Vanuatu National Provident Fund Housing Loan Scheme [1997] VUOM 7; 1997.16 (17 December 1997)

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Introduction
Composition of the Board
Qualification of Board Memebers
Application by VNPF Board Memebers for loans from VNPF

8. STATISTICS
Number of applications and loans made
Pending Applications
Unpaid Loans
35% Rule
Loan Ceiling
Supplementary Loans

More than one Loan
Commercial use (prohibited)
Repayments in excess of 35% income
Supplementary Loans
"Wantok" Loans (Examples)

10. OTHER UNAUTHORISED, UNLAWFUL AND IMPROPER CONDUCT
Political interference with VNPF Housing Screening Committee by Hon Willie Jimmy
Attempt to defraud VNPF – Inflated Builder's quotation – Maliu Alfred
Extortion Building Materials
Personal Account paid from VNPF Funds
"Privileges" to VNPF Board Members
"Privileges" to VNPF Management Staff
Pressure by Mr. Jimmy on VNPF Board to obtain loan for his secretary/typist
Miscellaneous maladministration – unequal distribution
Mysterious Loans
Aminsitrative Cost

FINDING NO. 1: ILLEGAL GRANTING OF MORE FAVOURABLE LENDING CRITERIA TO POLITICIANS AND LEADERS BY THE COUNCIL OF MINISTERS' DECISION OF 31.04.94

FINDING NO. 2: THE LIST OF MINISTERS PUT TO THE BOARD HEADED BY THEN PRIME MINISTER MAXIME CARLOT KORMAN WAS A CORRUPT AND UNLAWFUL ACTION OF THE COUNCIL OF MINISTERS

FINDING NO. 3: THE COUNCIL OF MINISTERS HEADED BY PRIME MINSITER MAXIME CARLOT KORMAN BREACHED THE LEADERSHIP CODE IN ART 66 OF THE CONSTITUTION

FINDING NO. 4: THE VNPF BOARD UNACCEPTABLY FAILED TO PROTEST OVER OR REJECT THE COUNCIL OF MINISTER'S DECISION AND BREACHED FUNDAMENTALLY THEIR DUTIES OF TRUSTEES AS OUTLINED IN SECTION 15 OF THE VNPF ACT

FINDING NO. 5: INCOMPETENT, CORRUPT, NEGLIGENT AND UNLAWFUL CONDUCT BY THE VNPF BOARD MEMBERS IN CONSIDERATION OF LOAN APPLICATIONS

FINDING NO. 6: THE BOARD ACTED CORRUPTLY AND IN BREACH OF THEIR DUTIES OF TRUSTEES OF THE FUND BY APPROVING A LIST OF MINISTERS (SEE 6.14) AND POLITICAL APPOINTEES (SEE 6.15) WITHOUT PROPER APPLICATIONS

FINDING NO. 7: THE BOARD ACTED CORRUPTLY AND IN BREACH OF THEIR DUTIES AS TRUSTEE OF THE FUND BY APPROVING TWO SEPARATE LOANS TO A MINISTER, MR. JIMMY (REFER 9.1-9.5) AND A BOARD MEMBER MR. SALWAI (REFER 9.5-9.11)

FINDING NO. 8: CORRUPT ABUSE OF LOAN APPLICATION SYSTEM BY BOARD MEMBERS. ABUSE OF OFFICIAL POSITION AND POWER FOR PERSONAL GAIN – BREACH OF ARTICLE 66 OF THE CONSTITUTION

FINDING NO.9: THE MEMBERS OF THE BOARD USED THEIR POSITION FOR PERSONAL GAIN (FURNITURE LOANS) (REFER 10.40-10.43). BREACH OF LEADERSHIP CODE (ARTICLE 6) OF THE CONSTITUTION

FINDING NO. 10: DISHONEST AND CORRUPT CONDUCT BY THREE (3) MEMBERS OF THE VNPF BOARD IN APPROVING AN APPLICATION FOR COMMERCIAL USE FOR JOSEPH TORD (REFER 9.19-9.29)

FINDING NO. 11: NEGLIGENCE BY THE BOARD BY FAILING TO HAVE STANDARD HOUSE PLANS IN PLACE AND TO SET UP PROPER ADMINISTRATIVE MANAGEMENT FOR THE LOANS (SEE 10.66-10.67)
MINISTER OF FINANCE – MR WILLIE JIMMY

FINDING NO. 12: BREACH OF LEADERSHIP CODE UNDER ARTICLE 62 OF THE CONSTITUTION BY MINISTER JIMMY

FINDING NO.13 ILLEGAL INTERFERENCE ON THE FUNCTION OF THE VNPF BOARD BY MINISTER JIMMY WILLIE ROY

FINDING NO. 14: HOUSING OFFICER MR WILLIE ROY DEMANDING AND COLLECTING MONEY FROM APPLICANTS (SEE 10.24 – 10.27)
MR JOSIAS MOLI GENERAL MANAGER

FINDING NO 15. THE GENERAL MANAGER MR JOSIAS MOLI FAILED TO INFORM THE DISCIPLINARY COMMITTEE AND THE BOARD OF MR WILLIE ROY'S BEHAVIOUR (10.28)

FINDING NO 16: FAILURE TO STAND UP TO THE BOARD DECISIONS WHEN IT APPROVED LOANS ABOVE THE 35% RULE

FINDING NO 18: THE GENERAL MANAGER, MR JOSIAS MOLI MISUSED THE WORKERS' MONEY TOTALLING VT 298, 735 – MR KAWAI THOMPSON (9.53-9.61) BREACH ART 66 OF THE CONSTITUTION

FINDING NO 19: THE GENERAL MANAGER, MR JOSIAS MOLI CONTRIBUTED TO THE ATTEMPTED CORRUPT DEALINGS WITH MR GEORGE NAIO AND MR ALFRED MALIU. BREACH OF ART 66 OF THE CONSTITUTION

FINDING NO. 20: THE GENERAL MANAGER MR JOSIAS MOLI FAILED TO FOLLOW THE BOARD'S DECISION. HE USED VNPF FUNDS TO PAY FOR AN ACCOUNT WHICH IS OF A PRIVATE NATURE - MR KAWA'S HOUSING MATERIALS (10.35-10.39)

FINDING NO 21: BREACH OF THE LEADERSHIP CODE IN ART 66 OF THE CONSTITUTION BY MR MOLI – MR KAWAI'S HOUSING MATERIAL

FINDING NO 22: MR JOSIAS MOLI WITH MR ALFRED MALIU ACTED IN COLLUSION AND MR NAIO TO DEFRAUD THE VNPF

FINDING NO 23: THE GENERAL MANAGER, MR JOSIAS MOLI ABUSED HIS POSITION BY APPROVING FUNDS TO MR PIKIOUNE WITHOUT THE VNPF BOARD'S APPROVAL. BREACH OF ARTICLE 66 OF THE CONSTITUTION

FINDING NO 24: THE GENERAL MANAGER MR JOSIAS MOLI ABUSED HIS POSITION BY APPROVING THE COST OF FURNITURE TO BE MET BY VNPF TO MR CHARLIE PAKOA (SEE 10.70-10.71) WITHOUT THE VNPF BOARD'S APPROVAL. HE HAS BREACHED ARTICLE 66 OF THE CONSTITUTION

RECOMMENDATION NO 1
VNPF ACT TO BE REPEALED OR AMENDED, PROVIDING FOR A PROFESSIONAL TRUSTEE CORPORATION TO MANAGE VNPF FUND

RECOMMENDATION NO 2:
WILLIE JIMMY TO RESIGN AS A MEMBER OF PARLIAMENT, NOT TO SEEK PUBLIC OFFICE AGAIN OR BE EMPLOYED IN ANY POSITION INVOLVING PUBLIC MONEY

RECOMMENDATION NO 3:
RESIGNATION BY FORMER PRIME MINISTER MAXIME CARLOT KORMAN AND ALL MINISTERS INVOLVED IN APPROVAL OF FAVORABLE LOANS BY VNPF TO THEMSELVES AND POLITICAL APPOINTEES

RECOMMENDATION NO 4:
PARLIAMENT TO PASS A LEADERSHIP CODE BILL TO GIVE EFFECT TO THE LEADERSHIP CODE OF THE CONSTITUTION

RECOMMENDATION NO 5:
REFERRAL PURSUANT TO S. 25 OF THE OMBUDSMAN ACT, BY OMBUDSMAN OF THIS REPORT TO POLICE COMMISSIONER AND PUBLIC PROSECUTOR FOR INVESTIGATION AND LAYING OF CRIMINAL CHARGES AND TO THE ATTORNEY GENERAL FOR CONSIDERATION OF CIVIL LEGAL ACTION FOR RECOVERY OF LOSSES

"Yea, they are greedy dogs which can never have enough and they are shepherds that cannot understand. They all look to their own way every one for his gain, from his quarter".

This report provides a prime example of the misuse of power and the shameless disregard of rules and of any kind of sense of duty, or any awareness that the plundering of a Provident Fund is a particularly corrupt form of betrayal.

These funds were intended to be the foundation of security on which the older section of the Vanuatu people might survive when they were no longer able to earn a living.

The money of the fund is levied every month from the salaries of every worker in Vanuatu, and from the large monthly contributions of every employer. As such it is the most regular and dependable source of income in the country. Each worker pays three (3) percent of his salary and each employer pays three (3) percent.

The idea is admirable and should be fool-proof providing a vital and welcome "nest-egg" for retirement. However, it has not proved to be crime-proof and this report shows clear evidence of dishonest manipulation and a disregard to all claims of conscience and duty.

The actions of the former Minister of Finance, Mr Willie Jimmy and the General Manager, Josias Moli who were entrusted with the responsibility of supervision were unscrupulous and cynical. They caused the people's savings to be directed by the members of the Board into inappropriate hand-outs to themselves, their friends, relatives and party colleagues enabling these people to purchase property.

The VNPF with the assistance of international organisations set up a scheme of housing loans which was to benefit the members of the funds without discrimination, and at the same time be a productive investment.

However this scheme's road was changed to benefit mainly the political class in power under the direct instruction of the Council of Ministers. The Council of Ministers had no legal authority to act in such a way as the VNPF is a totally independent entity.

Trustees of the fund were unable and unwilling to act on behalf of the members, and preferred to obey unlawful instructions from their political masters, the members of the Council of Ministers headed by the then Prime Minister Hon Maxime Carlot Korman, and under the direct instruction of Hon Willie Jimmy then Minister of Finance.

As a result, this major source of funds and support has been drained of its assets, and undeserving recipients have been allowed to "borrow" sums which were not repaid and which have caused major expensive administrative hassles. Arrears in the repayment may in some cases never be collected from the defaulters. (We understand that 50 millions VT have been put aside for losses)

The strongest actions must be taken to teach the needed lessons and to ensure that this fund is supervised from now on with meticulous care and the strictest attention paid to the highest standards of business discipline, independence, and personal morality.

1.1 In January 1995, on my own initiative and later on following complaints received from members of the VNPF, I commenced an enquiry into the VNPF Housing Loan Scheme. I proceeded with the enquiry because there were allegations that the monies paid by the members of the VNPF and their employers (3% each) were misused to favour politicians and their colleagues and party supporters.

1.2 This investigation took over 2 years because of the delays we encountered with the former management and former VNPF Boards and Chairmen who opposed for months our constitutional requests for information and delayed the remittance of information by using private solicitors arguing about the jurisdiction of the Ombudsman. Such actions had a financial cost on the VNPF and have delayed the Ombudsman's inquiry. Since year 1996, the Office of the Ombudsman has had free access to all information requested.

1.3 Contributions are held in trust by the fund and invested on behalf of the members to increase the size of the fund. On reaching the retiring age or the end of their working lives the members can then withdraw their savings. That is the amount they and their employers have contributed during the years that they were members plus interest earned on their contribution balances.

1.4 Since the setting up of the VNPF in 1986, it has been involved in investing the workers' money in various areas. These investments were meant to be made with "primary regard to the interests of members" on the one hand, and "the need for assisting the financing of balanced social and economic development" on the other hand. These investments should also have regard to "the rates of returns on the various sources of investment" as required by article 16 of the VNPF Act. The interest earned is intended to pay the Office costs of running the fund and also benefit the individual members by paying out a fair rate of interest. One of the VNPF's investments was the housing loan scheme which is the subject of this report.

1.5 The former Minister of Finance, Honourable Willie Jimmy and the Vanuatu Government represented by the Council Of Ministers illegally influenced the trustees of the Fund and gave instructions to the Board as if they were an arm of the Government. The members of the Council of Ministers were:

1.6 In particular, Mr Jimmy and his Cabinet colleagues' conduct shows or resulted in the following:

(b) the primary concern was the advantage of the political leaders and their friends and Wantoks;

(c) to give such favourable treatment to only a fraction of the population was not a "balanced social and economic development"; and

1.7 The members of the VNPF Board totally breached their role as trustee (guardians) of the workers' monies. The VNPF Board members were:

1.8 As from 1993 to 1996 (when the scheme was suspended) the total amount of money belonging to the workers of Vanuatu invested in housing loans was VT 831,616,627[1].

1.9 The VNPF scheme commenced operation in 1987. The total amount of the members' funds and reserves as at 31.12.94 was VT 2,418,596,000. The total of the housing loans made is approximately one third of the total assets of the VNPF. A report which was produced by a Chartered Accounting firm in early 1997 predicted a potential loss of VT 51,859,000 of the capital amount which was lent, and approximately VT 14,172,000 interest.

1.10 On 19.06.97 the VNPF Board approved the accounts as at 31.12.95 which show a provision from doubtful debts on housing loans of VT 46,009,000 (see Appendix A enclosed). Most of the predicted losses will occur from loans to political appointees. This means that some of the moneys lent will never be returned to the Fund and have been lost to the members of the Fund. 6.2% of the capital lent has been assessed to have been lost. Further costs have also been incurred and will continue to be incurred for management time and legal fees. These are difficult to assess.

1.11 Up to the end of 1996, there had been no effective structure set up in the Fund to manage the housing loans and it was impossible to have an accurate schedule of who paid or who did not pay. Only recently has this problem been rectified. The scheme was started without any administrative structure. The priority for the people pushing the scheme was to obtain the monies as soon as possible for themselves and for the leaders. There was no serious concern for the follow-up of the loans and their administration. The priority appears to have been: "How can I get the money as soon as possible" and not the responsible administration of the scheme.

1.12 We found out that the Council of Ministers got themselves involved deeply, personally and with a clear conflict of interest. The Council forwarded their instructions to the VNPF Board, forcefully and to promote their self-interest. The Ministers alone or the Council of Ministers as a group have got no right at all to interfere with the Board members' decision on individual loans and lending conditions or to influence them in any way beyond general policy recommendations. The monies belong to the 35,000 members and the fund is administered by Trustees on their behalf who must act independently for the interest of the members.

2.1 The Vanuatu National Provident Fund ("VNPF") is a compulsory savings scheme. It was set up in 1986 under an Act of Parliament called the Vanuatu National Provident Fund Act (CAP 189) ("VNPF Act") and commenced operating in 1987. The purpose of the VNPF is:

(a) to pay pensions to members when they reach the end of their working lives; and

(b) to invest the members' contributions to increase the earnings of the members' fund, so as to pay better returns to the members annually.

2.2 The VNPF is a statutory body of the Government. This means in the past and now the Minister responsible for its administration is the Minister of Finance. In September 1997 the Prime Minister took over this responsibility of the VNPF.

2.3 The day to day administration and running of the institution rests with the General Manager who is appointed by the Board after consultation with the Minister responsible for the Vanuatu National Provident Fund, on such terms and conditions as the Board thinks fit.

2.4 The overall decision making powers of the institution rest with the Board. It is the VNPF Board which makes formal decisions and decides where and how the members' money can be invested.

2.5 The VNPF Board is the trustee of the VNPF members' money. A trustee is a person or people who must very carefully look after money and property for another person or other people. In other words the VNPF Board looks after money held in trust on behalf of the workers of Vanuatu for their retirement. In doing so, the trustee is to act and behave independently and sensibly. The trustee does not manage his own money, but the money belonging to the 35,000 workers of Vanuatu. The trustee does not manage money belonging to the Government, or to the political kingdom.

3.1 The Ombudsman conducted the enquiry pursuant to art 62(1) (c) of the Constitution and S14 (1) (a) of the Ombudsman Act. These constitutional laws allow her to enquire into, inter alia, on her own initiative, any state service or any body or service set up by statute. Similarly, the Ombudsman has jurisdiction over conduct of leaders including Government Ministers, statutory Board members, MPs and political appointees.

3.2 Accordingly, the Ombudsman conducted an enquiry into the VNPF Housing Loan Scheme. The purpose of the enquiry was to find out whether:

(a) the VNPF Board had acted properly in granting loans to members and that it had done so without favour and without being biased;

(b) there were set rules and criteria that members must meet to qualify for a loan; and

(c) there was non discriminatory distribution of the funds to members who met the requirements of the scheme and lending rules or criteria.

