About twenty years ago, a number of finance companies failed almost simultaneously. Even Mercantile Credit Ltd, which was very highly regarded at the time and was also one of the largest, not only failed to pay most of its depositors but went into oblivion, with all the shareholders moneys, too, going into a bottomless pit. Did the officials of the Central Bank of Sri Lanka (CBSL) learn any lessons from these failures and press succeeding governments for more effective legislation to minimise the frequency of similar occurrences? It is conceivable that they may have made some mild noises in this regard, for record purposes, but all the indications are that they went back to sleep immediately thereafter. The number of finance establishments, particularly the unregistered ones, which continue to founder has not shown a significant decline. Indeed, the scale of the moneys lost by poor and not-so-poor depositors has shown a giant leap upwards – Sakviti, Danduwam Mudalali, Golden Key and so on. The explanation given by the CBSL – namely, that they have warned the public by notices in the newspapers about the advisability of investing funds only with registered financial institutions – is just a pitiful excuse to cover up over two decades of indifference to the interests of the public. Instead of merely giving warnings through paper notices and stopping at that, the CBSL, which would have had a lot more information than the general public on these matters, should have pressed the Minister of Finance to enact laws that would have minimised, if not prevented, people being taken for a ride repeatedly by unscrupulous or incompetent financial institutions.
The cavalier handling of moneys belonging to members of the public, either directly or through the state machinery, has not been confined to unlicensed finance companies and pyramid schemers. The public know that the Director of Bank Supervision remained totally inactive for years whilst the Bank of Ceylon and the Peoples Bank lent vast sums to many businessmen without adequate security being obtained. Our recollection is that each of these two CBSL-registered, state-owned banks had non-performing debts totalling Rs10-20 Billion each at a time when the rupee was worth several times what it is today. How much of these debits have been recovered is anybodys guess. The senior officers of these banks and the defaulting customers appear to have come to some cosy settlements, such as drastic re-scheduling of loan repayments and write-offs of interest and capital, all of which would have involved massive losses to the public, who are the owners of these banks. We cannot even begin to speculate on how much would have been earned under the table by the more adventurous bank officers concerned whenever they took decisions which were designed to let defaulting debtors off the hook.
Recently, when we found that the Bank of Ceylon had permitted the giving of extended overdrafts to an ill-conceived state enterprise, although the latters previous overdrafts had not been cleared, we of the Citizens Movement for Good Governance (CIMOGG) recognised it to be a clear violation of the CBSLs own rules, and banking laws and practices. We then wrote to the Director of Bank Supervision asking him why he had permitted this gross infringement. He replied that banking secrecy laws prevented him from answering our query. What this amounts to is that, when the CBSL has done something wrong or failed to do what it should have done, it takes cover very conveniently behind bank secrecy. Have the officers of the CBSL ever offered any suggestions to the Minister of Finance to permit the bank secrecy rules to be waived in the case of persons who have cheated the State or wantonly wasted public assets? Obviously not. For our part, there is no question that banking secrecy should not apply to those cases where cheating and/or blatant waste are in evidence. It is time the CBSL took the initiative in preparing appropriate legislation.
And where does our wonderful Department of Inland Revenue (DIR) stand? It has the convenient habit of losing massive numbers of files whenever serious investigations are started either by the Criminal Investigation Department, the Fraud Bureau, the Permanent Commission to Investigate Allegations of Bribery and Corruption (PCIABC) or even Parliament. A goodly number of senior officers at the DIR (and some who have retired) must be very happy that a wayward LTTE plane recently helped to destroy a lot more embarrassing files.
Taxpayers are aware that the DIR started computerisation a long time ago. Knowing full well that electronic back-up copies of all taxpayer information could easily have been kept elsewhere, the DIR did not pay any heed to this fundamental security precaution, as evidenced by the VAT fiasco. Given the massive amounts of moneys spent on getting expert advice to computerise the operations of the DIR, is it not curious that no serious effort was made to ensure the security of all taxpayer documentation? This kind of lacuna is, in our view, deliberately contributed to by officials of the DIR (and, similarly, some other departments) who are called in to advise on legislation, so as to leave enough room for their discretionary manipulations, just as the original draft of the 17th Amendment was emasculated by politicians so as to leave intact a number of openings for political interference, which was exactly what the promoters of the Amendment were trying to eliminate.
In the final analysis, one is compelled to conclude that civil society will have to gear itself to monitor independently the work of the CBSL, DIR and other key institutions. For a start, we should press for a Right to Information Law, such as in Switzerland and/or Sweden, where any member of the public may call for a copy of the Income Tax Return of any other citizen, or at least a law somewhat close to it. There should also be a law which stops any company – not only public limited liability companies – continuing to do business if, within six months of the end of its financial year, it fails to submit its accounts to the DIR. This new precaution is considered necessary because the fines which the Registrar General of Companies could levy are not large enough to worry the really big crooks.
Many will object to this proposal on the grounds that the free dissemination of information about ones financial position may encourage extortion, blackmail or kidnapping. Accepting that this a valid point, the Sri Lankan version of such legislation could be made a little less wide-ranging but there is no getting away from the fact that an effective Right to Information Law will enable socially-responsible citizens to keep an eye on the working of those government institutions which rely on archaic secrecy laws to keep the public in the dark in matters involving large-scale corruption that robs the State of its assets.
We know that there is a version of the Right to Information Law that is ready for processing by Parliament. Even though this version lacks sufficient teeth, our legislators should get at least this one passed into the statute books as soon as possible.
President, Citizens Movement for Good Governance