REPUBLIC OF VANUATU

OFFICE OF THE OMBUDSMAN

PUBLIC REPORT

ON THE 

CONDUCT OF HON BT SOPE AND THE VNPF BOARD IN A PROPOSED INVESTMENT IN THE INTERNET BANK "CYBANK" VENTURE

This Report expresses the opinions, views, findings of fact and recommendations of the 
Ombudsman pursuant to the Ombudsman Act and the Constitution of the Republic of Vanuatu

16 OCTOBER 1996

CONTENTS

CONTENTS
PREAMBLE
SUMMARY OF PUBLIC REPORT

FULL PUBLIC REPORT

SECTION NUMBER

1	Introduction

CHAPTER ONE 

Preliminary Matters

2	Jurisdiction
3	Scope of investigation
4	Method of enquiry
5	Preliminary report

CHAPTER TWO

Findings of Fact and Opinion

6	Initial negotiation and the Cybank agreement
7	Mr Sope’s failure to obtain advice and approval
8	The co-opting of the VNPF Board and the Ernst & Young report
9	The VNPF Board meetings of 5&6 June 1996
10	The "guarantee" signed by Mr Sope
11	The VNPF Board as a trustee
12	Other events of 6 June 1996
13	The Prime Minister tries to stop Mr Sope
14	Release of US$250,000 from escrow to Oxford Media
15	Cybank does not go ahead

CHAPTER THREE

Commentary, Findings and Recommendations

16	Commentary
17	Findings of misconduct
18	Recommendations

INDEX TO ANNEXURES

---------------------------------------------

PREAMBLE

". . . Only by pride cometh contention, but with the well-advised is wisdom; wealth gotten by vanity shall be diminished, but he that gathereth by labour shall increase. .. ."
Job 13 v 10 & 11.

The evidence emerging from this and other investigations is beginning to show a pattern of behaviour which is very dangerous, and which shows a clear rejection of the Biblical principle outlined above, as well as indifference to tested and honourable ways of doing business. 

It appears that Mr Sope has great difficulty in accepting the legal boundaries and restraints which are defined by his posts, and prefers instead to act as a lone "wheeler-dealer" in gambling with the public’s money and their future. There appears to be behind his actions the belief that Vanuatu’s interests (and his own) may be best served by reckless gambles and the refusal to seek advice from people more qualified by experience and training than himself. 

As a result, in the past, he has been easy prey for those undesirable operators who do have experience of finance, albeit based on activities best described as "shaky". 

This recklessness and arrogance may be related to the realisation that Vanuatu is, in world terms, a very small nation with very limited resources, and not likely in normal circumstances to "get rich quick". Mr Sope’s response often is to take any action, however risky, as a gamble to make money available on whatever terms. 

These major gambles which have emerged from my investigations should be viewed as a warning to the people of Vanuatu against the dangerous attraction of relying on gambling (or "vanity" as the Biblical writer described it) as a method of "getting rich quick". There are more reliable ways of ensuring a future for Vanuatu than staking everything on "the throw of a dice". 

It should always be a matter viewed with great suspicion when operators take trouble to offer glowing attractive terms to a small country with few resources. There is an old, valuable and cautious saying in business that "we should remember when anybody wants you to lend or give their money for any reason, it is likely that they have tried all kinds of other sources first and been refused." Vanuatu does not need "gullible" leaders, but wise and responsible ones. 

Except in a very very small number of "lucky" cases, "gathering by labour" is still the best "bet" for people and countries. Vanuatu’s present economic difficulties are undoubtedly being aggravated by the increase in recreational gambling.

Time and again, different people in responsible positions have indicated their doubts, and often even refused their co-operation in Mr Sope’s "schemes", only to find themselves by-passed or ignored or out-manoeuvred by illegal moves from Mr Sope in his role of the "lone gambler" betting large stakes, and losing money which is not his. 

Since Mr Sope’s inability to accept the restraints and discipline of normal criteria and guidelines is part of such a clear and recurrent pattern, I have recommended that such serious defects should be viewed as a danger to Vanuatu, and as such a disqualification for office. 

Mr Malsungai does not emerge well from this investigation either, and appropriate action therefore requires to be taken in his case. 

SUMMARY OF FINAL REPORT ON "CYBANK" - LEADERSHIP CODE BREACHES BY HON BT SOPE AND VNPF BOARD

INTRODUCTION

1.	This a summary of my public report about breaches of the leadership code (in the Constitution) by the former Finance Minister, Hon BT Sope and the Board of the Vanuatu National Provident Fund ("VNPF") in trying to invest VNPF money into a "Cybank" proposal.

2.	The purpose of my enquiry was to find out if Mr Sope and the VNPF Board had broken the law and/or the Leadership Code which requires good conduct of our leaders. After I sent my preliminary and confidential report to people named in the report and got their stories I wrote my final report. Because this report is very long and has a lot of detail I have done this summary so that all can understand the main points about my enquiry and what I have found and my opinions and recommendations.

MY FINDINGS OF FACT

3.	The company that was behind Cybank is from Australia and is called Oxford Media Group Pty Ltd. I understand from this company that Cybank is a kind of electronic bank that would live on the Internet. The Internet is a system that allows people all over the world to talk to each other and get information. It was said that the Cybank would let people do their banking on the Internet and buy and sell products of the Internet using the Cybank.

4.	Oxford Media wanted the Vanuatu Government to put money into the Cybank proposal so that it could go ahead. The money was to come from the VNPF. VNPF gets its money from Vanuatu’s workers and their bosses. When a worker retires he or she will receive a pension out of the money VNPF has. The VNPF Board is the trustee of the VNPF money. A trustee is a person or people who have to very carefully look after money and property for someone else. Here the VNPF looks after money held on behalf of the workers of Vanuatu for their retirement.

5.	One day a Vanuatu company Guardian Trustees Ltd introduced Oxford Media to Mr Sope and told him about the Cybank idea. Mr Sope liked the Cybank idea. Mr Sope signed an agreement on behalf of the Vanuatu Government or its Nominee in early May 1996 and a second agreement on 2 June 1996. The second was signed at the Airport. A nominee is some person who can take the place of the first person in an agreement. Mr Sope signed the agreement:

(a) Without first taking advice from the Attorney General; and

(b) Without first getting the Council of Minister’s approval.

6.	The agreement said that the Vanuatu Government had to pay US$250,000 to a new company Oxford Media was going to make called Oxford Media Group Vanuatu (it did not live at the time of the signing of these two agreements). The money had to be paid in three days’ time, that is on 5 June 1996. Also a much bigger payment had to be made of US$1,750,000 (vt27, 800,000) by 30 June 1996.

7.	On 5 June 1996 (the very day the money was due) Mr Sope wrote to the VNPF Board and told its General Manager that VNPF would replace the Government in the contract (as its nominee) in the Cybank agreement. The VNPF Board was not given a real choice in my opinion. Mr Sope also said to VNPF in this letter:

(a) that VNPF had to pay the US$250,000 that day: and

(b) that if the Cybank did not go ahead VNPF would get the money back.

8.	The VNPF Board had a meeting the same day as getting the letter from Mr Sope - 5 June 1996. Mr Sope’s second secretary, Mr Pekoa Kaltonga, was at the meeting. Mr Kaltonga and the Chairman, Mr Petre Malsungai strongly said that the VNPF Board should agree to go ahead with the Cybank idea. Some of the members of the Board were not happy about it because they wanted to get independent information about Oxford Media and the Cybank idea. They are to be praised for this effort.

9.	The VNPF Board met the very next day, 6 June. Again, Mr Kaltonga was present and again he was strongly supporting the idea to the VNPF Board that they should follow the Mr Sope’s wish to go ahead with Cybank. At this meeting the Board was given a written guarantee that said if the Cybank did not go ahead and Oxford Media did give back the US$250,000 then the Government would pay the VNPF back itself. A guarantee is a promise by person A to person B that if person C does not pay back money person C owes to person B then person A will pay the money to person A instead. Guarantees are recognised by the courts.

10.	Even though the Board had been given a guarantee from Mr Sope on behalf of the Government some of the Board members were still not happy. These members said they wanted to vote but that Mr Malsungai refused to hold a vote. What the VNPF Board was not told by Mr Sope or Mr Kaltonga was that the guarantee that had been given was not legal. This was because the Council of Ministers had not approved the guarantee. There was therefore no real protection of the VNPF’s US$250,000. 

11.	However, Mr Malsungai let the US$250,000 go to Oxford Media anyway. I also note that in the draft minutes of the meeting it says that the Ombudsman was not to be told. This probably means that Mr Sope and some people at the meeting believed that there was something not right or legal going on.

