ 217

7. PUBLIC DOMAIN SEARCHES ....................................................................................... 221

7.1. IDENTIFY ASSOCIATION BETWEEN THE EMPLOYEES OF THE CBSL AND PD ........................... 221

8. DIGITAL FORENSICS................................................................................................ 229

OVERVIEW ............................................................................................................. 229

8.1. REVIEW OF EMAILS .......................................................................................... 229

8.2. DELETION OF OUTLOOK FILES ............................................................................. 239

8.3. NON-AVAILABLITY OF ESI ................................................................................... 246

9. RECOMMENDATION ................................................................................................ 253

10. ANNEXURES ........................................................................................................ 255

11. EXHIBITS ............................................................................................................ 257

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GLOSSARY

# ACRONYM DESCRIPTION

1 AG Assistant Governor

2 ASPD Additional SPD

3 Acuity Acuity Securities Limited

4 BDO India or We or Us BDO India LLP

5 BPS Basis Points

6 BO Back Office

7 BOC Bank of Ceylon

8 CBSL The Central Bank of Sri Lanka

9 CDS Central Depository System

10 CEO Chief Executive Officer

11 CID Criminal Investigation Department

12 CoC Chain of Custody

13 Commercial Bank Commercial Bank of Ceylon Plc.

14 Contract Contract of 1 April 2019

15 Daily FT Daily Financial Times

16 DDMC Domestic Debt Management Committee

17 DG Deputy Governor

18 DIT Director of Information Technology

19 DOD Domestic Operations Department

20 DSPD Deputy SPD

21 DST Deputy Secretary to the Treasury

22 DVP Delivery versus Payment

23 EPF Employees’ Provident Fund

24 ESI Electronically Stored Information

25 ETF Employees’ Trust Fund

26 Entrust Entrust Securities PLC

27 FAMC Forensic Audit Monitoring Committee

28 First Capital First Capital Treasuries Limited

29 FO Front Office

30 HSBC Hongkong & Shanghai Banking Corporation

31 IBSL Institute of Bankers of Sri Lanka

32 ITD Information Technology Department

33 IT Information Technology

34 ILF Intra-day Liquidity Facility

35 ISIN International Securities Identification Number

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# ACRONYM DESCRIPTION

36 LSSS LankaSecure Settlement System

37 MLA Monetary Law Act

38 MO Middle Office

39 Natwealth Natwealth Securities Limited

40 NIC National Identification Number

41 NSB NSB Fund Management Company Limited

42 Pan Asia Pan Asia Banking Corporation PLC

43 PCOI Presidential Commission of Inquiry on the issuance of Treasury Bonds during the period 1 February 2015 to 31 March 2016

44 PD(s) Primary Dealer

46 PDD Public Debt Department

47 PDD Operational Manual Public Debt Operational Manual updated as of 31 July 2013

48 PTL Perpetual Treasuries Limited

49 Report Final Report

50 Review Period 1 February 2015 to 31 March 2016

51 ROC Registrar of Companies

52 Rs. Sri Lankan Rupees

53 RTGS Real Time Gross Settlement System

54 SD Supervision Division

55 SLDB Sri Lanka Development Bonds

56 SPD Superintendent of Public Debt

57 SPOC Single Point of Contact

58 SSD Support Services Division

59 SSSS Scripless Securities Settlement System

60 TEC Technical Evaluation Committee of the PDD

61 The Client or You The Monetary Board of the Central Bank of Sri Lanka

62 TOR / RFP Terms of Reference / Request for Proposal

63 Treasury Operation Department Treasury Operations Department, Ministry of

Finance, the Government of Sri Lanka

64 Union Bank Union Bank of Colombo PLC

65 WAYR Weighted Average Yield Rate

66 WealthTrust WealthTrust Securities Limited

*The designation of the employees of the CBSL was considered for the Review Period only

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TERMS FOR REFERENCE

# TERM DESCRIPTION/ MEANING/ INTERPRETATION

1 Active Data Data on a computer that is not deleted and is generally accessible and readily visible to the user under normal use. Source: https://burgessforensics.com/computer-forensics-glossary/

2 Active Directory A directory is a hierarchical structure that stores information about objects on the network. A directory service, such as Active Directory Domain Services (AD DS), provides the methods for storing directory data and making this data available to network users and administrators. Source: https://docs.microsoft.com/en-us/windows-server/identity/ad-ds/get-started/virtual-dc/active-directory-domain-services-overview

3 Central Depository System

A computerized central system which records primary issuance of Scripless securities and their trades taking place in the secondary market. Source: https://www.cds.lk/introduction.php

4 Chain of Custody The Chain of Custody in digital forensics can also be referred to as the forensic link, the paper trail, or the chronological documentation of electronic evidence. It indicates the collection, sequence of control, transfer, and analysis. It also documents each person who handled the evidence, the date/time it was collected or transferred, and the purpose for the transfer. Source: https://resources.infosecinstitute.com/category/computerforensics/introduction/areas-of-study/legal-and-ethical-principles/chain-of-custody-in-computer-forensics/#gref

5 Cut-off point A point at which the issuer decided whether a particular security is worth issuing. Source: https://investopedia.com/terms/c/cutoffpoint

6 Deleted Data Deleted Data is data that, in the past, existed on the computer as live data and which has been deleted by the computer system or end-user activity. Deleted data remains on storage media in whole or in part until it is overwritten by ongoing usage or “wiped” with a software program specifically designed to remove deleted data. Even after the data itself has been wiped, directory entries, pointers, or other metadata relating to the deleted data may remain on the computer. Source: https://www.edrm.net/wp-content/uploads/2017/03/20160422-EDRM-Glossary-2.pdf

7 Digital Footprint The information about a particular person that exist on the Internet as a result of their online activity. Source: https://www.lexico.com/en/definition/digital_footprint

8 Digital Forensics Digital Forensics is a branch of forensic science focused on recovery and investigation of artifacts found on digital devices. Source: https://www.lawtechnologytoday.org/2018/05/digital-forensics/

9 Electronically Stored Information

Electronically Stored Information is any information created, stored, or best utilized with computer technology of any type. It includes but is not limited to data; word-processing documents; spreadsheets; presentation documents; graphics; animations; images; email and instant messages (including attachments); audio, video, and audio-visual recordings; voicemail stored on databases; networks; computers and computer systems; servers; archives; back-up or disaster recovery systems; discs, CD’s, diskettes, drives, tapes, cartridges and other storage media; printers; the Internet; personal digital assistants; handheld wireless devices; cellular telephones; pagers; fax machines; and voicemail systems. Source: https://www.foley.com/-/media/files/insights/events/2007/04/corporate-records-what-to-keep-and-what-to-toss/files/guidelines-for-state-trial-courts-regarding-discov/fileattachment/state_cs_eldiscccjguidelines.pdf

10 Forensic Image A forensically sound and complete copy of a hard drive or other digital media generally intended for use as evidence. Such copies include unallocated space, slack space, and boot record. A Forensic image is often accompanied by a calculated Hash signature to validate that the image is an exact duplicate of the original. Source: https://burgessforensics.com/computer-forensics-glossary/

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https://burgessforensics.com/computer-forensics-glossary/

https://docs.microsoft.com/en-us/windows-server/identity/ad-ds/get-started/virtual-dc/active-directory-domain-services-overview

https://docs.microsoft.com/en-us/windows-server/identity/ad-ds/get-started/virtual-dc/active-directory-domain-services-overview

https://www.cds.lk/introduction.php

https://resources.infosecinstitute.com/category/computerforensics/introduction/areas-of-study/legal-and-ethical-principles/chain-of-custody-in-computer-forensics/#gref

https://resources.infosecinstitute.com/category/computerforensics/introduction/areas-of-study/legal-and-ethical-principles/chain-of-custody-in-computer-forensics/#gref

https://investopedia.com/terms/c/cutoffpoint

https://www.edrm.net/wp-content/uploads/2017/03/20160422-EDRM-Glossary-2.pdf


https://www.lexico.com/en/definition/digital_footprint

https://www.lawtechnologytoday.org/2018/05/digital-forensics/

https://www.foley.com/-/media/files/insights/events/2007/04/corporate-records-what-to-keep-and-what-to-toss/files/guidelines-for-state-trial-courts-regarding-discov/fileattachment/state_cs_eldiscccjguidelines.pdf







# TERM DESCRIPTION/ MEANING/ INTERPRETATION

11 Hash Values A computed numerical value that represents a “digest” of the content of a file. If and only if two documents are identical to the letter will they return the same Hash Value. The Hash Value is used as part of a digital signature and to compare document content in the de-duping process. Source: https://www.edrm.net/wp-content/uploads/2017/03/20160422-EDRM-Glossary-2.pdf

12 Keyword Search A common technique used in computer forensic and electronic discovery, a Keyword Search is usually performed to find and identify every instance on a computer or other media of a given word or phrase, even if said word or phrase occurs in unallocated space or in deleted files. Source: https://burgessforensics.com/computer-forensics-glossary/

13 Leakage Deliberate disclosure of confidential information. Source: https://www.lexico.com/en/definition/leakage

14 Litigation hold A Litigation hold, also known as a "preservation order" or "hold order" is a temporary suspension of the company’s document retention destruction policies for the documents that may be relevant to a lawsuit or that are reasonably anticipated to be relevant. It is a stipulation requiring the company to preserve all data that may relate to a legal action involving the company. Source: https://definitions.uslegal.com/l/litigation-hold

15 Metadata A set of data that describes and gives information about other data. Source: https://whatis.techtarget.com/search/query?q=metadata

16 Price Sensitive Information

Of information likely to affect security prices if it were made public. Source: https://www.lexico.com/en/definition/price-sensitive

17 Primary Dealers Any commercial bank, company, or other person appointed by the Monetary Board as a Primary Dealer for the purpose of dealing with the Central Bank as counterparty in the primary and Secondary Markets for stock and securities. Source: Section 58 of Registered Stock and Securities Ordinance (incorporating amendments up to 31 December 2004)

18 Settlement Account An account maintained by a participant with the CBSL in terms of Monetary Law Act for the maintenance of deposit reserves, clearance of payments and settlement of balances among participants and for the settlement of payments of scripless securities transactions among participants, or for any one or more of such purposes as applicable to such applicant. Source: LankaSettle System Rules

19 Timeline Analysis Analysis of schedule of events and procedures. Source: https://www.merriam-webster.com/dictionary/timeline

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https://www.lexico.com/en/definition/leakage

https://definitions.uslegal.com/l/litigation-hold

https://whatis.techtarget.com/search/query?q=metadata

https://www.lexico.com/en/definition/price-sensitive

https://www.merriam-webster.com/dictionary/timeline




NOTICE TO THE READER

This Final Report (“Report”) has been prepared by BDO India LLP (“BDO India”, or “We, or “us”) for The

Monetary Board of Central Bank of Sri Lanka (the “Client” or “You”) in accordance with the scope of

work defined in Contract of 1 April 2019 (“Contract”).

The Report issued by BDO India is in accordance with the Contract and for use by the CBSL. Usage of

this report by the CBSL is with the understanding that (i) CBSL will keep BDO India LLP informed about

the distribution; (ii) CBSL would take appropriate measures to avoid unauthorized distribution of the

whole or part of the Report; and (iii) the disclosure is in line with applicable laws. We accept no

responsibility or liability to any external agency or parties not forming part of the Contract.

BDO India does not render any legal advice or related services and, therefore, none of the Services

rendered under the Contract should be considered to be legal services. In respect of any and all legal

matters, the CBSL may consult its legal advisors, as they deem fit in their own discretion. Our work does

not make any representation regarding questions of legal interpretation and cannot render legal advice.

The Client should consult with its attorneys with respect to legal matters or items that require legal

interpretation.

The Report issued is to be read in totality, and not in parts, and in conjunction with the relevant sections

referred to, in this Report.

We relied on the information and explanations provided to us by the CBSL and we have not

independently verified the completeness of the same. Whilst, we have taken reasonable steps to

corroborate the information (Refer Section 3 - Work Performed), we cannot guarantee its reliability or

completeness. Hence, our ability to perform all the procedures depended on the nature and quality of

the information and explanations provided to us by the CBSL. Our observations in this Report are limited

accordingly.

Based on discussions with the CBSL, this Report consolidates the data provided as of 20 September 2019,

information gathered during interviews conducted till 22 October 2019 and clarifications obtained as of

07 November 2019. We / you may come across information that may have bearing on the findings and

observations made in this Report subsequent to the submission of this Report. However, we take no

responsibility for the possible impact of such events and circumstances including updating this Report

for the same. Although, in circumstances where additional information may become available with

respect to the engagement, we would be glad to carry out additional procedures as may be separately

agreed with the Client.

This engagement shall not create privity between BDO India and any third party. Neither this Report nor

the services provided hereunder are intended for the express or implied benefit of any third party.

Our services and our Report are not intended to be, and shall not be construed to be, investment advice

or legal, tax or accounting advice in accordance with the accounting standards. BDO India shall ensure

all confidential information acquired shall be and remain as part of the Report rendered by BDO India

in accordance with the Contract.

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LIMITATIONS

The understanding of the operational process for issuance of Treasury Bonds through Auctions and Direct

Placement method for the period from 1 February 2015 till 31 March 2016 was obtained from the current

and former employees of the Public Debt Department (“PDD”) at the CBSL.

The Public Debt Department Operational Manual (version 2005, version 2007 and version 2, updated as

of 31 July 2013) (“PDD Operational Manual”) applicable for the Review Period is not explicitly approved

by Monetary Board (Refer Exhibit 1 and Exhibit 2)1. We were given to understand that there is no

requirement for the Operational Manual to be approved by Monetary Board. In the absence of approval,

it is not possible to confirm that the directions of the Board were implemented in the directed

perspective comprehensively. Accordingly, the details of activities performed in raising of public debt

on behalf of the Treasury Operations Department, can at best be considered as “practices” adopted /

followed by the PDD. Subsequently, we were given to understand that in May 2017, a process was defined

whereby the PDD Operational Manual was required to be updated on annual basis.

As confirmed by the officers of the PDD, during the Review Period, the CBSL did not had voice record

system to retain recordings of the telephonic communications between the employees in Front Office

of the PDD and the Primary Dealers (“PDs”) for the issue of Treasury Bonds during the Review Period.

Hence, the reliance is placed on the copies of voice recordings received from PDs to the extent available

and maintained by them. (Refer Exhibit 5)2.

The nature of our work pertaining to conducting desktop searches was based on the information as

available in the public domain. Information obtained from the public domain was not subjected to

independent verification by us. Online public records are generally considered informative, neither can

we guarantee its veracity, nor can we monitor the frequency of the updates thereto. In undertaking the

public record research and information gathering for this engagement, efforts were made to identify

information currently available. Neither we identified information previously filed on, but subsequently

removed from the public records prior to this date nor have we identified the information subsequently

filed on those data sources after this date of this Report.

1 Refer Exhibit 1 for the email communication for non-approval of PDD Operational Manual by the Monetary Board and Exhibit 2 for the memo issued by Monetary Board for updating of Operational Manuals of Departments on 16 May 2017. 2 Refer Exhibit 5 for the memo provided by the CBSL regarding the phone recordings requested from the PDs.

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During the searches of information available in the public domain and subscribed databases, the names

of individual are used in abbreviated form and there are variations in the usage of their names on the

profiles maintained on various social networking platforms. There is a likelihood of not identifying an

individual during desktop searches if a name variation has been used, apart from the ones already

identified.

Few same / similar names were identified during the searches of information as available in the public

domain. However, due to lack of additional identifying information, it could not be ascertained if the

individuals were same as the ones under review.

There were no written guidelines for the preparation of the option sheets by the Technical Evaluation

Committee (“TEC”). Hence, the veracity of the recommendations from the TEC to the members3 of the

Tender Board cannot be verified.

The completeness of the email communication data cannot be established as multiple instances of email

data file deletions were noted during the digital forensic procedures on the devices provided by the ITD

and backup of the email data was not available comprehensively, on the email server. Vide an email of

29 July 2019, it was explained that Litigation Hold was introduced with effect from 1 January 2019 and

all emails which are not permanently deleted as on 1 January 2019 are available on the server. Our

review of emails was limited to the extent of email data backup provided by the ITD of the CBSL.

The completeness of the email communication data cannot be established as multiple instances of email

data file deletions were noted during the digital forensic procedures on the devices provided by the ITD

and backup of the email data was not available comprehensively, on the email server. Vide an email of

29 July 2019, it was explained that Litigation Hold was introduced with effect from 1 January 2019 and

all emails which are not permanently deleted as on 1 January 2019 are available on the server. Our

review of emails was limited to the extent of email data backup provided by the ITD of the CBSL. (Refer

Exhibit 15)4

Licensed tools were used in conducting digital forensic procedures on the devices of identified

employees of the CBSL provided by the ITD. However, due to rapid change in computer’s operating,

processing and storage techniques, there could be occasions when licensed forensic tools are unable to

gather 100% evidence from the acquired devices.

3 Refer Annexure 1 for the list of employees of the CBSL attending the Tender Board meeting for respective offers. 4 Refer Exhibit 15 for an email of 29 July 2019 for implementation of Litigation Hold.

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Web gateway logs (year-wise segregated files – text/ csv format), Web gateway log metadata files,

network firewall configuration and change logs, network firewall activity logs for internet traffic (both

inbound & outbound) for the Review Period (year-wise segregated files – text/ csv format) were not

made available for review. (Refer Exhibit 3)5. Server logs for Inbound and Outbound emails across the

CBSL email domains, from the earliest mail from outlook till March 2018, were not available for review.

(Refer Exhibit 4)6.

The system security logs data of AS-400 was provided. However, in order to analyse the changes or

deletion / modification / user change, application logs were not made available for review. (Refer

Exhibit 6)7.

The details of building access logs were requested for identified employees for whom deletion of outlook

files were noted to verify whether the deletion of outlook files was deleted during their presence in

official or not. However, complete details of the ‘IN’ and ‘OUT’ time of the identified employees during

the Review Period was not provided for review. (Refer Exhibit 7)8.

The review of ROC records was performed based on the information provided by the CBSL up to 23

September 2019. The data including Director's details, shareholding pattern and change in shareholding

pattern / directorship was not provided for Commercial Bank of Ceylon Limited and Union Bank of

Colombo PLC.

The communication logs were requested for the official mobile number(s) of 9 (nine) CBSL employees

out of which 5 (five) employees were issued an official mobile phone device by the CBSL. Due to

unavailability of data, the communication details of the CBSL employees could not be reviewed for the

date of Auctions or Direct Placements in which irregularities were noted. The call data register was

reviewed for 5 (five) CBSL employees and was limited to the data provided by the CBSL.

The review performed for the bank account details of the CBSL employees and PDs was based on the

data provided by the CBSL. The bank account details for the complete Review Period from 1 February

2015 till 31 March 2016 was not received.

The data extracted from the mobile phone of Mr. Arjun Aloysius was not pertaining to the Review Period.

Hence, involvement of Mr. Arjun Aloysius in any improper dealings related to issuance of Treasury Bonds

during the Review Period could not be established on the basis of data extracted from mobile phone.

5 Refer Exhibit 3 for email communication of 2 August 2019 for requesting the firewall logs. 6 Refer Exhibit 4 for email communication of 4 August 2019 for requesting the outlook mail exchange server logs. 7 Refer Exhibit 6 for email communication of 2 August 2019 for non- availability of audit logs. 8 Refer Exhibit 7 for email communication of 29 July 2019 for building access logs.

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The travel details received for the identified CBSL employees only included details official visits of

respective employees within the country and overseas. The details pertaining to the personal travel of

the employees were not available to establish the nature of relationship maintained between the

employees and external parties, if any.

The Front-Ending transactions were considered on the basis of documents provided by the PDs and

limited to the extent of transactions disclosed by PDs for the bids placed by one PD on behalf of another.

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1. INTRODUCTION

1.1. BACKGROUND

1.1.1. The Central Bank of Sri Lanka (“CBSL”) is the apex institution in the financial sector of Sri Lanka.

It was established in 1950 under the Monetary Law Act No. 58 of 1949 (“MLA”) as a semi-

autonomous body and with the two primary objectives9 of maintaining of economic and price

stability and financial system stability of Sri Lanka by managing the rate of inflation in line with

Government’s macroeconomic policies..

1.1.2. The CBSL acts as an advisor on economic affairs and banker to the Government of Sri Lanka and

tasked with managing the Employees’ Provident Fund (“EPF”) and country’s public debt.

1.1.3. As per Section 21C of Registered Stock and Securities Ordinance (incorporating amendments up

to 31 December 2004), the CBSL shall have the authority to take any action necessary for the

issuance and trading of scripless Treasury Bonds.

1.1.4. Mr. Arjuna Mahendran was appointed as the 13th Governor of the CBSL in January 2015. He was

born in Sri Lanka but held citizenship of Singapore.10.

1.1.5. Following to concerns expressed in public domain, with regard to the propriety of Mr. Arjuna

Mahendran’s intervention in the Treasury Bond Auction held on 27 February 2015 and questions

raised on the Conflict of Interest and his relationship with Mr. Arjun Aloysius of Perpetual

Treasuries Limited (“PTL”), The Presidential Commission of Inquiry (“PCOI”)11 was appointed and

was mandated to inquire into the period the issuance of Treasury Bonds from 1 February 2015 to

31 March 2016 to find out actual facts and to make recommendation with regard to the steps to

be implemented in the future.

1.1.6. PCOI recommended12 the CBSL for appropriate investigation / forensic audit of ascertaining

significant irregularities and closely examine the procedures followed in the PDD and decision-

making process applied for raising public debt.

9 Source: https://www.cbsl.gov.lk/en/about/about-the-bank/overview 10 Source: https://www.cbsl.gov.lk/en/about/about-the-bank/bank-history/arjuna-mahendran 11 As per Presidential Warrant of 27 January 2017 in pursuance of the provisions of Section 2 of the Commissions of Inquiry Act (Chapter 393) amended. 12 As per Chapter 33, Para 11 of the PCOI Report.

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1.1.7. Consequently, BDO India was appointed to conduct forensic audit / investigation into the issuance

of Treasury Bonds and Remittance of Funds to the General Treasury during 1 February 2015 to 31

March 2016 (“Review Period”), pursuant to the Contract of 1 April 2019 with the following

objectives:

A. Examine the laws, regulations, policies, circulars, guidelines, manuals, etc. applicable to

issuance of Treasury Bonds and remittance of funds so received to General Treasury;

B. Ascertain, if there were any deviations from relevant laws, regulations, policies, circulars,

guidelines, manuals etc. In the issuance of Treasury Bonds and remittance of funds so received

to the General Treasury;

C. Ascertain if there were any irregularities, lapses, misconduct or instances of professional

negligence in the issuance of Treasury Bonds and remittance of funds so received to the

General Treasury;

D. Ascertain if there was any compromise of security of data or price sensitive information and

if so, identify officers responsible;

E. Ascertain if there were any nexus between the Central Bank Officers and external parties

which had given rise to deficiencies, lapses, misconduct, market manipulations, irregularities

and violation of applicable laws, regulations, policies, circulars, guidelines, manuals, code of

conduct of the Primary Dealers etc.; and

F. In addition to the findings of the PCOI as referred to the recommendation No. 17 (“As set out

earlier in Chapter 19, we have determined that, the Government of Sri Lanka suffered an

avoidable loss of Rs. 688,762,100/-……”), computation of any loss to the Government from

other Auctions held during the period under review.

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1.2. SCOPE OF FORENSIC AUDIT

1.2.1. The scope of forensic audit as defined in the Contract of 1 April 2019 is set out below:

A. Funding budget deficit through the issue of Government Securities;

B. Funding the other cash-flow requirements of the Government of Sri Lanka through the issues

of Government securities;

C. Announcement of Treasury Bond Auction calendar to the market and other primary Auction

announcement by PDD;

D. Procedures adopted at the Primary Auction;

E. Decision making process in relation to the Auctions, including that of the Tender Boards and

decision with regards to the Auctions that were cancelled;

F. Funds raised at each Auction as against the cash-flow requirement of the Government,

offered volume, bids received, recommended by PDD and the accepted volume;

G. Confirmation of remittance of funds from each Primary Dealer to PDD current account and

transmitting of the same to the account of General Treasury maintained at Domestic

Operations Department of CBSL;

H. Transfer of securities from PDD to each respective PDs on each respective settlement dates

and recording of the same in the Script less Securities Settlement System (“SSSS”);

I. Nature and frequency of information submitted to the management and the Monetary Board

of the outcomes of debt issues by way of Auctions / Direct Placements;

J. Examine official as well as private communications, including telephone records, emails,

conduct of meetings, etc., between relevant employees / dealers as identified during the

investigation; and

K. Investigate into any other matters which may come to light in the course of the investigation

/ audit or findings which have a bearing or relevance to the matters under investigation.

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1.2.2. A brief table elaborating the coverage of above-mentioned objectives and scope of work

mentioned in the Contract with reference to the subsequent reference Sections in the Report, is

provided below:

TABLE 1: Coverage of objective and scope of work

# Objective and Scope of Work Report Section Reference Section Number

1 Examine the laws, policies, guidelines etc. applicable to issuance of Treasury Bonds and remittance of funds to General Treasury

Process understanding of issuance of Treasury Bonds through Auction and Direct Placements

4.1 4.2

2 Ascertain deviations from the laws, policies and guidelines

Suspension of Direct Placements without prior approval of the Monetary Board

5.1

Compliance with Registered Stock and Securities Ordinance

5.2

Approval process of the PDD Operational Manual

5.3.

3 Ascertain irregularities, lapses, misconduct or professional negligence in the issuance of Treasury Bonds

Analysis of cancelled Auctions 6.3

Unauthorized issuance of Treasury Bonds 6.4.1

Acceptance of offer even after the rejection by the Governor

6.4.2

Issuance of Treasury Bonds against the advice of ASPD

6.4.3

Discrepancies in the minutes of DDMC 6.4.4

4 Ascertain if there were any compromise of security of data or price sensitive information

Irregular bidding pattern indicating potential leakage of price sensitive information

6.1.

Digital Forensics 8

Voice recordings of PDs 3.8

5 Ascertain if there were any nexus between Central Bank officers and external parties which had given rise to deficiencies, lapses, market manipulations

Public Domain 7.1

Transactions in Secondary Market 6.2

6 Ascertain and quantify the losses caused to the Government of Sri Lanka arising out of above irregularities

Computation of loss on account of deviations and irregularities in issuance of Treasury Bonds under Auction and Direct Placement

6.6 6.7

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2. EXECUTIVE SUMMARY OF OBSERVATIONS

This Executive Summary set out a summary of the key observations arising from the review. This

Executive Summary should be read in conjunction with the rest of this detailed Report, which

provide more detail and context.

2.1. DEVIATIONS FROM LAWS, REGULATIONS AND GUIDELINES

2.1.1. SUSPENSION OF DIRECT PLACEMENTS

A. On 27 February 2015, the PDD discontinued the Direct Placements as a method for raising

public debt based on the instructions given by Mr. Arjuna Mahendran, the then Governor of the

CBSL.

B. The Direct Placements were suspended by Mr. Arjuna Mahendran without prior approval of the

Monetary Board and the powers of Monetary Board cannot be delegated to the Governor, to

exercise in his individual capacity. Also, this decision can be treated as unapproved decision

as the Monetary Board did not ratify subsequently, the instruction by Mr. Arjuna Mahendran.

C. It was an inappropriate action by the PDD by relying on verbal instruction of the Governor

instead of the written approval from the Monetary Board for discontinuing Direct Placements

as method of raising public debt by the PDD.

D. Based on analysis of prevailing Secondary Market yield rates across yield curve, it can be

concluded that suspension of Direct Placements was one of the major factors for the

subsequent upward shift in yield rates across all maturities.

E. The PDD or the Monetary Policy Committee had not conducted any impact assessment study

before suspension of Direct Placements. There had not been study conducted to assess any

implications on the market and the ability of the PDD to successfully raise Public Debt at

acceptable costs. During the interviews, current and former employees of PDD confirmed that

they were not instructed to conduct any such study or evaluation.

Please refer Section 5.1. of this Report for detailed observations.

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2.1.2. COMPLIANCE WITH REGISTERED STOCK AND SECURITIES ORDINANCE

There were no deviations noted with respect to the provisions applicable under the Registered

Stock and Securities Ordinance, based on the combined reading of the provisions of Registered

Stock and Securities Ordinance, PDD Operational Manual and the process understanding gathered

from the former and current officials of the PDD.

2.1.3. DEVIATIONS IN INFORMATION SUBMITTED TO THE MONETARY BOARD

A. The copies (different versions) of the PDD Operational Manual applicable in the Review Period

were provided which indicate that these manuals were not approved by the higher management

of the CBSL. The details of activities performed in raising of public debt on behalf of the

Treasury Operations Department, can at best be considered as practices adopted / followed by

the PDD.

B. During discussions with the current members of the Monetary Board, it was explained that there

was no such stated procedure defined for the PDD Operational Manuals to be submitted to the

Monetary Board on an annual basis.

C. The Monetary Board at its Meeting No. 16/2017 held on 28 April 2017 decided that all Head of

Departments (“HDD”) shall follow the prescribed procedure for maintaining annually updated

Operational Manuals for their respective Departments. An Internal Memorandum dated 16 May

2017 was circulated to all Heads and Additional Heads of the respective departments for

updating of Operational Manuals on annual basis which specify that the HDD shall follow the

prescribed procedures in maintaining annually updated Operational Manuals of their respective

departments.

D. It was informed that with effect from 2017, the above-mentioned process has been adopted on

annual basis.


2.2. IRREGULARITIES IN CONDUCT OF AUCTIONS

2.2.1. TRANSACTIONS IN SECONDARY MARKET

It was noted that in 10 offers out of 97 accepted offers, PTL in consort with Pan Asia and DFCC

had entered transactions into the Secondary Market wherein high volume of identified securities

were obtained at low prices in Primary Market by taking advantage of insider information. These

securities were sold to the EPF at substantial higher prices as compared to the daily and weekly

average trading prices prevailing in the Secondary Market. It was also noted that the EPF either

did not participated or placed bids in less volume or at higher yield rates in Primary Market and

at the settlement date, the EPF bought securities at higher prices in Secondary Market.

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Based on above analysis, it was evident that PTL in consort with Pan Asia and DFCC had entered

transactions into the Secondary Market wherein high volume of identified securities were obtained

at low prices in Primary Market by taking advantage of insider information and sold those securities

at substantial high prices in the Secondary Market to the EPF. It was also noted that the EPF either

did not participated or placed bids in less volume or at higher yield rates in Primary Market and

at the settlement date, the EPF bought securities at higher prices in Secondary Market.


2.2.2. ANALYSIS OF CANCELLED AUCTIONS

On analysis of 30 offers out of 127 offers which were cancelled by the Tender Board during the

Review Period, the following anomalies were noted:

A. Cancellation of offer on an Auction date increased the pressure of acceptance of requisite

funds from other offers on the same or subsequent Auction date;

B. Concealment of facts from the Tender Board led to cancellation of Auction; and

C. One offered by the PDD consecutively in multiple Auctions and rejection of same ISIN by the

Tender Board in each Auction.

Based on analysis, it can be inferred that cancellation of offers increased the pressure of

acceptance of funds from other offers and proper analysis was not done by the PDD before issuance

of ISIN which was continuously rejected by the Tender Board.


2.2.3. IRREGULARITIES IN THE ISSUANCES OF TREASURY BONDS

A. UNAUTHORISED ISSUANCE OF TREASURY BONDS

1. During the Review Period, it was noted that in 2(two) Auctions wherein 4 (four) offers were

issued, no supporting document for the intimation from the Treasury Operation Department

for raising of debt were not available.

2. Therefore, the instruction from the Governor for issuance of Treasury Bond and creation of

public debt, in the absence of requirement from the Treasury Operation Department or in

the any other supporting documents, is considered unauthorized.

Please refer Section 6.4.1. of this Report for detailed observations.

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B. ACCEPTANCE OF OFFER EVEN AFTER THE REJECTION BY THE GOVERNOR

1. On document review of one of the Auctions on 29 February 2016, it was noted that in

Treasury Bond Series “11.20%2023A” (ISIN LKB01023I019), TEC has recommended the value

amounting to Rs. 7,637 Million at a WAYR of 11.78%.

2. As per the minutes of the Tender Board, it was decided “not to issue this Treasury Bond

Series as the rates were substantially above the current prevailing Secondary Market rates

which reflect the speculative nature of bids” and the decision of the Tender Board was

approved by the members of the Tender Board and the Governor. However, as per Press

Release of 29 February 2016 Treasury Bond Series “11.20%2023A” (ISIN LKB01023I019) was

accepted and debt amounting to Rs. 7,637 Million were raised despite the rejection of the

same by the Tender Board.

3. However, on the basis of explanations provided by the employees of the CBSL during the

interviews and documents for accepting the offer after rejection by the Tender Board, the

basis for accepting funds in these offers is considered irregular and unauthorized.

Furthermore, the final decision of the Tender Board and the Governor was overlooked by

the officials of the PDD.


C. ISSUANCE OF TREASURY BOND AGAINST THE ADVICE OF ASPD

1. In one Treasury Bond series “12.00%2041A” (ISIN LKB02541A016), major portion of the

value under this offer was accepted from PTL and Pan Asia placed bids on behalf of PTL.

Also, no allocation was made to captive sources.

2. During an ESI review, it was noted that Ms. UL Muthugala advised to not to issue this

series. However, this series was still issued by the PDD.

3. In view of the above facts associated with the transactions and explanations provided by

the employees of the CBSL, the issuance of this offer despite the advice of senior officials

of PDD, without any rationale recorded or other factors attributed, is considered as

deviant from the practices adopted in the PDD.


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D. DISCREPANCIES IN THE MINUTES OF DDMC

1. On review of minutes of the meeting of DDMC held for the month of February 2016 in the

month of January 2016, it was noted that two different monthly borrowing programmes

(document number 00028 and 00029) for the month of February 2016 were attached in

“Annexure 1”. These two documents “Document No. 00028” and “Document No. 00029”

had different composition and value of the funds to be raised through Treasury Bonds on

12 February 2016 and 19 February 2016, respectively.

2. The Tender Board, in Auction of 5 February 2016, decided to raise the additional debt of

Rs. 7,250 Million and this additional debt amounting to Rs. 7,250 Million matched with the

borrowing requirement mentioned in “Document No. 00029” which was attached with

DDMC meeting of 29 January 2016. It indicates that the “Document No. 00029” was

potentially created on post facto basis by FO of the PDD and gives rise to the suspicion

that the other minutes of DDMC meeting, provided for our review, might also be prepared

and approved on post facto basis.


2.3. ANALYSIS OF SPECIFIC AUCTIONS OF TREASURY BONDS

Based on review of documents, bidding pattern analysis, Secondary Market transactions in CDS

data, evidences in the form of call log records, copies of voice recordings and statements given by

the CBSL employees during interviews, the below mentioned offers were identified for further

scrutiny and correlation with corroborative evidences:

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TABLE 2: Details of 10 offers (Amount in Rs. Million)

# Date of Auction

Bond series PDs/ EPF Involved

Individuals involved Minimum Loss

Maximum Loss

Evidence Corroborating Irregularities

1 27-Feb-2015

12.50%2045A • PTL

• WealthTrust

• Pan Asia

• EPF

• BOC

• Mr. Arjuna Mahendran (Former Governor)

• Mr. Kasun Palisena (PTL)

1,106.44 1,114.63

Based on review of call log records provided by the CID, available copies of voice recordings provided by PDs, Front-ending transactions and transactions in Secondary market, it indicates that the Auction outcome and exceptional bidding pattern of PTL was based on insider information as under:

• Bids placed by PTL was 15 times over and above the volume offered by the PDD;

• Volume of bidding and allocation made by PTL were inconsistent with historic bidding pattern of PTL;

• Bids placed and allocated to PTL was inconsistent with the bidding pattern of PTL in the past Auctions since incorporation;

• Governor suspended Direct Placements without prior approval of the Monetary Board thus, increasing pressure on the Auction to accept requisite funds at higher yield rates; and

• Instruction by the Governor to accept higher funds in the Auction without corresponding written fund requirement received from Ministry of Finance.

2 26-Oct-2015

11.50%2035A • PTL

• Pan Asia

• EPF


• Mr. Saman Kumara (EPF)

• Mr. Raveesha (Pan Asia)

100.22 114.59 Based on above review of call log records provided by the CID, available copies of voice recordings provided by PDs and transactions in Secondary market, it can be observed that PTL made capital gains in the Auction and colluding

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# Date of Auction



Maximum Loss


with Pan Asia in selling securities to the EPF at higher rates in the Secondary Market.

3 30-Oct-2015

11.00%2030A • PTL

• Pan Asia

• EPF



• Mr. Raveesha (Pan Asia)

- - Based on available voice recordings provided by PDs, call log records provided by the CID and transactions in Secondary Market, it seems that PTL used insider information of the EPF not participating in the Auction and in consort with Pan Asia done transactions in Secondary Market. PTL made capital gains in collusion with Pan Asia by selling securities to the EPF at higher rates as compared to daily and weekly average trading rates prevailing in the Secondary Market.

4 27-Nov-2015

11.50%2035A • PTL

• Pan Asia

• EPF

• Mr. Arjuna Aloysius


• Mr. Sanjeewa Fernando (PTL)

111.34 122.19 Based on available voice recordings provided by PDs, call log records provided by CID and transactions in Secondary Market, it appears that PTL and Pan Asia made capital gains in Secondary Market by selling high volume of Treasury Bonds to the EPF at high prices as compared to average trading rates prevailing in the Secondary market for this ISIN.

5 15-Dec-2015

11.50%2035A - • Mr. Arjuna Mahendran (Former Governor)

• Mr. THB Sarathchandra (SPD)

233.63 314.30 Based on facts and in the absence of the documents for the confirmation from the Treasury Operation Department, this Auction can be said to be unauthorised Auction. 6 15-Dec-

2015 11.00%2025A - - 32.54

7 8-Jan-2016 11.00%2030A • PTL

• Pan Asia

• Mr. Arjun Aloysius (PTL)

112.85 141.07 Based on review of available copies of voice recordings provided by PDs and transactions in

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# Date of Auction



Maximum Loss


• EPF • Mr. Kasun Palisena (PTL)


Secondary market, it can be observed that PTL made capital gains in the Auction and colluding with Pan Asia in selling securities to the EPF at higher rates in the Secondary Market.

8 8-Jan-2016 12.00%2041A • PTL

• Pan Asia

• EPF

603.70 949.08

9 28-Jan-2016

11.00%2030A • PTL

• DFCC

• EPF

-

227.29 246.01 Based on review of available copies of voice recordings provided by PDs and transactions in Secondary market, it can be observed that PTL made capital gains in the Auction and colluding with DFCC in selling securities to the EPF at higher rates in the Secondary Market.

10 5-Feb-2016 12.00%2041A • PTL

• DFCC

• EPF

• Pan Asia

• Mr. S. Pathumanapan (Senior Manager of PDD)


• Mr. Kavin Karoonamurthy (DFCC)

27.29 40.04 • Based on review of call log records provided

by the CID, available copies of voice recordings provided by PDs and transactions in Secondary market, it can be observed that PTL made capital gains in the Auction and colluding with DFCC in selling securities to the EPF at higher rates in the Secondary Market;

• Two different borrowing programs were prepared by the PDD with different borrowing requirement and the minutes of Tender Board indicates that Tender Board was aware of borrowing requirement mentioned in one borrowing program. However, the decision taken by Tender Board was in line with the second borrowing program which indicates that second document of borrowing program was prepared on post facto basis; and

• Review of ESI reveal that ISIN was issued by the PDD against the advice of ASPD;

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# Date of Auction



Maximum Loss


11 29-Feb-2016

11.20%2023A - • Mr. P Samarasiri (DG - Chairman of Tender Board)

• Mr. THB Sarathchandra (SPD)

• Mr. S. Obeysekara (Head OF FO)

• Mr. S. Pathumanapan (Senior Manager of PDD)

30.97 38.92 • Acceptance of offer by the PDD despite the rejection decision taken by Tender Board and Governor; and

• Employees of the PDD informed during interviews that this decision of the Tender Board was overlooked by the PDD.

12 29-Mar-2016

10.25%2025A - • Mr. Arjuna

Mahendran (Former Governor)



• Mr. PWDNR Rodrigo (DOD of the CBSL)

577.25 675.13

Based on analysis of call log records, available voice recordings, transactions in Secondary Market and policy decisions taken by the CBSL in the month of March 2016, it indicates that:

• There are substantial evidences of leakage of insider information to PTL enabling it to purchase large amount of securities in Primary Market at prices below the Auction weighted average price and generate substantial gains in Secondary Market;

• PTL utilise the price sensitive instruction given to State Banks to bid at lower prices and bid at high volume in this Auction; and

• Tender Board was not informed about the decision taken by the Governor for stoppage of Reverse REPO Auction.

13 29-Mar-2016

11.00%2026A - 453.63 611.73

14 29-Mar-2016

11.00%2030A • PTL

• EPF

• Pan Asia

1,249.75 1,495.02

15 29-Mar-2016

09.25%2020A - 4.16 91.82

16 31-Mar-2016

11.50%2028A • PTL

• DFCC

• EPF

• Pan Asia



- -

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However, the documentary and digital evidences reviewed (as provided in the respective Sections of this Report) and limited number of voice recordings

of dealer rooms of PDs did not suggest these anomalies are directly or indirectly linked to any potential nexus between the employees of the PDD and

the beneficiary PDs. It is pertinent to note that the CBSL did not installed voice record system at the PDD and significant limitations existed on the

availability of ESI in terms of email files and email deletions, as detailed in the respective Sections of this Report. Please refer Section 6.5 of this Report

for detailed observations.

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2.3. ASSESSMENT OF LOSS IN ISSUANCE OF TREASURY BONDS

2.3.1. During the Review Period, 127 offers of Treasury Bonds were made through Auctions. Of these 127

offers, 30 offers were cancelled, and 97 offers were accepted by the PDD. 12 offers of Treasury

Bonds were made through Direct Placements.

2.3.2. It was noted that in case of 53 offers out of 127 offers, Treasury Bonds were issued at WAYR higher

than the prevailing Secondary Market yield rates for similar maturity, which has caused loss to

the Government of Sri Lanka. In one scenario where the Tender Board had to accept funds till the

amount required by the Treasury Operation Department, it was noted that in 42 offers out of 53

offers, the Tender Board accepted value of funds which was more than the value offered by the

PDD. The debt was raised even at WAYR higher than the prevailing Secondary Market rates for

similar maturity in this scenario also.

Therefore, it resulted in the minimum value of loss caused to the Government of Sri Lanka which

can be avoided if the WAYR of accepted funds was less than the Secondary Market yield rates and

till the value of requirement of the Treasury Operation Department.

2.3.3. In case of Direct Placements, it was noted that in 2 from 12 offers, Treasury Bonds were issued

at WAYR higher than the Secondary Market yield rates for similar maturities.

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2.3.4. The computation of loss on issuance of Treasury Bonds through Auctions and Direct Placements

is as under:

TABLE 3: Computation of loss (Amount in Rs. Million)

# Particulars Reference to the Report Section

Minimum Loss

Maximum Loss

1. Computation of loss in 97 offers of Treasury Bonds through Auctions

a. 40 offers, where WAYR was lower than Base13 Rate 6.6.12.(A) - -

b. 4 offers, where Base Rate cannot be ascertained 6.6.12.(B) - -

c. 53 offers, where WAYR was higher than the Base Rate

6.6.12.(C) - 9,681.15

(i) Out of 53 offers, 11 offers where accepted value was less than the offered value

6.6.16.(A) - -

(ii) Out of 53 offers, 42 offers where accepted value was more than offered value

6.6.16.(B) - -

(ii)(a) Out of 42 offers, 35 offers where Base rate was lower than WAYR

6.6.19.

5,109.40 -

(ii)(b) Out of 42 offers, 7 offers where Base rate was higher than WAYR

6.6.19.

1,524.26 -

2. Computation of loss in 2 offers of Treasury Bonds through Direct Placements

6.7.7. 9.01 9.01

Total Loss 6,642.67 9,690.16

2.3.5. Based on above table, the loss caused to the Government of Sri Lanka from the issuance of Treasury

Bonds at WAYR higher than the prevailing Secondary Market yield rates was ranging from Rs. 6.64

Billion to Rs.9.69 Billion.

Please refer Section 6.6. and 6.7. of this Report for detailed observations.

13 Refer Section 6.6.10. of the Report for the calculation of Base Rate

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2.4. PUBLIC DOMAIN SEARCHES

2.4.1. BACKGROUND CHECK AND MEDIA PROFILING OF IDENTIFIED EMPLOYEES OF THE CBSL

A. While identifying any potential connection between the identified employees of the CBSL and

PDs, a conflict of interest relationship was identified between Mr. Arjuna Mahendran (former

Governor of the CBSL) and a PD namely PTL. Mr. Arjun Aloysius was found to be associated as

a Director with Perpetual Capital (Private) Limited, the parent company of PTL and other group

companies of PTL. The same was corroborated by the statement made by Mr. Arjuna Mahendran

before Commission of Inquiry that his son-in-law had a beneficial interest in PTL and continued

to be a Director and Shareholder of the Holding Company of PTL while he was the Governor of

the CBSL.

B. Mr. Arjuna Mahendran’s son-in-law, Mr. Arjun Aloysius, was the Chief Executive Officer and

Director of PTL during the year 2014 till 16 January 2015. During the review of call log records

available in Forensic Communication Analysis Report provided by the CBSL, communications

between Mr. Arjuna Mahendran and Mr. Kasun Palisena were noted which indicates that he was

also closely involved in the business operations of PTL.

C. During the review of the copies of voice recordings of PTL Dealer room, it was noted that Mr.

Aloysius was actively involved in the business operations of PTL and was a key decision maker

during the Review Period.

D. Based on the above communications, it can be concluded that Mr. Arjun Aloysius continued to

be involved in the operations of PTL, throughout the period when Mr. Arjuna Mahendran was

the Governor of the CBSL and the conflict of interest was not resolved.

E. However, the documentary and digital evidences reviewed (as provided in the respective

Sections of this Report) and limited number of voice recordings of dealer rooms of PDs did not

suggest that Mr. Arjuna Mahendran was directly involved in sharing insider information with

Mr. Arjun Aloysius or PTL. It is pertinent to note that the CBSL did not installed voice record

system at the PDD and significant limitations existed on the availability of ESI in terms of email

files and email deletions, as detailed in the respective Sections of this Report.

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2.4.2. POTENTIAL NEXUS BETWEEN IDENTIFIED EMPLOYEES OF THE CBSL, PDs AND MARKET PARTICIPANTS

A. Relationship between Mr. Arjuna Mahendran, Mr. Arjun Aloysius and Mr. Dimantha Seneviratne

a. It was noted that Mr. Dimantha Seneviratne was found to be associated with Pan Asia as its

CEO. Previously, he was associated with HSBC as a Chief Risk Officer at locations including

Sri Lanka, Maldives, Thailand and Bangladesh14 from February 2000 till February 2014. It is

pertinent to mention here that Mr. Arjuna Mahendran was also associated with HSBC as its

Managing Director covering whole of Asia from May 2008 till June 2013.

b. Therefore, it can be inferred that the geographical areas where Mr. Dimantha Seneviratne

was employed, falls under the purview of Mr. Arjuna Mahendran and indicates a possible

association between Mr. Mahendran and Mr. Dimantha Seneviratne.

c. During the review of contents of Mr. Arjun Aloysius’s mobile phone, it was noted that Mr.

Arjun Aloysius had interacted several times with Mr. Dimantha Seneviratne in the latter part

of 2016.

d. However, the documentary and digital evidences reviewed (as provided in the respective

Sections of this Report) and limited voice recordings of dealer rooms at PDs did not suggest

that the relationships and / or associations identified above have led the collusive behaviour

between Pan Asia and PTL. It is pertinent to note that the CBSL did not installed voice

record system at the PDD and significant limitations existed on the availability of ESI in

terms of email files and email deletions, as detailed in the respective Sections of this

Report.

B. Relationship between Mr. Arjun Aloysius, Mr. Richie Dias and Mr. Nimal Perera

a. Mr. Richie Dias was the Deputy General Manager – Treasury of Pan Asia. He confirmed

before the PCOI (Para 10 & 11, Section 5.37, Chapter 5 of the report of PCOI) that Pan

Asia entered into secondary market transactions of buying Treasury Bonds from PTL and

selling them to the EPF after keeping a small margin of profit for Pan Asia. These

transactions were undertaken by Pan Asia on the instructions of the former Chairman of

Pan Asia – Mr. Nimal Perera.

14 https: //www.linkedin.com/in/dimantha-seneviratne-901373122/?originalSubdomain=lk

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https://www.linkedin.com/in/dimantha-seneviratne-901373122/?originalSubdomain=lk




b. It was also stated before the PCOI that Mr. Nimal Perera had a company named M/s NP

Capital which dealt in Treasury Bonds in the secondary market and Mr. Nimal Perera was

engaged in the practice of “dumping” Treasury Bonds at low yield rates on the EPF.

c. Mr. Richie Dias stated that Mr. Nimal Perera instructed Mr. Richie Dias to enter into

secondary market transactions with PTL and asked him to go to Mr. Arjun Aloysius’s office

to discuss the manner in which business was to be done. This meeting took place sometime

in June 2015 and Mr. Arjun Aloysius explained to Mr. Richie Dias that PTL wanted Pan Asia

to play an intermediary role between PTL and the EPF.

d. However, the documentary and digital evidences reviewed (as provided in the respective

Sections of this Report) and limited number of voice recordings of dealer rooms of PDs did

not suggest that the relationships and / or associations identified above have led the

collusive behaviour between Pan Asia and PTL.

C. ASSOCIATION BETWEEN PTL AND DFCC

a. During review of Market Manipulation Report and media articles, it was noted that PTL

was involved in transactions in the Secondary Market in collusion with DFCC. It was noted

that PTL had sold bonds to DFCC at increased prices and they in turn sold to the EPF and

earned huge capital profits in Secondary Market through DFCC acting as an intermediary.

It was observed that Mr. Kasun Palisena and Mr. Nuwan Salgado had contacts in DFCC

which could have resulted in market manipulation of by PTL via its contacts.

b. However, the documentary and digital evidences reviewed (as provided in the respective


not suggest that the relationships and / or associations identified above have led to have

led the collusive behaviour between PTL and DFCC. It is pertinent to note that the CBSL

did not installed voice record system at the PDD and significant limitations existed on the

availability of ESI in terms of email files and email deletions, as detailed in the respective

Sections of this Report.

Please refer Section 7.1 of this Report for detailed observations.

2.5. DIGITAL FORENSIC

2.5.1. Based on the review of documents related to Auction and Direct Placement method for issuance

of Treasury Bonds and public domain searches, 12 employees of the CBSL were identified for

detailed review of Electronically Stored Information (“ESI”) on their officially assigned devices.

The forensic imaging and data extraction procedure were performed on the 18 devices pertaining

to these identified employees of the CBSL (“Target Devices”).

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2.5.2. The summary of available digital evidences for all 12 identified employees of the CBSL was

prepared and evaluated for potential linkage with the deviations and irregularities explained in

the previous Sections of the Report. The specific electronic evidences considered relevant to the

findings of the Report are detailed in the respective Sections of the detailed observations.

2.5.3. The below mentioned table represents the availability of data/ emails/ facts considered relevant

in respect of the issuance of Treasury Bonds:

TABLE 4: Summary of Evidences from ESI

# Name of the employee of the CBSL Availability of digital evidences relevant to deviations or irregularities

1 Mr. Arjuna Mahendran Available

2 Mr. P Samarasiri None

3 Mr. SS Ratnayake Available

4 Ms. CMDNK Seneviratne Available

5 Mr. THB Sarathchandra Available

6 Ms. UL Muthugala Available

7 Mr. NDYC Weerasinghe None

8 Dr. MZM Aazim Available

9 Mr. S Obeysekera None

10 Ms. LS Fernando None

11 Mr. S Pathumanapan Available

12 Ms. Amila Dahanayake None

2.5.4. Below mentioned observations were made basis the review performed of the devices provided

by the CID:

A. The digital image of Mr. Arjun Aloysius’ mobile phone was obtained from the CID to perform

analysis of the extracted data. The following observations were made basis the review:

1. Several messages between Mr. Arjun Aloysius and employees of PTL were noted after

Mr. Arjuna Mahendran’s completion of term as a Governor of the CBSL on 30 June 2016,

which confirmed Mr. Arjun Aloysius’ involvement in the business operations of PTL.

2. During the review of the Forensic Report of the mobile phone of Mr. Arjun Aloysius, it

was noted that over 700 Viber calls were undertaken between Mr. Arjun Aloysius and

Mr. S Pathumanapan during the period October 2016 – January 2017.

The documentary and digital evidences reviewed (as provided in the respective

Sections of this Report) and limited number of voice recordings of dealer rooms of PDs

did not suggest that the relationships and / or associations identified above have led

to any sharing of insider information by Mr. Pathumanapan to PTL.

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3. On review of Forensic Report on Communication Analysis provided by the CID,

conversations between Ms. Thakshila Kumari, Mr. Badugoda Hewa Amal Fernando,

relatives of Mr. Indika Saman Kumara and KMP of PTL were noted.

The documentary and digital evidences reviewed (as provided in the respective Sections

of this Report) and limited number of voice recordings of dealer rooms of PDs did not

suggest that the relationships and / or associations identified above have led to any

sharing of insider information by Mr. Saman Kumara to PTL.

B. The devices acquired by the CID for Mr. Arjuna Mahendran were obtained which included a

Samsung laptop – SM-W708YZWAXSP. The following observations were made basis the review

conducted for the said device:

1. An email of 7 January 2017 was noted, wherein Mr. Indika Saman Kumara

([email protected]) sent his Curriculum Vitae to Mr. Arjuna Mahendran

([email protected]). It was identified during the interviews with the CBSL

employees that Mr. Indika Saman Kumara maintained a close rapport with Arjuna

Mahendran.

2. Based on the data made available for review, it appears that the association between the

two continued after Mr. Arjuna Mahendran’s release from the position of Governor of the

CBSL.


2.6. REMITTANCE OF FUNDS TO THE TREASURY OPERATION DEPARTMENT

2.6.1 The transaction-wise details as per AS-400 and CDS are compared for the Review Period. However,

no anomalies are noted in transfer of securities from the PDD to each respective PDs on each

respective settlement dates and recording of the same in the Scripless Securities Settlement

System.

2.6.2 Upon comparing the transaction-wise amount receivable from participants as per AS-400 records

with the transaction recorded in the “I-Glass” software for Auctions and Direct Placements, no

anomalies are noted in remittance of funds from each PDs account to the PDD current account and

transmitting of the same to the account of the Treasury Operation Department maintained at

Domestic Operations Department of the CBSL.

This Executive Summary is intended to provide a high-level overview of key findings on this

investigation. For a complete understanding of the issues, work done and detailed findings, this

Report should be read in its entirety including Annexure and Exhibits. This Executive Summary must

be read in conjunction with detailed Report Section and it cannot be treated as a substitute thereof.

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mailto:[email protected]





3. WORK PERFORMED The detailed work performed during Investigation / Forensic Audit on issuance of Treasury Bonds

and remittance of funds to the Treasury Operation Department is as following:

3.1. MANAGEMENT DISCUSSIONS AND PROCESS WALK THROUGH

3.1.1. Introductory meetings were conducted on 16 April 2019 with the senior personnel of various

departments of the CBSL to understand the purview and objective of the subject Forensic Audit

/ Investigation.

