On the conduct of Hon Barak Sope and the VNPF Board in a proposed investment in the internet bank “Cybank” venture - October 16, 1996 - Emalus Campus



On the conduct of Hon Barak Sope and the VNPF Board in a proposed investment in the internet bank “Cybank” venture - October 16, 1996

96-07

During the first half of 1996, Barak Sope, the Minister of Finance entered into negotiations with Oxford Media Group Vanuatu (Oxford) in relation to the Cybank Investment proposal. Oxford was never incorporated in Vanuatu. A number of other companies related in name were also involved in the negotiations and subsequent transactions.  Cybank was a proposed internet banking business which was to include an online casino.  The Minister purported to Act on behalf of the Republic of Vanuatu.  At no material time did the Council of Ministers approve the investment.  This procedure would have been required for such an investment to be legal.  The minister’s negotiations resulted in an agreement dated June 2, 1996 between Oxford and “the Republic of Vanuatu or its nominee” (Vanuatu).  The June 2 agreement obliged Vanuatu to make two advance payments, one in the sum of US$250,000 on June 2 and one in the sum of US$1,750,000 by June 30.  Options provided for further investment in the company by Vanuatu.  The June 2 agreement gave Oxford entitlement to preferential license fees, taxes and priority access to telecommunication services and facilities in Vanuatu.  Telecom Vanuatu Ltd which exclusively provides telecommunications services in Vanuatu was not a party to the negotiations or the contract.  The parties agreed to negotiate in good faith a more detailed agreement consistent with the June 2 agreement.

Fulfilling the terms of the June 2 agreement required the Government to find a source of funds for payment of the US$250,000.  The Minister applied pressure on the Vanuatu National Providence Fund (VNPF) to be the nominee of the Government.  This resulted in VNPF advancing US$250,000 into escrow in accordance with the June 2 agreement.  VNPF did not take part in negotiations with Oxford and no written agreement was entered into by the VNPF with either the Government or Oxford in relation to VNPF becoming the “nominee” of the Government.

Although an opinion on the feasibility of the investment scheme was provided to Vanuatu, the report containing the opinion set forth important disclaimers and, in any event was commissioned by Oxford, not the Minister of Finance or anyone on behalf of Vanuatu.  At no time was any independent legal or professional advice sought or obtained by VNPF, the Government of Vanuatu or the Minister.

The Minister was advised by the Prime Minister on June 13 not to continue in negotiations with Oxford.  This advice was not heeded.  The sum of US$250,000 from VNPF was disbursed from escrow to companies apparently related to Oxford in Vanuatu and Australia.  This was done despite assurances from Mr. Sope to VNPF that monies would not be released until “a final agreement” was made.  Mr. Sope in pressuring the VNPF Board and authorizing disbursement of funds; and Mr. Malsungai, Chairman of the VNPF Board in allowing disbursement without a final agreement breached the Leadership Code.  Both individuals demeaned their offices as leaders.  The VNPF Board improperly characterized the expenditure of US$250,000 as a loan to the Government.

Despite steps to by Mr. Sope and others to keep the project alive, it stalled during August 1996 and was terminated upon the instructions of a newly appointed Finance Minister, Mr. Sele Molisa.

Findings of misconduct by Mr. Sope included breach of section 13 of the Public Finances Act, the Government Borrowing and Guarantee Act and the Vanuatu National Provident Fund Act in purporting to make binding commitments on Vanuatu using VNPF money without authority to do so.
Recommendations

·        That the Attorney General consider legal action against Mr. Malsungai for breach of trust.

·        That the VNPF Act be amended to provide for specific qualifications for Board members and a fixed term of appointment.

·        That Mr. Sope not be considered for any Ministerial appointments

·        That the Attorney General consider legal action against Mr. Sope for breach of trust.

·        That legislation be passed prohibiting the Government and any entity in which it has an interest from investing money or acquiring an interest in a company incorporated under the International Companies Act.

·        That the Attorney General be consulted before agreements are made which purport to bind the Government.

·        That the Government indemnify VNPF against claims by Oxford Media and reimburse VNPF in the sum of 27,800,000 vatu.

·        That a Trustee Act be passed to provide for the proper administration of trust funds.

·        That there be a review of VNPF investments made to date.

·        That the Government cease to be involved in commercial enterprises beyond those necessary for development and infrastructure.

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Written by Edward R. Hill
UNDP Governance and Accountability Project
January, 2001
Van/97/001
© Ombudsman of Vanuatu
Published here by University of the South Pacific, School of Law Web Site - www.vanuatu.usp.ac.fj






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