12.	On the same day Mr Sope sent his first and second secretaries, Mr George Borugu and Mr Kaltonga to ask the Director of Finance for $250,000. Mr Sope probably did this in my opinion because he did not know if the VNPF Board would give over the $ US250, 000. The director said no. He too is to be praised for resisting the pressure that was illegally put on him.

13.	All of this happened without the Council Of Ministers’ approval. Because of this and the fact that money belonging to the workers of Vanuatu was going to be used I decided to investigate. When the former Prime Minister, Mr M Carlot Korman heard about this on or about 13 June he wrote to Mr Sope and told him that Mr Sope must follow the right procedures. Mr Korman did a good thing in doing this.

14.	On 27 and 28 June the Council Of Ministers met and talked about the Cybank idea. They said they wanted more information before a final agreement was signed. They said Mr Sope should give them more information at their next meeting. Mr Sope did not do this straight away. Instead he wrote to Guardian Trustees Limited and Oxford Media and said that the Council of Ministers had approved the Cybank agreement and it would go ahead. This was not true. 

15.	On 2 July US$250,000 went to Oxford Media in Australia and the other US$50,000 went to Oxford Media Group Vanuatu in Vanuatu. This happened because Mr Sope wrote to Guardian Trustees Ltd and told them that the VNPF Board had said it was okay now to release the money out of the suspense account. Mr Sope sent with his letter a document that had been signed by Mr Malsungai, on behalf of the VNPF Board, confirming the release of the money. In fact Mr Malsungai’s document was a lie. The VNPF had not met or voted to release the money. They did not know what Mr Malsungai had done.

16.	As well as not getting the Council of Ministers approval Mr Sope did not get any legal advice from the Attorney General or any other truly independent advice from any one else. The VNPF Board also did not take enough legal advice nor did they get any independent advice about the Cybank idea before allowing the money to go. I understand that the VNPF Board members felt pressure from Mr Sope through Mr Kaltonga and their own chairman, Mr Malsungai. However as trustees looking after the VNPF money they should have strong and said no.

17.	When the Attorney General was asked he said that the Government and the VNPF should not go ahead with the Cybank idea. The Council of Ministers therefore at their next meeting decided not to go ahead with the Cybank idea. Mr Korman then wrote to Mr Sope on 2 August telling him about this decision and that Mr Sope must tell everyone concerned that the Government was not going to go ahead with Cybank. Because of this the VNPF did not pay the second payment of US$1,750,000. Oxford Media and VNPF are now fighting about this in court.

MY CONCLUSIONS AND RECOMMENDATIONS

19.	My opinion based on the facts is that Mr Sope has behaved very very badly. He has definitely not acted as good leader should. He has broken the law and sees himself above the law. If he had not acted as he did, it is most unlikely that VNPF would have lost the US$250,000 or have been in court now. The VNPF is now in a weak position because the guarantee Mr Sope signed is no good. All this is no good for the workers of Vanuatu. In particular, Mr Sope has done the following:

(a) Put strong pressure on the VNPF Board and therefore attacked its independence so that it made a bad decision;

(b) Not told the truth to the VNPF about the guarantee;

(c) Kept on talking to Oxford Media and allowing it to receive US $250,000 when the Prime Minister effectively told him not to on 13 June

(d) Not getting independent advice from the Attorney General and other people with no interest in Cybank before signing the contract.

(e) Overall, Mr Sope acted as if he had power over the VNPF’s money.

20.	Secondly, I am also of the opinion that the VNPF Board, particularly Mr Malsungai is also in breach of the Leadership Code in agreeing to allow itself to be pressured by Mr Sope and Mr Kaltonga. It should not have done anything until it got independent advice. Mr Malsungai acted very badly in allowing the $US250, 000 to be released to Oxford Media without his Board knowing.

21.	I have recommended to the Prime Minister that Mr Sope is not fit to hold any Ministerial post and asked him to also refer the matter to the Public Prosecutor. I have recommended that the Government pay back the VNPF the money it gave to Oxford Media.

22.	Copies of the full public report are available from my Office at the Pacific Business Centre. They are free.

MARIE NOELLE FERRIEUX PATTERSON
OMBUDSMAN OF THE REPUBLIC OF VANUATU

1	INTRODUCTION

1.1	The Ombudsman received information about an investment that had been made, or was about to be made in a company to be called "Oxford Media Group Vanuatu". It was proposed that the "Republic of Vanuatu or its Nominee" invest in the company which was to create and run a "Cybank" in Vanuatu.

1.2.	The company behind Cybank is from Australia and is called Oxford Media Group Pty Ltd. I understand from this company that Cybank is a kind of electronic bank that would exist on the Internet. The Internet is a system that allows people all over the world to communicate with each other and share information. It was said that the Cybank would let people do their banking on the Internet and buy and sell products of the Internet using the Cybank.

1.3	In this report the Ombudsman examines the propriety of the actions of the former Finance Minister, Hon Barak Tame Sope. Mr Sope committed Vanuatu to a venture in a manner that breached the Laws of the Republic of Vanuatu, good administrative practice and the Leadership Code as set out in Chapter 10 of the Constitution. Basically the conduct that is examined is Mr Sope’s acts to force the Board of the Vanuatu National Provident Fund ("VNPF") to commit money belonging to the workers of Vanuatu. Mr Sope was actively assisted by the VNPF Board Chairman, Mr Petre Malsungai. This was contrary to law and the wishes of the VNPF Board to the venture.

1.4	This Report does not examine the nature of the Cybank or an Internet bank. No comment is made upon the efficacy of Cybank. This is not sought to be the subject of any part of the investigation. Reference is made to other parties involved. This report also examines the behaviour of the VNPF Board in maladministering trust funds held by it.

CHAPTER 1

JURISDICTION AND PURPOSE OF INVESTIGATION

2	JURISDICTION

2.1	I have conducted the enquiry under Article 62(1) and (2) of the Constitution and under s14 of the Ombudsman Act No 14 of 1995 ("Act"). These constitutional laws allow me to enquire into, inter alia, on my own initiative, the conduct of Ministers and other leaders and bodies.

2.2	I can thus investigate the circumstances surrounding the entry into the agreement with the Oxford Media Group Vanuatu and the provision of a guarantee for US$250,000 by Mr Sope and the role of his political secretaries and the VNPF Board.

3	SCOPE OF THE INVESTIGATION

3.1	The purpose of my investigation in this instance was to determine whether or not the decision to enter into the agreement and to give the guarantee was in the words of Article 63(2) of the Constitution:

•		contrary to law; or

•		based on error of law or of fact;

and in the words of s22 of the Act:

•	the law or administrative practice, the subject of the investigation, or any other law or administrative practice, is defective or;

•	the practice, the subject of the investigation, is discriminatory".

4	METHOD OF ENQUIRY

4.1	I obtained documents and other evidence from a number of different sources. This was pursuant to my powers as set out under Article 62(3) of the Constitution and s17 of the Act. These laws entitle me to request the persons specified therein to furnish documents and information to me.

5	PRELIMINARY REPORT AND THE RIGHT TO BE HEARD

5.1	On 12th September 1996, I circulated my preliminary report that outlined preliminary findings of fact and indicated concerns about the non-respect of laws, regulations and procedures Mr Sope and the VNPF Board. The preliminary report was given to the following persons:

- Mr Sope;
- The former members of the Board of the VNPF.
- Other parties that are not named here for reasons of confidentiality.

5.2	The purpose of seeking comments and submissions from those affected by this report was to discharge the Ombudsman’s constitutional obligation of granting "the person or body complained of an opportunity to reply to the complaints made against them" (article 62(4) of the Constitution), and of the legal obligation as outlined in section 16(4) of the Ombudsman Act No. 14 of 1995.

5.3	Very full replies have been received from the Hon Barak T. Sope, and Messrs. Alex Palavi, Andrew Manamuri, Robinson Rono, Eddy Sailas and Charlot Salwai and others. These are attached to the back of this report as annexure "A".

5.4	It will be noticed that some of the contents of some of the replies have been blacked out. The principal reason for this is that this was at the request of one of those parties receiving the report. I was prepared to agree to the request in this case. Secondly, the preliminary report contained material that is not reproduced in the public report; therefore replies to material not reproduced in the final report has similarly not been reproduced. Thirdly, a limited amount of material could have been considered by other people to have been defamatory. Out of caution, I thought it prudent not to reproduce material that I considered may fall into this category.

5.5	Finally, it should be noted that the paragraph numbers used in the replies refer to those numbers used in my confidential preliminary report. They do not match the paragraph numbers in this report. However, the topics and issues that the replies address are obvious.

CHAPTER 2

FINDINGS OF FACT AND OPINION.

6	INITIAL NEGOTIATIONS AND THE CYBANK AGREEMENT

6.1	At a date early in March 1996 there appears to have been negotiations between Mr Sope and Oxford Media Group Pty Ltd (an Australian company having its office in Brisbane) for the establishment of an Internet bank to be called a "Cybank". The parties were introduced by Guardian Trustees Ltd. See Annexure "B".