4.1 The Ombudsman obtained documents and evidence from the VNPF itself, interviewed Board members and VNPF Management, VNPF staff and other parties involved. This was pursuant to the powers as set out under art 62(3) of the Constitution and s17 of the Ombudsman Act. These laws entitle the Ombudsman to request the persons specified therein to furnish information and documents to me for her inquiry.

5.1 Under section 16(4) of the Ombudsman Act No. 14 of 1995, copies of a preliminary report were sent on 14.08.97 and thereafter to those being affected by the report to give them the opportunity to make their comments and replies to allegations or comments made about them. The preliminary report was also sent to the following former Government Ministers who were in office in 1993, 1994 and 1995:

5.2 Preliminary reports were also sent to the following Board members who were members in 1993, 1994 and 1995:

The Board members submitted a joint reply which only had the signature of two of the members (Messrs Charlot Salwai and Alexander Palavi).

5.3 Copies of the preliminary report were also sent to the former General Manager, Mr Josias Moli and the present General Manager, Mrs Ietonga Aiong. The current General Manager replied. The former Manager Mr Moli did not submit a reply.

5.4 Sections of the preliminary report were also sent to ordinary members who applied but whose applications were not assessed or approved by the Board. The replies are set out and commented on in section 12.

The names of former and current leaders who submitted their replies are listed in Schedule 1. Some of the replies from different groups of people are listed in Schedule 2 of this report and are numbered from 1 to 24.

6.2 The Board requested management to provide more information on the scheme. Management approached UN ESCAP[2] for a consultant to do a feasibility study on a possible housing scheme. In addition, an AESOP[3] volunteer provided technical input to management during 1993 to develop rules and conditions for a Housing Loan Scheme.

6.3 The Board approved the rules and conditions of the scheme proposed by management after reviewing both consultants' reports. The Board decided that the interest rate would be 10.5% per annum.

6.4 Mr Willie Jimmy wrote to the General Manager, Mr Marokon Alilee saying that he "decided" that the VNPF interest rate will be 7.5%. Beyond issuing policy guidelines the Minister of Finance does not have the right to decide and instruct the VNPF on operational matters such as lending terms. The Minister asked the General Manager to advise the Board of his decision. He also wanted the scheme to start before January 1994.

6.5 The Board met and discussed the Minister of Finance's letter. It endorsed the Minister's "decision" that 7.5% would be the interest rate. The Board also decided that 22.12.93 would be the launching date of the Housing scheme.

6.6 When the Housing Scheme was launched, these well laid plans came under the destructive effect of some of the worst aspects of Vanuatu politics. The first significant event was the Government's decision to sell 50 Government houses in Port Vila to certain Ministers and their political appointees. The Government made no effort to sell these houses on the open market or obtain any independent valuations so that the Government would gain maximum benefit for the people of Vanuatu from the sale of their assets. This decision and the sale of the Government houses will shortly be the subject of a separate report.

6.7 The VNPF advertised the housing scheme and its details to the general public in the Vanuatu Weekly, issue No. 475.

6.8 The Minister of Finance, Mr Willie Jimmy tabled a paper in the Council of Ministers' meeting, called; "VNPF Housing Loan Scheme for Government Officials, etc". The Council of Ministers "decided' that VNPF loans would be made directly to Government officials (President, Prime Minister, Ministers and political appointees) on special (i.e. more favourable) conditions.

6.9 The problem for these politicians was that they did not have enough money to buy these houses themselves. It was clear to them that the commercial banks would not lend to them. Therefore, these politicians had to find the money somewhere else. The source of funds for these politicians and their friends was to be the VNPF, the monies belonging to the workers of Vanuatu.

6.10 The Council of Ministers purportedly changed the VNPF lending criteria for politicians. The following are extracts from the Council of Ministers' decision:

(c) The amount of two hundred thousand vatu (VT 200.000) as members' savings to qualify for loan be reduced to one hundred (VT 100.000);

(d) Government Housing policy be treated as special case with special conditions which falls under "Refinancing of Properties" (this did not fall under the VNPF investment policy guidelines at this time);

(e) Insurance policy requirements which would normally be compulsory on new investment be exempted on sale and purchase of Government properties as a special condition to government officials."

6.11 This decision was unlawful. The Council of Ministers or Government had no authority to decide anything concerning the VNPF - according to the VNPF Act and according to the general law of trust. The monies did not belong to them, but to the workers of Vanuatu. The members of the VNPF Board are the only ones who can decide about use of funds as trustees.

6.12 After lengthy discussion, the Board agreed to give preference to Government officers. The criteria was now changed. As a result the criteria for the politicians and also anyone else applying changed to the following key terms:

6.13 The Board resolved that the Chairman was to discuss the issue of "refinancing" with the Minister of Finance (Mr Willie Jimmy) and to report back on the next meeting.

6.14 The VNPF Board approved and granted loans to the former President, the Speaker of Parliament and 11 Ministers. This followed receipt of a list from the Council of Ministers according to current General Manager Mrs Ietonga Aiong and VNPF Housing Supervisor, Menzies Samuel

6.15 The VNPF Board approved and granted loans to 16 political appointees and other Government officers. This followed receipt of a second list from the Council of Ministers according to current General Manager Mrs Ietonga Aiong and VNPF Housing Supervisor, Menzies Samuel.

6.16 The VNPF Board introduced refinancing as another ground to obtain a loan from the fund. Refinancing included improvements and extensions but excluded repairs and renovations.

6.17 Refinancing means that VNPF could pay off the principal loan and any interest arrears from a bank or a lending institution from which a member had already borrowed money. By adding refinancing to its lending policy, the VNPF Board opened the scheme to people with existing loans from other banks.

6.18 The Minister of Finance, Mr Willie Jimmy wrote to the Chairman of the VNPF Board, Mr Nicholson Worek with these comments; inter alia;

"(a) A Financial VNPF member must be allowed to obtain loan directly from VNPF at 7.5% interest rate.

(b) Housing Loan Scheme for members should not be charged any interest exceeding 7.5%.

(c) The Ministry for Finance does not support the idea of members to obtain a loan through a mediator at an interest rate above 7.5%.

(d) If it need be the VNPF should obtain a licence to operate as a financial institution because it is now competing with other financial institutions, it must do so immediately without further delay."

6.19 The Minister of Finance, Mr Willie Jimmy wrote to the Board purporting to enforce the Council of Ministers' "decision".

6.20 The total allocated fund (VT 831.616.627) set aside for the scheme was all exhausted.

6.21 The scheme was purportedly abolished by the next Minister of Finance, Mr Barak T. Sope.

7.1 The 1993 Consultant's report recommended a reasonable rate of return of this investment to be 10.5% p.a. The Board originally agreed to this interest rate as appropriate. At the time of the consultant's report the following neighbouring countries' provident funds lent money at the following rate:

7.2 After some politicians got involved and reduced the annual interest rate to 7.5% the annual expected return on VT 831.616.627 reduced from VT 87.319.745 to VT 62.371.247. Therefore the VNPF, had the 10.5% rate remained, would have collected an additional amount of VT 24.948.498 annually on this investment. This return in fact has never been realised because of a lot of borrowers have not repaid their loans or have not followed their plan of reimbursement.

7.3 What went wrong? As mentioned already, politics took over the VNPF Board and its operation as a trustee. It appears that as the politicians knew that they would be the first ones to help themselves with loans they preferred for their own benefit to see a rate of interest of 7.5% instead of 10.5%.

7.4 They were unconcerned with the VNPF earning an appropriate interest for their members or with the fact that no administrative structure had been set up for the scheme (no one knew how to do it, and no one was hired to work on it). The last priority was to reimburse the borrowed monies. The priority was quick access to the funds.

(i) two persons employed by the Government, one of whom shall be a representative of the Ministry responsible for finance;

(ii) two representatives of employers, not being persons employed by the Board; and

(iii) two representative of employees not being persons employed by the Board; and

7.6 Since the setting up of the VNPF in 1986 there were many changes in the Board members. Depending on which political parties were in power, members of the Board were always selected from these parties. As regard to the housing loan scheme which started in 1993, the following were members of the Board:

1994
Representing the Government	Date Terminated	Date Appointed
Mr Nicholson Worek (Chairman)	November 1994	March 1993
(January - October)
Mr Samson Toara (Chairman)		November 1994
(November - December)
Mr Charlot Salwai		March 1993

Representing Employees
Mr Alexander Palavi		March 1993
Mr Petre Malsungai		March 1993

Representing Employers
Mr Charles Bice - Vice Chairman	July 1994	March 1993
Mr Andre Manamuri		March 1993
Mr Tom Kalorib - Vice Chairman		July 1994

1996
Names	Appointments	Terminated
Petre MALSUNGAI		05.07.96
Alex PALAVI		05.07.96
Andre MANAMURI		05.07.96
Eddy SILAS	09.02.96	05.07.96
Robinson RONO	09.02.96	05.07.96
Charlot SALWAI	09.02.96	05.07.96
Bakoa KALTONGA	05.07.96	09.08.96
John TAMATA	05.07.96	31.12.96
Solomon RAREP	05.07.96	09.08.96
Sam MAHIT	05.07.96	09.08.96
Sato KILMAN	05.07.96	09.08.96
Jacklin TITEK	05.07.96	09.08.96
Charley KALMET	05.07.96	09.08.96
Dinh VAN THAN	21.10.96
Willie R ABEL	21.10.96
Denis VIRA	21.10.96	31.12.96
Paul FRED	21.10.96
John TAMATA	21.10.96	31.12.96
Peter CHAN	21.10.96

7.7 I have been unable to find up to the end of 1996 any Board member with any relevant qualifications and experience in accounting, financial management or any member knowledgeable in making investment decisions. All the Board members are unqualified political people. It strongly appears that their appointments were made on the basis of politics and not merit. This left them totally vulnerable to manipulation by the Council of Ministers. They were appointed to be puppets of their political leaders with no consideration to their role of Trustees of the Fund on behalf of the members of the VNPF. (A separate inquiry is being carried out by the Ombudsman's Office into appointments). In summary the entire VNPF Board during these years was made up of:

(b) people with little or no knowledge of investments and thus unable to make sound decisions;

(c) people who were picked to be Board members because of their political affiliations in the political parties who were in power;

(d) people who lacked academic qualifications and experience in financial management;

(e) people who were not employers themselves but who were representing employers on the Board; and

(f) people who were unemployed and yet were representing employees on the Board.

7.7 Any member wishing to apply for a housing loan had to fill in the standard VNPF application form. The form was submitted with the necessary documentations such as the house plan, personal and financial details and engineer's report and Lands Department documents.

7.8 The housing officer and the VNPF Housing Assessment Committee made an assessment of the applications. Some of the members of VNPF Board did not follow the standard and normal procedure in submitting their own loan applications.

7.9 Two Board members, Messrs Petré Malsungai and Alexander Palavi, completed their loan application documents for their own house loans only after the Board had already approved their loans in May 1995 as set out below.

Mr Malsungai did not take up the loan after it had been approved. Mr Palavi took up his loan and purchased a property in Teouma. In their reply the Board members stated that the two Board members loans was decided by the Board, that it was their privilege and that the funds were released only after the filling of the application and its approval. My comments on their reply is set out in section 12.

7.10 This irregular practice has been confirmed by people interviewed by the Ombudsman's Office in September 1996, and apparently occurred on many instances when it suited some politicians' requests or some Board members.

8.1 The Housing Loan Scheme ran for two (2) years and three (3) months. The amount lent by the VNPF between 22.12.93 and 06.03.96 was VT 831,616,627 (see Appendix B). The total registered members of VNPF as at 31.12.95 was thirty-two thousand, nine hundred and ninety-six (32,996). These monies were lent to only 150 people out of the 32,996 members of the Fund.

8.2 During this period 784 applications for loans were made. Of the 784 applications which were made, 198 were considered by the Board. Of those 198 considered by the Board, 150 were approved. The 150 approved loans can be further broken down into the following categories:

(a). 11 loans to Ministers (UMP and PDP),	VT 53,386,156;
(b). 7 loans to Board members or indirectly to their children	VT 44,299,657;
(c). 31 loans to political appointees -	VT 124,150,223;
(d). 3 loans to members of Parliament	VT 13,093,440;
(e). 14 loans to members of VNPF staff -	VT 109,885,356;
(f). 9 loans to friends and supporters of UMP Party with a total of – and	VT 73,784,142;
(g). 75 loans to members of the VNPF	VT 394,196,234.

8.3 From the total amount of the loans granted (VT 831,616,627), a minimum of 50% of these housing loans were consumed by Ministers, political appointees, Board members, members of Parliament, VNPF staff and supporters of UMP Party. The total of VT 418,598,974 was consumed for politically based loans.

8.5 During 1996 the Ombudsman conducted interviews with staff members of VNPF. The reason given for not processing and approving the 634 pending housing applications was that the 1995 budget for the scheme was exhausted on or around 26.05.95. The other reason was the new Minister of Finance in 1996, Mr Barak Sope purported to abolish the Housing Scheme on 06.03.96.

8.6 The Ombudsman selected one hundred (100) of the pending 634 applications at random for close examination (15%). From those one hundred (100) selected applications the following were most noticeable:

(a) Thirteen (13) VNPF members who applied in late 1994 (September - December) and early 1995 (February - May) did not have their applications processed. The reason given to the fourteen applicants was that the funds had been exhausted. They were only informed by VNPF in October 1995 (Appendix C);

(b) Some of the applicants' affordability to repay the qualified loans was above the 35% rule and thus the applications would have not met this criteria;

(c) The VNPF had made no assessment at all on 34 applications although the necessary documents such as the house plans, Lands Department documents were attached. 17 of these were received (June 1994 - May 1995) before 26.05.95 i.e. before the VNPF ran out of money. (Appendix D); and

(d) 23 applicants (not included in the 100 above) who had applied after the Fund had apparently run out of monies to lend on 26.05.95 nevertheless had loans granted. One of the applicants was a political appointee from the Ministry of Finance. One was a strong supporter of the political party in power (UMP), and another one was a member of the VNPF Board. (Appendix E)

8.7 From the pending applications examined the following features were revealed:

(a) Applications from political appointees in the Government were processed despite the fact that they lodged their applications after the funds had apparently been exhausted;

(b) Other members' applications who did not have any political support that were submitted in 1994 and early 1995 were processed and passed on to the Board. These were deferred allegedly due to funds being exhausted. However, as noted, the Board continued to approve some political appointees' applications as well as their supporters thereafter.

(d) Strong political favouritism was dominating the processing of the loan applications. Even if some applicants applied in time and fulfilled the conditions their application got deferred while "chosen" ones were processed even though they were not fulfilling the requirements; and

(e) Applicants were not informed if a document in the application was missing. Alternatively, applicants were kept in the dark about the progress of their applications despite requests for information.

8.8 When the scheme was being discussed at its early stages in 1993 and 1994, no mention was ever made by the Board about the method of repaying the loans. This, I suppose was left to the borrower to decide what suited him or her best. The two obvious methods would have been by:

(a) direct deduction from the borrower's salary by the employer and amount remitted by employer to VNPF; or

8.9 It was only in July 1995 that the VNPF Board first raised its concern over the repayments but it took no action at this time. It was subsequently raised again in February 1996. This was one feature of the total lack of administrative plan to manage the housing loans. The monies were distributed but no thought was given to follow them up as a lender bank would normally do. When someone borrows money, an agreement is signed to repay a certain amount every month. Failure to reimburse over a few months automatically results in a situation of default. If the borrower does not keep his promise and commitment, then the lender takes steps to sell the asset (house, car) to repay the loan. However this normal procedure was not enforced until the recent Chairmanship of Mr Dinh Van Tan.

8.10 Starting from the date the scheme was launched (22.12.94) up to 30.06.96 the total of all loan arrears stood at VT 31,531,610. Part of the arrears are owed by leaders as listed in Appendix F. They were as follows:

8.11 Despite the Board waking up to the result of its own carelessness, negligence and lack of professionalism in July 1995 no attempt was made nor any action taken by VNPF Management or the Board to have the borrowers pay their loans up to date. The worst examples were Messrs Harry Collins and Samson Toara both political appointees/Secretaries of Finance Minister, Willie Jimmy. Both borrowers did not make and have not made a single payment to VNPF since their loans were granted in 1994 and 1995.

8.12 It was not until April 1996, 2 years after the beginning of the scheme that the VNPF management issued the first reminders to the loan defaulters. The amount in arrears from the one hundred and fifty approved borrowers ranges up to amounts of more than VT 2 million. Any other commercial lending institution would have known from the 1st month whether a borrower was repaying or not.

8.13 Out of the 150 approved borrowers, 121 of the applicants were not faithful in paying their loans (81%). Amongst these loan defaulters, fifty two (52) of them are or were leaders under section 14(2) of the Ombudsman Act. These are Ministers, Political Secretaries, directors, Mayors of Municipal Councils, managing directors of Government bodies and directors of Government Departments.

