WHY THE LNG RESOURCE OWNERS SHOULD BE CONCERNED WITH TRUST FUNDS HOLDING THEIR ROYALTY MONEY
WHAT ARE TRUST FUNDS
Outside of PNG trust funds are normally established as either medium term holding accounts whose contents at a specified date are turned over to a beneficiary, or to an account maintained in perpetuity, where the principal is never touched and only the earned interest monies are ever withdrawn.
CORRUPT USAGE OF TRUST FUNDS:
1. LEAVING THE PRINCIPAL BUT STEALING THE EARNED INTEREST
In PNG, the trust account concept has been corrupted in many directions. The most common reason for a politican or a government bureaucrat to want control of a trust account is to steal the interest monies accrued. That is a corruption of the traditional trust account in that they have no authorisation to do this. The interest monies earned belong to the government. The corrupt government official's actions escape the government's attention in many cases in this way: A government disbursement of a quite large amount of money is secured, let's say K20 million. That K20 million is then put into a high interest bearing savings account and called a trust account. In the end, the government official uses up the K20 million and acquits that funding to the government. The government doesn't ask questions, including the most important one: Where did the interest money earned go to? What has happened is that the government official has pulled out the interest money and put it into their private savings account.
This is the first warning flag of what may be happening with regard to the LNG resource owners' royalty monies held within a government trust fund. The Finance Minister reported recently that it contains hundreds of millions of kina currently. That amount of money earns a stunning amount of interest. How much interest exactly, and where is it going? To the LNG resource owners who it rightfully belongs to, or into a politician's or government bureaucrat's pockets?
CORRUPT USAGE OF TRUST FUNDS:
2. BRIBING SIGNATORIES TO CORRUPTLY STEAL OR 'BORROW' FUNDS
The second red flag about trust accounts concerns the signatories to the account. Multiple signatories are commonly used for high balance trust accounts to minimize the chances of corrupt withdrawals of money. Unfortunately, when overall levels of corruption reach the high levels we experience in Papua New Guinea today, corruption is considered almost acceptable. That makes it harder to find signatories who cannot be bought by briberies and kickbacks.
EXAMPLE OF THE KUTUBU OIL RESOURCE OWNER'S TRUST FUND FOR FUTURE GENERATIONS
This is not a theoretical description. It happened in real life in a very big way when Sir Mekere Morauta was Prime Minister of Papua New Guinea.
At the time the fields near Lake Kutubu were producing large amounts of oil. Local landowners received royalties from the oil of course, but it had already become clear to the government that much of the royalty money was embezzled by local corrupt LLG leaders, who then flew to Moresby and wasted it while partying away at the Ela Beach Hotel.
Thus the government had by then established Future Generations Trust Funds into which a small percentage of royalty money was deposited. In the case of the Kutubu Future Generations Fund this still added up to quite a few million kina in only a few years.
A local Kutubu landowner by the name of Hami Yawari later became MP, then Southern Highlands Governor. Mr Yawari was reported from the start by other Kutubu landowners to be stealing other peoples royalty monies and buying real estate in Port Moresby which he controlled and took the profits from.
Mr Yawari was not satisfied with the amount of money he was embezzling from his own people, although the people themselves rarely complained because Mr Yawari told them he was investing their money for them.
Mr Yawari wanted to get his hands on the Kutubu Future Generations Trust Fund. What stood in his way was that he was not a signatory to that account, at least at the time he thought up the idea. The only way he could grab the money was if he could get all the signatories to sign off on a withdrawal slip. Hami Yawari's intention was to drain the entire fund and use it to buy more real estate in Port Moresby.
This was at the time following Bill Skate's short term as Prime Minister, which was characterised by many kinds of kickback corruption activities. Todays MP Justin Tkatchenko first earned his fortune in PNG participating in kickback schemes where his simple gardening and landscape care business got multi million kina contracts with the Skate government, most famously with Parliament house. The amount of money given in the contract was much too high for the kind of work being performed. This was because Mr Tkatchenko secretly kicked back money into the personal account of Bill Skate and certain other politicians at the time.
The National Provident Fund (NPF) fraud involving Jimmy Maladina and now Prime Minister Peter O'Neill also took place during this time. Corruption in PNG was already alive, well and growing in the later 1990s when Mekere Morauta came to power. In addition to NPF, there were a number of money laundering operations going around at the time, involving in some way or another, other people who are well known politicians today such as Morobe Governor Kelly Naru and Morobe MP Mao Zeming.
In that environment, Mr Yawari was encouraged to implement his plan to steal the Kutubu peoples Future Generation Trust Fund. However, Prime Minister Morauta was not corrupt apart from his term as Fisheries Minister when he made decisions that would favour his personal fishing company operations. Mr Morauta certainly would not take a kickback in return for signing a withdrawal cheque to zero balance the Kutubu Future Generations Trust Fund. As PM, Hon Mekere Morauta's signature was one of the few (I think 4) needed to withdraw money out of the Trust Fund Account.
Hon Mekere Morauta became Mr Hami Yawari's only roadblock to carrying out his corruption idea. This was because Mr Yawari had already reached secret agreements with the other high level government officials who were signatories on the account to participate in the kickback scheme.