6.2	The negotiations resulted in an agreement being executed on the 2nd of June 1996 between Oxford Media Group Vanuatu and "The Republic of Vanuatu or its Nominee". Mr Sope signed the agreement on behalf of the Government. He did this without getting the Council of Minister’s approval first or legal advice from the Attorney General.

6.3	This agreement is entitled "Heads of Agreement". It sets out in very broad terms the mutual obligations of the parties about the establishment of a Cybank system. Amongst other things, the agreement provided for an advance of US$250,000.00 to "Oxford Media Group Vanuatu" no later than 5th June 1996. A second advance of US$1,750,000.00 was to be made no later than 30th June 1996. The agreement says nothing about the use to which this money was to be put. Also nothing was said about any interest to be paid upon this "advance". This becomes significant as it was shortly after represented by Mr Sope that interest to be paid to the VNPF and the Oxford Media Group Pty Ltd. This is discussed below. A copy of the Heads of Agreement is Annexure "C".

6.4	Clause 1.2 entitles Oxford Media Group Vanuatu to terminate the agreement if either of the amounts were not paid on the dates specified. The Republic of Vanuatu had no express termination right provided for in the agreement. If the Republic did terminate it could have amounted to a breach of the agreement with no apparent right to be repaid the money already paid. 

6.5	By clause 5, whatever shareholding the Republic or its nominee ultimately took in the joint venture vehicle, Oxford Media Group Vanuatu was to have the casting vote in the event of any deadlock. That means that Oxford Media Group Vanuatu would have the real control and the final say as to the operation of Cybank.

7	INDEPENDENT ADVICE AND MR SOPE’S FAILURE TO OBTAIN APPROVAL

7.1	It is evident from answers given by Mr Sope in an interview that he had not obtained any independent technical advice from any person, although he stated that this was his intention. It also appears evident that he did not obtain legal advice from the Attorney General before the Heads of Agreement were executed. Despite alleging that his secretaries, Messrs Boguru and Kaltonga, had obtained such advice I was unable to find any supporting evidence that the Attorney General had responded to a request for legal advice. There was a request sent on or about 28th May 1996 but it had not been processed by his Office let alone considered and replied to before the Heads of Agreement was signed on 2nd June. 

7.2	The Attorney General learnt that it had already been signed from a news report on Radio Vanuatu on 9 July 1996. The tone of his letter to the Prime Minister, Hon M Carlot Korman suggests that he was staggered to learn that Mr Sope had signed this agreement without the Council of Ministers’ approval. The Attorney General was then provided with a copy of the Heads of Agreement on 18th July 1996; six weeks after Mr Sope had signed it. Annexures "D" are copies of these two letters. 

7.2	The importance of this contract was such that it was vital that legal advice be obtained from the Attorney General. It has been remarked by Mr Sope that advice may have been obtained though other sources. I consider that would have been inappropriate and inadequate. The Attorney General is the law officer for the Government. He has the expert knowledge in respect of the laws of Vanuatu that are required for such a matter as this.

7.3	Further, by the Heads of Agreement, the Republic of Vanuatu, by Mr Sope, appears to have contracted to give something that is was in no position to give, namely:

"to provide Oxford with priority access to telecommunication services and facilities and at reduced rates".

7.4	Only Telecom Vanuatu Limited ("TVL") could provide this. TVL had not agreed to such. Apparently, TVL refused to get involved in the project until a business plan and full details were provided. Though by the time this requirement was made negotiations had continued without waiting for TVL’s request; such was the speed of the transaction. In his interview, Mr Sope said (in spite of what was in the Heads of Agreement): "Oxford was supposed to negotiate for a reduced rate". Annexed as "E" is a copy of TVL’s letter of 27 June 1996.

7.5	As at the 2nd of June 1996 when this agreement was executed and the financial commitment of US$2,000,000.00 was made into the matter had not been referred to the Council of Ministers for comment or approval. In his reply to the Preliminary Report on this matter Mr Sope has stated that the Heads of Agreement were subject to the approval of the Council of Ministers. That is not correct. The Heads of Agreement refers to the approval of the Council of Ministers, but this is in respect to the "detailed Contract containing provisions that are consistent with this Agreement". Clause one of the agreement contains an enforceable obligation to pay money. It is not dependent upon the approval of the Council of Ministers. What is the subject of the approval of the Council of Ministers is the subsequent agreement and not the Heads of Agreement. 

7.6	Clearly, prior to the signing of the Heads of Agreement no independent and disinterested investigations into the viability of the investment had been undertaken. Nor legal advice had been obtained from the Attorney General, not only upon the Heads of Agreement, but upon the structure of the proposed venture or any other aspect of it. I consider that prudent business practice could well have demanded that such advice be taken given that Mr Sope wanted the VNPF as a source of funding. This was to be an investment of a pension fund belonging to the workers of Vanuatu. It was into a very new application of new technology. The venture was advocated by a private foreign company. To the best of my investigation this company had no previous concerns in Vanuatu. Pension funds are traditionally invested in low risk vehicles such as long term bank deposit, Government stocks and bonds, blue chip companies and the like. I have not heard of them being used as venture capital to invest in new technology.

7.7	It is noted that the Heads of Agreement describe one of the parties, the "Oxford Media Group Vanuatu" as being "a company to be incorporated in accordance with the laws of the Republic of Vanuatu and to have its registered office and principal place of business in the Republic of Vanuatu". No such company has yet been incorporated, although an international company entitled "Oxford Media (Vanuatu) Corp." was incorporated on the 7th of June 1996 and a local company entitled "Oxford Media Group Ltd" was incorporated on the 20th June 1996.

7.8	Given the structure of the agreement, the mode of execution by the "Oxford Media Group Vanuatu", and the failure of a company by that precise name to be incorporated there may be some doubt as to the validity of the agreement as a "pre-incorporation" contract. That is a matter that the courts may examine in the fullness of time.

8	THE CO-OPTING OF THE VNPF AND THE ERNST AND YOUNG REPORT

8.1	By letter dated 5th June 1996, Mr Sope wrote to the General Manager of Vanuatu National Provident Fund about the "Cybank Investment Proposal". The text of the letter is set out below:

Ref 30/1/96/BTS/bk/MOF

June 5, 1996

The General Manager
Vanuatu National Provident Fund
PO Box 420
PORT VILA

Dear Sir,

RE:	CYBANK INVESTMENT PROPOSAL

Further to our meeting yesterday, I hereby forward a proposal for approval 	from Fund into Cybank.

I, as Minister responsible for Finance and on behalf of the Government, have recently signed a Heads of Agreement with the Directors of Oxford Media Group Pty Ltd to commence negotiations for the Government or a government nominee to invest up to 50 percent equity of the company.

This investment opportunity in Cybank has been reviewed and concluded a most financially attractive of unlimited proportions and viable project ever as it involves Vanuatu in the latest technology in the Internet System, combining Banking and Cash flow with Telecommunications and Computer System. Cybank is a first and unique system on the World and has been patented by Oxford Medias Attorney. The implications to Vanuatu are immense in Tourism, Marketing and Investment as the Internet is a World wide system.

The Government has proposed that Vanuatu National Provident Fund be its nominee in this Joint Venture with Oxford Media Pty Ltd on the Cybank Business Proposal. As you have expressed interest, the Government will forward as its nominee Vanuatu National Provident Fund for Council of Ministers Meeting for approval.

As nominee Vanuatu National Provident Fund must make a down-payment of USD 250,000.00 (UNITED STATES DOLLARS) or 25 Million Vatu to be held in a suspense Account with Guardian Trustees Ltd. This down-payment is refundable and will not be used until an Agreement is signed by both parties, thereafter which Vanuatu National Provident Fund will make further down-payments to attain a 50% Equity of CYBANK. It is essential that this down-payment be made during the preliminary stage of the negotiations to uphold your interest in this Partnership and must be issued as of this 5th Day of June 1996.

Your utmost attention and careful consideration is essential both for Vanuatu National Provident Fund and Vanuatu. You will be taking a pioneering role in Corporate and Technological Investment.

Yours Sincerely,

Signed by the Honourable Barak T. Sope, Minister of Finance

(my emphasis added)

8.2	Members of the VNPF Board have stated that the statement in paragraph 4 above that they had "expressed interest" is not correct. They said that the first time that they had heard of the proposal was on the 5th of June 1996. They have also correctly noted that the VNPF has never actually signed an agreement to become the nominee of the Government or to be otherwise substituted. One must ask upon what basis did they then pay the money into the escrow account? A copy of this letter is annexed as "F".

