The Golden Key Swindle and the Liability of the Central Bank

‘There is reason for fearing that men and women will be taught that dishonesty, if it can become splendid, will cease to be abominable’– Anthony Trollope in his Autobigraphy (1883)

The famous English Novelist, Anthony Trollope wrote the above words after he was disgusted by what he perceived as a decline of ethical values in

British public life which resulted in the writing of the dark satire of his longest novel Way We Live Now (1875) which was the product of this revulsion. The novel describes the career of Augustus Melmotte, a corrupt financier who is embraced by the Conservative Party, the Church and the aristocracy. This ‘bloated swindler’ eventually commits suicide after he is exposed as a fraud and a forger.(Encarta-The Encyclopedia) The Oxford Dictionary describes the verb ‘swindle’ as using deception to obtain money or deprive someone of money or possessions by a fraudulent scheme or action. The Golden Key Scam amounting to a staggering Rupees 26 billion, has been described as the largest swindle or financial fraud ever to be committed in the whole of South East Asia .

In the order dated 23-03-2009 delivered by the Supreme Court of Sri Lanka in SC Applications Nos. 191/09 ,192/09,197-216/09 and 225-226/ it was stated as follows ‘:..the head of the S.I.U (Special Investigations Unit) of the Central Bank has stated as follows ‘…In view of the above facts, the examiners are of the view that the Golden Key Credit Card Company Limited carries on a finance business in contravention of the provisions of the Finance Act No.78 of 1988.’The files that have been produced in Court do not indicate with any clarity the action that has been taken thereafter. However there is a report to the Monetary Board dated 24-11-2006 which culminates as follows: ‘The Monetary Board is informed of the above and invited to approve a discontinuation of the examination in respect of the Golden Key Credit Card Company under Section 11 of the Finance Companies Act.’ The Court further stated:’ This report does not give any reason for disregarding the findings of the Special Investigations Unit but refers to certain discussions had with Lalith Kotelawala, Chairman of the Ceylinco Group. It appears that the subsequent course of action has resulted entirely based on discussions had with the head of the very institution, which was being investigated.’ While granting leave to proceed with the action, the Supreme Court directed the Monetary Board of the Central Bank to take into account the report of the S.I.U. as the failure to take action on the report which had been made more than 3 years ago as required by Section 11(1) amounts prima facie to a denial of the equal protection of the law guaranteed by Article 12(1) of the Constitution.’

Depositors yet to receive the major potion of their money

The above order was made over two and a half years ago but the hapless depositors, who entered the portals of misery with the worthless golden key they obtained by parting with their lifetime savings are yet to receive their deposits, except for a meager Rs.200,000/- paid in two installments spread

over a span of two years. If the Central Bank performed its functions and prohibited the operations of the GKCC at that time a large majority of the depositors would have been saved from the misery they are encountering at present. The Central Bank cannot escape from its liability by publishing a few advertisements in the local media warning depositors not to invest in unregistered finance companies, the activities of which the Central Bank is required to supervise.

On July 4th 2011, the Sri Lanka Guardian reported as follows Sri Lanka Guardian took up the matter and highlighted the issue in several editorials and Feature articles because several depositors met us with their terrible tales. It is sad to see some children of what were once wealthy upper-middle Class Colombo society parents having lost even their schooling. We are happy the Governor of the Central bank, the Supreme Court and the government in general are trying to help. Depositors still fear they will be cheated of their funds in the light of speculation that some valuable properties have changed hands surreptitiously. They share with us their worry while, at the time of the collapse in late 2008, the value of unencumbered GKCC assets was in excess of Rs.28 billion is now talked in much lower terms. That will be unfortunate, to say the least as these helpless continue to hope they will come out of their nightmare soon with the help and intervention of President Mahinda Rajapakse. This is why they ask the CBSL or any other relevant section of the government to announce a list of GKCCC asset values taken over in December 2008 and held as at date. If any were sold in the interim the name of the purchaser, the asset, value and sale date will be useful in the interest of transparency and accountability.’ The Sunday Leader too published several articles including the article titled ‘The Swindler’s List’ which gave the list of depositors swindled by GKCC.