8.14 The total of the loans in arrears owed by these leaders in both 1995 and 1996 amount to VT 18,319,565. (Appendix G). This represents 58% of the total loan arrears in both years as mentioned in paragraph 8.10. So far only three leaders and an ordinary member have completely paid off their loans.

8.15 This may explain why the VNPF Board at the time did not want to talk about the problem of loan arrears nor chase up the defaulters. The defaulters included some of the Board members themselves, leaders and supporters of the leaders. No one wanted to take any action against their self interest and the political leaders who had appointed them. I was informed that as from 05.05.97 under the new Chairmanship of Mr Dinh Van Than, the VNPF has started reviewing all arrears.

8.16 As noted in the introduction, a chartered accounting firm in early 1997 predicted a potential loss of up to VT 51,859,000 of the capital amount involved.

"Repayment of loan must not exceed 35% of combined income of member and spouse".

This percentage is also the usual ratio applied by commercial banks to individuals who are employees.

8.18 This is a control mechanism to make sure that the borrower can repay the loan. In other words, the other 65% is used by the borrower for personal commitments (clothes, amenities, food, school fees etc). The Board approved the consultant's report on 28/08/93 and part of the recommendations including the 35% rule.

8.19 The total amount of the loans above this 35% limit comes to VT 113,510,167. From the one hundred and fifty (150) approved loans, fifteen (15) of this were above the 35% rule. These were all loans granted to leaders. (Appendix H).

8.20 The percentage of income approved ranged from 36% to 155% of the borrowers' monthly salary. If the Board members had had any common sense at all, they would have realised that a borrower cannot repay his/her loan if the percentage of repayment represents 100% or more of their monthly salary. It is impossible. You cannot give back five taros every month if you can only ever produce three taros per month. Despite this the Board still granted such loans to political leaders, guaranteeing losses of monies for the VNPF and its members, and difficult times ahead for all parties involved. I consider that the Board knew about this fundamentally obvious problem but wilfully and fraudulently ignored it.

8.21 The consultant's report carried out in September 1993 recommended that a maximum loan of VT 5 million be granted to any member. The Board adopted this limit on 07.01.94.

8.22 On 18.02.94 the Board removed the ceiling on the amount lent out. This removal of ceiling allowed politicians and their allies to be granted limitless loans. One month later, the Ministers were granted loans by the Board. On 28.03.95 after the Ministers received their loans a limit was reimposed by the Board. The loan limit was now VT 7 million. This limit also applied to the purchase of developed existing residential property and refinancing of members existing loans from other lending institutions.

8.23 As noted during an extraordinary meeting of the Council of Ministers headed by Prime Minister M. C. Korman on 31.01.94 (refer 6.10 above), the Council approved the scheme. In a letter dated 31.01.94 from the Secretary General of the Prime Minister's Office, Mr Charlot Salwai to Minister Willie Jimmy, it states, inter alia:

"That VNPF loan directly to Government officials (President, Prime Minister, Ministers, political appointees, etc..) on special conditions as previously agreed upon".

8.24 At some unknown date earlier, a list of 13 names including all 11 Ministers and the then Speaker (Hon Alfred Massing (UMP)) was submitted to VNPF. This was for the purchase of Government properties. On 18.03.94 the list of all Ministers and the former President was approved by the Board. They were then granted loans. (Appendix I)

8.25 From interviews conducted by the Ombudsman, it is evident that Ministers of the Government and political appointees did not apply to VNPF as other members had done. After the Board had approved the list, the Board then requested the management to send out application forms to all the politicians in the approved list. The forms were completed and submitted to the management for safe keeping. This is confirmed by the fact that some of these applicants applied after the Board had already approved the amounts of their loans (Appendix J).

8.26 On 10.06.94 sixteen (16) political appointees on a list of eighteen (18) were approved by the Board and were granted loans. The same procedure was followed for other politicians; i.e. no loan application was made by the leaders . Their loans were approved from a list and then application forms were sent out to those in the approved list. After the forms were completed, they were then sent back to the management for safe keeping. (Appendix K). The existence of the two lists was separately confirmed by current VNPF General Manager Mrs Ietonga Aiong and VNPF Housing Supervisor Menzies Samuel. When the Ombudsman's Office requested copies of these two lists they could no longer be found.

8.27 There had not been any prior credit assessment on these applications by the Screening Committee. However, any assessment would have been of no use to anyone. This is because the VNPF Board had already approved the names and amounts of the loan to each one in the list. The application forms were filled by those in the list just as a formality. The Housing supervisor further confirmed that leaders who applied after the Board had granted them loans backdated their applications to a few days before 18.03.94 and 10.06.94 when the two lists were approved.

8.28 From the date of the start of the scheme only 24 months (2 years) remained for a new national election. Although the Board was aware of the fact that a new election was only 24 months (2 years) away, it went ahead and approved loans to political appointees and Ministers and gave them a repayment period of more than 2 years (i.e. 2 to 30 years). As we all know from the pattern of changing governments and coalitions, a political appointee can be out of a job very quickly and his maximum term is limited and uncertain (Appendix L). Therefore if the borrowers were to lose their jobs because of political instability or because of the end of their four year mandate, they without any doubt would have trouble in repaying their loans. This matter does not appear to have been raised by the Board members, showing a real lack of concern for their role as trustees for the interest of the workers of Vanuatu.

8.29 Interviews with VNPF Board members in 1996 confirmed that the VNPF Board was not concerned by the fact that a new national election was only 2 years away. The explanation was that because the VNPF took first mortgage over these properties there was no risk. This is commercially unsound logic. The procedure to sell a property by mortgagee sale is a very lengthy and costly way to recover monies. It is like saying I am going to my drive my car at night with the lights off because I have got insurance.

8.30 Twenty three (23) supplementary loans were granted totalling to VT 35.351.751. The additional funds requested were to complete uncompleted houses.

8.31 Out of 23 members who got supplementary loans, 14 of these members were Leaders (Appendix M). Their total amounts came to VT 25,095,751. The individual amounts for Leaders ranges from VT 200,000 to VT 4,993,680. The other 9 people were ordinary members whose total amount of additional loans was VT 10,256,000. Their individual amount ranged from VT 436,000 to VT 3,000,000. Of the total of VT 35,351,751, Ministers and political appointees therefore received 70% of this sum. The balance of 30% was received by ordinary members.

8.32 Ten (10) supplementary approvals were made after the funds had apparently ran out for the housing scheme. These were mainly for leaders. (Appendix N). These supplementary loans that were obtained by the leaders were mainly to complete their newly built houses or to repair the houses that they purchased from the Government. There were only four (4) other leaders who obtained supplementary loans approval before the fund had been exhausted. The Board placed no limit on the amounts that a member could borrow as supplements to their original loan amounts. It was left to the borrower's discretion. The Board minutes on 29 May 1996 read:

"The Board resolved that all incomplete houses should be completed. This was agreed by the Second Secretary, Ministry of Finance."

(my emphasis added because the VNPF Board's business is not the business of the Finance Ministry)

8.33 One of the biggest supplementary amounts for ordinary members was granted to the brother of Mr Antoine Pikioune the then First Secretary in the Ministry of Finance. Mr Gaetan Pikioune, who is the President of UMP Party for Santo/Malo Region, was granted VT 2,500,000. As far as staff of VNPF were concern (3 in all), a total of VT 6,100,000 was granted for their supplementary loans. The General Manager and one of the senior officers got the biggest amounts. The General Manager of the VNPF, Mr Josias Moli was allocated VT 3,000,000 while a senior officer got VT 1,000,000.

8.34 I note in particular a request (made at an unknown date) by Mr Peter Sali Savuai, the then Third Secretary in the Ministry of Finance. On 23.02.96 the Board approved and granted him a housing loan for VT 4,967,600 when supposedly other members were told that there were no more funds for the housing scheme. This was to purchase a property. At some unknown date he wrote to the Chairman of the Board, Mr Petré Malsungai and requested a further amount of VT 917,840.

8.35 On 29.05.96 the Board approved the supplementary loan. I note this with interest because it only took a short time to approve a supplementary loan for someone in the Ministry of Finance whereas others, as noted already, were told that the money had run out - supposedly on 06.03.96 the scheme had been abolished by the former Minister of Finance, Mr Barak Sope.

9.1 During interviews with the Ombudsman it was confirmed that a member could obtain only one loan. All members of the VNPF respected this except two. These members are Mr Willie Jimmy, an MP and then Minister of Finance and the then General Secretary in the Prime Minister's Office, Mr Charlot Salwai.

9.2 On 15.03.94 Mr Willie Jimmy submitted an application to VNPF in order to buy a government house. On 18.03.94 the Board met and approved his loan application totalling VT 2,818,778. Mr Jimmy was on the list of 13 (refer 8.24 above).

9.3 On 02.09.94 Mr Jimmy wrote a letter to the General Manager requesting that the Board consider the possibility of refinancing another housing loan he had with the Development Bank of Vanuatu.

9.4 On 21.09.94 the Board approved Mr Jimmy's request for a second loan. The amount for this second loan was VT 7,625,010. No proper VNPF application was made on the standard housing loan application form. As at 30.06.96 Mr Jimmy had outstanding loans to repay in the following amounts:

I did not receive any comments from the VNPF Board nor Mr Jimmy on this section of the report. I assume that they accept the facts as stated above.

Mr Charlot Salwai, VNPF Board member 1993 - 1995, General Secretary to former PM Hon MC Korman

9.5 In June 1994 Mr Charlot Salwai, who was the employers' representative on the Board applied for a housing loan. This was for the purchase of a government house at Independence Park. His application was approved. The house and land were then purchased for VT 3.397.006 through VNPF.

9.6 In September 1994 Mr Salwai submitted a request for a second loan. On 26.05.95 the total of VT 5.159.000 was then approved by the Board.

9.7 On 03.11.95 the Board met and granted an additional amount of VT 909.737. The purpose of the supplementary (second) loan was for Mr Salwai to demolish the house that he bought and to build a new one. This is exactly what has happened. He demolished the building and has now built a new one in its place.

9.8 Mr Salwai therefore used his position in the Board to acquire a total of 3 loans (two separate loans and a supplementary loan). These are:

9.9 The rule was that one member could only obtain one loan. This is a fair rule as it allows the maximum number of members a chance to secure a loan for a house, as there are a total of more than 32,000 and only 150 loans were granted.

9.10 It is to be remembered that out of the 784 members who applied for a housing loan, only 150 members were fortunate to benefit from the scheme. The other 634 members missed out on the chance to obtain a loan to build or buy a house.

9.11 The rule of the VNPF housing scheme was to finance only one loan, but the VNPF Board did not follow this rule with the then Minister of Finance, Willie Jimmy. As the Minister responsible, Mr Jimmy knew the rules but obtained two separate loans. Mr Salwai likewise knew the rules and obtained three loans.

9.12 In May 1995 the Board approved a loan to Mr Palavi totalling VT 5.634.814. The purpose was to purchase an agricultural land lease at Teouma and to build himself a house. The land covers a total area of 5.327 hectares. His loan was released after the Board had given its approval and filing of the application.

9.13 The total loan also includes the cost of a windmill, generator, a water tank and washing machine. The loan granted to Mr Palavi did not fall within the housing loan conditions. All other applications did not include such items, they were plain applications to build houses on registered land titles. As Mr Palavi was a Board member at the time this appears to have been a privilege granted by the Board based on his position and not on commercial grounds and not in accordance with the existing rules. In their reply the Board stated that Mr Palavi's loan was approved by the Board and that it was a privilege for the Board member.

9.14 The rules and conditions of the Housing Scheme was published in the Vanuatu Weekly Issue No. 475 of 08.01.94. One of the questions and answers about this scheme was:

"Do I have to live in the house? You must live in the house. House(s) can be rented only in exceptional circumstances".

9.15 In 9.1 - 9.4 above I stated that Mr Willie Jimmy obtained two separate housing loans. The first of these loans was to buy a Government property which is the subject of paragraph 9.2. The second as explained below was for a commercial property.

9.16 On 29.12.93 Mr Jimmy wrote to the then Chairman of VNPF Board, Mr Nicholson Worek (Appendix O). Mr Nicholson Worek was the Chairman of the VNPF Board as well as the Second Secretary in the Ministry of Finance at the time (i.e. Mr Jimmy was Mr Worek's boss in the Finance Ministry). In his letter he stated that:

"The house I wish to buy is a Flat (Apartments) with four (4) rooms, fully furnished, and will be rented out easily to the present occupants at the rate of not less than one hundred thousand Vatu (VT 100.000) per month".

9.17 Four months before, on 20.08.93, the Board decided that those who borrowed money from VNPF to build their own houses or buy property must continue to live in the house and not rent them out. Interviews with the Ombudsman and officers of VNPF confirmed that copies of VNPF Board minutes are sent to the Minister of Finance as normal procedure. Mr Jimmy knew the rules. Again, Mr Jimmy ignored the rule against renting out. He stated it clearly in his letter that his intention was not to live in the house but to rent it out. His loan was therefore one for a commercial purpose. It would be very difficult to obtain a commercial loan from any bank in the South Pacific at 7.5%, and especially in Vanuatu where the interest rate on housing loans made by local banks was 10% to 14% and the general commercial lending rate was between 12% to 16%.

9.18 On 18.03.94 the Board approved Mr Jimmy's request and granted him a loan of VT 2,818,778. This loan should have been rejected by the Board as the Board knew that Mr Jimmy's intention was to rent out the property for commercial purposes. I have not received any comments from Mr Jimmy nor the VNPF Board. I assume that they accepted my comments.

9.19 On 13.06.93 a meeting was held in Mr Pikioune's residence. Those present in the meeting were:

The matter for discussion was the total amount of Mr Tord's loan for his proposal to build apartments. Mr Tord wanted VT 6 million.

9.20 Following their meeting, Mr Tord submitted an application to VNPF to build a five apartment building on a piece of land that he had negotiated with the Lands Department at Fresh Water. After having assessed the application and the building plan, the Screening Committee made this comment to the Board.

"The amount requested is well beyond the applicant's affordability. The Board should also consider the building plan in deciding because it is designed in such a way that it is for rental purposes, thus commercial use other than a genuine family dwelling residence."

9.21 The affordability repayment of the applicant's loan represented 49% of his monthly salary. This was well above the 35% rule. Secondly, the loan application was outside the rules because it was for a rental property and not for living in by the applicant.

9.22 On 14.07.95, despite the Screening Committee's comments, the Board went ahead and approved Mr Tord's application for VT 6.542.476. There was a split in the voting. Those in favour were:

9.23 Under the VNPF Housing Scheme rules, the borrower must only build a dwelling house which is to be occupied by him or herself and his or her family. A dwelling house can be rented out only in exceptional circumstances. That is, if the borrower is no longer employed, the dwelling can be rented out. Rental charges are then paid to VNPF for loan repayment. The Board should not have approved Mr Tord's loan because:

9.24 In December 1995 the Manager of Vanuatu Engineering and Management Consultants Ltd, Mr Harold Qualao submitted a report to the Manager of VNPF in regard to Mr Tord's incomplete house. He stated that 70% of the building was complete. The remaining 30% was yet to be completed. However, he had only VT 19,228 remaining from his original loan, which was insufficient to complete the apartment. For this reason the engineer recommended further additional funds should be injected into this building to complete it following his (Mr Tord's) builder's estimate.

9.25 On 29.05.96 the Board approved a further VT 3 million as a supplementary loan to Mr Tord in order to complete his apartments after the funds were allegedly exhausted. The VNPF Board totally ignored the Screening Committee's comments and as a result a further VT 3 million was injected to Mr Tord's building. This VT 3 million could have been given to other members whose applications were not processed because they were told that the funds were allegedly exhausted.

9.26 In his interview with the Ombudsman in June 1997, Mr Tord confirmed that his apartments are fully occupied. He has rented out his apartments since September 1996 at a monthly rate of VT 27,000 and VT 30,000 each.

9.27 I did not receive any comments from the Board members on this paragraph. Mr Tord however submitted a reply.

9.28 In his reply to my preliminary report Mr Tord made the following comments in part (section 13).

Actually mi stap rentem aot. Long taem bae mi finis work mo mi mas ko live long hem. Mi kat 5 pikinini I stap long skul. after long skul oli mas kat haos blong live long hem mo faenem work etc... Long lukluk blong mi emi simila nomo long wan dwelling haos. Mi stap repem gud loan blong mi olsem we fund i askem mi blong pem.

I am actually renting out (the apartments). When I finish I will have to go and live in these apartments. I have 5 children who are in school. After leaving school they must have a house to live in and find employment etc... It is my view that this is similar to a dwelling house. I am up to date in repaying my loan as required by the fund.

9.29 The rule was for people to live in the house they purchased with the VNPF rule and he breached it. The intention of Mr Tord was not to live in the apartments but to have them rented out. At the time of building this apartments he was not in a position to live there as his children were still at school. Mr Tord is a supporter of the three Board members who approved his application despite the Screening Committee's recommendations.