8.3	The following is noted in respect of this letter where it states in paragraph 3 that: 

"This investment opportunity in Cybank has been received and concluded a most financially attractive (sic) of unlimited proportions and viable project even ..."

8.4	No observations or opinions are expressed by the Ombudsman about the viability of the project. However, there was no evidence presented to me to indicate that before Mr Sope signed the agreement that he had got any independent and disinterested assessment made by the Vanuatu Government or its advisers. This should have been done. It is stated by Mr Sope in his reply to the Preliminary Report that a report was provided by Ernst & Young on the system. This is indeed the case. However, this report was provided to Mr Sope by Oxford Media Group and was not commissioned by the Government of the Republic of Vanuatu let alone the VNPF Board. It was prepared for Oxford Media and base on the figures and information that the directors themselves of Oxford Media had given to Ernst and Young.

8.5	Indeed this is made quite clear by Ernst and Young in their report in the first paragraph. They were commissioned 

"to prepare a report to assist the directors in their negotiations with the Government of Vanuatu which is preparing to take an investment position in the Cybank system that has been developed by the company. The directors have not requested that an independent valuation be carried out. For the purposes outlined above, the brief to Ernst & Young was to prepare a report setting out guidance on the range of values of the Cybank system given the financial projections that have been prepared for the product."

(my emphasis added)

8.6	The reference to "the directors" is a reference to the Directors of the Oxford Media Group. What is important to note is that Ernst & Young have provided extrapolations upon the financial projection that have been given to it by the Oxford Media Group Pty Ltd. They have not made their own assessment of the valuation or of the viability of the business. This is evident from their report when it is further noted on page one:

"In preparing this document we have not independently confirmed or otherwise corroborated information provided to us by the directors of the company"

(my emphasis added)

8.7	They then go on to refer to some of the assumptions that are made by them, all of which they have been provided by the directors of the Oxford Media Group. In paragraph 6 of the report Ernst & Young further note:

"This report has been prepared specifically for the purposes stated and for the use of the Directors of Oxford Media Group Pty Ltd only. Our conclusions are based on the assumptions stated and on the information provided by the directors. Neither Ernst & Young nor any member or employee of Ernst & Young nor any member or employee of Ernst & Young undertakes responsibility in any way what so ever to any person in respect of any errors in this report arising from incorrect information provided by the directors.""

(my emphasis added)

8.8	Thus the Ernst and Young report is in my opinion not an independent and disinterested examination of anything at all. Rather it attempts to show extrapolated figures that are based only upon the figures that are provided to them by Oxford Media Group Pty Ltd. This is not an independent assessment, but rather a self-serving document prepared to support some of the otherwise entirely unsupported assertions of the promoters of the Cybank. It is for that very reason that it is only proper and prudent to obtain one’s own expert opinion. This should be based upon and independent examination of the proposed business and not upon the hopes and projections of the promoters.

8.9	In my opinion to try and suggest that the Ernst and Young report is an independent report, as Mr Sope tries to at p4 of his reply to the preliminary report, is nonsense and is commercially naive. It ably demonstrates exactly why independent advice must be taken by Government Ministers and/or officers. Furthermore, it would be proper for the VNPF Board to have obtained its own valuation; separate from any that the Government could have commissioned. In my view, by doing this both entities would have reached the standard required by the Leadership Code.

8.10	In paragraph 4 of the letter it is stated "that The Government has proposed Vanuatu Provident Fund be its nominee in this joint venture ..." It would in fact appear that it was not "the Government", but rather the then Minister of Finance that proposed the VNPF to be the nominee (i.e. the party in Vanuatu to take the Government interest signed for by Mr Sope). From the interview with Mr Sope, it would appear that VNPF was chosen by the Mr Sope to provide the funds because the Government, Vanuatu Holdings and the National Bank of Vanuatu did not have the funds to invest in such a project.

8.11	It is appropriate at this point to deal with the use of the expression "or nominee" in the Heads of Agreement. This did not mean that the Republic (Government) could appoint an agent. It gave it the power to nominate another legal entity that would have the right to take over its obligations under the agreement. The "Nominee" does not become the agent of the Government, it becomes the contracting party in its own right - and assumes, if it enters into the contract by its performance, or expressly, all the obligations under the agreement as principal, not as agent. Of course such nominee must itself agree of its own free will to enter into the contract replacing the original party.

8.12	From what follows next, it appears to me that the VNPF Board wrongly took the view that it would be no more than the "agent" of the Government and had so been appointed by the act of being "nominated". Members of the Board of the VNPF have noted that they were not given access to any of the documents and were not party to any of the negotiations that took place. They correctly assert that they were excluded from any such negotiations. They said that they were informed by Mr. Pakoa Kaltonga, Mr Sope’s second secretary at the time, that only the Government had the right to negotiate. They were not party to discussions as to the structure or any aspect of the arrangements. They also said in their evidence (except the Chairman) that they were not allowed to vote on the matter by their chairman, Mr Malsungai. Had they been allowed to vote they say they would have voted against the VNPF being involved.

8.13	In paragraph 5 of his letter by Mr Sope directed:

"As nominee Vanuatu National Provident Fund must make a down payment of US$ 250,000.00 to be held in a suspense account with Guardian Trustees Ltd."

8.14	Mr Sope has agreed that this was a direction by him to the VNPF Board. This Board has stated that it wanted the money to be a loan and to government and not otherwise.

8.15	There is no legislative power or right for a Minister of Finance to give such a direction. This is reinforced by the fact that it is the members of the VNPF Board who act as the trustees of VNPF’s money. That being so they cannot take direction from anybody. To do so open them up to liability For the person giving the direction, not being a trustee, liability may be more difficult to establish. The notion that a trustee can be the subject of direction by a Minister of State goes against common sense and the whole nature of the law in this area.

8.16	It is to be noted for later discussion that Mr Sope represented to the VNPF General Manager that "This down payment is refundable and will not be used until an Agreement is signed by both parties ..." As will be seen later this did not happen.

9	THE VNPF BOARD MEETINGS OF 5 & 6 JUNE 1996

9.1	The Board of the VNPF met on the 5th of June 1996. Apparently it did not make any independent examination of the proposed investment. The Board did seek some brief legal advice in the very short time available. They also raised questions about the Internet and how it related to the Cybank. The draft minutes of the meeting show that extracts from the letter from Mr Sope were included in them. The Board was briefed by Acting General Manager, Mrs Ietonga Aiong and Mr Pakoa Kaltonga. Unfortunately, no final minutes were ever actually approved by the Board of the VNPF and it would appear that there was some opposition to the proposal with many questions being asked, but left unanswered. 

9.2	The Board entirely misunderstood the nature of its role. This is demonstrated by its resolution at the conclusion of the meeting. The Board is recorded in the draft minutes to have "Agreed in principle on the payment pending an agreement letter signed by the Government on (sic) its nominees" and that the project be treated as investment in Government loans in the form of bonds. 

9.3	Members of the Board have expressed the view that they rejected this notion. They also observe that the Secretary to the Finance Minister had suggested that Government bonds be used as a loan. This could not be done as it was prevented by the investment guidelines in that area and because the VNPF had as many bonds as the Board was permitted to purchase. 

9.4	The Board also stated that it had advised Mr Sope to seek the money from a commercial bank as the board did not wish to be involved as a principal in the investment. Under no circumstances could the investment be treated as an investment in Government loans as bonds or otherwise. Clearly it was an investment as a principal party. There is nothing to indicate that Government bonds were to be issued or that there exists another arrangement such as a loan.

9.5	Draft minutes of the meeting suggest that on 6th June 1996 the VNPF Board held a further meeting and resolved to make the payment of US$250,000.00 "on Escrow Account". The members of the Board state that there was no such resolution. They alleged that they were not allowed to vote by their Chairman, Mr Malsungai. They say Mr Malsungai was strongly supportive of the project along with Mr Kaltonga. 

9.6	They further explained that Mr Malsungai required them to leave all their papers and files behind after the meeting. Mrs Aiong who took the minutes and was present agreed that this was not usual practice. One has to wonder why there was such secrecy on Mr Malsungai’s part. Despite asking a number of people for them I was not provided with the final minutes (or a copy) signed by Mr Malsungai confirming the resolution. Apparently they never were prepared. copies of the draft minutes of the two meetings are annexed as "G".

9.7	However it does appear that Mr Malsungai was not to be troubled by disquiet from the VNPF Board. On 6th of June he signed the two letters that had been prepared for him. The letters notified Oxford Media Group (Vanuatu) and Guardian Trustees Ltd of the VNPF Board’s "approval" to the "Government’s proposal committing the VNPF as nominee in Cybank. The letter to Guardian Trustees enclosed payment of the US$250,000. Thus in less than 48 hours the Board of a pension fund had contractually committed itself to a US$2,000,000 venture:

(i) That it had not negotiated;

(ii) Knew only the barest details about;

(iii) Had not met the directors of the promoting company;

(iv) Commissioned and received no independent and disinterested advice;

(v) Had not been formally voted on by the members of the trustee Board;

(vi) All at the direction of a politician.