3.1.2. Meetings / discussions were conducted with the process owners of the PDD, Domestic Operations

Department (“DOD”) and Information Technology Department in order to gain the detailed

understanding of:

A. Applicable laws, policies, guidelines, regulations process and practices followed at present

and that existed during the Review Period;

B. Functionalities, roles and responsibilities of the PDD;

C. The operational guidelines/manual applicable to the processes at the PDD;

D. Cashflow requirements of the Government;

E. Process of issuance of Treasury Bonds through Auction method;

F. Process of issuance of Treasury Bonds through Direct Placement method; and

G. Remittance of funds to the account of Treasury Operation Department maintained at DOD of

the CBSL.

Please refer the below mentioned table for the details of meetings conducted:

TABLE 5: Details of meetings conducted

Date of Meeting Name Current Designation Department

7-May-2019 Mr. MDD Dananjaya Banking Assistant Front Office of the PDD

Mr. DPCP Dikwella Management Trainee Front Office of the PDD

8-May-2019 Mr. MDD Dananjaya Banking Assistant Front Office of the PDD

Mr. DPCP. Dikwella Management Trainee Front Office of the PDD

9-May-2019 Mr. N Janagan Senior Manager Middle Office of the PDD

Mr. GCR Tharanga Senior Manager Back Office of the PDD

10-May-2019

(Refer Exhibit 8) 15

Mr. SAYK Samaratunge Senior Manager Back Office of the PDD

Mr. GGNH Jayasinghe Management Assistant Front Office of the PDD

Mr. DPCP Dikwella Management Trainee Front Office of the PDD

15 Refer Exhibit 8 for Summary of discussion for process understanding of issue of Treasury Bonds through Auctions signed on 25 June 2019.

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Date of Meeting Name Current Designation Department

10-May-2019


Mr. CA Abeysinghe Director DOD

Mr. RAA Perera Acting Additional Director DOD

Mr. KSAK Senanayke Deputy Director DOD

Ms. TMUK Tennakoon Acting Deputy Director DOD

14-May-2019


Mr. WG Prabath Deputy Superintendent Middle Office of the PDD

Ms. LS Fernando Senior Manager Front Office of the PDD


Mr. HMCK Herath Manager Front Office of the PDD

Mr. MDD Dananjaya Banking Assistant Front Office of the PDD

Mr. WAHC Leelarathne Management Assistant Front Office of the PDD

Mr. GGNH Jayasinghe Management Assistant Front Office of the PDD

Mr. DPCP. Dikwella Management Trainee Front Office of the PDD

16-May-2019


Dr. MZM Aazim Superintendent The PDD



10-June-2019





1-July-2019


Mr. SR Attygalle Deputy Governor DG overseeing the PDD

Mr. NWGRD Nanayakkara Assistant Governor AG overseeing the PDD


Mr. DST Wanaguru Acting Additional Superintendent

The PDD

Mr. NDYC Weerasinghe Deputy Superintendent Front Office of the PDD



Mr. KCP Perera Acting Deputy Secretary Board Secretariat

29-July-2019

(Refer Exhibit 14)21

Mr. SS Ratnayake22 Former Assistant Governor

AG overseeing the PDD

16 Refer Exhibit 9 for Summary of discussion for process understanding of remittance of funds received from the PDD and transmitting of the same to accounts of the Treasury Operation Department maintained at the DOD signed on 20 June 2019. 17 Refer Exhibit 10 for Summary of discussion for system walkthrough signed on 9 July 2019. 18 Refer Exhibit 11 for Summary of discussion for process understanding of issue of Treasury Bonds through Direct Placements signed on 26 June 2019. 19 Refer Exhibit 12 for Summary of discussion with the PDD on clarification on general queries on the process of issue of Treasury Bonds through Direct Placement signed on 3 July 2019. 20 Refer Exhibit 13 for Summary of discussion with the PDD for pending queries and documents pertaining to issue of Treasury Bonds through Auctions. 21 Refer Exhibit 14 for the summary of discussion with Mr. S.S. Ratnayake. 22 During our Review Period, he was officiating as the AG overseeing the PDD.

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3.1.3. Provided fortnightly / periodic updates to the Forensic Audit Monitoring Committee (“FAMC”)

regarding the scope of work, procedures performed, and challenges faced during the respective

past fortnight and action points for next fortnight (Refer Annexure 39).23

3.1.4. Conducted meeting with the Hon’ble Governor to discuss the progress on information received,

data flow and procedures performed.

3.1.5. Conducted meeting with the Treasury Operation Department in order to gain the understanding

of general requirement and administrative requirement of the Government of Sri Lanka, cashflow

statement (Refer Exhibit 16)24.

3.1.6. Conducted meeting with Registrar of Companies for understanding the statutory filings by the PDs

to the Department of Registrar of Companies, Sri Lanka and requested for obtaining copies of

those documents.

3.1.7. Conducted discussion with designated team of the Criminal Investigation Department of Sri Lanka

in order to:

A. Understand the nature and scope of investigation performed;

B. Understand the nature of evidences (electronic devices, call list and recordings) analyzed

while submitting Forensic Report to PCOI; and

C. Requested to provide the copy of evidences (electronic devices, call list and recordings) for

review.

3.1.8. Prepared summary of meetings / discussions held with the respective departments to get

confirmations of our understanding.

3.1.9. Interviews conducted with the following current and former employees of the CBSL and identified

external parties seeking additional facts and corroborations related to the Auctions and

irregularities noted in the issuance of Treasury Bonds and other matters relevant to the scope of

work defined under the Contract:

TABLE 6: Details of interviews conducted

Date of Interview Name of the Interviewee

Designation25 Statement of Fact

3-Sep-2019 Mr. S Obeysekera Head of FO of the PDD Refer Exhibit 1726

4-Sep-2019 Ms. LS Fernando Senior Manager (PDD) Not available

6-Sep-2019 Ms. UL Muthugala Additional SPD Refer Exhibit 1827

23 Refer Annexure 39 for the list of FAMC conducted. 24 Refer Exhibit 16 for Summary of discussion with the Treasury Operation Department of 11 July 2019. 25 We have considered the designation of the employees of the CBSL as relevant for the Review Period. 26 Refer Exhibit 17 for Statement of Fact signed by Mr. S. Obeysekera, Head of FO of the PDD. 27 Refer Exhibit 18 for Statement of Fact signed by Ms. UL Muthugala, Additional SPD of the PDD.

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Date of Interview Name of the Interviewee

Designation25 Statement of Fact

19-Sep-2019 Mr. THB Sarathchandra SPD Refer Exhibit 1928

20-Sep-2019 Dr. MZM Aazim Additional SPD Refer Exhibit 2029

24 -25 Sep-2019 Mr. S Pathumanapan Senior Manager of FO of the PDD

Refer Exhibit 2130

25-26 Sep-2019 Mr. NWGRD Nanayakkara SPD (till 6-Feb-2015) Acting SPD (24-Mar-2016)

Refer Exhibit 2231

22-Sep-2019 Ms. CMDNK Seneviratne SPD (9-Jan-2016 to 20-Sep-2015)

Not available

16-Sep-2019 Mr. JKD Dharmapala Chief Dealer of BOC Not available

3.1.10. Interview for seeking corroborating facts related to the irregularities noted in the issuance of

Treasury Bonds during the Review Period could not conducted with the following former

employees of the CBSL till 22 October 2019:

TABLE 7: Details of interviews not conducted

Name of the interviewee Designation32

Mr. Arjuna Mahendran Former Governor

Mr. P. Samarasiri Former Deputy Governor overseeing the PDD

3.2. REVIEW OF RELEVANT LAWS / REGULATIONS / POLICIES / CIRCULARS /

GUIDELINES / MANUALS

3.2.1. Obtained the copies of relevant laws, regulations, policies, circulars, guidelines, manuals, etc.

applicable during the Review Period (Refer Exhibit 23)33;

3.2.2. Attempted to understand the applicable laws regulations, policies, circulars, guidelines, manuals,

etc. provided by the CBSL in order to outline the compliance requirements for issuance of

Treasury Bonds via Auction & Direct Placements and remittance of funds;

3.2.3. Prepared the checklist to identify instances of deviations, irregularities, lapses, etc., if any, in

the actual processes from the procedures defined under the laws / regulations / policies /

circulars / guidelines / manuals, etc.;

3.2.4. Reviewed the Annual Reports of the CBSL for the Review Period;

28 Refer Exhibit 19 for Statement of Fact signed by Mr. THB Sarathchandra, SPD of the PDD. 29 Refer Exhibit 20 for Statement of Fact signed by Dr. MZM Aazim, Additional SPD. 30 Refer Exhibit 21 for Statement of Fact signed by Mr. S. Pathumanapan, Senior Manager of the PDD. 31 Refer Exhibit 22 for Statement of Fact signed by Mr. NWGRD Nanayakkara, Acting SPD of the PDD. 32 The designation of the employees of the CBSL was considered for the Review Period only. 33 Refer Exhibit 23 for email communication of 15 May 2019 list of applicable laws & guidelines and Memo of 26 July 2019 for providing copies of laws, regulations and guidelines.

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3.2.5. Reviewed the Monetary Board minutes and Board Papers for the Review Period;

3.2.6. Obtained and reviewed the division wise list of employees worked in the PDD during the Review

Period;

3.2.7. Reviewed copies of the following investigation and experts’ Reports pertaining to the issuance of

Treasury Bonds:

A. Presidential Commission of Inquiry Report of 30 December 2017 to Investigate and Inquire

into and Report on the issuance of Treasury Bonds during the period 1 February 2015 to 31

March 2016;

B. The Special Audit Report of 30 September 2016 updated in accordance with the information

discovered up to 23 September 2016 by the Committee on Public Enterprises and the Auditor

General since the release on 29 June 2016 of the Special Audit Report on the Treasury Bonds

issued by the PDD of the CBSL during the period from February 2015 till May 2016;

C. Report of August 2017 issued by SS Ratnayake on examination of policy action and monetary

board decisions on the Treasury Bond issues of the public debt department since 1997;

D. A Report of 31 December 2018, on Market Manipulation on the Placement of Bids Submitted

by and on behalf of Perpetual Treasuries Limited at the Treasury Bond Auction held on 27

February 2015;

E. A Report of 28 February 2019 issued by a Panel of Expert Employees of the Central Bank of

Sri Lanka in relation to the Treasury Bond Auction held on 27 February 2015;

F. Opinion of a Panel of Expert Employees of the Central Bank of Sri Lanka on the Causes, nature

and magnitude of the macroeconomics implications and consequences of the alleged

wrongdoings associated with the Treasury Bond Auction held on 27 February 2015. The

document was dated 8 January 2019;

G. Report, in relation to Magistrate’s Court of Colombo case no. B 8266/18, of 30 January 2019

issued by the Panel of Expert Employees of the Central Bank of Sri Lanka to the Honourable

Attorney General on the Treasury Bond Auction held on 27 February 2015; and

H. Report Forwarded to the Ministry of Finance in terms of Section 43(2) of the Monetary Law

Act, No. 58 of 1949 (2008-2016).

3.3. REVIEW OF DOCUMENTS FOR ISSUANCE OF TREASURY BONDS

3.3.1. Conducted discussions held with the officers of the PDD to obtain an understanding of the

documents involved in the issuance of Treasury Bonds through Auctions and Direct Placements

and remittance of funds;

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3.3.2. Obtained the list of Auctions and Direct Placements from the PDD for issuance of Treasury Bonds.

Based on the details shared, the summary of number of Auctions and Direct Placements of

Treasury Bonds conducted during the Review Period is as under:

TABLE 8: Summary of Auctions and Direct Placements

Period Issuance through Direct Placements

Issuance through Primary Auctions Total Face Value

Number of ISIN

Number of Direct

Placements

Face Value

Number of ISIN

Number of Auctions

Face Value

Feb-2015 to Dec-2015

12 09 87.67 95 36 708.33 796.00

Jan-2016 to Mar-2016

- - - 32 9 235.75 235.75

Total 12 09 87.67 127 45 944.08 1,031.75

3.3.3. Received supporting documents (Refer Annexure 3)34 such as pre-Auction meeting documents

(cashflow requirements from the Treasury Operation Department and minutes of the Domestic

Debt Management Committee (“DDMC”)), bid offers received documents, decision documents of

various committees for Auctions of Treasury Bonds and yield rate structure, issue tickets, Direct

Placement list for each Direct Placements held during the Review Period;

3.3.4. Cross-validated the hard copy documents provided by the PDD pertaining to issuance of Treasury

Bond through Auctions and Direct Placement with the transaction details provided by Information

Technology Department (“ITD”) for the Review Period;

3.3.5. Reviewed the supporting documents for each Auctions and Direct Placements of Treasury Bonds

during the Review Period in order to verify any instance of irregularities in issuance of Treasury

Bonds;

3.3.6. Reviewed the documents for the cancelled Auctions in order to validate the basis of cancellation

by the Tender Board, involved in the decision-making process;

3.3.7. Reviewed documents such as cashflow statement to validate the requirements raised by Treasury

Operation Department and funding of the requirement by the PDD through issuance of Treasury

Bonds, annexures of PCOI and Transcripts;

3.3.8. Reviewed the minutes of meetings of DDMC, Tender Board Meeting and Monetary Board;

34 Refer Annexure 3 for the List of documents for issuance of Treasury Bonds through Auctions and Direct Placements.

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3.3.9. Reviewed original documents of the Auctions and Direct Placements of Treasury Bonds in order

to validate that the same set of documents were provided for review;

3.3.10. Reviewed the cashflow statements received from the Treasury Operation Department and

compared the same with the cashflow statements received by the PDD from the Treasury

Operation Department submitted for review;

3.3.11. Reviewed documents from the PDD where one PDs has placed offers on behalf of another PDs;

3.3.12. Reviewed documents for remittances of funds from each PDs to the PDD current account and

transmitting the same to the account of Treasury Operation Department maintained at DOD of

the CBSL; and

3.3.13. Obtained clarifications from the current as well as erstwhile Superintendents of Public Debt and

authorized Single Point of Contact (“SPOC”) of the PDD for the irregularities / anomalies /

deviations identified in the document review.

3.4. DATA ANALYSIS PROCEDURES

3.4.1. Obtained the Auction and Direct Placement data from the PDD maintained in the AS-400 system

which includes the details such as ISIN, date of Auction, date of settlement, tender amount, offer

price, name of PD;

3.4.2. Obtained the listing of Auction and Direct Placements from the PDD (maintained by Middle Office)

which includes the details such as ISIN, date of Auction, date of settlement, tender amount and

name of PDs etc.;

3.4.3. Obtained the Auction and Direct Placements data from the ITD, maintained in CDS in order to

review the flow of sale of Treasury Bonds in Secondary Market and the CDS data includes the

details such as ISIN, date of Auction, date of settlement, name of buyer, name of seller, quantity

of Treasury Bonds, sale value of Treasury Bonds;

3.4.4. Reconciled the data provided by the ITD and the PDD with the value of issuance of Treasury Bonds

mentioned in the Annual Report of the respective period and documents provided for review;

3.4.5. Obtained clarifications on anomalies noted during preliminary review such duplication of data;

3.4.6. Performed various analysis on the Auction data such as Auction-wise analysis, PDs-wise analysis,

analysis of bids allocation ratio and success ratio for PDs;

3.4.7. Performed graphical analysis on the bids offered by PDs, bids accepted by the PDD for each ISIN

offered in the Auctions;

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3.4.8. Reviewed the audit security logs of AS-400 and CDS in order to identify any modification such as

deletion of bids, change of name of PDs, quantity of bids and the user who made the modification

in the system;

3.4.9. Reviewed the CDS data to identify the bids submitted by originating PDs on behalf of beneficiary

PDs and ascertained the total winning proportion of beneficiary PDs;

3.4.10. Reviewed the Intra-day Liquidity Facility (“ILF”) from the CDS data in order to check whether ILF

was used by PDs to settle the amount of value of bids allocated to such PDs; and

3.4.11. Reviewed the AS-400 data and CDS data in order to verify the value of accepted bids received

from PDs by the PDD were transferred to the Treasury Operation Department.

3.5. PUBLIC DOMAIN SEARCHES

3.5.1. Prepared a list of the CBSL employees, who were responsible for approving the documents in

which anomalies were identified and/or were involved in taking critical decisions with regards to

issuance of Treasury Bonds (hereinafter referred to as “identified employees”);

3.5.2. Performed background check and family mapping to gather details with respect to the business /

professional associations of the identified employees as well as family members, if any;

3.5.3. Reviewed publicly available information for the PDs and its associated:

3.5.4. Reviewed records provided by the Registrar of Companies (“ROC”) (Refer Annexure 4)35 for PDs

to determine the individuals and companies associated with the PDs;

3.5.5. Public domain searches were performed including but not limited to social and professional media

profiling on the identified employees; and

3.5.6. Ascertained association of the identified employees and their family members with PD.

3.5.7. Identify the relationships and associations leading to deviations and irregularities explained in the

Report and causing loss to the Government of Sri Lanka.

35 Refer Annexure 4 for the List of PDs whose documents were received from ROC.

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3.6. DIGITAL FORENSIC

3.6.1. During the review of documents related to Auction and Direct Placement method for issue of

Treasury Bonds, deviation and / or anomalies were noted in the process followed and the

supporting documents maintained. A total of 12 CBSL employees (hereinafter referred to as

“custodians”) (Refer Annexure 5)36 were identified who were responsible for taking decisions

related to Auction and Direct Placement method for issue of Treasury Bonds. The CBSL issued

electronic devices (desktop / laptop computers, iPads and mobile phones, where applicable) to

these custodians that could have been used by them and were identified by the DIT based on the

“Last Log-In details” appearing in the “Active Directory” available. BDO India did not

independently verified the completeness and accuracy of the “Last log-in” information as assessed

by the DIT. The electronic devices identified (hereinafter referred to as “Target Devices”) by the

DIT were physically handed over to BDO India for performing forensic technology / eDiscovery

procedures.

3.6.2. BDO India relied upon the device identification method (based on “Last Log-In” details as per the

“Active Directory”) adopted by the DIT of the CBSL, in the absence of IT Asset register, with a

detailed record of all electronic devices issued by the CBSL and the changes in the devices issued,

if any. It is possible that the identified devices weren’t used by the custodians during “Review

Period” under the TOR-4, as identification of device was based on “Last Log In” details. This

method would identify one (last / latest) machine used by the custodian/s. These machine(s)

could be different from the machine(s) used by the custodians during the Review Period.

3.6.3. Based on discussion with DIT regarding the identified and availability of electronic devices of 12

custodians, a total of 12 Desktops drives, 3 Laptop drives and 3 I-pads were identified for

performing Digital Forensic procedures. Due to non-availability of electronic devices and

possibility of limited information on the available devices, the back-up of available server emails

of the 12 custodians was also obtained and analyzed.

36 Refer Annexure 5 for the List of 12 identified employees and their respective Target Devices along with rationale for their identification.

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The table below is a summary of 18 Target Devices acquired from 12 custodians identified as

relevant for review under the TOR-4:

TABLE 9: Summary of Target Devices identified

# Particular Count

1 Total number of custodians 12

2 Total number of Desktop Hard drives (A) 12

3 Total number of Laptop Hard drives (B) 3

4 Total number of I-pad 3

Total number of Target Devices (A+B+C) 18

3.6.4. Provided below is a list of electronic devices and availability of email backup copies on server

identified (by the DIT) that pertains to the respective custodians:

TABLE 10: Count of Target Devices and server emails back-ups reviewed

# NAME DESKTOP LAPTOP I-PADS SERVER EMAILS TOTAL

1 Mr. Arjuna Mahendran 1 1 2 1 5

2 Mr. P. Samarasiri 1 2 - 1 4

3 Mr. SS Ratnayake 1 - - 1 2

4 Ms. UL Muthugala 1 - - 1 2

5 Ms. CMDNK Seneviratne

1 - - 1 2

6 Dr. MZM Aazim 1 - 1 1 3

7 Mr. THB Sarathchandra 1 - - 1 2

8 Mr. NDYC Weerasinghe 1 - - 1 2

9 Mr. S Obeysekera 1 - - 1 2

10 Ms. LS Fernando 1 - - 1 2

11 Mr. S Pathumanapan 1 - - 1 2

12 Ms. Amila Dahanayake 1 - - 1 2

TOTAL 12 3 3 12 30

Mentioned below is the detailed methodology of procedures taken to perform digital forensic

and eDiscovery procedures (Refer Annexure 40)37.

37 Refer Annexure 40 for list of forensic tools used to perform Digital Forensic / eDiscovery on Target Devices.

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3.6.5. ACQUISITION OF TARGET DEVICES

The Target Devices of 12 Identified CBSL Employees related to the scope of work under TOR-4

were requested from the CBSL, to perform digital forensic / eDiscovery procedures explained as

following:

A. Target Devices were identified by the DIT of the CBSL based on the “Last Log-In” details as

appearing in the Active Directory in absence of IT Asset register and hand-held (mobile)

devices.

B. Target Devices pertaining to the identified custodians, who are the current employees of the

CBSL were acquired directly from the respective custodians with the help of DIT. Executives

of the ITD of the CBSL removed the “storage device” from the desktop / laptop of the

custodians and physically handed over to BDO India, for processing. Storage media (HDD /

SSD) was removed in the presence of the respective custodians and the storage media was

handed over by ITD to BDO India. The handheld devices pertaining to the custodians, who are

the current employees of the CBSL, were identified by the DIT and were handed over to BDO

India.

C. Chain of Custody (“COC”) was documented in respect of each Target Device and maintained

through-out the examination. COC encompasses the custodian details, Target Device details,

time, date & location of handover from the DIT or the respective custodian. COC (Refer

Exhibit 25)38.

D. The DIT or custodian signed-off the COC form after verification of the facts recorded

representing the acquisition of the Target Device and the associated activities performed.

E. Handheld devices were handed over to BDO India by the respective custodians or the DIT in

presence of Executives from IT department. These devices were provided by the CBSL for

review Password (if any) was provided by the custodian for the screen lock and was mentioned

in COC form. Four electronic devices were identified by the CBSL Board Secretariat, as were

issued to Mr. Arjuna Mahendran. During the handover of handheld devices, custodians were

asked to unlock the devices with the password in the presence of the CBSL IT executives.

In case access to iCloud for Apple devices, the custodians agreed to administer the password

whenever required by BDO India. The password details were not captured in the COC as the

custodians rejected to share the same in the COC.

38 Refer Exhibit 25 for copies of COC forms of Target devices for respective custodians.

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3.6.6. IMAGING OF TARGET DEVICES

After the Target Devices were physically acquired from the respective custodian or the DIT,

forensic image39 was created in the manner as explained under:

A. Each hard drive or handheld device provided by the custodian or the DIT was marked uniquely

in respect to the project. Same details were mentioned in the COC form of the respective

identified device.

B. Globally accepted Forensic imaging tools which includes Tableau TX-1, Logicube Falcon, and

Tableau-T35u write blocker and Access Data Forensic Tool Kit Imager were used to create the

forensic image of the Target Devices.

C. During the process of creating forensic image or acquisition of handheld device details such

as case ID, evidence ID, examiner name and unique description was fed to the machine.

D. These details also reflect in Additional log file (Refer Exhibit 24)40 that was generated after

creation of forensic image in case of hard drives. These log files encompass the imaging

details including but not limited to Target Device details, destination details, task date &

time, acquisition & verification hash values (Md5 & SHA-1), details of forensic image and disk

sectors etc.

E. Forensic image created from the respective Target Device was marked as primary evidence

or master copy or original evidence. A duplicate copy of the forensic image was created and

marked as working copy. Original evidence was stored aside after creating a duplicate copy

from it. Further, Digital Forensic / eDiscovery procedures were carried out on the working

copy.

F. Handheld devices were acquired using globally accepted mobile acquisition tool Cellebrite

UFED. Best possible method recommended in the application for acquisition of the Target

Device was adopted.

G. Advanced logical extraction and file system extraction was adopted to acquire target

handheld mobile devices. Information such as but not limited to evidence ID, case ID,

custodian details, device details, acquisition details, tool details and task date & time were

updated in the COC form.

39 “Forensic Image of a device is the bit-by-bit, sector-by-sector direct copy of a physical storage device, including all files, folders and unallocated free and slack space.” (Source: https://whatis.techtarget.com/definition/forensic-image) 40 Refer Exhibit 24 for details of logs generated with forensic image of Target Devices.

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https://whatis.techtarget.com/definition/forensic-image




3.6.7. RETURNING OF TARGET DEVICES

A. After completion of forensic imaging procedure / eDiscovery or acquisition of Target Device

and handheld devices respectively were returned to the DIT or the respective custodian in

the presence of the IT Executives of the CBSL, as the case may be.

B. At the time of returning the Target Device, COC was updated with the required information

including but not limited to date of return, time & location, returned by and recipient name.

Physical condition of the device was also verified by the DIT or the respective custodian at

the time of handing over of Target Device from BDO India to the DIT or respective custodian.

After verification of physical condition of the Target Device and verification of information

on COC, the DIT or respective custodian sign-off the COC.

3.6.8. EXTRACTION OF ELECTRONICALLY STORED INFORMATION

A. Duplicate or working copy was created from the original image which was directly created

from the Target Device. This duplicate forensic image was administered on the forensic

platform to carry out eDiscovery procedures.

B. ESI contained therein the Target Device was extracted using standard OEM provided “Encase

Enscript” which is based on 4641 extensions using Guidance Encase tool.

C. Target Device system information such as Operating System Information (Refer Annexure 6)42,

User account information (Refer Annexure 7)43, and basic information and volume details

about the image (Refer Annexure 8)44 was extracted from the forensic image of the Target

Devices to gather information about the system.

D. In case of handheld device, ESI such as device information, messages and chats, calendar

notes, voice call log were extracted using mobile forensic tool.

E. The extracted ESI was verified to confirm that the extraction is comprehensive. As per

SECTION 3 OF EVIDENCE ORIDNANCE ACT, No. 14 of 1895 “Evidence means and includes –

(a) All statements which the court permits or requires to be made before it by witnesses in

relation to matters of fact under inquiry, such statements are called oral evidence;

41 Extensions used for extraction- doc, docx, docm, dot, dotx,wrd, wpt, wpd, dotm, rtf, pst, ost, dbx, eml, emlx, vcf, msg, otm, oft, ics,msf,nsf,mbox,mbx, bmp, pdf , txt , jpg, jpeg, png, tiff, tif, gif, csv, xlsm, xlsx, xls, xltm, xl, xlsb, xltx, xlb, xlc, xlt, xlk, and xlw. 42 Refer Annexure 6 for details of Operating system information of Target Devices. 43 Refer Annexure 7 for details of User Accounts information of Target Devices. 44 Refer Annexure 8 for Basic information and details of volume of data in reviewed Target Devices.

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(b) All documents produced for the inspection of the court; such documents are called

documentary evidence” As per SECTION 38 OF COMPUTER CRIME ACT, NO. 24 OF 2007,

the term “document includes an electronic record” and “electronic record means,

information, record or data generated, stored, received or sent in an electronic form or

microfilm, or by any other similar means”.

As per SECTION 3 OF ELECTRONIC TRASANCTION ACT, NO. 19 OF 2006 “No data message,

electronic document, electronic record or other information shall be denied legal

recognition, effect, validity or enforceability on the ground that it is in electronic form.”

F. Based on the marked status of presence and user activity on the drive ESI comprised of the

four categories of data, which are as under:

1. ACTIVE DATA: Active data can be defined as ESI stored on the storage device of computer

systems, which can be directly accessed, readily visible to operating system and /

application software that was used to create it and is directly available to users without

un-deletion, alteration, or restoration. It was identified by “Description” property in

“Encase” forensic tool.

2. DELETED DATA: Deleted data comprises of files that are no longer readily accessible to

the user, due to the deletion activity requested by the user. When a file is deleted by

user, operating system only marks them as deleted, but they are physically present on

the hard drive. Deleted data will stay on the drive for as long as it is not overwritten by

the other data.

The overwritten files are the sub-set of deleted files which are overwritten by other files

on its physical location on the hard drive. Deleted and Overwritten files are identified by

the “Description” property in “Encase” forensic tool.

3. CARVED DATA: File carving is the process used to extract data from a disk drive or other

storage devices without the assistance of the file system that originally created the file.

Data extracted through this process is called Carved data and it depends on the

fragments.

On forensic image of the Target Device’s carving was attempted on “all at sector

boundaries” by “X-ways” Forensic tool based on the “recovery by type” option. The

extracted results may contain duplicates as well due to false positive hits or repetitive

attempt to carve the data. The availability / accessibility of the carved files depends on

the size of the original file deleted and respective file built up from the unallocated

spaces by file carving method.

“Recover my Email” forensic tool was used to recover deleted message (if any) and

repairing (if required) of composite email files (.ost or .pst) to the extent possible.

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4. INTERNET ARTEFACTS: Internet artefacts relating to browsing activity, internet banking,

emails and chats and Internet artefact, extraction was performed by using forensic tool

“Magnet Axiom”.

G. The count of files (Refer Annexure 9)45 per extension for the Review Period was determined

based on date of creation. Metadata for the ESI was extracted by means of using “Encase

Enscript”. Details such as the date of creation of file was identified by “File created”

metadata property.

H. The count of files per extension for the Review Period was determined based on date of

creation of the file. The duplicate files were identified based on the “Is Duplicate” metadata

were removed. “Duplicate” metadata for the file was derived from the hash values of the file

computed. In case the hash value of the file was not calculated, stated file was taken as

original. Count of files per extension for the Review Period of TOR-4 was deduced based on

the metadata extracted for the files. The metadata was extracted using “Encase Enscript”

which was based on extensions. Report generated with the help of “Encase Enscript”

encompasses properties of file such as but not limited to file created date, modify date, last

accessed date, marked status of presence on the hard drive i.e. active file or deleted file,

hash computed of the file. Count of file was calculated by following steps provided below:

1. Files were initially filtered based on the “created date” property to determine the files

that were created in the Review Period pertaining to TOR-4.

2. Later, duplicates were removed by filtering the column marked as “Duplicate” and

selecting “No”. File Duplicate “Yes” or “No” was determined on the basis on hash value

computed for the file. If Hash value is not computed for the file, file under stated

condition was assumed as Original file (not a duplicate copy of another file).

3. Files then were filtered out on basis on their presence marked on the device i.e. active

file or deleted file. Files marked in column “Is deleted” or “Deleted” as “Yes” or “No”

were separated and count was taken for active and deleted files.

45 Refer Annexure 9 for the count of files per extensions.

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3.6.9. INDEXING OF DATA:

Globally accepted and standard tools were used to perform indexing of the ESI extracted from

the forensic image of the Target Device. Indexing of the ESI was performed to bring completed

data set of ESI on one single platform and perform keyword searches for each custodian.

Indexed Data comprised of active files, deleted files and carved user files extracted from Target

Device image, server emails provided by the CBSL and recovered email file. Following is the

classification of various indexed files:

TABLE 11: Indexing of Data

To perform keyword searches, extracted ESI was distributed in two types of file formats namely

“searchable file format” and “non-searchable file format”.

The file formats and process of keyword searching on these file formats are as under:

A. In case of “searchable File format” such as word files, excel files, emails, pdf, keyword

searching can be performed by directly searching those identified keywords in respective

data set.

B. In case of “non-searchable file format” such as multimedia files, scanned pdf, images,

keyword searching cannot be performed and accordingly, manual review was performed.

TABLE 12: Summary of available ESI extracted

# CUSTODIAN FORENSIC TOOL ACTIVE ESI46 DELETED ESI47 SERVER EMAILS

1 Mr. Arjuna Mahendran Tableau TX-1 18,326 719 13,374

2 Mr. Arjuna Mahendran Tableau TX-1 18,021 34,530 13,374

3 Mr. P Samarasiri Tableau TX-1 4,682 54,283 11,518



6 Mr. S Ratnayake Tableau TX-1 121,151 526,988 59,704

46 Active ESI comprises of the data which can be directly accessed, readily visible to OS and user. 47 Deleted ESI comprises of data not readily available to the user, due to deletion activity.

# Type of Files Type of Documents

1 User Files • Word documents

• Excel Files

• Notepad Files

2 Email Files • Lotus Notes

• Outlook message files such as msg, eml

• Composite email files such as nsf, ost and pst files

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# CUSTODIAN FORENSIC TOOL ACTIVE ESI46 DELETED ESI47 SERVER EMAILS

7 Ms. CMDNK Seneviratne Logicube Falcon 40,956 219,383 33,806

8 Dr. MZM Aazim Logicube Falcon 24,499 84,195 26,402

9 Mr. UL Muthugala T35u & FTK Imager

31,698 105,842 16,668

10 Mr. THB Sarathchandra Tableau TX-1 15,569 37,368 23,450

11 Mr. NDYC Weerasinghe Logicube Falcon 20,016 56,890 56,253

12 Mr. S Obeysekera Tableau TX-1 13,325 54,231 14,823

13 Ms. LS Fernando Logicube Falcon 20,525 56,903 13,226

14 Mr. S Pathumanapan Logicube Falcon 15,955 354,672 17,102

15 Ms. Amila Dahanayake Logicube Falcon 443,464 803,610 14,998

3.6.10. KEYWORD SEARCHING AND REVIEW

A. After the extracted ESI was indexed on the eDiscovery platform, the data set was filtered in

order to identify relevant document with the help of “keyword”.

B. Keyword search was performed to filter relevant evidence from the extracted data set of ESI

to perform focused review.

C. The final list (Refer Annexure 10)48 of keywords applied to the searchable ESI extracted from

Target Devices incorporate the following:

1. Case specific keywords such as Treasury Bonds, Perpetual, Arjun etc;

2. Custodian specific keywords such as name of custodian, parts of mail address, mobile

number of custodians and email addresses;

3. General Keywords that apply to engagements of this nature such as irregularity,

noncompliance, fraud, investments, confidential etc.; and

4. Other terms suggested by the CBSL vide email communication (Refer Exhibit 26)49 of 23

July 2019.

48 Refer Annexure 10 for the list of keywords along with their rationale. 49 Refer Exhibit 26 for the email of 23 July 2019 for keyword suggestions by the CBSL

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D. In order to conduct the focus and precise review, keywords were created (Refer Annexure

11)50 in consultation with the CBSL based on the document review and information available

in public domain. As data set contains numerous files, keywords help to filter the relevant

data.

After the keywords searching, results were extracted and email communication pertaining to

Review Period51 were reviewed in order to collect the evidence, if any.

E. ESI provided to review manually and based on keyword searches was examined or reviewed

on two levels. First level review of the ESI was done on the complete data set provided after

extraction and keyword searching. The reviewer tags or marks important information or file

in the categories such as Informative, Relevant, Suspicious, Corroborative etc. Relevant

information extracted out from first level review of ESI was again later reviewed as per its

relevance to the case. Thereafter, the observations were incorporated in the Report.

3.6.11. REVIEW OF I-PAD DEVICE

Report of the device was generated which encompasses details such as device information,

message and chats, multimedia files, call records were exported in readable format Report and

reviewed manually.

3.6.12. DEVICES RECEIVED FROM THE CID

A. During the investigation conducted by the PCOI, electronic devices of Mr. Arjuna Mahendran

and Mr. Arjun Aloysius were procured and acquired by the CID. However, the completeness

and authenticity of the copy of digital image acquired by the CID cannot be independently

verified.

B. The copies of the digital image acquired by the CID was also requested and reviewed. The

following are the details of the devices acquired by the CID:

TABLE 13: Summary of digital image copies provided by the CID

# Name of employee of the CBSL

Device Total number of Digital images

1 Mr. Arjuna Mahendran Laptop 1

2 Mr. Arjuna Mahendran i-pad 2

3 Mr. Arjuna Mahendran Mobile phone 2

4 Mr. Arjun Aloysius Mobile phone 1

50 Refer Annexure 11 for the count of keywords for each identified employee of the CBSL. 51 Review Period is February 2015 to March 2016.

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C. The Working copy of the digital image acquired from the CID was created in order to perform

further processing and extraction of ESI;

D. EDiscovery procedures were performed on the working copy of digital image using tool

“Encase”, “X-ways Forensic” in order to extract active and deleted ESI from the digital image

of the laptop of Mr. Arjuna Mahendran; and

E. The Report from the acquired dump of Mr. Arjun Aloysius’s i-phone and Mr. Arjuna Mahendran’s

two mobile phones was generated using “Cellebrite UFED” tool.

3.6. COMPUTATION OF LOSS

3.6.1. Performed data analytic procedures on the Auctions & Direct Placements data and identified the

instances wherein loss had been incurred due to the decisions taken by the Tender Board and the

PDD;

3.6.2. Identified instances that indicates loss caused to the Government of Sri Lanka due to acceptance

of bids offers in Auctions at Weighted Average Yield Rates (“WAYR”) higher than the Secondary

Market yield rates of similar maturity;

3.6.3. Identified instances where debt was raised by the PDD at yield rates different from the yield rate

proposed in yield rate structure at the time of issuance of Treasury Bonds through Direct

Placements;

3.6.4. Ascertained the value of loss where anomalies were identified such as unauthorized issuance of

Treasury Bonds, acceptance of offers after the rejection by higher employees of the CBSL, etc.;

and

3.6.5. Calculated the loss caused through raising debt from Treasury Bond Auctions and Direct

Placements in the above cases and ascertained the minimum and maximum loss caused to the

Government of Sri Lanka.

3.7. REVIEW OF VOICE RECORDINGS

3.8.1. During the discussions, the employees of the PDD informed that the CBSL did not establish the

voice recording system for the fixed lines telephones in the FO. In the absence of this data from

the CBSL, the records available at all the PDs were requested for analysis.

3.8.2. The copies of Voice Record data for the dealer room telephone lines was requested from 16 PDs

to examine the conversations, if any, related to the Treasury Bond issuances through Auctions and

Direct Placements.

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3.8.3. The copies of Voice Record data were requested from PDs, in respect of specific dates selected

based on the anomalies observed during the document review, data analysis procedures and

review of ESI. The Voice Record data in respect of a total of 28 unique dates (152 instances across

different PDs) was requested from the PDs and a total of 51,766 Voice Records were received.

3.8.4. The below is the summary of PD-wise Voice Records data (Refer Annexure 12)52 for the specific

dates requested and received along with the responses from PDs where Voice Record in respect

of the specific dates requested was not available:

TABLE 14: Summary of PD-wise voice record data

# Name of PD Date of Request

Number of

instances requested

Number of instances received

Count of voice records files received

PD Remarks Summary for data non-availability

1 Acuity Securities

12-Aug-2019 7 7 366 -

2 BOC 12-Aug-2019 8 8 2,503 -

3 Capital Alliance

12-Aug-2019 12 12 1,718 -

4 Commercial Bank of Ceylon

12-Aug-2019 10 10 29,715 -

5 Entrust Securities

12-Aug-2019 2 - - Data not received (The Managing agent of the company is not in a position to provide the phone recordings)

6 First Capital 12-Aug-2019 10 10 1,477 -

7 HSBC 12-Aug-2019 3 3 425 -

8 Nat Wealth 12-Aug-2019 - - - System installed on 08.06.2015. No recordings available prior to installation of the system

9 NSB 12-Aug-2019 9 - - Recordings are not available prior to the year 2017

10 Pan Asia 12-Aug-2019 17 - 1,135

11 People’s Bank

12-Aug-2019 8 8 2,200 -

12 PTL 12-Aug-2019 24 - The CBSL have extracted the phone records of PTL from recordings obtained from PCOI, since the company is not

52 Refer Annexure 12 for the PD-wise list of various dates for which the Voice Records were requested.

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# Name of PD Date of Request

Number of

instances requested

Number of instances received

Count of voice records files received

PD Remarks Summary for data non-availability

functioning as of now. (Refer Exhibit 5)53

13 Sampath Bank

12-Aug-2019 1 1 344 -

14 Seylan Bank 12-Aug-2019 17 16 2,346 Partial data provided.

15 WealthTrust 24 24 9,537

Total 152 99 51,766

3.8.5. Provided below is a summary of PD-wise number of Voice Records for the specific dates reviewed:

TABLE 15: PD-wise number of voice records for the specific dates reviewed

# Name of PD Voice record date Count of records

1 PTL 27-Feb-2015 301

26-Oct-2015 46

30-Oct-2015 47

27-Nov-2015 65

15-Dec-2015 92

8-Jan-2016 140

28-Jan-2016 75

5-Feb-2016 161

29-Feb-2016 48

24-Mar-2016 55

29-Mar-2016 26

31-Mar-2016 80

2 BOC 27-Feb-2015 49

3 WealthTrust 10-Mar-2015 120

12-Mar-2015 52

17-Mar-2015 107

28-Jan-2015 43

5-Feb-2016 71

4 Pan Asia 8-Jan-2016 63

29-Mar-2016 71

53 Refer Exhibit 5 for the memo provided by the CBSL regarding the phone recordings requested from the PDs.

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# Name of PD Voice record date Count of records

5 Acuity Securities 8-Sep-2015 84

Total

1,796

*The review was extended on other dates also where irregularities were noted.

3.8.6. Following deficiencies were noted in the quality / properties of the Voice Records provided by the PDs:

TABLE 16: Deficiencies noted in quality/properties of the voice records provided by PDs

# Name of PD (>100 KB) Audible voice

records

Blank voice

records

Voice Records

not working

Inaudible voice records

Partial voice record

1 PTL 811 325 - - -

2 BOC 48 1 - - -

3 Pan Asia 130 4 - - -

4 Acuity Securities 75 9

5 WealthTrust 348 45

Total 1,412 384 - - -

3.8.7. On review of the Voice Record data received from the PDs, certain inconsistencies were noted.

For example, on sample review of the Voice Record data provide by BOC, it was observed that

the same voice record (Different Voice Record number, between the same parties, same duration

and Voice Record content) was retrieved from two different server sources, which show different

date and/or time stamps. Further, instances were noted wherein, for the calls between PDs, the

time stamps of the call at the two PDs appeared different with significant time gap;

Also, on preliminary review of the Voice Record provided by Pan Asia, it was noted that the “file

modified” date appears to be the date of extraction of the data (based on the same date and

time stamp across all the calls stored on the storage medium). Inconsistencies were also noted in

the date and time details captured in the file name wherein the file serial number consistency

did not match with the date and time flow.

In view of above, the accuracy of the assessment of available evidence in the form of Voice

Records received from PDs subject to the following limitations:

A. The Voice Record was collated / compiled by the respective PDs. The data compilation

whether performed from the original source of the record or subsequent copies, is not

independently verified;

B. The details of various applications and tools used if any, by the PDs for the purpose of either

recording or retrieval and storage of the Voice Record and associated technical configurations

and limitations associated, are not known;

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C. The Voice Records provided by the PDs was considered on face value wherein, the verification

as to whether all the fixed lines used for the calls during the Review Period, is not verified.

Further, it is also not known as to if any other Voice Record mechanism is used by the PDs;

D. It is also not verified as to if the calls compiled represent all the calls occurred during Review

Period that pertain to the investments in Treasury Bond transactions in the Primary or

Secondary Market;

E. There is no means to verify the veracity of the Voice Record provided by the PD at every call

record level. The Voice Record provided is considered to be complete conversation in that

record;

F. Confirmation of completeness of the conversation in a voice record is not verifiable through

independent source, in the absence of the voice record system at the CBSL. For the purpose

of review, the duration of the call and the conversation content is assumed to be

comprehensive;

G. Inconsistencies were noted in the date & time stamp captured in respect of certain Voice

Record, when compared to the transaction date & time stamps recorded in the CBSL’s Auction

system. Due to the possible editability of the “client” & “server” system date and time

stamps, it is not possible to establish the relatedness of the calls with precision; and

H. The details of the callers for the Voice Record were not available to identify distinctly, the

calls with the CBSL employees.

3.8.8. Considering the extent of the Voice Record files received and the associated limitations, the

records were selected following the approach detailed below, to identify the relevant evidences:

A. Identified the dates of Auction and Direct Placement transactions wherein occurrence of

“loss” was identified OR irregularities OR inconsistencies were noted during the transaction

/ data review;

B. The Voice Record related to the specific dates were segregated and records were stratified

based on parameters such as (1) call time and (2) call duration;

C. The Voice Records under each of the above stratum were prioritized as following and a

combination of the prioritization was used to select the record for review and identification

of the relevant evidence:

I. Priority-1: Voice Record during the Auction date & time;

II. Priority-2: Voice Record related to the date preceding the Auction date;

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III. Priority-3: Voice Record related to the settlement dated;

IV. Priority-4: Voice Record with call duration (assessed based on file size) more than 5 min

V. Priority-5: Voice Record with call duration (assessed based on file size) between 1min -5

min;

VI. Priority-6: Voice Record with call duration (assessed based on file size) up to 1 min; and

VII. Priority-7: Voice Record related to dates where different PDs were issued securities at

different rates on the same day for the same ISIN.

D. Relevant reference of the voice recordings indicating any flow of price sensitive information,

if any is provided in the respective section. The brief details of relevant voice recordings

(Refer Exhibit 27A and Exhibit 27B) 54 indicating any flow of price sensitive information in

relation to critical Auction dates are as under:

TABLE 17: Details of relevant voice recordings

# Date Time55 Voice Record Reference Form of Evidence

1 27-Feb-2015 10:13 A.M. 20150227100041010E Transcript

2 27-Feb-2015 3:36 P.M. 20150227153335002 Recording

3 30-Oct-2015 10:26 A.M. 53308.WAV Recording

4 30-Oct-2015 3:55 P.M. 53678.WAV Recording

5 30-Oct-2015 4:25 P.M 53725.WAV Recording

6 2-Nov-2015 3:33 P.M. 54171.WAV Recording

7 3-Nov-2015 10:23 A.M. 54558.WAV Recording




11 6-Nov-2015 6:03 PM 20151106 – 090220 – 17584 – 0112206123,

MARK DOCUMENT “C192B” OF PCOI) Transcript



14 2-Dec-2015 11.57 A.M. 63780.WAV Recording

15 2-Dec-2015 12.22 P.M 63806.WAV Recording

16 2-Dec-2015 10.21 P.M. 63632.WAV Recording

54 Refer Exhibit 27A for the CD for the supporting evidence of relevant conversations and Exhibit 27B for the transcripts of the relevant conversations. 55 The date and time record mentioned in the report is based on the date and time stamp appearing in the Voice Record data submitted by the PDs.

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# Date Time55 Voice Record Reference Form of Evidence

17 20-Jan-2016 3:10 P.M 80899.WAV Recording

18 20-Jan-2016 3:10 P.M. 80900.WAV Recording

19 20-Jan-2016 4:17 P.M. 81036.WAV Recording

20 28-Jan-2016 10:16 A.M. 84623.WAV Recording

21 5-Feb-2016 3:35 P.M. 84904.WAV Recording

22 5-Feb-2016 9:07 A.M. 88358.WAV Recording

23 5-Feb-2016 10:17 A.M. 88457.WAV Recording

24 5-Feb-2016 5:27 P.M. 89198.WAV Recording

25 5-Feb-2016 4:10 P.M. 89139.WAV Transcript

26 29-Mar-2016 9:48 A.M. 111064.WAV Transcript

27 29-Mar-2016 10:04 A.M. 111088.WAV Transcript

28 29-Mar-2016 10:38 A.M. 111153.WAV Recording

3.9. REVIEW OF CALL LOG RECORDS

3.9.1. It was obtained that the CID prepared a Forensic Report on Communication Information Analysis

which contained details with regards to the manner in which certain individuals had been

communicating. The Forensic Report was reviewed which mentioned that, basis investigative

findings and evidence led during inquiry proceedings of the Commission a timeline was prepared

indicating the significance of certain days on which interactions were noted.

3.9.2. For the purpose of performing the above-mentioned analysis, the PCOI obtained Call Data Record

(“CDR”) for the period 1 January 2015 – 20 June 2017 from telecommunication service providers

which included Sri Lanka Telecom PLC, Dialog Axiata PLC, Etisalat Lanka (Private) Limited, Bharti

Airtel Lanka (Private) Limited and Mobitel (Private) Limited. The analysis contained in the Report

was based on the data extracted from the mobile phone device of Mr. Arjun Aloysius (Apple

iPhone, IMEI No. 359218075960141, registered mobile number 0777777723) and data obtained

from the telecommunication service providers.

3.9.3. The data received by the CID from telecommunication service providers’ was requested for

independent review and analysis. The details mentioned in the Forensic Report on Communication

Information Analysis and data as obtained of the telecom service providers were reviewed.

3.9.4. The date and time record mentioned in this Report is based on the date and time stamp appearing

in the Forensic Communication Analysis Report provided by the CID and other data provided by

the telecom service providers.

3.9.5. The data was received in Adobe Portable Document Format (PDF) and Microsoft Excel which

included incoming and outgoing SMS and call details.

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3.9.6. A telephone Directory containing contact numbers and usernames was also received from the CID.

3.9.7. Additionally, call log records of the official number used by the below mentioned the CBSL

employees were requested from the CBSL. The following details were obtained for the said

employees, for the Review Period:

TABLE 18: Details of call log records of employees of the CBSL

Employee ID Name of the official

Period Mobile Number Data Received/ Remarks

1678 Ms. MSMP Fernando

5-Aug-2008 – 30-Sep-2015

No official mobile phone issued by the CBSL


1676 Dr. MZM Aazim 28-Aug-2014 – 20-Sep-2015

771548323 1-Nov-2014 to 20-Sep-2015

1693 Mr. S Obeysekera 1-Oct-2015 – 22-Sep-2016



1888 Ms. LS Fernando 15-Jun-2015- 30-Sep-2015



1658 Mr. NDYC Weerasinghe

-




1-Sep-2009 – 20-Sep-2015

777664149 1-Jan-2015 up to 20-Sep-2015

1455 Mr. THB Sarathchandra

21-Sep-2015 – 1-Oct-2017

779765168

21-Sep-2015 up to 31-Dec-2015 1-Jan-2016 up to 31-Dec-2016 1-Jan-2017 up to 1-Oct-2017

1536 Ms. UL Muthugala 1-Jan-2012 – 31-Aug-2016

771291848

1-Jan-2015 up to 31-Dec-2015 1-Jan-2016 up to 31-Aug-2016

- Mr. Arjuna Mahendran

26-Jan-2015 – 30-Jun-2016

94777992244 Oct-2015 to Jun-2016

94777992288 Oct-2015 to May-2016

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3.9.8. The data received from the CID and the CBSL was reviewed and mapped with the Auctions for the

issuance of Treasury Bonds wherein PDs was benefitted during the Review Period and also to

understand the nature of relationship between various CBSL employees, considering the time and

duration of the conversations between them. (Refer Annexure 13)56

3.9.9. The regular conversations between the CBSL employees were noted during the official timings. A

few conversations between them occurred outside the official timings; however, no irregularities

were identified with regards to the issuance of Treasury Bonds on the said dates and hence the

communication was not analyzed.

3.10. REVIEW OF TRAVEL DETAILS

3.10.1. The travel details including (local and foreign travel) of the identified employees of the CBSL was

requested from the client to ascertain if the employees had travelled together in the past for

personal/ official purpose.

3.10.2. The details were reviewed to establish if there was any close association between the employees

which could have resulted in taking critical decisions in their personal interest.

3.10.3. The details received were related to the foreign travel of the CBSL employees in their professional

capacity. No anomalies were noted with regards to the travel undertaken by them.

3.11. REVIEW OF BANK ACCOUNT DETAILS

3.11.1. The bank account details of the 16 PDs was requested from the CBSL during the Review Period to

uncover if there were undue amount transfers made to any identified CBSL employees. The data

was received for the below mentioned 13 PDs and its related companies.

TABLE 19: Details of the bank accounts of PDs and related companies

# Name of PD Number of accounts Data Received

1 Acuity Securities Limited 10 2009 – 2019

2 BOC 2 2010 – 2016

3 Capital Alliance 26 2002 – 2019

4 Commercial Bank 2 2002 – 2010

5 Entrust Securities 12 2002 – 2018

6 First Capital 49 2002 – 2019

7 HSBC 1 2013 – 2017

8 NSB 14 2005 – 2019

56 Refer Annexure 13 for the list of call log records between PDs and employees of the CBSL.

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# Name of PD Number of accounts Data Received

9 Natwealth Securities Limited 1 2013 – 2019

10 PTL 18 2002 – 2016

11 Sampath Bank 2 2002 – 2012

12 Seylan Bank 2 1999 – 2016

13 WealthTrust 3 2011 – 2019

3.11.2. A list of bank account numbers of the identified CBSL employees was made available by the CBSL.

Additionally, during an ESI review conducted on the official device(s) of the respective

employees, several account numbers were obtained. A list of bank account numbers was prepared

for each official and mapped against the bank statements obtained for the PD to uncover if any

money transfer has been done.

3.11.3. During the review / mapping, no amount transfer was noted from any PD to the identified CBSL

employees, in the above stated period for which the data was available.

3.11.4. The bank account details of the identified CBSL officials, pertaining to the Review Period, were

obtained through the Court Order to identify if there were undue amount transfers made to any

bank account of PD. During the review of available bank account statements of identified CBSL

officials, no anomalies were noted.

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4. PROCESS UNDERSTANDING

4.1. BACKGROUND

4.1.1. The CBSL functions as the fiscal agent of the Government of Sri Lanka and holds the responsibility

for issuing Government securities to fulfil the future cash requirements of the Government of Sri

Lanka as notified by the Treasury Operation Department from time to time. Under Section 113 of

the Monetary Law Act, the CBSL as agent of the Government of Sri Lanka, has been charged with

the responsibility for the management of the Public Debt.

4.1.2. The Monetary Board, vide meeting of 14 February 1997, recommended the Government of Sri

Lanka for Auction of Treasury Bonds through PDs from March 1997 (Refer Exhibit 28)57 .

4.1.3. In accordance with the provisions of the Registered Stock and Securities Ordinance58, the Central

Bank of Sri Lanka have the authority to take any action necessary for the issue and trading of

scripless Treasury Bonds.

4.1.4. PDs are Direct Participants in the settlement systems operated by the CBSL. As per the

Operational Manual of the PDD (Version 2 updated as of 31 July 2013):

“The Primary Dealers (PDs) are dedicated intermediaries appointed by the Monetary Board of

CBSL to deal in Government securities.” And Primary Dealers “are expected to support the

primary issuances of Government securities through underwriting/ bidding commitments,

success ratios, (future) and improve Secondary Market trading system, which would contribute

to price discovery, enhance liquidity, turnover and encourage holding of G- Sec amongst a wider

investor base, which will eventually contribute in achieving the Government objective of low

cost borrowings at a prudent level of risk.”

4.1.5. There were 16 Institutions (Refer Annexure 14)59, which had been registered as PDs during the

period from February 2015 to March 2016. In addition to these, the EPF was also permitted for

purchase of Treasury Bonds from Primary Market60.

57 Refer Exhibit 28 for the extract of minutes of Monetary Board meeting of 14 February 1997. 58 Incorporating amendments up to 31 December 2004. 59 Refer Annexure 14 for the list of 16 PDs along with their current status. 60 As per Report issued by Auditor General of 30 September 2016.

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4.1.6. The Monetary Board of the CBSL established the PDD61, for raising of funds to meet the fund

requirements of the Government. As per the Operational Manual of the PDD (Version 2 updated

as of 31 July 2013), the PDD performs the following functions:

1. Servicing the debt obligations;

2. Enhancing the safety of investors of the Government securities;

3. Broadening and diversifying foreign investor base in the Government securities; and

4. Ensuring the transparency in Public Debt management.

4.1.7. Based on discussion with employees of the PDD and information gathered through review of

Reports of internal investigations and expert opinion Reports62 made available by the CBSL (as

mentioned in Section 3.2.7 of the Report), it is understood that Treasury Bonds are generally

issued for maturities of more than one year with the face value of Rs. 100. The CBSL adopts

following two methods63 for issuance of Treasury Bonds:

A. Auction: It is the system where bids are invited from PDs by publication of a notice for the

issuance of Treasury Bonds. The Auction is conducted through competitive multiple price64

bidding and bids are accepted at reasonable interest rates with the aim of fulfilling the cash

requirement of the Government.