9.30 In February 1995 Mr Toara (man Tongoa and relative of Hon Willie Jimmy) lodged an application for a housing loan with VNPF so that he could buy a property that he had earlier negotiated. On 24.02.95 the Board met under the Chairmanship of Mr Toara and approved his application. The loan was granted totalling to VT 16.989.985, over two times more than the VT 7 million limit.

9.31 In his interview with the Ombudsman Mr Toara confirmed that he was in the Board meeting and chaired it when his application was approved and the loan granted. This was totally unethical and represented a shocking conflict of interest.

9.32 The repayments required represented 155% of Mr Toara's monthly salary. He was required to make a monthly repayment of VT 201,674. His monthly salary was VT 130,032 at the time. In addition to his housing loan he also got a loan for furniture which he bought from Australia at a cost of VT 257,100. This brings the total of his loan to VT 17,247,085. The matter of the furniture loan was the subject of a separate report issued by the Ombudsman[4]. Mr Toara must have known he could not repay the loan. My view is that he knowingly defrauded the workers of Vanuatu in taking this loan.

9.33 The VNPF Board knew that Mr Toara's salary was much lower than the required monthly repayment, and they have helped Mr Toara to defraud the workers of Vanuatu. It was impossible for Mr Toara to repay all his loan. The Board however went ahead and granted the loan.

9.34 Mr Toara never repaid any amount of his loans and from 1995 up to June 1996 Mr Toara owed the VNPF a total of VT 2,924,273 outstanding loan monthly repayments.

9.35 Even though he was still employed in the Ministry of Finance as First Secretary, he made no attempt to repay his loan, confirming our above allegation that he intended to defraud the VNPF and that he proceeded with never repaying any amount even when he was working, therefore showing his real wrongful intention. I sent a copy of my preliminary report to Mr Toara but I did not receive a reply. In their joint reply the former Board members also did not make comments on this section of my report. As they did not make any comments I assume that they accepted my comments and findings in relation to Mr Toara's loan.

9.36 Mr Kalorib was a Board member representing the employees and in 1995 held the position of deputy Chairman. One of the rules and conditions which was published in Vanuatu Weekly news paper (issue no. 475 of 08.01.94) reads: (Appendix P)

"Do I have to work in order to obtain a loan? It is a must that you work and earn a regular salary because your loan repayment will be based on your salary deduction."

9.37 In August 1994, Mr Kalorib lodged an application with the VNPF to buy a block of land and to build a house. On 21.10.94, the loan was granted, totalling VT 5,047,468. At the time Mr Kalorib was unemployed. Mr Kalorib arranged with his children who were employed to be responsible for the loan repayments. However the monthly repayment represented 42% of his children's salaries, which is above the 35% limit.

9.38 On 21.10.94 the Board met and approved Mr Kalorib's application. In his interview with the Ombudsman, Mr Kalorib confirmed that he was present in the meeting when the Board discussed his application. Mr Kalorib said that he asked to leave the Board meeting while the Board discussed his application. He said that the Board decided that he should be present.

9.39 The total loan arrears due from Mr Kalorib's children stood at VT 973,324 as at June 1996.

9.40 VNPF records show that Mr Kalorib's children started to fall behind in their loan repayments in May 1995. From then on very little and sometimes no repayment at all was made to VNPF.

9.41 This is yet another example where the Board had again breached the housing rules and conditions it had agreed on to favour one of its (unemployed) members, automatically creating a loan which will not be repaid with future legal problems to sell the house to repay the loan. I sent a copy of my report to Mr Kalorib but I did not receive a reply. There was no comment also from the Board members' reply. As he did not make any comments I assume that he accepted my comments and findings.

Mr Harry Collins, Senior Collector of Rates and Taxes - 110 % of his monthly salary (former 2nd Secretary of Willie Jimmy, Minister of Finance).

9.42 On 10.06.94 Mr Collins submitted his applications for a loan from VNPF to purchase a Government property. On the same date (10.06.94) his application was approved by the Board. He was then granted a loan for VT 3.276.416. At the time he was Senior Collector in the Rates & Taxes Section in the Customs Department after being transferred from the Second Secretary's position in the Ministry of Finance.

9.43 His monthly loan repayment represented 110% of his monthly salary. Again the Board, although knowing that Mr Collins' salary was much lower than the monthly repayment, went ahead and gave its approval. My view is that the VNPF Board defrauded the workers of Vanuatu and that Mr Collins too has defrauded the workers of Vanuatu. Both knew that he was incapable of repaying the loan.

9.44 VNPF records show that as from December 1994 no repayments were made by Mr Collins for his housing loan. He never made any effort at all thereafter to settle his monthly repayment of VT 101,917 with VNPF even though he was still employed. This remains the position now.

9.45 As at 30.06.96 Mr Collins owed the VNPF in terms of his repayment a total of VT 1,885,465.

I sent out sections of my preliminary report to Mr Collins but I did not receive a reply. The Board members also did not make any comment on this section of my report. As they did not comment, I assume that they accepted my comments and findings.

9.46 In addition to these three, the Board also approved loans to members whose repayment represent more than half (50%) of the borrower's monthly salary; i.e. 53% to 97%. Most of these borrowers were people in political positions in the Government, their party supporters and friends. (See Appendix F attached to this report)

In their reply the Board members did not make any comment on this section of my preliminary report. As they did not comment on it, I assume that they accepted my comments and findings.

Mrs Maria Kalsakau, former Second Secretary and Administration Officer, Prime Minister's Office - 109%

9.47 At an unknown date in 1994 Mrs Kalsakau applied for a loan to purchase a Government rental property (containing 4 flats). On 10.06.94 the Board granted her a loan for VT 16.045.711 (more than double the VT 7 million limit). At the time she was the Second Secretary in the Office of the Prime Minister. Her monthly salary was VT 144.052. The monthly loan repayment was VT 156.747. This represented 109% of Mrs Kalsakau's monthly salary. That is her monthly loan repayment was VT12.695 more than her monthly salary. (Refer F1).

9.48 The property purchased by Mrs Kalsakau was a building including four rental flats which were rented at the time of the purchase. This was a commercial rental property and not a house to live in. Mrs Kalsakau already lived in her own house in Anabrou. Her purchase was a commercial investment and thus the loan did not follow the criteria set up by the VNPF to buy a house for the member to live in with his family.

9.49 As at 30.06.96 Mrs Kalsakau still owed arrears to the VNPF of VT 2,191,530.

9.50 Whether she rented her flats or not is not a concern of the VNPF. She committed herself to reimburse, and did not keep her commitment. She furthermore was granted a loan outside the policy of the Fund. In her reply, Mrs Kalsakau made the following comments to my preliminary report, in part:

"I advise that the arrears at 06.97 is VT1.995.663 and I am currently discussing an arrangement with VNPF that the arrears be settled before April 1998 or be capitalised and repayment restructured. I consider this as normal commercial practice.

I disagree with your wording of "defraud" as repayments are being made although in arrears and the property is mortgage to VNPF as a normal security for the funds loaned.

The arrears occurred simply because my personal funds over Vt3.8 million which I had committed for repayment purposes over and above my salary had to be directed to repairs and maintenance work.

I was not aware of VNPF Board Resolution relating to loans. I did not know how VNPF Board made its decisions, and the property in question is mortgaged to VNPF and can be sold off by VNPF to recover principal and interest. The only loser at the end will be myself and not VNPF".

9.51 The main reason for Mrs Kalsakau's arrears was the fact her monthly repayment was higher than her monthly salary. Had she realised this, she should have not accepted the VNPF loan. The Board and Mrs Kalsakau either defrauded or were wilfully blind to the interest of the workers of Vanuatu whose funds are held in trust. This was because she and the Board knew that she could not repay the monthly repayment as agreed by herself and the trustees of the members.

9.52 I find her explanation about expending savings on maintenance very weak. All houses have to be maintained and repaired from time to time - surely Mrs Kalsakau knew this basic truth before applying for her loan for what was a commercial loan (and thus a second reason for refusing it by the Board). In any event the reality is that the original agreement was not kept. She promised to repay the loan as requested at the beginning in order to be granted the loan. After the loan was granted excuses came for the arrears in repayment.

9.53 On 10.06.94 the Board approved and granted a housing loan to Mr Kawai totalling to VT 1,856,565.

9.54 Mr Kawai was a former UMP party member of Parliament for the island of Tanna whose seat in Parliament was declared vacant in 1988[5]. At the time of getting his housing loan he was serving as private secretary to the Speaker of Parliament, Mr Alfred Masseng.

9.55 In around July 1995 Mr Kawai wrote to the General Manager of VNPF Mr Josias Moli. As the original letter is missing, its exact content is not known, but in it Mr Kawai sought a supplementary loan.

9.56 On 12.07.95, Mr Moli wrote to Thompson Kawai in reply to his letter (Appendix Q). Mr Moli stated that following the VNPF Engineer's (Vanuatu Engineers and Management Consultant Ltd) recommendation, an additional amount (supplement) of VT 275,000 has been added to his original loan plus other costs. This brought the total loan up to VT 2,137,870.

'Strictly hemia nomo nao lon blong yu, bat VNPF Board emi considerem position blong yu olsem Vice-President blong pati mo kivim yu extra VT 289,735 blong repair plas labour we yu bin akri mo saenem long office blong mi long 2 May 1995 wetem Haosing Supervisor.'"

Strictly, this is now your loan, but since the VNPF Board has considered your position as Vice-President of the party (UMP - my own emphasis) it has granted you an extra VT289.735 for repair and labour, as per the agreement you signed in my office on 21 May 1995 with the Housing Supervisor.

9.58 The extra VT 289,735 plus the VT 275,000 brings the total additional amount to VT 564,735. On 25.08.95 this amount was approved. The amount was added to Mr Kawai's original loan which brought it to VT 2,427,605. I cannot find in the Board's minutes the granting of this VT 289,735 extra loan by the Board. It therefore meant that Mr Moli alone illegally granted this supplementary loan to Mr Thompson Kawai entirely based on political favouritism. Mr Josias Moli was introducing a basis that was never approved officially and of course was illegal. However, the "political favouritism rule" was the unofficial, illegal, and main criteria in use to grant a loan for many of the borrowers and Mr Moli's statement shows this exactly.

9.59 As at 30.06.96 Mr Kawai owed VNPF in terms of his repayment a total of VT 171,608.

9.60 Mr Josias Moli as General Manager of the Fund blatantly breached his duty of care as a trustee by stating that the criteria to grant an additional loan was because he was the vice president of the party instead of using sound banking criteria for lending money. The money was not his nor was it the UMP party's fund to grant as favour. He furthermore acted outside his powers. The money was stolen and I consider these men to be crooked.

9.61 I submitted sections of my preliminary report to Mr Kawai but did not receive any comment. Mr Moli also did not submit any comment. As they did not comment on this section of my report I assume that the facts as stated above.

9.62 On 25.08.95 the Board approved a supplementary loan of VT 400,000 to Mr A. Maléré. At the same time also the Board retroactively approved an amount of VT 1 million already paid to Mr Maléré.

9.63 I have been informed that this VT 1 million was authorised by the General Manager Mr Moli, alone, illegally, without the authorisation of the Board (Appendix R). A note in Mr Maléré's file at VNPF shows that the General Manager authorised the supplementary loan without the Board's approval. This confirms that the Board only endorsed its approval after the funds had been spent on the prior approval from the General Manager alone. Only after authorising this amount and after its use was the matter brought to the attention of the VNPF Board for its approval..

9.64 The General Manager does not have the authority to approve supplementary loans or housing loans in that manner. Only the Board has such powers. Mr Josias Moli acted in breach of the Act and without any authority., Again, I consider that this is another example of money being stolen or defrauded from the VNPF; this time, by Messrs Maléré and Moli.

9.65 In their reply the Board members did not make comments on this section of my preliminary report as well as the former General Manager Mr Josias Moli. As they did not comment I assume that they accepted my comments and findings. In this reply the borrower involved merely stated that he was not aware of the procedures for granting supplementary loans.

9.66 The former Manager of VNPF, Mr Josias Moli did not make any comment on this section of my report. As he did not comment I assume that he accepted my comments and findings. The Board members also did not comment on this section of my report.

9.67 In May 1994 Mr Millar lodged his housing loan application. The Screening Committee of VNPF made an assessment of the application before going to the Board.

"The VNPF scheme is established to provide single family houses and it is always our preference that a couple can apply jointly other than a brother and a brother or a sister and a sister because there may be problems in the future which could affect repayments. As this is the first applicant of its kind, the Board at its own discretion should consider this application.

When considering the repayment, Mr Kalo's capability alone is questioned. Mr Kalo is married and consideration should take into account this factor.

However, the private family arrangement, if the Board accepts would help the applicant's capability".

9.69 On 17.08.94 the Board approved Mr Miller's application (Appendix S). This was approved because Mr Miller was the son of Mr André Manamuri, a then member of the VNPF Board. It is stated in the Minute that:

"As a member of the Board, it is his privilege that he be given preference to a housing loan. Repayments to be made by both Messrs John and Aaron Kalo, sons of Chief André Manamuri, Board director of VNPF"

The monthly repayment represents 41% of the monthly salaries, again above the 35% limit.

9.70 This decision of the Board is an example of how the Board was operating. It was giving favours to members of the Board or members of the family of Board members. It is completely improper to give privileges to Board members. They must be treated in the same manner as ordinary members of the fund. They even have an additional responsibility as trustees which make it legally worse and in breach of their legal trustee duties for them to consider their own interest instead of the interest of the people's funds.

9.71 I sent out sections of my preliminary report to Mr Kalo John Millar for his comments, however he did not submit any comments. As he did not submit any comments I assume that he has no dispute with the above statements of fact.

9.72 On 24.05.95 Mr Noel applied jointly with his brother for a housing loan for VT 16 million (over double the VT 7 million limit) to buy a property. The day before, on 23.05.95, Mr Noel wrote to the Minister of Finance, Mr Willie Jimmy (Appendix T). In his letter he requested the support of the Minister because he had heard that the Board had placed a ceiling on loans at VT 7 million (in force since 28.03.95). He asked Mr Jimmy to help him so that he could acquire a loan for VT 16 million.

9.73 On 05.06.95, Mr Jimmy wrote to Mr Josias Moli, the General Manager of VNPF (Appendix U). He requested the VNPF Board through the General Manager to reconsider Mr Noel's application to buy a house. This was because the Board had placed a limit on all loans at VT 7 million (effective on 28.03.95). Mr Jimmy's letter represents direct political interference with the Board.

9.74 On 14.07.95 the Board approved Mr Noel's application for a loan of VT 17.547.483. The monthly repayment represents 59% of his and his brother's monthly salaries, again above the 35% limit as well as the VT 7 million loan ceiling. As at 30.06.96 Mr Noel was in arrears in his repayments of his loan and owed the VNPF in terms of his repayment by a total of VT 693,826.

9.75 This is yet another example where leaders have acted irresponsibly and illegally. They have ignored the earlier criteria made by an appointed Board. The comment made by Mr Jimmy purporting that he did not know about the loan ceiling is impossible to believe. Mr Jimmy's First Secretary Mr Samson Toara was present in the Board meeting on 28.03.95 when it set the ceiling of VT 7 million. Mr Toara was the Board Chairman at the time. Mr Jimmy and Mr Toara worked in the same office together at the Finance Ministry. As noted, the Minister always receives copies of the approved minutes from VNPF.

9.76 Sections of my preliminary report was sent to Mr Noel and his brother for comments. I did not receive any comments. As I did not receive any comments I assume that they accepted my comments and findings. The Board members did not make any comments either.

Political interference with VNPF Housing Screening Committee by Hon Willie Jimmy

10.1 When the scheme started the VNPF management appointed a Screening Committee within the VNPF itself. The Committee members were:

10.2 The Screening Committee's task was to make the final assessment on the applications which were submitted to it by the Housing Supervisor, Mr Menzies Samuel, before going to the Board. In assessing the applications the Committee also made a recommendation to the Board on each application based on whether the individual member's application met all the housing loan conditions.

10.3 On 08.03.95 Mr Jimmy called for an urgent meeting. Those present in the meeting were:

10.4 At the meeting Mr Jimmy replaced the VNPF's Finance & Investment Manager (Mr J. Kenneth) with his Second Secretary, Mr Samson Toara on the Screening Committee. Mr Toara at the time was also the Chairman of VNPF Board and had been appointed by Minister Willie Jimmy. Mr Toara had limited education and had no relevant business and financial experience to assess any loans. Replacing Mr Kenneth who has a high level of tertiary education (including a Masters Degree) with someone who had limited education was inviting disaster. It was like replacing a surgeon with a mechanic (Mr Toara is in fact a mechanic by training) to do brain surgery. (Appendix V). Mr Kenneth has a Bachelor's degree in Computing and Mathematical Sciences from New Zealand and a Master's degree in Information Technology and Communications from Australia and has been with VNPF since 1991.