Copies of the VNPF letters of 6 June are annexed as "H". 

10	THE "GUARANTEE" SIGNED BY MR SOPE FOR US$250,000

10.1	At the meeting the VNPF Board were presented with a guarantee apparently from the Government. The text of this guarantee is set out below:

"Ref 30/96/1/BTS/ks/MOF

6th June, 1996

The Vanuatu National Provident Fund
P O Box 420
PORT VILA

The Government of the Republic of Vanuatu represented by the Honourable Minister for Finance in consideration of an advance of TWO HUNDRED AND FIFTY THOUSAND UNITED STATES DOLLARS (USD 250,000.00) to be held in escrow pending completion of all documentation and due diligence in a proposed joint venture with OXFORD MEDIA GROUP HEREBY GUARANTEES repayment of the advance in the event after due consideration the Board of the Vanuatu National Provident Fund in meeting resolves not to proceed with the investment as a whole by way of equity or loan.

Dated this sixth day of June 1996.

Signed by the Minister of Finance of the Republic of Vanuatu."

A copy of the guarantee is annexed as "I".

10.2	There appears to have been no authorisation for this guarantee from Council of Ministers. I note that any such guarantee is of no effect until such time as Parliament should approve it. Section 13 of the Public Finance Act provides for this when it states:

No guarantee involving any financial liability shall be binding upon the Government unless approved by resolution of Parliament.

10.3	The provisions of s3 of the Government Borrowing and Guarantee Act has also been breached as, inter alia, Mr Sope did not obtain the prior approval of the Council of Ministers.

10.4	In his evidence Mr Malsungai said that he at least believed that the VNPF Board was "under the Ministry of Finance" and that "we should carry out what they ask". He said he assumed that a study had already been carried out by the Ministry. He said that the Board was more concerned about the legality of the matter and would appear to have wanted to ensure that they had some security. Thus he says they asked for and received the guarantee before handing over the money. It was further commented that the "Ministry, they just wanted us to pay without concerning ourselves about a guarantee".

10.5	The Board of the VNPF is to be commended on trying to ensure that they had some security. This was at least one of the relevant issues to be taken into account. Those members (except for Mr Malsungai) who tried to raise their other concerns and to press for a vote are also to be commended.

10.6	In any event on 6th June 1996 Mr Malsungai said he was requested by Mrs Aiong to sign to letters by Mrs Aiong to Oxford Media Group (Vanuatu) and Guardian Trustees Ltd. These letters confirmed and enclosed payment of $US250,000 from the VNPF. Clearly this was done without the other VNPF directors' knowledge. It is also curious that these letters had to be prepared for Mr Malsungai. Copies of these are annexed as "H" (refer 9.7 above).

11	THE VNPF BOARD AS A TRUSTEE

11.1	S15 of the VNPF Act provides for "the Board to be the trustee of the Fund". It must be remembered that the Government and the VNPF Board are separate and independent entities of each other. Just because Mr Sope thought the Cybank venture was worthwhile does not entitle the VNPF Board to accept that assessment and to act on his say so. 

11.2	Before any money was provided, as a matter of ordinary and proper practice, the VNPF Board, as trustees, should have at least obtained the following:

(i)	A copy of a 3 to 5 year business plan for the business;

(ii)	An assessment by independent experts of the financial projections of the business. This to include how the system works, exchange risks, if any, the conditions for the provision of telecommunications (specifically whether any and what arrangements were in place) and links with the Internet and telecommunications and credit companies;

(iii)	An independent assessment, subject to the necessary secrecy agreement, of the proposed material to be licensed;

(iv)	A patent office search. Mr Sope’s letter of 5th June 1996 refers to the "unique system on the world and has been patented by Oxford Medias Attorney",. It appears from an examination of the materials that an application for patents has been made but that the patents have not as yet all been issued. Certainly at the time the VNPF Board was meeting this would not have been clear. The making of an application for a patent does not necessarily mean that it will be granted. One must wait to see. Independent advice should have been obtained from a patent attorney acting for the VNPF. A clause should have been inserted into the agreement to cover any failure to grant the patent sought; and

(v)	Full legal consideration should have been given to not only the wording and effect of the guarantee, but to the whole nature of the business, its structure and the nature of the investment, (as it was, and is not, a loan) before the VNPF entered into the business.

11.3	Members of the VNPF Board have stated that at the meeting on the 5th June 1996 all of the matters above listed were discussed but they were not recorded in the minutes of the meeting. They say that because they considered the proposal "high risk" that they wanted the Finance Ministry to seek advice from a commercial bank. They also state that some of the members did not wish the matter even on the agenda. It is most unfortunate that complete and proper minutes of the meeting were not kept by Mrs Aiong. 

11.4	It is also evident that the VNPF Board were virtually forced into a difficult position by the Ministry of Finance. One member of the Board said in an interview that "there was too much pressure from the Ministry".

11.5	The VNPF Board members are not Government employees paid by the Government. All their allowances are paid directly from the pension funds contributed by the workers of Vanuatu and their employers for the workers’ retirement. They owe their duty to look after the VNPF to the workers of Vanuatu. They cannot be influenced by any third parties to take into account irrelevant considerations, including and especially by the Government which has a powerful position.

11.6	Failure to investigate any of these matters before committing the sum of US$250,000.00 in my opinion amounts to negligence when dealing with the investment of other people’s money. This is the money deposited by the workers of Vanuatu for the workers of Vanuatu in the National Provident Fund. The Board failed completely to consider this matter adequately or and permitted itself to be bullied or pressured by Mr Sope. This was not helped by the conduct of their own chairman, Mr Malsungai.

11.7	It was further, in the circumstances, highly improper for Mr Bakoa Kaltonga, Second Secretary of the Ministry of Finance, to be present at the VNPF Board meetings on the 5th and 6th of June 1996. His presence is consistent with Mr Sope exerting undue influence on the Board. The Board is independent. Political pressure must not be put on it and it must not respond positively when it is. Those who applied the pressure must take more responsibility than those who acted under the pressure as they were in the positions of power.

12	OTHER EVENTS ON 6 JUNE 1996

12.1	Early on the 6th of June 1996 it would appear that Mr Sope, must have felt unsure about being able to obtain US$250,000.00 from the VNPF. Consequently, he sent both his First Secretary, Mr George Borugu and Mr Kaltonga to interrupt the Director of Finance in a meeting.

12.2	They demanded that a cheque be produced from the Finance Ministry for the sum of US$250,000.00. They were told that it was not possible. They corruptly and in breach of all ethical precepts suggested or demanded that the money be provided from the Development Fund. This fund was for Pekoa Airport in Santo, ADB infrastructure and Trade Promotion. In face of very great pressure the Director of Finance, Mr Jeffrey Wilfred, showed great leadership and strength in resisting the pressure that he had placed upon him. The money was not provided and the systems within the Finance Department worked well to prevent the misuse of funds. He is to be praised highly for his courage. His action is an example to other departmental directors.

12.3	On 6th June 1996, Guardian Trustees Ltd wrote to Mr Malsungai Chairman of the VNPF, as trustee for VNPF and Oxford Media Escrow Account, receipting the money paid. It is important to note for later reference that in this letter it is expressly stated:

"We confirm that interest earned on this Account will be split equally for the benefit of Oxford Media Group Pty Ltd and Vanuatu National Provident Fund until application of funds from Escrow (suspense) in accordance with a Joint Venture Contract between the parties has been executed and approved by the Vanuatu Council of Ministers".

A copy of this letter is Annexure "J".

12.4	It would appear that this letter was never tabled to the VNPF Board. It is noted that there was express agreement that the interest was to be split. The entity Oxford Media Group Pty Ltd was not party to the Heads of Agreement. It would thus appear that one half of the interest may have been paid out to Oxford Media Group Pty Ltd without justification. That may well be a matter for the courts.

13	THE PRIME MINISTER OF THE TIME TELLS MR SOPE TO STOP AND THE COUNCIL ATTEMPTS TO CONTROL HIM

13.1	On the 13th June 1996 the Hon M Carlot Korman wrote to Mr Sope reminding him of the proper steps that he should take. He also noted that the Cybank investment had not been approved by the Council of Ministers. He went on to say:

"I request that you advise every bodies concerned to stop any transactions in relation to this advance under the said agreement until procedures are respected.

Besides this, the Government has to know the proposed person/group to run Cybank and Oxford Media Services Ltd and full details of their business plan". 

A copy of this letter is annexed to this report as annexure "K".