B. Direct Placement: It is the system whereby issuance of Treasury Bonds are made to a single

buyer or limited number of buyers without a public offering. Under this method, Treasury

Bonds are issued to PDs and captive sources.

4.2. PROCESS OF ISSUANCE OF TREASURY BONDS

4.2.1. The understanding of the process for issuance of Treasury Bonds, as it existed throughout the

Review Period, was obtained through review of copies of “Public Debt Department Operational

Manual (version 2, updated as of 31 July 2013)” (“PDD Operational Manual”) and corroborated

through discussions with the designated current and previous employees of the PDD. The final

process documents65 for issuance of Treasury Bonds vide Auction as well as Direct Placement were

signed by the designated current and previous employees of the PDD. The subsequent analysis of

policy guidelines, deviations and loss computations is based on the same as explained in the

subsequent Sections. (Refer Section 5 and Section 6 of the Report)

61 As per Section 33 of the Monetary Law Act incorporating amendments up to 30 June 2014. 62 Refer Section 3.2.7 of the Report for the list of reports provided by the CBSL. 63 Refer Para 4.1 of the Report issued by Auditor General’s Department on 30 September 2016. 64 “Multiple price bidding means where each successful bidder pays the price stated in the bid” (Source: Registered Stock and Securities Ordinance-6th Revision). 65 Refer Exhibit 8 to 14 for copies of signed process documents.

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4.2.2. As per PDD Operational Manual, the PDD consists of six divisions which are responsible for carrying

its functions:

A. Front Office (“FO”);

B. Middle Office (“MO”);

C. Back Office (“BO”);

D. Central Depository System (“CDS”);

E. Supervision Division (“SD”); and

F. Support Services Division (“SSD”).

4.2.3. The activities pertaining to issuance, accounting and analysis of Treasury Bonds were performed

by FO, MO and BO while the activities pertaining to support services, supervision services and

recording of securities were performed by CDS, SD and SSD. A brief description of activities

performed by FO, MO and BO for issuance of Treasury Bonds, as per PDD Operational Manual is

synopsised below:

A. FO of the PDD was responsible for planning the mobilizing required funds for the Government

at the lowest possible cost with reasonable degree of risk through implementation of the

domestic borrowing programme approved by the Monetary Board;

B. MO was responsible for performing analysis of debt dynamics for risk management on public

debt in order to ensure best practices of efficient public debt management. It also obtains

and updates master database and daily report (Secondary Market yield rates); and

C. BO made service payments (principal and interest) on domestic debt raised by the PDD and

foreign debt raised by the Government.

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4.2.4. The process of issuance of Treasury Bonds during the Review Period is explained by way of the

following flow-chart:

The above-mentioned activities performed as part of the public debt raising process, as

explained by the PDD is summarised in subsequent Sections of the Report.

4.2.5. RECEIPT OF FUND REQUIREMENT FROM THE TREASURY OPERATION DEPARTMENT

Chapter XVII of the Constitution of the Government of Sri Lanka forms the foundation of

Parliament’s power over all the public finances. The process for deciding and raising the cashflow

requirements corroborated by discussion with Treasury Operations Department are as under:

A. The Ministry of Finance, the Government of Sri Lanka, prepares estimates of revenue and

expenditure with the help of other departments and agencies functioning under them;

Receipt of fund requirements from Treasury Operation

Department

Preparation of Monthly Borrowing Plan by DDMC

Issuance of Treasury Bonds

Auction

Receipts of Bids from PDS and Evaluation of offers by TEC

Decision by the Tender Board, Approval from the Governor and

Press Release

Direct Placement

Two-way communication with PDs and other institutional investors and negotiation of yield rates

Acceptance of offers after approval from SPD and DGParl

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B. The Treasury Operation Department considers these estimates in rationalising the

requirement of debt funding and prepare the Debt Repayment and Borrowing Program for the

respective fiscal year;

C. The MO of the PDD keeps track on the Government Borrowing Programme, maintains the

domestic debt database and the foreign debt database. They provide the estimates of public

debts maturity and service obligations for the next month to the Treasury Operations

Department;

D. The Treasury Operation Department provides the cashflow requirement to the PDD on a

monthly basis, which includes amount of debt funding66 required by the Government mainly

for next month after considering the forecast of total revenue and expenditure (recurrent

expenditure, capital expenditure and debt service costs) in that month;

E. The monthly cashflow Statements are provided by the Treasury Operations Department in the

hard copy formats to the CBSL. The monthly cashflow Statements are also provided to the

employees of the FO of the PDD through emails by the employees of the Treasury Operations

Department;

F. The debt to be raised by the CBSL during the month is specified along with the instrument

type (Treasury Bonds, Treasury Bills, Sri Lanka Development Bonds, and other instruments)

in the cashflow statement;

G. In case of fund requirements for administrative purposes and other ad-hoc matters, separate

request in written form is made by the Treasury Operations Department. The instructions

received from the Treasury Operations Department or Deputy Secretary to the Treasury

(“DST”) included the purpose of the relevant administrative issue, the amount to be issued

in Treasury Bonds, the maturity period of the Treasury Bonds to be issued, the yield rate at

which the Treasury Bonds to be issued;

H. The CBSL cannot raise any additional funds over and above the requirements stated in annual

borrowing plan. The borrowings created at any point in time should not exceed the limits

approved in annual borrowing plan approved by the Parliament of the Government of Sri

Lanka;

I. Prefunding the requirements of the Treasury Operation Department by the PDD is undertaken

based on multiple factors including favourable market conditions, interest cost in the period,

market liquidity and the limits approved in the annual borrowing plan for a fiscal year;

J. Based on the discussions with Treasury Operations Department, it was explained that

prefunding cannot be done based on unilateral decision of the CBSL and concurrence is

required from the DST or the Director General of the Treasury Operation Department;

66 This requirement cannot exceed the limit specified in the Appropriation Act.

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K. Any shortfall in raising funds against the requirements raised by the Treasury Operation

Department due to unfavourable market conditions, is required to be communicated to the

Treasury Operation Department in writing and these shortfalls are then met by through other

methods of funding;

L. It was also clarified by the official of the CBSL that FO of the PDD provides the details of

operations of the PDD such as value and offers of Treasury Bonds issued through Auctions and

Direct Placements on daily basis; and

M. During the Review Period, the Treasury Operation Department provided aggregate fund

requirements of Rs. 1,259,424 Million (Refer Annexure 15)67 to the CBSL to be raised through

Treasury Bonds.

4.2.6. FRAMEWORK OF DDMC

The cashflow requirement received from the Treasury Operation Department is discussed by FO

of the PDD with DDMC on monthly basis. The administration, functions and operations of the DDMC

are as under:

A. The Monetary Board, at its meeting on 5 November, 199968 decided to appoint the DDMC in

order to improve domestic debt management strategies;

B. As per the PDD Operational Manual, the DDMC69 consists of 6 (six) members and this

Committee reports to the CBSL Governor through the Deputy Governor (“DG”) overseeing the

PDD and also report to the Secretary to the Treasury of the Government of Sri Lanka. The

constitution of DDMC is explained as under:

1. Superintendent of Public Debt (the Chairman);

2. Director, State Accounts Department MOF (Member);

3. Director, Domestic Operation Department (Member);

4. Director, Economic Research Department (Member);

5. Director, Statistics Department (Member); and

6. Additional Superintendent of Public Debt (Member, Secretary)

67 Refer Annexure 15 for the month wise cashflow requirement provided by the Treasury Operation Department for the Review Period. 68 As per Appendix (FO-1) of the PDD Operational Manual version 2 Updated as of 31 July 2013. 69 As per Appendix (FO-1) of the PDD Operational Manual version 2 Updated as of 31 July 2013.

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C. As per Directions from the Monetary Board, a representative from the Treasury Operation

Department is required70 to participate in the monthly meetings of DDMC to discuss the

Monthly Borrowing Program for the subsequent month.

D. The roles and functionalities of the DDMC are as following:

1. Decide on the borrowing programme in the immediate future considering the cashflow

requirements of the Treasury Operations Department while adhering to budgetary limits

and market developments; and

2. Determine the bid series consisting volume, composition and the maturity structure of

the issues of domestic public debt to meet the requirements.

E. The monthly borrowing programme determined by the DDMC for the following month consists

of details such as date of proposed Auctions / Direct Placements, value of Auctions and

maturity period71. This monthly borrowing program is approved in the DDMC meeting by its

members and the DG overseeing the PDD through the AG overseeing the PDD72 prior to the

final approval of the Governor of the CBSL.

F. The DDMC73 should prepare the monthly borrowing programme one week prior to the

beginning of each month for the forthcoming month on the basis of:

1. Approved annual borrowing programme;

2. The cashflow requirements of the Government for the prospective month obtained from

the Treasury Operations Department; and

3. Resources available in the market.

G. There is possibility of deviations from the monthly borrowing program defined in the DDMC

meetings and cashflow requirement received from the Treasury Operation Department such

as swapping of instrument type depending on the market conditions and appreciation

/depreciation of the currency. However, such changes are subject to the concurrence from

the DST or the Director General of the Treasury Operation Department.

H. The minutes for the DDMC meeting are circulated, in hard copy, to the Treasury Operation

Department for approval, within a reasonable time, post the monthly meeting.

70 There was a period from late 2013 up to March 2015 wherein no representative from the Treasury Operation Department attended the DDMC meetings. 71 The maturity of ISIN was included as part of the DDMC Borrowing Programme as per the PDD Operational Manual of 2007. 72 There was no reference of approval from designated employees in the PDD Operational Manual and it was understood from discussion with employees of the PDD at the CBSL. 73 As per the PDD Operational Manual version 2 updated as of 31 July 2013.

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4.2.7. RAISING OF FUNDS THROUGH ISSUANCE OF TREASURY BONDS

After the DDMC prepares the monthly borrowing programme / schedule and decides the details

of Auction and Direct Placements, then FO of the PDD proceed with the issuance of Treasury

Bonds. The detailed process for Auctions and Direct Placements is as under:

A. AUCTION OF TREASURY BONDS

1. The PDD, in consultation with the Treasury Operations Department, issues an indicative

half-yearly Auction calendar which contains information about the tenor of the Treasury

Bonds and the dates on which the Auctions will be held74. It was noted that although the

same was prepared and discussed with Treasury Operations Department, its

implementation was not strictly followed and the same was used for budgetary purposes

only.

2. Based on the Directions of the DDMC, the FO of the PDD along with the SPD, identify the

International Securities Identification Numbers (“ISIN”) to be offered considering the

following factors:

a. Coupon Rate of ISIN:

The ISINs with coupon rates similar to or higher than the rates prevailing in the

secondary market are preferred to other ISINs.

b. Bunching:

Bunching is a phenomenon where a ceiling is decided on the accumulated face value

of ISINs already issued and traded in the Secondary Market. Any new issues or re-

issues using the ISINs beyond the ceiling limit are not favored. The ceiling of an

outstanding face value of a particular ISIN depends upon the size of the economy and

the market conditions. As per discussion with former SPD of the PDD, the ceiling is

generally considered as approximately 1% of the prevailing Gross Domestic Product /

Economy size. On discussion with Mr. SS Ratnayake, it was informed that ceiling of

outstanding face value of a particular ISIN amounts to Rs. 200 billion. However, there

are no written guidelines for defining the ceiling of an ISIN.

74 This practice of preparation of Auction calendar was established under the PDD Operational Manual of 2013 v2 updated as of 31

July 2013 and continued till the end of the Review Period.

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c. Repayment and Interest payment cycle:

The existing burden and repayment cycle (due dates) for a particular ISIN in the given

period are considered for determining which ISINs issued.

d. Fund Requirement of Treasury:

The number of ISINs offered to the market participants depends on the fund

requirement of the Treasury.

e. Liquidity:

ISINs of greater liquidity, not only based on outstanding value but also on the basis of

well diversified investor holdings, are issued at comparatively lower yields vice versa

low liquid ISINs.

3. Generally, the amount offered by the PDD under each ISIN offer is less than the required

value mentioned in the DDMC borrowing plan. The rationale for such action for less

amount is that the bid price for small offered value is better as compared to large values

and it helps in minimizing the cost of raising the funds.

4. After the finalisation of Auction details, advertisement on the website of the CBSL and

newspaper is published in three languages. Thereafter, on the scheduled date, Auction

starts at 8:30 a.m. and the bidding process closes at 11:00 a.m. and the bids are entered

by PDs and the EPF through electronic bidding system maintained in “AS-400” system.

5. In the event, when a PDs is unable to enter bids into electronic bidding system, the PDD

could either extend the closing time of the Auction or enter such bids as approved by the

SPD / ASPD. Such transmitted bids cannot be edited or withdrawn by PDs after informing

it to the PDD.

6. The request for manual bids is made by the PD through a phone call to the FO during the

Auction time i.e. prior to 11:00 AM, also accompanied by a fax from the authorized

representative of a PD after closure of the Auction which is documented as ‘Tender

Forms’. The faxes were generally received within 5-10 minutes after closure of Auction

or before in the event of system access break down / technical problem. The main screen

of the AS-400 system interface appears as:

a. Enter/ Edit Auction announcement; b. View Bids; c. Enter/ Edit Bids; d. Print bids classified under dealer; e. Print Bid highest –price first; f. View results; g. Print results; h. Change Password; and i. Exit

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7. The bids could be reviewed immediately after Auction time is closed. The FO extracts bid

received sheets from the system and send these details to designated employees of the

PDD for evaluation of the various bids provided by the PDs (hereinafter called as

“Technical Evaluation Committee”).

8. The Technical Evaluation Committee (“TEC”)75 of the PDD evaluates the bids and provides

various options for raising funds based on the previous Auction rates, WAYR and Secondary

Market rates.

9. After the closure of Treasury Bond Auction and bids evaluation is done by TEC of the PDD,

FO submits following information / documents to the Tender Board:

a. Summary report giving different types of options with different combinations of cut-

off rate / WAYR including the departmental recommendation based on the existing

market conditions. This report also includes results of the previous comparable

Auction and bid details of the current Auction.

b. Analyse details of primary and Secondary Market yield rates and the prevailing yield

curve.

10. The formation, functions, operations and administration of the Tender Board is as under:

a. The Committee of Tender Board76 consist of the following members:

i. Deputy Governor, In-charge of the PDD (the Chairman);

ii. Assistant Governor, In-charge of the PDD (Member);

iii. Superintendent of Public Debt (Member);

iv. Director, Domestic Operation Department (Member);

v. Director, Economic Research Department (Member); and

vi. Additional Superintendent of Public Debt (Secretary and Member).

b. The Tender Board report to the Governor and required to meet after closing of every

Treasury Bond Auction.

c. The objective of Tender Board is to determine the maturity-wise volume to be issued

and the cut-off rate to accept Treasury Bonds at each Auction considering the

developments in the market and Treasury’s borrowing requirements while adhering

to monetary policy requirements of the CBSL.

75 There was no reference of members of TEC in the PDD Operational Manual and it was understood from the discussion with FO of the PDD. 76 As per (Appendix FO-12) of PDD Operational Manual version 2 Updated as of 31 July 2013.

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d. The Tender Board takes decisions on the amount to be accepted that gives the lowest

and optimal cost and risk combination. Generally, it accepts funds higher than the

offered value to meet any shortfall or expecting increase in future yield rates.

11. The Tender Board discuss the existing liquidity position of the market, current Secondary

Market yield rates and market perceptions, current monetary policy and cashflow

requirements of the Government in deciding the optimal option for an Auction.

12. The Tender Board compare WAYR of the bids placed during current Auction with the

prevailing Secondary Market yield rates of similar maturities, WAYR of corresponding

previous Auction.

13. The final decision of the Tender Board is submitted for the information and approval of

the Governor of the CBSL.

14. After the approval from the CBSL Governor, results are published by the PDD through an

official Press Release indicating the ISIN, WAYR, the value offered, bids received, bids

accepted, etc. in the Auction.

B. DIRECT PLACEMENTS OF TREASURY BONDS

In case the DDMC decides to raise funds through Direct Placements against the cashflow

requirements of the Treasury, the process is as under:

1. As per the Operational Manual of the PDD (Refer Exhibit 29)77, FO has to make

arrangements to meet financing need as much as possible through Auctions. The balance

fund requirements of the Government as indicated in the approved Borrowing Program

may be arranged through Direct Placements with PDs and any other institution approved

by the Monetary Board.

2. In 2008, the Monetary Board approved the issuance of Treasury Bonds by way of Direct

Placements only to the EPF and the “Other Captive Sources”78. The Monetary Board has

not specifically approved accepting Direct Placements from PDs other than the EPF and

Captive sources. However, from 2008 onwards, the PDD started accepting Direct

Placements from PDs other than the EPF and “Other Captive Sources” and this practice

of accepting Direct Placements from PDs has never been questioned by the Monetary

Board.

77 Refer Exhibit 29 for the Operational Manual of PDD updated as of 31 July 2013. 78 Vide the Monetary Board meeting held on 7 January 2008.

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3. From the period of October 2012 onwards, a yield rate structure (price approval list) is

prepared by the FO of the PDD after discussion with SPD, ASPD and DSPD on a weekly

basis for the reference of ISINs preferred for proposing the rates and issuing to the

market.

4. There are no written guidelines79 identifying the ISINs for which rates were proposed in

the yield rate structure and the ISINs offered in the market during a particular issue. The

SPD in consultation with the employees of the FO of the PDD determines the ISINs to be

offered in the market considering the factors such as Coupon Rate of ISIN, Bunching,

Repayment and Interest payment cycle, Funds Requirement of the Treasury Operations

Department and Liquidity, etc.

5. The above yield rates for issuance of Treasury Bonds through Direct Placements are

arranged equal to or below the WAYR of the most recent Auction of similar maturity.

When there is no corresponding Auction for instrument, the prevailing Secondary Market

yield rates are applied with the consent of the Governor of the CBSL or SPD. An approval

on the final yield rate structure is obtained by SPD from the DG through the AG overseeing

the PDD on the date on which such yield rate structure is prepared80.

6. At times, spread over the referred rates are used as the volume-based inducements which

are offered to the participants upon subscribing to particular ISIN. The volume-based

inducements’ spread was the basis points provided in the yield rate structure depending

on the market conditions and the fund requirements of Treasury. The PDs subscribed in

the ISINs with the rates over and above the approved rates but within the spread of basis

points as provided in the structure. The SPD had discretion to accommodate the fund

requirements of Treasury within the approved yield rate and the approved inducements.

7. Thereafter, on proposing the yield rates in the yield rate structure, ISINs to be offered in

the market are determined by SPD among the ISINs for which yield rates are proposed.

The demand of a particular ISIN and its tradability in the Secondary Market plays a vital

role in determination of the ISINs to be offered for the respective Direct Placements.

8. Thereafter, two-way communications take place between the FO and PD regarding the

quantity, value and yield rate of the Treasury Bonds. There are no formal announcements

made for the issuance of Treasury Bonds through Direct Placements. The market

participants are aware that the funds would be accepted by way of Direct Placements

79 Vide discussion of 10 June 2019 with Superintendent of the PDD. 80 As per the PDD Operational Manual version 2 updated as of 31 July 2013.

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after the Auctions.

9. The calls are primarily placed by the FO mainly to the state banks the EPF & ETF. The PD

calls the employees of the FO to check on the rates of the ongoing Direct Placements

issues and selection of parties is based on “First Come, First Serve” basis. There are no

written guidelines for the selection of parties for raising funds through Direct Placements.

The issuance through Direct Placements are open for all the participants of the Primary

Market.

10. In addition to the above, issuance of Treasury Bonds through Direct Placements is made

against the requests received from the Treasury for their “Administrative requirements”.

Such Direct Placements involve issuance of Treasury Bonds to designated PD as instructed

by the Treasury and generally includes state banks. The Treasury provides following

details for the purpose of administrative requirements:

a. Name of the PDs;

b. Amount to be issued;

c. Tenor; and

d. Yield Rates (If no yield rates were provided, yield rates in the Secondary Market were

considered for the purpose of determining yield rates)

11. After closing the negotiations for regular as well as administrative fund requirements, the

FO generates Issuance Tickets by entering the data fields from the Direct Placement list

and the request from treasury for administrative requirements, to a stand-alone

computer system. The verbal approval of the SPD is obtained on such Issuance Tickets.

The exceptional approval is obtained from the DG overseeing the PDD on verbal basis

depending on the situation.

12. After recording the deal details in the Direct Placement list, details were recorded in the

requisite fields of Direct Placement stand-alone computer system in order to generate

the Issuance Ticket. Issuance Ticket comprises of the following information:

a. Name of the PDs;

b. Name of the Chief Dealer of market participant;

c. Yield Rate of the Treasury Bond offered (Before tax / After tax);

d. Price of the Treasury Bond offered (Before tax / After tax);

e. Face Value of the Bond;

f. Accrued interest;

g. Tax amount;

h. Total amount payable;

i. Placement arranged on date (“Transaction Date”); and

j. Settlement date

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13. The date on which details are entered in the stand-alone computer system from the Direct

Placement list to generate the issue ticket is produced by the system and is displayed at

the bottom of the issue ticket as “Placement arranged on” date. Vide discussions of 29

July 2019 with Mr. SS Ratnayake, the “Placement arranged on” date is considered as the

deal date for the purpose of comparison with prevailing Secondary Market yield rates.

14. The issuance of Treasury Bonds through Direct Placements generally settles either on the

same day i.e. T+1 basis or within five days i.e. T+5 basis.

15. After verbal approval of the SPD on the Issuance Ticket, a fax is provided to the respective

PD for confirmation of the quantity, price and value of Treasury Bonds. The copy of the

Issuance Tickets is handed over to MO, BO and CDS divisions of the PDD for subsequent

processing to be performed on the settlement date.

16. The Placement details are then entered from the Issuance Tickets into the computer

system known as ‘Placement System’ (operating on the AS-400 platform) for generating

the ‘Direct Placement Report’. The approval of DG overseeing the PDD is obtained on the

Direct Placement Report through the AG overseeing the PDD, SPD and ASPD.

17. Daily information of Direct Placement transactions is submitted to the DG overseeing the

PDD, through AG overseeing the PDD for final approval and information. In that Report,

transaction wise name of the PD or the captive sources, ISIN, yield rate and the amount

are reported. Further, at the end of each month, transaction wise details of given month’s

Direct Placement details are reported to the Governor through the implementation plan.

4.2.8. ISSUANCE OF SECURITIES AND REMITTANCE OF FUNDS TO THE ACCOUNT OF THE TREASURY

OPERATION DEPARTMENT

Upon finalisation of accepted offers from Auction / Direct Placement, FO forwards the list of

accepted offers to the BO. The process of issuance of securities and remittance of funds to the

Treasury Operation Department, as per the PDD Operational Manual, Lanka Settle System Rules

and discussion with the CBSL personnel (PDD and DIT) is as under:

A. After the details of successful bids are entered in AS-400, a Securities Settlement Instruction

is created containing the details - Participant Name, Account Type, Beneficial Owner (if

applicable) and ISIN.

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B. The LankaSettle Secure System (“LSSS”)81 automatically creates “Securities Account” based

on the information contained in each Securities Settlement Instruction as required according

to the criteria above. Each PDs also has a “Settlement Account” in Real Time Gross Settlement

(“RTGS”) System.

C. The settlement of scripless Government securities in Scripless Securities Settlement System

(“SSSS”) take place on Delivery versus Payment basis (“DVP”) on the date of settlement of

Auction / Direct Placement. The DVP settlement is made only if there are sufficient funds

and securities are available in the Settlement Account and Securities Account respectively.

D. On the settlement date, scripless securities are transferred to successful PDs with the

corresponding fund transfer from settlement account of PDs in RTGS system to the PDD

current account. This transfer of holdings of scripless securities is recorded electronically in

the Central Depository System.

E. The transaction-wise details as per AS-400 and CDS are compared for the Review Period for

Auction (Refer Annexure 16)82 and Direct Placements (Refer Annexure 17)83 . However, no

anomalies are noted in transfer of securities from the PDD to each respective PDs on each

respective settlement dates and recording of the same in the SSSS.

F. Once the funds are received in the current account of the PDD, BO collects the PDs wise

allocation information from FO. The net settlement statements are prepared by BO based on

the information provided by FO and shared vide fax to each successful participant.

G. For the purpose of crediting funds to the account of the Treasury Operation Department, BO

creates “GLS Data Input Sheet” indicating the amount to be transferred to Deputy

Superintendent of Treasury and a copy of this “GLS Data Input sheet” is forwarded to DOD”.

H. Based on “GLS Data Input Sheet” received from BO, DOD enter journal entry in the accounting

software “I-Glass” by debiting PDD current A/c and crediting the account of Deputy

Superintendent of Treasury. Thereafter, the funds are transferred to the account of Treasury

Operation Department.

81 SSSS and CDS are the main elements of LSSS architecture. SSSS facilitates the settlement of transactions in Scripless securities and CDS records ownership (title) of scripless securities. 82 Refer Annexure 16 for the details of settlement of funds and securities in AS-400 and CDS for Auctions. 83 Refer Annexure 17 for the details of settlement of funds and securities in AS-400 and CDS for Direct Placements.

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I. Upon comparing the transaction-wise amount receivable from participants as per AS-400

records with the transaction recorded in the “I-Glass” software for Auctions (Refer Annexure

18)84 and Direct Placements (Refer Annexure 19)85 no anomalies are noted in remittance of

funds from each PDs to the PDD current account and transmitting of the same to the account

of Treasury Operation Department maintained at DOD of the CBSL.

4.2.9. The following is the quantum of Treasury Bonds issued through Auctions and Direct Placements

during our Review Period:

TABLE 20: Quantum of Treasury Bonds issued (Amount in Rs. Billion)

Period Issuance through Direct Placements

Issuance through Primary Auctions

Total Face Value

Number of ISIN

Number of Placements

Face Value Number of ISIN

Number of

Auctions

Face Value

Feb-2015 to Dec-2015

12 09 87.67 95 36 708.33 796.00

Jan-2016 to Mar-2016

- - - 32 9 235.75 235.75

Total 12 09 87.67 127 45 944.08 1,031.75

4.2.10. The detailed examination of the process of issuance of Treasury Bonds and anomalies noted is

explained in subsequent sections of this Report.

84 Refer Annexure 18 for the details of fund transfer to DST on settlement date for Auctions. 85 Refer Annexure 19 for the details of fund transfer to DST on settlement date for Direct Placements.

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DETAILED OBSERVATIONS

The detailed observations in subsequent Sections of the Report are based on the understanding of

activities performed by the PDD in raising the public debt as required by the Treasury Operation

Department. Refer Section 4 of this Report for the detailed overview of the activities performed by the

PDD.

The Section-wise bifurcation of the detailed observations in the subsequent Sections of the Report is as under:

TABLE 21: Classification of Observations

# Observations Section Reference

1 Deviations from Laws, Regulations and Guidelines

(i) Suspension of Direct Placements on 27 February 2015 5.1

(ii) Compliance with Registered Stock and Securities Ordinance 5.2

(iii) Approval process of the PDD Operational Manual 5.3

2 Irregularities in conduct of Auctions

(i) Irregular bidding pattern indicating potential leakage of insider information 6.1

(ii) Transactions in Secondary Market 6.2

(iii) Impact of cancellation of offers on other offers 6.3

(iv) Other irregularities and lapses noted in the conduct of Auction 6.4

a. Unauthorized issuance of Treasury Bonds 6.4.1.

b. Acceptance of offer even after the rejection by the Governor 6.4.2.

c. Issuance of Treasury Bonds after the advice of ASPD 6.4.3.

d. Discrepancies in the Minutes of the DDMC 6.4.4.

(v) Analysis of specific Auction of Treasury Bonds 6.5.

(vi) Computation of loss in Auctions 6.6

(vii) Computation of loss in Direct Placements 6.7

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5. DEVIATIONS FROM LAWS, REGULATIONS AND GUIDELINES

5.1. SUSPENSION OF DIRECT PLACEMENTS

BACKGROUND

As stated earlier in Section 4.2.7 of the Report, the Monetary Board approved the issuance of

Treasury Bonds by way of Direct Placements only to the EPF and the “Other Captive Sources”.

The Monetary Board has not specifically approved accepting Direct Placements from PDs other

than the EPF and Captive sources. However, from 2008, the PDD started accepting Direct

Placements from PDs other than the EPF and Captive Sources and this practice of accepting funds

from PDs through Direct Placements method was never questioned by the Monetary Board.

Till February 2015, over 90% of the funds raised from issuance of Treasury Bonds were obtained

by accepting Direct Placements. Therefore, this practice of the PDD accepting Direct Placements

was entrenched in the market. The dealers expected the PDD to continue to accept Direct

Placements and the quantum of funds raised by way of Auction of Treasury Bonds would continue

to constitute a relatively small proportion of the total fund requirement.

On 27 February 2015, the PDD discontinued the Direct Placements as a method for raising funds

on the instructions given by Mr. Arjuna Mahendran (the then Governor of the CBSL). The below

chart depicts the events capturing the suspension of Direct Placements and subsequent actions

of the CBSL:

The details of the above-mentioned events are explained in subsequent Sections of the Report.

Monetary Board

meeting held on 23

February 2015 and no

discussion was

undertaken on

suspension of Direct

Placement.

Mr. Arjuna Mahendran

instructed for

suspension of Direct

Placements without

prior approval of the

Monetary Board and

prior impact

assessment.

Suspension of Direct

Placements was informed in

the Monetary Board meeting

held on 6 March 2015 and

no ratification by the

Monetary Board.

Discussion on

proposal for

reintroduction of

Direct Placements

in the Monetary

Board.

• Funds were raised

through Auctions and

Direct Placements for

meeting administrative

requirement.

• Increase in yield rates

across all maturities.

Introduction

of hybrid

Auction

system.

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5.1.1. MONETARY BOARD MEETING HELD ON 23 FEBRUARY 2015

On review of minutes (Refer Exhibit 30)86 of the Monetary Board held on 23 February 2015, it was

noted that there was consideration on the monetary policy, currency swap arrangement with

Reserve Bank of India, progress reports on statutory examinations of Licensed Banks and various

other matters. However, there was no discussion regarding changes in the Direct Placements and

any decision of suspending the Direct Placements.

5.1.2. GOVERNOR’ INSTRUCTIONS ON DIRECT PLACEMENTS

A. As per the facts stated in PCOI, on 27 February 2015, Mr. Arjuna Mahendran visited first time

to the PDD and inquired about the Auction details and specifically on the bids that had been

received. Ms. CMDNK Seneviratne (SPD) informed him that the details of Auction were not

available until the closure of Auction. At the closure of Auction, the PDD of the CBSL prepared

the option sheet and after evaluation, the PDD recommendation was to accept bids valuing

to Rs. 2.608 Billion from this Auction.

B. Dr. MZM Aazim stated before the PCOI that at the second visit to the PDD, Mr. Mahendran

inquired about the Auction results and instructed to accept all bids aggregating to Rs. 20

Billion. The senior management of the PDD raised concerns on acceptance of all bids

amounting to Rs. 20 Billion as it would increase the yield rates in the Secondary Market.

Thereafter, Mr. Mahendran instructed SPD to accept bids to a value of approximately Rs. 10

Billion.

C. Dr. MZM Aazim also stated before the PCOI that Mr. Mahendran had also mentioned at this

point that we could move away from Direct Placements methodology. Ms. CMDNK Seneviratne

also stated before the PCOI that Mr. Mahendran instructed that this is the best time to stop

this alternative arrangement like Direct Placements and the PDD should start accepting funds

only through market-based Auctions.

D. Mr. Arjuna Mahendran testified before the PCOI and confirmed that he had indeed given such

instructions to the officers of the PDD.

86 Refer Exhibit 30 for the minutes of the Monetary Board of 23 February 2015

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5.1.3. MONETARY BOARD MEETING HELD ON 6 MARCH 2015

A. Mr. Arjuna Mahendran (Para 50, Section 5.50, Chapter 5 of the PCOI Report) confirmed before

the PCOI that his decision to continue only public Auction and stoppage of Direct Placements

was agreed at the Monetary Board meeting held on 6 March 2015.

B. On review of minutes of the Monetary Board held on 6 March 2015, Para 3.3 of the minutes

(Refer Exhibit 31)87 states that “The chairman informed the Board that the Central Bank

temporarily suspended the method of Direct Placements of Treasury Bills and Treasury

Bonds used to raise the funds for the Government with a view to move towards a greater

market mechanism based on standard Auction system followed alternatively at present.

Accordingly, the Central Bank at the 30-year Treasury Bond Auction held on 27 February

2015 decided to accept Rs. 10 Billion out of Rs. 20 Billion worth bonds received for Rs. 1

Billion announced to the market for bids in order to meet the Government’s funding

requirement only from the open market bids”.

C. The minutes of the Monetary Board did not provide any information regarding the discussion

undertaken on this matter. Also, it was not ratified by the Monetary Board as done in other

matters which was discussed on that day i.e., “The Board having considered the paper

observed that the objective of introducing the Special Standing Deposit Facility Rate of 5

percent to encourage private credit has now been achieved as indicated by the increased

growth of private credit at 11.5 percent in January 2015 and, therefore, it is now desirable

to stabilize the overnight call money rate back within the normal policy rates corridor.

Accordingly, the Board ratified the withdrawal of the Special Standing Deposit Facility Rate

of 5 percent by the Central Bank with effect from 2 March, 2015.”

D. Therefore, it cannot be concluded that the Monetary Board provided its approval for

suspension of Direct Placements method for raising funds.

E. During an interview with Dr. MZM Aazim on 20 September 2019 (Refer Exhibit 20) he

confirmed that “verbal instruction to suspend direct issuances were confirmed by a

Monetary Board communication dated March 6, 2015. During the interim period, PDD did

not have any written communication but could not execute any transactions given the

established practice of price approvals, ISIN approvals by the Senior Management.”

87Refer Exhibit 31 for the minutes of Monetary Board of 6 March 2015

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F. As stated in Section 8 of the Monetary Law Act that “The Monetary Board of the Central Bank

shall, in addition to determine the policies or measures authorised to be adopted or taken

under this Act, be vested with the powers, duties and functions of the Central Bank under

this Act and be generally responsible for the management, operations and administration of

the bank.”

G. Dr. Indrajit Coomaraswamy (Para 21 of Section 5.1 of Chapter 5 of the PCOI Report)

confirmed before the PCOI that such powers are vested in the Monetary Board only and

“cannot be delegated to the Governor to exercise as an individual”.

H. Hence, it can be inferred as Direct Placements was suspended by the Mr. Mahendran without

prior approval of the Monetary Board and the powers of Monetary Board cannot be delegated

to Governor only. Also, this decision can be treated as unapproved decision as the Monetary

Board did not ratify the decision taken by Mr. Mahendran.

I. Moreover, it was an inappropriate action of the PDD of relying on verbal instruction of the

Governor instead of a written approval from the Monetary Board and in discontinuing Direct

Placements as method of raising public debt by the PDD.

5.1.4. INDECISIVE APPROACH OF THE MONETARY BOARD ON REINTRODUCTION OF DIRECT

PLACEMENTS IN 2015

A. At the Monetary Board meeting held on 12 June 2015, the reintroduction of Direct Placements

was discussed, and the Board was of the view that re-introduction of the Direct issuance of

Government securities to a maximum limit of 10% of the total Auctions would be appropriate

to keep the interest rates under control. However, it was decided that the timing was not

appropriate to such an action until the market improves further.

B. The Monetary Board did not ask for specific study to be undertaken by the CBSL for evaluating

the benefits and consequences of Direct Placements as method of raising funds.

C. During an interview with Dr. MZM Aazim on 20 September 2019 (Refer Exhibit 20) he also

confirmed that “The PDD was not directed to undertake any study of the advantages and

disadvantages of direct issuances at that time. It would have been appropriate to have a

detail study before initiating action of this magnitude.”

D. Contrary to the view expressed at the meeting on 12 June 2015 and the increasing trend in

yield rates of Treasury Bonds, the minutes of the Monetary Board meeting on 31 August 2015

stated that “The Board re-affirmed the need to implement primary issuance of Treasury

bonds through Auctions. SPD was instructed to revert to the Board with a detailed plan to

fulfil these objectives”.

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E. The Monetary Board considered the re-introduction of a type of Direct Placements in the

meeting held on 13 July 2016 as non-competitive bidding. Later, in the Monetary Board

meeting of 20 July 2017, there was introduction of new hybrid system of issuing Treasury

Bonds involving both Auctions and Direct Placements.

5.1.5. IMPACT OF SUSPENSION OF DIRECT PLACEMENTS ON YIELD RATES OF TREASURY BONDS

A. In order to analyse the immediate impact of suspension of Direct Placements, the yield rates

of the ISINs traded in the Secondary Market prior to and after the date of suspension of Direct

Placements i.e., 27 February 2015 were analysed.

B. The ISIN traded in Secondary Market on 16 January 2015 and 10 April 2015 were analysed on

sample basis and noted that there was surge in yield rates of ISIN traded on both these dates,

due to the suspension of Direct Placements.

Following is the brief analysis of yield rates of ISIN traded on 16 January 2015 and 10 April

2015:

C. Mr. W.A. Wijaywardena before the PCOI (Para 23, Section 5.19, Chapter 5 of the PCOI Report)

explained that “Auction system allows the market manipulation to increase the interest rates

to their own advantage. Now when the Direct Placement was taken out the Central Bank the

Monetary Board has no way of controlling it”.

It was also explained that the “Direct Placements system is used by all the countries in the

world. It’s not only Central Bank of Sri Lanka” and stated that “Number one is the Central

Bank lost a very powerful weapon, number two it allowed the primary dealers to manipulate

interest rates, number three the Government was losing money. Those are the three

repercussions”.

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D. Based on above facts and analysis, it can be concluded that suspension of Direct Placements

was one of the major factors for the upward shift in yield rates across all maturities.

5.1.6. On review of the public domain searches, a media article published in Daily FT88 of 11 July 2016

which states that “just three days before the scandalous bond Auction, the Monetary Board had

decided, going by a paper submitted by the Public Debt Department, to issue Treasury Bonds in

a combination of both Auctions and Direct sales.”

5.1.7. During an interview with Ms. UL Muthugala (ASPD) on 6 September 2019 (Refer Exhibit 18) and

Ms. LS Fernando (Head of Front Office) on 4 September 2019 confirmed that there was no such

board paper submitted by the PDD to the Monetary Board before the Treasury Bond Auction.

During an interview with Dr. MZM Aazim on 20 September 2019 (Refer Exhibit 20)89 it was stated,

“The Deputy Governor (P Samarasiri) overseeing PDD was not in the favour of Direct Placement

since he assumed to oversee financing arrangements by the PDD. My assertion of his dislike may

due to concerns of way in which the placement window operated at that time in terms of price,

ISIN, communications. Such considerations could have improved easily and facilitated the

established issuance modality of raising funds. The PDD was not directed to undertake any study

of the advantages and disadvantages of direct issuances at that time. It would have been

appropriate to have a detail study before initiating action of this magnitude.”

5.1.8. Based on above facts and analysis, it can be concluded that Mr. Arjuna Mahendran acted

improperly and in excess of his authority by immediate suspension of Direct Placements without

prior approval of the Monetary Board. Due to the suspension of Direct Placements, there was an

increase in yield rates of ISIN in the market and apparently lost control on governing the yield

rates in the Secondary Market as well.

5.1.9. As stated by PCOI in its Report after necessary inquires with the CBSL employees, the PDD or the

Monetary Policy Committee had not conducted any impact assessment study before suspension of

Direct Placements. There had not been study conducted to assess any impact (positive or

negative) on the market and the ability of the PDD to successfully raise Public Debt at acceptable

costs.

5.1.10. The action of suspension of Direct Placements by the then Governor was required prior approval

of the Monetary Board and proper study & research was not performed to assess the impact of

suspension of Direct Placements.

88 “http://www.ft.lk/columns/direct-sale-of-government-securities-demon-or-servant/4-553934”(Source: Daily FT) 89 Refer Exhibit 14 for the Statement of Fact signed by Dr. M Z M Aazim on 20 September 2019

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http://www.ft.lk/columns/direct-sale-of-government-securities-demon-or-servant/4-553934




5.2. COMPLIANCE WITH REGISTERED STOCK AND SECURITIES ORDINANCE

5.2.1. As explained in Section 4.1 of the Report, the CBSL have the authority to take any action necessary

for the issuance and trading of scripless Treasury Bonds.

5.2.2. There were no deviations noted with respect to the provisions applicable under the Registered

Stock and Securities Ordinance90, based on the combined reading of the provisions of Registered

Stock and Securities Ordinance, PDD Operational Manual and the process understanding gathered

from the former and current employees of the PDD.

5.3. APPROVAL PROCESS OF THE PDD OPERATIONAL MANUAL

5.3.1. The copies (different versions) of the PDD Operational Manual applicable for the Review Period

were provided. A review of these manuals indicate that these manuals were not approved by the

Monetary Board of the CBSL. (Refer Exhibit 1)91. The details of activities performed in raising of

public debt on behalf of the Treasury Operations Department, can at best be considered as

practices adopted / followed by the PDD.

5.3.2. As explained in Section 4 above, the Monetary Board, vide a meeting of 14 February 1997,

recommended the Government of Sri Lanka for Auction of Treasury Bonds through PDs from March

1997. However, the policies and procedures adopted by the CBSL for execution of this

recommendation was not approved by the Monetary Board of the CBSL.

5.3.3. During discussions with the current members of the Monetary Board, it was explained that there

was no such stated procedure defined for the PDD Operational Manuals to be submitted to the

Monetary Board on an annual basis.

5.3.4. The Monetary Board, at its Meeting No. 16/2017 held on 28 April 2017, decided that all Head of

Departments (“HDD”) shall follow the prescribed procedure for maintaining annually updated

Operational Manuals for their respective departments. An Internal Memorandum, dated 16 May

2017, was circulated to all Heads and Additional Heads of the respective Departments for updating

Operational Manuals on annual basis which specify that the HDD shall follow the procedures given

below:

90 Incorporating amendments up to 31 December 2004 91 Refer Exhibit 1 for email communication for non-approval of PDD Operational Manual by the Monetary Board

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A. By the end of November of each year, the HDD shall update the Operational Manuals in line

with relevant policy decision taken up to that date. The first update was required to be

completed before 30 November 2017 in line with all policy decisions taken till 30 November

2017. Thereafter, by 30 November of each year, the Operational Manuals shall be updated

based on the policy decision taken during the preceding 12-month period.

B. The HDD shall then obtain the approval of the relevant Assistant Governor and Deputy

Governor overseeing the Department for the Operational Manuals updated as at 30 November

2017 and thereafter, for all updated done annually.

C. The first page of each Operational Manual shall contain a Positive Assurance Statement and

jointly signed by relevant HDD, Assistant Governor and Deputy Governor confirming that the

Operational Manual has been updated as at the given date and its contents are in conformity

with all applicable laws, regulations, internal policies and procedures, delegated authority

of the CBSL / relevant departments, etc.

D. Each HDD shall submit a copy of the updated Operational Manual to Department of Internal

Audit (“DIA”) before 31 December of each year along with the abovementioned Positive

Assurance Statement.

E. In instances where there are no policy decisions or updates required to an Operational

Manual, the HDD shall inform DIA in writing through the relevant Assistant Governor and

Deputy Governor by 31 December of that year.

F. The DIA shall collect the Operational Manuals from all the Departments and submit the copies

of the Positive Assurance Statements of all Departments to the Monetary Board for their

information before end January of the following year.

G. In instances of significant changes that need to be incorporated into an Operational Manual

on an immediate basis, updated shall be done by the HDD with approval of the relevant

Assistant Governor and Deputy Governor and a copy of such updated Operational Manual,

along with the Positive Assurance Statement, shall be submitted to the DIA. The Positive

Assurance Statement of such Manual shall be submitted for information of the Monetary Board

by DIA within a month of receipt of same from the concerned Department.

5.3.5. It was informed that with effect from 2017, the above-mentioned process has been adopted on

an annual basis.

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6. IRREGULARITIES IN CONDUCT OF AUCTIONS

6.1. IRREGULAR BIDDING INDICATING POTENTAL LEAKAGE OF INSIDER INFROMATION

6.1.1. During the Review Period, 45 Auctions were conducted by the PDD wherein, 127 offers (Refer

Annexure 20)92 of Treasury Bonds were made. Of these 127 offers, 30 offers were cancelled, and

97 offers were accepted by the PDD.

6.1.2. The Treasury Bonds were issued to the PDs which are either captive or non- captive sources. The

classification of PDs as captive and non-captive sources for the period under review is as under:

TABLE 22: Classification of PD

# Name of PD/ EPF Classification

1 Bank of Ceylon (“BOC”) Captive Source

2 Employees’ Provident Fund (“EPF”) Captive Source

3 NSB Fund Management Company Limited (“NSB”) Captive Source

4 People’s Bank Captive Source

5 Acuity Securities Limited Non-Captive Source

6 Capital Alliance Limited Non-Captive Source

7 Commercial Bank of Ceylon Plc. Non-Captive Source

8 Entrust Securities PLC Non-Captive Source

9 First Capital Treasuries Limited (“First Capital”) Non-Captive Source

10 Hongkong & Shanghai Banking Corporation (“HSBC”)

Non-Captive Source

11 Natwealth Securities Limited (“Natwealth”) Non-Captive Source

12 Pan Asia Banking Corporation PLC (“Pan Asia”) Non-Captive Source

13 Perpetual Treasuries Limited (“PTL”) Non-Captive Source

14 Sampath Bank PLC Non-Captive Source

15 Seylan Bank PLC Non-Captive Source

16 Union Bank of Colombo Plc (-“Union Bank”) Non-Captive Source

17 WealthTrust Securities Limited (“WealthTrust”) Non-Captive Source

6.1.3. Based on various investigation Reports including the PCOI Report, it was noted that originating

PDs submitted bids on behalf of another PDs (“beneficiary PDs”) and these beneficiary PDs also

submit bids from their own account in the same offer. This mechanism of submission of bids on

behalf of beneficiary PDs is hereinafter referred as “Front-Ending” for review.

92 Refer Annexure 20 for the list of 127 offers of raised through Auction of Treasury Bonds

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6.1.4. On specific request (Refer Exhibit 32)93 to the PDD for verification of documentation submitted

by PDs in case of Front-Ending, it was clarified that “As per the Auction participation, each PDs

has to submit minimum of bids amounting to 10 per cent of the Auction volumes. Therefore, it

is expected that each PDs competitively price its bids and not collude with any other PDs.”

6.1.5. In order to identify the transactions wherein PDs (Refer Exhibit 33)94 had done Front-Ending for

other PDs, we requested the PDs the provide confirmation and details for all such transactions.

On review of hard copy documents provided by the PDs, it was noted that bids were placed by

originating PDs on behalf of other PDs, which is stated as Front-Ending transactions (Refer

Annexure 21)95.

6.1.6. The following analysis were performed which was limited to the bids appearing in AS/400 as

modified by including the Front-Ending transaction (to the extent of documents provided by PDs)

in beneficiary PDs and excluding it from PDs submitting such bids:

A. Value accepted by the PDD was 3 (three) times more than the amount offered by the PDD-

Section 6.1.8

B. Comparison of value submitted by PDs against value offered by the PDD– Section 6.1.9

C. Analysis of Success ratio and Allocation ratio- Section 6.1.10

D. Analysis of difference in value allocated to top two PDs- Section 6.1.11

E. Comparison of Bid Price submitted by PDs with the cut-off Price of offer- Section 6.1.12

F. Acceptance of bids only from non-captive sources- Section 6.1.13

6.1.7. The following ratios were analysed while performing the analysis of bids submission and allocated

to PDs:

Success Ratio: Value of bids accepted from a PD against the value of bids submitted by the PD.

Allocation ratio: Value allocated to a PDs against the total accepted value by the PDD.

93 Refer Exhibit 32 for the email communication of 29 July 2019 for requesting documents of Front-Ending. 94 Refer Exhibit 33 for the memo provided by the CBSL regarding the documents for Front-Ending requested from the PD. 95 Refer Annexure 21 for the list of Front-ending transactions as disclosed by PDs.

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6.1.8. VALUE ACCEPTED BY THE PDD WAS 3 TIMES MORE THAN THE AMOUNT OFFERED BY THE PDD:

A. On review of Auction data as per AS/400, the amount offered by the PDD was less than the

funds requirement of the PDD. However, it was noted that in 5 out of 97 offers, the amount

accepted by the PDD was 3 (three) times more than the amount offered by the PDD. Below

mentioned are the details of such instances:

TABLE 23: Details of amount accepted by the PDD (Amount in Rs. Million)

# Date of Auction ISIN Bond series Amount offered by the PDD

Amount accepted by the PDD

Ratio

1 27-Feb-2015 LKB03045C013 12.50%2045A 1,000 10,058 1006%

2 15-Sep-2015 LKB01528I017 11.50%2028A 3,000 10,884 363%

3 28-Jan-2016 LKB01530E152 11.00%2030A 5,000 15,650 313%

4 5-Feb-2016 LKB01530E152 11.00%2030A 3,000 10,455 349%

5 17-Mar-2016 LKB01024A014 11.40%2024A 2,000 6,620 331%

B. Based on above analysis, these 5 (five) identified offers require detailed scrutiny in order to

identify the possible leakage of price sensitive information and any benefit passed on to PDs.

(Refer Section 6.5. of the Report for detailed scrutiny of these identified offers.)

6.1.9. COMPARISON OF BIDS SUBMITTED BY PD AGAINST VALUE OFFERED BY THE PDD

A. As per Section 6.1.4. of the Report, each PD had to submit minimum of bids amounting to 10

per cent of the Auction volumes. Upon discussion with official of the PDD, it was also

explained that PDs submitted bids more than the value offered by the PDD based on the

liquidity position and investment policy of the respective PDs.

B. In order to analyse the correlation between the value of bids submitted by PDs and value

offered by the PDD, the following procedures were performed:

1. Ascertained the total value of bids submitted by PDs based on ISIN and date of Auction

entered in AS/400 data;

2. Added the value identified as Front-Ending into the total value of bids submitted by

beneficiary PDs and excluding the same from originating PDs;

3. Identified the total value offered by the PDD for each offer from the AS/400;

4. Mapped the total value submitted by PDs against the value offered by the PDD for each

offer; and

5. Identified the instances where value submitted by PDs was more than the value offered

by the PDD.

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C. Based on above procedures, it was noted that in 78 offers out of 127 offers, PDs submitted

the bids for more than the value offered by the PDD and the value of bids submitted by PDs

against the value offered by the PDD was ranging between 100%-1,500% (Refer Annexure 22)96.

D. However, in 7 offers out of 127 offers, the value of bids submitted by PDs was 3 (three) times

more than the total value offered by the PDD. It was noted that in 5 out of these 7 offers,

non-captive investors were allocated bids which was ranging between 13%-50%. Below

mentioned is the list of 7 offers:

TABLE 24: List of 7 offers (Amount in Rs. Million)

# Date of Auction*

ISIN Name of PD

Value offered by PDD (A)

Value accepted by PDD (B)

Value of Bids submitted by PD

% of Bids submitted by PD against Offered value by PDD (C/A)*100

Value allocated to PD after Front-Ending (D)

Allocation ratio (D/B)

Value before Front-Ending

Value after Front-Ending (C)

1 27-Feb-2015 LKB03045C013

PTL 1,000 10,058 2000 15,000 1500% 5,000 50%

2 23-Jun-2015 LKB00718K151

First Capital

1,000 1,500 3000 3,000 300% - -

3 30-Oct-2015 LKB00520E014

Wealth Trust

3,000 3,669 11,900 11,900 397% 481 13%

4 30-Oct-2015 LKB01530E152

Wealth Trust

3,000 6,700 11,650 11,650 388% 1,450 22%

5 28-Jan-2016 LKB01226F014

Wealth Trust

3,000 6,190 10,800 10,800 360% 2,187 35%

6 5-Feb-2016 LKB01530E152

Wealth Trust

3,000 10,455 13,550 13,550 452% 2,250 22%

7 17-Mar-2016 LKB00520E014

Wealth Trust

1,000 1,305 3,150 3,150 315% - -

*(Refer Annexure 1 for the list of employees of the CBSL attending the Tender Board meeting for above-mentioned offers)

96 Refer Annexure 22 for the list of 78 offers for value of bids submitted by PDs against the value offered by the PDD.

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E. Based on above analysis, it was unusual that the submission of bids by PDs was 3 (three) times

more than the value offered by the PDD. Therefore, these identified offers requires detailed

scrutiny in order to identify the potential leakage of unpublished price sensitive information

which led to submission of such high value of bids against the offered value.

(Refer Section 6.5. for the detailed scrutiny of these identified offers.)

6.1.10. ANALYSIS OF SUCCESS RATIO AND ALLOCATION RATIO OF PD IN EACH OFFER

A. In order to analyse the PDs to whom maximum bids were allocated along with the value of

bids submitted by such PDs, the following procedures were performed, after considering the

value of Front-Ending done by beneficiary PDs and excluding the same bids submitted by

original bidder PDs:

1. Reviewed the AS/400 data and identified the accepted offers by excluding the 30

cancelled offers;

2. Calculated success ratio = Total value of bids allocated to PDs / Total value of bids

submitted by PDs;

3. Calculated allocation ratio = Total value of bids allocated to PDs / Total value of bids

accepted by the PDD;

4. Identified offers with respect to PDs who had success ratio of 100% as well as allocation

ratio of more than 35%; and

5. Identified offers with respect to PDs who had success ratio of more than 35% as well as

allocation ratio of more than 35%.

B. Based on above procedures, it was noted that in 45 offers out of 97 accepted offers, 6 PDs (3

captive investor (including EPF) and 3 non-captive investors) submitted bids in such a manner

that the success ratio of their bids was 100% and allocation ratio of bids were more than 35%.