10.5 Mr Jimmy's replacement of VNPF staff member, Mr Kenneth, with his Second Secretary and VNPF Board Chairman is yet a further example of his clear and forceful interference with VNPF internal administrative arrangements. Mr Jimmy effectively merged the VNPF Board and the Screening Committee into a branch or division of the Finance Ministry working for his political interest. The VNPF could not operate under an independent trustee board as a result.

10.6 During his interview with the Ombudsman Mr Toara stated that Mr Jimmy was giving instructions and that the Board was to act accordingly. Whenever he wanted the Board to approve an application the Board felt that they had no choice but to act upon his instructions. This is confirmed by the fact that all political appointees in the Ministry of Finance led by Willie Jimmy, the Minister responsible for the VNPF have been granted a housing loan (all in breach of the lending rules).

10.7 Mr Toara confirmed in his interview that some loans were granted on the direct instructions of Mr Jimmy. The message was clearly "Do as I tell you and you will also get some advantage. If you do not, then you will have trouble and will be dismissed". The Minister has no legal power to exercise such interference, but because the Board members accepted this irresponsible, illegal and scandalous behaviour, the Minister was able to do what he wanted.

10.8 This demonstrates again that there was direct influence from politicians on the scheme. There can only have been one reason for the Minister's action in replacing Mr Kenneth with Mr Toara. In my view the reason is that it was for Mr Samson Toara to pressure the two VNPF officers to favourably process their political supporters and friends' applications to the Board including, of course, Mr Jimmy's. If this is so, then Mr Jimmy and Mr Toara by this action showed themselves to be corrupt.

10.9 A copy of my preliminary report was sent to Messrs Jimmy and Toara but they did not submit any comments about this. As they did not submit any comments I assume that they accepted my comments and findings.

10.10 On 03.02.96 a quotation was submitted to the VNPF by Mr George Naio of Nacon Construction. This was for the work to be carried out on Mr Alfred Maliu's house.

10.11 The quotation by Mr Naio to carry out the repair work on Mr Maliu's house totalled VT 1,028,660. The cost was reviewed by the VNPF's engineer, Mr Harold Qualao who found that the cost of repair should have totalled VT 437,000. (Appendix W)

10.12 On 13.03.96 the Housing Supervisor, Mr Menzies Samuel called Mr Naio into his office and asked Mr Naio a series of questions regarding his quotation. Specifically, he asked Mr Naio about the huge difference between Mr Naio's quotation and the VNPF engineer's quotation. On questioning about this Mr Naio is said to have made this statement: (Appendix X)

"Menzies, bai mi talem stret storian blong samting ia. Mi, Alfred Maliu mo General Manager i agree blong samting ia i olsem. From Mr Maliu ino wok hemi nidim money so some long ol mani ia bai iko long Maliu from long end blong em, Maliu yet bai i pem bak lon. Hemia General Manager i aware long hem. Hemia ino fes taem tu we samting ia i hapen. Mifala ibin mekem long haos blong Thompson Kawai mo Adrien Maléré. Fasin ia everi politician oli mekem, includim ol Ministers blong Kavman".

Mr Menzies, I will tell you the truth about all this. Myself, Alfred Maliu and the General Manager agreed that it will be like that. Because Mr Maliu did not work, he needed money so some of this money will go Mr Maliu because at the end of it, it will be yet Maliu who will pay back the loan. The General-Manager is aware of this. It is not the first time that such a thing has happened. Similar deals also took place in regard to Thompson Kawai's and Adrien Maléré's houses. Every politicians is involved in this kind of wrong doing, including Government Ministers".

10.13 It is hard to believe how a manager like Mr Moli who is supposed to administer the workers of Vanuatu funds came into agreement with Mr Maliu and Mr Naio.

10.14 On 19.11.96 Mr Naio was interviewed in the Office of the Ombudsman. Mr Naio confirmed on oath that the General Manager, Mr Josias Moli, Mr Alfred Maliu and himself had a meeting. Mr Naio confirmed that they had agreed that Mr Naio would inflate the costs of materials so that when Mr Naio was paid, some of the money would go to Mr Maliu to pay the workers who were working in Mr Maliu's house. Fortunately, however, what had been planned and agreed upon did not take place.

10.15 On 19.12.96 when Mr Maliu was interviewed in the Office of the Ombudsman, Mr Maliu confessed that the same agreement was made. The amount (inflated costs) that appeared in the invoice, however, had never been paid. In summary, therefore all these three men confessed that they secretly decided (conspired) to defraud monies from the VNPF.

10.16 Had the Housing Supervisor, Mr Menzies Samuel not intervened, the VNPF members' money would have been defrauded by the General Manager, Mr Josias Moli, Mr Naio and Mr Alfred Maliu. The misappropriated amount would have been VT 591,660 had the arrangement been completed. It has been alleged that this happened for other loans.

10.17 Mr Menzies Samuel should be congratulated for his quick action in this matter. He showed honesty, bravery and responsible leadership.

10.18 This section of my preliminary report was sent to those involved plus the former General Manager, however I did not receive any comments. As they did not submit any comments I assume that they accepted my comments and findings.

10.19 In April 1994 the VNPF advertised the post of a Housing Loan Officer (Appendix Y). The closing date was 05.05.94. There were twenty three applications altogether for this post.

10.20 On 06.05.94 the Board met and approved the appointment of Mr Willie Roy. The extract of the Board meeting reads:

"The management received twenty three applications and after screening the applications and considering the geographical recruitment within the fund, the Board resolved the recruitment of Mr Willie Roy to the post".

10.21 After having gone through the other twenty two applications, the Ombudsman's Office realised that there were applicants who could have qualified for the job. Some of the candidates met the requirements. Some had tertiary education and were more qualified than Mr Roy. Some had diplomas in Business Studies, Accounting and Book Keeping.

10.22 Mr Roy did not forward a detailed CV. He was selected because of where he came from ("geographical" location), i.e., Tongoa which is the island of origin of Mr Willie Jimmy.

10.23 In their reply the Board members stated that the Board had never been informed that it was the Minister's wish to appoint Mr Roy to the position of housing officer, and that it was the management recommendation which the Board had endorsed. This however does not explain the specific reference in the minutes to the "geographical" factor mentioned in the minutes.

10.24 The VNPF Housing Officer, Mr Willie Roy was responsible for registering all applications which were submitted to VNPF. He was also responsible for making sure that the applications were properly completed and intact. After this he then submitted the applications to the VNPF Housing Supervisor, Mr Menzies Samuel.

10.25 A bank officer, Mr Y alleges that Mr Roy required him to pay to Mr Roy VT 8,500 for his loan application to be considered. There was no loan application fee charged by VNPF. If what Mr Y says is true, Mr Roy had defrauded Mr Y of his VT 8,500. Bank documents appear to confirm Mr Y's story. Despite a request for repayments made on Mr Y's behalf to the VNPF Chairman Mr Toara, his money has not been returned. (Appendix Z).

10.26 On 26.10.95 Mrs Z wrote to VNPF for the attention of Mr Menzies Samuel. Mrs Z stated that in December 1994 Mr Willie Roy demanded VT 4.000 from her at her office. This was so that he (Mr Roy) would process her application. She gave VT 4.000 to Mr Roy. Although she was allegedly promised by Mr Roy several times that her file (housing loan) would be accepted by the VNPF Board, nothing happened. In her letter, Mrs Z asked for her money back. (Appendix A1)

10.27 On 04.08.95 Mr A wrote to the General Manager of VNPF, Mr Moli informing him that he had paid to Mr Willie Roy an inspection fee for VT 12,500. He urged the General Manager that an inspection should be carried out on the property that he intended to purchase. In his interview with the Ombudsman on 05.06.97, Mr A confirmed that he handed this money to Mr Roy (Appendix A2). Mr Roy stated to Mr A at the time that it was a valuation fee for a property valuer to value the property Mr A was intending to purchase. There was no VNPF official receipt issued for this so called 'fee'. In his interview with the Ombudsman on 07.08.97 Mr Roy stated that this was a private arrangement. It would not be proper to issue VNPF receipts. I consider that Mr Roy simply obtained Mr A's money by false pretences which is a criminal offence.

10.28 Although the Board Chairman was informed of Mr Roy's corrupt dealings in 1995, Mr Samson Toara failed to bring it to the attention of the Board. Despite these corrupt actions of the housing officer, he was allowed to continue to be employed by VNPF for more than one year under the eyes of the Chairman and the General Manager, until his dismissal in November 1996 by the Board.

10.29 In his interview with the Ombudsman on 07.08.97, Mr Roy stated that the monies that he collected from the applicants were paid over to the VNPF Engineer, Mr Harold Qualao for his engineering reports and Investment Real Estate for its valuation fees. We have received confirmation from the manager of Vanuatu Engineering and Management Consultants Ltd (Mr H. Qualao) that his company was paid a total of Vt5.500 at an unknown date by Mr Roy on behalf of Mr Y (leaving VT 3,000 still with Mr Roy). Mr Qualao also confirmed that his company was not aware of any payment on behalf of Mr A.

10.30 In an interview with the former manager of Investment Real Estate it could not be confirmed if there was any payment on behalf of Mr Y and Mr A. The normal fee charged for any valuation fees requested by Ni-Vanuatu is only up to a maximum of VT3.000.

10.31 We have also received confirmation that Mr Roy did not indicate to Mrs Z at the time when VT4.000 was given to him that it was a valuation fee. This is confirmed by the fact that Mrs Z had arranged a different real estate agent to value the property she later purchased.

10.32 Mr Willie Roy totally abused his position at the time. He was demanding people to give him bribes to process their applications. In other words he was practising extortion when he was in the position of the VNPF Housing Officer. He acted corruptly. His actions were never reported to the Police and he was never prosecuted.

10.33 On 04.07.95, concern was raised by members of the Board because some building materials appeared to have been taken away from Mr Thompson Kawai's residence in Port Vila. At the time Mr Kawai was private secretary to the Speaker of Parliament, as well as the deputy president of UMP party (also former a MP). The Board directed the General Manager to visit Mr Kawai's residence in Port Vila to check what building materials were gone. I cannot find any report from the General Manager following this visit.

10.34 Mr Naio, of a Nacon Construction stated that a lot of building materials for Mr Kawai's house were sent to his (Mr Kawai's) home island on Tanna. Mr Naio's company was responsible for repair work on Mr Kawai's house. Materials that were allegedly sent to Mr Kawai's home island included roofing iron sheets, tiles, and timber. This could well explain why Mr Kawai requested a second loan from VNPF on 12.07.95 discussed above at paragraphs 9.53-9.61. This again appears to be fraudulent conduct.

10.35 On 25.08.95, the VNPF Board decided that VNPF was to pay for the cost of materials which were used on Mr Thompson Kawai's house. According to the Board Minutes, Mr Kawai has agreed to pay for the other materials which were obtained from Vate Industries.

10.36 On 05.09.95, the General Manager, Mr Josias Moli instructed the Housing Officer to pay for the Vate Industries account belonging to Mr Kawai from VNPF funds. The total of VT 109,360 was paid by VNPF as settlement for this personal account. (Appendix A3).

10.37 Mr Moli had deliberately ignored the VNPF Board's decision regarding this matter and instead saw fit to approve the use of VNPF funds to meet Mr Kawai's personal account.

10.38 This section of my preliminary report was sent to Mr Kawai for is comments, however he did not submit any comments. In their reply the Board members stated that this was deliberately been done by management without the Board's approval.

10.39 Although the Board had agreed that the General Manager visit Mr Kawai's residence to establish the missing materials, it failed to make a follow up with the General Manager. Instead of first establishing the missing materials before making any further decisions of any request from Mr Kawai, the Board members granted a further supplementary loan on 25.08.95. The former General Manager must be blamed for spending the members funds to pay for a friend's personal account without the Board's approval. Again this appears to be an instance of misappropriation or more simply stated theft.

10.40 In its meeting on 04.08.94, the VNPF Board felt that privileges should be given to both Board members and Management staff in the form of furniture for their houses. Following this decision the following Board members also obtained furniture for their houses:

It should be noted that Henri Manamuri (John M Kalo) is the son of Board member, Mr André Manamuri.

10.41 These furniture loans are in addition to their existing housing loans which were granted when they applied. The Board members abused their positions as trustee to obtain advantages for themselves for the short period that they were members of the Board. The Board yet again ignored the nature of its role. Under s15 of the VNPF Act the Board members are the members' trustee. The Board members must act with sole regard to the interest of members. The interest of the members in the fund is the only interest that the Board can consider. The Board must make decisions to benefit the members of the VNPF not themselves.

10.42 The decision taken by the Board to acquire furniture for their houses is outside the VNPF Act. It has nothing to do with the members' interest. Furniture does not return an increase on the money used to pay for it. It decreases in value from the day it is purchased. The Board members breached their duty as trustees to the workers of Vanuatu.

10.43 In their reply the Board members did not comment on this part of my preliminary report. As they did not comment on it I assume that they accepted my comments and findings.

10.44 On 04.08.94 the Board decided that management staff of VNPF should also be given privileges like the Board members themselves. Again this was to obtain furniture for their houses. Following this decision the following obtained pieces of furniture for their houses:

The costs of these pieces of furniture have been added to their individual loan balances.

10.45 The decision taken by the Board for management staff to acquire furniture for their houses is also outside the Housing Scheme criteria. It does not represent the members' interests. In their reply the Board members did not comment on this part of my preliminary report. Also those whose names are mentioned did not make comments on this section of my preliminary report. As they did not comment on it I assume that they accepted my comments and findings.

10.46 The Minister of Finance Mr Jimmy instructed his political secretary Samson Toara who was also the Chairman of the VNPF to set up and speed up the loan arrangements for his secretary typist, Mrs Jephlyn Nasse. The political secretary, Mr Toara was using up his official time in running around and talking with real estate agents because the Minister's secretary wanted to buy a property via the VNPF Housing Loan Scheme. In his interview with the Ombudsman on 09.05.96, Mr Toara confirmed that in order to speed up the loan arrangement for Miss Nasse, Mr Jimmy had asked him to visit real estate agents to find a property to buy on her behalf.

10.47 Mrs Nasse was later granted a loan for VT 9,322,876. The combined amount of her monthly salary and her spouse's at the time was VT 91,334. The monthly repayment was VT 65,187. This represented 71% of their combined monthly salary. As on 30.06.96 Mrs and Mr Nasse was behind with her loan repayment. She had VT 762,176 in arrears. One wonders why Mr Jimmy went to such lengths to help his typist secretary obtain a suitable property and loan.

"We however, were unaware of the pressure forced upon the then Chairman of VNPF Board, Mr S. Toara by Mr W. Jimmy, in order to speed up the loan arrangements. All this was done totally between Mr Jimmy and Mr Toara".

As the house was rented out for eighty thousand Vatu monthly, the verbal arrangements with VNPF's Housing Supervisor, Mr Menzies Samuel was for seventy thousand to be paid in addition to the sixty five thousand one hundred and eighty seven monthly repayment in order to speed up the loan repayments.

Mrs J. Nasse voluntarily resigned from her post before their end of term in office which left only Mr H. Worek's fortnightly payment of sixteen thousand two hundred and ninety seven Vatu being paid till his resignation in February 1997.

In early May of 1996, a British tenant who was on a Vanuatu Government contract occupied the house and the Government to date has fourteen months outstanding in rental fees to our Real Estate Agent. They are still occupying the house.

10.49 I find the explanation difficult to accept. Mr Toara and Mrs Nasse were both working in the Ministry of Finance. If Mrs Nasse was unaware of the pressure on Mr Toara that is difficult to believe because Mr Toara confirmed this. The VNPF rule regarding the housing loan scheme was that the borrower must live in the house. The intention for the purchase of a property was to rent it out. The borrower has signed on undertaking to make a monthly repayment of VT65.000 to VNPF for the loan. It is not an excuse to blame the tenant for the high loan arrears. Under the housing loan scheme rules, the borrower's repayment must not be more than 35% of her monthly salary or both spouses' salaries. As the borrower was a political appointee and being on a political position is not always stable, it was only common sense not to have accepted the offer from VNPF at the beginning. The workers of Vanuatu are now being defrauded of their funds.

10.50 On 07.01.94 the Board decided that all loans must not exceed VT 5 million per the consultant's recommended ceiling. On 18.02.94, it changed its mind and introduced a 'No ceiling' limit. On 28.03.95 the Board placed a limit again at VT 7 million on all loans.

10.51 By placing no ceiling on the amounts which could be lent out for a period, the Board had allowed members to apply for any amounts to suit themselves. This has created unfair distribution of the VNPF funds available to members, and also has created huge problems of reimbursement because the bigger the amount of the loan, the bigger was the loan repayments, making it impossible or difficult for borrowers to repay. In June 1997 all the loans were reviewed. As a result of this review, the total of each loan has been increased. Due to this increase the monthly repayment has also increased.