13.2	Members of the Board of the VNPF have noted that whilst the Chairman of the VNPF received a copy of this letter, he did not inform the Board of its existence or the contents of it. Mr Korman is to be complimented for his attempt to control this matter. As will be seen later in this report, it was to no avail.

13.3	On 1st July 1996 there were two letters from Mr Sope to Guardian Trustees Ltd, acting on behalf of Oxford Media. It is impossible for me to say with any certainly exactly for whom Guardian Trustees Ltd. acted as the proposed company Oxford Media Group Vanuatu has never been incorporated. From the circumstantial evidence it is believed that it acted the Oxford Media Group Pty Ltd (of Australia), Oxford Media Vanuatu Corp. and Oxford Media Group Ltd. These letters are annexure "L". Importantly, it is in this letter Mr Sope represents to Guardian Trustees Ltd that Cybank had been approved by the Council of Ministers. He said:

"I am pleased to inform you that the CYBANK Joint Venture Proposal between the Government of the Republic of Vanuatu and Oxford Media Pty Ltd has been approved and notified by the Council of Ministers meeting on Thursday 27th June 1996."

I hereby advise you that we may now proceed to endorse this decision with arrangements on establishing an agreement ..."

(my emphasis added)

13.4	In my opinion Mr Sope’s statement was misleading when speaking of the "approval of the Council of Ministers" at its meeting on the 28th June 1996. It did not ratify and approve of the Joint Venture; rather it "Endorsed in principle the Heads of Agreement". It then went on to attempt to control Mr Sope by deciding:

"collectively what the terms and conditions of this Agreement must be presented to the Council of Ministers’ approval before any signature and "that the Minister of Finance present the proposed terms and conditions of this agreement to the next Council of Ministers for its approval".

13.5	I exhibit the decision of the Council of Ministers on this point as Annexure "M". I do so pursuant to s19 of the Act as it clearly shows that the Council of Ministers was acting correctly, with prudence and caution.

13.6	It is also noted that Mr Sope had written to Oxford Media Group Pty Ltd on 28th June 1996 (i.e. two days earlier) and said erroneously:

"I am pleased to advise that the Council of Ministers approved the Cybank Joint Venture at its meeting yesterday ..."

13.7	As can be seen from the decision, there was no more than an in principle endorsement of the Heads of Agreement. Yet Mr Sope went on to say:

"I anticipate that we will thus be in a position to execute the contract on Monday next week and to formally provide the Joint Venture with the initial US$ 250,000.00 equity funding".

See Annexure "N".

14	RELEASE OF THE $US250,000 FROM ESCROW TO OXFORD MEDIA

14.1	On 25th June 1996 Guardian Trustees wrote to the Council of Ministers. In the letter it confirms that:

"We hold the sum of US$ 250,000.00 (VT. 27,800,000) in an Escrow Account in trust for the Vanuatu Government, Vanuatu National Provident Fund and Oxford Media Group (developers of the Cybank system) ...

Once the project is approved .... and the Joint Venture Contract has been executed, the US$ 250,000.00 will be released from Escrow and paid to Oxford Media in accordance therewith. 

(my emphasis added)

A copy of this letter is exhibit "O".

14.2	It is noted that it is clearly stated that the sum of US$250,000.00 is held in trust until the Joint Venture Contract is executed.

14.3	On 1st July 1996 Mr Sope sent the letter to Guardian Trustees Ltd (annexure "L" (refer 13.3 above) authorising it to release the money that was to be held on escrow to Oxford Media (Vanuatu) Corp. The request was supported by a document signed by Mr Malsungai authorising the release on behalf of the VNPF Board. This document was undated and not on VNPF letterhead. It is plainly an irregular document.

14.4	There was no meeting and no VNPF resolution to do this. Again, I was not able to get any explanation why the second document was sent or why the money was released. Mr Malsungai could offer me no explanation why he signed this document To so do, in my view, was a gross and dishonest breach by Mr Malsungai of his duty as a trustee of the VNPF no matter what pressure he alleged Mr Sope put on him. Mr Sope’s conduct in engineering the situation is plainly shameful. Refer to "P".

14.5	On 2nd July 1996, Oxford Media Group Pty Ltd replied. It indicated that it had caused the directors of Oxford Media (Vanuatu) Corp to execute the Joint Venture Contract. See Annexure "Q". From Mr Sope’s second letter of 1st July 1996 (to Guardian Trustees "L"-refer 13.3 above), notwithstanding the representation given to VNPF Board that the funds paid would be held in escrow until the final agreement was signed, Mr Sope, with the unlawful help of Mr Malsungai, purported to authorise Guardian Trustees Ltd to disburse the sum of US$250,000.00 that had been paid to it by the VNPF. US$200,000.00 would appear to have been paid to a company called Oxford Media Pty Ltd an Australian company as a deposit upon a contract not yet entered into and US$50,000.00 to Oxford Media Vanuatu Corp. This is confirmed by Guardian Trustees Ltd’s letter to Mr Sope dated 18 July 1996; a copy of which is annexure "R".

14.6	It is noted that these distributions should not have been authorised for a number of reasons:

(i)	The fact that the money was held in an Escrow account awaiting the final agreement being reached and executed;

(ii)	The VNPF Board never resolved to release the money out of escrow;

(iii)	The payment to Oxford Media Pty Ltd appears to have gone to Australia. Currently I cannot say how this is justified on any view as this company is not party to any of the Heads of Agreement or the Agreement Joint Venture. It was suggested to me that this was pursuant to a service contract that apparently exists.

14.7	 Mr Sope said in his interview that:

"the Board of Directors must have met and decided that the money would be paid to Oxford. I have forgotten the circumstances, there must have been something in between. I think I must have informed the VNPF that the Council of Ministers had agreed to nominate them as a nominee".

(my emphasis added)

14.8	The consequence of the distribution of the money and the contract not now proceeding (as would appear to be the case) is that the money has probably been lost to the VNPF. It probably cannot be recovered from the Government. This is because the guarantee given by Mr Sope does not comply with the requirements of s13 of the Public Finance Act. I note that from a letter dated 17 July 1996 from Oxford Media in Australia to Mr Sope that the VNPF may well have a 2% equity share in the Cybank project. I do not annex a copy of this letter. It may well be made available to VNPF on discovery in any legal action between it and Oxford Media.

14.9	As has already been observed it is the law of Vanuatu that the VNPF Board is an independent Board and not controlled by the Minister of Finance. Remarkably or disingenuously, Mr Sope stated that he believed that he had the power to direct "for an investment, especially overseas".

15	CYBANK DOES NOT GO AHEAD

15.1	During July 1996 progress appears to have slowed and then stalled. It was in early July that the Attorney General was consulted. This was about another draft agreement but not the Heads of Agreement (not received by him till 18th July) that Mr Sope had already signed back on 2nd June. He raised some queries on a draft agreement that had been sent to him by Mr Sope. These were passed onto Guardian Trustees Ltd who addressed the queries that had been raised. However, for other reasons, perhaps increasing political activity, the transaction did not maintain the speed that it had to this time.

15.2	One additional fact that warrants mention is that by letter dated 18th July 1996 Guardian Trustees Ltd accounted to Mr Sope as to the use that the VNPF money had been put. It stated that $US200,000 had gone to Australia and US$50,000 to Vanuatu for the two Oxford Media companies. This letter was copied to Mr Malsungai. Mrs Aiong in her evidence says she saw the letter and was surprised to learn from it that the money had been released from escrow. Regrettably she did notify the other Board members or take any immediate action.

15.3	On 31st July 1996 Mr Sope wrote to the Directors of Oxford Media (Vanuatu) Corp. On the same day he also wrote to them and purported to officially nominate the VNPF to enter into the Contract and Joint Venture Agreement to take up to 50% of Cybank. A copy of this letter is annexure "S". This is not consistent with a statement made by Mr Sope in an interview when he said: "In the project we decided that the Government should take up 30% and the VNPF to take 20%". He said that this was a decision of the Council of Ministers. If it was then his letter of 31st July 1996 was inconsistent with this decision.

15.4	On or about the 1st of August 1996 a proposed agreement between Oxford Media (Vanuatu) Corp and the VNPF was submitted for signature by the VNPF. It had already been executed by Oxford Media (Vanuatu) Corp.

15.5 In its recitals the agreement included a statement to the effect that Oxford Media (Vanuatu) Corp had executed a Heads of Agreement dated 2nd June 1996 with the Republic of Vanuatu that had nominated the VNPF to enter with the agreement. It would appear to be asserted that "Oxford Media (Vanuatu) Corp" purported to be an incorporation of what had been previously styled in the Heads of Agreement as "Oxford Media Group Vanuatu".