Below mentioned are the details of these offers:

TABLE 25 : List of 45 offers (Amount in Rs. Million)

# Date of Auction*

ISIN Name of PD/ EPF

Value offered by the PDD (A)

Value accepted by the PDD (B)

Value of Bids submitted by

PD/EPF

Value allocated to

PD/EPF after Front- Ending

(D)

Success ratio (D/C)


Value before Front

-Ending

Value after Front- Ending

(C)

Captive sources

1 10-Mar-2015 LKB02035C155 EPF 10,000 17,890 10,000 10,000 10,000 100% 56%

2 30-Mar-2015 LKB00820F015 EPF 5,000 5,265 3,000 3,000 3,000 100% 57%

3 30-Mar-2015 LKB01025C157 EPF 20,000 20,103 17,000 17,000 17,000 100% 85%

4 7-Apr-2015 LKB00821H019 EPF 7,500 7,600 3,000 3,000 3,000 100% 39%

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# Date of Auction*





PD/EPF

Value allocated to


(D)

Success ratio (D/C)


Value before Front

-Ending


(C)

5 5-May-2015 LKB00520E014 EPF 5,000 5,750 5,000 5,000 5,000 100% 87%

6 12-May-2015 LKB00619G019 People’s Bank

5,000 6,500 3,550 3,550 3,550 100% 55%

7 28-May-2015 LKB00520E014 People’s Bank

3,000 1,910 710 710 710 100% 37%

8 28-May-2015 LKB01530E152 EPF 10,000 10,450 7,000 7,000 7,000 100% 67%

9 9-Jun-2015 LKB00922J011 People’s Bank

9,000 16,100 12,600 12,600 12,600 100% 78%

10 12-Jun-2015 LKB00922J011 EPF 3,000 5,350 2,000 2,000 2,000 100% 37%

11 12-Jun-2015 LKB01025C157 EPF 7,000 9,650 4,000 4,000 4,000 100% 41%

12

23-Jun-2015

LKB00517F157

NSB 1,000 1,500 700 700 700 100% 47%

People’s Bank

1,000 1,500 600 600 600 100% 40%

13 23-Jun-2015 LKB00718K151 People’sBank

1,000 1,500 700 700 700 100% 47%

14 29-Jun-2015 LKB00820F015 NSB 10,000 3,700 1,400 1,400 1,400 100% 38%

15 29-Jun-2015 LKB01022A018 EPF 10,000 13,300 10,000 10,000 10,000 100% 75%

16 29-Jun-2015 LKB01123I017 EPF 10,000 15,300 12,000 12,000 12,000 100% 78%

17 2-Jul-2015

LKB00520E014

NSB 5,000 1,000 500 500 500 100% 50%

People’s Bank

5,000 1,000 500 500 500 100% 50%

18

2-Jul-2015

LKB00922J011

NSB 5,000 1,000 500 500 500 100% 50%

People’s Bank

5,000 1,000 500 500 500 100% 50%

19 14-Jul-2015 LKB01023I019 EPF 10,000 11,050 5,000 5,000 5,000 100% 45%

20 4-Aug-2015 LKB00821H019 EPF 5,000 11,405 5,000 5,000 5,000 100% 44%

21 25-Aug-2015 LKB01023I019 EPF 3,000 6,273 5,000 5,000 5,000 100% 54%

22 25-Aug-2015 LKB01025H016 EPF 10,000 10,294 15,000 15,000 15,000 100% 49%

23 31-Aug-2015 LKB01226F014 EPF 12,500 20,288 16,000 16,000 16,000 100% 74%

24 26-Oct-2015 LKB00619I155 NSB 7,000 8,000 8,000 8,000 8,000 100% 100%

25 26-Oct-2015 LKB02035C155 EPF 10,000 22,340 10,000 10,000 10,000 100% 45%

26 27-Nov-2015 LKB02035C155 EPF 7,000 18,850 7,000 7,000 7,000 100% 37%

27 15-Dec-2015 LKB02035C155 EPF 5,000 12,555 5,000 5,000 5,000 100% 40%

28 18-Dec-2015 LKB00520L159 NSB 3,000 1,300 1,100 1,100 1,100 100% 85%

29 18-Dec-2015 LKB01530E152 NSB 3,000 2,860 1,100 1,100 1,100 100% 38%

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# Date of Auction*





PD/EPF

Value allocated to


(D)

Success ratio (D/C)


Value before Front

-Ending


(C)

30 18-Dec-2015 LKB02035C155 NSB 6,000 2,930 1,280 1,280 1,280 100% 44%

31 8-Jan-2016 LKB01530E152 EPF 5,000 13,585 5,000 5,000 5,000 100% 37%

32 8-Jan-2016 LKB02541A016 EPF 8,000 19,635 10,000 10,000 10,000 100% 51%

33 29-Feb-2016 LKB00821H019 EPF 3,000 5,312 4,000 4,000 4,000 100% 75%

34 29-Feb-2016 LKB01023I019 EPF 3,000 7,637 5,000 5,000 5,000 100% 65%

35 17-Mar-2016 LKB01024A014 EPF 2,000 6,620 4,000 4,000 4,000 100% 60%

36 29-Mar-2016 LKB00520E014 People’s Bank

10,000 10,272 5,000 5,000 5,000 100% 49%

37 31-Mar-2016 LKB00619G019 NSB 5,000 5,000 2,500 2,500 2,500 100% 50%

Non-Captive Sources

38 27-Jul-2015 LKB00619G019 HSBC 12,500 27,630 20,000 20,000 20,000 100% 72%

39 27-Jul-2015 LKB00821H019 HSBC 12,500 23,010 15,000 15,000 15,000 100% 65%

40 11-Aug-2015 LKB00520E014 HSBC 3,000 6,273 3,400 3,400 3,400 100% 54%

41 8-Sep-2015 LKB01023I019 PTL 2,000 4,470 2,000 2,200 2,200 100% 49%

42 15-Sep-2015 LKB00922J011 PTL 5,000 9,559 3,500 3,500 3,500 100% 37%

43 28-Sep-2015 LKB00821H019 Acuity securities

3,000 6,500 3,050 3,050 3,050 100% 47%

**97

8-Jan-2016 LKB01530E152 PTL 5,000 13,585 2,000 5,000 5,000 100% 37%

44 29-Mar-2016 LKB01226F014 PTL 10,000 17,010 7,600 7,600 7,600 100% 45%

45 29-Mar-2016 LKB01530E152 PTL 10,000 28,975 10,310 15,310 15,310 100% 53%

C. Further, it was also noted that 25 offers out of 97 accepted offers, 10 PDs (4 captive investors

(including the EPF) and 6 non-captive investors) submitted bids in such a manner that the

success ratio of their bids was ranging between 35% to 99% and allocation ratio of bids were

more than 35%. Below mentioned are the details of these offers:

97 Same offer has already been covered in captive sources.

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TABLE 26: List of 25 offers (Amount in Rs. Million)

# Date of Auction*




Value of Bids submitted by PD/ EPF

Value allocated to PD/ EPF after Front -Ending (D)

Success ratio (D/C)


Value before Front- Ending

Value after Front- Ending (C)

Captive sources

1 28-May-2015 LKB01023I019 EPF 7,000 7,830 4,000 4,000 3,000 75% 38%

2 12-Jun-2015 LKB00922J011 People’s Bank

3,000 5,350 5,900 5,900 2,900 49% 54%

3 9-Jul-2015 LKB00520E014 BOC 15,000 11,500 5,600 5,600 5,100 91% 44%

4 4-Aug-2015 LKB01025H016 EPF 10,000 14,340 16,000 16,000 11,000 69% 77%

5 11-Aug-2015 LKB01025H016 EPF 5,000 6,660 4,500 4,500 3,000 67% 45%

6 31-Aug-2015 LKB00821H019 NSB 12,500 1,755 1,250 1,250 700 56% 40%

7 8-Sep-2015 LKB01530E152 EPF 3,000 7,427 4,000 4,000 3,000 75% 40%

8 28-Sep-2015 LKB00619I155 NSB 2,000 3,000 3,100 3,100 1,500 48% 50%

9 23-Dec-2015 LKB00520L159 NSB 2,000 2,150 1,250 1,250 1,150 92% 53%

10 17-Mar-2016 LKB00520E014 NSB 1,000 1,305 800 800 600 75% 46%

11 31-Mar-2016 LKB00619G019 People’s Bank

5,000 5,000 3,500 3,500 2,000 57% 40%

12 31-Mar-2016 LKB01518B013 People’s Bank

5,000 9,000 4,814 4,814 3,500 73% 39%

Non-captive sources

13 17-Mar-2015 LKB00619I155 Acuity Securities

7,000 9,846 5,130 5,130 4,040 79% 41%

14 17-Mar-2015 LKB00821H019 Acuity Securities

7,000 7,858 4,050 4,050 3,030 75% 39%

15 21-Apr-2015 LKB00618F013 FCTL 3,000 4,560 3,050 3,050 2,000 66% 44%

16 14-Jul-2015 LKB00418J150 Commercial Bank of Ceylon

10,000 4,670 3,250 3,250 1,750 54% 37%

17 8-Sep-2015 LKB00520E014 Acuity Securities

2,000 3,735 4,200 4,200 2,200 52% 59%

18 15-Sep-2015 LKB01025H016 WealthTrust

5,000 5,241 4,675 4,675 2,050 44% 39%

19 15-Sep-2015 LKB01528I017 WealthTrust

3,000 10,884 6,374 6,374 4,274 67% 39%

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# Date of Auction*




Value of Bids submitted by PD/ EPF

Value allocated to PD/ EPF after Front -Ending (D)

Success ratio (D/C)


Value before Front- Ending

Value after Front- Ending (C)

#98

28-Sep-2015 LKB00619I155 Acuity Securities

2,000 3,000 3,100 3,100 1,500 48% 50%

20 30-Oct-2015 LKB01530E152 PTL 3,000 6,700 1,300 4,300 4,050 94% 60%

21 5-Feb-2016 LKB02541A016 PTL 5,000 10,250 6,450 8,450 8,250 98% 80%

22 29-Feb-2016 LKB01518B013 HSBC 3,000 5,305 5,300 5,300 5,000 94% 94%

23 29-Mar-2016 LKB01025C157 PTL 10,000 21,475 8,600 8,600 8,450 98% 39%

24 31-Mar-2016 LKB00821H019 Acuity Securities

5,000 14,350 8,100 8,100 7,600 94% 53%

25 31-Mar-2016 LKB01528I017 PTL 10,000 21,660 15,700 15,700 15,000 96% 69%

*(Refer Annexure 1 for the list of employees of the CBSL attending the Tender Board meeting

for above-mentioned offers)

D. Based on above analysis, 3 (three) non-captive investors were observed namely- PTL, HSBC

and Acuity Securities Limited which had success ratio of more than 35% along with allocation

ratio of 35% in most of the cases. The analysis of bidding pattern of above 3 identified

investors is explained as under:

98 Same offer has already been covered in captive sources

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1. Out of 97 accepted offers, bids of PTL were accepted in 52 offers. In these 52 offers, success ratio of PTL was ranging between 2.86% to

100% and allocation ratio ranging between 0.3 %- 80.49% (Refer Annexure 23)99 and in 13 out of 52 offers, the success ratio was 100%

uniformly spread throughout the Review Period. The graphical presentation is as under:

99 Refer Annexure 23 for the details of success ratio in 52 offers of PTL

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2. Out of 97 accepted offers, bids of HSBC were accepted in 20 offers. In these 20 offers, success ratio of HSBC was ranging between 30 % to 100%

and allocation ratio ranging between 0.99%-94.25% (Refer Annexure 24)100 and in 8 out of 19 offers, the success ratio was 100% uniformly spread

throughout the Review Period. The graphical presentation is as under:

100 Refer Annexure 24 for the details of success ratio in 20 offers of HSBC

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3. Out of 97 accepted offers, bids of Acuity Securities Limited were accepted in 41 offers. In these 41 offers, success ratio of Acuity Securities

Limited was ranging between 4% to 100% and allocation ratio ranging between 0.40%-58.90% (Refer Annexure 25)101. In 4 out of 41 offers, the

success ratio was 100% uniformly spread throughout the Review Period. The graphical presentation is as under:

101 Refer Annexure 25 for the details of success ratio in 41 offers of Acuity Securities Limited

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E. Therefore, above analysis, raises a suspicion that the possible access to potential unpublished

price sensitive information led to the scenario of success ratio of 100% and allocation ratio of

more than 35%. However, the documentary and digital evidences reviewed (as provided in the

respective Sections of this Report) and limited number of voice recordings of dealer rooms of

PDs did not suggest these anomalies are directly or indirectly linked to any potential nexus

between the employees of the PDD and the beneficiary PDs, expect as highlighted in Section

6.5 of the Report.

6.1.11. ANALYSIS OF DIFFERENCE IN VALUE ALLOCATED TO TOP TWO PD FOR EACH OFFER

A. Winning proportion is referred as the proportion of bids allocated to the second highest bidder

in comparison with the bids allocated to the first highest bidder.

B. In order to analyse the difference in the value of bids submitted and allocated to first two

highest bidders, the following work procedures were performed:

1. Analysed the top two winners in each offer;

2. Ascertained the difference between value allocated to first bidder and value allocated to

second bidder;

3. Excluded the offers all bids were allocated to one PDs; and

4. Identified offers where the difference between value allocated to two PDs was more than

80%.

C. Based on above procedures, it was noted that in 16 out of 95102 accepted offers, the difference

between value of bids allocated to top 2 (two) PD was more than 80%, which means that value

allocated to second highest PD was substantially less than the value allocated to the highest

investor. Below mentioned are the details of 16 offers (Refer Annexure 26)103 along with

success ratio and allocation ratio of PD with highest value of bid allocation in that offer:

TABLE 27 : List of top PDs in 16 offers

# Date of Auction*

ISIN Bond Series Name of Top PD/ EPF

Success Ratio Allocation ratio

1 30-Mar-2015 LKB00820F015 08.00%2020A EPF 100% 57%

2 30-Mar-2015 LKB01025C157 10.25%2025A EPF 100% 85%

3 5-May-2015 LKB00520E014 09.25%2020A EPF 100% 87%

4 9-Jun-2015 LKB00922J011 10.00%2022A People’s Bank 100% 78%

5 29-Jun-2015 LKB01022A018 08.00%2022A EPF 100% 75%

6 29-Jun-2015 LKB01123I017 09.00%2023A EPF 100% 78%

102 The number of 95 offers is arrived after excluding 2 offers where all bids was allocated to a single investor, the details are “LKB00619I155” offered on 26 October 2015 and “LKB01226F014” offered on 27 November 2015. 103 Refer Annexure 26 for the details of difference between top two PDs for 16 offers.

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# Date of Auction*

ISIN Bond Series Name of Top PD/ EPF

Success Ratio Allocation ratio

7 27-Jul-2015 LKB00619G019 10.60%2019A HSBC 100% 72%

8 27-Jul-2015 LKB00821H019 11.00%2021A HSBC 100% 65%

9 4-Aug-2015 LKB01025H016 11.00%2025A EPF 69% 77%

10 25-Aug-2015 LKB01025H016 11.00%2025A EPF 100% 74%

11 18-Dec-2015 LKB00520L159 09.50%2020A NSB 100% 85%

12 5-Feb-2016 LKB02541A016 12.00%2041A PTL 98% 80%

13 29-Feb-2016 LKB00821H019 11.00%2021A EPF 100% 75%

14 29-Feb-2016 LKB01023I019 11.20%2023A EPF 100% 65%

15 29-Feb-2016 LKB01518B013 08.50%2018A HSBC 94% 94%

16 17-Mar-2016 LKB01024A014 11.40%2024A EPF 100% 60%



D. In the above mentioned 16 offers, difference in the value allocated to top 2 (two) PDs was

ranging between 80%-95%. Therefore, above analysis require detailed scrutiny of the identified

offers in order to identify any possible leakage of unpublished price sensitive information

relating to respective offer with the top PDs led to such a high difference in value allocation

to top 2 (two) PDs.

The documentary and digital evidences reviewed (as provided in the respective Sections of this

Report) and limited number of voice recordings of dealer rooms of PDs did not suggest these

anomalies are directly or indirectly linked to any potential nexus between the employees of

the PDD and the beneficiary PDs, expect as highlighted in Section 6.5 of the Report.(Refer

Section 6.5. of the Report for detailed scrutiny of these identified offers.)

6.1.12. INSTANCES OF BID SUBMITTED BY PD MATCHING WITH THE CUT-OFF PRICE

A. In order to identify the instances of the PDs submitting their bids at the cut-off price, the

following procedures were performed:

1. Ascertained the cut-off price in each Auction;

2. Identified the PDs who placed bids at the cut-off price of Auction;

3. Calculated the ratio of bids placed by PDs at the cut-off bid price of the Auction to the

total value of bids allocated to such PD; and

4. Calculated the ratio of bids placed by PD at the cut-off bid price of the Auction to the

total value of bids accepted by the PDD;

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B. Based on above procedures, in 97 offers (Refer Annexure 27)104, 385 transactions were noted

where the cut-off bid price of the Auction was equal to the price of bid placed by PD. On

further review of these 385 transactions, following 13 transactions were noted wherein the

ratio of bid placed by PDs at the cut-off bid price of Auction to the total value of bids allocated

to such PD and value accepted by the PDD was more than 35%:

TABLE 27A: Details of 13 transactions where cut off bid price equal to bid price placed by PD (Amount in Rs. Million)

# Date of Auction


Value of bids accepted by PDD

Value of Bids placed by PD/EPF at cut-off price

% of value of bids at cut-off price to value accepted by PDD

% of value of bids at cut-off price to value allocated to PD

1 5-May-2015 LKB00520E014 EPF 5,000 3000 52.17% 60.00%

2 28-May-2015 LKB01530E152 EPF 7,000 5000 47.85% 71.43%

3 29-Jun-2015 LKB01022A018 EPF 10,000 10000 75.19% 100.00%

4 29-Jun-2015 LKB01123I017 EPF 12,000 7000 45.75% 58.33%

5 2-Jul-2015 LKB00520E014 NSB 500 500 50.00% 100.00%

6 2-Jul-2015 LKB00520E014 People's Bank

500 500 50.00% 100.00%

7 2-Jul-2015 LKB00922J011 NSB 500 500 50.00% 100.00%

8 2-Jul-2015 LKB00922J011 People's Bank

500 500 50.00% 100.00%

9 11-Aug-2015 LKB01025H016 EPF 3,000 2500 37.54% 83.33%

10 27-Nov-2015 LKB00520E014 NSB 1,000 500 40.19% 50.00%

11 27-Nov-2015 LKB01226F014 NSB 500 500 100.00% 100.00%

12 18-Dec-2015 LKB00520L159 NSB 1,100 500 38.46% 45.45%

13 29-Feb-2016 LKB01518B013 HSBC 5,000 2500 47.13% 50.00%

C. Based on above mentioned table, it can be observed that 3 captive sources and one PD- HSBC

placed their bids at cut-off bid price of Auction. However, the documentary and digital

evidences reviewed (as provided in the respective Sections of this Report) and limited number

of voice recordings of dealer rooms of PDs did not suggest these anomalies are directly or

indirectly linked to any potential nexus between the employees of the PDD and the beneficiary

PDs, expect as highlighted in Section 6.5 of the Report.

104 Refer Annexure 27 for the details of 97 offers where cut-off price of bids placed by PD was equal to cut-off bid price of Auction.

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6.1.13. ACCEPTANCE OF BIDS ONLY FROM NON-CAPTIVE SOURCES

A. On review of Auction data, it was noted that no allocations were made to captive sources in 3

(three) offers out of 97 accepted offers. However, the captive sources had submitted

substantial value of bids. The details of the bids submitted by captive sources are as following:

TABLE 28: Details of bids submitted by captive sources (Amount in Rs. Million)

# Date of Auction

ISIN Bond series Value offered by the PDD

Value of bids accepted by the PDD

Bids received by the PDD

Value of Bids submitted by captive sources

% of bids submitted by captive sources

1 21-Apr-2015 LKB00618F013 08.50%2018D 3,000 4,560 21,860 3,100 14.18%

2 29-Apr-2015 LKB01025C157 10.25%2025A 10,000 4,500 32,369 10,274 26.12%

3 5-Feb-2016 LKB02541A016 12.00%2041A 5,000 10,250 48,080 12,800 26.62%

B. In the above mentioned 3 (three) offers, it was noted that 4 (four) PDs were allocated more

than 25% of the total value of bids accepted by the PDD. A brief snapshot of these 3 (three)

offers is appended below:

TABLE 29: Details of bids allocated to 4 PD (Amount in Rs. Million)

# Date of Auction ISIN Name of the PD

Value accepted

by the PDD (A)

Value of Bids

submitted by PD

Value of Bids

allocated to PD (B)

% of Bids Allocated to

PD (B)/(A)*100

1 21-Apr-2015 LKB00618F013 First Capital 4,560 3,050 2,000 43.86%

2 29-Apr-2015 LKB01025C157 WealthTrust 4,500 5,050 1,200 26.67%

3 5-Feb-2016 LKB02541A016 PTL 10,250 6,450 6,250 60.98%

4 5-Feb-2016 LKB02541A016 Pan Asia 10,250 5,300 2,800 27.32%



C. In addition to above, Mr. Namasivayam Wasantha Kumar (CEO – Peoples’ Bank) before the PCOI

(Para 3, Page No. 355 of the PCOI Report) stated that the State Banks were requested to place

their respective bids in the Auctions held on 29 March 2016 and 31 March 2016 at low prices

and in accordance with the rates prescribed by the Honourable Minister of Finance, Mr. Ravi

Karunanayake.

D. In the current scenario as well, the captive sources submitted substantial value bids at lower

prices, which requires examination in order to examine any such instructions were also

received in these offers.

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E. However, the documentary and digital evidences reviewed (as provided in the respective


suggest these anomalies are directly or indirectly linked to any potential nexus between the

employees of the PDD and the beneficiary PDs, expect as highlighted in Section 6.5 of the

Report.

6.2. TRANSACTIONS IN SECONDARY MARKET

6.2.1. As per the Code of Conduct for PDs approved by the Monetary Board and issued in July 2003, market

manipulation refers to “any deliberately dishonest attempt to affect the market price of a security

through trading.” It is also stated that a PDs must not and must ensure that it’s Directors and

employees do not, move or attempt to move prices artificially for their own benefit. This type of

activity too is considered as market manipulation.

6.2.2. Under the Code of conduct, a person or company has insider information when they have

information about an issuer or its securities that has not been publicly disclosed and that is likely

to have an effect on the market price of the issuer’s securities when disclosed. Trading while in

possession of this type of information is generally prohibited.

6.2.3. In order to identify the transactions in Secondary Market based on the CDS data, the ISINs were

reviewed on the basis of Front-Ending transactions (to the extent documents submitted by the

PDs), mostly traded ISINs and movement after the settlement date. The following procedures were

performed to identify the transactions of secondary market where the securities were traded at

substantially higher prices on the trading day:

A. Reviewed the CDS data and identified the prices at which securities were purchased from the

CBSL;

B. Analysed the daily and weekly average trading prices of ISIN after the settlement date of

Auction;

C. Identified the transaction where there was significant increase in the price of ISIN within a

week of such transaction;

D. Identified the dealers involved in the transactions and analyse the movement of securities

between the dealers; and

E. Ascertained the profits earned by the originating PDs.

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6.2.4. On review of CDS data, various transactions in Secondary Market subsequent to settlement of

Treasury Bonds in Primary Market were noted where there was significant increase in the price of

ISIN within short span of time. Following are the brief details of these transactions (Refer Annexure

28)105:

TABLE 30: Details of secondary market transactions with significant increase in price (Amount in Rs. Million)

# Date of Auction

Date of settlement

ISIN Bond Series Parties Involved

Value of Transaction

Gains

1 27-Feb-2015 2-Mar-2015 LKB03045C013 12.50%2045A • PTL

• WealthTrust

1,600 230.31

• PTL

• Pan Asia

1,300 267.29

• PTL

• EPF

2,000 400.06

2 26-Oct-2015 2-Nov-2015 LKB02035C155 11.50%2035A • PTL

• Pan Asia

• EPF

5,400 652.62

3 30-Oct-2015 2-Nov-2015 LKB01530E152 11.00%2030A • PTL

• Pan Asia

• EPF

2,500 235.80

4 27-Nov-2015 4-Dec-2015 LKB02035C155 11.50%2035A • PTL

• EPF

4,050 199.49

• Pan Asia

• EPF

1,800 95.00

5 8-Jan-2016 11-Jan-2016 LKB01530E152 11.00%2030A • PTL

• Pan Asia

• EPF

5,150 295.44

6 8-Jan-2016 11-Jan-2016 LKB02541A016 12.00%2041A • PTL

• Pan Asia

• EPF

6,700 788.52

7 28-Jan-2016 1-Feb-2016 LKB01530E152 11.00%2030A • PTL

• DFCC

• EPF

4,050 162.30

8 5-Feb-2016

12-Feb-2016

LKB02541A016

12.00%2041A • PTL

• DFCC

• EPF

5,250 257.79

• Pan Asia

• EPF

800 40.74

9 29-Mar-2016 1-Apr-2016 LKB01530E152 11.00%2030A • PTL

• Pan Asia

• EPF

4,250 520.92

105 Refer Annexure 28 for the details of transactions in Secondary Market where there was significant increase in price of ISIN

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# Date of Auction

Date of settlement

ISIN Bond Series Parties Involved

Value of Transaction

Gains

10 31-Mar-2016

1-Apr-2016

LKB01528I017

11.50%2021A • PTL

• Pan Asia

• EPF

3,000 345.13

• PTL

• DFCC EPF

4,000 469.40

6.2.5. Based on above analysis, it was evident that PTL in consort with Pan Asia and DFCC had entered

transactions into the Secondary Market wherein high volume of identified securities were obtained

at low prices in Primary Market by taking advantage of insider information and sold those securities

at substantial high prices in the Secondary Market to the EPF. It was also noted that the EPF either

did not participated or placed bids in less volume or at higher yield rates in Primary Market and at

the settlement date, the EPF bought securities at higher prices in Secondary Market.

(Refer Section 6.5 for detailed scrutiny of these offers)

6.3. ANALYSIS OF CANCELLED AUCTIONS

BACKGROUND

6.3.1. It was noted that out of 127 offers issued during the Review Period, 30 offers were cancelled by

the Tender Board. The rationale for cancellation of offers as recorded in the minutes of the Tender

Board meeting for the respective offers was that yield rates of bids submitted by the PDs was much

higher than the prevailing yield rates of Secondary Market.

6.3.2. Upon enquiry (Refer Exhibit 34)106 with officials of the PDD, it was explained that these offers were

cancelled primarily due to the reason that the yield rates of bids submitted by the PDs was much

higher than the prevailing yield rates of Secondary Market and cancellation of such offers also helps

in controlling the yield rates of Secondary Market resulting into minimizing the costs to the

government.

106 Refer Exhibit 34 for the email of the SPD of the PDD of 1 July 2019.

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In order to analyse the impact of cancellation of offers on other ISIN and Auction, the following

procedures were performed:

A. Identified cancelled ISIN and analyse the pattern of yield rates of these ISIN;

B. Compared the yield rates of cancelled ISIN with the yield rates of same ISIN issued in

subsequent Auction;

C. Compared the yield rates of cancelled ISIN with the yield rates of ISIN with similar maturity

issued in subsequent Auction, in case same ISIN was not issued; and

D. Analyse the pattern of frequency of ISIN issued and cancelled.

Based on the above analysis, the following anomalies were noted which are explained in the

subsequent Sections:

A. Cancellation of offer on an Auction date increased the pressure of acceptance of requisite

funds from other offers on the same or subsequent Auction date and led to acceptance of

funds at higher yield rates by the CBSL;

B. Concealment of facts from the Tender Board led to cancellation of Auction; and

C. One ISIN was issued by PDD and rejected by the Tender Board consecutively multiple times.

6.3.3. CANCELLATION OF OFFER INCREASED PRESSURE ON OTHER OFFERS

1. It was noted that out of 30 cancelled offers, in 15 offers, cancellation of offer on an Auction

date increased the pressure of acceptance of requisite funds from other offers on the same or

subsequent Auction date and the same led to acceptance of funds at higher yield rates by the

CBSL. In order to meet the fund requirement of the Treasury Operation Department, the CBSL

had to accept more funds from other offers even at higher yield rates.

Below are the details of cancelled offers which increased the pressure of acceptance of requisite

funds from other offers on same or subsequent Auction date

TABLE 31: Details of cancelled offers (Amount in Rs. Million)

Date of Auction ISIN Bond series Bids offered Bids Accepted

4-Aug-2015

LKB00619G019 10.60%2019A 5,000 -

LKB00821H019 11.00%2021A 5,000 11,405

LKB01025H016 11.00%2025A 10,000 14,340

25-Aug-2015

LKB01530E152 11.00%2030A 12,500 -

LKB00819K017 08.00%2019A 5,000 -

LKB01025H016 11.00%2025A 12,500 20,288

LKB01023I019 11.20%2023A 10,000 10,294

8-Sep-2015 LKB01226F014 11.00%2026A 3,000 -

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Date of Auction ISIN Bond series Bids offered Bids Accepted

LKB00520E014 09.25%2020A 2,000 3,735

LKB01023I019 11.20%2023A 2,000 4,470

28-Sep-2015

LKB01024A014 11.40%2024A 4,000 -

LKB01528I017 11.50%2028A 4,000 3,660

LKB00619I155 10.60%2019B 2,000 3,000

15-Dec-2015

LKB00520L159 09.50%2020A 2,000 -

LKB02035C155 11.50%2035A 5,000 12,555

LKB01025H016 11.00%2025A 3,000 3,000

8-Jan-2016

LKB00520L159 09.50%2020A 2,000 -

LKB01025H016 11.00%2025A 5,000 6,059

LKB01530E152 11.00%2030A 5,000 13,585

LKB02541A016 12.00%2041A 8,000 19,635

28-Jan-2016 LKB03045C013 12.50%2045A 5,000 -

LKB00520L159 09.50%2020A 2,000 -

LKB01226F014 11.00%2026A 3,000 6,190

LKB01530E152 11.00%2030A 5,000 15,650

5-Feb-2016

LKB00520L159 09.50%2020A 2,000 -

LKB01530E152 11.00%2030A 3,000 10,455

LKB02541A016 12.00%2041A 5,000 10,250

10-Mar-2016

LKB01024A014 11.40%2024A 2,000 -

LKB00821H019 11.00%2021A 2,000 -

LKB00819K017 08.00%2019A 2,000 -

24-Mar-2016

LKB00721J157 09.45%2021A 5,000 -

LKB00922J011 10.00%2022A 5,000 -

LKB01025C157 10.25%2025A 5,000 -

LKB00520E014 09.25%2020A 5,000 -

29-Mar-2016

LKB01025C157 10.25%2025A 10,000 21,475

LKB01226F014 11.00%2026A 10,000 17,010

LKB01530E152 11.00%2030A 10,000 28,975

LKB00520E014 09.25%2020A 10,000 10,272

2. It was noted that all ISINs were cancelled in Auction conducted on 24 March 2016 and Treasury

Operation Department had funds requirement of Rs. 122 Billion (revised fund requirement of Rs.

105 Billion) on 1 April 2016. However, cancellation of Auctions increased the pressure of

acceptance of requisite funds from the Auction of 29 March 2016 and 31 March 2016 to meet the

requisite fund requirement of 1 April 2016.

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Due to tight funding requirement, the CBSL had to accept funds at higher yield rates on 29 March

2016 which increased cost of funds to the Government of Sri Lanka. (Refer Section 6.5 for

detailed scrutiny of these offers)

6.3.4. CONCEALMENT OF FACTS FROM TENDER BOARD

A. On review of minutes of Market Operations Committee for the month of March 2016, it was noted

that there was excess liquidity in the market in the first week of March 2016.

B. As per the facts stated in PCOI that on 3 March 2016, Governor instructed PWDNR Rodrigo (DOD)

to stop reverse REPO Auction to “drain liquidity” from the market. Due to the stoppage of

reverse REPO Auction, there was liquidity crunch and increased interest rates in the market.

C. At the Auction of 24 March 2016, the Tender board rejected all the bids due to WAYR being higher

than the Secondary Market rates. However, the Tender Board was not informed by the

representatives of DOD about the decision of Mr. Arjuna Mahendran to stop reverse REPO Auction

to reduce liquidity from the market.

D. During an interview with Ms. UL Muthugala on 6 September 2019 (Refer Exhibit 18) she stated

that “The participants of Tender Board on 24 March 2019 did not informed that the “reverse-

repo” Auctions have been stopped by CBSL in March beginning leading to liquidity crunch and

increasing yield rates. Hence, the participants were not fully aware of complete facts and I

supported the cancellation of Auction in anticipation that the subsequent Auction would give

lower yields.

E. Therefore, the Tender Board cancelled Auctions without knowing that the rates were not going

to reduce at subsequent Auctions since the market conditions will not improve due to shortage

of liquidity caused by underlying decision of stopping reverse REPO Auctions by the CBSL

Governor.

During an interview with Mr. NWGRD Nanayakkara on 25 September 2019 (Refer Exhibit 22), he

also confirmed that “I don’t think there was any information shared regarding stoppage of

Reverse Repo on 3 March 2016 was explained by representative of DOD in the Tender board

meeting of 24 March 2016. If this information would have been shared, my personal view is that

we could have accepted something from the Auction, because the rates were unlikely to come

down as the reverse REPO Auction were stopped by CBSL leading to liquidity shortage.”

(Refer Section 6.5 for detailed scrutiny of these offers)

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6.3.5. MULTIPLE CONSECUTIVE CANCELLATIONS OF ONE ISIN

A. It was noted that one of the bond series “9.50%2020A” (ISIN LKB00520L159) was issued six times

during the period December 2015 to February 2016. The details of this ISIN along with Auction

dates are as under:

TABLE 32: Details of last six Auctions of ISIN LKB00520L159 (Amount in Rs. Million)

Date of Auction Bids Offered Bids Received Bids Accepted

15-Dec-2015 2,000 12,614 -

18-Dec-2015 3,000 10,050 1,300

23-Dec-2015 2,000 7,650 2,150

8-Jan-2016 2,000 14,830 -

28-Jan-2016 2,000 13,275 -

5-Feb-2016 2,000 11,972 -

B. The above table depicts that this ISIN LKB00520L159 was issued by the PDD in December 2015

and was continuously rejected by the Tender Board in January 2016 till February 2016.

C. During an interview with Mr. THB Sarathchandra on 19 September 2019 (Refer Exhibit 19)

regarding the specific reason for issuance of this ISIN in spite of continuously rejection by Tender

Board, he stated that “Due to cancellation of one bond series, it creates pressure on other

series. Hence, proper analysis should have been done before issuing any series. It was unknown

since there were no in-depth and proper analysis by myself, Middle Office and Front office of

PDD in view of pre-occupation with regular work.”

6.3.6. Based on above facts and analysis, it can be inferred that cancellation of offers increased the

pressure of acceptance of funds from other offers and proper analysis was not done by the PDD

before issuance of ISIN which was continuously rejected by the Tender Board.

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6.4. IRREGULARATIES IN THE ISSUANCE OF TREASURY BONDS

6.4.1. UNAUTHORIZED ISSUANCE OF TREASURY BONDS

As per the process explained in Section 4.2.7. of the Report, the Treasury Operation Department

provides funds requirement to the PDD of the CBSL, which in turn raises funds through Auction or

Direct Placements. In the below mentioned two dates of Auctions wherein four offers were issued,

the intimation / instruction from the Treasury Operation Department for raising of funds was not

available:

TABLE 33: Details of Auctions for special request (Amount in Rs. Million)

# Date of Auction107

Bond Series ISIN Value offered

Value accepted

Governor’ special request for

1 27-Feb-2015 12.50%2045A LKB03045C013 1,000 10,058 Acceptance of additional funds

2 15-Dec-2015 9.50%2020A LKB00520L159 2,000 - Auction

3 15-Dec-2015 11.00%2025A LKB01025H016 3,000 3,000 Auction

4 15-Dec-2015 11.50%2035A LKB02035C155 5,000 12,555 Auction

The above-mentioned Auctions are explained in detailed as under

A. AUCTION OF 27 FEBRUARY 2015

1. During review of documents in support of the offer of 27 February 2015, it was mentioned

on the option sheet prepared by the TEC (Refer Exhibit 35)108 that “G instructed to raise

funds up to Rs. 10 billion taking into consideration of additional funds requirement of the

Government”.

2. On specific request to the PDD for the copy of instruction from the Governor to accept the

additional amount, official of the PDD confirmed (Refer Exhibit 36)109 that “With respect

to 27 February 2015, part of the instructions of the Governor was noted in terms of the

Monetary Board minutes of the 6 March 2015. The origin of the conduct of the Auction is

also noted in the 23 February 2015 Monetary Board minutes. Other instructions by the

Governor were not in written form but confirmed in many investigations and reports

published subsequently. The testimony of Deputy Governors and other members of the

Tender Board and PDD officials also verify Governor's instructions. SPD's minutes in the

Option Sheets also indicates instructions from the Governor’s. Governor’s own press

conference reports and Hansard reports of the Parliament also talk of instructions”.

107 Refer Annexure 1 for the list of employees of the CBSL attending the Tender Board meeting for respective offers. 108 Refer Exhibit 35 for the TEC option sheet for Auction of 27 February 2015. 109 Refer Exhibit 36 for the email of 15 July 2019 for response provided by the PDD.

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B. AUCTION OF 15 DECEMBER 2015

1. During review of documentation of the offers of 15 December 2015, it was mentioned in

the communication document sent by SPD to AG (Refer Exhibit 37)110 that “Governor

instructed to raise funds within gross borrowing limit of 2015 which could be utilized for

2016 capital expenditure.”

2. On specific request to the PDD for document pertaining to instruction received from the

Governor to conduct the Auctions and requirement received from the Treasury Operation

Department and the Governor, no document has been provided for review.

3. During review of emails of Mr. THB Sarathchandra (SPD), it was noted that SPD emailed to

Mr. Ranasiri (Director General of the Treasury Operation Department) that the Governor

instructed him to check any space under gross borrowing limit of 2015 to issuance Treasury

Bonds (in addition to agreed cashflow requirements) during December 2015. However,

email communication for the response received from the Treasury Operation Department,

was not identified during ESI review.

4. During an interview with Mr. THB Sarathchandra (SPD) on 19 September 2019 (Refer Exhibit

19) for the issuance of this Auction, he stated that “After receiving the verbal instructions

of the Governor, I checked with Treasury Operation Department for “additional borrowing

limit” through an email. I believe that there was a verbal communication from the

Treasury Operation Department confirming on the proceedings of transaction based on

gross borrowing limit. However, in the absence of document from Treasury Operation

Department for confirmation of this Auction, this Auction can be said to be questionable

action.”

5. During an interview with S. Obeysekera (Head of Front office) on 3 September 2019 (Refer

Exhibit 17) he stated that “It’s not usual for Governor to instruct the SPD to check whether

there is any space under gross borrowing limit to issue T-Bonds. It’s usually the Treasury

Operation Department that need funds and informed to Public Debt”’

6. Based on explanation given by employees of the CBSL, it can be inferred that this Auction

was conducted on verbal instruction of the Governor and Treasury Operation Department.

However, in the absence of supporting documents for the confirmation, the authorisation

for this Auction could not be validated.

110 Refer Exhibit 37 for the extract of document for Auction of 15 December 2015

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C. The Monetary Law Act (as amended on 30 June 2014) empowers the Ministry of Finance of the

Government of Sri Lanka to determine the amount of public debt to be raised in a year, in line

with the limits prescribed under the Appropriation Act. Also, as per PDD Operational Manual,

the funding requirements are communicated by the Secretary to the Treasury Operation

Department.

D. Dr. Indrajit Coomaraswamy (Para 8, Section 5.1, Chapter 5 of the PCOI Report) before the PCOI

confirms that the Treasury Operation Department advises the PDD about the amount of Public

Debt funding which is required by the Government and this advice is “by a letter”. Para 21 of

his witness also confirms that the power vested in the Monetary Board, through Section 8(1) of

the Monetary Law Act, to decide matters relating to Policies and Measures of the CBSL “cannot

be delegated to the Governor to exercise as an individual”.

E. Therefore, in the absence of written confirmation from the Treasury Operation Department,

the issuance of Treasury Bonds and creation of public debt is considered unauthorized. The

instruction from the Governor, if any, as indicated in the supporting documents (signed by

Acting SPD) is also considered unauthorised, in the absence of vested powers to create public

debt without prior instruction from the Treasury Operation Department.

6.4.2. ACCEPTANCE OF OFFER EVEN AFTER THE REJECTION BY THE GOVERNOR

A. As per the process explained in Section 4.2.7. of the Report, the final decision of the Tender

Board is submitted for approval of the Governor and the results are published through official

Press Release, after the decision by the Governor.

B. On document review of one of the Auctions on 29 February 2016, the PDD offered Rs. 9,000

Million and accepted Rs. 18,254 Million. The details of the Auction are as under:

TABLE 34: Details of ISIN issued (Amount in Rs. Million)

# Bond series ISIN Total offered

Total accepted

WAYR (%)

Secondary Market rate yield rate (%)

1 8.50%2018A LKB01518B013 3,000 5,305 10.00 10.00

2 11.00%2021A LKB00821H019 3,000 5,312 11.42 11.35

3 11.20%2023A LKB01023I019 3,000 7,637 11.78 11.68

TOTAL 9,000 18,254

C. It was noted that in relation to Treasury Bond offer “11.20%2023A” (ISIN LKB01023I019), the

TEC has recommended the value amounting to Rs. 7,637 Million at a WAYR of 11.78%.

On the basis of AS/400 and bids approved sheet, the following PDs were allocated bids in this

ISIN:

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TABLE 35: Details of PD in offer (Amount in Rs. Million)

# Name of PD/EPF Value of bids

submitted by PD/EPF

Value of bids

allocated to PD/ EPF

Success Ratio

Allocation Ratio

1 Bank of Ceylon 590 340 57.63% 4.45%

2 Capital Alliance Limited

950 250 26.32% 3.27%

3 EPF 5,000 5,000 100.00% 65.47%

4 First Capital 1,050 200 19.05% 2.62%

5 HSBC 1,000 1,000 100.00% 13.09%

6 Pan Asia 693 18 2.60% 0.24%

7 People's Bank 1,695 175 10.32% 2.29%

8 Seylan Bank PLC 492 278 56.50% 3.64%

9 Union Bank 310 126 40.65% 1.65%

10 WealthTrust 5,400 250 4.63% 3.27%

TOTAL 171,180 7,637

D. As per the minutes of the meeting of the Tender Board (Refer Exhibit 38)111 on 29 February

2016, it was mentioned that “The bond of 7 years maturity is substantially above the current

market rates reflecting the speculative nature of bids”. Accordingly, the Tender Board decided

not to purchase anything from 7 years 6 months.

E. The above-mentioned decision of the Tender Board was approved by the Chairman of the

Tender Board (P Samarasiri), the SPD of the PDD (Mr. THB Sarathchandra) as well as the

erstwhile Governor of the CBSL and minutes of the Tender Board were signed on 29 February

2016.

F. On review of documents, it was noted that the results were published through official Press

Release on 29 February 2016. (Refer Exhibit 39)112

G. On specific request to the PDD for the copy of documents for revised minutes of the Tender

Board, no additional document was provided for review.

111 Refer Exhibit 38 for the extract of minutes of meeting of the Tender Board dated 29 February 2016. 112 Refer Exhibit 39 for the press release of 29 February 2016.

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H. During an interview with Ms. UL Muthugala (ASPD) on 6 September 2019 (Refer Exhibit 18) for

issuance of this series even after the rejection, she stated that “Based on the documents

available with the PDD, the issuance of Treasury Bonds on 29 February 2016 after rejection by

Tender Board and Governor can be termed as an unauthorized issue. I do not recollect

receiving any verbal instructions from the Former Governor, Arjuna Mahendran, for the issue

of the series.”

I. During an interview with Mr. THB Sarathchandra (Acting SPD) on 19 September 2019 (Refer

Exhibit 19) he stated that “There can be verbal instructions from Governor. We forgot to take

his remarks on the Tender Board minutes. Not sure why Ms. Muthugala and Obeysekera are

stating it to be an error on the part of PDD. On next day, accepted bids sheets were submitted

to me, AG and DG for approval. In case this series was not appropriate, then they would have

rejected/ commented on Auction proceeded.”

J. During an interview with Mr. S. Obeysekera on 3 September 2019 (Refer Exhibit 17) who had

signed the bids approved sheet, he stated that “It may have happened due to an oversight.

However, it’s difficult to understand how it was overlooked subsequently. I might have missed

the verification process with the Tender Board minutes.”

K. During an interview with Mr. S Pathumanapan on 24 September 2019, who also signed the bid

approved sheet, he confirmed that “I believe that the issuance T-bonds to the value of 7 Billion

in the series “11.20%2023A” after the rejection by the Tender Board and the Governor, is an

oversight by the complete chain of authority, including me.” (Refer Exhibit 21).

L. Further, P Samarasiri confirmed before the PCOI that the minutes of Tender Board meeting did

not came back to Tender Board. The PDD might have knowledge of the acceptance of this ISIN.

M. Therefore, on the basis of explanations provided by the CBSL employees during the interviews

and the documents for accepting the offer after the rejection by the Tender Board, the basis

for accepting funds in these offers is considered irregular and unauthorized. Furthermore, the

final decision of Tender Board and Governor was overlooked by the officials of the PDD.

(Refer Section 6.5 for the detailed scrutiny of this offers)

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6.4.3. ISSUANCE OF TREASURY BONDS AGAINST THE ADVICE OF ASPD

A. On review of the documents for one of the offers with bond series “12.00%2041A” issued on 5

February 2016, it was noted that, the accepted value for this offer was Rs. 10,250 Million which

was more than the value offered by the PDD amounting to Rs. 10,000 Million.

B. On evaluation of the bid allocation in this offer, it was noted that captive sources had placed

their bids in this offer, however, no allocation of Treasury Bonds were made to the captive

sources. A summary of the bids received, and allocation made is as under:

Other Investors include Commercial Bank of Ceylon, HSBC, Natwealth, Sampath Bank, Seylan Bank, Union bank.

C. Based on the above analysis, it was noted that major portion of the value under this offer was

accepted from PTL and Pan Asia placed bids on behalf of PTL.

D. During the email review of data belonging to Mr. THB Sarathchandra (SPD), it was noted that

Mr. S Pathumanapan (from FO) has sent an email on 1 February 2016, to Mr. Prabath (MO) for

seeking advice regarding the bond series to be issued at this Auction.

E. It was noted that Mr. Prabath raised his concerns on this series and in response to this email,

Ms. UL Muthugala, ASPD, responded on 1 February 2016, that this series may not be issued.

However, it was noted that this series was still issued by the PDD and no allocation was made

to captive sources. (Refer Section 8.1. for the detailed observation of emails)

F. During an interview with Ms. UL Muthugala on 6 September 2019 on 19 September 2019 (Refer

Exhibit 18), for issuance of this series, she stated that “Pathumanapan convinced the officials

of the PDD that they should issue the series 12.00%2041A on 5 February 2016 and the officials

of the PDD relied on him without attributing any ulterior motive to his suggestions.”

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During an interview with Mr. S. Obeysekera (Head of Front Office) on 3 September 2019 (Refer

Exhibit 17) he stated that “FO selects the bond and inform to MO who mention their concerns.

However, ultimate selection is done by SPD.”

Also, Mr. THB Sarathchandra also confirmed during an interview on 19 September 2019 (Refer

Exhibit 19) that “Pathumanapan might have convinced senior officials of the PDD to issue this

series and I also thought MO was raising concern for bond series 12.00%2041A for future

Auctions instead of current Auction of 5th February. The market manipulation by PTL

subsequent to settlement date was not analysed by PDD on real time basis.”

During an interview with Mr. S Pathumanapan on 24 September 2019 (Refer Exhibit 21) who

also signed the bid approved sheet, he confirmed that “The series selected for issue were at

the discretion of senior officials and I believe that my opinion or suggestion could not have

taken precedence over theirs. Therefore, even after Mrs. Muthugala may have rejected the

series, I could not have solely made the decision to issue the series and if the SPD and other

senior officials have taken my name for this, I do not know the reason.”

G. In view of the above facts associated with the transactions and explanations provided by the

employees of the CBSL, the issuance of this offer despite the advice of senior officials of PDD,

without any rationale recorded or other factors attributed, is considered as deviant from the

practices adopted in the PDD.

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6.4.4. DISCREPANCIES IN THE MINUTES OF DDMC

A. As per the process stated in Section 4.2.6. of the Report, the DDMC determines and decides

the proposed monthly borrowing programme for issuance of Treasury Bonds and FO of the PDD

assisted DDMC in the preparation of monthly borrowing programme. In order to validate the

procedures adopted at the meeting of DDMC, the documents – cashflow statements received

from the Treasury Operation Department, Minutes of the DDMC meeting, borrowing programme

prepared by the DDMC, cashflow statements attached with the minutes of DDMC meeting of

current month and previous month were reviewed. The following procedures were performed

during the review of documents provided by the PDD of the CBSL:

1. Reviewed monthly cashflow statement provided by the Treasury Operation Department to

the PDD wherein the funds requirements of Government for each month were mentioned;

2. Verified the cashflow statements as provided by the Treasury Operation Department for

current month matched with the cashflow statement attached with the minutes of DDMC

meeting of same month;

3. Verified that the value of funds mentioned in cashflow statement as provided by the

Treasury Operation Department matched with estimated figures in cashflow statement

attached in the minutes of DDMC meeting in next month;

4. Reviewed the borrowing programme proposed by the DDMC was in line with the fund

requirement raised by the Treasury Operation Department in terms of date of funds

requirement, type of Government securities, value of funds required; and

5. It was noted that no internal audit Reports were available for the Review Period covering

review of DDMC minutes and comparison of borrowing plan with the requirements raised

by the Treasury Operation Department.

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B. Based on above mentioned procedures and documents review, it was noted that the monthly

borrowing programme for February 2016 was proposed in the DDMC meeting held on 29 January

2016 wherein funds amounting to Rs. 45,802 Million was proposed to be raised through issuance

of Treasury Bonds. The following anomalies were noted in the minutes of the meeting of DDMC

of 29 January 2016:

1. TWO DIFFERENT BORROWING PROGRAMMES FOR THE DDMC MEETING

a. It was noted that two different monthly borrowing programmes for the month of

February 2016 were attached as “Annexure 1” in the minutes of DDMC Meeting held on

29 January 2016 (Refer Exhibit 40)113 and both documents had consecutive scan number

as 00028 and 00029 (Referred as “Document No. 00028” and “Document No. 00029”

respectively).

b. As per Document No. 000029, the value mentioned in “Total for the month” amounting

to Rs. 65,300 Million (arithmetical error as the total value was Rs. 45,802 Million)

whereas as per “Document No 00028”, the value mentioned in “Total for the month”

amounting to Rs. 45,802 Million. However, the rationale of preparation of two different

monthly borrowing programme by FO could not be ascertained.

c. These two documents “Document No. 00028” and “Document No. 00029” had different

amount for the funds to be raised on 12 February 2016 and 19 February 2016. The

below mentioned is the list of dates where differences were identified and discussed

hereinafter:

TABLE 36: List of dates of difference in borrowing program (Amount in Rs. Million)

Auction Date Value Date Type of Issue as per DDMC

Funds proposed as per Document no. 00028

Funds proposed as per Document no. 00029

Difference

5-Feb-2016 12-Feb-2016

Treasury Bonds 10,650 17,850 7,200

8-Feb-2016 to 15-Feb-2016

19-Feb-2016

SLDB 15,650 8,450 (7,200)

TOTAL 26,300 26,300 -

113 Refer Exhibit 40 for the minutes of DDMC meeting of 29 January 2016

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d. On review of documents pertaining to the Auction of 5 February 2016, it was noted

that the PDD offered funds amounting to Rs. 10,000 Million (in line with “Document

No. 00028”). However, as per the Tender Board minutes (Refer Exhibit 41)114 held on

5 February 2016, it was noted that the Tender Board found the bids of this Auction

relatively favourable and recommended to accept additional debt amounting to Rs.

7,250 Million out of the future debt requirement on 19 February 2016 as well.

It indicates that the Tender Board had knowledge of borrowing requirement as

mentioned in “Document No. 00028” only, wherein funds requirement on 19 February

2016 was mentioned and was unaware of borrowing requirement mentioned in

“Document No. 00029”.

e. It should be noted that the Tender Board decided to raise the additional debt of Rs.

7,250 Million through this Auction on 5 February 2016 and this difference matched with

the “Document No. 00029”, which was attached with DDMC meeting of 29 January

2016.

It indicates that the “Document No. 00029” was potentially created on post facto basis

by FO of the PDD and gives rise to the suspicion that the other minutes of DDMC

meeting, provided for our review, might also be prepared and approved on post facto

basis.

2. CONSISTENCY IN THE DDMC BORROWING PROGRAMME AND ACTUAL FUNDS ACCEPTED

BY THE TENDER BOARD:

As per “Document No. 00028”, borrowing programme was made for raising funds amounting

to Rs. 15,650 Million through Sri Lanka Development Bonds (“SLDB”) on value date as 19

February 2016. However, additional funds amounting to Rs. 7,250 Million has been raised

through Treasury Bonds on 5 February 2016. The acceptance of debt was not in line with

the instructions from the Treasury Operation Department, in the absence of an evidence

of concurrence from the Treasury Operation Department, is considered irregular and

unauthorised, funds accepted by the Tender Board.

114 Refer Exhibit 41 for the minutes of meeting of Tender Board of 5 February 2016.

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3. SPECIFIC ISIN NOT MENTIONED IN THE TENDER BOARD:

The Tender Board minutes did not mention about the specific ISIN from which the

additional debt to be raised. In the absence of clear indication in the Tender Board

regarding the specific ISIN from where additional debt to be raised, the associated PDs to

whom funds were allocated, could not be ascertained. Therefore, the PDs to whom benefit

has been passed upon could not be identified.

4. NON-CONSIDERATION OF REVISED BORROWING PROGRAMME IN DDMC MEETING OF NEXT

MONTH:

On review of minutes of DDMC meeting for the month of March 2016, it was not mentioned

about the revised borrowing programme i.e., “Document No. 00029”, which raised

concerns that the estimated borrowing programme for February 2016 was not considered

by the members of DDMC meeting for month of March 2016.

5. AUCTION CONDUCTED ON 29 FEBRUARY 2016 IN SPITE OF NO REQUIREMENT IN

CASHFLOW STATEMENT:

It was noted that Auction was conducted on 29 February 2016, however, there was no

borrowing programme made by the DDMC for this Auction.

C. In order to identify the reasons for two different programs, during an interview with Mr. THB

Sarathchandra (SPD) on 19 September 2019, (Refer Exhibit 19) he stated that “Two different

borrowing program cannot be submitted to the Governor. The revised borrowing program for

February 2016 could have been prepared by Pathumanapan to cover up the acceptance of more

funds from this bond series and maximum allocation to PTL”

D. When Mr. S Pathumanapan was interviewed on 24 September 2019 (Refer Exhibit 21) about

preparation of two borrowing program, he stated that “I cannot recall preparing two versions

of the Domestic Borrowing Programme for the month of February 2016 and I believe that it is

impossible for there to be multiple versions of the same. However, the only people working

in the Front Office at that time were Mr. S. Obeysekera and me and therefore, this might

have been prepared by one of us. Having said that, I cannot recall the reason for this and if

the SPD has taken my name for this, I do not know the reason.”

E. During interview with Mr. S. Obeysekera (Head of Front office) on 3 September 2019 (Refer

Exhibit 17) he stated that “I do not exactly recollect. I presume that document stated as 00028

is the correct version and document number 00029 was presented in error.”

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F. Therefore, on the basis of above facts and explanations by the officials of the CBSL, it can be

inferred that

1. It was unusual that there were two different borrowing program and revised version of

borrowing program was in line with the Tender Board decision taken after the Auction of

5 February 2016.

2. As informed by officials of the CBSL stated that two borrowing programs would not be

presented to the Governor, which indicates that the revised borrowing program was

prepared on post facto basis.

(Refer Section 6.5. of the Report for the detailed scrutiny of these offers)

6.5. ANALYSIS OF SPECIFIC AUCTIONS OF TREASURY BONDS

In order to facilitate the process of examining the Treasury Bonds issued during our Review Period,

all 127 offers were reviewed. Out of 127 offers issued in 45 Auctions, 30 offers were cancelled. In

order to identify the possibility of leakage of insider information, deviation from regulations/

guidelines and involvement of external parties, officials of the CBSL, the 97 accepted offers issued

in 41 Auctions were examined on the basis of following parameters:

A. Bids submission by PDs was 3 times more than the amount offered by the PDD;

B. Value accepted by the PDD was 3 times more than the amount offered by the PDD;

C. Success ratio and allocation ratio of PDs was more than 35%;

D. No allocation made to captive sources;

E. Transactions done by PDs for ISIN in the Secondary Market at higher prices ;

F. Impact on offer due to cancellation of another offer;

G. Other anomalies such as issue on specific request of Governor, two different borrowing

programs in the DDMC; and

H. Any other documentary evidence, voice recordings produced, relevant statements of the

employees of the CBSL which establishes some irregularity.

While performing the Test (A) to (D), the bids submitted by the PDs and bids allocated to such PDs

after considering the transactions of Front-Ending were reviewed.

While performing the Test (E), the CDS data provided by the CBSL was reviewed and based on CDS

data, the prices for the ISIN traded in Secondary Market, transactions done by one PDs with other

PDs at high prices as compared to average trading rates prevailing in Secondary Market, who was also

involved in Primary Market, were considered.

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While performing Test (F), the offers which were cancelled by the Tender Board were reviewed. The

yield rates of the cancelled offers were compared with the yield rates of subsequent accepted offers

and the impact of cancellation on other offers were analysed.

While performing Test (G), the documents provided by the CBSL were reviewed and concerns were

also discussed with the officials of the CBSL, wherever required.