10.52 The aim of the scheme was for members to buy or build themselves decent homes to live in. However, most of the funds allocated for this scheme was used up by the "big men". That is Ministers, political appointees, managers of Government statutory bodies and senior staff at VNPF. Had the Board stood by its decision and insisted that the ceiling be VT 5 million to each member, more members would have benefited instead of a large loan given just to few people.

10.53 The number of members that should have benefited would be three instead of one (VT 16 million ÷ VT 5 million). That is the applicant plus two (2) others. More than half of the total amount of housing loans was made of loans above the 5 million ceiling.

10.54 The total of a loan which was approved above the VT 7 million limit imposed on 20.03.95 by the Board was VT17.547.483. This was granted to the former Lord Mayor of Port Vila Mr Alick George Noel who was a supporter of the UMP Party. Had the Board placed the limit at VT 7 million as per its decision on 28.03.95, two members would have benefited from it. That is Mr Noel plus another member. A VT 5 million limit would have resulted in three members each being able to obtain loans.

10.55 In their reply the Board members did not comment on my comments and findings. As they did not comment, I assume that they agreed with my comments and findings. I have however received three replies who merely stated that they were unaware nor being informed of the limits by the Board.

10.56 It is interesting to note that when the 'No ceiling' limit was introduced twenty one applications belonging to leaders were approved. (Appendix A4). One of the leaders, Mr Sampson Ngwele (Reserve Bank Governor) with a loan of 16,400,088 obtained during the non ceiling period, made the following comments to justify the level of his loan to my preliminary report, in part:

"The Scheme is intended for all its members based on a member's ability to repay (the loan) and not a low income housing scheme which may have a ceiling of VT7 million, Vt5 million or VT2.2 million.

No ceiling, however applicants should be assessed with respect of his ability to repay loan at given term of loan. Security and term of employment should be considered.

The Constitution deals with the Fundamental Rights of Vanuatu citizens including "the position for the privacy of the home and the property' and "Security". Your preliminary report does not seem to take these matters into consideration. Rather, it treads on these constitutional principles and goes ahead to publicise names of Vanuatu citizens who have private properties and homes acquired through an approved Government housing policy"

10.57 I agree that the scheme was intended for all its VNPF members. The whole point is that there were more than 700 applicants but because there was unequal sharing of the fund the high ranking members consumed more of the share than others. Likewise it is also correct that lending is to be assessed on the ability to repay but to this in the case of the VNPF Housing Scheme must also be added the importance of distributing the loan money equally across to all grassroot members who meet the other lending criteria.

10.58 The whole point of referring directly to the loans made to some members of the elite class is that this did not happen - there was not equal sharing. Mr Ngwele may wish to think about art 5(1)(k) of the Constitution which speaks of the right to equal treatment under the administrative action. The Council of Ministers forwarding of lists (on which Mr Ngwele' name was one) to the VNPF Board was not only illegal but it was also unequal and unfair to the other ordinary VNPF members, particularly since after the loans were made to the chosen ones a ceiling was reintroduced.

10.59 In terms of "publicising names" I note that Mr Ngwele is a "leader" under s 14(2) of the Ombudsman Act and thus bound by the leadership code and the Ombudsman's jurisdiction. Secondly, I note that Ombudsman reports are public per article 63(3) of the Constitution which states:

The report of the Ombudsman shall be public unless he decides to keep the report, or parts of it, confidential to he Prime Minister and the person in charge grounds of public security or public interest.

10.60 When the scheme was being discussed at its preliminary stages, no reference was made by the VNPF Board of standard house plans. One would have thought that in order to have a fair distribution to members of their funds the Board would come up with the idea.

10.61 In their reply the Board members stated that the VNPF management was to liaise with the VNPF Engineer to organise set house plans for this scheme. The VNPF engineer (Vanuatu Engineering and Management Consultants Ltd) in his reply stated that at no time was his company being asked to provide standard house designs for the scheme.

10.62 In the absence of various standard plans for two, three and four bedroom houses each applicant submitted his/her own plans. These different plans meant that the cost for constructing the same bedroom house with lounge, kitchen etc, are also different. This is clearly shown when comparing the costs of various houses with the same number of bedrooms. This led to some members unfairly consuming more funds than others over the same size of houses and thus inefficient use of the VNPF loan scheme. (Appendix A5)

10.63 On 23.08.94 Mr Olsen (Principal Land Valuation Officer) applied for a housing loan in order to buy a government property. On 02.12.94 his application was considered by the Board but deferred. This was because the Board wanted an independent valuer to value the property Mr Olsen was going to purchase from the Government. This was because Mr Olsen was the principal Government valuer who carried out the valuation on government properties which were later sold to Ministers, political appointees and friends, (including himself). Since that time, Mr Olsen's application was never discussed again by the Board. The Board Minutes show nothing on his application.

10.64 However, Mr Olsen has somehow obtained a loan from VNPF for an amount of VT 2,363,996. He is now living in one of the Government owned houses at No. 2 in Port Vila which he purported to have bought through a loan from VNPF. There is no evidence that Mr Olsen's application was approved by the Board. How the loan was granted to him is a mystery. In their reply the Board members state that this application was never been approved by the Board but do not deny Mr Olsen received the money

10.65 It was alleged that Mr Maliu obtained a loan from VNPF and purchased a government property in Port Vila. On 19.01.96 the Board approved a supplementary loan to Mr Maliu in the amount of VT 591,660 for repairs to his house.

10.66 There is no evidence however that Mr Maliu ever applied for a loan, nor can I find any record in the Board minutes from 1994 to 1996 concerning Mr Maliu's main loan. There is no evidence as to who granted the loan to Mr Maliu however, he got a loan to the total of VT 3,567,730.

10.67 On 13.09.94 Mr Antoine Pikioune wrote to the General Manager of VNPF requesting a supplementary loan in order of VT2 million. This was for the repairing and renovating a house he bought from the Vanuatu Government. On the same date (13.09.94) the General Manager Mr Josias Moli approved this request for the amount of VT2 million. (Appendix A6). This additional amount was then included in his original approved loan of over VT4 million, thus bringing the total of his loan to over VT6 million.

10.68 Mr Pikioune's supplementary loan was subsequently never been discussed again by the Board in 1995 and 1996.

10.69 Mr Moli who was present in the Board meeting on 03.11.95 did not disclose that he had approved Mr Pikioune's supplementary loan in September 1994. He appeared to have approved this additional fund to Mr Pikioune without the Board's authority. This is likely an instance of fraud by Messrs Pikioune and Moli in my view.

10.70 Sometime in March 1995 Mr Charlie Pakoa submitted an application to purchase a Government property through the VNPF Housing Loan Scheme. On 24.03.95 the Board granted him a loan for VT5.166.576. On 26.05.95 Mr Charlie Pakoa obtained a pro forma invoice from Government Stores for various pieces of furniture. The total cost of these items was VT213.687.

10.71 On 31.05.95 the Housing Supervisor Mr Menzies Samuel informed the Finance and Investment Manager Mr Kalep Sandy not to issue a purchase order and not to pay for the costs of the furniture because this was not within the Housing Loan Scheme criteria. On 12.06.95 the General Manager Mr Josias Moli advised the Finance and Investment Manager to process the payment and payment was made with the authority of Mr Moli for the amount. This total was then added on to Mr Pakoa's original loan.

10.72 There is no evidence however, in the Board minutes that the Board ever discussed or approved the payment of furniture for Mr Charlie Pakoa from VNPF funds. It appeared that the authorisation and approval given by the General Manager to use VNPF funds on furniture was done without the authorisation and consent of the Board. This is another likely instance of fraud/theft by Messrs Pakoa and Moli. I sent out this section of my preliminary report to those involved for their comments but only received one reply. In her reply the General Manager stated that she had no comment to make. (Appendix A7).

10.73 The cost of administering the VNPF has been increasing from 1993, both in the general expenses and salaries (Appendix A8). This is reflected by the increase in the number of staff who were recruited when the housing scheme was introduced. This cost increased even more because of the total lack of any organisation to set up a proper manual or computer system to follow the loans reimbursements and to organise some action in case of no repayment.

10.74 In 1994, 1995 and 1996, there were net deficits after crediting 3% of profits to members accounts. The net return on the funds was less 3%. THIS MEANS THAT THE VNPF WITH ALL ITS MONIES IS NOT EARNING ENOUGH MONEY TO PAY THE 3% INTEREST ON THE MEMBERS' ACCOUNT AS REQUIRED BY SECTION 17 OF THE ACT.

10.75 It is obvious that steps must be taken to cut down on the administrative expenses and bring up to date the collection of loan repayments. The huge loan arrears is one of the factors which led to the deficits in the last three years.

10.76 The housing loan scheme as an investment has so far been a failure for the members of the VNPF who lent VT 831,616,627:

(a) Some loans will never be reimbursed such as part of Samson Toara's loan. The house was apparently overvalued.

(c) The interest rate of 7.5% barely covers the increased cost in management because of all the difficulties in trying to collect the monies owed and to follow up all the non-repayment cases. The legal cost of recovering the loans is also likely to be very high;

(d) The new Chairman, Mr Dinh Van Than estimate that 1997 will be the first year that the VNPF makes a profit of at least 3% as required by law.

I sent out this section of my preliminary report to those involved for their comments but only received one reply. In her reply the General Manager stated that she has no comments to make.

10.77 In their reply the Board members did not comment on this section of my preliminary report. As they did not comment on it I assume that they accepted my comments and findings.

(EXPLANATORY NOTE: With the exception of Mr Roy's extortion, in these findings I have not listed possible criminal offences that may have occurred. This is not because I do not consider any of the actions described in the report to be criminal in nature. The reverse is true - I consider many of the acts described could well lead ultimately to convictions for criminal offences. However, because there are so many acts that do fall within this category of possible crimes I have not set these out individually as this already long report would become too long and thus too expensive for the Ombudsman's Office to make sufficient copies for the public. To address this in the next section it will be noted that I have recommended that the Police and Public Prosecutor work together to make an assessment for themselves about the possibility of the laying of criminal charges as a result of the facts brought to light in this report)

FINDING NO. 1: ILLEGAL GRANTING OF MORE FAVOURABLE LENDING CRITERIA TO POLITICIANS AND LEADERS BY THE COUNCIL OF MINISTERS' DECISION OF 31.04.94

11.1 The Council of Ministers headed by former Prime Minister, Hon Maxime Carlot Korman, deliberately interfered with the function of the VNPF Board as an independent trustee. The Council of Ministers interfered through the then Minister of Finance, Mr Jimmy. The Council purported to reduce the annual interest rate from 10.5% to 7.5% and also reduced the amount a member has to have with VNPF from VT 200,000 to VT 100,000 to qualify for a loan (see 6.10 above). It acted illegally by directing the Board to act and follow its decision. Therefore the COM acted beyond their power as set out in article 39(1) which states

The executive power of the people of the Republic of Vanuatu is vested in the Prime Minister and Council of Ministers and shall be exercised as provided by the Constitution or a law.

11.2 There was no law permitting what the Prime Minister and the above Ministers did. All that could be done was for the Minister of Finance to give general policy directions. What happened here went far beyond that - specific instructions were given.

FINDING NO. 2: THE LIST OF MINISTERS PUT TO THE BOARD HEADED BY THEN PRIME MINISTER MAXIME CARLOT KORMAN WAS A CORRUPT AND UNLAWFUL ACTION OF THE COUNCIL OF MINISTERS

11.3 The Council of Ministers by-passed the Housing Officer and the Screening Committee by submitting their list of names directly to the Board. By this corrupt action the Council of Ministers placed themselves in a superior position to the other members of the VNPF, and benefited directly and personally from their decision.

FINDING NO. 3: THE COUNCIL OF MINISTERS HEADED BY PRIME MINISTER, MAXIME CARLOT KORMAN BREACHED THE LEADERSHIP CODE IN ART 66 OF THE CONSTITUTION

11.4 The Ministers in the Council of Ministers placed themselves in a position in which they had a conflict of interest. They all obtained VNPF housing loans. They used their public positions for personal gain:

(a) by "deciding" on the interest to be at 7.5% rather than 10.5% as decided by the Board in 1993;

11.5 After this Council of Ministers' decision[2] all the Ministers obtained housing loans from VNPF at an interest rate of 7.5%. These Ministers abused their positions. As the executive power of the Government, they were respected and feared by people and especially the members of the Board who were appointed by the Minister Willie Jimmy. They knew that and abused their position. They acted illegally knowing that the Board members could not say no to them by fear of reprisals on themselves and/or their families.

FINDING NO. 4: THE VNPF BOARD UNACCEPTABLY FAILED TO PROTEST OVER OR REJECT THE COUNCIL OF MINISTER'S DECISION AND BREACHED FUNDAMENTALLY THEIR DUTIES OF TRUSTEES AS OUTLINED IN SECTION 15 OF THE VNPF ACT

11.7 With them lies the biggest responsibilities. They are the trustees and they are all responsible for the losses incurred by the VNPF both because of their gross and wilful negligence and their deliberate choices which variously constituted misappropriation, theft and fraud for themselves and their allies. They totally breached their trustees' duty towards the people of Vanuatu.

11.8 The Board acted irresponsibly and in breach of their duties as trustees of the VNPF fund by approving certain housing loan conditions "approved" by the Council of Ministers. That is the reduced interest rate of 7.5% on the principal loan amount and the reduced members saving limit of VT 100.000. And, of course, approving loans to those appearing on the privileged lists.

11.9 The VNPF is an independent body - a trustee of the workers of Vanuatu's pension fund, and not an entity under the control of the Council of Ministers or the Minister of Finance. The Council of Ministers should have no power over the VNPF, and should not have been allowed to have a say in the VNPF Board meetings. The VNPF Board members failed utterly. They made no attempt to reject the improper and unlawful actions of the Council of Ministers and Mr Jimmy.

FINDING NO. 5: INCOMPETENT, CORRUPT, NEGLIGENT AND UNLAWFUL CONDUCT BY THE VNPF BOARD MEMBERS IN CONSIDERATION OF LOAN APPLICATIONS

11.10 By reason of the consistent pattern of successful loan applications to politicians and politically connected people:

(b) in excess of the 35% (in some instances over 100% - Messrs Collins (110%), Toara (155%) and Mrs Maria Kalsakau 109%) (see 9.30-9.52));

the Board members in my opinion have shown themselves, individually and collectively, to be corrupt, and completely negligent.

11.11 The Board ignored approximately six hundred members of the fund, whose applications were waiting to be looked at.

FINDING NO. 6: THE BOARD ACTED CORRUPTLY AND IN BREACH OF THEIR DUTIES OF TRUSTEES OF THE FUND BY APPROVING A LIST OF MINISTERS (SEE 6.14) AND POLITICAL APPOINTEES (SEE 6.15) WITHOUT PROPER APPLICATIONS

11.12 The VNPF Board members acted corruptly when it approved a list of Ministers and political secretaries and granted them loans. This was despite the fact that Ministers and political appointees did not follow the application procedures, the Board approved their loans on 18 March and 10 June 1994.

11.13 This was totally unfair and a fraud committed against all the members of the Fund. They bypassed the application system and Screening Committee. The Board allowed Ministers and political appointees to abuse the system which the Board had set up to protect the workers' money.

FINDING NO. 7: THE BOARD ACTED CORRUPTLY AND IN BREACH OF THEIR DUTIES AS TRUSTEE OF THE FUND BY APPROVING TWO SEPARATE LOANS TO A MINISTER, MR JIMMY (REFER 9.1-9.5) AND A BOARD MEMBER, MR SALWAI (REFER 9.5- 9.11)

11.14 The VNPF Board had acted corruptly by approving two separate loans to the Finance Minister (and Minister responsible for VNPF), Mr Willie Jimmy. It had ignored the fact that there were several hundred applications from VNPF members. In the same manner, the Board had acted unfairly and corruptly by approving two separate loans to a Board member, Mr Charlot Salwai. The Board ignored the approximately 600 other applicants. As members of the Board, they knew the rules and conditions of the housing loan schemes themselves.

FINDING NO. 8: CORRUPT ABUSE OF LOAN APPLICATION SYSTEM BY BOARD MEMBERS. ABUSE OF OFFICIAL POSITION AND POWER FOR PERSONAL GAIN - BREACH OF ARTICLE 66 OF THE CONSTITUTION

11.17 From interviews conducted by the Ombudsman it was confirmed that all members of the Board of VNPF submitted their own applications directly to the Board (see 7.7-7.10). They abused their positions as Board members and took this "privilege" to by-pass the system by not submitting their applications to the Screening Committee. Again I consider their conduct to be fraudulent and corrupt. As such, this conduct is in most obvious breach of the leadership code - the basic rule of which is that public position is not to be used for private gain.

FINDING NO. 9: THE MEMBERS OF THE BOARD USED THEIR POSITION FOR PERSONAL GAIN (FURNITURE LOANS) (REFER 10.40-10.43). BREACH OF LEADERSHIP CODE (ARTICLE 6) OF THE CONSTITUTION

11.18 The VNPF Board, Messrs Worek, Kalorib, Palavi, Manamuri failed to understand or more probably ignored willingly their duties as trustees of the fund. They made the decision to acquire furniture for Board members' houses in an abuse of the position they held. They decided to use their positions to use the members money for their personal gain, breaching their trustees' duties to the VNPF members.