15.6	Given that there was also incorporated a local company with the name "Oxford Media Group Ltd" on the 20th of June 1996 there must be real legal doubt as to just whom, if any body, in fact took over the purported interest of "Oxford Media Group Vanuatu" under the Heads of Agreement. It is the understanding of the Office of the Ombudsman that the name used in a pre-incorporation contract must be identical to that of the incorporated body that later assumes the benefit and obligations under the pre-incorporation contract unless otherwise expressly agreed by the contracting parties. Again, this a matter for a court..

15.7	Following consultation with the Attorney General and upon the views expressed in the Council of Ministers meetings, the Government decided not to be part of the Joint Venture Agreement with Oxford Media Group Corp. This decision was confirmed by Mr Carlot Korman in a letter to Mr Sope of 2nd August 1996. (See Annexure "T")

15.8	That did not deter Mr Sope. He appointed a new Board with Mr Charley Kalmet Mpakus as Chairman. I have previously commented adversely on Mr Mpakus in my report on him concerning misappropriation of funds as President of Shefa Province. In that report I found that he had breached the Leadership Code. This new VNPF Board was to meet on 5 August to approve and presumably sign the Joint Venture contract between Oxford Media (Vanuatu) Corp. The Board did not meet. Mr Mpakus wrote to Oxford Media (Vanuatu) Corp in an attempt to keep the project alive. This was unsuccessful due to Mr Sela Molisa’s appointment as the new Finance Minister; he promptly dismissed the new VNPF Board and the project went no further.

CHAPTER 3

COMMENTARY, FINDINGS OF MISCONDUCT AND RECOMMENDATIONS

16	COMMENTARY

16.1	The proposed written agreement between Oxford Media (Vanuatu) Corp and the VNPF was not executed by the VNPF Board or any other party associated with the Republic of Vanuatu. It is noted that it is asserted on behalf of the "Oxford Media Group" that there is a contract. This is a matter for the Courts to determine in due course. However, it is the manner in which Mr Sope assisted by his secretaries and Mr Malsungai that is of primary concern. Had they complied with the law their actions and the Cybank transaction (by necessity) would not have the subject of attention of the Ombudsman’s Office.

16.2	This has been another example of maladministration of public office. It has probably cost at least VT. 27,800,000 and has exposed the country to a suit in the Court where, no doubt, the Oxford Media Group entities will claim US$1,750,000.00 (or VT. 194,232,500). This is money that both the VNPF and the Government can ill afford to pay.

16.3	In my opinion workers and employers do not each pay 3% of total income to the VNPF for it to be lost by the incompetence of the Board and the negligence and misbehaviour of a Government Minister. This situation arose because of a total lack of leadership and disrespect for the people of Vanuatu. The money of the workers was potentially placed out of the VNPF and Government’s control. This is for two reasons:

(a)Apparently the joint venture company that would have operated Cybank was to have been an international company. Thus because of the secrecy principles of the International Companies Act it would have been difficult to have scrutinised its dealings had the need arisen; and

(b)Oxford Media Vanuatu Corp, as the other joint venture partner, had under the Heads of Agreement ultimate the ultimate control.

16.4	The reality therefore is that the workers of Vanuatu would have lost control with how their money was to be used.

16.5	By disregarding the proper processes of administration and law those leaders and their political appointees have brought Vanuatu into disrepute. They have demeaned their offices within the meaning of the Leadership Code as contained in Chapter 10 of the Constitution. One of the outcomes of this matter will, no doubt, be to cause many potential future investors to think twice about investing in Vanuatu. If the proper processes are observed, then all people know precisely where they stand. If they are not observed then accusations of perceived or actual corruption can be made. There can be no short cuts in obtaining approvals to enter into agreement and ventures.

16.6	In an interview with the Ombudsman, Mr Sope asserted that the Council of Ministers had at all relevant times approved the dealings by him. The Office of the Ombudsman is unable to find any independent support for such assertions, despite every attempt to obtain such support.

16.7	In his interview, Mr Sope showed a great deal of confusion about what was intended by the documents. He appeared to indicate that whilst the Heads of Agreement said one thing, in fact that was not what was meant. An example is in respect of the provision of telecommunication services where he said that Oxford Media Group was meant to negotiate separately with TVL. He is wrong. The agreement said that the Government would provide ‘priority access to telecommunication services", though of course this was impossible. (refer 7.4 above).

16.8	Mr Sope also appears to believe that he could interchange the Government for the VNPF at a later stage and that the Government may be able to easily assign its interest under any contracts, or further divide such interest. This shows a lack of seeking legal advice on the subject and a lack of proper consideration of the matter in any legal sense. It would appear that he was simply blinded by the promise or possibility of making large sums of money without properly considering the mechanics of the investment and the proper procedures to be followed.

16.9	It is further again observed that "Oxford Media Group Vanuatu", has never been incorporated and that Oxford Media (Vanuatu) Corporation is an international company. As such its affairs are secret pursuant to the terms of s125 of the International Companies Act 1993. As noted above it is entirely inappropriate for public money to be invested in such an international company as its dealings cannot be the subject of open scrutiny. To have invested such amounts is a serious matter to be considered in light of the trustee status of the VNPF Board.

16.10	It is also appropriate to underline that the VNPF Board were not without guidance as to how to invest provident funds. In early 1992 the Government commissioned a UN ESCAP (United Nations Economic and Social Commission for the South Pacific). report specifically for the VNPF. This report specifically addressed investment policy. In paragraph 53 on page 12 of this independent report the author makes the following wise observation:

"It is suggested that whilst one view may be that the higher the better, the 	other view is that safety should be the more important consideration."

(note the author’s underlining)

16.11	This report whilst available to Messrs Sope and Malsungai was obviously far from their minds when they got involved in Cybank.

16.12	I provided a copy of the preliminary report in this matter to Oxford Media Group Ltd for its possible comment. I am concerned that the principals of this company may attempt to use the report as in some way vindicating their position and indicating that I support their venture because of statements made to me including the one set below. I make it quite clear that I have not examined the "Cybank" as this is a report into matters of maladministration in Government. It is not my role to enquire into the "Cybank system" and comment upon it. I quote from Oxford Media Group Ltd’s reply which disturbs me . The letter in part says:-

"You are correct in recognising the value of the Cybank technology. We refer to the comment in the Introduction of your report that Vanuatu would have received future income from Cybank and also to your comment on page 12, in paragraph 4.3 that Government investment in Cybank "could have resulted in great benefit to the country""

16.13	Both of these comments, in my view, are, at best, gross distortions of what was in fact stated. In the introduction it was said that the short cuts adopted by those involved may have deprived the people of Vanuatu out of income. That is, if all of the correct checks had been gone through. I also expressly stated in the introduction that:- 

"This Report does not examine the nature of the Cybank system or an Internet bank. No comment is made upon the efficacy of Cybank. This is not sought to be the subject of any part of the investigation."

16.14	The more gross misquoting is the reference to paragraph 4.3 were words have been left out. The quote has been so constructed so as to be entirely misleading in my opinion. The actual reference in full is:-

‘If the proper processes had been followed and the investment in Cybank had been properly authorised, then it could (without expressing any views either adverse or affirmative on the matter) have resulted in great benefit to the country".

16.15	The leaving out of the words in brackets is in my view improper. A misquote of this kind is an attempt to give an entirely wrong impression.

FINDINGS OF MISCONDUCT

Finding No. 1

MISLEADING AND DECEPTIVE CONDUCT BY MESSRS SOPE AND MALSUNGAI DEMEANING THEIR OFFICES AS LEADERS

In my view the single worst piece of conduct by Messrs Sope and Malsungai was authorising the release of the $US250,000 from escrow to Oxford Media (Vanuatu) Corp by Mr Sope’s letter of 1 July 1996 accompanied by the authorisation signed by Mr Malsungai (refer annexures "L"). By doing this, Mr Sope’s unequivocal statement to the VNPF Board in his letter of 5th June 1996 (refer annexure "F") where he advised that the money would be held in a suspense account and stated that:

This amount will not be released until a final Agreement is signed by the parties

rendered meaningless. Mr Sope has shown that his word cannot be relied on Mr Malsungai allowed himself to be persuaded to sign a document that was false. His signature on the undated plain paper allowed money belonging to the workers of Vanuatu to be paid away to third parties. He did this in the full knowledge that it was without the knowledge or approval of his other Board members.

Finding No. 2

Breach of section 13 of the Public Financial Act by Mr. Sope

Mr Sope breached the provisions of Section 13 of the Public Finance Act in that he gave a Guarantee on behalf of the Government and represented it to be valid in circumstances where it was not authorised by Parliament and was unenforceable.

Finding No. 3

Breach of section 3 of the Government Borrowing And Guarantee Act by Mr. Sope

Breach of Section 3 of the Government Borrowing and Guarantee Act in that he did not have the prior approval of the terms of the Guarantee from the Council of Ministers before giving the Guarantee to the VNPF.