While performing Test (H), the evidence in form of voice recordings, call log records, explanations

given by officials of the CBSL during interview were considered.

Based on review of documents, trend analysis, Secondary Market transactions in CDS data and

evidence in form of call records, voice recordings, statements given by officials of the CBSL, the

following Table is prepared which includes the details of all accepted 97 offers such as ISIN, date of

Auction, identification of anomalies in that offer and availability of corroborative evidence:

TABLE 37: Frequency table of 97 accepted offers

# Date of Auction

ISIN A B C D E F G H

1 27-Feb-2015 LKB03045C013

2 10-Mar-2015 LKB02035C155

3 10-Mar-2015 LKB00922G017

4 10-Mar-2015 LKB01025C157

5 12-Mar-2015 LKB00618F013

6 12-Mar-2015 LKB01023I019

7 17-Mar-2015 LKB00619I155

8 17-Mar-2015 LKB00821H019

9 26-Mar-2015 LKB01023I019

10 26-Mar-2015 LKB00619I155

11 30-Mar-2015 LKB01025C157

12 30-Mar-2015 LKB00820F015

13 7-Apr-2015 LKB00821H019

14 7-Apr-2015 LKB00417E153

15 21-Apr-2015 LKB00618F013

16 29-Apr-2015 LKB01025C157

17 29-Apr-2015 LKB00618F013

18 5-May-2015 LKB00520E014

19 12-May-2015 LKB00619G019

20 19-May-2015 LKB01025C157

21 28-May-2015 LKB01023I019

22 28-May-2015 LKB01530E152

23 28-May-2015 LKB00520E014

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# Date of Auction


24 9-Jun-2015 LKB00922J011

25 9-Jun-2015 LKB00520E014

26 12-Jun-2015 LKB00922J011

27 12-Jun-2015 LKB01025C157

28 23-Jun-2015 LKB00517F157

29 23-Jun-2015 LKB00718K151

30 29-Jun-2015 LKB01022A018

31 29-Jun-2015 LKB01123I017

32 29-Jun-2015 LKB00820F015

33 2-Jul-2015 LKB00520E014

34 2-Jul-2015 LKB00922J011

35 9-Jul-2015 LKB00922J011

36 9-Jul-2015 LKB00520E014

37 9-Jul-2015 LKB00721J157

38 14-Jul-2015 LKB01023I019

39 14-Jul-2015 LKB00418J150

40 27-Jul-2015 LKB00619G019

41 27-Jul-2015 LKB00821H019

42 4-Aug-2015 LKB00821H019

43 4-Aug-2015 LKB01025H016

44 11-Aug-2015 LKB01025H016

45 11-Aug-2015 LKB00520E014

46 25-Aug-2015 LKB01025H016

47 25-Aug-2015 LKB01023I019

48 31-Aug-2015 LKB01226F014

49 31-Aug-2015 LKB00520E014

50 31-Aug-2015 LKB00821H019

51 8-Sep-2015 LKB01530E152

52 8-Sep-2015 LKB00520E014

53 8-Sep-2015 LKB01023I019

54 15-Sep-2015 LKB01528I017

55 15-Sep-2015 LKB00520E014

56 15-Sep-2015 LKB00922J011

57 15-Sep-2015 LKB01025H016

58 28-Sep-2015 LKB01528I017

59 28-Sep-2015 LKB00619I155

60 28-Sep-2015 LKB00821H019

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# Date of Auction


61 26-Oct-2015 LKB01528I017

62 26-Oct-2015 LKB02035C155

63 26-Oct-2015 LKB00619I155

64 26-Oct-2015 LKB00922J011

65 30-Oct-2015 LKB00520E014

66 30-Oct-2015 LKB01530E152

67 27-Nov-2015 LKB01226F014

68 27-Nov-2015 LKB02035C155

69 27-Nov-2015 LKB00520E014

70 15-Dec-2015 LKB02035C155

71 15-Dec-2015 LKB01025H016

72 18-Dec-2015 LKB00520L159

73 18-Dec-2015 LKB01530E152

74 18-Dec-2015 LKB02035C155

75 23-Dec-2015 LKB00520L159

76 23-Dec-2015 LKB01025H016

77 23-Dec-2015 LKB01023I019

78 8-Jan-2016 LKB01025H016

79 8-Jan-2016 LKB01530E152

80 8-Jan-2016 LKB02541A016

81 28-Jan-2016 LKB01226F014

82 28-Jan-2016 LKB01530E152

83 5-Feb-2016 LKB01530E152

84 5-Feb-2016 LKB02541A016

85 29-Feb-2016 LKB00821H019

86 29-Feb-2016 LKB01023I019

87 29-Feb-2016 LKB01518B013

88 17-Mar-2016 LKB01024A014

89 17-Mar-2016 LKB00520E014

90 29-Mar-2016 LKB01025C157

91 29-Mar-2016 LKB01226F014

92 29-Mar-2016 LKB01530E152

93 29-Mar-2016 LKB00520E014

94 31-Mar-2016 LKB01528I017

95 31-Mar-2016 LKB01518B013

96 31-Mar-2016 LKB00619G019

97 31-Mar-2016 LKB00821H019

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NOT APPLICABLE

APPLICABLE

Based on above table, the following Auctions are considered necessary to closely examine as they

qualify in the list of aforesaid mentioned tests and evidences were also observed for these offers

due to which they require detailed scrutiny:

TABLE 38: Details of offers (Amount in Rs. Million)

# Date of Auction

Settlement Date

ISIN Bond series Offered Value

Accepted Value

1 27-Feb-2015 2-Mar-2015 LKB03045C013 12.50%2045A 1,000 10,058

2 26-Oct-2015 2-Nov-2015 LKB02035C155 11.50%2035A 10,000 22,340

3 26-Oct-2015 2-Nov-2015 LKB00619I155 10.60%2019B 7,000 8,000

4 30-Oct-2015 2-Nov-2015 LKB00520E014 09.25%2020A 3,000 3,669

5 30-Oct-2015 2-Nov-2015 LKB01530E152 11.00%2030A 3,000 6,700

6 27-Nov-2015 4-Dec-2015 LKB02035C155 11.50%2035A 7,000 18,850

7 15-Dec-2015 18-Dec-2015 LKB02035C155 11.50%2035A 5,000 12,555

8 15-Dec-2015 18-Dec-2015 LKB01025H016 11.00%2025A 3,000 3,000

9 8-Jan-2016 11-Jan-2016 LKB01025H016 11.00%2025A 5,000 6,059

10 8-Jan-2016 11-Jan-2016 LKB01530E152 11.00%2030A 5,000 13,585

11 8-Jan-2016 11-Jan-2016 LKB02541A016 12.00%2041A 8,000 19,635

12 28-Jan-2016 1-Feb-2016 LKB01226F014 11.00%2026A 3,000 6,190

13 28-Jan-2016 1-Feb-2016 LKB01530E152 11.00%2030A 5,000 15,650

14 5-Feb-2016 12-Feb-2016 LKB01530E152 11.00%2030A 3,000 10,455

15 5-Feb-2016 12-Feb-2016 LKB02541A016 12.00%2041A 5,000 10,250

16 29-Feb-2016 1-Mar-2016 LKB00821H019 11.00%2021A 3,000 5,312

17 29-Feb-2016 1-Mar-2016 LKB01023I019 11.20%2023A 3,000 7,637

18 29-Feb-2016 1-Mar-2016 LKB01518B013 08.50%2018A 3,000 5,305

19 17-Mar-2016 18-Mar-2016 LKB01024A014 11.40%2024A 2,000 6,620

20 17-Mar-2016 18-Mar-2016 LKB00520E014 09.25%2020A 1,000 1,305

21 29-Mar-2016 1-Apr-2016 LKB01025C157 10.25%2025A 10,000 21,475

22 29-Mar-2016 1-Apr-2016 LKB01226F014 11.00%2026A 10,000 17,010

23 29-Mar-2016 1-Apr-2016 LKB01530E152 11.00%2030A 10,000 28,975

24 29-Mar-2016 1-Apr-2016 LKB00520E014 09.25%2020A 10,000 10,272

25 31-Mar-2016 1-Apr-2016 LKB01528I017 11.50%2028A 10,000 21,660

26 31-Mar-2016 1-Apr-2016 LKB01518B013 08.50%2018A 5,000 9,000

27 31-Mar-2016 1-Apr-2016 LKB00619G019 10.60%2019A 5,000 5,000

28 31-Mar-2016 1-Apr-2016 LKB00821H019 11.00%2021A 5,000 14,350

The above mentioned 28 offers issued in 12 Auctions are explained in detail in subsequent Sections

of the Report.

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6.5.1. TREASURY BOND AUCTION HELD ON 27 FEBRUARY 2015

The following offer was issued and accepted by the PDD on 27 February 2015 with settlement date

of 2 March 2015:

TABLE 39: Details of offers issued (Amount in Rs. Million)

ISIN Bond Series Amount offered Bids received Bids accepted

LKB03045C013 12.50%2045A 1,000 20,708 10,058

The following anomalies were noted in the Auction held on 27 February 2015:

1. Value accepted by the PDD was three times more than the value offered by the PDD;

2. Bids submitted by one of the PDs was three times more than the value offered by the PDD;

3. Front-Ending was done by Bank of Ceylon on behalf of PTL due to which success ratio of PTL

stand increased to 33.33% and allocation ratio to 50%; and

4. Other anomalies were also noted in call log records, voice recordings, change in policy

decisions, instruction given by the Governor.

The above-mentioned anomalies and supporting evidence pertaining to Auction held on 27 February

2015 is explained in detail as under:

MEETING OF MONETARY BOARD HELD ON 23 FEBRUARY 2015

A. As per the facts stated in PCOI Report, meeting of the Monetary Board was held on 23 February

2015 which was chaired by Mr. Arjuna Mahendran. During the said meeting, there were

discussions with regards to issuance of the 30 Year Treasury Bond, for which Auction was

conducted on 27 February 2015. The notes of the meeting were written by Mr. H.A. Karunaratne

(newly appointed Secretary to the Monetary Board).

B. One of the member present in the meeting namely Mr. P. Samarasiri (DG overseeing the PDD)

before the PCOI (Section 5.12 of Chapter 5 of the PCOI Report) stated that on 27 February

2015, he received the draft Minutes of the meeting from Mr. H.A. Karunaratne and he corrected

the minutes to “The Board was of the view that issuing 30 year Treasury bonds would be

favourable at this stage to extend the yield curve and re-profile the debt service as there is

good interest shown by foreign investors. Accordingly, the Board instructed the

Superintendent of Public Debt to conduct a 30-year Treasury bond Auction during the week

and arrange to list sovereign bonds in Euro Clear Exchange in the future.”

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C. During ESI review of Mr. P. Samarasiri (DG overseeing the PDD), handwritten notes by Mr. HA

Karunaratne for the meeting of the Monetary Board were obtained (Refer Exhibit 42)115 and on

review of handwritten notes, it was mentioned that “Should we have a T-Bond Auction of 30

year?”

Based on the handwritten notes, it can be inferred that there were discussions regarding the

issuance of 30-year Treasury Bond, but no clear instructions were given on 23 February 2015

to issue 30-year Treasury Bond.

DATE OF ADVERTISEMENT- 25 FEBRUARY 2015

A. The PDD received cashflow statement on 23 February 2015 for March 2015 (Refer Exhibit 43)116

wherein it was mentioned that there was fund requirement of Rs. 13.55 Billion on 2 March

2015. The PDD conducted an Auction on 27 February 2015 for which advertisement was released

on 25 February 2015 (Refer Exhibit 44)117 where value offered by the PDD was Rs. 1 Billion.

B. As stated by Ms. CMDNK Seneviratne (SPD) before the PCOI (Section 5.6, Chapter 5 of the PCOI

Report) on inquiry upon issuing offer only Rs. 1 Billion against the fund requirement of Rs.

13.55 Billion, she stated that “According to our experience, we know we can’t inform the exact

volume to investors. When investors know that the Government requirement is really high,

they will bid at higher rate.”

C. She stated that Mr. Ananda Silva (DG) verbally informed her on 24 February 2015 that the

Monetary Board instructed the PDD to take immediate action to hold an Auction of 30 Year

Treasury Bond and she also confirmed this instruction from Mr. HA Karunaratne.

D. Mr. Ananda Silva (DG) stated before the PCOI that Mr. Mahendran telephoned him and asked

to tell SPD to quickly issue a 30-year Bond. He also stated that Mr. Mahendran did not indicate

the value of the Treasury Bonds to be issued at the Auction.

E. Therefore, the PDD offered Rs. 1 Billion from Auction considering raising remaining value of

Rs. 12.55 Billion from Direct Placements.

115 Refer Exhibit 42 for the handwritten notes by Mr. HA Karunaratne. 116 Refer Exhibit 43 cashflow statement for the month of March 2015 dated 23 February 2015. 117 Refer Exhibit 44 Advertisement released on 25 February 2015 for the Auction held on 27 February 2015.

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BREAKFAST MEETING HELD ON 26 FEBRUARY 2015

A. As per the facts stated in PCOI (Section 19.2.3 of Chapter 19 of the PCOI Report) that on 26

February 2015, a “Breakfast meeting” was held in the morning of 26 February 2015 at the CBSL.

In this meeting, Ministers from Finance, Highways, Higher Education and Investment

Promotion, Road Development Authority and several officials were present. Mr. Arjuna

Mahendran and three DG namely- Mr. P. Samarasiri, Mr. BDWA Silva, Mr. N. Weerasinghe had

represented the CBSL at this meeting.

B. It was also stated that no request was made at the “Breakfast meeting” to raise funds at the

Treasury Bond Auction to be held on 27 February 2015 for the purpose of paying amounts due

on Road Projects or for any other purpose.

C. As per call log records provided by CID, it was noted that Mr. Arjuna Mahendran sent an SMS to

Mr. Ronald Perera at 12:10 p.m. on 26 February 205. However, the contents of this SMS are not

available and hence, the nature information shared with Mr. Ronald Perera cannot be

ascertained. (Refer Section 3.9. of the Report for the explanations and relevant evidence for

the above-mentioned call logs).

AUCTION OF 27 FEBRUARY 2015

A. The DDMC meeting for the month of March 2015 held on 27 February 2015 wherein DDMC

proposed borrowing program for 2 March 2015 valuing Rs. 13.55 Billion. As per borrowing

program (Refer Exhibit 45)118, it was decided to conduct Auction for Rs. 1 Billion and Direct

Placement for Rs. 12.55 Billion.

B. In this Auction, value offered by the PDD was Rs. 1 Billion and value accepted was Rs. 10.058

Billion which was 10 times of the value offered by the PDD. The bids submission and bids

allocation of PDs on this Auction are as under:

TABLE 40: Details of bids submission and allocation (Amount in Rs. Million)

Name of PD/ EPF

Bids submitted by PD before Front-Ending

Bids Allocated to PD before Front-Ending

Bids submitted by PD after Front-Ending

Bids Allocated to PD after Front-Ending

Acuity securities

150 50 150 50

BOC 13,508 508 508 508

Capital alliance 100 100 100 100

Commercial bank of Ceylon

100 - 100 -

118 Refer Exhibit 45 for the proposed borrowing program of the DDMC.

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Name of PD/ EPF

Bids submitted by PD before Front-Ending




EPF 2,000 2,000 2,000 2,000

Entrust securities

100 100 100 100

First capital 100 100 100 100

HSBC 100 100 100 100

Natwealth 100 100 100 100

NSB 300 300 300 300

Pan Asia 500 250 500 250

People's Bank 100 100 100 100

PTL 2,000 2,000 15,000 5,000

Sampath Bank 100 - 100 -

Seylan Bank 1,250 1,250 1,250 1,250

Union Bank 100 - 100 -

WealthTrust 100 100 100 100

The below chart indicates the detailed breakdown of bids submitted and bids allocation

against such submission to PDs in ISIN LKB03045C013:

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Based on documents provided by BOC, it was observed that BOC has placed bids on behalf of

PTL for Rs. 13,000 Million (Refer Exhibit 46)119 which led to success ratio of PTL stand increased

to 33.33% and allocation ratio of 50%.

C. As per the facts stated in the PCOI Report that Mr. Arjuna Mahendran visited first time in the

PDD on 27 February 2015 at 10:45 A.M. and asked for the bid details, which was not possible

during the Auction time. At the closure of Auction, the PDD prepared the Option Sheet (Refer

Exhibit 47)120 recommending Rs. 2.608 Million at WAYR of 10.75% after considering the bids

received and the prevailing market conditions.

D. Thereafter, on the second visit of Mr. Mahendran along with Mr. BDWA Silva (DG) and Mr. N.

Weerasinghe (DG) to the PDD before the Tender Board meeting, he took the Bids Received

sheet and asked to accept entire bids received of Rs. 20 Billion to which concerns with regards

to the interest rate structure and dummy bids were raised by Ms. CMDNK Seneviratne (SPD)

and Dr. MZM Aazim (ASPD).

E. Mr. Mahendran inquired about the WAYR of last 30-year Bond held in September 2014 and the

value that can be accepted at WAYR of last Auction. The officials of the PDD informed him

about the WAYR of last Auction which was 11.75% and bids valuing Rs. 10 Billion could be

accepted at WAYR of 11.75% in this Auction.

F. Mr. Mahendran instructed to accept bids for Rs. 10 Billion and accordingly, the PDD prepared

revised TEC Option sheet (Refer Exhibit 48)121 wherein amount recommended was Rs. 10.058

Million was mentioned.

G. Dr. MZM Aazim stated before the PCOI that Mr. Arjuna Mahendran mentioned about the

additional government funding requirement pertaining to road development activities and

mentioned about his preference for Auctions-based financing.

During interview with Dr. MZM Aazim on 20 September (Refer Exhibit 20) he confirmed that

“No oral instructions or documentary request was ever received by PDD for raising of

additional funds on 27 February 2015.”

H. It was also noted that on 27 February 2015, PTL purchased this ISIN valuing Rs. 5 Billion at an

average price of Rs. 91.57 per Bond in Primary Market. However, bids valuing Rs. 3.25 Billion

were accepted from other PDs at bid price of more than Rs. 99.99 per Bond.

It seems that PTL had insider information and obtained significant advantage over all other

market participants.

119 Refer Exhibit 46 for the copy of confirmation documents submitted by BOC 120 Refer Exhibit 47 for the original Option Sheet/ recommendation of the TEC. 121 Refer Exhibit 48 for the revised Option Sheet/ recommendation of the TEC.

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I. It was further noted that PTL placed total three bids, one for Rs. 3 Billion and two bids for Rs.

5 Billion each through BOC at yield rates of 12.50%, 12.75% and 13% respectively. Moreover,

these bids were placed after 10:30 A.M.

During interview with Ms. UL Muthugala (ASPD) on 6 September 2019 (Refer Exhibit 18) she

stated that “Mr. Indika Saman Kumara stated that the market rate should be increased to

12.50% in the gathering of officials of PDD and Mahendran”.

Therefore, it indicates that PTL was aware of the rates at which bids might be accepted by the

PDD.

J. It was observed that PTL was allocated only Rs. 27 Million in all the Auctions held since PTL

started participation in Auctions till February 2015. In Auction of 27 February 2015, PTL placed

bids for Rs. 15 Billion and was allocated Rs. 5 Billion.

Based on this high volume of bidding and allocation pattern in contrast to the results of previous

Auctions participated by PTL, it can be inferred that PTL was assured of high allocation in this

Auction.

K. As per call log records provided by the CID, it was noted that Mr. Arjuna Mahendran had

telephone conversation with Ronald Perera (Chairman of BOC) on the date of Auction. The

details of call logs are as under:

TABLE 41 : Details of call logs

Time Duration From To

10:18:02 206 Mr. Ronald Perera Mr. Arjuna Mahendran

L. On review of copies of voice recordings provided by PDs, conversations were noted between

Mr. Dharampala (BOC) and Mr. Kasun Palisena (PTL) which reveal that Mr. Dharampala placed

bids on behalf of PTL and he was uncertain for the bid acceptance of PTL. The details are as

under:

TABLE 42 : Details of voice recordings

Date From To Content

10:13 A.M. Kasun Palisena

JKD Dharampala

PTL could submit some bids through the BOC and wished to do so to facilitate the settlement of payments for bids, if they were accepted. (file name: C113E-Marked Document)

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M. On analysis of the call log records received from CID and voice recordings provided by PDs, the

following timeline was identified at the date of Auction, highlighting Mr. Arjuna Mahendran

involvement in the process for benefitting of PTL:

(Refer Section 3.8. and 3.9. of the Report for the explanations and relevant evidence for the

above-mentioned call log records)

However, during interview with Mr. JKD Dharmapala (Chief Dealer of BOC) on 16 October 2019,

he informed that no instructions were received from Mr. Ronald Perera for the bids placed by

PTL and he also did not inform Mr. Ronald Perera for such high volume of bids placed by PTL.

Also, he stated that the BOC team assumed that the bids placed by PTL were dummy bids.

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EVENTS ON OR AFTER SETTLEMENT OF AUCTION OF 27 FEBRUARY 2015

N. On review of CDS records for the period on and after the settlement of the Auction held on 27

February 2015, it was noted that PTL sold Treasury Bonds to the EPF and WealthTrust at

substantial high margins. The details of transactions as per CDS records are explained as under:

TABLE 43: Details of transactions in Secondary Market (Amount in Rs. Million)

Date Seller Buyer Face Value (Rs. Million)

Quantity (A) Buying rate per Bond (B)

Selling rate per Bond (C)

Difference (D)=(C)-(B)

Gain (D)*(A)

30-Apr-2015

PTL WealthTrust 500 5 101.56 111.30 9.74 48.70

7-May-2015 PTL WealthTrust 400 4 101.56 111.53 9.97 39.88

11-Jun-2015

PTL EPF 2,000 20 101.56 121.56 20 400.00

18-Jun-2015

PTL WealthTrust 500 5 101.56 121.80 20.24 101.20

19-Jun-2015

PTL WealthTrust 200 2 101.56 121.83 20.27 40.54

29-Jun-2015

PTL Pan Asia 600 6 101.56 122.12 20.56 123.36

29-Jun-2015

PTL Pan Asia 700 7 101.56 122.12 20.56 143.92

TOTAL 4,900 49 897.60

Note: As per CDS data, the weighted average buying rates were calculated.

O. The above analysis depicts that PTL purchased this ISIN at low prices in Primary Market (Refer

Annexure 29)122 by accessing to insider information and sold this ISIN in Secondary Market at

high prices to other PDs as compared to the average trading price prevailing in the Secondary

Market and made capital gains of Rs. 897.60 Million.

P. It was noted that one of the PD- Seylan Bank also placed bids for Rs. 1,250 Million against the

value of Rs. 1,000 Million offered by the PDD. Therefore, it seems that Seylan Bank was aware

of acceptance of more funds by the CBSL.

However, in the absence of call log records provided by CID and copies of voice recordings

provided by PDs, it cannot be concluded that Seylan Bank had access to insider information.

122 Refer Annexure 29 for the calculation of weighted average prices at which Treasury Bonds were purchased by PTL.

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Q. Based on above review of call log records provided by CID, available copies of voice recordings

provided by PDs, Front-ending transactions and transactions in Secondary market, it indicates

that the Auction outcome and exceptional bidding pattern of PTL was based on insider

information as under:

1. PTL, directly and indirectly, placed bids for Rs. 15 Billion which was 15 times over and

above the volume offered by the PDD which indicates availability of insider information

that high value of funds will be accepted in this Auction and Direct Placements will be

abolished;

2. Bids placed by PTL at higher yield rates in comparison to yield rates placed by other PDs

which indicates that PTL was aware that bids up to such higher yield rates and such a high

volume will be accepted;

3. The statements before PCOI establishes that bids to value of Rs. 10.058 Billion were

accepted solely on the instruction of Mr. Arjuna Mahendran due to additional fund

requirement for Road projects;

4. PTL was allocated Rs. 5 Billion (50% of total accepted value) at substantial lower prices

and it sold this ISIN in Secondary Market at very high prices due to which it made huge

capital profits; and

5. Bids placed and allocated to PTL was inconsistent with the bidding pattern of PTL in the

past Auctions as PTL has been allocated Rs. 27 Million since it commenced its operations

in year 2014 till February 2015.

However, the documentary and digital evidences reviewed (as provided in the respective


suggest that Mr. Arjuna Mahendran or any other employee of CBSL was directly involved in

sharing insider information with Mr. Arjun Aloysius or PTL. It is pertinent to note that the CBSL

did not installed voice record system at the PDD and significant limitations existed on the



6.5.2. TREASURY BOND AUCTION OF 26 OCTOBER 2015

The following offers were issued and accepted by the PDD on 26 October 2015 with settlement

date of 2 November 2015:

TABLE 44: Details of ISINs offered on 26 October 2015 (Amount in Rs. Million)

ISIN Bond Series Amount offered

Bids received

Bids accepted

Anomalies

LKB00619I155 10.60%2019B 7,000 32,562 8,000 Success ratio and allocation ratio of one PDs was 100%

LKB00922J011 10.00%2022A 7,000 32,611 6,222 -

LKB01528I017 11.50%2028A 6,000 27,247 8,880 -

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Bids received

Bids accepted

Anomalies

LKB02035C155 11.50%2035A 10,000 37,295 22,340 • Success ratio of one PDs was 100% and allocation was 45%.

• Transactions in Secondary Market by PTL at higher prices as compared to average trading rates prevailing in Secondary market.

• Other anomalies were noted in call log records and copies of voice recordings.

The above-mentioned anomalies and subsequent evidences in the Auction of 26 October 2015 are

explained in detail as under:

A. ISIN LKB00619I155

It was noted that the EPF placed bids for Rs. 8,000 Million and all bids accepted in this series

at this Auction were allocated to the EPF which led to success ratio and allocation ratio of the

EPF to 100%. Upon review of CDS data, no transactions were noted to be undertaken by the

EPF in Secondary Market at high prices. Hence, this ISIN was not reviewed for further scrutiny.

B. ISIN LKB02035C155

1. The bids submission and bid allocation in this ISIN are as under:


Name of PD/ EPF Bids submitted by PD before Front-Ending




Acuity Securities 1,000 - 1,000 -

BOC 1,010 1,010 1,010 1,010

Capital Alliance 1,010 460 1,010 460

Commercial Bank of Ceylon

1,000 - 1,000 -

EPF 10,000 10,000 10,000 10,000

Entrust Securities

1,000 - 1,000 -

First Capital 1,455 105 1,455 105

HSBC 1,000 - 1,000 -

Natwealth 1,005 605 1,005 605

NSB 2,005 500 2,005 500

Pan Asia 4,150 3,900 1,150 900

People's Bank 1,010 10 1,010 10

PTL 2,600 2,250 5,600 5,250

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Sampath Bank 1,000 - 1,000 -

Seylan Bank 1,000 200 1,000 200

Union Bank 1,000 - 1,000 -

WealthTrust 6,050 3,300 6,050 3,300

The below chart indicates the detailed breakdown of bids submitted and bids allocated

against such submission, after Front-Ending, to PDs in ISIN LKB02035C155:

From the above chart, it can be understood that, after considering the documents for

Front-Ending as provided by Pan Asia (Refer Exhibit 49)123, PTL has submitted bids for Rs.

5,600 Million and was allocated Rs. 5,250 Million which led the success ratio of PTL stand

increased to 94% and allocation ratio of 24%. Also, the EPF placed bids for Rs. 10,000 million

and all bids were accepted from the EPF which led to success ratio of the EPF of 100% and

allocation ratio of 45%.

123 Refer Exhibit 49 for the documents provided by Pan Asia for Front-Ending transactions.

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2. On review of call log records provided by CID, it was noted that Mr. Kasun Palisena from

PTL called Mr. Indika Saman Kumara (EPF) on 26 October 2015 at 8:12 am (before the start

of the Auction). Since the contents of this call log are not available, it cannot be concluded

that there was conversation regarding the bidding less volume by the EPF in Primary Market

and dealing in Secondary Market.

EVENTS OCCURRED AT SETTLEMENT DATE

3. On review of CDS data, transactions were observed between PTL, Pan Asia and the EPF in

the Secondary Market on 2 November 2015. The movement of transaction flow in Secondary

Market between PTL, Pan Asia and the EPF has been demonstrated by way of flow chart,

which is as under:

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*Weighted Average Buying rates are considered for Pan Asia for the purchases made from PTL. Further, average buying rates for purchases made by

PTL from the CBSL and Front-ending from PTL were calculated. (Refer Annexure 29).

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*Weighted Average buying rates for purchases made by PTL from the CBSL and Front-ending from PTL were calculated. (Refer Annexure 29)Parliam

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4. The above-mentioned transactions indicate that PTL had undertaken transactions with Pan

Asia in Secondary Market and sold ISIN LKB02035C155 to the EPF at higher rates as

compared to the daily and weekly average trading price for ISIN LKB02035C155 prevailing

in the Secondary Market. It is pertinent to mention here that the EPF placed bids in Primary

Market in the range of Rs. 103 - Rs. 104. However, the EPF has purchased the same ISIN

LKB02035C155 in Secondary Market at bid price of each Treasury Bond at Rs– 116 - Rs. 117

from Pan Asia and PTL. PTL made capital gains of Rs. 652.62 Million (approximately) (Refer

Annexure 30)124 from trading of this ISIN LKB02035C155 with the EPF in Secondary Market.

5. On review of call log records provided by CID, it was noted that during the period

aforementioned transactions took place in Secondary Market, there were multiple calls

between Key Managerial Person (“KMP”) of PTL and Mr. Saman Kumara. Since the contents

of this call log are not available, it cannot be ascertained that there has been any flow of

any price-sensitive information from Mr. Saman Kumara to Mr. Kasun Palisena with regard

to the transactions taking place in the Secondary Market.

The details of call log records are as under:

TABLE 46: Details of call log records

Date of Call

Time Call Duration (seconds)

From To Remarks

2-Nov-2015

14:01:22 28 Mr. Saman Kumara (EPF)

Mr. Kasun Palisena (PTL)

Date of settlement, transactions between Pan Asia, PTL and the EPF

3-Nov-2015

7:58:51 49 Mr. Saman Kumara

Mr. Kasun Palisena Date before Date of settlement, transactions between Pan Asia, PTL and the EPF


Mr. Kasun Palisena


Mr. Kasun Palisena

10:22:00 17 Mr. Kasun Palisena

Mr. Saman Kumara

10:39:59 33 Mr. Kasun Palisena

Mr. Saman Kumara


Mr. Kasun Palisena

5-Nov-2015


Mr. Kasun Palisena Date of settlement,

124 Refer Annexure 30 for the calculation of capital gains earned by PTL from trading in Secondary Market.

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Date of Call


From To Remarks

transactions between Pan Asia, PTL and the EPF

17-Nov-2015

8:26:22 82 Mr. Arjun Aloysius Mr. Saman Kumara Date of settlement, transactions between Pan Asia, PTL and the EPF

(Refer Section 3.9. of the Report for the explanations and relevant evidence for the above-

mentioned call log records)

6. As explained in Para 3 of this Section, there were transactions between PTL and the EPF

through Pan Asia and this was also substantiated from the copies of voice recordings125

between employees of PTL and Pan Asia regarding the transactions with the EPF through

Mr. Saman Kumara confirming that the dealings between the EPF and PTL were conducted

through Pan Asia. The brief details of these conversations are as under:

TABLE 47: Details of voice recordings


2-Nov-2015 Mr. Raveesha (PABC)

Mr. Kasun (PTL)

Raveesha said that the EPF had not put some messages regarding a deal and requests Kasun to inform Mr. Saman and ensure that the messages are sent to the Pan Asia Back Office. (File name 54171.wav)

3-Nov-2015 Mr. David (PTL)

Mr. Kasun (PTL)

Background call with the EPF. Discussion regarding 15.3.35-40:45. Kasun calling other person to call on Indika’ number. (File name 54558.wav)


Mr. Kasun (PTL)

Raveesha asks if 15.3.35 can be bought for 50. Kasun says to hold on to ’t, it'll fall further, and we'll buy for 40 from PABC. (File name 54580.wav)

3-Nov-2015 Mr. David (PTL)

Mr. Kasun (PTL)

Kasun said 28 - 68.9. 9.40:9.50 is the two way no–. 35 - market is at 40:45 and We brought it down to 35:40. This must be some realization of profit. Pan Asia sold a bit. (File name 54603.wav)

125 Based on copies of voice recordings submitted by PDs

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Mr. Kasun (PTL)

Raveesha said that the 1 bn deal done with PTL in the morning, PTL bought at 9.80. Kasun says that it is 9.8050. Buying from PTL and selling to him. (File name 56099.wav)

17-Nov-2015 Mr. Kaushitha/ Kasun (PTL)

Mr. Manju (PTL)

Kaushitha tells Manju to make the deal with the EPF for 1 billion. He asks to make it 800 for Direct EPF and 1 billion through Pan Asia. (File name 59131.wav)


mentioned conversations)

7. Nothing contrary to the facts stated in Chapter 23 of the PCOI Report that PTL and the EPF

entered into a series of buy and sell transactions in Secondary Market through Pan Asia

acting as an intermediary. PTL generated substantial capital gains from these transactions

in the Secondary Market.

8. Based on above review of call log records provided by CID, available copies of voice

recordings provided by PDs and transactions in Secondary market, it can be observed that

PTL made capital gains in the Auction and colluding with Pan Asia in selling securities to

the EPF at higher rates in the Secondary Market.

9. However, the documentary and digital evidences reviewed (as provided in the respective


not suggest these anomalies are directly or indirectly linked to any potential nexus

between the employees of the PDD and the beneficiary PDs. It is pertinent to note that the

CBSL did not installed voice record system at the PDD and significant limitations existed

on the availability of ESI in terms of email files and email deletions, as detailed in the

respective Sections of this Report.

6.5.3. TREASURY BOND AUCTION HELD ON 30 OCTOBER 2015

The following offers were issued and accepted by PDD on 30 October 2015 with settlement date of

2 November 2015:

TABLE 48: Details of ISIN offered on 30 October 2015 (Amount in Rs. Million)


Bids received

Bids accepted

Anomalies

LKB00520E014 09.25%2020A 3,000 30,473 3,669 • Bids submission by WealthTrust was three times more than the value offered by PDD

LKB01024A014 11.40%2024A 3,000 13,735 - -

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Bids received

Bids accepted

Anomalies

LKB01530E152 11.00%2030A 3,000 28,060 6,700 • Front-Ending was done by Pan Asia on behalf of PTL and due to which PTL has success ratio of 93% and allocation ratio of 53%.


• Bids submission by WealthTrust was three times more than the value offered by the PDD

• Other Anomalies were noted in Call log records and copies of Voice recordings of PTL

The above-mentioned anomalies and its supporting evidence noted in the Treasury Bond Auctions

held on 30 October 2015 are described in detail as under:

A. ISIN LKB00520E014

It was noted that WealthTrust provided bids for three times more than the value offered by

PDD. WealthTrust submitted bids for Rs. 11,900 Million against the PDD offered value of Rs.

3,000 Million and it was allocated Rs. 481 Million (13% of total accepted value).

No transactions were noted to be undertaken by WealthTrust in Secondary Market at high prices

upon review of CDS data and no loss was caused to the CBSL as per calculation detailed in

Section 6.6. of the Report. Hence, the voice recordings of the dealer room of WealthTrust

related to this Auction were not reviewed for further scrutiny.

B. ISIN LKB01530E152

EVENTS OCCURRED ON 30 OCTOBER 2015

1. WealthTrust submitted bids 3 times more than the value offered by the PDD and Pan Asia

placed bids on behalf of PTL in this ISIN. The below mentioned are the brief details of bids

submissions and allocation to


Name of PD/EPF Bids submitted by PD before Front-Ending




Acuity Securities 1,100 600 1,100 600

BOC 900 600 900 600

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Capital Alliance 300 - 300 -


400 - 400 -

Entrust Securities 300 - 300 -

First Capital 3,300 - 3,300 -

HSBC 300 - 300 -

Natwealth 300 - 300 -

NSB 1,860 - 1,860 -

Pan Asia 3,400 3,000 900 900

People's Bank 300 - 300 -

PTL 1,300 1,050 4,300 4,050


Seylan Bank 2,050 - 2,050 -


WealthTrust 11,650 1,450 11,650 1,450


against such submission to PDs in ISIN LKB01530E152:


Front-Ending as provided by Pan Asia (Refer Exhibit 49). PTL has submitted bids for Rs.

4,300 Million and allocated Rs. 4,050 Million due to which the success ratio of PTL was 93%

and allocation ratio of 53%.

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2. It is pertinent to mention that EPF did not placed any bids in the Auction of 30 October

2015 for the ISIN LKB01530E152 in the Primary Market and these securities were purchased

by EPF in the Secondary Market at high prices as compared to the daily and weekly average

trading prices prevailing in the Secondary Market for this ISIN.

On review of call log records provided by CID, it was noted that Mr. Arjuna Mahendran

called to Mr. Indika Saman Kumara on 30 October 2015 at 10.12 AM (during the course of

the Auction).

3. It is pertinent to mention here that the EPF abstained from participation in the Auction.

4. Since the contents of this call log are not available, it cannot be ascertained that there has

been any flow of instructions to Mr. Saman Kumara from the then Governor to not

participate in this Auction in Primary Market. (Refer Section 3.9. of the Report for the

explanations and relevant evidence for the above-mentioned call log records)

5. On review of copies of voice recordings provided by the CBSL, it was noted that there were

conversations between employees of PTL and Pan Asia. The brief details are as under:



10:26 A.M. Kasun (PTL)

PABC Kasun trying to call Richie Dias. (File Name “53308.wav”)

3:55 P.M. Kaushitha (PTL)

Raveesha (PABC)

Kaushitha confirmed the Auction deals. Raveesha said he's selling 1-5-30 at 10.34-50. (File Name “53678.wav”)

On the basis of above, it can be concluded that employees of PTL had conversation with

employees of Pan Asia on 30 October 2015 (ISIN LKB01530E152) for bid rates and yield rates

discussion.

It was also noted that Mr. Nuwan Salgado (PTL) called Ms. Monika on 30 October 2015 at

4:25 P.M. (File name “53725.wav”) and discussed about generating profits in a week from

buy-sell deals in the Secondary Market. (Refer Section 3.8. of the Report for the

explanations and relevant evidence for the above-mentioned conversations)

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EVENTS OCCURRED ON AND AFTER SETTLEMENT DATE

6. On review of CDS data for the period after the settlement of the Auction held on 30 October

2015, no transactions were noted in Secondary Market for WealthTrust. However, PTL

(through Pan Asia) sold Treasury Bonds to the EPF at profits indicating possibility of Pan

Asia acting as an intermediary to PTL.

As per CDS data, the movement of transaction flow between PTL, Pan Asia and the EPF has

been demonstrated by way of flow chart, which is as under:

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* Source: Rates are considered from CDS data. The above transactions are tied and agreed with Market Manipulation Report issued by experts

from the CBSL on 31 December 2018.

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7. The above-mentioned transactions were also declared by Pan Asia in Marked Document

“C-186” (Refer Exhibit 50)126 submitted by Pan Asia to PCOI. It includes transactions

pertaining to ISIN issued on 30 October 2015 which were declared as transactions

undertaken by Pan Asia as an intermediary due to “Counterpart Limit Constraints”

between PTL and the EPF.

8. It indicates that there have been series of transactions between PTL, Pan Asia and the

EPF which led to manipulate the prices in Secondary Market for this ISIN. Due to these

transactions, PTL made substantial capital gains of Rs. 235.80 Million from these

transactions of ISIN LKB01530E152. (Refer Annexure 30).

9. On review of call logs provided by CID pertaining to the period the aforementioned

transactions took place in Secondary Market, multiple calls took place between Mr. Kasun

Palisena and Mr. Saman Kumara. Since the contents of the actual communication taken

place in this call log are not available, it cannot be commented upon the conversations

regarding the transactions held in Secondary Market. The details of call log records are

as under:


Date of Call


From To Remarks

2-Nov-2015

14:01:22 28 Mr. Saman Kumara (EPF) Mr. Kasun Palisena (PTL)

Date of settlement, Transactions between Pan Asia, PTL and EPF

3-Nov-2015

7:58:51 49 Mr. Saman Kumara Mr. Kasun Palisena



10:22:00 17 Mr. Kasun Palisena Mr. Saman Kumara

10:39:59 33 Mr. Kasun Palisena Mr. Saman Kumara


5-Nov-2015

7:48:14 66 Mr. Saman Kumara Mr. Kasun Palisena Transfer of securities by EPF to Pan Asia and Pan Asia to PTL

126 Refer Exhibit 50 for the letter submitted by Pan Asia

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(Refer Section 3.9. of the Report for the explanations and relevant evidence for the


10. As explained in Para 5 of this Section, there were transactions between PTL and the EPF

through Pan Asia and this was also substantiated from the copies of voice recordings127

between KMP of PTL and Pan Asia regarding the transactions with the EPF through Mr.

Saman Kumara (Refer Exhibit 27). The brief details of these conversations are as under:



2-Nov-2015 Raveesha (PABC)

Kasun(PTL) Raveesha said that EPF had not put some messages regarding a deal and requests Kasun to inform Mr. Saman and ensure that the messages are sent to the Pan Asia Back Office. (File name 54171.wav)

3-Nov-2015 David (PTL) Kasun (PTL) Kasun calling other person to call on Indika’ number. (File name 54558.wav)

3-Nov-2015 David (PTL) Kasun (PTL) Kasun said 28 - 68.9. 9.40:9.50 is the two way no–. 35 - market is at 40:45 and We brought it down to 35:40. This must be some realization of profit. Pan Asia sold a bit. (File name 54603.wav)

6-Nov-2015 Kaushitha/ Kasun (PTL)

Shashrika (PABC)

Discussion regarding the yield rate for buy-sell deals. (File Name 20151106 – 090220 – 17584 – 0112206123, Mark document “C192B” of

PCOI)


above-mentioned conversations)

11. Nothing contrary to the facts stated in Chapter 23 of the PCOI Report that PTL and the

EPF entered into a series of buy and sell transactions in Secondary Market through Pan

Asia acting as an intermediary. PTL generated substantial capital gains from these

transactions in the Secondary Market.

127 Based on copies of voice recordings submitted by PDs.

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12. Based on available voice recordings provided by PDs, call log records provided by CID and

transactions in Secondary Market, it seems that PTL used insider information of the EPF

not participating in the Auction and in consort with Pan Asia done transactions in

Secondary Market. PTL made capital gains in collusion with Pan Asia by selling securities

to the EPF at higher rates as compared to daily and weekly average trading rates

prevailing in the Secondary Market.



did not suggest these anomalies are directly or indirectly linked to any potential nexus

between the employees of the PDD and the beneficiary PDs. It is pertinent to note that

the CBSL did not installed voice record system at the PDD and significant limitations

existed on the availability of ESI in terms of email files and email deletions, as detailed

in the respective Sections of this Report.

6.5.4. TREASURY BOND AUCTION OF 27 NOVEMBER 2015

The following offers were issued and accepted by PDD on 27 November 2015 with settlement date

of 4 December 2015:

TABLE 53: Details of ISIN offered on 27 November 2015 (Amount in Rs. Million)


Bids received

Bids accepted

Anomalies

LKB00520E014 09.25%2020A 2,000 27,975 1,244 -

LKB01226F014 11.00%2026A 3,000 12,614 500 -

LKB02035C155 11.50%2035A 7,000 12,075 18,850 • Success Ratio of the EPF was 100% and allocation ratio was 37%.

• Front-Ending was done by Pan Asia on behalf of PTL and due to which PTL has success ratio of 85% and allocation ratio of 30%.


• Other anomalies were noted in call log records and copies of voice recordings provided by PDs.

The anomalies and its supporting evidence noted in the ISIN issued on LKB02035C155 in the

Treasury Bond Auctions held on 27 November 2015 are described in detail as under:

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A. It was noted that one of the PDs- EPF placed bids for Rs. 7,000 Million and all bids were

accepted from the EPF which led to success ratio of the EPF to 100% and allocation ratio to

37%. However, upon review of CDS data, no transactions were noted to be undertaken by the

EPF in Secondary Market at high prices.

B. The value offered by the PDD was Rs. 7,000 Million and bids amounting to Rs. 18,850 Million

were accepted by the PDD at WAYR higher than the prevailing Secondary Market yield rates

which caused loss of Rs. 122.19 Million to the CBSL. The below mentioned are the brief details

of bids submission and allocation to PDs:







Bank of Ceylon 700 700 700 700

Capital Alliance 700 400 700 400


750 - 750 -

EPF 7,000 7,000 7,000 7,000

Entrust Securities

700 - 700 -

HSBC 1,800 550 1,800 550

First Capital 850 300 850 300

HSBC 700 - 700 -

Natwealth 700 150 700 150

NSB 1,000 1,000 1,000 1,000

Pan Asia 6,300 6,000 1,800 1,500

People's Bank 700 - 700 -

PTL 2,850 1,750 7,350 6,250


Seylan Bank 1,900 600 1,900 600


WealthTrust 8,350 400 8,350 400

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against such submission to PDs in ISIN LKB02035C155:

The above analysis indicates that, after considering the documents for Front-Ending as

provided by Pan Asia (Refer Exhibit 49), PTL has submitted bids for Rs. 7,350 Million and

allocated Rs. 6,250 Million due to which the success ratio of PTL stand increased to 85% and

allocation ratio to 34%.

C. On review of call log records provided by CID, it was noted that there were conversations

between Mr. Saman Kumara and KMP of PTL on 25 November 2015 and 1 December 2015.

Since the contents of the actual communication taken place in this call log are not available,

it cannot be commented on the nature of conversation happened. The details are as under:


Date of Call Time Call Duration (seconds)

From To Remarks

25-Nov-2015 17:28:33 105 Mr. Arjun Aloysius (PTL)

Mr. Saman Kumara (EPF)

Day after advertisement for Auction of 27 November 2015

20:31:50 63 Mr. Arjun Aloysius (PTL)


20:33:04 12 Mr. Arjun Aloysius (PTL)



Mr. Arjun Aloysius (PTL)

1-Dec-2015


Mr. Sanjeewa Fernando (PTL)

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Date of Call Time Call Duration (seconds)

From To Remarks


Mr. Sanjeewa Fernando (PTL)

Three days before date of settlement

17:55:23 24 Mr. Sanjeewa Fernando (PTL)








EVENTS OCCURRED ON SETTLEMENT DATE

D. It was noted that Pan Asia transferred Treasury Bonds valuing Rs. 4,500 Million to PTL due to

which total allocation of PTL increased to Rs. 6,250 Million. The details are as under:

TABLE 56: Details of transactions with PTL

Seller Buyer Face Value (Rs. Million)

Rate per Bond

Pan Asia PTL 500 111.00



Pan Asia PTL 1,000 109.87





Pan Asia PTL 1,000 109.87

TOTAL 4,500

E. On review of CDS data, it was observed that the transactions were done by PTL in the

Secondary Market on 4 December 2015 by selling Treasury Bonds to the EPF in Secondary

Market at high prices as compared to average trading rates prevailing in the Secondary market

for this ISIN and earned profit of Rs. 199.49 Million. The details of transactions are as under:

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Quantity (A)

Average Buying Rate per Bond (B)

Selling rate per Bond(C)

Difference (D)=(C)-(A)

Gains (A)*(D)

PTL EPF 1,000 10.00 110.30 114.28 3.98 39.79

PTL EPF 1,000 10.00 110.30 114.28 3.98 39.79

PTL EPF 1,050 10.50 110.30 116.15 5.85 61.42

PTL EPF 1,000 10.00 110.30 116.15 5.85 58.49

TOTAL 4,050 40.50 199.49

F. On review of CDS data, it was observed that the transactions were also done by Pan Asia in

the Secondary Market on 4 December 2015 by selling Treasury Bonds to the EPF in Secondary

Market at high prices as compared to average trading rates prevailing in the Secondary market

for this ISIN and made capital gains of Rs. 95 Million. The details of transactions are as under:



Quantity (A)

Average Buying Rate per Bond (B)

Selling rate per Bond (C)

Difference (D)=(C)-(A)

Gains (A)*(D)

Pan Asia EPF 300 3 110.43 114.28 3.85 11.55

Pan Asia EPF 100 1 110.43 115.68 5.25 5.25

Pan Asia EPF 200 2 110.43 115.21 4.78 9.56

Pan Asia EPF 300 3 110.43 116.15 5.72 17.16

Pan Asia EPF 500 5 110.43 116.15 5.72 28.60

Pan Asia EPF 100 1 110.43 116.15 5.72 5.72

Pan Asia EPF 300 3 110.43 116.15 5.72 17.16

TOTAL 1,800 18 95.00

G. It is pertinent to mention here that the EPF placed bids in Primary Market in the range of Rs.

110.69 to Rs.111.570 and the EPF has allocation ratio of 37%. The EPF purchased the same

ISIN in Secondary Market valuing Rs. 5,850 Million at bid price of each Treasury Bond at Rs.

114.28 to Rs. 116.14 from Pan Asia and PTL on same day.

H. On review of copies of voice recordings, various conversations were noted between employees

of PTL regarding the deals with the EPF, which substantiate that above mentioned

transactions were discussed with the EPF on and before the settlement date:

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Date Time From To Content

30-Nov-2015 5:34 p.m. Unknown Mr. Kaushitha (PTL)

Discussion regarding rates for EPF- for 15.3.35 valuing Rs. 1 Billion at 10.10%, whose value is 4 November(File Name: 62833.wav)

2-Dec-2015 11.57 a.m. Manjula Mr. Kaushitha

3 deals to EPF (File Name: 63780.wav)

2-Dec-2015 12.22 p.m. Mr. Kaushitha (PTL)

Manjula Ticket of EPF has been amended several times and bids for Rs. 1 Billion 60 Million to be settled for EPF. (File Name: 63806.wav)

2-Dec-2015 10.21 a.m. Mr. Nuwan Mr. Kavin (DFCC)

Regarding the bids placed by EPF that EPF is bidding so low? (File Name: 63632.wav)



I. Based on available voice recordings provided by PDs, call log records provided by CID and

transactions in Secondary Market, it appears that PTL and Pan Asia made capital gains in

Secondary Market by selling high volume of Treasury Bonds to the EPF at high prices as

compared to average trading rates prevailing in the Secondary market for this ISIN. It would

reduce the loss caused to the CBSL if the EPF purchased directly from the CBSL at same prices.

J. However, the documentary and digital evidences reviewed (as provided in the respective


not suggest these anomalies are directly or indirectly linked to any potential nexus between

the employees of the PDD and the beneficiary PDs. It is pertinent to note that the CBSL did

not installed voice record system at the PDD and significant limitations existed on the



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6.5.5. TREASURY BOND AUCTION HELD ON 15 DECEMBER 2015

The following offers were issued and accepted by PDD on 15 December 2015 with settlement date

of 18 November 2015:

TABLE 60: Details of ISIN offered on 15 December 2015 (Amount in Rs. Million)


Bids received

Bids accepted

Anomalies

LKB02035C155 11.50%2035A 5,000 27,975 12,555 • Success Ratio of EPF was 100% and allocation ratio was 37%

• Another anomaly that this Auction was unauthorised Auction

LKB00520L159 09.50%2020A 2,000 12,614 - • Cancellation of this ISIN increased the pressure of acceptance of more funds from other ISINs at WAYR higher than prevailing Secondary Market yield rates.

• Another anomaly that this Auction was unauthorised Auction

LKB01025H016 11.00%2025A 3,000 12,075 3,000 • Another anomaly that this Auction was unauthorised Auction

Apart from the above-mentioned anomalies, it was also noted that this Auction was conducted on

request of the Governor. The anomalies and its supporting evidence noted in the Treasury Bond

Auctions held on 15 December 2015 are described in detail as under:

A. UNAUTHORISED AUCTION

1. As per the cashflow statement received for the month of December 2015 from the

Treasury Operation Department, there was no fund requirement of the Treasury

Operation Department. Accordingly, no Auction was planned in the proposed borrowing

program by the DDMC for the month of December 2015. However, it was noted that there

were Auctions conducted in the month of December 2015.

2. During email review of Mr. THB Sarathchandra, it was noted that he emailed Ranasiri

(Treasury Operation Department) on the instructions of Governor to check additional

space under borrowing limit for meeting capital expenditure. However, no document/

email were found for the response from Treasury Operation Department and instructions

from the Governor.

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3. During an interview with Mr. THB Sarathchandra on 19 September 2019 (Refer Exhibit 19)

for conducting of Auction on verbal instruction from the Governor and no response from

Treasury Operation Department, he stated that “After receiving the verbal instructions

of the Governor, I checked with Treasury Operation Department for “additional

borrowing limit” through an email. I believe that there was a verbal communication from

the Treasury Operation Department confirming on the proceedings of transaction based

on gross borrowing limit. However, in the absence of document from Treasury Operation

Department for confirmation of this Auction, this Auction can be said to be questionable

action.”

Therefore, in the absence of documents for confirmation from Treasury Bonds, this Auction

can be said to be an unauthorised Auction.

B. ISIN LKB02035C155

1. It was noted that the PDD offered Rs. 5,000 Million against which value accepted by the

PDD was Rs. 12,555 Million at WAYR higher than the prevailing Secondary Market yield

rates, which caused loss ranging from Rs. 233.63 Million to Rs. 314.30 Million.

2. The EPF placed bids for Rs. 7,000 Million and all bids were accepted from the EPF which

led to success ratio of the EPF to 100% and allocation ratio to 37%. Upon review of CDS

data, no transactions were noted to be undertaken by the EPF in Secondary Market at

high prices due to which no further scrutiny was required.

C. ISIN LKB00520L159

In this Auction, the Tender Board had rejected the funds from this ISIN, which in turn may

have led to the pressure of accepting more funds from other ISINs at WAYR higher than the

prevailing Secondary Market rates.

D. Based on above facts and in the absence of the documents for the confirmation from the

Treasury Operation Department, this Auction can be said to be unauthorised Auction. Further,

cancellation of one ISIN LKB00520L159 had increased pressure of acceptance of more funds

from other ISINs which led to increase in cost of funds to the CBSL.








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6.5.6. TREASURY BOND AUCTION OF 8 JANUARY 2016

The following offers were issued and accepted by the PDD on 8 January 2016 with settlement

date of 11 January 2016:

TABLE 61: DETAILS OF ISIN OFFERED ON 8 JANUARY 2016 (Amount in Rs. Million)

ISIN Bond series Amount offered

Bids received

Bids accepted

Anomalies


LKB01025H016 11.00%2025A 5,000 23,379 6,059 -

LKB01530E152 11.00%2030A 5,000 24,285 13,585 • Success Ratio of the EPF was 100% and allocation ratio was 37%

• Front-Ending was done by Pan Asia on behalf of PTL

• Success Ratio of PTL was 100% and allocation ratio was 37% after Front-Ending


• Other anomalies were also noted in relation to call log records, copies of voice recordings, emails of identified employees of the CBSL and minutes of the DDMC.

LKB02541A016 12.00%2041A 8,000 41,975 19,635 • Front-Ending was done by Pan Asia on behalf of PTL;

• Success Ratio of the EPF was 100% and allocation ratio was 37%;


• Other anomalies were also noted in relation to call log records, voice recordings, emails of identified employees of the CBSL and minutes of DDMC.

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The above-mentioned anomalies and supporting documents for the offer issued on 8 January 2016

are explained as under:

A. ISIN LKB00520L159

It was noted that ISIN LKB00520L159 were cancelled by the Tender Board. Due to cancellation

of these offers, it led to increase in pressure of accepting more funds from other ISINs.

B. ISIN LKB01530E152

1. It was noted that value offered by the PDD was Rs. 5,000 Million and accepted by PDD

was Rs. 13,585 Million which was 2 times more than the value offered by the PDD.