FINDING NO. 10: DISHONEST AND CORRUPT CONDUCT BY THREE (3) MEMBERS OF THE VNPF BOARD IN APPROVING AN APPLICATION FOR COMMERCIAL USE FOR JOSEPH TORD (REFER 9.19 - 9.29)

11.19 The three (3) members of the Board acted corruptly, were dishonest and helped a member of their own political party (UMP) to get a loan outside the housing scheme criteria. They used their positions to give favours to their political supporters despite the Screening Committee's comments that the design of the building was of commercial use. The three (3) Board members were corrupt in their decision by approving the application from their supporters.

FINDING NO. 11: NEGLIGENCE BY THE BOARD BY FAILING TO HAVE STANDARD HOUSE PLANS IN PLACE AND TO SET UP PROPER ADMINISTRATIVE MANAGEMENT FOR THE LOANS (SEE 10.66-10.67)

11.20 The Board had failed to draw up standard house plans to be used in this Housing Scheme. Because of this failure, members were submitting their own plans.

11.21 As a result a lot of the members did not have the opportunity to make a loan because the funds were used up by the few who had more extravagant houses. It was not a question of affordability but fair sharing of the members' money at VNPF to as many members as possible and for them to benefit from it. Standard house plans for modest homes would have allowed the money to benefit more people wanting to borrow from VNPF.

11.22 For 3 years, after the creation of the scheme, it was impossible to know who repaid what and to keep proper accounts of the loans. 1997 was the first year of looking at these problems. However, the accumulation of the accounting problems for 3 years, it apparently is still very difficult to get a proper idea of what was the amount of monies lent and what repayments have occurred.

FINDING NO. 12: BREACH OF LEADERSHIP CODE UNDER ARTICLE 62 OF THE CONSTITUTION BY MINISTER JIMMY

11.23 Mr Jimmy used his position for personal gain by having two loans approved from members' funds that did not comply with VNPF lending criteria. As Minister, he should have made sure that members of the fund were being treated equally rather than the reverse - making sure he himself got preferential treatment.

11.24 Mr Willie Jimmy cynically breached the Leadership Code by all his decisions by systematically controlling the VNPF in order to have the power to direct the granting of loans to friends, wantok and political colleagues by:

(a) being part of the Council of Ministers that unlawfully reduced the interest rate to 7.5%;

(b) appointing an uneducated relative as the Chairman of the Board, Samson Toara;

(c) advising to appoint Mr Willie Roy as an employee of the VNPF to process loan applications, a man from Mr Jimmy's home island of Tongoa (refer 10.19-10.23) who then went on extort (force) fictitious payments out of grassroots' applicants (10.25-10.27);

(d) appointing Samson Toara (a mechanic by trade) at the top of the Screening Committee to replace Mr Kenneth, a man with a Bachelor's degree in Computing and Mathematical Sciences from New Zealand and a Master's degree in Information Technology and Communications from Australia (refer 10.4);

(e) interfering directly in the granting of some loans (i.e. Mr Alick Noel (9.72-9.76), Mrs J. Nasse (10.46-10.47).

11.24 With all the other misconduct listed in this report, Mr Willie Jimmy is shown to have totally demeaned his position - Mr Willie Jimmy's role as Minister of Finance was to treat fairly all the people of Vanuatu and take decisions good for the people of Vanuatu, not to act illegally, corruptly and unfairly;

11.25 There were over 600 members who applied but were waiting in vain in the hope of being granted a loan. Instead their funds were being used up by 'big men' like Mr Jimmy and his friends of the political kingdom. Mr Jimmy has shown himself to be crooked and corrupted. His actions show systematic breaches of regulations and laws that he was elected to ensure were followed. He has proved himself to be a destructive force on the Vanuatu workers, depriving them of fair and reasonable access to the benefit of the funds, in other words exploiting his own people.

FINDING NO. 13: ILLEGAL INTERFERENCE ON THE FUNCTION OF THE VNPF BOARD BY MINISTER JIMMY

11.26 Under Section 5 of the VNPF Act only the Board has the powers to do all the things which are necessary or conductive to the carrying out of the objectives of the Act.

11.27 As the Minister of Finance, Mr Jimmy's power was limited to approving investment policy guidelines under Section 16 of the VNPF Act after consultation with the appropriate government departments. The section includes the following statement of law, after each I make a brief observation:

the policy guidelines . . . will have primary regard to the interests of members on the one hand, and the needs for assisting the financing of balanced social and economic development

11.28 I consider that Mr Jimmy disregarded the members' interests and believe that the only "economic development" that has occurred is the personal economic development of the chosen few of the political kingdom.

11.29 Mr Jimmy interfered with the independent operation of a trustee in a decisive fashion (see examples listed at 11.24) and treated it as the VNPF Board as division or part of his Ministry under his direct control.

FINDING NO. 14: HOUSING OFFICER MR WILLIE ROY DEMANDING AND COLLECTING MONEY FROM APPLICANTS (SEE 10.24-10.27)

11.28 Mr Roy was practising the criminal offence of extortion when he was in the post of housing officer at VNPF. He collected cash for his own benefit and making false promises to those who gave him money that he would process their applications. He misused the trust that was put on him by VNPF and robbed money from people. He has shown himself to be a thoroughly untrustworthy and fraudulent person and unfit to hold any such position.

FINDING NO. 15: THE GENERAL MANAGER MR JOSIAS MOLI FAILED TO INFORM THE DISCIPLINARY COMMITTEE AND THE BOARD OF MR WILLIE ROY'S BEHAVIOUR (10.28)

11.29 Although the Manager was aware of Mr Willie Roy's dealings of collecting money from people in 1995 he failed to take necessary measures to his employment with VNPF discipline Mr Roy in time. He allowed Mr Roy to continue. He also failed to report the matter to the Disciplinary Board of VNPF. As a result, Mr Roy continued to be employed up to 22.03.96 when he was suspended by Mr Moli without salary.

FINDING NO. 16: FAILURE TO STAND UP TO THE BOARD DECISIONS WHEN IT APPROVED LOANS ABOVE THE 35% RULE

11.30 Mr Moli who was in the position of General Manager of VNPF failed to make sure that the housing loans criteria were followed by the Board. He was as guilty as the other Board members. He demonstrated that he was submissive to the Board as they had been to the Council of Ministers and Mr Jimmy.

11.31 Although he was the General Manager, Mr Moli failed to ensure that the borrowers were up to date in their loan repayments. Despite the concern raised by the Board on 14.07.95 over the borrowers' repayment, the General Manager did not take note of this issue. As a result there was over VT 400,000 outstanding for 1994 and over VT 14 million outstanding for 1995.

FINDING NO. 18: THE GENERAL MANAGER, MR JOSIAS MOLI MISUSED THE WORKERS' MONEY TOTALLING VT 289,735 - MR KAWAI THOMPSON (9.53-9.61). BREACH ART 66 OF THE CONSTITUTION

11.32 Mr Moli misused the workers of Vanuatu money by "giving it away" to the vice President of UMP party, Mr Thompson Kawai. Although it was alleged by the General Manager that the Board gave the approval for an extra VT 289,735 to the vice President of UMP party, I cannot find any record of this approval in the Board minutes for 1995. Mr Moli misused his position as the General Manager responsible for managing the institution (VNPF) being entrusted the authority to look after and manage the workers' money. This is an instance in which I consider that the Police will need to investigate and possibly prosecute.

FINDING NO. 19: THE GENERAL MANAGER, MR JOSIAS MOLI CONTRIBUTED TO THE ATTEMPTED CORRUPT DEALINGS WITH MR GEORGE NAIO AND MR ALFRED MALIU. BREACH OF ART 66 OF THE CONSTITUTION

11.33 As the General Manager of an institution who was responsible for administering the workers of Vanuatu money, he should ensure that the money was being used in a proper manner. He instead agreed with these unscrupulous people to steal and cheat the workers of their savings at VNPF and give it away to friends and cohorts. He demonstrated that he could not be trusted and given the authority to look after and administer the VNPF as an institution, and the workers' of Vanuatu's money.

FINDING NO. 20: THE GENERAL MANAGER, MR JOSIAS MOLI FAILED TO FOLLOW THE BOARD'S DECISION. HE USED VNPF FUNDS TO PAY FOR AN ACCOUNT WHICH IS OF A PRIVATE NATURE - MR KAWAI'S BUILDING MATERIALS (10.35-10.39)

11.34 Mr Moli acted irresponsibly and corruptly when he was General Manager of this institution to use VNPF money to pay Vate Industries' account of Vt109,360 contrary to the Board's instructions. Again, this is a matter that could be investigated further. It is yet another obvious breach of the leadership principle of not using public office for an improper purpose.

FINDING NO. 21: BREACH OF THE LEADERSHIP CODE IN ART 66 OF THE CONSTITUTION BY MR MOLI - MR KAWAI'S HOUSING MATERIALS

11.35 Although Mr Thompson Kawai agreed to pay the materials he obtained from Vate Industries for his house, Mr Moli went ahead and instructed the Housing Officer to pay for these materials from VNPF funds. He acted irresponsibly by using the VNPF money to settle a personal account for Mr Kawai regardless of the Board's decision.

FINDING NO. 22: MR JOSIAS MOLI WITH MR ALFRED MALIU ACTED IN COLLUSION AND MR NAIO TO DEFRAUD THE VNPF

11.36 His presence in the meeting with Mr Naio and Mr Maliu is an indication that he took part in the secret deal for Mr Naio to inflate the cost of building materials so that Mr Maliu could be a beneficiary under the deal. I can not find any other reason for his participation other than to steal from the workers of Vanuatu. This is another instance of an obvious breach of the leadership code and probable criminal conspiracy that I consider the Police should investigate.

FINDING NO. 23 THE GENERAL MANAGER, MR JOSIAS MOLI ABUSED HIS POSITION BY APPROVING FUNDS TO MR PIKIOUNE WITHOUT THE VNPF BOARD'S APPROVAL. BREACH OF ARTICLE 66 OF THE CONSTITUTION

11.37 Mr Moli was dishonest in his duty by not informing the Board that he had already approved a supplementary fund to Mr Pikioune in 1994 without the Board's decision (refer 10.67-10.69). He also approved and granted the loan illegally. He approved the use of the workers of Vanuatu's money and gave it to friends (e.g. Messrs Maliu (10.65-10.66) and Pakoa (10.70-10.72)) without the Board's approval. He demeaned his office the position he held. Again, these are matters for investigation by the Police.

FINDING NO. 24 THE GENERAL MANAGER MR JOSIAS MOLI ABUSED HIS POSITION BY APPROVING THE COST OF FURNITURE TO BE MET BY VNPF TO MR CHARLIE PAKOA (SEE 10.70-10.71) WITHOUT THE VNPF BOARD'S APPROVAL. HE HAS BREACHED ARTICLE 66 OF THE CONSTITUTION.

11.38 Mr Moli approved the costs of the furniture without the decision of the VNPF Board. He gave instructions to pay the account despite him knowing that the purchase of furniture was not a criterion under the scheme. He helped Mr Pakoa Charlie to misappropriate the workers of Vanuatu money.

12. REPLIES RECEIVED ON THIS REPORT AND OMBUDSMAN'S COMMENTS
SUMMARY OF REPLIES

12.1 I have since received replies from former ministers namely from MP Paul Telukluk, MP Maxime Carlot Korman, Mr Sethy Regenvanu and MP Charlie Nako. Their replies are listed in Schedule 3 and are numbered 1 to 4. The common theme in most of the replies were:

(a) The decision was made by the Council of Ministers on the intention was to promote housing development;

(d) The government has found it financially difficult to do repairs and maintain government houses;

(e) It is "sad" to see that after leaving office a leader like Ministers have nothing to show that they were once leaders of this country;

(f) The Ministers were in a better position to be able to satisfy the conditions and repay the loan in view of their income;

(h) The scheme was proposed to the Council of Ministers and Ministers were invited to purchase some of the houses through the housing loan scheme; and

(i) The Council of Ministers decision was guided by the recommendation of the Minister of Finance, Mr Jimmy.

12.2 The Council of Ministers has no legal authority or power to make decisions regarding the VNPF under the VNPF Act (Cap 189). Under Section 5(5) of the Act only the VNPF Board has the powers to do all things which are necessary to the carrying out of the objects of the VNPF Act. The reason behind the involvement of the Council of Ministers in the Housing Loan Scheme is clear. It was so that the individual Ministers would get loans from the VNPF to buy the government houses which they decided to sell them to themselves (subject of a separate report). This is exactly what happened. All the Ministers at the time bought government houses through the VNPF Housing Loan Scheme.

12.3 They used the members' funds at VNPF for their own benefit. They used the fund as their personal bank where they could get the money they needed at a low rate of interest which they themselves have decided. Their actions clearly shows a conflict of interest and an abuse of the positions they held.

12.4 The following political appointees who obtained loans from VNPF submitted replies. Copies of some of these are listed in Schedule 3 and numbered No.s. 5 to 9 and 18 to 19.

(b) Application was made to the Board for additional funds was because the house needed some repair;

(d) The houses that were bought from the government were in poor conditions and needed repairs;

(f) Currently discussing and arranging with VNPF how to settle the arrears before April 1998;

(h) Remained unemployed after termination of appointment from the government therefore no repayment of loan;

(i) Agreed with VNPF to pay only half the monthly repayment due to not been employed;

(j) Could not secure a tenant to rent the house (remember commercial use was prohibited by the rules);

12.6 The politicians used the VNPF funds as their personal bank where they and their appointees and supporters could draw money when they wish. Despite the fact that they have already bought the government properties they went ahead and asked for further funds to do repairs on the houses they have acquired. Most of them failed to keep up with their loan repayment resulting in huge loan arrears as at 31.6.1996. I do not believe that they could claim that they were unaware of their arrears. A debtor, is the person in the best position to know whether he or she was up to date with their repayments.

12.7 The political appointees who are now unemployed now face repayment difficulties. They knew at the beginning that being in a coalition government was not always stable they should have turned down the loan offer made by the Board. I do not consider they could put a blame on the government department and VNPF for the non payment of their loans. They have the responsibility to ensure that they are repaying their loans. If the government repayment section in the Department of Finance did not take action to make direct deductions, they have the responsibility to give instructions to that effect. The Government payment section cannot deduct VNPF loans repayment from individual salaries unless the person gave instructions to do so.

12.8 I do not consider it is proper to use the argument about the non payment of rent by the tenant is a valid excuse. They borrowers made the undertaking to repay the loan not the tenants from their salaries. One of the conditions of the loan scheme was the borrower must live in the house. It can be rented out on special circumstances only.

12.9 The following, political appointees submitted their replies to my preliminary report.

12.10 Replies were also eight ordinary VNPF members. Some of the common replies were:

(a) The house needed repairs so application was made to the Board for additional funds for repairs;

(d) Funds from the original loan been exhausted and recommended by the VNPF engineer for additional funds to complete the house;

(e) Some funds for the house may have been used to offset other uncompleted houses;

(g) Applied as an ordinary member not as Santo/Malo UMP regional President (no reason for supplementary - my emphasis); and

12.11 Those political appointees who applied for supplementary funds to repair the houses which they have already bought from the Government were taking advantage of the situation created by Mr Jimmy and the Board. They obtained additional funds to repair the houses which after having bought the properties becomes a personal responsibility. Instead they turned to VNPF and used the members funds for their own benefit.

12.12 In the same manner the Santo/Malo UMP President, Mr Gaetan Pikioune used the fund as his personal bank to obtain additional loans. His reason was that the costs of some items were not included in the quotation. Also that he placed an overseas order for some electrical appliances. No details of these electrical appliances were given. There is no doubt in my mind that his application was approved although he did not give sufficient basis, because there were prominent UMP figures in the Board.

12.13 The former Board members of VNPF were sent a copy each of my preliminary report in August 1997. The former Board Members did not submit individual replies and comments to my report but chose to submit a joint reply. (Refer No. 13 in schedule 3). The reply was only signed by Messrs Alexander Palavi and Charlot Salwai. Quite a number of my comments on various matters were not been answered as have been identified . Matters on which replies and comments provided no excuse for what is systemic and systematic corruption of the VNPF.

12.14 I have gone through their comments and listed below are the 14 main points. After each point lettered (a) through to (m) I provide my comment or comments:

(a) That there were eight heads in the Board to convince to arrive at a decision

(b) The Ombudsman should have got the Minister of Finance's consent to look at VNPF confidential matters.

This ground is also irrelevant to the facts. What the Board is saying is that they do not like the fact that the Ombudsman's Office has discovered the operation of VNPF. In any event article 62(3) of the Constitution states:

The Ombudsman may request any Minister, public servant, administrator, authority concerned or any person likely to assist him, to furnish him with information and documents needed for his enquiry.