At a meeting the depositors had with Lalith Kotelawala some depositors described their plight and presented their stories and pleaded with

Kotelawala to provide immediate relief for them, thus: “I have deposited my life-long earnings in your company, trusting you and your company. Next month my daughter is getting married and I went to withdraw money but I was turned away. Now I am in a great difficulty in paying off my daughter’s hotel bill. Please help us!” said one depositor. Another lady depositor addressing the Chairman said “We have deposited all our money in your company. We were depending on the interest income for our children’s education. Now all of a sudden, we have found out that our money is lost and our children’s education is in danger. We trust you and you can keep our money but pay our interest accordingly”. Many elderly persons who have deposited their lifesavings have committed suicide or died due to lack of funds to pay for their medicines and medical treatment and many others are on the streets begging and borrowing from their friends and relatives to eke out an existence. This is the scenario in our island paradise soon to become the miracle of Asia .

Poor man on the street while Lalith lives in luxury

The Sri Lanka Guardian in their media release further stated:” It is also pointed out while they are pushed to the streets with hardly any income the man behind it all Lalith Kotelawala lives in luxury with hardly any of his assets being touched. They express surprise that the man keeps silent after using their money to come on TV every week extolling all his humane and altruistic qualities – all of which now seem so shallow.’ It is well known that almost all the hapless depositors without exception deposited their hard earned money in the GKCC solely due to the personal respect commanded by its Chairman Lalith Kotelawala and the trust they placed in him, as a gentleman who hailed from a

highly respected family and who was accepted at that time as the greatest philanthropist in Sri Lankan society. The depositors even at the present time pray and hope that Lalith Kotelawala, even at this very late stage, will safeguard his respect and reputation in Sri Lankan society by rising to the occasion and repaying all the depositors to the very last cent without any further delay as he is said to have informed that he would do so to many of his friends and associates, whom he has met in recent times.

The order of the Supreme Court referred to at the beginning of the article, indicates the negligence and the callous disregard of the duties of the monetary board of the Central Bank chaired by Ajith Nivard Cabraal the Governor of the Central Bank functioning under the Ministry of Finance. What motivated the Monetary Board and the Governor of the Central Bank to disregard the findings of the S.I.U as stated by the Supreme Court merits investigation by His Excellency President Mahinda Rajapakse as the Honourable Minister of Finance.

Due to the Golden Key catastrophe over 9000 Sri Lankan families have fallen into abject poverty. People who sold their only residential house and shifted to rented-out houses to make the deposits due to the very attractive interest offered are either on the streets or forced to live with relatives and friends. The children who were studying abroad in foreign educational institutions had to return abandoning their higher education and future prospects in life. Is it not the duty of the Central Bank which had neglected its legitimate functions as stated by the Supreme Court to make the necessary arrangements for repayment by assisting the Court, which has taken laudable efforts to bring relief to the impoverished depositors and their families?

It was reported in the media recently that the repayment plan which was approved by the Supreme Court earlier appears to be under further consideration by the Supreme Court on a petition filed by a dissatisfied depositor. Time is running out and the elderly depositors are passing away in abject poverty, while the painfully slow process of repayment is being considered. The Central Bank would do well even at this very late stage, to repay the depositors with the concurrence of the Supreme Court and take over the Golden Key Credit Card Company with the remaining assets, both local and foreign, and turn it into a viable enterprise in the future. The Central Bank is endowed with the expertise to perform this function for which the entire Sri Lankan Nation would be thankful to the Central Bank and the President as the Minister of Finance.

 

 

 

 

1 Comment to “The Golden Key Swindle and the Liability of the Central Bank”

• Lakmini Arangala
  October 18, 2011 at 6:04 am

  THere is no one to oppose the Rajapakses now. No opposition, no people of standing who turned out to be men of straw like Lalith K. What a country.