Therefore, acceptance of more funds than the offered value and at WAYR higher than the

prevailing Secondary Market yield rates caused loss ranging from Rs. 112.85 Million and

Rs. 141.07 Million to the CBSL. (Refer Section 6.6. of the Report for the computation of

loss.)



data, no transactions were noted to be undertaken by the EPF in Secondary Market at

high price

The below mentioned are the brief details of bids submissions and allocation to PDs:






Acuity Securities 550 300 550 300

BOC 500 - 500 -

Capital Alliance 500 100 500 100


650 650 650 650

EPF 5,000 5,000 5,000 5,000

First Capital 2,100 1,600 2,100 1,600

HSBC 500 - 500 -


NSB 500 300 500 300

Pan Asia 3,400 3,150 400 150

People's bank 535 35 535 35

PTL 2,000 2,000 5,000 5,000


Seylan Bank 500 100 500 100


WealthTrust 6,050 350 6,050 350

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The above chart indicates that the EPF and PTL were allocated high volume of securities

in this Auction. It was noted that Pan Asia placed bids on behalf of PTL for Rs. 3,000 Million

(Refer Exhibit 49) which led to a success ratio of 100% and a total allocation ratio of PTL

of 37%.

EVENTS OCCURRED ON AND AFTER SETTLEMENT DATE

3. On review of CDS records, it was observed that the transactions have been done by PTL

in the Secondary Market on 27 January 2016. PTL had purchased Treasury Bonds from Pan

Asia and further sold them to the EPF at high profits.

The movement of transaction flow in Secondary Market between PTL, Pan Asia and the

EPF has been demonstrated by way of flow chart, which is as under:

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4. The above-mentioned transactions in Secondary Market indicates that PTL had undertaken

transactions with Pan Asia. It is pertinent to mention here that the EPF placed bids in

Primary Market in the range of Rs. 98.22 to Rs. 98.56 and was allocated bids to the value

of Rs. 5,000 Million and the EPF had a success ratio of 100% in this ISIN. However, the EPF

has purchased the same ISIN in Secondary Market at rates of Rs. 103.67 to Rs. 104.34 from

Pan Asia acting as an intermediary on behalf of PTL. PTL made capital gains of Rs. 295.44

Million (Refer Annexure 30) from trading of this ISIN with the EPF in Secondary Market.

D. ISIN LKB02541A016

1. It was noted that value offered by the PDD was Rs. 8,000 Million and accepted by PDD was

Rs. 19,635 Million which was 2 times more than the value offered by the PDD. Therefore,

acceptance of more funds than the offered value and at WAYR higher than the prevailing

Secondary Market yield rates caused loss of Rs. 603.70 Million to Rs. 949.08 Million. (Refer

Section 6.6. of the Report for the computation of loss.)



data, no sale transactions were noted to be undertaken by the EPF in Secondary Market.

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3. In addition to the above, it was also noted that Pan Asia placed bids on behalf of PTL for

Rs. 3,500 Million (Refer Exhibit 49) which led to a success ratio of 98% and a total

allocation ratio of PTL of 20%. The below mentioned are the brief details of bids

submissions and allocation to PDs:


EVENTS OCCURRED AFTER SETTLEMENT DATE

4. On review of CDS records, it was observed that the transactions have been done by PTL in

the Secondary Market in January 2016. PTL had purchased Treasury Bonds from Pan Asia

and further sold them to the EPF at high prices as compared to average trading rates

prevailing in Secondary Market.

The movement of transaction flow in Secondary Market between PTL, Pan Asia and the

EPF has been demonstrated by way of flow chart, which is as under:






BOC 800 - 800 -

Capital Alliance 800 - 800 -


800 50 800 50

EPF 10,000 10,000 10,000 10,000

First Capital 1,600 450 1,600 450

HSBC 800 - 800 -


NSB 800 - 800 -

Pan Asia 4,800 4,000 1,300 500

People's bank 925 35 925 35

PTL 3,100 3,000 6,600 6,500


Seylan Bank 800 - 800 -


WealthTrust 13,150 1,150 13,150 1,150

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*Weighted Average Buying rates were considered for the purpose of calculations (Refer Annexure 29)

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transactions with Pan Asia. It is pertinent to mention here as per CDS records that, the

EPF placed bids in Primary Market for each Treasury Bond in the range of Rs. 99.93 to Rs.

100.32 and was allocated bids to the value of Rs. 5,000 Million and the EPF had a success

ratio of 100% in this ISIN. However, the EPF has purchased the same ISIN in Secondary

Market at rates Rs. 110 from Pan Asia acting as an intermediary on behalf of PTL. PTL

made capital gains of Rs. 788.52 Million (Refer Annexure 30) from trading of this ISIN with

the EPF in Secondary Market.

6. On review of call log records provided by the CID, multiple calls between Mr. Arjun Aloysius

and Mr. Indika Saman Kumara during the period when the transactions in the Secondary

Market took place. Since the contents of the actual communication taken place in this call

log are not available, it cannot be ascertained that there has been any flow of any price-

sensitive information from Mr. Saman Kumara to Mr. Arjun Aloysius with regard to the

transactions taking place in the Secondary Market.

The details of call log records are as under:


Date of Call


From To Remarks

22-Jan-2016


Mr. Arjun Aloysius Dates of transactions between PTL and the EPF in the Secondary Market

23-Jan-2016


Mr. Arjun Aloysius


Mr. Arjun Aloysius



7. On review of copies of voice recordings, it was noted that PTL had conversations regarding

the deals for this ISIN. The details are as under:


Date Time From To Content

20-Jan-2016 3:10 p.m.

Anuja Mr. Kasun (PTL)

Sold 1 Billion to EPF (File Name: 80899.wav)

20-Jan-2016 3:10 p.m.

Mr. Kaushitha

Manjula EPF Direct transaction now, done through a broker. Needs to be amended. (File Name: 80900.wav)

20-Jan-2016 4:17 p.m.

Manjula Mr. Nuwan Shall I send the EPF deal through Navarrah? (File Name: 81036.wav)

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8. Based on above review of call log records provided by CID, available copies of voice


PTL made capital gains in the Auction and colluding with Pan Asia in selling securities to

the EPF at higher rates in the Secondary Market. It would reduce the loss caused to the

CBSL if the EPF purchased directly from the CBSL at same prices.



not suggest these anomalies are directly or indirectly linked to any potential nexus



existed on the availability of ESI in terms of email files and email deletions, as detailed in

the respective Sections of this Report.

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6.5.7. TREASURY BOND AUCTION OF 28 JANUARY 2016

The following offers were issued and accepted by the PDD on 28 January 2016 with settlement

date of 1 February 2016:

TABLE 66: Details of ISIN offered on 28 January 2016 (Amount in Rs. Million)


Bids received

Bids accepted

Anomalies

LKB03045C013 12.50%2045A 5,000 44,840 - • Cancellation of this ISIN increased the pressure of acceptance of more funds from other ISINs at WAYR higher than prevailing Secondary Market yield rates.


LKB01226F014 11.00%2026A 3,000 19,030 6,190 • Bids submission by WealthTrust was three times more than the value offered by the PDD

LKB01530E152

11.00%2030A 5,000 27,150 15,650 • Acceptance of bids was more than three times the offered amount by the PDD;

• Transactions in Secondary Market by PTL at higher prices as compared to average trading rates prevailing in Secondary market; and


The above mentioned anomalies and supporting documents for the offer issued on 28 January

2016 is explained as under:

A. ISIN LKB03045C013 AND ISIN LKB00520L159

It was noted that two ISIN LKB03045C013 and ISIN LKB00520L159 were cancelled by the Tender

Board. Due to cancellation of these offers, it led to increase in pressure of accepting more

funds from other ISINs.

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B. ISIN LKB01226F014

It was noted that value offered by the PDD was Rs. 3,000 Million against which PDD accepted

value aggregating to Rs. 6,190 Million. Therefore, acceptance of more funds than the offered

value and at WAYR higher than the prevailing Secondary Market yield rates caused loss ranging

from Rs. 72.43 Million to Rs. 80.03 Million.

It was noted that, WealthTrust submitted bids for Rs. 10,800 Million which was 3 times more

than the value offered by PDD in this ISIN. However, on review of CDS data, no transactions

were noted to be undertaken by WealthTrust in Secondary Market. Hence, the voice

recordings of the dealer room of WealthTrust related to this Auction were not reviewed for

further scrutiny.

C. ISIN LKB01530E152

1. It was noted that value offered by PDD was Rs. 5,000 Million against which PDD accepted

value aggregating to Rs. 15,650 Million. The bids submission and bids allocation in this ISIN

after taking the transactions of Front-Ending are as under:


Name of PD/ EPF Bids submitted by PD Bids Allocated to PD

Acuity securities 1,450 1,450

BOC 530 530

Capital alliance 500 200

Commercial bank of Ceylon 610 360

First capital 1,850 1,000

HSBC 500 -

Natwealth 500 100

NSB 500 250

Pan Asia 490 ’ 490

People’s bank 1,140 1,140

PTL 5,400 4,150

Sampath bank 500 -

Seylan bank 4,190 4,190

Union bank 540 40

WealthTrust 8,450 1,750

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Other Investors include Pan Asia, HSBC, Natwealth, Sampath Bank, Capital Alliance, Union Bank. The above chart depicts that PTL was allocated 26.52% with success ratio of 77% and the

EPF has not placed any bids in this ISIN.

2. On review of copies of voice recordings submitted by PDs, it was noted that PTL had

conversations on 28 January 2016 regarding the deals for this ISIN. The details are as

under:


Time From To Content

10:16 a.m. Kaushitha (PTL) Unknown Kaushitha asks for the last quote for the 15-5-30 bond and receives a reply that there were no rates the whole day whereas yesterday was 85-10. Kaushitha asks if there were banks or PDs. The receiver says majority was PDs and banks were less. (File Name: 84623.wav)

3:35 p.m. Nuwan (PTL) Brentley Nuwan asks who is buying the 30. Brentley says 2 banks, ‘Sey’ and DFCC. (File Name: 84904.wav)



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EVENTS OCCURRED ON THE SETTLEMENT DATE

3. On review of CDS records, it was observed that the transactions had been done by PTL in

the Secondary Market on 3 February 2016. PTL has sold Treasury Bonds to the EPF through

DFCC Bank at high prices as compared to daily and weekly average trading rates prevailing

in the secondary market indicating possibility of DFCC Bank acting as an intermediary to

PTL.

As per CDS records, the movement of transaction in Secondary Market between PTL, DFCC

Bank and the EPF has been demonstrated as under:

TABLE 69: Details of transactions done by PTL (Amount in Rs. Million)

Date ISIN Seller Buyer Face Value

Quantity (A)

Buying Price per

Bond (B)

Selling price per

Bond (C)

Difference (D)=(C)-

(B)

Gains (D)*(A)

3-Feb-2016 LKB01530E152 PTL DFCC 750 7.50 97.63 101.64 4.01 30.07

3-Feb-2016 LKB01530E152 PTL DFCC 750 7.50 97.63 101.64 4.01 30.07

3-Feb-2016 LKB01530E152 PTL DFCC 750 7.50 97.63 101.64 4.01 30.07

3-Feb-2016 LKB01530E152 PTL DFCC 300 3.00 97.63 101.64 4.01 12.03

3-Feb-2016 LKB01530E152 PTL DFCC 750 7.50 97.63 101.64 4.01 30.07

3-Feb-2016 LKB01530E152 PTL DFCC 750 7.50 97.63 101.64 4.01 30.07

TOTAL 4,050 4,116 162.38

3-Feb-2016 LKB01530E152 DFCC EPF 4,500 4,575 101.64 101.67 0.03 135.00

TOTAL 4,500 4,575 135.00


transactions with DFCC Bank. It is pertinent to mention here that the EPF did not place

any bids in this ISIN in Primary Market. However, it purchased the same ISIN in Secondary

Market at rate of Rs. 101.67 from DFCC Bank (acting as an intermediary on behalf of PTL).

PTL earned capital gains of Rs. 162.38 Million in consort with from these transactions.

6. Based on above review of available copies of voice recordings provided by PDs and

transactions in Secondary market, it can be observed that PTL made capital gains in the

Auction and colluding with DFCC in selling securities to the EPF at higher rates in the

Secondary Market.

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did not suggest these anomalies are directly or indirectly linked to any potential nexus



existed on the availability of ESI in terms of email files and email deletions, as detailed

in the respective Sections of this Report.


The following offers were issued and accepted by the PDD on 5 February 2016 with settlement

date of 12 February 2016:

TABLE 70: Details of ISIN offered on 5 February 2016 (Amount in Rs. Million)


Bids received

Bids accepted

Anomalies

LKB01530E152 11.00%2030A 3,000 42,865 10,455 • Front-Ending was done by Pan Asia on behalf of PTL

• Bid submission by one of the PDs was 3 times more than the value offered by the PDD

• Value accepted by the PDD was 3 times more than the amount offered by the PDD

LKB02541A016 12.00%2041A 5,000 48,080 10,250 • Transactions in Secondary Market by PTL at higher prices as compared to average trading rates prevailing in Secondary market;

• Front-Ending was done by Pan Asia on behalf of PTL due to which success ratio stand increased to 98% and allocation ratio at 80%;

• No allocation was made to captive sources; and


LKB00520L159 09.50%2020A 2,000 11,972 -

• Cancellation of this ISIN increased the pressure of acceptance of more funds from other ISINs at WAYR higher than prevailing Secondary Market yield rates.

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The above-mentioned anomalies and its supporting evidences were noted in the Treasury Bond

Auctions held on 5 February 2016:

A. DDMC MEETING FOR THE MONTH OF FEBRUARY 2016

As mentioned earlier in Section 6.4.4. of the Report, it was noted that there were two

different borrowing programs annexed in the minutes of DDMC meeting held on 29 January

2016 for the month of February 2016. One of the borrowing programs contain the value of

funds required from this Auction (mentioned in the minutes of 29 January 2016) matched with

decision taken by Tender Board on 5 February 2016.

During an interview with Mr. THB Sarathchandra (SPD) on 19 September 2019 (Refer Exhibit

19) in relation to different borrowing program and anomalies in Auction of 5 February 2016,

he stated that “the revised borrowing program for February 2016 could have been prepared

by Pathumanapan to cover up the acceptance of more funds from this bond series and

maximum allocation to PTL.”

(Refer Section 6.4.4. of the Report for the detailed observation of minutes of DDMC).

EVENTS ON THE DATE OF AUCTION

B. ISIN LKB00520L159

1. In this Auction, the Tender Board had rejected the funds from this ISIN, which in turn may

have led to the pressure of accepting more funds from other ISINs. Furthermore, this ISIN

was continuously rejected in immediately preceding two Auctions held in previous month.

It may be inferred that cancellation of this ISIN caused the CBSL to raise requisite funds

at WAYR higher than the prevailing Secondary Market rates

2. During an interview with Mr. THB Sarathchandra (SPD) on 19 September 2019, he stated

that “Due to cancellation of one bond series, it creates pressure on other series. Hence,

proper analysis should have been done before issuing any series. It was unknown since

there were no in-depth and proper analysis by myself, Middle Office and Front office of

PDD in view of pre-occupation with regular work.”

C. ISIN LKB01530E152

1. It was noted that value offered by the PDD was Rs. 3,000 Million and accepted by PDD

was Rs. 10,455 Million which was 3 times more than the value offered by the PDD.

Therefore, acceptance of more funds than the offered value and at WAYR higher than the

prevailing Secondary Market yield rates caused loss of Rs. 63.80 Million to Rs. 77.54 Million

to the CBSL. (Refer Section 6.6. of the Report for the computation of loss.)

2. In addition to the above, it was also noted that Pan Asia placed bids on behalf of PTL for

Rs. 500 Million (Refer Exhibit 49) which led to total allocation ratio of PTL to 20.09%.

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3. Also, bids submitted by one of PDs- WealthTrust was 3 times more than the value offered

by the PDD. It has submitted bids for Rs. 13,550 Million (4.52 times of offered value) and

allocated Rs. 2,250 Million which was 22% of total accepted value.

Upon review of CDS data, no transactions were noted to be undertaken by WealthTrust

and PTL in Secondary Market upon review of CDS data. Hence, the voice recordings of the

dealer room of WealthTrust related to this Auction were not reviewed for further scrutiny.

D. ISIN LKB02541A016

1. It was noted that value offered by the PDD was Rs. 5,000 Million against which the PDD

accepted value aggregating to Rs. 10,250 Million. Therefore, acceptance of more funds

than the offered value and at WAYR higher than the prevailing Secondary Market yield

rates caused loss ranging between Rs. 27.29 Million to Rs. 40.04 Million to the CBSL.

The details of bids submission and bids allocation to PDs in this ISIN are as under:


Name of PD/ EPF

Bids submitted by PD before Front-ending

Bids Allot–ted to PD before Front -Ending


Bids Allocated to PD after Front –Ending

Acuity securities 1,500 450 1,500 450

BOC 500 - 500 -

Capital alliance 1,370 200 1,370 200

Commercial bank of Ceylon

500 - 500 -

EPF 11,000 - 11,000 -

First capital 4,010 - 4,010 -

HSBC 500 - 500 -


NSB 500 - 500 -

Pan Asia 5,300 2,800 3,300 800

People’s bank 800 - 800 -

PTL 6,450 6,250 8,450 8,250

Sampath bank 500 - 500 -

Seylan bank 1,650 - 1,650 -

Union bank 500 - 500 -

WealthTrust 12,500 550 12,500 550

TOTAL 48,080 10,250 48,080 10,250

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2. On evaluation of the bid allocation in this ISIN, it was noted that captive sources had

placed their bids in this offer, however, no allocation of Treasury Bonds were made to the

captive sources.

Based on the above analysis, it was noted that major portion of the accepted value i.e.,

80.49% of this ISIN was accepted from PTL and no allocation was made to captive sources.

EVENTS OCCURRED BEFORE THE DATE OF AUCTION

3. In addition to the above, it was noted that this ISIN was issued against the advice of ASPD

as Ms. UL Muthugala (ASPD) emailed on 1 February 2016, that this series “12.00%2041A”

may not be issued (Refer Section 8.1. for the detailed observation)

During interview with Ms. UL Muthugala (ASPD) on 6 September 2019 (Refer Exhibit 18)

for issuance of this series, she stated that “S. Pathumanapan convinced the officials of

the PDD that they should issue the series and the officials of the PDD relied on him

without attributing any ulterior motive to his suggestions.”

Mr. T.H.B. Sarathchandra (SPD) also confirmed that Mr. S. Pathumanapan might have

convinced the PDD to issuance this series and stated that “he also thought MO was raising

concern for bond series 12.00%2041A for future Auctions instead of current Auction of 5

February.” He also explained that “the market manipulation by PTL subsequent to

settlement date was not analysed by the PDD on real time basis.”

During interview with Mr. S. Pathumanapan on 25 September 2019 (Refer Exhibit 21) for

issuance of this series against advice of ASPD, he stated that “I could not have solely

made the decision to issue the series and if the SPD and other senior officials have taken

my name for this, I do not know the reason.”

4. In view of the above facts associated with the transactions, the issuance of this offer

despite the advice of ASPD, without any rationale recorded or other factors attributed, is

considered as deviant from the practices adopted by the PDD.

5. On review of call log records provided by the CID, it was noted that on 3 February 2016

i.e., date of advertisement in newspaper, at 2:39 p.m. Mr. Arjuna Mahendran had

conversation (duration of 39 seconds) with Mr. Saman Kumara.

It was noted that on the date of Auction, the EPF placed bids at higher yield rates. Since

the contents of the actual communication taken place in this call log are not available,

it cannot be ascertained that there has been any flow of instructions to Mr. Saman Kumara

from the then Governor to bid at higher yield rates in the Primary Market and buy at

higher prices in Secondary Market from PTL and Pan Asia.

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6. On review of copies of voice recordings provided by PD, it was noted that there were

conversations between employees of PTL and Mr. Kavin Karoonamurty from DFCC bank

regarding the deals for this ISIN. The details of voice recordings on 5 February 2016 are as

under:

TABLE 72: Details of conversations

Time From To Key Content

9:07 A.M. Mr. Kasun (PTL) Mr. Kavin (DFCC)

Kavin asked from Kasun if they can get 300 Million from 41 series. (File Name: 88358.wav)

10:17 A.M. Mr. Kavin (DFCC) Mr. Kasun (PTL)

Kavin asked three 100s for 10,15,20 for 41. (File Name: 88457.wav)

4:10 P.M. Mr. Kasun (PTL) Mr. Kavin (DFCC)

Kasun said there must be conspiracy theories for this Auction as well. (File Name: 89139.wav)


above-mentioned conversations)

EVENTS OCCURRED ON THE SETTLEMENT DATE

7. As per the documents provided by Pan Asia for Front-Ending (Refer Exhibit 49), it was

mentioned that Pan Asia had placed bids for Rs. 2,000 million on behalf of PTL for this

ISIN. The details are as under:

TABLE 73: Details of transactions entered with PTL

Date ISIN Seller Buyer Face Value (Rs. Million)

Buying Rate of Pan Asia

Selling Rate of Pan Asia

12-Feb-2016 LKB02541A016 Pan Asia PTL 1,000 100.03 100.07

12-Feb-2016 LKB02541A016 Pan Asia PTL 1,000 99.95 99.99

Accordingly, on 12 February 2016, PTL acquired Treasury Bonds for Rs. 8,250 Million of

ISIN LKB02541A016 i.e., Treasury Bonds valuing Rs. 6,250 Million were directly purchased

from the CBSL and Rs. 2,000 Million were purchased from Pan Asia. It led to the success

ratio of PTL stand increased to 98% and allocation ratio to 80%.

This fact was also substantiated in the copy of voice recordings of Mr. Kaushitha (PTL) and

Mr. Shashrika (Pan Asia) (File name: 89198.wav) on 5 February 2016 at 5:27 p.m. Wherein

PTL confirmed the deals which was placed by Pan Asia on behalf of PTL for this ISIN. (Refer

Section 3.8. of the Report for the explanations and relevant evidence for the above-


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8. On review of CDS data, it was observed that the transactions have been done by PTL in

the Secondary Market on 12 February 2016. PTL has sold Treasury Bonds to the EPF through

DFCC Bank at profits indicating possibility of DFCC Bank acting as an intermediary to PTL.

As per CDS data, the movement of transaction flow in Secondary Market between PTL,

DFCC Bank and the EPF has been demonstrated by way of flow chart, which is as under:

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FINAL REPORT |FORENSIC AUDIT / INVESTIGATION ON ISSUE OF TREASURY BONDS AND

REMITTANCE OF FUNDS TO TREASURY SUBJECT TO INTERNAL RISK CLEARENCES


Source: Rates are considered from CDS data. Average buying rate has been calculated for the purpose of calculation of gains as Treasury Bonds were

purchased at different prices. (Refer Annexure 29)

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transactions with DFCC Bank by selling securities to the EPF at high prices as compared

to daily and weekly average buying rates prevailing in Secondary Market. It is pertinent

to mention here that no allocation was made to the EPF in this ISIN. However, it has

purchased the same ISIN in Secondary Market at rate of Rs. 105 from DFCC Bank acting as

an intermediary on behalf of PTL. PTL made capital gains of Rs. 257.79 Million (Refer

Annexure 30) from trading of this ISIN with DFCC in Secondary Market.

10. It was also noted that on 12 February 2016, Pan Asia transferred its entire holding of

Treasury Bonds of Rs. 800 Million to EPF and made profits of Rs. 40.74 Million

(approximately). The details of transactions as per CDS records are as under:

TABLE 74: Details of transactions done by Pan Asia (Amount in Rs. Million)

Date ISIN Seller Buyer Face Value Transaction Amount

12-Feb-2016 LKB02541A016 CBSL Pan Asia 500 499.77

12-Feb-2016 LKB02541A016 CBSL Pan Asia 300 299.86

TOTAL (A) 799.63

12-Feb-2016 LKB02541A016 Pan Asia EPF 800 840.10

TOTAL (B) 840.10

PROFIT (B)-(A) 40.74

Based on above review of call log records provided by CID, available copies of voice


PTL made capital gains in the Auction and colluding with DFCC in selling securities to the

EPF at higher rates in the Secondary Market.








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The following offers were issued on Auction held on 29 February 2016 with settlement date of 1

March 2016:


ISIN Bond Series Bids offered

Bids received

Bids accepted

Anomalies

LKB01518B013 8.50%2018A 3,000 15,760 5,305 • Success ratio of one PDs was 94% and allocation ratio was 94%.

• Large volume of bids was accepted from one PDs which were placed within last 15 minutes

LKB00821H019 11.00%2021A 3,000 12,277 5,312 • Success ratio of one PDs was 100% and allocation was 51%

LKB01023I019 11.20%2023A 3,000 18,750 7,637 • Success ratio of one PDs was 100% and allocation was 51%.

• Other anomaly that offers were accepted even after rejection by Tender Board and Governor.

The above-mentioned anomalies and subsequent evidences in the Auction of 29 February 2016

are explained in detail as under:

A. ISIN LKB00821H019

1. It was noted that the PDD offered Rs. 3,000 Million against which bids were accepted for

Rs. 5,312 Million at WAYR at higher than prevailing Secondary Market rates which led to

loss ranging from Rs. 19.24 Million to Rs. 12.10 Million.

2. Also, noted that one of the PDs- EPF had placed in a manner that success ratio of the EPF

was 100% and allocation ratio was 51%. On review of CDS data, no transactions were done

by the EPF in the Secondary Market at high prices for this ISIN. Hence, this ISIN was not

reviewed for further scrutiny.

B. ISIN LKB01518B013

1. It was noted that one of the PDs- HSBC had placed bids for Rs. 5,300 Million and bids

valuing to Rs. 5,000 Million were accepted which led to success ratio of 94% and allocation

ratio of 94%.

2. On review of CDS data, no transactions were noted in the Secondary Market by HSBC for

this ISIN. Further, on review of AS/400 data, it was also noted that HSBC placed for Rs.

2,500 Million at 10:48 AM and which constitute 47% of the total value accepted from HSBC.

3. However, in the absence of voice recordings of dealer room of HSBC, the possibility of

leakage of insider information could not be commented upon.

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C. ISIN LKB01023I019

1. The offered value by the PDD was Rs. 3,000 Million and accepted value was Rs. 7,637

Million. TEC has recommended the value amounting to Rs. 7,637 Million at a WAYR of

11.78%. The following PDs were allocated bids in this bond series:

TABLE 76: Details of PD (Amount in Rs. Million)

# Name of PD/EPF Value of bids submitted by PD

Value of bids allocated to PD

Success Ratio Allocation Ratio

1 Bank of Ceylon 590 340 57.63% 4.45%

2 Capital Alliance Limited 950 250 26.32% 3.27%

3 EPF 5,000 5,000 100.00% 65.47%

4 First Capital 1,050 200 19.05% 2.62%

5 HSBC 1,000 1,000 100.00% 13.09%

6 Pan Asia 693 18 2.60% 0.24%

7 People's Bank 1,695 175 10.32% 2.29%

8 Seylan Bank PLC 492 278 56.50% 3.64%

9 Union Bank 310 126 40.65% 1.65%

10 WealthTrust 5,400 250 4.63% 3.27%

TOTAL 171,180 7,637

2. As per the minutes of the meeting of the Tender Board on 29 February 2016, the offers

from this ISIN were rejected due to WAYR higher than the prevailing Secondary Market

yield rates. However, on review of Press Release, it was noted that this ISIN was issued

and funds valuing to Rs. 7,637 Million were accepted from this ISIN.

3. The bids approved sheet were signed by Mr. S. Obeysekera and Mr. S. Pathumanapan and

when inquired, they stated that the decision of Tender Board and Governor was

overlooked by the PDD.

During interview with Ms. UL Muthugala on 6 September 2019 (Refer Exhibit 18), she also

confirmed that “Based on the documents available with the PDD, the issue of Treasury

Bonds on 29 February 2016 after rejection by Tender Board and Governor can be termed

as an unauthorized issue. I do not recollect receiving any verbal instructions from the

Former Governor, Arjuna Mahendran, for the issue of the series.” However, Mr. THB

Sarathchandra stated that they might had received verbal instructions from the Governor.

(Refer Section 6.4.3. of the Report for detailed observations)

4. It was also noted that one of the PDs - EPF has success ratio of 100% and allocation ratio

of 51% in this ISIN. On review of CDS data, no transactions at high prices were noted in

Secondary Market for this ISIN. Hence, this ISIN was not reviewed for further scrutiny.

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D. Based on above facts and explanations given by officials of the PDD, it was observed that:

1. Acceptance of offers of ISIN LKB010231019 by the PDD even after the rejection by the

Tender Board and Governor is considered as unauthorized.

2. Issuance of ISIN LKB010231019 caused loss ranging from Rs. 30.97 Million to Rs. 38.92

Million, as the offers were accepted at WAYR higher than the Secondary Market rates.

E. However, the documentary and eDiscovery evidences reviewed (as discussed in respective

Sections of this Report) and limited voice recordings of dealer rooms of PDs did not suggest

these anomalies are directly or indirectly linked to any potential nexus between the

employees of the PDD and the beneficiary PDs. It is pertinent to note that the CBSL did not

installed voice record system at the PDD and significant limitations existed on the availability

of the ESI in terms of email files and email deletions, as detailed in the respective Sections

of this Report.

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6.5.10. TREASURY BOND AUCTION HELD IN THE MONTH OF MARCH 2016

The following offers were issued in the Auction held in the month of March 2016:


Auction Date


Bids received

Bids accepted

Anomalies

10-Mar-2016

LKB01024A014 11.40%2024A 2,000 9,535 - • Cancellation of this Auction had an impact on subsequent Auctions.

LKB00821H019 11.00%2021A 2,000 7,040 -

LKB00819K017 08.00%2019A 2,000 6,514 -

17-Mar-2016

LKB01024A014 11.40%2024A 2,000 13,030 6,620 • Success Ratio of PDs was 100% and allocation ratio of those PDs was more than 35%;

• Value accepted by PDD was 3 (three) times more than the value offered by the PDD.

LKB00517F157 08.00%2017B 1,000 8,300 - -

LKB00520E014 09.25%2020A 1,000 6,805 1,305 • Bids submission by one of the PDs was 3 times more than the value offered by the PDD.

24-Mar-2016

LKB00721J157 09.45%2021A 5,000 17,500 - • Cancellation of this Auction had an impact on other Auctions; and

• Cancelled ISINs were reissued in subsequent Auction at yield rates higher than the Secondary Market yield rates.

LKB00922J011 10.00%2022A 5,000 13,520 -

LKB01025C157 10.25%2025A 5,000 33,150 -

LKB00520E014 09.25%2020A 5,000 13,628 -

29-Mar-2016

LKB01025C157 10.25%2025A 10,000 36,915 21,475 • Success Ratio of PDs was 100% and allocation ratio of those PDs was more than 35%;

• Cancellation of all ISINs issued in previous had impact on this Auction; and

• ISINs which cancelled earlier were reissued in this Auction at yield rates higher than the Secondary Market yield rates.

LKB01226F014 11.00%2026A 10,000 32,560 17,010 • Success Ratio of PDs 100% and allocation ratio of those PDs was more than 35%;


• ISINs which cancelled earlier were reissued in

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Auction Date


Bids received

Bids accepted

Anomalies

this Auction at yield rates higher than the Secondary Market yield rates.

LKB01530E152 11.00%2030A 10,000 45,925 28,975 • Front-ending was done by Pan Asia on behalf of PTL due to which success ratio of PTL increased to 100% and allocation ratio to 53%;

• Transactions in Secondary Market by PTL at higher prices as compared to average trading rates prevailing in Secondary market;



LKB00520E014 09.25%2020A 10,000 27,022 10,272 • Success Ratio of PDs was 100% and allocation ratio of those PDs was more than 35%



31-Mar-2016

LKB01528I017 11.50%2028A 10,000 52,605 21,660 • Success Ratio of PDs was 100% and allocation ratio of those PDs was more than 35%; and


LKB01518B013 08.50%2018A 5,000 21,254 9,000 • Success Ratio of PDs was 100% and allocation ratio of those PDs was more than 35%.

LKB00619G019 10.60%2019A 5,000 15,025 5,000 • Success Ratio of PDs was 100% and allocation ratio

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Auction Date


Bids received

Bids accepted

Anomalies

of those PDs was more than 35%.

LKB00821H019 11.00%2021A 5,000 24,175 14,350 • Success Ratio of PDs was 100% and allocation ratio of those PDs was more than 35%.

In reference to above mentioned ISINs, other anomalies were also noted in call log records and

copies of voice recordings reveal that there was leakage of insider information to Mr. Arjun

Aloysius before the Auction on 29 March 2016 and 31 March 2016. The anomalies and supporting

evidence for the ISIN issued in the March 2016 are explained in detail in subsequent Section of

the Report:

The details of events occurred in the month of March 2016 are as under:

A. SUSPENSION OF REVERSE REPO AUCTION ON 3 MARCH 2016

1. The Market Operations Committee of the CBSL is required to assess the daily Market

Liquidity situation and decide whether to absorb liquidity from the Market or to inject

liquidity to the market.

2. On review of minutes of Market Operations Committee for 3 March 2016 (Refer Exhibit

51)128, the decision taken by the committee was “not to conduct Auctions and allow the

call rate to be determined by market forces within the standing rate corridor and DOD to

report significant volatilities, if any, in the call rate.” It was also mentioned that there

was excess estimated liquidity level of Rs. 34.99 billion on 3 March 2016.

However, no specific reference for the suspension of reverse Repo Auctions was mentioned

in the minutes of 3 March 2016.

128 Refer Exhibit 51 for the minutes of Market Operations Committee on 3 March 2016.

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3. Mr. PWDNR Rodrigo (former Director of DOD) stated before the PCOI (Section 5.15 of

Chapter 5 of the PCOI Report) that Mr. Mahendran had telephoned him on 3 March 2016

and instructed him that the conduct of Reverse REPO Auctions should be immediately

stopped, so as to stop the injection of liquidity into the market through Open Market

Operations. He also explained that the intention of the instruction given by Mr. Arjuna

Mahendran was to “drain liquidity” from the market and to move up the interest rates.

He also stated that due to the instruction of Mr. Arjuna Mahendran, Market Liquidity had

decreased to a deficit of Rs. 29 billion and Interest Rates had climbed to 8.15% per annum

by the end of the month of March 2016.

Therefore, it can be inferred that the minutes of Market operations Committee, did not

adequately captured the instruction given by Mr. Mahendran to Mr. PWDNR Rodrigo.

B. AUCTION CONDUCTED ON 17 MARCH 2016

1. In ISIN LKB00520E014, value of bids submitted by one of the PDs was 3 times more than

the value offered by the PDD. WealthTrust submitted bids for Rs. 3,150 Million against the

value of Rs. 1,000 Million offered by the PDD. However, it was noted that no allocation

was made to WealthTrust in this ISIN. Hence, the voice recordings of the dealer room of

WealthTrust related to this Auction were not reviewed for further scrutiny.

2. In ISIN LKB01024A014 and LKB00520E014, success ratio of PDs was more than 50% and

allocation ratio of PDs was more than 35%. The details of PDs are as under:

TABLE 78: Details of PD


Success Ratio Allocation Ratio

LKB01024A014 EPF 100% 65%

LKB00520E014 NSB 75% 46%

Upon review of CDS data no transactions were noted to be undertaken by NSB and the EPF

in Secondary Market and no loss was caused to the CBSL as per calculation detailed in

Section 6.6. of the Report. Hence, the voice recordings of the dealer room related to this

Auction were not reviewed for further scrutiny.

C. AUCTION CANCELLED ON 10 MARCH 2016 AND 24 MARCH 2016

1. It was noted that all the offers issued on Auction of 10 March 2016 and 24 March 2016 were

rejected by the Tender Board. As per the minutes of Tender Board, the reasons for the

cancellation of these Auctions were that the bids were placed at higher yield rates as

compared to recent Auctions/ Secondary Market rates, liquidity crunch in the market.

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2. It is pertinent to mention here that there was liquidity crunch in the market and increased

interest rates due to the instructions given by Mr. Arjuna Mahendran on 3 March 2016 for

stoppage of Reverse REPO Auctions.

However, this fact of change in policy was not informed by Mr. PWDNR Rodrigo and

representatives of DOD to the Tender Board during the Tender Board meeting of 10 March

2016 and 24 March 2016.

3. During an interview with Ms. UL Muthugala (ASPD) on 6 September 2019, she stated that

“The participants of Tender Board on 24 March 2016 did not informed that the “reverse-

repo” Auctions have been stopped by CBSL in March beginning leading to liquidity crunch

and increasing yield rates. Hence, the participants were not fully aware of complete facts

and I supported the cancellation of Auction in anticipation that the subsequent Auction

would give lower yields.”

During an interview with Mr. NWGRD Nanayakkara on 25 September 2019 (Refer Exhibit

22), he also confirmed that “I don’t think there was any information shared regarding

stoppage of Reverse Repo on 3 March 2016 was explained by representative of DOD in the

Tender board meeting of 24 March 2016. If this information would have been shared, my

personal view is that we could have accepted something from the Auction, because the

rates were unlikely to come down as the reverse REPO Auction were stopped by CBSL

leading to liquidity shortage.”

4. On review of Tender Board minutes of 24 March 2016, it was mentioned that one or more

Auctions has to be announced to raise the balance part of funding requirement where

such funds will have to be raised at further higher yield rates if any bids are accepted at

today’s Auction.

However, it was noted that in the subsequent Auction of 29 March 2016, funds were

accepted at much higher yield rates even after cancellation of Auction of 24 March 2016.

5. Further, it was also noted that the PDD was aware of funds amounting to Rs. 122 Billion

(revised fund requirement was Rs. 105 Billion which was not updated in borrowing

programme) required on 1 April 2016 by the end of last week of March 2016. Therefore,

cancellation of Auction of 24 March 2016 increased the pressure of acceptance of required

funds from the subsequent Auctions only and the PDD had to accept the funds in

subsequent Auctions at higher yield rates.

6. Based on above facts, it can be concluded that the Governor’s instructions for suspension

of Reverse REPO Auction increased the interest rates and caused shortage of liquidity in

the market. Due to the decisions of the CBSL, the WAYR of ISIN offered in the Auctions of

10 March 2016 and 24 March 2016 was higher than the Secondary Market and cancelled.

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7. Also, as stated in sub-section A of Section 6.5.10 of the Report, there was suppression of

facts from Tender Board and in case the Tender Board was fully aware of the facts of

stoppage of Reverse REPO Auction, the funds could have been accepted from these

Auctions so that the pressure of meeting the requirement of Treasury Operation

Department did not accumulate till end of March 2016.

D. MEETING WITH STATE BANKS ON 28 MARCH 2016

1. As per the facts enumerated in PCOI that on 28 March 2016, one day prior to the Auction,

the senior officers from the state banks, namely, NSB, Bank of Ceylon and People’s Bank

were requested to attend a meeting convened by Mr. Ravi Karunanayake (former Minister

of Finance).

2. The representatives of three State Banks - People’s Bank, Bank of Ceylon and NSB were

requested to co-operate by bidding at low yield rates at the Auction to be held on 29

March 2016. Mr. Ravi Karunanayake prescribed a range of rates, lower than the prevailing

market rates at the time, at which the three state banks should place their bids in

coordination with each other.

3. The State Banks raised their concerns with regard to the risks being incurred in terms of

an immediate mark to market loss if bids at higher yield rates were accepted from other

PDs. In response to these concerns, Mr. Ravi Karunanayake assured the state banks that

bids at higher rates would not be accepted by the CBSL.

4. It is pertinent to mention here that Mr. Wasantha (General Manager of People’s Bank)

informed the PCOI that several other officials from the Treasury Operation Department

and the CBSL were also present in the meeting. However, the identity of the official of

the CBSL cannot be recalled by him.

5. On review of call log records provided by the CID, it was noted that Mr. Arjuna Mahendran

had contacted the chairman of NSB and BOC before the meeting of state banks and Mr.

Ravi Karunanayake (Finance Minister). Since the contents of the actual communication

taken place in this call log are not available, it could not be commented upon nature of

conversation Mr. Arjuna Mahendran had with chairman and Finance Minister. The details

of call log records are as under:


Time Duration (Seconds)

From To

10:04:20 186 Mr. Arjuna Mahendran Ministry of Finance

14:11:43 9 Mr. Arjuna Mahendran Mr. Ronald Perera (Chairman, BOC)

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Time Duration (Seconds)

From To

14:12:14 53 Mr. Arjuna Mahendran Mr. Ronald Perera (Chairman, BOC)

14:16:08 4 Mr. Arjuna Mahendran Mr. Ashwin De Silva (Chairman, NSB)

14:17:11 60 Mr. Ashwin De Silva (Chairman, NSB) Mr. Arjuna Mahendran

14:30:27 52 Mr. Hemasiri Fernando (Chairman, People’s bank)

Mr. Arjuna Mahendran

15:07:28 54 Mr. Arjuna Mahendran Mr. Ravi Karunanayake



E. AUCTION CONDUCTED ON 29 MARCH 2016

ISIN LKB00520E014 and ISIN LKB01025C157

1. In ISIN LKB00520E014, success ratio of one of the PDs- People’s Bank was 100% and

allocation ratio was 60%. On review of CDS records, no transactions were noted to be

undertaken by People’s Bank and State Banks were already instructed to bid at lower

yield rates. Hence, the voice recordings of the dealer room of People’s Bank related to

this Auction were not reviewed for scrutiny.

2. In ISIN LKB01025C157, success ratio of one of the PDs- PTL was 98% and allocation ratio

was 39.35%. On review of CDS records, no transactions were noted to be undertaken by

PTL for this ISIN in Secondary Market.

3. Furthermore, these two ISINs were earlier issued on 24 March 2016 and all the bids from

these ISINs was rejected by the Tender Board as WAYR of this ISINs were higher than the

Secondary Market yield rates. It was noted that in this Auction also, bids were accepted

at WAYR higher than the Secondary Market yield rates.

The details of the WAYR and Secondary Market yield rates are as under:

TABLE 80: Details of ISIN reissued (Amount in Rs. Million)

Auction of 24 March 2016 Auction of 29 March 2016

ISIN Recommended Value

WAYR (A)

Secondary Market Rate (B)

Spread (B)-(A)

Accepted Value

WAYR (C)

Secondary Market Rate (D)

Spread (D)-(C)

LKB00520E014 2,578 13.02% 12.35% 67 10,272 12.78% 12.50% 28

LKB01025C157 4,400 13.34% 12.80% 54 21,475 13.80% 13.10% 70

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4. Therefore, it can be inferred that these ISINs were accepted at WAYR higher than the

prevailing Secondary Market rates of similar maturities. However, PDD able to raise more

funds at the increased yield rates as compared to yield rates of 24 March 2016.

5. It happened because the state banks were instructed to bid low at yield rates in this

Auction to stabilize the market rates. However, WAYR of bids placed by PTL were

substantially higher as compared to WAYR of bids placed by state banks. The bids of PTL

were accepted and WAYR of Auction did not increased mainly due to lower yield rates of

bids placed by State Banks. Accordingly, PTL was allocated maximum bids (39.35%) in ISIN

LKB01025C157.

6. During an interview with Mr. THB Sarathchandra on 19 September 2019 (Refer Exhibit 19),

he confirmed that “I thought the yield rates came down due to our actions. However, I

came to know at later stage that it was due to the instructions given to state banks to

bid at lower prices.”

7. The above fact that bids placed by within the range of yield rates instructed to State

Banks indicates that PTL have access to insider information given to State Banks and

accordingly high allocation of bids were attained by PTL at substantially high yield rates

as compared to yield rates instructed to State Banks.

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ISIN LKB01530E152

1. The bids allocation and bids submission of this ISIN are as under:






Acuity Securities 1,150 - 1,150 -

BOC 1,000 1,000 1,000 1,000

Capital Alliance 1,400 1,400 1,400 1,400


1,035 35 1,035 35

EPF 1,000 1,000 1,000 1,000

First Capital 2,250 400 2,250 400

HSBC 1,000 - 1,000 -

Nat wealth 1,000 - 1,000 -

NSB 1,030 1,030 1,030 1,030

Pan Asia 6,400 5,400 1,400 1,400

People’s Bank 1,500 1,200 1,500 1,200

PTL 10,310 10,310 15,310 15,310

Sampath Bank 1,000 - 1,000 -

Seylan Bank 2,550 750 2,550 750

Union Bank 1,000 - 1,000 -

WealthTrust 12,300 6,450 12,300 6,450

TOTAL 45,925 28,975 45,925 28,975



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Front-Ending as provided by Pan Asia (Refer Exhibit 49), it placed bids on behalf of PTL

for Rs. 5,000 million due to which success ratio of PTL was 100% and allocation ratio was

53%. The details of front-ending transactions of Pan Asia on behalf of PTL was as under:

Table 82: Details of transactions entered with PTL

Date ISIN Seller Buyer Face Value (Rs. Million)

Buying Rate of Pan Asia

Selling Rate of Pan Asia

1-Apr-2016 LKB01530E152

Pan Asia PTL 5,000 81.87 81.90

2. On review of copies of voice recordings, various conversations were noted between Mr.

Kasun Palisena and Mr. Arjun Aloysius that reveals that Mr. Arjun Aloysius had access to

material undisclosed price sensitive information which was only known to the members

present in the State Bank meetings.

The details of relevant voice recordings are as under:


Time From To Content Remarks on Leakage of insider information

9:48:38 A.M.

Mr. Arjun Aloysius


Arjun called Kasun to share some information. Key discussions are as under:

1. There was meeting with all state banks and instruction given to state banks to bid low.

2. I found out from our friend

3. Entire market is expecting rate hike today and that is not going to take place.

4. Friends from the department are telling us that if you can, then bid more today as opposed to Thursday.

5. I have a magical sixty billion in my mind and this will be a “lifetime opportunity”.

6. We are not interested in a low 4 year. We are only interested in 25, 26 and 30.

7. We bid 15 on the 30. At the best rate, and I have already got a clearance on the cut-off of that.

• Reference of Arjun Aloysius that “I will give you the exact rate. I wrote it and kept it at home” indicates that he was aware of exact rates of this Auction.

• “We bid 15 on 30. I have already got a clearance on the cut-off” indicates that he was aware of the fact that so much and rates will be accepted.

• He will also aware of the average yield rates of this Auction.

• He was aware of the fact that the Monetary Board will not increase the rates during Board meeting to

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8. I will give you the exact rate. I wrote it and kept it at home.

9. On average the average rate should be 14.80 or 14.90 if you put a magical shot of 10 Billion from Pan Asia. If Pan Asia won’t agree for 10 billion, let’s put for 5 billion through Pan Asia and 5 billion from Perpetual.

10. Average should be 15 and entire portfolio should have average of at least 14.60 (File Name:111064.wav)

take place in the evening.

• He was aware of the fact that another auction will happen on Thursday (31 March 2016) even before the release of press advertisement of the Auction by the CBSL.

• “Friend from the department” indicates that he was in close connection with someone who has access to this price sensitive information.

10:04:46 A.M.

Mr. Arjun Aloysius


1. Arjun got the EPF rates and EPF is putting 15 billion.

2. The government has said that state banks will bid 13-13.50 and private funds can go from 13.50 to 14 guaranteed. Any bid between 13.50 to 14 will be accepted. “This is the unofficial word that I got this morning.”

3. This is a bonus. This is a gift that has been given to us.

4. Our friends from powerful places said to bid more. He wants us to go from 13.50 to 14.50 and 5 billion for 2030.

5. I just have got an SMS from NSB, that they are bidding eight billion in total.

6.13.50 to 14.50 everything will be accepted. For 15, we have special approval.

(File Name:111088.wav)

• Reference by Arjun Aloysius that ““This is the unofficial word that I got this morning.” reveals that there was leakage of insider information to PTL.

• Reference by Arjun Aloysius that “I have got an SMS from NSB” can be inferred that PTL has access to insider information from NSB.

• Arjun had access to price sensitive information pertaining to bidding prices of EPF.

• PTL was interested in 2025 and 2026, 2030 Bonds and they have got special approval for 2030 Bond.

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10:38.12 A.M.

Mr. Kasun Palisena (PTL

Mr. Arjun Aloysius

Kasun got the “little’ johny” bids i.e.,

2 Billion -13.20 to 14% on 2025 2 billion- 13.40 to 14% on 2026

(File Name:111153.wav)

It is pertinent to mention here that the above conversations are in the list of 11 calls

which were deleted by the PTL before submission of voice records of its dealer room to

PCOI. (Refer Exhibit 52129 and Section 3.9. of the Report for the explanations and

relevant evidence for the above-mentioned conversations)

3. It is pertinent to mention here that PTL had success ratio of 100% and allocation ratio of

53% in this series (ISIN LKB01530E152) for which they got “special approval” and

transactions were also noted in the Secondary Market from which PTL made substantial

capital gains from this ISIN, which is discussed in detail in subsequent Sections.

4. Further, it was already observed in Public Domain that Mr. Naveen Anuradha was the

informant from NSB who provided information to Mr. Arjun Aloysius on various occasions.

(Refer Section 7.1. of the Report for detailed observations)

5. During enquiry with the officials of the CBSL, it was explained that Tender Board was not

informed about the instruction given to state banks. During interview with Ms. UL

Muthugala on 6 September 2019 (Refer Exhibit 18) she confirmed that “The tender board

participants were not informed about the factual information that state banks have been

instructed to bid at lower prices. Based on the factual information emerged as per the

PCOI findings, the knowledge of information shared to the state banks to bid at lower

prices could be available only with the Deputy Governor, P. Samarasiri and erstwhile

Superintendent of Public Debt, Sarathchandra.”

129 Refer Exhibit 52 for the marked document of PCOI which includes the list of deleted calls by PTL.

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During an interview with Mr. THB Sarathchandra on 19 September 2019 (Refer Exhibit

19), he stated that “Roshini from People’s bank called me, but she spoke very fast and

unclear. I was not able to understand her conversation. Therefore, I was not in a position

to inform the tender Board. It was not informed in Monetary Board paper of May 2016

as well since I was not aware of state bank meetings till that date and the call of Roshini

was not clear.”

EVENTS OCCURRED AFTER SETTLMENT OF AUCTION

6. On review of CDS records, it was observed that PTL (through Pan Asia) sold Treasury Bonds

to the EPF at profits indicating possibility of Pan Asia acting as an intermediary to PTL.

The below chart details out the movement of transaction flow between PTL, Pan Asia and

the EPF as noted from the CDS records:

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Source: Rates are considered from CDS data. Weighted Average buying rate has been calculated for the purpose of calculation of gains as Treasury Bonds

were purchased at different prices. (Refer Annexure 29)Parl

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7. It indicates that there have been series of transactions between PTL, Pan Asia and the EPF

and which led to PTL making substantial capital gains from these transactions of ISIN

LKB01530E152 by selling security to the EPF at high prices as compared to daily and weekly

average trading rates prevailing in secondary market for this ISIN. It is pertinent to

mention here that as per CDS data, the EPF has purchased bids valuing to Rs. 1,000 Million

from the Primary Market at bid price for each Treasury Bond of Rs. 75. But, the EPF

purchased the same ISIN at price ranging from Rs. 94 to Rs. 97 in Secondary Market.

8. It indicates that PTL in collusion with EPF generated huge capital profits for Rs. 520.92

Million (Refer Annexure 30) by purchasing Treasury Bonds from the Secondary Market.

9. Based on the available voice recordings and subsequent bidding patterns of PTL and Pan

Asia, it can be concluded that Mr. Arjun Aloysius had access to insider information of

instructions given to state banks to bid at low prices at Auction of 29 March 2016. PTL

used this insider information and placed bids at substantially higher WAYR as compared to

WAYR of bods placed by State Banks and even then, PTL was allocated maximum bids in

this Auction due to lower yield rates of bids placed by State Banks.

F. STATE BANK MEETING CONDUCTED ON 30 MARCH 2016

1. The Ministry of Finance requested a second meeting with the senior officials of State Banks

on 30 March 2016. At that meeting, Mr. Ravi Karunanayake once again, requested the

State Banks to bid at low yield rates at the Auction scheduled to be held on 31 March 2016.

2. The State Banks were reluctant to agree to this request as the cut off rate at the 29 March

Auction had been much higher than the rates prescribed to the State Banks after a similar

request by the Ministry of Finance.

3. Mr. Ravi Karunanayake agreed that bids at higher yield rates would not be accepted at

Auction of 31 March 2016 and prescribed the rates in respect of the bids to be placed at

the Auction. Further, the three State Banks were also specifically instructed to bid a total

value of Rs. 7,500 million each.

G. AUCTION CONDUCTED ON 31 MARCH 2016

In the Auction of 31 March 2016, the PDD offered bids valuing Rs. 25 Billion against which bids

aggregating to Rs. 50.01 Billion were accepted by the PDD to meet the funds requirement of

the Treasury Operation Department.

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The details of the events are as under:

ISIN LKB00619G019, ISIN LKB01518B013 AND ISIN LKB0082H019

1. In ISIN LKB00619G019, one of the PDs – NSB placed bids in such manner that success ratio

of NSB was 100% and allocation ratio was 49%. In ISIN LKB00619G019 and LKB01518B013,

one of the PDs- People’s bank placed bids in such manner that success ratio was more

than 50% and allocation ratio was more than 35%. Also, they were instructed to bid at

yield rates described by the Ministry of Finance. In ISIN LKB0082H019, Acuity Securities

submitted bids and allocated bids for more than 35%.

2. On review of CDS records, no transactions were noted to be undertaken by People’s

Bank, Acuity Securities at high prices and no loss was caused to the CBSL as per

calculation detailed in Section 6.6. of the Report. Hence, the voice recordings of the

dealer room of People’s Bank and Acuity Securities related to this Auction were not

reviewed for further scrutiny.

ISIN LKB01528I017

1. The bids allocation and bids submission of PDs are as under:




Bids submitted by PD after Front -Ending



BOC 4,200 4,000 4,200 4,000

Capital Alliance 1,250 - 1,250 -


1,520 10 1,520 10

EPF 2,500 - 2,500 -

First Capital 5,200 - 5,200 -

HSBC 1,000 - 1,000 -

Natwealth 1,030 - 1,030 -

NSB 1,020 1,000 1,020 1,000

Pan Asia 2,200 - 2,200 -

People's Bank 1,650 1,000 1,650 1,000

PTL 15,700 15,000 15,700 15,000

Sampath Bank 1,000 - 1,000 -

Seylan Bank 1,985 400 1,985 400

Union Bank 1,000 - 1,000 -

WealthTrust 8,050 - 8,050 -

TOTAL 52,605 21,660 52,605 21,660

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The above table depicts that the PTL placed bids in such a manner that the success ratio

of PTL was 96% and allocation ratio of PTL was 69%. Further, as stated earlier that PTL

was already aware of the fact on 29 March 2016 that another auction was going to happen

on 31 March 2016 even no press advertisement was issued by the CBSL.

2. It is pertinent to mention here that the state banks were instructed to place bids in yield

rates at 13.33% in order to stabilize the market and as per AS/400, the bids price for each

Treasury Bond for the accepted bids from state banks was ranging from Rs. 81.40 to Rs.

81.36.

3. However, as per AS/400 all the bids offered by PTL was below than the bid price of each

Treasury Bond of Rs. 79.73 and the bids price of accepted bids from PTL was ranging from

Rs. 79.73 to Rs. 78.00. PTL was allocated 69% of the total accepted bids of this ISIN.

Therefore, such volume of high allocation to PTL and at the prices lower than the prices

of state bank indicates that there could be leakage of insider information.