Finding No. 4

Improper pressure exercised by Mr. Sope on the Board of VNPF

Mr Sope caused pressure to be placed upon the Board of the VNPF and thereby attacked its integrity and independence.

Finding No. 5

False Representation by Mr. Sope in front of the VNPF Board

Minister Sope made a false representation to the Board of the VNPF to the effect that the Guarantee given by him was valid and of full force, when it was not, and he knew that it was not.

Finding No. 6

Former Mr. Sope acted in breach of directions by the Prime Minister

Mr Sope acted in breach of directions of the Prime Minister contained in his letter of 13 June 1996. Such breach was constituted by:

(a)	Continuing to negotiate with the Oxford Media Group without authorisation;

(b)	Purporting to have authority to release or cause to be released the sum of US$250,000.00;

(c)	Causing the release of the said sum Mr Sope has exposed the VNPF to a loss of US$250,000.00.

Finding No. 7

Breach of VNPF Act by Mr. Sope

Mr Sope assumed power over the assets of the VNPF, namely US$250,000.00, which power he did not have. He thus acted in breach of and outside of the law.

Finding No. 8

No consultation of experts by Mr. Sope

Mr Sope failed to consult Government legal and independent technical experts before executing the Heads of Agreement and thereby failed to properly administer his Ministry.

Finding No. 9

Mr Sope entered into the Heads of Agreement in respect of a proposed business when in fact it was not a matter proper for the Minister of Finance, but rather should have been dealt with by the Ministers for Commerce and Industry and Telecommunication.

Finding No. 10

Attempt of false accounting by the Board of the VNPF.

The Board of the V.N.P.F. wrongly and in breach of the law sought to characterise its expenditure of US$250,000.00 upon the business investment as Government loans or bonds when such was not the circumstance. This may have been an attempt at false accounting, however it is more likely that is occurred as a result of the Board (or some members of it) bowing to the political pressure that was placed upon it..

Finding No. 11

Breach of duties of trustees by following members of the Board:-

The Board of the VNPF failed to act independently and permitted itself to be the subject of pressure from the Mr Sope. By so doing it acted in breach of its duty as trustee of the Provident Funds held by it. I find that the conduct of Mr Malsungai, the chairman, was reprehensible and considerably worse that that of the other Board directors.

18	RECOMMENDATIONS

Legal action against Mr Malsungai for breach of trust

(i)	It is noted that the Members of the Board of the VNPF responsible for the payment of US$250,000.00 have been dismissed and were replaced by the then Mr Sope with a Board chosen by him. This new Board did not meet and was then dismissed after Mr Sope was replaced as Minister of Finance. I recommend that the papers be referred to the Attorney General for him to consider instituting proceedings personally against Mr Malsungai for breach of trust seeking the recovery of the sum of US$250,000.00. The other members of the Board’s position should be examined also.

Amendment of the VNPF Act

(ii)	That the VNPF Act be amended so as to require the Board of Directors to obtain independent valuations, assessments and advice before making any investment in excess of the sum of Vt.5,000,000.

(iii)	That the VNPF Act provide for specific qualification of members of the Board so as to ensure that the investments made are properly and fully considered.

(iv)	That the VNPF Act provide for fixed term appointment of members of the Board, thereby greatly reducing the risk of political interference.

Mr Sope not be considered for any Ministerial appointments

(v)	That Mr Sope, given his conduct in this matter and in the matter of the US$100,000,000.00 Bank Guarantees matter not be considered again for appointment as a Minister of State of the Republic of Vanuatu or any other Public Office. Mr Sope continues to show a constant disregard for the laws of the Republic of Vanuatu. His conduct to not only cost the people of Vanuatu significant sums of money, but also brings Vanuatu into disrepute.

Consideration of legal action against Mr Sope to recover VNPF’s losses

(vi)	That the Attorney General consider whether the Mr Sope placed himself in a position of agent of the VNPF when he authorised the release of the sum of US$250,000.00 from the escrow account. Claims based in knowing assistance of a breach of trust and/or fraud also present themselves as other obvious causes of action. The nature of these claims would be against Mr Sope in his personal capacity proceedings for the recovery of the sum of US$250,000.00 and/or damages.

Legislative prohibition on Governmental investment in International companies

(vii)	That there be legislation totally prohibiting the Government and any company, corporation or body in which the Government or any local or provincial government or instrumentality has an interest of any kind from investing any money or acquiring any interest in a company incorporated under the International Companies Act 1993.

Attorney General to be consulted before binding commitments made

(viii)	That any and all agreements to be entered into by Government must be given to the Attorney General for his comment and advice before they are signed or any other commitment is made. He is an expert lawyer and his officers are experienced in such matters. To fail to submit agreements for comment is an act of gross maladministration. Given the events in this matter and i of the Bank Guarantees I further recommend that any person who fails to submit agreements to the Attorney General, or is party to such failure should be dismissed from office. The Public Service Regulations should be amended to provide for this.

Government to indemnify the VNPF

(ix)	Given that the Guarantee given by Mr Sope is more likely than not unenforceable as Parliament has not approved it, and the Council of Ministers had not seen it, I recommend that the Government make an ex-gratia payment of Vt.27, 800,000 to the VNPF. It should also indemnify the VNPF against any claims that may be made against it by Oxford Media. The workers of Vanuatu should not have to pay for the gross negligence, incompetence and bullying of one of the Ministers of State.

Enactment of a Trustee Act

(x)	That there be legislation to provide for the proper administration of trust funds and that such specify the duties of trustees towards trust funds, including a prohibition of the payment or receipt of secret commissions or payments of any kind. In such legislation liability for breaches of trust should fall not only upon the trust company involved but also the principals of such trust companies. This is because these companies most often have few assets themselves other than perhaps a paid up capital of VT. 400.

Review of VNPF investments to date

(xi)	That there be an independent review of all the investments of the VNPF. It has come to my notice that the return on investment by the VNPF is very poor. Such a review would be prudent to ensure the proper management in a situation where there has been no long term continuity of Board members. A full and comprehensive investment strategy needs to be worked out and implemented. The UN ESCAP report must be read, understood and followed.

(x)	That the Government either in its own name or in the name of a wholly owned company cease to be involved in commercial enterprises beyond those necessary for development and infrastructure. When doing so full, proper and disinterested legal and technical advice. Politicians and their political advisers are just that. They are not businesspeople. Consequently, they can too readily get the country into trouble without observing the usual commercial precautions. In this matter it is interesting to compare the requirements that TVL place upon its preliminary examination of the matter and those of Mr Sope. If one wished to be involved in large commercial ventures one needs to have the commercial expertise. In my opinion, experience now clearly shows that one cannot rely upon the expertise of people who simply arrive in this country and say that they are expert, because invariably they are not. Refer to the matter of Swanson as an example. 

Dated October 1996.

MARIE-NOËLLE FERRIEUX PATTERSON
OMBUDSMAN OF THE REPUBLIC OF VANUATU.

INDEX TO EXHIBITS

ANNEX	DATE	DESCRIPTION	PG	
				
A

	25.09.96
26.09.96
24.09.96	Mr Sope’s reply
VNPF Board’s reply
Oxford Media Group Ltd’s reply	1
6
9	
B	08.03.96	L GDL to Sope	12	
C	02.06.96	Heads of Agreement	14	
D	10.07.96
17.07.96	L AG to PM
F OXV to AG	18
20	
E	27.06.96	F TVL to OMG	21	
F	05.06.96	L Sope to VNPF	22	
G	05.06.96
06.06.96	Draft VNPF minute
Draft VNPF minute	24
26	
H	06.06.96
06.06.96	L VNPF to OMV
L VNPF to GTL	28
28a	
I	06.06.96	Sope "Guarantee"	29	
J	06.06.96	L GTL to VNPF	30	
K	13.06.96	L PM to Sope	31	
L	01.07.96
01.07.96	L Sope to GTL
L Sope to GTL	33
34	
M	01.07.96	L CoM to Sope	35	
N	28.06.96	L Sope to OMG	36	
O	25.06.96	L GTL to CoM	37	
P	undated	Malsungai document	39	
Q
R
S
T	02.07.96
18.07.96
31.07.96
02.08.96	F OMG to Sope 
GTL to Sope
L Sope to OMV
L PM to Sope	40
41
43
44	

KEY

L.	Letter
F.	Facsimile

CoM.	Council of Ministers	
GTL.	Guardian Trustees Ltd
OMG.	Oxford Media Group Pty Ltd
OMV.	Oxford Media (Vanuatu) Corp
PM.	Prime Minister
TVL.	Telecom Vanuatu Ltd
VNPF.	Vanuatu National Provident Fund

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