Brilliant luck came to Mr Yawari in an unexpected way. The Prime Minister was a heavy smoker and had contracted cancer of the throat. He could not have the life threatening sickness attended to in PNG. He traveled to Australia for medical care, putting his Deputy Prime Minister in charge of the nation. His Deputy Prime Minister was Hon. Mao Zeming.
The moment Mr Morauta had left the country and was deep in medical care and could not quickly return to PNG, Mr Zeming as Acting Prime Minister made his move. He and the other signatories colluded with Mr Hami Yawari, and signed the withdrawal form to drain the Kutubu Future Generation Trust Account in return for handsome kickbacks. Mr Yawari got his wish. The Trust Fund Account was now zeroed out.
PM Morauta was understandably furious when he returned to PNG following his throat surgery. The problem with Mr Morauta, however, was the same problem that most honest Papua New Guineans have. We see the corruption, we don't like it, we complain about it, but we never report it. That allows the thieves to get away with their crime. This fortifies them to steal again, and their friends after hearing the story also feel empowered to try the same corruption. Those honest people who never hear the story of the theft remain uneducated about the technique. That means they never are given the opportunity to prepare themselves to be attentive and on the look out for similar circumstances in their workplace which they might have blocked if they only knew that such a trick existed.
WHY WAS THE KUTUBU FUTURE GENERATIONS TRUST FUND THEFT NEVER REPORTED?
Why the former PM Morauta never went public with what happened to the Kutubu Future Generations Trust Fund may be explained by a growing addiction to power or his wanting to remain Prime Minister. Then as well as now, no one can become Prime Minister without the support of a number of corrupt MPs. If Sir Mekere had reported the incident, the corrupt MPs would have pulled their support from him to support another PM.
This is the most likely explanation of why Sir Mekere never went public with the story even though he freely shared the story with his friends. Catering for corrupt MPs like Mr Mao Zeming did not help Sir Mekere in the end. Soon enough Sir Michael Somare was able to grab power from Mekere Morauta and become the next PM.
One important thing to learn about corruption is that not all corrupt activities can be prosecuted either under criminal law nor under leadership tribunals. The most cunning of the corrupt search for loopholes in the law that allow them to carry out their plans without breaking any laws. This does not mean that they have not committed a corruption. It only means that they found a loophole.
Certainly those who signed the withdrawal form, all permitted by Acting PM Mao Zeming, could and should have been prosecuted. Finding the actual evidence of the kickbacks might have been difficult if it was carefully concealed from investigation. Without that evidence, all the signatories could have said that they felt that giving all the money to Mr Yawari was the best decision. The landowners back home had already been fooled by Mr Yawari into thinking he was investing all the money and would make much more for them in the long run compared to if they left the money in the Trust Fund.
Of course today the Kutubu resource owners have not seen a toea coming out of the money that was withdrawn from the Kutubu Resource Owners Trust Fund and put into Mr Yawari's hands.
WARNING FLAGS FOR LNG RESOURCE OWNERS: CAREFUL ABOUT TRUST FUNDS!
So long as ExxonMobil officials remained signatories on the LNG Resource Owners Trust Fund they set up with the Central Bank of PNG, the money was probably safe. ExxonMobil as an international shareholder company would not dare to touch that money corruptly as it would destroy their reputation, which would then affect their share price negatively. Heads would roll.
The establishment of the government Trust Fund to perform the same function, as authorised without any public announcement by the NEC (see details and actual agreement here; http://www.pngblogs.com/…/oneill-and-powi-set-up-lng-develo…) is of great concern for several reasons:
Both SHP Governor William Powi and PM Peter O'Neill have a strong reputation for corruption, including mis-use and embezzlement of money, but finding legal ways to do it, or successfully hiding the evidence so they cannot be prosecuted.
Moreover PM O'Neill is in desperate need of money right now.
1. The government Trust Fund could have been established mainly to remove ExxonMobil as a signatory.
2. The government could then easily withdraw all interest monies earned by the landowner royalties, hiding the interest earned from the landowners eyes.
3. The PM might put someone in charge of looking after the Trust Fund and charge the Trust against their salary and costs, as a way of paying people to do next to nothing.
4. The government could start charging excessive fees to the LNG resource owners even to sign withdrawal forms for the money.
5. Peter O'Neill could 'borrow' royalty money for his election campaign or for other purposes, intending to return it without the LNG Resource Owners ever knowing that their money was being used in different ways behind their backs.
It is important that the LNG Resource owners get full details of this Trust Account and all financial actions that have taken place on it, as well as full details and all financial actions that have occurred with the previous ExxonMobil account to establish whether any money has been borrowed or gone missing. They should pay particular attention to the amount of interest earned, since this is substantial.
The poster below was created to accompany the nice submission we received by Karl Semanu. Note that one of the principals mentioned in the article, Mao Zeming, not only remains highly corrupt, but also high up in power. His ability to get away with nearly 2 decades of stealing explain why at the recent Alotau Vote of No Confidence gathering of MPs that he thought nothing of drinking himself silly, going out of control in public and shouting that he wanted to have sex with an Alotau woman outside the Alotau International Hotel. Those who never get caught never develop fear.]