EVENTS OCCURRED AFTER SETTLEMENT DATE OF AUCTION

4. On review of CDS records, it was observed that PTL (through Pan Asia and DFCC Bank)

sold Treasury Bonds to the EPF at high prices as compared to the average trading rates

prevailing in the Secondary Market and made profits indicating possibility of Pan Asia

acting as an intermediary to PTL. The below chart details out the movement of

transaction flow between PTL, Pan Asia and the EPF as noted from the CDS records:

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Source: Rates are considered from CDS data. Average buying rate has been calculated for the purpose of calculation of gains as Treasury Bonds were

purchased at different prices. (Refer Annexure 29)

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of 272 Strictly private and confidential

5. The above transactions depicts that the EPF purchased the ISIN LKB01528I017 from the

Secondary Market at very high prices due to which PTL (through Pan Asia and DFCC Bank)

had substantial capital gains amounting to Rs. 814.52 Million (Refer Annexure 30).

6. Based on the above mentioned transactions, it can be inferred that PTL might have insider

information to bid at low prices enabling PTL to obtain substantial amount in ISIN

LKB01528I017 and made substantial profits in collusion with the EPF.

H. DEFAULT OF INTRA DAY LOAN FACILITY BY PTL ON 1 APRIL 2016

1. In minutes of the Market operations Committee, it was mentioned to conduct reverse REPO

Auction for Rs. 30 Billion in order to reduce volatility in the call rate. However, it was

noted that no rationale for conducting of reverse REPO Auction was mentioned.

2. Mr. PWDNR Rodrigo stated before the PCOI that Market liquidity had decreased to a deficit

of Rs. 29 Billion and that Interest rates climbed to 8.15% per annum. On 1 April 2016, in

view of high Interest Rates and the deficit in Liquidity, Market Operations Committee

decided to hold Reverse REPO Auction and inject Rs. 30 billion in the market. He along

with other officials of the CBSL – Mr. Ranasinghe (AG) and Mr. Weerasinghe (DG) met Mr.

Mahendran to discuss this decision of Market operation Committee. Thereafter Mr.

Mahendran approved this decision of conducting reverse REPO Auction of Rs. 30 Billion.

3. As per Auction results, bids to the value of Rs. 22 Billion had been accepted from PTL.

However, PTL failed to tender collateral for the entirety of the Bid Value of Rs. 22 Billion

on 1 April 2016.

4. It was noted that PTL taken the ILF on the settlement date of 1 April 2016 and as per

guidelines, it was required to ensure that sufficient funds were available in its settlement

account at or before 3:15 P.M. to enable settlement of all ILF. However, PTL did not settle

the entire sum due for ILF obtained by PTL at the end of day of 1 April 2016.

5. Mr. PWDNR Rodrigo stated before the PCOI that he telephoned Mr. Mahendran to advise

him of the default and then Mr. Mahendran replied that “Oh, you know my involvements

with Perpetual Treasuries Limited. And why don’t you independently decide. But tell me

or inform me before you take any decision.”

6. Mr. Rodrigo also stated before the PCOI that Mr. Mahendran called him on 2 April 2016 and

asked him whether he had meeting with staff from PTL and Mr. Mahendran also said that

to meet with him before the meeting with PTL. It indicates that Mr. Mahendran was

already aware about the meeting between representatives of PTL with Mr. Rodrigo on that

day.

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7. On review of call log records provided by the CID, it was noted that there were

conversations between Mr. Kasun Palisena, Mr. Arjun Aloysius and Mr. Arjuna Mahendran

on 4 April 2016. Since the contents of the actual communication taken place in this call

log are not available, it cannot be concluded that these messages were sent for the

confirmation of settlement of dues of ILF. The details are as under:


Time Duration From To

17:21 SMS Mr. Arjun Aloysius Mr. Arjuna Mahendran

17:22 SMS Mr. Kasun Palisena Mr. Arjuna Mahendran



8. During ESI review of Mr. Arjuna Mahendran, it was noted that on 4 April 2016, Mr. Kasun

Palisena (PTL) sent an email to Mr. Arjuna Mahendran at 5:21 p.m. that “all transactions

have been cleared and settled. Apologies for making your life miserable for the past few

days.” (Refer Section 8.1. of the Report for the detailed observations).

It can be inferred that the email sent by Mr. Kasun Palisena to Mr. Arjuna Mahendran

appears to be in response to Mr. Arjuna Mahendran action of starting reverse REPO Auction

to inject liquidity in the market and avoiding strict action against the PTL for default of

dues of ILF.

I. Based on analysis of above-mentioned call log records, available voice recordings,

transactions in Secondary Market and policy decisions taken by the CBSL in the month of

March 2016, it indicates that:

1. There are substantial evidences of leakage of insider information to PTL enabling it to

purchase large amount of securities in Primary Market at prices below the Auction

weighted average price and generate substantial gains in Secondary Market.

2. Mr. Arjuna Mahendran instructed PWDNR Rodrigo to stop reverse REPO Auction due to

which liquidity was reduced and interest rates were increased in the market. It also

created circumstances for PTL to generate high profits.

3. There was suppression of facts by representatives of DOD of the CBSL to the Tender Board

as Tender Board was not informed for the stoppage of Reverse REPO Auctions when they

cancelled the Auctions.

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J. However, the documentary and digital evidences reviewed (as provided in the respective







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6.6. COMPUTATION OF LOSS IN AUCTIONS PROCESS

6.6.1. During the Review Period, 45 Auctions were conducted by the PDD wherein, 127 offers (Refer

Annexure 20)130 of Treasury Bonds were made. Of these 127 offers, 30 offers were cancelled by

the PDD and 97 offers were accepted. Provided below is the month-wise break-up of the accepted

and cancelled offers of Treasury Bonds:

TABLE 86: Month-wise break up of Auctions (Amount in Rs. Million)

Month Accepted Auctions and offers Cancelled Auctions and offers

No. of ISIN

No. of Auctions

Value offered

Value accepted

No. of ISIN

No. of Auctions

Value offered

Feb 2015 1 1 1,000 10,058 - - -

Mar 2015 11 5 119,000 171,659 - - -

Apr 2015 5 3 46,000 44,306 2 2 8,000

May 2015 6 4 32,000 35,730 3 3 12,000

June 2015 9 4 60,000 82,900 2 2 11,000

July 2015 9 4 95,000 99,575 1 1 15,000

August 2015 9 4 75,500 100,578 3 2 22,500

September 2015 10 3 35,000 57,576 1 1 4,000

October 2015 6 2 36,000 55,811 1 1 3,000

November 2015 3 1 12,000 20,594 - - -

December 2015 8 3 30,000 29,545 4 2 15,000

January 2016 5 2 26,000 61,119 3 2 9,000

February 2016 5 2 14,000 38,959 2 2 5,000

March 2016 10 3 68,000 135,667 8 3 27,000

TOTAL 97 41 649,500 944,077 30 21 131,500

6.6.2. As per the process explained in Section 4.2.7. of the Report, the TEC evaluates the bids submitted

by PDs and provides various options to the Tender Board for raising of funds at different cut-off

WAYR. Thereafter, Tender Board evaluates the recommendations made by the TEC based on the

existing liquidity position of the market, prevailing Secondary Market rates and other market

factors. The volume and cut-off / WAYR for Treasury Bonds to be issued at each Auction is

approved at the lowest and optimal cost and risk combination.

130 Refer Annexure 20 for the list of 127 offers of raised through Auction of Treasury Bonds

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6.6.3. During the Review Period, the Tender Board cancelled 30 offers and the rationale for cancellation

of such offers, as recorded in the minutes of the Tender Board meeting for the respective offers,

was the cut-off / WAYR of bids submitted by the participants was much higher than the prevailing

Secondary Market yield rates for similar maturity. During discussion131 with employees of the PDD,

it was explained that cancellation of offers also helps in controlling the WAYR of Secondary Market

resulting into minimizing the costs to the Government.

6.6.4. In contrast to the above, in 45 offers out of the remaining 97 accepted offers, Tender Board

accepted offers where WAYR of offers was higher than the prevailing Secondary Market yield rates

for similar maturity, as recorded in the Tender Board minutes. Therefore, the acceptance of bids

under these 45 offers is considered irregular as the Tender Board has previously cancelled offers

wherein the WAYR was higher than the prevailing Secondary Market rates for bond series of similar

maturity.

6.6.5. As explained by the PDD, the basis of Secondary Market yield rates recorded in the minutes of the

Tender Board is the rates published by “Daily Financial Times (“Daily FT”) 132, a Secondary Market

source (publisher) and daily market summary reports. Sometimes, these rates are adjusted based

on market conditions.

6.6.6. As per the process understanding detailed in Section 4.2.7. of the Report, it was also noted that

the MO of the PDD prepares Daily Market Summary Reports based on simple average of the daily

two-way quotes submitted by PDs for various maturities, i.e., across different ISINs. As per the

PDD Operational Manual and confirmed by SS Ratnayake133 during the discussion held on 29 July

2019, the rates provided by MO are supposed to be used by FO while preparing the proposal for

acceptance of bids in an Auction, for evaluation by the Tender Board.

6.6.7. It was noted that in 65 out of total 97 accepted offers (Refer Annexure 31)134, there was difference

between prevailing Secondary Market yield rates for similar maturities as considered by the

Tender Board in decision making and the rates provided by MO in the daily market summary

reports.135

6.6.8. In view of above, there were two sources for identifying the Secondary Market yield rates for

similar maturities, i.e. minutes of Tender Board and Daily Market Summary Reports as per MO. In

order to assess in case any loss is caused to the Government of Sri Lanka in issuance of Treasury

Bonds through Auctions during the Review Period, a “Base Rate” was calculated by comparing the

above-mentioned two sources for identifying the prevailing Secondary Market yield rates for

similar maturities.

131 Vide email communication of 1 July 2019. 132 The rates in Daily FT are published by only one of the PDs - WealthTrust Securities Limited. 133 S.S. Ratnayake was the SPD from 21 June 2010 to 31 December 2011 and AG overseeing PDD during our Review Period. 134 Refer Annexure 31 for the list of 65 offers where there were two different Secondary Market rates. 135 To the extent provided by the CBSL.

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6.6.9. Since the Daily Market Summary Reports published by MO were based on the simple average of

the quotes submitted by the PDs and no other database is available for identifying the prevailing

the Secondary Market rates on the Auction dates, these rates were increased by issue premium

of 5 Bps and thereafter, compared for computation of loss from issuance of Treasury Bonds through

Auctions.

COMPUTATION OF BASE RATE

6.6.10. To assess the loss to the Government, a “Base Rate” was adopted based on the following

approach:

A. In case where prevailing Secondary Market yield rates of similar maturity were available in

the minutes of the Tender Board meeting and rates as per Daily Market Summary Reports were

not available, then Secondary Market yield rates as per minutes of the Tender Board were

considered as Base Rate.

B. In case where rates as per Daily Market Summary Reports were available and prevailing

Secondary Market yield rates of similar maturity were not available in the minutes of the

Tender Board, then rates of Daily Market Summary Reports were considered as Base Rate.

C. In case where prevailing Secondary Market yield rates of similar maturity were available in

the minutes of the Tender Board meeting and rates as per Daily Market Summary Reports were

also available, then higher of these two rates was considered as Base Rate.

D. In case where prevailing Secondary Market yield rates of similar maturity were not available

neither in the minutes of the Tender Board meeting nor in the Daily Market Summary Reports,

loss was not computed in the absence of a Base Rate that can be adopted.

A brief summary of the basis of calculation of Base Rate is as under:

TABLE 87: Calculation of base rate

# Secondary Market Rates as per minutes of Tender Board

Rates as per Daily Market Summary Reports

Base Rate adopted for computation of loss

1 Rates are Available Rates not available Secondary Market Rates as per minutes of the Tender Board

2 Rates not available Rates are Available Rates as per Daily Market Summary Reports

3 Rates are Available Rates are Available Higher of Secondary Market Rates as per minutes of the Tender Board or Rates as per Daily Market Summary Reports

4 Rates not available Rates not available Not applicable

6.6.11. The acceptance of bids at WAYR higher than the prevailing Secondary Market yield rates for similar

maturity is considered as loss to the Government of Sri Lanka. The loss range is between Rs. 6.63

Billion (minimum aggregated) to Rs. 9.68 Billion (maximum aggregated).

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6.6.12. On comparison of Base Rate with the respective WAYR of the 97 accepted offers, the following

observations were made:

A. In 40 offers out of 97 accepted offers, the Tender Board decided to accept bids aggregating

to Rs. 335.37 Billion against the offered value aggregating to Rs. 248.00 Billion. However, the

Tender Board has accepted offers at WAYR less than or equal to Base Rate. Therefore, these

40 offers (Refer Annexure 32)136 are not considered for detailed scrutiny for computation of

loss.

B. In 4 offers out of 97 accepted offers, the Tender Board decided to accept bids aggregating to

Rs. 49.80 Billion against offered value aggregating to Rs. 35.00 Billion. The main reasons137

attributed for accepting funds more than the offered value were:

1. General practice of accepting higher amount than the offered amount in view of market

conditions and quantum of financing requirement for the Treasury Operation Department;

2. Rates had declined compared against last Auction of similar maturities; however, yield

rates are marginally above the prevailing Secondary Market levels; and

3. Suspension of alternative option of funding via Direct Placement as per the prevailing

procedures.

However, Secondary Market yield rates for similar maturities were not available either in the

minutes of the Tender Board or Daily Market Summary Reports. Therefore, these 4 (four)

offers could not be analysed for the purpose of calculation of loss, if any. The details of 4

(four) offers are as under:

TABLE 88 : Details of instances where rates not available (Amount in Rs. Million)

# Date of Auction Bond series ISIN Value Offered Value accepted

1 10 Mar 2015 10.25%2025A LKB01025C157 10,000 15,707

2 10 Mar 2015 11.50%2035A LKB02035C155 10,000 17,890

3 5 May 2015 09.25%2020A LKB00520E014 5,000 5,750

4 28 May 2015 11.00%2030A LKB01530E152 10,000 10,450

TOTAL 35,000 49,797

C. In remaining 53 offers out of 97 accepted offers, the Tender Board decided to accept bids

aggregating to Rs. 558.91 Billion against offered value aggregating to Rs. 363.50 Billion and

the offers were accepted at WAYR higher than the Base Rate, which has led to raising of funds

at a higher cost and caused loss to the CBSL.

136 Refer Annexure 32 for the list of 40 offers where WAYR less than and equal to Base rate. 137 As per the rationale explained in minutes of the Tender Board of respective offer

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COMPUTATION OF MAXIMUM LOSS

6.6.13. On review of underlying supporting documents such as minutes of the Tender Board for respective

offers, Daily Market Summary Reports of MO corresponding to the Auction date, Bids approved

sheet for the bids accepted by the PDD and press release issued by the PDD for these 53 offers,

it was noted that:

A. The bids were accepted at WAYR higher than the Base Rate and the difference was ranging

between 01-123 basis points (“Bps”).

B. For the purpose of calculation of loss caused to the CBSL from acceptance of bids at WAYR

higher than the Base Rate, the following steps were performed in each instance:

Step 1: Identified the Base rate as mentioned in Section 6.6.8 to 6.6.10.

Step 2: Computed the price from the Base Rate identified from the in step 1, using the price

formula in Microsoft Excel, as explained below.

Step 3: Marked the price, identified in Step 2, as Base Price after grossing up the tax

component from the identified price, to arrive at “Before-Tax” Price.

Step 4: Identified the bids (from the bids approved sheet), which were accepted and priced

at less than the Base Price.

Step 5: Ascertained the difference between Base Price and bid price for each accepted bid

identified in Step 4.

Step 6: Calculated the number of bonds issued to each PDs by dividing the column “Amount

Tendered” of bids approved sheet, with face value of each Treasury Bond i.e., Rs.100.

Step 7: Calculated the value of loss for each accepted bid identified in Step 4 by multiplying

the number of Treasury Bonds issued (as per Step 6) and the differential price (as per

Step 5).

Step 8: Aggregated the value of loss for all the bids identified in Step 4 in order to calculate

the loss for a particular ISIN.

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6.6.14. For the purpose of identification of Base price, from the Base Rate, the PRICE formula in the

Microsoft Excel was used and considered settlement date, maturity date, rate, yield, redemption

value, frequency of coupon payment, coupon payment and Base Rate, as under:

Base price = “PRICE (settlement, maturity, rate, yld, redemption, frequency, basis)138”

wherein;

Settlement date = security settlement date

Maturity date = security maturity date

Rate = security annual coupon rate

Yld = security annual yield rate

Redemption = Security redemption value

Frequency = number of coupon payments per year

Basis = type of day count basis to use

6.6.15. Based on above mentioned procedures, in 53 out of 97 offers, the maximum loss (Refer Annexure

33 and Exhibit 53)139 caused to the Government of Sri Lanka aggregating to Rs. 9.68 Billion and

offer wise summary of loss is as under:

TABLE 89: Summary of maximum loss (Amount in Rs. Million)


ISIN Bond series Offered value

Accepted Value

WAYR Base Rate

loss

1 27-Feb-2015 LKB03045C013 12.50%2045A 1,000 10,058 11.73% 10.50%141

1,114.63

2 10-Mar-2015 LKB00922G017 11.20%2022A 10,000 18,240 9.17% 8.54% 684.93

3 12-Mar-2015 LKB00618F013 8.50%2018D 10,000 22,943 8.70% 8.19% 347.42

4 12-Mar-2015 LKB01023I019 11.20%2023A 10,000 14,462 9.79% 9.30% 443.62

5 17-Mar-2015 LKB00619I155 10.60%2019B 7,000 9,846 9.13% 8.57% 222.18

6 17-Mar-2015 LKB00821H019 11.00%2021A 7,000 7,858 9.55% 8.75% 329.82

7 26-Mar-2015 LKB00619I155 10.60%2019B 10,000 19,245 8.92% 8.85% 65.04

8 30-Mar-2015 LKB00820F015 8.00%2020A 5,000 5,265 9.07% 8.93% 32.18

9 7-Apr-2015 LKB00417E153 08.75%2017A 12,500 12,441 8.14% 8.03% 0.48

10 7-Apr-2015 LKB00821H019 11.00%2021A 7,500 7,600 9.40% 9.20% 257.58

11 9-Jul-2015 LKB00520E014 9.25%2020A 15,000 11,500 8.37% 8.36% 25.48

12 9-Jul-2015 LKB00721J157 9.45%2021A 10,000 7,615 9.08% 8.90% 71.17

13 9-Jul-2015 LKB00922J011 10.00%2022A 15,000 12,100 9.14% 9.08% 68.43

138 Source: Standard formula in Microsoft Excel 139 Refer Annexure 33 for the list of 53 offers and detailed computation of loss and Exhibit 53 for the Daily summary reports from MO, Minutes of the Tender Board, bid approved sheets, press Release for 53 offers 140 Refer Annexure 1 for the list of employees of the CBSL attending the Tender Board meeting for respective offers 141 Rates were taken from PCOI interview of Ms. CMDNK Seneviratne

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Accepted Value

WAYR Base Rate

loss

14 14-Jul-2015 LKB00418J150 8.75%2018A 10,000 4,670 8.18% 8.00% 29.77

15 14-Jul-2015 LKB01023I019 11.20%2023A 10,000 11,050 9.58% 9.50% 84.13

16 4-Aug-2015 LKB00821H019 11.00%2021A 5,000 11,405 9.07% 8.97% 55.33

17 4-Aug-2015 LKB01025H016 11.00%2025A 10,000 14,340 9.63% 9.60% 47.64

18 11-Aug-2015 LKB00520E014 9.25%2020A 3,000 6,273 8.38% 8.36% 10.41

19 11-Aug-2015 LKB01025H016 11.00%2025A 5,000 6,660 9.67% 9.65% 13.88

20 25-Aug-2015 LKB01023I019 11.20%2023A 10,000 10,294 9.76% 9.70% 44.78

21 25-Aug-2015 LKB01025H016 11.00%2025A 12,500 20,288 9.97% 9.90% 113.05

22 31-Aug-2015 LKB00520E014 9.25%2020A 5,000 5,500 9.35% 9.30% 17.42

23 31-Aug-2015 LKB00821H019 11.00%2021A 12,500 1,755 9.71% 9.70% 1.90

24 31-Aug-2015 LKB01226F014 11.00%2026A 12,500 24,063 10.34% 10.25% 157.96

25 8-Sep-2015 LKB00520E014 9.25%2020A 2,000 3,735 9.65% 9.55% 14.37

26 8-Sep-2015 LKB01023I019 11.20%2023A 2,000 4,470 10.25% 10.20% 14.14

27 15-Sep-2015 LKB00520E014 9.25%2020A 3,000 3,100 9.58% 9.55% 3.60

28 15-Sep-2015 LKB00922J011 10.00%2022A 5,000 9,559 9.95% 9.90% 57.25

29 15-Sep-2015 LKB01025H016 11.00%2025A 5,000 5,241 10.38% 10.30% 27.74

30 15-Sep-2015 LKB01528I017 11.50%2028A 3,000 10,884 10.88% 10.70% 145.47

31 28-Sep-2015 LKB00619I155 10.60%2019B 2,000 3,000 9.55% 9.50% 0.88

32 28-Sep-2015 LKB01528I017 11.50%2028A 4,000 3,660 11.04% 11.00% 14.81

33 26-Oct-2015 LKB02035C155 11.50%2035A 10,000 22,340 11.13% 11.08% 114.59

34 27-Nov-2015 LKB02035C155 11.50%2035A 7,000 18,850 10.50% 10.43% 122.19

35 15-Dec-2015 LKB01025H016 11.00%2025A 3,000 3,000 10.36% 10.20% 32.54

36 15-Dec-2015 LKB02035C155 11.50%2035A 5,000 12,555 10.86% 10.55% 314.30

37 18-Dec-2015 LKB01530E152 11.00%2030A 3,000 2,860 11.00% 10.90% 39.85

38 18-Dec-2015 LKB02035C155 11.50%2035A 6,000 2,930 11.45% 11.35% 24.46

39 23-Dec-2015 LKB01023I019 11.20%2023A 3,000 3,140 10.82% 10.75% 17.27

40 23-Dec-2015 LKB01025H016 11.00%2025A 5,000 1,610 10.94% 10.90% 5.54

41 8-Jan-2016 LKB01025H016 11.00%2025A 5,000 6,059 11.05% 10.98% 27.23

42 8-Jan-2016 LKB01530E152 11.00%2030A 5,000 13,585 11.46% 11.30% 141.07

43 8-Jan-2016 LKB02541A016 12.00%2041A 8,000 19,635 12.09% 11.45% 949.08

44 28-Jan-2016 LKB01226F014 11.00%2026A 3,000 6,190 11.14% 10.93% 80.03

45 28-Jan-2016 LKB01530E152 11.00%2030A 5,000 15,650 11.53% 11.30% 246.01

46 5-Feb-2016 LKB01530E152 11.00%2030A 3,000 10,455 11.66% 11.55% 77.54

47 5-Feb-2016 LKB02541A016 12.00%2041A 5,000 10,250 12.15% 12.10% 40.04

48 29-Feb-2016 LKB00821H019 11.00%2021A 3,000 5,312 11.42% 11.35% 19.24

49 29-Feb-2016 LKB010231019 11.20%2023A 3,000 7,637 11.78% 11.68% 38.92

50 29-Mar-2016 LKB00520E014 9.25%2020A 10,000 10,272 12.78% 12.50% 91.82

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Accepted Value

WAYR Base Rate

loss

51 29-Mar-2016 LKB01025C157 10.25%2025A 10,000 21,475 13.80% 13.15% 675.13

52 29-Mar-2016 LKB01226F014 11.00%2026A 10,000 17,010 13.93% 13.20% 611.73

53 29-Mar-2016 LKB01530E152 11.00%2030A 10,000 28,975 14.23% 13.25% 1,495.02

TOTAL 9,681.15

COMPUTATION OF MINIMUM LOSS

6.6.16. In the scenario where the CBSL had to raise funds to the extent of funds requirement raised by

the Treasury Operation Department, even if WAYR was higher than prevailing Secondary Market

yield rates for similar maturity. Accordingly, the 53 offers (identified in Section 6.6.13 above) can

be bifurcated as under:

A. In 11 offers out of 53 offers, the Tender Board accepted bids aggregating to Rs. 64.14 Billion

which was less than the offered value aggregating to Rs. 96.00 Billion. Therefore, the loss

might not have been caused to the Government of Sri Lanka as the Tender Board had to accept

funds to meet the requirement of the Treasury Operation Department even at WAYR higher

than prevailing Secondary Market yield rates for similar maturity.

B. In remaining 42 offers, the Tender Board accepted bids aggregating to Rs. 494.77 Billion which

was more than the offered value aggregating to Rs. 267.50 Billion. Therefore, loss might have

been caused to the Government of Sri Lanka which could have been avoided if the Tender

Board would have accepted offers till the offered value as explained in subsequent Sections.

6.6.17. On review of above mentioned 42 offers, the following different cases were noted:

Case A: In 35 offers out of 42 offers, wherein the Secondary Market yield rates for similar

maturities were lower than the WAYR at total offered value, the calculation of loss has been

performed on the value of bids between the offered value and accepted value.

Case B: In 7 offers out of 42 offers, wherein the Secondary Market yield rates for similar maturities

were higher than the WAYR at total offered value, the calculation of loss was performed based on

the value of bids at Secondary Market yield rates for similar maturities till accepted value.

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The above cases can be explained through an example, which is as under:

TABLE 90: Example of both cases (Amount in Rs. Million)

Particulars Case A Case B

Offered Value 5,000 5,000

Accepted Value 10,000 10,000

WAYR of accepted value 10% 10%

Base Rate 9% 11%

Value of Bids at Base Rate 2,000 7,000

Higher of Base rate and WAYR 10% 11%

Incremental Value for Loss 5,000 to 10,000 7,000 to 10,000

6.6.18. In order to compute the minimum loss in 42 offers mentioned in the sub-section (B) of Section

6.6.12 of the Report, the following steps were performed in each offer:

Step 1: Identified the Base Rate as mentioned in Section 6.6.8. to 6.6.10 of the Report.

Step 2: Computed the price from the Base Rate identified from the in Step 1, using the PRICE

formula in Microsoft Excel.

Step 3: Marked the price, identified in Step 2, as Base Price after grossing up the tax component

from the identified price.

Step 4: Identified the bids (from the bids approved sheet), for the computation of minimum loss

in the following manner:

Case A: In case the Base Rate was lower than the WAYR at total offered value (Section

6.6.17 (A) of the Report), then the bids accepted at yield rates higher than the

WAYR at the offered amount were considered.

Case B: In case the Base Rate was higher than the WAYR at total offered value (Section

6.6.17 (B) of the Report), then the bids accepted at yield rates higher than the

“Base Rate” were considered.

Step 5: Ascertained the difference between Base Price and bid price for each accepted bid

identified in Step 4.

Step 6: Calculated the number of bonds issued to each PDs by dividing the column “Amount

Tendered” of Bids Approved sheet, with face value of the Treasury Bond i.e., Rs.100.

Step 7: Calculated the value of loss for each accepted bid identified in Step 4, by multiplying the

number of Treasury Bonds issued (as per Step 6) and the differential price (as per Step 7).

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Step 8: Aggregated the value of loss for all the bids identified in Step 7 in order to calculate the

loss for a particular ISIN.

6.6.19. Based on above mentioned procedures, in 42 offers, the minimum loss (Refer Annexure 34)142.

caused to the CBSL aggregating to Rs. 6.63 Billion and offer wise summary of loss is as under:

TABLE 91: Summary of minimum loss (Amount in Rs. Million)

# CASE Date of Auction143


Accepted Value

WAYR Base Rate

Loss

1 Case A 10-Mar-2015 LKB00922G017 11.20%2022A 10,000 18,240 9.17% 8.54% 469.58

2 Case A 12-Mar-2015 LKB00618F013 8.50%2018D 10,000 22,943 8.70% 8.19% 260.14

3 Case A 12-Mar-2015 LKB01023I019 11.20%2023A 10,000 14,462 9.79% 9.30% 200.21

4 Case A 17-Mar-2015 LKB00619I155 10.60%2019B 7,000 9,846 9.13% 8.57% 76.32

5 Case A 17-Mar-2015 LKB00821H019 11.00%2021A 7,000 7,858 9.55% 8.75% 42.49

6 Case A 26-Mar-2015 LKB00619I155 10.60%2019B 10,000 19,245 8.92% 8.85% 51.00

7 Case A 30-Mar-2015 LKB00820F015 8.00%2020A 5,000 5,265 9.07% 8.93% 3.00

8 Case A 7-Apr-2015 LKB00821H019 11.00%2021A 7,500 7,600 9.40% 9.20% 3.92

9 Case A 14-Jul-2015 LKB01023I019 11.20%2023A 10,000 11,050 9.58% 9.50% 23.83

10 Case A 4-Aug-2015 LKB00821H019 11.00%2021A 5,000 11,405 9.07% 8.97% 36.95

11 Case A 4-Aug-2015 LKB01025H016 11.00%2025A 10,000 14,340 9.63% 9.60% 29.46

12 Case A 11-Aug-2015 LKB01025H016 11.00%2025A 5,000 6,660 9.67% 9.65% 5.61

13 Case A 25-Aug-2015 LKB01023I019 11.20%2023A 10,000 10,294 9.76% 9.70% 3.42

14 Case A 25-Aug-2015 LKB01025H016 11.00%2025A 12,500 20,288 9.97% 9.90% 67.24

15 Case A 31-Aug-2015 LKB00520E014 9.25%2020A 5,000 5,500 9.35% 9.30% 3.93

16 Case A 8-Sep-2015 LKB00520E014 9.25%2020A 2,000 3,735 9.65% 9.55% 9.55

17 Case A 8-Sep-2015 LKB01023I019 11.20%2023A 2,000 4,470 10.25% 10.20% 11.49

18 Case A 15-Sep-2015 LKB00520E014 9.25%2020A 3,000 3,100 9.58% 9.55% 0.19

19 Case A 15-Sep-2015 LKB01025H016 11.00%2025A 5,000 5,241 10.38% 10.30% 2.56

20 Case A 15-Sep-2015 LKB01528I017 11.50%2028A 3,000 10,884 10.88% 10.70% 130.35

21 Case A 15-Dec-2015 LKB02035C155 11.50%2035A 5,000 12,555 10.86% 10.55% 233.63

22 Case A 23-Dec-2015 LKB01023I019 11.20%2023A 3,000 3,140 10.82% 10.75% 1.86

23 Case A 8-Jan-2016 LKB01025H016 11.00%2025A 5,000 6,059 11.05% 10.98% 7.45

24 Case A 8-Jan-2016 LKB01530E152 11.00%2030A 5,000 13,585 11.46% 11.30% 112.85

25 Case A 8-Jan-2016 LKB02541A016 12.00%2041A 8,000 19,635 12.09% 11.45% 603.70

26 Case A 28-Jan-2016 LKB01226F014 11.00%2026A 3,000 6,190 11.14% 10.70% 72.43

27 Case A 28-Jan-2016 LKB01530E152 11.00%2030A 5,000 15,650 11.53% 11.30% 227.29

142 Refer Annexure 34 for the list of 42 offers and detailed computation of loss 143 Refer Annexure 1 for the list of employees of the CBSL attending the Tender Board meeting for respective offers

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# CASE Date of Auction143


Accepted Value

WAYR Base Rate

Loss

28 Case A 5-Feb-2016 LKB01530E152 11.00%2030A 3,000 10,455 11.66% 11.55% 63.80

29 Case A 5-Feb-2016 LKB02541A016 12.00%2041A 5,000 10,250 12.15% 12.10% 27.29

30 Case A 29-Feb-2016 LKB010231019 11.20%2023A 3,000 7,637 11.78% 11.68% 12.10

31 Case A 29-Feb-2016 LKB00821H019 11.00%2021A 3,000 5,312 11.42% 11.35% 30.97

32 Case A 29-Mar-2016 LKB00520E014 9.25%2020A 10,000 10,272 12.78% 12.50% 4.16

33 Case A 29-Mar-2016 LKB01025C157 10.25%2025A 10,000 21,475 13.80% 13.15% 577.25

34 Case A 29-Mar-2016 LKB01226F014 11.00%2026A 10,000 17,010 13.93% 13.20% 453.63

35 Case A 29-Mar-2016 LKB01530E152 11.00%2030A 10,000 28,975 14.23% 13.25% 1249.75

Total for Case A

5,109.40

36 Case B 27-Feb-2015 LKB03045C013 12.50%2045A 1,000 10,058 11.73% 10.50%144

1,106.43

37 Case B 11-Aug-2015 LKB00520E014 9.25%2020A 3,000 6,273 8.38% 8.36% 10.41

38 Case B 31-Aug-2015 LKB01226F014 11.00%2026A 12,500 24,063 10.34% 10.25% 155.30

39 Case B 15-Sep-2015 LKB00922J011 10.00%2022A 5,000 9,559 9.95% 9.90% 39.69

40 Case B 28-Sep-2015 LKB00619I155 10.60%2019B 2,000 3,000 9.55% 9.50% 0.88

41 Case B 26-Oct-2015 LKB02035C155 11.50%2035A 10,000 22,340 11.13% 11.08% 100.21

42 Case B 27-Nov-2015 LKB02035C155 11.50%2035A 7,000 18,850 10.50% 10.43% 111.34

Total for Case B

1,524.26

TOTAL 6,633.66

6.6.20. Therefore, in the above-mentioned cases, acceptance of offers at WAYR higher than the Base Rate

has still resulted in raising funds at higher cost. However, the loss to the Government of Sri Lanka

has been revised to Rs. 6.63 Billion in this case.

144 Rates were taken from the PCOI interview of Ms. CMDNK Seneviratne.

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6.7. COMPUTATION OF LOSS IN DIRECT PLACEMENTS

6.7.1. During the Review Period, 9 Direct Placements were conducted by the PDD wherein, 12 offers

(Refer Annexure 35)145 of Treasury Bonds were made. Provided below is the month-wise break-up

of the Treasury Bond offers accepted by the CBSL:

TABLE 92: Month wise break up of Direct Placements (Amount in Rs. Million)

Month Accepted Placements and offers Cashflow Requirements from Treasury

No. of ISIN No. of Placements Value offered

February 2015 10 7 23,524 46,000

March 2015 1 1 14,144 Administrative

December 2015 1 1 5,000 Administrative

TOTAL 12 9 42,668

6.7.2. As explained earlier in Section 4.2.7. of the Report, yield rate structures were prepared by the

officers of the FO on a weekly basis for the ISINs to be offered in the market and were approved

by the DG through AG and SPD. The yield rates included in the yield rate structures were

determined by the SPD by taking into consideration various market factors such as coupon rate of

ISIN, bunching, interest and repayment cycle, fund requirements of Treasury and market liquidity.

The issuance of Treasury Bonds was made within the yield rates and the volume-based

inducements as provided in the approved yield rate structures.

6.7.3. In cases where there was no corresponding Auction for instrument to determine the rates based

on the WAYR of most recent Auction of similar maturities, the prevailing Secondary Market yield

rates for similar maturities were applied with the consent of the SPD or the Governor of the

CBSL146.

6.7.4. The Monetary Board147 approved issuance of Treasury Bonds to the EPF and other captive sources

at an interest rate of 5 Bps above the prevailing Secondary Market rates through Direct

Placements for creating liquidity into market.

6.7.5. For the purpose of determining the instances wherein the rates issued to market participants

were over and above the prevailing Secondary Market yield rates of similar maturities, the

following rates were considered:

145 Refer Annexure 35 for the list of 12 offers for Direct Placements of Treasury Bonds. 146As per the PDD Operational Manual updated as of 31 July 2013. 147 Vide the Monetary Board meeting of 7 October 2008.

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A. The Buying Rates quoted in the Daily Summary Report as provided by MO for the dates

mentioned as “Placement arranged date” in the issue tickets were considered as Secondary

Market yield rates; and

B. The after-tax issue rates as provided in the issue tickets prepared by the FO of the PDD for

each Direct Placement made.

6.7.6. As explained in section 4.2.7 of the Report on 7 October 2008, the Monetary Board approved

issuance of Treasury Bonds to the EPF and other captive sources at an interest rate of 5 bps above

the prevailing Secondary Market rates through Direct Placements. (Refer Exhibit 54)148. Hence,

for the calculation of loss for Direct Placements in the period 1 February 2015 to 31 March 2016,

the Monetary Board minutes of 7 October 2008 were considered.

COMPUTATION OF LOSS

6.7.7. In 3 Placement transactions, the after-tax issue price was lower than the Base Price calculated

and the same has resulted in Loss of Rs. 9.01 Million to the Government of Sri Lanka. Refer the

table below for the transaction-wise loss for the period from 1 February 2015 to 31 March 2016.

TABLE 93: Transaction wise Loss (Amount in Rs. Million)

# Placement Date

Bond Series ISIN Tender Amount

Base Rate Accepted Rate

Loss

1 2-Feb-2015 11.40%2024A LKB01024A014 1,240 8.17% 8.20% 3.06

2 2-Feb-2015 11.40%2024A LKB01024A014 2,000 8.17% 8.20% 4.93

3 6-Feb-2015 11.40%2024A LKB01024A014 413 8.17% 8.20% 1.02

6.7.8. The following steps were performed for the purpose of calculation of loss:

STEP 1: Identified the after-tax issue price as provided in the Issuance Ticket and marked it as

the Issued Price.

STEP 2: Identified the prevailing Secondary Market yield rate of similar maturities as per the

Daily Market Summary Report of MO of the PDD on the “Placement arranged date” as

provided in the Issuance Ticket.

STEP 3: Identified the yield rates for the Direct Placements made to captive PDs during the

Review Period, where yield rate was mentioned in the approved yield rate structure.

148 Refer Exhibit 54 for extracts of minutes of Monetary Board Meeting of 7 October 2008.

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STEP 4: For the Direct Placement transaction pertaining to the Review Period, added 5 bps in

the prevailing Secondary Market rate for transactions, as identified in the Step 2 except

for Direct Placements transactions identified in Step 3 and marked it as Base Rate.

STEP 5: Calculated Base Price from the Base Rates identified in Step 4. Base price was calculated

from the “Price” formula from Microsoft excel explained in section 6.7.9.

STEP 6: Ascertained the difference between Issued Price and Base Price and marked it as the

“Differential Price”.

STEP 7: Calculated the Number of Bonds issued to each PD by dividing the face value provided

in the Issuance Tickets with face value of Treasury Bond i.e. Rs. 100.

STEP 8: Ascertained the loss by multiplying the “Differential Price” with the Number of Bonds

issued to each PD.

6.7.9. The Base Price was calculated from the PRICE formula in the Microsoft Excel. Considering

settlement date, maturity date, coupon rate, yield, redemption value, frequency of coupon

payment, coupon payment and Base Rate and Cut-off Rates as under:

Base Price = “PRICE (settlement date, maturity date, rate, yld, redemption, frequency, basis)149”

wherein;

Settlement date = security settlement date

Maturity date = security maturity date

Rate = security annual coupon rate

Yld = security annual yield rate

Redemption = Security redemption value

Frequency = number of coupon payments per year

Basis = type of day count basis to use

149 Source: Standard formula in Microsoft Excel

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TABLE 94: Calculation of loss (Amount in Rs. Million)

# Date of Placement150

Bond Series ISIN Name of the PD

Number of Bonds (A)

Approved Secondary Market Differential Price (F)

Loss (G)

Rate (B)

Price of each Treasury Bond (C)

Rate (D)

Price of each Treasury Bond (E)

1 2-Feb-2015

11.40%2024A LKB01024A014 NSB 12.40 8.20% 119.94 8.17% 120.19 0.25 3.06

2 2-Feb-2015

11.40%2024A LKB01024A014 BOC 20.00 8.20% 119.94 8.17% 120.19 0.25 4.93

3 6-Feb-2015

11.40%2024A LKB01024A014 NSB 4.13 8.20% 119.92 8.17% 120.17 0.25 1.02

TOTAL 9.01

6.7.10. Therefore, issuing the Treasury Bonds through Direct Placements at the rates higher than the

Secondary Market Rates, has caused a Loss of Rs. 9.01 Million to the Government of Sri Lanka.

150 Refer Annexure 2 for the list of employees of the CBSL involving in the decision of Direct Placement process in respective offers

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7. PUBLIC DOMAIN SEARCHES

7.1. IDENTIFY ASSOCIATION BETWEEN THE EMPLOYEES OF THE CBSL AND PD

7.1.1. During the review of documents for Auction and Direct Placements method for the issuance of

Treasury Bonds, there were instances wherein deviation / anomalies were noted in the process

followed and the supporting documents for several Auctions. A list of 12 employees of the CBSL

was prepared who were responsible for taking decisions related to issue of Treasury Bonds during

the Review Period (hereinafter referred to as “identified employees”. (Refer Annexure 5)

7.1.2. The information with regards to the identified CBSL employees was collated from various sources

to the extent possible, to unveil any association with the PDs. The Due Diligence was conducted

which consisted of online public record research to obtain their employment, professional and

family background, news media to identify political / business affiliations, directorship details

and adverse publicity and checks on subscribed Global Compliance Databases.

7.1.3. The data with regards to 16 PDs was gathered from various sources including publicly available

information, subscribed databases, Annual Reports as obtained from the respective company’s

website and the data received from the ROC. The ROC records of the 16 PDs were requested for

the Review Period to determine if any of the identified employees of the CBSL and / or their

family members had undisclosed association with the PDs. The data reviewed for the PDs included

Director’s details, shareholding pattern, audited financial statements, and change in shareholding

pattern / directorship.

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7.1.4. The following information was gathered during the searches performed for the identified CBSL

employees:

A. BACKGROUND CHECK AND MEDIA PROFILING OF IDENTIFIED EMPLOYEES OF THE CBSL

1. Professional association was noted between the employees of the CBSL and PD through

Institute of Bankers of Sri Lanka (“IBSL”) which was established in the year 1964. IBSL is

managed by a Governing Board of 12 high ranking banking sector professionals consisting

of two members from the CBSL (a Deputy Governor as Chairman and an Assistant Governor

as Vice Chairman), two from Bank of Ceylon (General Manager and Deputy General

Manager), two from People's Bank (CEO/General Manager and a Deputy General Manager),

three from other banks and three from Fellows and Associates of the IBSL151. Hence, the

designated employees of the CBSL were the members of IBSL intermittently and were

professionally connected with the employees of PD. (Refer Annexure 36)152

2. During media checks performed for the former Governor of the CBSL, Mr. Arjuna

Mahendran, an association of his son-in-law, Mr. Arjun Aloysius was noted with PTL, which

is detailed as under:

a. Public Domain Searches were conducted in respect of Mr. Arjuna Mahendran and Mr.

Arjun Aloysius to gather details about their personal and professional background. He

was appointed by the Honourable President, Mr. Maithripala Sirisena, in January 2015

as the Governor of the CBSL and served till 30 June 2016. He was the former Managing

Director of HSBC Private Bank, Chief Investment Officer of Emirates NBD as well as

the Chairman and Director-General of the Board of Investment of Sri Lanka. Several

media articles mentioned him to be appointed as an advisor to the Honourable Prime

Minister of Sri Lanka, Mr. Ranil Wickremesinghe in July 2016153. (Refer Exhibit 55)154 .

Per his professional media profile on LinkedIn, he has been associated as a Senior

Investment Consultant in “Private Family Office” in Singapore since January 2017;

however, no details in respect of the organisation is publicly available and as checked

on Accounting and Corporate Regulatory Authority (“ACRA”)155.

151 Source: https://www.ibsl.lk/board.html#gb (last accessed on 2-Jul-2019). 152 Refer Annexure 36 for the profiling of the identified employees of the CBSL. 153 Source: http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=149363

154 Refer Exhibit 55 for article of 28 July 2016 published in Lanka Business Online. 155 ACRA is a statutory board under the Ministry of Finance of the Singapore Government. It is the national regulator of business entities, public accountants and corporate service providers in Singapore.

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b. Mr. Arjun Aloysius started his career as a consultant to the Free Lanka Group and was

later heading the Free Lanka Group’s investment arm. He was Chief Executive Officer

(“CEO”) of Perpetual Asset Management, Deputy Chairman of WM Mendis and

Company as well as a Board member of Housing Development Finance Corporation

(“HDFC”). (Refer Exhibit 56)156

c. As per a media article, Mr. Arjuna Mahendran gave assurance to the Honourable Prime

Minister that his son-in-law will sever all associations with PTL prior to his

appointment as a Governor of the CBSL on 15 January 2015. (Refer Exhibit 57)157

d. However, in the year 2015, Mr. Arjun Aloysius was found to be associated as a Director

with Perpetual Capital (Private) Limited, the parent company of PTL and other group

companies of PTL. The same was corroborated by the statement made by Mr. Arjuna

Mahendran before Commission of Inquiry that his son-in-law had a beneficial interest

in PTL and continued to be a Director and Shareholder of the Holding Company of PTL

while he was the Governor of the CBSL.

e. Mr. PWDNR Rodrigo stated before the PCOI that Mr. Arjun Aloysius attended a meeting

with the CBSL employees on 2 April 2016, as a representative of PTL. The meeting

was in relation to the default of ILF by PTL on 1 April 2016. (Refer Exhibit 58)158

f. Further, during the review of the copies of voice recordings of PTL Dealer room, it

was noted that Mr. Aloysius was actively involved in the business operations of PTL

and was a key decision maker during the Review Period.

(Refer Section 3.8. for details of voice recordings between Mr. Kasun Palisena and

Mr. Arjun Aloysius)

156 Refer Exhibit 56 for article of 4 December 2016 published in The Sunday Times 157 Refer Exhibit 57 for article of 6 January 2018 published in Colombo Telegraph 158 Refer Exhibit 58 for the extract of PCOI for statement given by PWDNR Rodrigo.

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g. During the review of Electronically Stored Information (“ESI”) on device of Mr. Arjuna

Mahendran, it was noted that he interacted with the Chief Executive Officer (“CEO”)

of PTL, Mr. Kasun Palisena as documented in the emails of 4 April 2016, 16 May 2016

and 9 June 2016. The emails of Mr. Arjuna Mahendran with Mr. Kasun Palisena were

identified for the matters which were not related to the CBSL. Additionally, during

the review of call logs, various interactions between Mr. Arjuna Mahendran and Mr.

Kasun Palisena were noted during the Review Period. Similar communications

between Mr. Arjuna Mahendran and CEOs of other PDs were not noted. These

communications of the former Governor indicate that he was also closely involved in

the business operations of PTL. (Refer Section 3.9. for details of call logs and

Annexure 13 for details of the communication logs)

h. As per PCOI Report “Mr. Mahendran described the house at No. 52/1, Flower Road,

Colombo 3, as his “permanent residence” and said that his wife had lived in that

house till 2004 and during this time, his daughter was born in 1988 and his son was

born in 1990. He said that after his daughter and Mr. Arjun Aloysius got married in

2012, they lived in this house. Mr. Mahendran said that, the house had been gifted to

his daughter with a life interest retained by his wife. Mr. Mahendran said that, he

stayed at this house whenever he visited Sri Lanka during the period when he was

employed abroad. Mr. Mahendran said that when he was appointed as the Governor,

he resided at this house which was then occupied by his daughter and Mr. Arjun

Aloysius”. It should be noted that during the period Mr. Arjuna Mahendran was the

Governor at the CBSL, he was residing at the house of his son-in-law who was a

Director at PD’s group entities.

i. In view of the above, it indicates that Mr. Arjun Aloysius continued to be involved in

the operations of PTL, throughout the period Mr. Arjuna Mahendran was the Governor

of the CBSL and the conflict of interest was not resolved.

j. As per an article of 4 December 2016 (Refer Exhibit 56), it was mentioned that neither

Mr. Arjun Aloysius nor his wife Ms. Anjali Mahendran have digital footprints available

in public domain. The photographs of the said individuals that were earlier available

via Google search are no longer existing. It can be inferred that the content related

to the said individuals has been subsequently removed from the public records.

k. However, the documentary and digital evidences reviewed (as provided in the

respective Sections of this Report) and limited number of voice recordings of dealer

rooms of PDs did not suggest that Mr. Arjuna Mahendran was directly involved in

sharing insider information with Mr. Arjun Aloysius or PTL. It is pertinent to note that


existed on the availability of ESI in terms of email files and email deletions, as

detailed in the respective Sections of this Report.

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B. POTENTIAL NEXUS BETWEEN IDENTIFIED EMPLOYEES OF THE CBSL, PDs AND MARKET

PARTICIPANTS

On review of call log records available in Forensic Communication Analysis Report provided

by the CBSL and voice recordings, several communications of Mr. Arjuna Mahendran and Mr.

Arjun Aloysius were noted with the employees of PDs and market participants holding key

positions in the organisations. The following observations were made during the public

domain research conducted:

1. ASSOCIATION BETWEEN PTL AND PAN ASIA

B. Relationship between Mr. Arjuna Mahendran, Mr. Arjun Aloysius and Mr. Dimantha

Seneviratne

a. During the review of CDS Records, transactions were observed between PTL, Pan Asia

and the EPF in the Secondary Market. It was noted that Pan Asia has done Front-

Ending and also acting as an Intermediary for selling bonds to the EPF at high prices

as compared to average trading rates prevailing in the Secondary Market between

PDs.

b. The background of the employees of Pan Asia was checked and information was

gathered from various sources to uncover any association of Mr. Arjun Aloysius and /

or Mr. Arjuna Mahendran with Pan Asia.

c. It was noted that Mr. Dimantha Seneviratne was found to be associated with Pan Asia

as its CEO. Previously, he was associated with HSBC as a Chief Risk Officer at locations

including Sri Lanka, Maldives, Thailand and Bangladesh159 from February 2000 till

February 2014. It is pertinent to mention here that Mr. Arjuna Mahendran was also

associated with HSBC as its Managing Director covering whole of Asia from May 2008

till June 2013.

Therefore, it can be inferred that the geographical areas where Mr. Dimantha

Seneviratne was employed, falls under the purview of Mr. Arjuna Mahendran and

indicates a possible association between Mr. Mahendran and Mr. Dimantha

Seneviratne.

159 https: //www.linkedin.com/in/dimantha-seneviratne-901373122/?originalSubdomain=lk

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d. During the review of contents of Mr. Arjun Aloysius’s mobile phone, it was noted that

Mr. Arjun Aloysius had interacted several times with Mr. Dimantha Seneviratne in the

latter part of 2016.

e. However, the documentary and digital evidences reviewed (as provided in the

respective Sections of this Report) and limited voice recordings of dealer rooms at

PDs did not suggest that the relationships and / or associations identified above have

led the collusive behaviour between Pan Asia and PTL. It is pertinent to note that the

CBSL did not installed voice record system at the PDD and significant limitations

existed on the availability of ESI in terms of email files and email deletions, as


C. Relationship between Mr. Arjun Aloysius, Mr. Richie Dias and Mr. Nimal Perera

a. Mr. Richie Dias was the Deputy General Manager – Treasury of Pan Asia. He confirmed

before the PCOI (Para 10 & 11, Section 5.37, Chapter 5 of the report of PCOI) that

Pan Asia entered into secondary market transactions of buying Treasury Bonds from

PTL and selling them to the EPF after keeping a small margin of profit for Pan Asia.

These transactions were undertaken by Pan Asia on the instructions of the former

Chairman of Pan Asia – Mr. Nimal Perera.

b. It was also stated before the PCOI that Mr. Nimal Perera had a company named M/s

NP Capital which dealt in Treasury Bonds in the secondary market and Mr. Nimal

Perera was engaged in the practice of “dumping” Treasury Bonds at low yield rates

on the EPF.

c. Mr. Richie Dias stated that Mr. Nimal Perera instructed Mr. Richie Dias to enter into

secondary market transactions with PTL and asked him to go to Mr. Arjun Aloysius’s

office to discuss the manner in which business was to be done. This meeting took

place sometime in June 2015 and Mr. Arjun Aloysius explained to Mr. Richie Dias that

PTL wanted Pan Asia to play an intermediary role between PTL and the EPF.

d. However, the documentary and digital evidences reviewed (as provided in the


rooms of PDs did not suggest that the relationships and / or associations identified

above have led the collusive behaviour between Pan Asia and PTL.

2. ASSOCIATION BETWEEN PTL AND DFCC

During review of Market Manipulation Report and media articles, it was noted that PTL

was involved in transactions in the Secondary Market in collusion with DFCC. It was noted

that PTL had sold bonds to DFCC at increased prices and they in turn sold to the EPF and

earned huge capital profits in Secondary Market through DFCC acting as an intermediary.

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It was observed that Mr. Kasun Palisena and Mr. Nuwan Salgado had contacts in DFCC

which could have resulted in market manipulation of by PTL via its contacts. The

following associations were noted between PTL and DFCC:

a. Mr. Kasun Palisena stated before the PCOI that Mr. Kaveen Karoonamurthy, the then

Chief Dealer at DFCC, was previously employed with First Capital Money Brokers

during Mr. Kasun Palisena’s employment with the said organisation. (Refer Exhibit

59) 160.

b. As per media articles, Mr. Kaveen Karoonamurthy was one of the informants of PTL

and was referred to as “Little Johnny”. (Refer Exhibit 60)161

c. During the review of copies of voice recordings, conversations of Mr. Kaveen

Karoonamurthy were noted with employees of PTL including Mr. Kasun Palisena

discussing deals for particular ISIN and trading with the EPF.

(Refer Section 3.8 for details of the voice recordings)

d. As per the LinkedIn profile of Mr. Kaveen Karoonamurthy, he was endorsed by Mr.

Kasun Palisena and Mr. Nuwan Salgado for his skills including Banking and Portfolio

Management.

e. Additionally, Mr. Sanjeewa Fernando before being appointed on the board of PTL,

was found associated with DFCC as a Vice President (Integrated Risk Management)

from February 2007 till December 2016 and was associated as a Fund Manager with

the EPF for the period April 2000 to October 2007.

f. Previous association of Mr. Sanjeewa Fernando was also noted with Mr. Kasun

Palisena as they were previously employed with Acuity Securities Limited. The

details are as under:

TABLE 95: Previous Association of Kasun Palisena and Sanjeewa Fernando

Name of organisation

Name of individual

Type of association

Tenure Common Tenure

Acuity Securities Limited

Mr. Sanjeewa Fernando

Chairman of the Board Integrated Risk Management

2012 –2015

2012 – 2013

Mr. Kasun Palisena

Chief Dealer Mar-2010 – Oct-2013

160 Refer Exhibit 59 for extract of Mr. Kasun Palisena’s interview from PCOI. 161 Refer Exhibit 60 for article of 12 October 2017 published in Daily Mirror.

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However, the documentary and digital evidences reviewed (as provided in the


rooms of PDs did not suggest that the relationships and / or associations identified

above have led to have led the collusive behaviour between PTL and DFCC. It is

pertinent to note that the CBSL did not installed voice record system at the PDD and

significant limitations existed on the availability of ESI in terms of email files and email

deletions, as detailed in the respective Sections of this Report.

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8. DIGITAL FORENSICS

8.1. OVERVIEW

During the review of documents for Auction and Direct Placement method for issuance of Treasury

Bonds, there were instances wherein deviation / anomalies were noted in the process followed

and the supporting documents for several Auctions. A list of 12 identified employees of the CBSL

was prepared who were responsible for taking decisions related to issue of Treasury Bonds during

the Review Period (hereinafter referred to as “custodian”) (Refer Annexure 5)162 and their

electronic devices (hereinafter referred as “Target Devices”) were identified and informed to the

CBSL. The ITD identified the computers (desktops / laptops) issued to these employees, based on

the last “Log-In” details recorded in the “Active Directory”.

8.2. REVIEW OF EMAILS

8.2.1. The summary of available digital evidences for all 12 identified employees of the CBSL was

prepared and evaluated for potential linkage with the deviations and irregularities explained in

the previous Sections of the Report (Refer Annexure 41)163. The specific electronic evidences

considered relevant to the findings of the Report are detailed in the respective Sections of the

detailed observations.

8.2.2. The below mentioned table represents the availability of data/ emails/ facts considered relevant

in respect of the issuance of Treasury Bonds:

TABLE 96: Summary of evidences from ESI


1 Mr. Arjuna Mahendran Available

2 Mr. P Samarasiri None

3 Mr. SS Ratnayake Available

4 Ms. CMDNK Seneviratne Available

5 Mr. THB Sarathchandra Available

6 Ms. UL Muthugala Available

7 Mr. NDYC Weerasinghe None

8 Dr. MZM Aazim Available

9 Mr. S Obeysekera None

162 Refer Annexure 5 for the list of 12 identified employees and their respective Target Devices along with rationale for their identification for the review. 163 Refer Annexure 41 for the evidence matrix of identified custodians.

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10 Ms. LS Fernando None

11 Mr. S Pathumanapan Available

12 Ms. Amila Dahanayake None

8.2.3. Below mentioned observations were made basis the review performed of the devices provided by

the CBSL:

A. REVIEW OF DESKTOP OF MR. THB SARATHCHANDRA

1. Advice regarding the different bond series

a. During the review, an email of 1 February 2016 was noted, wherein Mr. S

Pathumanapan sent an email to Mr. WG Prabath (Head of the Middle Office) on

seeking advice regarding the bond series to be issued at the Auction to be held on 5

February 2016.

b. In response to this, Mr. WG Prabath on the same day suggested that the issue of series

“12.00%2041A” may be reconsidered, as the coupon cycles fall in January and July

where the coupon payment volumes are comparatively high. Ms. UL Muthugala

(erstwhile ASPD) also responded on the same day that the said series may not be

issued. (Refer Exhibit 61)164

c. Despite the above-mentioned advice of Ms. UL Muthugala, the bond series was issued

on 5 February 2016, and several inconsistencies were noted in the said Auction.

d. During the interview with Ms. UL Muthugala on 6 September 2019 (Refer Exhibit 18),

she stated that “Mr. Pathumanapan would have given facts to convince the officials

of the PDD that they should issue the series “12.00%2041A” and the officials of the

PDD would have relied on him without attributing any ulterior motive to his

suggestions”.

e. During interview with Mr. THB Sarathchandra on 19 September 2019 (Refer Exhibit

19), he stated that “Pathumanapan might have convinced senior officials of the PDD

to issue the series and I also thought MO was raising concern for bond series

12.00%2041A for future actions instead of current Auction of 5 February 2016.”

164 Refer Exhibit 61 for the extract of email of 1 February 2016 from Ms. UL Muthugala to Mr. WG Prabath.

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f. During the interview with Mr. S Pathumanapan on 24 September 2019, he was inquired

on the said matter, to which he stated “T-Bond series were suggested based on the

existing yield curves and market conditions. Bond series was identified after

consultation with the Head of the Division before I sent them to the Middle Office

and I also marked the Head of the Division in the email sent to the Middle Office.

The series selected for issue were at the discretion of senior officials and I believe

that my opinion or suggestion could not have taken precedence over theirs.

Therefore, even after Mrs. Muthugala may have rejected the series, I could not have

solely made the decision to issue the series.”

g. At the said Auction, PTL undertook transactions in the Secondary Market and the

market manipulation by PTL subsequent to settlement date was not analysed by PDD

on real time basis.

h. However, the documentary and digital evidences reviewed (as provided in the


rooms of PDs did not suggest these anomalies are directly or indirectly linked to any

potential nexus between the employees of the PDD and the beneficiary PDs.

2. Capital gains made by PTL

a. During the review, an email of 8 March 2016 was noted, wherein Mr. Kasun Palisena

([email protected]) sent an email to Ms. UL Muthugala and Mr. THB

Sarathchandra, wherein he shared the capital gain Report of PTL upon her request

for the month of November 2015. (Refer Exhibit 62)165

b. During the interview with Mr. THB Sarathchandra on 19 September 2019 (Refer

Exhibit 19), he was inquired about the email to which he stated that “There was

shortage of staff in PDD and I was busy in proceedings of Entrust Securities PLC,

hearing in COPE etc. Moreover, I thought COPE will perform the analysis. Therefore,

I never analysed the bidding, allocations and gains made by PTL.”

165 Refer Exhibit 62 for the extract of email of 8 March 2016 from Mr. Kasun Palisena to Ms. UL Muthugala and Mr. THB Sarathchandra.

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c. He added that “PDD noted violations by PTL and started examinations, but due to

transfers of Supervision division from PDD to Non-Banking Supervision Department,

it was delayed. I was waiting for the examination against PTL to be completed and

till then, I did not communicate to Monetary Board. As per organizational structure,

I have to go through Deputy Governor. The actions and behaviour of Deputy

Governor- P Samarasiri stopped me to highlight things against PTL since he was

always stopping board papers for small changes.”

d. Therefore, it can be inferred that if appropriate measures were then taken by the

PDD staff and the bidding, allocations and gains made by PTL were analysed, the loss

at the subsequent Auctions could have been avoided.

e. However, the documentary and digital evidences reviewed (as provided in the


rooms of PDs did not suggest these anomalies are directly or indirectly linked to any

potential nexus between the employees of the PDD and the beneficiary PDs.

B. REVIEW OF DESKTOP OF MS. UL MUTHUGALA

1. Meeting of PTL at AG/A’s office

a. An email of 30 April 2015 was noted, wherein Ms. UL Muthugala sent an attachment

to Mr. SS Ratnayake copying other officials of PDD, Ms. CMDNK Seneviratne and Dr.

MZM Aazim. The attachment contained details of the meeting conducted by the CBSL

employees with the key managerial personnel of PTL on 29 April 2015 in AG/A’s office.

The members present in the meeting included CBSL employees – AG/S, SPD, ASPD (M)

and ASPD (A) and KMP of PTL namely Mr. Kasun Palisena and Mr. Nuwan Salgado. The

areas discussed during the meeting clarification on BOC bidding on behalf of PTL.

(Refer Exhibit 63)166.

b. It was identified in the said meeting that there was discussion on Front-Ending done

by BOC in the Auction conducted on 27 February 2015. However, no further

investigation or action was then taken against PTL by the PDD staff.

c. The CBSL employees who were present in the said meeting were inquired on the

outcome of the said meeting with the KMP of PTL and action taken post establishing

the facts in the said meeting.

166 Refer Exhibit 63 for the email of 30 April 2015 from Ms. UL Muthugala to Dr. MZM Aazim.

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d. During interview of with Ms. UL Muthugala on 6 September 2019 (Refer Exhibit 18),

she stated “I cannot recall whether the final investigation Report was submitted to

the Monetary Board.”

f. During the interview of Dr. MZM Aazim on 20 September 2019 (Refer Exhibit 20), he

stated “The general details of possible conflict of interest and BOC bidding on behalf

of PTL were discussed in the media and PDD initiated follow-up, subsequently, with

both these institutions. I was not instructed to follow-up any further on the above

by the senior management”.

e. It was noted that the facts with regards to the Auction conducted on 27 February

2015 were already revealed after a few days of the Auction, by the employees of the

PDD who attended the meeting on 29 April 2015. If appropriate measures were then

taken against PTL by the senior management of the CBSL, the loss at subsequent

Auctions could have been avoided.

C. REVIEW OF DEVICES OF MR. ARJUNA MAHENDRAN

The review was conducted for devices of Mr. Arjuna Mahendran which included one desktop,

one laptop and two handheld devices; following observations were made during the review:

1. Potential Conflict of interest

b. During the review, following four instances were noted wherein Mr. Kasun Palisena

(+94777444669) had shared confidential information to official email ID of Mr. Arjuna

Mahendran, i.e., “[email protected]”. (Refer Exhibit 64)167.

i. An email of 4 April 2016 at 5:21 p.m. was noted wherein Mr. Kasun Palisena wrote

to Mr. Arjuna Mahendran that “all transactions have been cleared and settled.

Apologies for making your life miserable for the past few days.”

It was noted that on 1 April 2016, PTL failed to tender collateral for the entirety

of the Bid Value of Rs. 22 Billion. PTL borrowed a significant amount from ILF on

1 April 2016 and failed to settle the payment and a penalty was levied.

Mr. PWDNR Rodrigo stated before the PCOI that he telephoned Mr. Arjuna

Mahendran to advise him of the default made by PTL. Mr. Arjuna Mahendran

responded “Oh, you know my involvements with Perpetual Treasuries Limited.

And why don’t you independently decide. But tell me or inform me before you

take any decision.”

167 Refer Exhibit 64 for copies of emails sent by Mr. Kasun Palisena to Mr. Arjuna Mahendran.

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Mr. PWDNR Rodrigo stated that on 2 April 2016, he received a call from Mr. Arjun

Aloysius who wanted to meet urgently. He also cited that Mr. Arjuna Mahendran

had called him and asked if he had a meeting with the staff from PTL and asked

to meet with him before the meeting with PTL.

As highlighted in Section 6.5.10 of the Report, It can be inferred that the email

sent by Mr. Kasun Palisena to Mr. Arjuna Mahendran appears to be in response to

Mr. Arjuna Mahendran action of starting reverse REPO Auction to inject liquidity

in the market and avoiding strict action against the PTL for default of dues of ILF.

ii. As per an email of 16 May 2016 at 10:22 a.m., Mr. Kasun Palisena asked Mr. Arjuna

Mahendran for his email address for forwarding a circular. However, response, if

any, to the said email by Mr. Arjuna Mahendran was not noted during the review.

iii. The email of 9 June 2016 at 9:06 a.m. from Mr. Kasun Palisena to Mr. Arjuna

Mahendran contained the verbiage, “Franklin highest amount maintained during

the month of June 2014- approx. Rs 460-470 bn Lowest amount last week 2nd June

2016- approx. 205-210 bn”.

It was gathered during research, that Franklin is an American investment company

which offers a wide range of mutual funds and investment solutions. It could not

be established if Mr. Kasun Palisena referred to the same ‘Franklin’ in this email.

iv. Another email of 9 June 2016 at 9:31 a.m. was noted wherein Mr. Kasun Palisena

shared exit yield for the years 2014 – 2016. No company name or any additional

detail was mentioned in the email.

c. The above email communications between Mr. Kasun Palisena and Mr. Arjuna

Mahendran, indicate that Mr. Arjuna Mahendran was in regular touch with the KMP of

PTL for business matters not related to the CBSL.

8.2.4. Below mentioned observations were made basis the review performed of the devices provided by

the CID:

A. INFORMATION GATHERED FROM THE CID

A list was obtained from the CID, which included details of data procured by them during the

PCOI. A set of data including the devices used by Mr. Arjuna Mahendran and Mr. Arjun Aloysius

was obtained from them. During the review of the said data, the following observations were

noted.

1. Review of content extracted from the mobile phone of Mr. Arjun Aloysius

a) As per PCOI, forensic examination was conducted for Mr. Arjun Aloysius’ mobile phone

bearing number 0777777723. Basis the review conducted by the CID, a Forensic Report

was prepared on Communication Information Analysis with the use of these technical

devices and provided for our review.

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The Forensic Report on Communication Information Analysis was reviewed as per

which the content was extracted from the mobile phone (Apple iPhone, International

Mobile Equipment Identification (“IMEI”) No. 359218075960141, registered mobile

phone number 0777777723).

b) The digital image of Mr. Arjun Aloysius’ mobile phone was obtained from the CID to

perform analysis of the extracted data. The following observations were made basis

the review:

i. Involvement in PTL business operations

a. Several messages between Mr. Arjun Aloysius and employees of PTL were

noted after Mr. Arjuna Mahendran’s completion of term as a Governor of

the CBSL on 30 June 2016, which confirmed Mr. Arjun Aloysius’ involvement

in the business operations of PTL.

b. The calendar on Mr. Arjun Aloysius’ mobile device was reviewed to gather

details with regards to the meetings attended by Mr. Arjun Aloysius. It was

identified that the calendar on Mr. Arjun Aloysius’ mobile phone was marked

for the Board meetings of PTL and with the Ministers during the period when

the proceedings of the PCOI were ongoing.

c. The data in the digital phone was not pertaining to the Review Period,

hence it could not be ascertained basis the review of the device, that Mr.

Arjun Aloysius was involved in day to day activities of PTL during the time

when Mr. Arjun Mahendran was the Governor of the CBSL.

ii. Concealing of information

a. During the review, instances were noted wherein Mr. Arjun Aloysius

communicated with Mr. Sanath Bandara, an employee of group company of

PTL.

b. As per an iMessage of 5 December 2016, Mr. Arjun Aloysius asked Mr. Sanath

Bandara to proceed on one Million and further asked to send such messages

on Viber.

c. Several messages from individuals including Mr. Steve Samuel (Mr. Arjun

Aloysius’s Personal Assistant) were also noted who asked Mr. Arjun Aloysius

to check messages and/or attend calls on Viber.

d. It was further observed while reviewing the search history on the device

that the individual using the mobile device had searched on 3 July 2017

“Can Viber calls be tapped”.

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e. Further, clarification or information could not be retrieved due to non-

recovery of Viber call and message details. (Refer Exhibit 65)168

iii. Communication with employees of the PDD

a. It was noted that the contact number of Mr. S Pathumanapan was saved as

“Pat Man.” On Mr. Arjun Aloysius’s mobile phone.

b. During the review of the Forensic Report of the mobile phone of Mr. Arjun

Aloysius, it was noted that over 700 Viber calls were undertaken between

Mr. Arjun Aloysius and Mr. S Pathumanapan during the period October 2016

– January 2017.

c. During the interviews with the CBSL employees, it was also found that Mr.

S Pathumanapan was seen as maintaining a close rapport with Mr. Arjuna

Mahendran.

d. In view of above Viber call records with Mr. Arjun Aloysius and nature of

relationship with Mr. Arjuna Mahendran, it indicates that Mr. S.

Pathumanapan was associated with both of them.

e. During the interview with Mr. S Pathumanapan on 24 September 2019, he

stated that “I have only had telephone calls with market participants and

have never had conversations on any other platforms like Viber or

WhatsApp. I never had telephone conversations with Mr. Arjun Aloysius

around 6 times during my tenure in the EPF. I had no conversations with

him while I was at the PDD. I have had no communication with Mr. Aloysius

over Viber, WhatsApp or any other similar platforms.”

f. On review of Forensic Report on Communication Analysis provided by the

CID, several conversations between Mr. S. Ayngaran, relative of Mr. S.

Pathumanapan and Mr. Arjun Aloysius were also noted.

168 Refer Exhibit 65 for extracts from Arjun Aloysius’s mobile device

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g. The documentary and digital evidences reviewed (as provided in the

respective Sections of this Report) and limited number of voice recordings

of dealer rooms of PDs did not suggest that the relationships and / or

associations identified above have led to any sharing of insider information

by Mr. Pathumanapan to PTL. It is pertinent to note that the CBSL did not

installed voice record system at the PDD and significant limitations existed

on the availability of ESI in terms of email files and email deletions, as


iv. Communication with relatives of Mr. Indika Saman Kumara

a. On review of Forensic Report on Communication Analysis provided by the

CID, conversations between Ms. Thakshila Kumari, Mr. Badugoda Hewa Amal

Fernando, relatives of Mr. Indika Saman Kumara and KMP of PTL were noted.

b. The documentary and digital evidences reviewed (as provided in the

respective Sections of this Report) and limited number of voice recordings

of dealer rooms of PDs did not suggest that the relationships and / or

associations identified above have led to any sharing of insider information

by Mr. Saman Kumara to PTL.

v. Communication with employee of PABC

a. During the review of call data, several communications were noted

between Mr. Arjun Aloysius and Mr. Dimantha Seneviratne of Pan Asia in the

period October 2016 – May 2017.

b. As stated earlier in Section 7.1.4. of the Report, Mr. Dimantha Seneviratne

was previously associated with Pan Asia as its CEO. Previously, he was

associated with HSBC as a Chief Risk Officer at locations including Sri Lanka,

Maldives, Thailand and Bangladesh from February 2000 till February 2014.

c. It must be noted that Mr. Arjuna Mahendran was also associated with HSBC

as its Managing Director covering whole of Asia from May 2008 till June

2013. It can be inferred that the geographical areas where Mr. Dimantha

Seneviratne was employed, falls under the purview of Mr. Arjuna

Mahendran, which indicates a possible association between the two.

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d. However, the documentary and digital evidences reviewed (as provided in

the respective Sections of this Report) and limited number of voice

recordings of dealer rooms of PDs did not suggest that the relationships and

/ or associations identified above have led the collusive behaviour between

Pan Asia and PTL. It is pertinent to note that the CBSL did not installed

voice record system at the PDD and significant limitations existed on the

availability of ESI in terms of email files and email deletions, as detailed in

the respective Sections of this Report.

2. Review of content extracted from the laptop of Mr. Arjuna Mahendran

The devices acquired by the CID for Mr. Arjuna Mahendran were obtained which included

a Samsung laptop – SM-W708YZWAXSP. The following observations were made basis the

review conducted for the said device:

Association with Mr. Indika Saman Kumara

a. An email of 7 January 2017 was noted, wherein Mr. Indika Saman Kumara

([email protected]) sent his Curriculum Vitae to Mr. Arjuna Mahendran

([email protected]). It was identified during the interviews with the

CBSL employees that Mr. Indika Saman Kumara maintained a close rapport with Arjuna

Mahendran.

b. He was involved in transactions between PTL and the EPF, through PABC and DFCC, as

evident from the voice recordings. (Refer Section 6.2. and 6.5. of the Report for the

details of such transactions)

c. It must be noted that he was transferred to Facilities Management Department on 2

January 2017, post which he had sent an email to Arjuna Mahendran.

d. Based on the data made available for review, it appears that the association between

the two continued after Mr. Arjuna Mahendran’s release from the position of Governor

of the CBSL.

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8.3. DELETION OF OUTLOOK FILES

During the extraction of ESI, logs indicating deletion of outlook .pst & .ost files were identified

on Target Devices pertaining to select custodians. The identification of deleted outlook files and

the anomalies identified are explained as below:

A. An email platform / application is used for sending or receiving emails, maintain calendar,

contacts etc. the CBSL implemented, Microsoft Outlook as email platform for email

communication from June 2012. (Refer Exhibit 66)169

B. Mentioned below are the data file formats used by Microsoft outlook170:

1. Outlook data file (.PST):

It contains messages and other outlook items and is saved on the local computer (Target

Device). In Outlook 2013 and earlier versions, IMAP account also used as an Outlook Data

file (.pst).

An Outlook data file (.pst) can also be created for creating backup of email messages,

calendar, contact and task data. When messages or other outlook items are saved in an

outlook data file (.pst), the items are available only on the computer where the file is

saved.

The location of outlook data file (.pst) created by using outlook 2013 or outlook 2016

typically is in “documents\outlook files” folder. Outlook data file (.pst) created by

Microsoft outlook 2007 or earlier is on different location at

“drive:\users\user\appdata\local\microsoft\outlook”.

2. Offline outlook data file (.OST):

The offline outlook data file (.ost) stores synchronised copy of mailbox information on

local computer (Target Device). When the connection to the mail server is interrupted,

one can still access all emails, calendar data, contacts etc. and on the restoration of

connection, changes are automatically synchronized.

The location of the offline outlook data file is at

“drive:\User\user\AppData\Local\Microsoft\Outlook” .

3. Database file for Mac

It is used for Mac OS X systems; Outlook stores the indices in a proprietary Database file

and stores the data records as a series of files nested within folders.

169 Refer Exhibit 66 for copy of email communication by the DIT regarding migration of email communication platform. 170 According to Outlook app website.

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https://www.outlook-apps.com/outlook-data-files/




C. The deleted and overwritten outlook files were identified through description mentioned in

the Encase tool.

D. As confirmed by the DIT (Refer Exhibit 15)171 that “the user do not require any admin rights

to access, delete and modify the email data file (format type “.pst/ .ost”) since it is

automatically created in the C:\Users folder in any laptop / desktop.”

However, for deletion of “.ost” and “.pst”, user had to access the location “drive:\ User\

user\ AppData\ Local\ Microsoft\ Outlook” OR “Documents\Outlook Files” respectively, which

may require the technical assistance to the user.

E. The deletion of “.pst” and “.ost” files by a user is less common when compared to the

deletion of emails through the email box and such deletion indicates a deliberate action by

the user, with knowledge of the effects, to remove information from the Target device/ s.

As per the logs generated by “Encase” using Enscript, it was noted that composite outlook

files (ost & pst) were deleted from the Target Devices and the table provided below

summarizes instances of deleted outlook files (Refer Annexure 37)172 :

TABLE 97: Details of deleted outlook files

# Custodian Device Name of the file deleted

Observation

1 Mr. Arjuna Mahendran

Laptop arjuna [email protected] [email protected]

An outlook file named “[email protected]” was observed as deleted on the Target Device. The description of the file in Encase Forensic tool was “File, Deleted, Overwritten, Archive, Not Indexed”.

It was noted that “Entry modified173” detail was 30 Jun 2016 at 20:13 HRS.

2 Mr. P. Samarasiri Desktop outlook.ost

An outlook file named “outlook.ost” was observed to be deleted on the Target Device. The description of the file in the Encase Forensic was “File, Deleted, Overwritten, Archive, Not Indexed”

It was noted that “Entry Modified” detail was 11-Nov-2015 at 17:01 HRS.

171 Refer Exhibit 15 for the email communication with DIT of 29 July 2019. 172 Refer Annexure 37 for the details of deleted outlook files. 173 Entry Modified date refers to the date when the Master file table was modified for the file.

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Observation

3 Mr. P. Samarasiri Laptop [email protected] Three instances were observed where outlook files were deleted from the device. The description of the file in the Encase Forensic was “File, Deleted, Overwritten, Archive, Not Indexed”.

It was noted that “Entry Modified” for the deleted files were as followed:

14-Jul-2017 at 12:20 HRS

26-Apr-2017 at 14:28 HRS

14-Jul-2017 at 12:20 HRS


Desktop [email protected]

Six instances were noted during the review where outlook files were deleted on the following instances from the system. The description of the file in the Encase Forensic was “File, Deleted, Overwritten, Archive, Not Indexed”.

It was noted that the “Entry Modified” for the deleted files were as followed:

18-Aug-2016 at 9:24 HRS

25-Apr-2017 at 15:16 HRS

18-Jun-2018 at 9:10 HRS

2-Jan-2019 at 9:00 HRS.

2-Jan-2019 at 9:00 HRS

10-Jan-2019 at 17:54 HRS

5 Mr. THB Sarathchandra


BOSS.pst

Six instances were observed where outlook files were deleted from the system. The description of the file in the Encase Forensic tool was “File, Deleted, Overwritten, Archive, Not Indexed”.


19-Dec-2018 at 16:35 HRS,

22-Mar-2019 at 16:20 HRS

2-Apr-2019 at 15:52 HRS

6-Jun-2019 at 10:05

21-Jan-2019 at 9:17 HRS

7-Oct-2014 at 14:35 HRS

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mailto:[email protected]%[email protected]%[email protected]







Observation

6 Dr. MZM AAZIM Desktop [email protected](2).ost

[email protected]

achive.pst

Six instances were noted during the review where outlook files were deleted on the following instances from the system. The description of the file in the Encase Forensic was “File, Deleted, Overwritten, Archive, Not Indexed”.

The “Entry Modification” date as followed:

13- Dec-2013 at 14:48 HRS

15-Aug-2017 at 18:43 HRS,

15-Nov-2017 at 17:11 HRS

27-Aug-2018 at 16:19 HRS

20-Jun-2019 at 12:11 HRS

24-Jun-2019 at 09:10 HRS

An .pst file was also deleted from the system on 13-Dec-2013 at 14:48 HRS.

7 Ms. UL Muthugala


archive.pst

242uthugala.pst

Muthu.pst

archive.pst

242uthugala.pst

outlook.pst

BOSS.pst

outlook.pst

Eight instances were noted where outlook files were deleted from laptop.

“Entry Modified” dates as followed:

17-Apr-2004 at 09:39 HRS

23-Sep-2014 at 09:41 HRS174

23-Sep-2014 at 10:05 HRS

23-Sep-2014 at 09:41 HRS175

10-Aug-2016 at 16:15 HRS

26-Aug-2016 at 09:29 HRS

16-Nov-2018 at 15:33 HRS

17-Apr-2019 at 09:34 HRS

8 Mr. S Obeysekera Desktop [email protected]

BOSS.pst

archive.pst

Eight instances were observed where .pst files were deleted from the system. “Entry Modified” dates for the outlook files are as followed:

31-Oct-2017 at 08:03 HRS

06-Nov-2017 at 07:29 HRS

02-Jul-2018 at 08:47 HRS

174 Complete details of “Entry Modified” date of file “Muthu.pst” is 23-Sep-2014 at 09:41:48 HRS. 175 Complete details of “Entry Modified” date of file “archive.pst” 23-Sep-2014 at 09:41:44 HRS.

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mailto:[email protected](2).ost








Observation

02-Jul-2018 at 08:47 HRS

02-Aug-2018 at 14:06 HRS

02-Aug-2018 at 14:10 HRS

19-Jun-2019 at 19:49 HRS

9 Ms. LS Fernando Desktop [email protected] Two instances were observed where .ost files were deleted from the system. “Entry Modified” dates for the outlook files are as followed:

19-Noc-2018 at 08:58 HRS

11-Oct-2018 at 10:24 HRS

10 Mr. S. Pathumanapan

Desktop [email protected] Two instances were observed where .ost files were deleted from the system. “Entry Modified” dates for the outlook files are as followed:

17-Nov-2017 at 16:45 HRS

11 Ms. Amila Dahanayake

Desktop [email protected] One instance was observed where outlook files was deleted from the system. The description of the file in the Encase Forensic tool was “File, Deleted, Overwritten, Archive, Not Indexed”.


05-Aug-2016 at 11:34 HRS

F. In the case of Dr. MZM Azim, the confidential list of devices to be procured for digital imaging

was originally sent on 18 June 2019 and subsequently, the .ost file was found to be deleted

on his device. It raises a concern if there was any potential leak of confidential

communication between BDO India and the CBSL. Further, Dr. MZM Aazim received a Memo

on 21 June 2019 from the Governor of the CBSL mentioning that the electronic device issued

to him would be obtained by the Forensic Auditors for a digital image. However, the

procurement of his device was delayed and procured on 25 June 2019 due to his official

commitments.

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G. It was noted that the file named “[email protected]” was also deleted from his device. “Entry

Modified” property for the mentioned file was 24 June 2019 at 9:10, a day before the date

when the system was due for handover and three days after a memo was issued to surrender

his device. The deletion of outlook files appears a deliberate attempt to remove the data

available on the device, which also is a breach as per the Information Security Policy of the

CBSL.

During an interview with Dr. MZM Aazim on 20 September 2019 (Refer Exhibit 20) stated, “I

regularly delete emails after responding or forwarding to respective department or

employees. I delete operational emails and clean delete folder as well due to limit

restrictions. I remember most of the information I receive. I don’t know if it is in policy to

keep emails/ files maintained. I am not aware of any deletion of outlook files from my

system. It should be checked with IT department.”

He also explained that he is unaware of the method of deletion of .pst or .ost files. As a

practice, he deletes emails from outlook through the user interface, by selecting the emails

manually and subsequently removes emails from the ‘delete’ folder. He confirmed that he

deleted emails post 1 January 2019 as well. However, he maintained that he is not aware of

the deletion activity at the date and time stamps as recorded in the digital forensic review.

On further inquiry, Dr. MZM Aazim confirmed that during the date of recorded deletion

activity, the Target Device was in his possession. The access to the Target Device is possible

only through user specific log-in credentials, which were in his possession (not shared with

anyone) and is known and used only by him. Also, he did not handover the Target Device to

any other CBSL official during the process of acquisition of the device by BDO.

H. Summary

1. The log deletion of MS Outlook data files (“.pst” & “.ost”) were generated during the

digital forensic procedures where the globally accepted forensic technology tools and

evidence identification and extraction procedures were adopted. These logs were

generated using the “Encase” forensic tool-based filters and standard OEM scripts in the

“Encase” forensic tool.

2. Users of electronic email applications usually delete selected non-essential emails (such

as notifications, reminders and business development communications) and other emails

considered redundant, to free-out the assigned storage space in the electronic device.

Identification of such emails is performed selectively, individually and manually through

the email system front-end user interface. This mode of deletion is considered usual and

a general practice. This method of deletion is a standard functionality of the email

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application / tool and does not result in deletion of entire data file176 itself. Deletion of

email data files requires the user to access specific location of files on the machine

(laptop / desktop, usually referred-to as “custodian machines”), which is a designated

location of the data files. Such deletion method is not a standard functionality feature

of the email application. Accordingly, this method of deletion requires a deliberate

attempt / action by the user. To avoid unintentional deletion of files and loss of

organizational data, as a better practice, organizations usually restrict users’ access to

the designated locations of the email data files through user access controls &

permissions and through “Administrative” access rights to the computer device.

3. The ITD confirmed that the CBSL employees’ access to the such designated locations in

the custodians machines and the right to delete files in that folder, was not restricted

and users could delete the files if they had the awareness of the file location along with

an intention to perform such deletion action.

4. During an inquiry, MS Outlook publisher’s technical support division confirmed that there

is no technical feature or action that results in auto deletion of Outlook email data file

stored in the designated (Program Files) folder, supporting the possibility that such

deletion requires a deliberated action by people having access to the custodian machine.

5. During the inquiries, the selected officers of the CBSL (on whose machine this deletion

activity was identified during the forensic technology procedures) denied having

knowledge of the file location and method of deletion. However, they also confirmed

that:

a. During the dates of logs indicating the deletion, the devices were in their own

possession;

b. Access to the devices is restricted by user-specific access controls (log-in

credentials) set-up by the ITD;

c. The officials have not shared the device access credentials issued by the ITD to any

other employees of the CBSL;

d. Dr. Aazim also stated that there no occasion when he handed over the device to any

other officers of the CBSL or to the ITD staff for any IT support requirement.

176 Refer paragraph B for the details of the functionality & purpose of the email data file.

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CONCLUSION

Based on the information gathered and confirmations received, it cannot be interpreted that the

deletion activity could be the result of an automated action triggered by any other IT process or

activity. It cannot also be construed that the deletion activity was performed by officials other than

those, who these devices were assigned-to. Despite the active denial / rejection by the officials, of

having performed the deletion activity, the possibility of deletion of the data files by the users

themselves cannot be ruled-out.

It is pertinent to note that in case of Dr. Aazim, the deletion activity was logged on the dates,

subsequent to the intimation of requirement for handover of the electronic devices for forensic

investigation purposes and prior to the handover the device. Dr. Aazim also stated during an inquiry

that usually, he deletes the older date email communications regularly to free-out the assigned disk-

space on his computer machine. He also confirmed that her performed such activity post intimation

of the need for surrender of the device or forensic investigation purposes with a specific requirement

to handover the device without affecting the integrity of the data on the machine.

8.4. NON-AVAILABLITY OF ESI

8.4.1. As explained in Section 3.6. of the Report, email files were extracted based on the status of their

presence on the device using Encase Enscript using Guidance Encase forensic tool.

8.4.2. In order to determine the count of emails for Review Period (extracted as well as recovered local

machine emails and server emails) were segregated in following data sets based on their file type

and status:

Data Set 1- email file provided for custodian from server by the CBSL.

Data Set 2- Active emails extracted from the Target Device.

Data Set 3- Deleted & overwritten emails extracted from the Target Device, file created after

processing, email file extracted from server on Recover My Email and carved files

from the Target Device, if any.

8.4.3. Thereafter, above mentioned data sets were analysed to determine the dates on which emails

were not available on working days. The brief analysis of each identified official (Refer Annexure

38)177 for non-availability of data is explained as under:

A. The below mentioned table represents the analysis of number of dates of data availability

and non-availability for Ms. CMDNK Seneviratne and the non-availability ranging between

4.55 % to 86.36%:

177 Refer Annexure 38 for the details of non-availability of emails for each identified official

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Table 98: Details of Data availability

Month Dates of data availability

Dates of data non-availability

Total working days

% of data non-availability

Feb-2015 18 2 20 10.0%

Apr-2015 3 19 22 86.36%

May-2015 5 16 21 76.19%

Jun-2015 5 17 22 77.27%

Jul-2015 6 17 23 73.91%

Aug-2015 13 8 21 38.10%

Sep-2015 21 1 22 4.55%

Oct-2015 6 16 22 72.73%

Nov-2015 9 12 21 57.14%

Dec-2015 6 17 23 73.91%

Jan-2016 18 3 21 14.29%

Feb-2016 20 1 21 4.76%

Mar-2016 21 2 23 8.70%

Apr-2016 8 13 21 61.90%

TOTAL 159 144 303 47.12%

B. The below mentioned table represents the analysis of number of dates of data availability and

non-availability for Mr. P. Samarasiri and the non-availability ranging between 19.05% to

80.95%:




Total working days


Feb-2015 16 4 22 20.00%

Mar-2015 15 7 20 31.82%

Apr-2015 13 9 22 40.91%

May-2015 7 11 22 52.38%

Jun-2015 8 14 21 63.64%

Jul-2015 8 15 22 65.22%

Aug-2015 4 17 23 80.95%

Sep-2015 8 14 21 63.64%

Oct-2015 11 11 22 50.00%

Nov-2015 13 8 22 38.10%

Dec-2015 8 15 21 65.22%

Jan-2016 13 8 23 38.10%

Feb-2016 17 4 21 19.05%

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Total working days


Mar-2016 16 7 21 30.43%

Apr-2016 14 7 23 33.33%

TOTAL 171 151 325 46.18%

C. The below mentioned table represents the analysis of number of dates of data availability and

non-availability for Mr. NDYC Weerasinghe and the non-availability ranging between 4.76% to

8.70%:




Total working days


Nov-2015 20 1 21 4.76%

Dec-2015 21 2 23 8.70%

Apr-2016 20 1 21 4.76%

TOTAL 61 4 65 6.07%

D. The below mentioned table represents the analysis of number of dates of data availability and

non-availability for Mr. S. Pathumanapan and the non-availability ranging between 4.55% to

22.73%:




Total working days


Feb-2015 16 4 20 20.00%

Mar-2015 21 1 22 4.55%

Apr-2015 17 5 22 22.73%

May-2015 18 3 21 14.29%

Jun-2015 21 1 22 4.55%

Jul-2015 21 2 23 8.70%

Aug-2015 18 3 21 14.29%

Sep-2015 20 2 22 9.09%

Oct-2015 20 2 22 9.09%

Nov-2015 20 1 21 4.76%

Dec-2015 20 3 23 13.04%

Jan-2016 20 1 21 4.76%

TOTAL 232 28 260 10.82%

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E. The below mentioned table represents the analysis of number of dates of data availability and

non-availability for Mr. SS Ratnayake and the non-availability ranging between 4.35% to 4.76%:




Total working days


May-2015 20 1 21 4.76%

Mar-2016 22 1 23 4.35%

TOTAL 42 2 42 4.55%

F. The below mentioned table represents the analysis of number of dates of data availability and

non-availability for Dr. MZM Aazim and the non-availability ranging between 4.35% to 9.52%:




Total working days


Feb-2015 19 1 20 5.00%

Apr-2015 21 1 22 4.55%

May-2015 19 2 21 9.52%

Jun-2015 21 1 22 4.55%

Jul-2015 22 1 23 4.35%

Aug-2015 19 2 21 9.52%

Oct-2015 21 1 22 4.55%

Nov-2015 20 1 21 4.76%

Dec-2015 22 1 23 4.35%

Jan-2016 20 1 21 4.76%

Feb-2016 20 1 21 4.76%

Mar-2016 22 1 23 4.35%

Apr-2016 19 2 21 9.52%

TOTAL 265 16 281 5.73%

G. The below mentioned table represents the analysis of number of dates of data availability

and non-availability for Ms. LS Fernando and the non-availability ranging between 4.35% to

43.48%:




Total working days


Feb-2015 18 2 20 10.00%

Mar-2015 21 1 22 4.55%

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Total working days


Apr-2015 16 6 22 27.27%

May-2015 18 3 21 14.29%

Jun-2015 20 2 22 9.09%

Jul-2015 22 1 23 4.35%

Aug-2015 17 4 21 19.05%

Sep-2015 21 1 22 4.55%

Oct-2015 20 2 22 9.09%

Nov-2015 15 6 21 28.57%

Dec-2015 15 8 23 34.78%

Jan-2016 15 6 21 28.57%

Feb-2016 16 5 21 23.81%

Mar-2016 13 10 23 43.48%

Apr-2016 15 6 21 28.57%

TOTAL 279 63 347 19.50%

H. The below mentioned table represents the analysis of number of dates of data availability

and non-availability for Ms. UL Muthugala and the non-availability ranging between 4.35% to

15.00%:




Total working days


Feb-2015 17 3 20 15.00%

Mar-2015 21 1 22 4.55%

Apr-2015 19 3 22 13.64%

May-2015 18 3 21 14.29%

Jun-2015 20 2 22 9.09%

Jul-2015 22 1 23 4.35%

Nov-2015 19 2 21 9.52%

Dec-2015 22 1 23 4.35%

Feb-2016 20 1 21 4.76%

Mar-2016 22 1 23 4.35%

Apr-2016 20 1 21 4.76%

TOTAL 220 19 239 8.52%

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I. The below mentioned table represents the analysis of number of dates of data availability

and non-availability for Mr. S. Pathumanapan and the non-availability ranging between 4.35%

to 60.87%:




Total working days


Feb-2015 18 2 20 10.00%

Mar-2015 19 3 22 13.64%

Apr-2015 18 4 22 18.18%

May-2015 20 1 21 4.76%

Jun-2015 18 4 22 18.18%

Jul-2015 9 14 23 60.87%

Aug-2015 18 3 21 14.29%

Sep-2015 20 2 22 9.09%

Oct-2015 21 1 22 4.55%

Dec-2015 21 2 23 8.70%

Feb-2016 20 1 21 4.76%

Mar-2016 22 1 23 4.35%

Apr-2016 19 2 21 9.52%

TOTAL 243 40 283 13.91%

J. The below mentioned table represents the analysis of number of dates of data availability and

non-availability for Mr. THB Sarathchandra and the non-availability ranging between 9.52% to

21.74%:




Total working days


Mar-2015 18 4 22 18.18%

Apr-2015 18 4 22 18.18%

Nov-2015 19 2 21 9.52%

Dec-2015 18 5 23 21.74%

Feb-2016 17 4 21 19.05%

Mar-2016 20 3 23 13.04%

TOTAL 110 22 132 16.62%

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K. It was informed by the DIT that the CBSL has implemented “Litigation hold” with effect from

1 January 2019 and there was no requirement to retain an email permanently in the server in

case the email is deleted prior to that date. Therefore, the recovery of files was performed

to the extent possible.

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9. RECOMMENDATION

in the server in case the email is deleted prior to that date. Therefore, the recovery of as performed to the extent possible.

9.1. INTRODUCTION OF NEW AUCTION PROCESS

At the Monetary Board meeting attended by new Governor Dr. Indrajith Coomaraswamy as

Governor on 13 July 2016, the Board Paper titled, “Introduction of Non-Competitive Bidding to

Primary Auctions of Government Securities” was considered. As per the Monetary Board paper of

20 July 2017, the CBSL introduced new Primary Issuance System for Treasury Bonds which includes

following three phases:

A. Phase I explores issuance of the entire announced volume in a competitive multiple price

Auction system through market bids i.e., Auction participants are allowed to quote multiple

bids at multiple prices.

B. Phase II is voluntary volume based single bidding system wherein the Auction participants can

bid up-to the volume to be issued under Phase II. The issuance under this Phase is made at

WAYR determined in Phase I and is limited to any under allocation in Phase I vis-à-vis the

offered amount.

C. Phase III can be executed only if the CBSL accepts at least 60% of the bid amount in Phase I.

The issuance in Phase III to any PD is inversely proportionate to its ratio of success at Phase I

and Phase II.

9.2. RECOMMENDATION

Based on process understanding gathered during the review and control lapses noted during our

review, the following recommendations may be advised in continuation to above hybrid Auction

system introduced by the CBSL:

A. Voice-recording system – Based on our discussion with the CBSL officials, we understand that

only two telephone lines of Front Office are covered under the Voice Recording System. It all

telephone lines of should be advised to be covered under the Voice Recording System;

Also, the back-up copies of the voice recording for a particular event/day should be kept for

a longer duration at a separate location for further review;

B. Internal Audit – The scope of Internal Audit should also include the review of rates at which

the issuances have been made by the PDD;

C. Analysis of Bidding Pattern – The staff of PDD as well as Internal Audit should perform periodic

analysis of bidding patterns of PDs to identify evidences of manipulative practices;

D. Employee Training – The CBSL should conduct the adequate training programmes for staff of

PDD so that the rotation between all divisions should be possible;

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E. The CBSL should ensure that there should be complete disclosure of relevant information

pertaining to decision making for issuance of Treasury Bonds at various meetings such as DDMC

and Tender Board by representatives of different Department present in the meeting;

F. Verbal Instructions – The verbal instructions should be ratified in writing by the concerning

authority;

G. Secondary Market Rates – To introduce formal basis of identification of Secondary Market for

consideration in the Tender Board;

H. Tender Board Minutes – The Tender Board minutes should be descriptive to include the

concerns of the dissenting members as well. There should be guidelines for documentation

and rationale by Tender Board for the basis of arriving at the decision of accepting WAYR

above Secondary Market rates;

I. Transfer of employees – There should be proper guidelines for the transfers of employees of

the CBSL made within the department of the CBSL and outside the CBSL;

J. Disciplinary action against PD – The CBSL should devise the policy for suspension of PDs in

case of involvement in malpractices and fraudulent activities. The PD should be barred from

participating in Primary Market pending completion of investigation; and

K. Periodic review of Information Technology (“IT”) policy – The CBSL should conduct periodic

review of IT policy and create awareness among its employees of best practices.

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10. ANNEXURES

LIST OF ANNEXURES

# Name of Annexure Annexure Reference

Total number of Pages

1 List of employees of the CBSL attending the Tender Board meeting for respective offers

A/1 -

2 List of employees of the CBSL involving in the Direct Placements decision for respective offers

A/2 -

3 List of documents for issuance of Treasury Bonds through Auctions and Direct Placements

A/3 1

4 List of PDs whose documents were received from ROC A/4 1

5 List of 12 identified employees and their respective Target Devices along with rationale for their identification

A/5 2

6 Details of Operating system information of Target Devices A/6 5

7 Details of User Accounts information of Target Devices A/7 6

8 Basic information and details of volume of data in reviewed Target Devices.

A/8 1

9 Count of files per extension A/9 4

10 List of keywords along with their rationale. A/10 7

11 Count of keywords for each identified employee of the CBSL. A/11 6

12 PD-wise list of various dates for which the Voice Records were requested A/12 4

13 List of call log records between PDs and employees of the CBSL. A/13 2

14 List of 16 PDs along with their current status. A/14 1

15 Month wise cashflow requirement provided by the Treasury Operation Department for the Review Period

A/15 1

16 Details of settlement of funds and securities in AS-400 and CDS for Auctions.

A/16 5

17 Details of settlement of funds and securities in AS-400 and CDS for Direct Placements.

A/17 1

18 Details of fund transfer to DST on settlement date for Auctions A/18 4

19 Details of fund transfer to DST on settlement date for Direct Placements A/19 1

20 List of 127 offers of raised through Auction of Treasury Bonds A/20 3

21 List of Front-ending transactions as disclosed by PDs A/21 1

22 List of 78 offers for value of bids submitted by PDs against the value offered by the PDD.

A/22 3

23 Details of success ratio in 52 offers of PTL A/23 2

24 Details of success ratio in 20 offers of HSBC A/24 1

25 Details of success ratio of 41 offers of Acuity Securities Limited A/25 2

26 Details of difference between top two PDs for 16 offers. A/26 2

27 Details of 97 offers where cut-off price of bids placed be PD was equal to cut-off bid price of Auction.

A/27 8

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# Name of Annexure Annexure Reference

Total number of Pages

28 Details of transactions in Secondary Market where there was significant increase in price of ISIN

A/28 5

29 Calculation of weighted average prices at which Treasury Bonds were purchased by PTL

A/29 9

30 Calculation of capital gains earned by PTL from trading in Secondary Market

A/30 2

31 List of 65 offers where there were two different Secondary Market rates A/31 2

32 List of 40 offers where WAYR less than and equal to Base rate. A/32 2

33 List of 53 offers and detailed computation of loss A/33 28

34 List of 42 offers and detailed computation of loss A/34 11

35 List of 12 offers for Direct Placements of Treasury Bonds A/35 1

36 Profiling of the identified employees of the CBSL A/36 9

37 Details of deleted outlook files A/37 2

38 Details of non-availability of emails for each identified official A/38 14

39 List of FAMC conducted A/39 1

40 List of forensic tools used to perform Digital Forensic / eDiscovery on Target Devices

A/40 1

41 Evidence matrix of identified custodians. A/41 44

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11. EXHIBITS

LIST OF EXHIBITS

# Name of Exhibit Exhibit Reference

Total number of

Pages

1 Email communication for non-approval of PDD Operational Manual by the Monetary Board

E/1 3

2 Memo issued by Monetary Board for updating of Operational Manuals of Departments on 16 May 2017

E/2 3

3 Email communication of 2 August 2019 for requesting the firewall logs E/3 1

4 Email communication of 4 August 2019 for requesting the outlook mail exchange server logs

E/4 1

5 Memo provided by the CBSL regarding the phone recordings requested from the PDs

E/5 1

6 Email communication of 2 August 2019 for non- availability of audit logs E/6 2

7 Email communication of 29 July 2019 for building access logs E/7 1

8 Summary of discussion for process understanding of issuance of T-Bonds through auctions signed on 25 June 2019

E/8 15

9 Summary of discussion for process understanding of remittance of funds received from the PDD and transmitting of the same to accounts of the Treasury Department maintained at the DOD signed on 20 June 2019

E/9 2

10 Summary of discussion for system walkthrough signed on 9 July 2019 E/10 3

11 Summary of discussion for process understanding of issue of Treasury Bonds through Direct placements signed on 26 June 2019

E/11 11

12 Summary of discussion with the PDD on clarification on general queries on the process of issue of Treasury Bonds through Direct Placement signed on 3 July 2019

E/12 4

13 Summary of discussion with the PDD for pending queries and documents pertaining to issue of Treasury Bonds through Auctions

E/13 1

14 Summary of discussion with Mr. SS Ratnayake E/14 4

15 Email communication of 29 July 2019 for implementation of Litigation Hold

E/15 3

16 Summary of discussion with the Treasury Department of 11 July 2019 E/16 3

17 Statement of Fact signed by Mr. S Obeysekera, Senior Manager of the PDD E/17 3

18 Statement of Fact signed by Ms. UL Muthugala, Additional SPD of the PDD E/18 2

19 Statement of Fact signed by Mr. THB Sarathchandra, SPD of the PDD E/19 4

20 Statement of Fact signed by Dr. MZM Aazim, Additional SPD E/20 4

21 Statement of Fact signed by Mr. S Pathumanapan, Senior Manager of PDD E/21 5

22 Statement of Fact signed by Mr. NWGRD Nanayakkara, Acting SPD of PDD E/22 4

23 Email communication of 15 May 2019 list of applicable laws & guidelines and Memo of 26 July 2019 for providing copies of laws, regulations and guidelines

E/23 1

24 Logs for forensic image of Target Devices E/24 87

25 Copies of all CoC forms of Target Devices provided by DIT E/25 36

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Total number of

Pages

26 Email communication of 23 July 2019 for keyword suggestions by the CBSL E/26 1

27A CD for the supporting evidence of relevant conversations E/27A CD

27B Transcripts of the relevant conversations E/27B 13

28 Extract of minutes of Monetary Board meeting of 14 February 1997 E/28 2

29 Extract of Operational Manual of the PDD updated as of 31 July 2013 E/29 19

30 Minutes of the Monetary Board of 23 February 2015 E/30 31

31 Minutes of the Monetary Board of 6 March 2015 E/31 1

32 Email communication of 29 July 2019 for requesting documents of Front ending

E/32 2

33 Memo provided by the CBSL regarding the documents for Front-Ending requested from the PDs

E/33 1

34 Email of the SPD of the PDD of 1 July 2019 E/34 4

35 TEC option sheet for Auction dated 27 February 2015 E/35 3

36 Email communication of 15 July 2019 for response provided by the PDD E/36 1

37 Extract of document for Auction of 15 December 2015 E/37 1

38 Minutes of meeting of the Tender Board of 29 February 2016 E/38 3

39 Press release of 29 February 2016 E/39 1

40 Minutes of DDMC meeting of 29 January 2016 E/40 17

41 Minutes of meeting of Tender Board of 5 February 2016 E/41 5

42 Extract of handwritten notes by Mr. HA Karunaratne E/42 12

43 Cashflow statement for the month of March 2015 dated 23 February 2015 E/43 4

44 Advertisement released on 25 February 2015 for the Auction held on 27 February 2015

E/44 1

45 Proposed borrowing program of the DDMC meeting held on 27 February 2015

E/45 16

46 Email sent by Mr. Kasun Palisena to BOC for placing bids on behalf of PTL E/46 1

47 Original Option Sheet/ Recommendation of the TEC E/47 1

48 Revised Option Sheet/ Recommendation of the TEC E/48 1

49 Documents provided by Pan Asia for front ending transactions E/49 3

50 Letter submitted by Pan Asia (PCOI Marked Document “C-186”) E/50 3

51 Minutes of Market Operations Committee on 3 March 2016 E/51 2

52 Marked document of the PCOI which includes the list of deleted calls by PTL.

E/52 1

53 Extracts of Daily summary reports from MO, Minutes of the Tender Board, bid approved sheets, press Release for 53 offers

E/53 263

54 Extract of Issue Tickets, Daily Market reports provided by MO for 2 offers E/54 8

55 Article of 28 July 2016 published in Lanka Business Online E/55 1

56 Article of 4 December 2016 published in The Sunday Times E/56 5

57 Article of 6 January 2018 published in Colombo telegraph E/57 6

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Total number of

Pages

58 Extract of the PCOI for statement given by Mr. PWDNR Rodrigo E/58 3

59 Extract of Mr. Kasun Palisena’s interview from the PCOI Report E/59 1

60 Article of 12 October 2017 published in Daily Mirror E/60 5

61 Extract of email of 1 February 2016 from Ms. UL Muthugala to Mr. WG Prabath

E/61 2

62 Extract of email of 8 March 2016 from Mr. Kasun Palisena to Ms. UL Muthugala and THB Sarathchandra

E/62 1

63 Email of 30 April 2015 from Ms. UL Muthugala to Dr. MZM Aazim E/63 5

64 Copies of email sent by Mr. Kasun Palisena to Mr. Arjuna Mahendran E/64 4

65 Extracts from Mr. Arjun Aloysius’s mobile device E/65 3

66 Copy of email communication by the DIT regarding migration of email communication platform

E/66 1

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ANNEXURE 1: LIST OF EMPLOYEES OF THE CBSL ATTENDING THE TENDER BOARD MEETING FOR RESPECTIVE OFFERS

# DATE OF AUCTION

NAME OF OFFICIAL DESIGNATION DEPARTMENT

1 27-Feb-

2015

Mr. P Samarasiri Deputy Governor overseeing PDD

-

Mr. SS Ratnayake Assistant Governor overseeing PDD

-

Mr. CPA Karunatilake Assistant Governor -

Ms CMDNK Senevirathne Superintendent of Public Debt Public Debt Department

Mr. PWDNR Rodrigo Director Domestic Operations Department

Ms S Gunaratna Director Department of Economic Research

Ms UL Muthugala Additional Superintendent of Public Debt

Public Debt Department

Dr MZM Aazim Additional Superintendent of Public Debt


2 10-Mar-

2015


-


-









3 12-Mar-

2015


-


-









4 17-Mar-

2015


-


-



Ms KNNM Bandara Additional Director Department of Economic Research

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# DATE OF AUCTION







5 26-Mar-

2015


-


-



Dr Y Indraratne Acting Director Department of Economic Research

Mr. HBD Karunaratna Additional Director Domestic Operations Department






6 30-Mar-

2015


-


-







7 7-Apr-2015


-


-



Dr. C Amarasekara Deputy Director Department of Economic Research





8 16-Apr-

2015


-


-


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# DATE OF AUCTION





Ms. UL Muthugala Additional Superintendent of Public Debt




9 21-Apr-

2015


-


-





Dr. MZM Aazim Additional Superintendent of Public Debt



Mr. D Kumaratunge Acting Director Department of Economic Research

10 29-Apr-

2015


-


-









11 5-May-2015


-


-


Mr. KMM Siriwardena Acting Director Department of Economic Research




12 12-May-

2015


-


-

Mr. KD Ranasinghe Assistant Governor -

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# DATE OF AUCTION









13 19-May-

2015


-


-









14 28-May-

2015


-


-









15 9-Jun-2015


-


-


Ms. CMDNK Senevirathne Superintendent of Public Debt Public Debt Department







16 12-Jun-

2015 Mr. P Samarasiri

Deputy Governor overseeing PDD

-

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opy




# DATE OF AUCTION



-



Dr Y Indraratne Acting Director Department of Economic Research




17 23-Jun-

2015


-


-







18 29-Jun-

2015


-


-









19 2-Jul-2015


-


-









20 9-Jul-2015 Mr. P Samarasiri Deputy Governor overseeing PDD

-

Parliam

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opy




# DATE OF AUCTION



-









21 14-Jul-2015


-


-






22 27-Jul-2015


-


-

Mr. CJP Siriwadena Assistant Governor -








23 4-Aug-2015


-


-









24 11-Aug-



-

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opy




# DATE OF AUCTION



-



Ms KNNM Bandara Additional Director Department of Economic Research






25 25-Aug-

2015


-


-









26 31-Aug-

2015


-


-









27 8-Sep-2015


-


-






28 15-Sep-



-

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opy




# DATE OF AUCTION



-









29 28-Sep-

2015


-


-


Mr. THB Sarathchandra Acting Superintendent of Public Debt






30 26-Oct-

2015


-

Mr. KD Ranasinghe Assistant Governor overseeing PDD

-







31 30-Oct-

2015


-


-







32 27-Nov-

2015


-


-

Parliam

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opy




# DATE OF AUCTION






33 15-Dec-

2015


-


-







34 18-Dec-

2015


-


-







35 23-Dec-

2015


-

Mr. HA Karunaratne Assistant Governor overseeing PDD

-





36 29-Dec-

2015


-

Mr. HA Karunaratne Assistant Governor overseeing PDD

-





37 8-Jan-2016


-


-

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opy




# DATE OF AUCTION





Mr. KMM Siriwardena Director Department of Economic Research



38 28-Jan-

2016


-


-




Ms. KNNM Bandara Director Department of Economic Research



39 5-Feb-2016


-


-




Mr. D Kumaratunge Additional Director Department of Economic Research



40 29-Feb-

2016


-


-







41 10-Mar-

2016


-


-





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# DATE OF AUCTION


42 17-Mar-

2016


-


-







43 24-Mar-

2016


-


-





44 29-Mar-

2016


-


-




Mr. KNNM Malkandhi Additional Director Department of Economic Research



45 31-Mar-

2016


-


-







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ANNEXURE 2: LIST OF EMPLOYEES OF THE CBSL INVOLVING IN THE DIRECT PLACEMENTS DECISION FOR

RESPECTIVE OFFERS

# DATE OF

PLACEMENT NAME OF OFFICIAL DESIGNATION DEPARTMENT

1 2-Feb-2015

Mr BDWA Silva Deputy Governor -

Mrs UL Muthugala Acting Superintendent of Public Debt


Ms LS Fernando Manager, Front Office Public Debt Department

2 6-Feb-2015





3 9-Feb-2015





4 12-Feb-

2015

Mr P Samarasiri Deputy Governor -

Mrs CMDNK Seneviratne Superintendent of Public Debt Public Debt Department

Ms MSMP Fernando Senior Manager, Front Office Public Debt Department

5 16-Feb-

2015




6 19-Feb-

2015




7 26-Feb-

2015




8 31-Mar-

2015




9 22-Dec-

2015

Mr P. Samarasiri Deputy Governor -



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