There is no restriction on the Ombudsman's ability to obtain any information. It has nothing to do with any Government Minister hence article 65 which states:

The Ombudsman shall not be subject to the direction or control of any other person or body in the exercise of his functions

The Board members are subject to the requirements under the Constitution and the Act. The Board members were upset because the Ombudsman obtained confidential information's and documents which revealed their misdeeds and corruption. Without this power of access to information, the Ombudsman could not perform nor carry out his or her constitutional function.

(c) The scheme was to serve only the members who were in need of having and owning a house of their own at a cost of VT 2 to 4 million

I agree. The whole point is that the scheme did not serve the members who were in need of having a house. It served the leaders, their supporters and other high ranking public servants.

(d) The Minister of Finance proposal on the interest rate of 7.5% was approved by the Board. It was the Board's view that this was a convenient rate of interest and that VNPF is still making money. The Board also decreased the interest rate from 7.5% to 4%.

The Board members lack basic investment knowledge. This is further shown when they decided to reduce the annual interest rate from 7.5% to 4% on 28.02.96 when the VNPF was not making enough on its investment return to be able to pay the 3% required by law to pay interest on members' contributions.

No bank in town can lend money at such rates. They are saying that if VNPF is earning VT24 million less than what it is supposed to be earning then that is fine. This is absolutely nonsense. The Board's decision is comparable to someone wanting to make a term deposit in a bank. Instead of investing in a bank that gives a high rate of interest, he chooses the bank that gives the lowest rate of interest.

The VNPF Board is an independent Board and they are there to serve the interests of the members not the politicians or the Minister of Finance. Their decision must be independent and must be seen to be independent. The Minister of Finance and the Council of Ministers do not have any authority to decide on the conditions of the loans. Yet the Board slavishly followed the Minister's direction. It is nonsense to suggest that they made any assessment of the situation. They were simply following orders from Mr Jimmy.

(e) A resolution was passed to amend the VNPF Act. This was to allow direct deductions from the borrowers salary by the employer and amount paid to VNPF direct. The proposal was passed to the Ministry of Finance but never dealt with.

There is no need or reason at all to amend the VNPF Act. If the Board was concerned that borrowers were not up to date with their repayment they should have taken immediate action to have the borrowers pay their loans. This should have been a policy decision. They could have instructed the borrowers that failure to settle their repayments to date, they could lose their property. They could have also instructed the borrowers to arrange with their bankers to make direct deductions from their bank accounts and credit VNPF the required monthly repayments.

This excuse of amendment of the VNPF Act may have been a deliberate action to allow their friends, political leaders, and themselves to delay payments until the Act was so amended. Again the reasoning is illogical, sheer nonsense and has nothing to do with anything.

(f) The Minister of Finance has the power to appoint any member of the public with or without qualification to the Board

They are saying that the Minister could appoint a cow and a chicken into the Board because he has the power to do so. It just goes against common sense. In a normal and non corrupt situation what should have happened is that appointments would be made on merit alone.

(g) Messrs Petre Malsungai and Alexander Palavi's loans were decided by the Board. It was a privilege for the Board members

What the Board members are saying is because they are in the Board it is a privilege for them to break the law and rules and not follow the procedures. What they did was the opposite of what is required of trustees of the fund. This response demonstrates sheer foolishness or sheer arrogance or a combination of both.

(h) The Board was conscious that the housing scheme would provide employment for indigenous Ni-Vanuatu contractors and business for the hardwares.

The Ombudsman agrees with the idea of having this Housing Loan Scheme. Had the Board did what they were supposed to do correctly and made sound and good investment decisions there would be no point at all to enquire into this matter and this stated benefit would have occurred. All that happened is that the ordinary workers were cheated. I do not know why the Board made reference to this point in their reply. The reference to providing employment for specifically indigenous Ni Vanuatu is racist and for that reason irrelevant.

The Council of Minister has no legal power and authority to make decisions regarding the VNPF. Only the Board has that legal power under section 5 of the VNPF Act (Cap 189). The Board had totally ignored its legal powers under the Act and instead acted like puppets. It submitted itself to the Council of Ministers and the Minister of Finance, Mr Jimmy and allowed itself to be treated as a Department of the Ministry of Finance.

The Board members were supposed to represent the members of the fund as their trustees, not "wokman blong political masta". I ask who gave the authority to cheat the workers of Vanuatu out of applying for loans and losing some their hard earned money "invested" with the VNPF.

(j) Mr Willie Roy deliberately delayed non political applications for his own interest and was disciplined but was too late. Mr Willie Roy's appointment was made on the recommendation of the management. Management informed VNPF Board very late on Mr Roy's dealings.

It is of no use to anyone accusing the management as this appointment was decided by the Board not by management. The Board had other very strong applications with them but stubbornly appointed Mr Roy who did not even submit his Curriculum Vitae (CV) nor have any qualifications at all. He was appointed because he was man Tongoa (Mr Jimmy's island). Because of their stubbornness, they have reaped from the seed what they sowed.

(k) The Board was aware that political appointees would be out of job but granted loans because the COM decided so and that VNPF took first mortgage over the properties.

Although the Board members were aware of the political appointees employment positions at the time they went ahead and granted loans and gave more than two years to repay the loans. As noted before it is like saying that because someone has insured his car he can drive at night without his head lights. Again the Board blindly followed the illegal orders of Mr Jimmy and the Council of Ministers. Would the Board members have burnt the VNPF building down if the Council of Ministers told them to do it?

(l) The Scheme was founded in good faith and if members were faithful in their repayments VNPF would gain two or three times the actual value of the houses.

Yes, I agree that originally the scheme has probably established with good intentions. It subsequently got perverted and corrupted by the will of Mr Jimmy, his co Ministers with the active help of the Board. Loans were granted to political leaders and political appointees first. The Board granted loans despite the fact that some of these politicians could not and were not in a position to repay their loans. They did nothing but allowed leaders, their friends and political supporters not to settle their loans resulting in huge loan arrears. They effectively gave some of this money away.

(m) Mr Charlot Salwai's second loan was to destroy and build a new house. He has only one loan.

Mr Charlot Salwai got the two loans and the supplementary for different purposes and at different dates (refer 9.5-9.11). Whilst he is repaying the two loans as one single loan, he obtained two different loans. The first one was for the purchase of the Government property while the second was to build a house. There is no doubt that the Board members know the rules, one member one loan, but are now defending their own actions. The Board did not grant loans to other members who were waiting in vain but saw it fit to grant two separate loans to one of their Board members in the Board (also a political appointee). Would they have granted two loans to an ordinary member? I doubt it very much.

(n) Messrs E Olsen and A Maliu's loans were never been approved by the Board.

Correct. Therefore the Board are accepting that the total of the two loans of VT5.931.726 were stolen. Someone on the Board or the General Manager must have assisted in this theft. It will be a matter for the Police to investigate.

12.15 This section of my preliminary report was submitted to 34 members who applied but whose applications were assessed nor processed by VNPF. I received fifteen (15) replies. These replies are summarised as follows:

(a) All the relevant documents such as house plans, engineers' reports, documents from the Lands Department were submitted with the applications but they heard nothing back;

(b) Applicants who applied in 1994 were only informed towards the end of 1995 that the funds were exhausted;

(d) Applications may have been deliberately ignored by the Housing Officer m(Willie Roy) to avoid the applicants securing a loan; and

(e) One person mentioned that Willie Roy had asked for a bottle of whisky so the application would be processed! The applicant says he gave the whisky to Mr Roy but still heard nothing further about the processing of the applicant. This is another matter for the Police to look into.

12.16 I asked the VNPF Housing Supervisor, Mr Samuel, in October 1997 for his comments on the above replies. He replied that:

(a) Some applications were incomplete and that the applicant never went back with a fresh application;

(b) The Board did not consider the completed applications because funds were exhausted in May 1995.

12.17 The members who applied expected that their applications would be assessed and approved by the Board. It is clear that the Board did not approve some of the applications because they alleged that funds was exhausted towards the end of May 1995.

12.18 The Board had acted very unfairly towards ordinary members' applications. It said that it deferred the applications in 1996, however it approved four applications for a political appointee in the Ministry of Finance, three supporters of their political party and a Board members' application after the funds were supposedly already exhausted. The total amount involved was VT34.655.641.

12.19 In addition to this the Board also approved five supplementary loans after the month of May 1995 after the funds was allegedly to have been exhausted. These were for the VNPF former General Manager, Mr Josias Moli, the Santo/Malo UMP Regional President Mr Gaetan Pikioune and three UMP political appointees, Messrs Thompson Kawai, Adrien Maléré and Charlot Salwai. One of the political appointee was a Board member. The total amount involved was VT15.460.754. I therefore do not accept that the Board's reply is truthful or correct.

12.20 The General Manager stated in her reply that the management and the Board of VNPF are to be congratulated for what they have done in 1997 to bring the loan arrears situation under control. That is they have reviewed all the loans, included the arrears in the new calculation and came up with a new repayment schedule for each borrower.

12.21 I agree that they have taken some steps to sort the situation out. However, as on November 1997 the VNPF management was still reviewing the loans. So far only 106 of these loans have been reviewed and a re-negotiated terms for repayment have been reached with each borrower. Had the Board and management done what they should be doing all loans should have now been reviewed.

12.22 What they are now doing is what they should have been doing for years. I do not see why they should be congratulated. They are simply doing their job - that is what they are paid to do. If all the moneys owed by those in arrears particularly the political people were collected, then the members and the Ombudsman's Office will be the first to congratulate the VNPF management.

12.23 I do however extend my thanks to Mrs Ietonga for her helpful assistance over the last two years in making the VNPF files readily available for inspection.

VNPF ACT TO BE REPEALED OR AMENDED, PROVIDING FOR A PROFESSIONAL TRUSTEE CORPORATION TO MANAGE VNPF FUND.

13.1 The systematic corruption of the VNPF stemmed from Mr Jimmy's abuse of the law allowing the Minister of Finance to appoint members to the VNPF Board. It was made worse by the fact that not only were the appointees to the VNPF Board completely unqualified for and ignorant of the role of a trustee but were also actively concerned with pleasing their political masters to the detriment of the Vanuatu's workers - the beneficiaries of the trust.

13.2 This combined lack of suitably qualified persons and the depth of corruption in Vanuatu (as amply demonstrated in this sad saga of the VNPF Housing Scheme) today means, in my view, that it is unrealistic to expect in the foreseeable future to ever have a VNPF Board that is both competent and independent. Recognising that reality I therefore recommend that the Minister responsible for the Comprehensive Reform Programme table a paper to the Council of Minister for the repeal or amendment of the current VNPF Act and its replacement/amendment.

13.3 Such new Bill or amendment to provide for the VNPF to be managed by a professional trustee corporation. I note that Kiribati and Tuvalu already have their National Provident Funds managed by professional trustee corporations.

WILLIE JIMMY TO RESIGN AS A MEMBER OF PARLIAMENT, NOT TO SEEK PUBLIC OFFICE AGAIN OR BE EMPLOYED IN ANY POSITION INVOLVING PUBLIC MONEY

13.4 In my view Mr Jimmy is totally corrupt. He has shown himself to be a destructive force to the furtherance of the economic well being of the workers of Vanuatu and their families. The economic injustice that he has imposed on the People of Vanuatu as a result of his systematic corruption of the VNPF along with other past self-serving conduct.

13.5 For this kind of injustice not to occur again those responsible must resign and never again be reappointed to any position where public money is at stake. The temptation for ill gotten wealth has proved too strong for Mr Jimmy. Accordingly, I recommend that he resign as a Member of Parliament and not stand for re-election ever again. If Mr Jimmy does not follow this recommendation then I recommend that the members of his political party, the UMP, to ask him to resign or otherwise remove him.

RESIGNATION BY FORMER PRIME MINISTER MAXIME CARLOT KORMAN AND ALL MINISTERS INVOLVED IN APPROVAL OF FAVOURABLE LOANS BY VNPF TO THEMSELVES AND POLITICAL APPOINTEES.

13.6 Mr Jimmy did not act alone in defrauding the workers of Vanuatu. He was assisted by the then Prime Minister Hon Maxime Carlot Korman and the following Ministers:

13.7 All of these men totally breached the basic rule of the Leadership Code, (Chapter 10 of the Constitution)which states that leaders are not to use public office for private gain or benefit. This is exactly what they did. They misused the grant of executive power given to them by the People under article 39(1) of our Constitution to unlawfully interfere with and take over (in significant part) the functions and operations of a supposedly independent trust Board. In doing so, they obtained loans in their private capacities as a result of their actions in their public offices as Ministers of Vanuatu. Their loans and those of their political secretaries were approved (by persons Mr Jimmy had corruptly appointed to the VNPF Board) without even having to first make application.

13.8 I therefore repeat the recommendation that I made for Mr Jimmy. Those named above who are current MPs should all resign from Parliament and none of them should not seek re-election. If they do not do so I would recommend the members of the various political parties concerned to ask for their resignations and replacement with people who can be trusted and who are honest.

PARLIAMENT TO PASS A LEADERSHIP CODE BILL TO GIVE EFFECT TO THE LEADERSHIP CODE OF THE CONSTITUTION

13.9 On four successive sittings since September 1996 Vanuatu's Parliament has avoided passing a Bill (proposed law) that will give effect to the principles of the Leadership Code as set out in articles 66 and 67 of our Constitution.

13.10 In the absence of a Leadership Tribunal or other Court (created by a Leadership Code Act) to independently rule on breaches of the Leadership Code reported on by the Ombudsman it is very difficult for those who are guilty to be prosecuted and those who are not to establish their innocence. This means corrupt leaders can continue to steal from the People knowing that they are not answerable and do not risk facing any punishment for unlawful actions.

13.11 The only way at the moment for such misconduct to be examined by the Courts is for the Attorney General to bring civil action and the Police and Public Prosecutor to bring criminal proceedings as appearing in the following recommendation.

13.12 In the case of the Attorney General it is unrealistic to expect his office to be able to vigorously institute civil proceedings against all Ministers in the Council of Ministers. This is because the Attorney General is the principal legal adviser to the Government and takes his instructions from the Council of Ministers.

13.13 There is perhaps a better chance with respect to criminal proceedings brought by the Police and Public Prosecutor (on the assumption this vacant post is soon filled) as they are independent of the Government and Council of Ministers in terms of exercising their role. Both departments do however rely on Government for budgeting and appointments of these officers is linked to Commissions who are both comprised of appointees made by Ministers.

13.14 For this reason I repeat my recommendation that Parliament and the President enact a Bill giving effect to the Leadership Code.

REFERRAL PURSUANT TO S 25 OF THE OMBUDSMAN ACT, BY OMBUDSMAN OF THIS REPORT TO POLICE COMMISSIONER AND PUBLIC PROSECUTOR FOR INVESTIGATION AND LAYING OF CRIMINAL CHARGES AND TO THE ATTORNEY GENERAL FOR CONSIDERATION OF CIVIL LEGAL ACTION FOR RECOVERY OF LOSSES.

13.15 In my opinion there strongly appears to have been widespread illegal conduct by many people, including Mr Jimmy, Mr Josias Moli and the other members of the VNPF Board and Mr Antoine Pikioune, Mr Pakoa Charley and Mr Thompson Kawai and possibly other parties. I am therefore, in accordance with s 25(1) of the Ombudsman Act, referring this report to the Police Commissioner and the Public Prosecutor. The purpose of this referral is for the Public prosecutor and Police Commissioner to :

(a) to review the contents of this report, along with other materials that the Ombudsman's Office is able to provide;

(b) to then further investigate the matters revealed in the report as potentially criminal in nature; and

(c) to then determine the appropriateness of beginning criminal proceedings against those who may have committed criminal offences.

13.16 If, after that review and the recommended further investigations have been done the Public Prosecutor and Police Commissioner consider that criminal offences have occurred then I recommend that criminal charges be laid against those suspected of their commission.

13.17 Secondly, there can be little doubt that there has been repeated breaches by the VNPF Board members of their duties as trustees and other tortious acts (such as fraud and conversion) for which civil liability results. Mr Jimmy's actions as variously set out in this report and the support of his ministerial colleagues in the Council of Ministers in my view also are likely to attract civil liability under a number of different heads of claim (including, but not necessarily limited to, breach of fiduciary duty and accessorial liability to breach of trust).

13.18 On this basis, despite the observations made above in paragraph 13.10, I recommend that the Attorney General consider this report and determine whether civil proceedings should issue against any one or more of the persons whose actions are criticised in this report with a view to recovering losses suffered by the VNPF.

*14 APPENDICES*
Appendix A	Doubtful debts.
Appendix B	Balances of all loans at different times.
Appendix C	Applications made in 1994 and 1995 but not processed.
-Appendix D	Applications of which no assessments were made.
Appendix E	Leaders applications approved after the fund had been exhausted.
Appendix F	Leaders' arrears
Appendix F1	Mrs M. Kalsakau's loan approval
Appendix G	Leaders' outstanding amounts.
Appendix H	Leaders' loans approved above 35% rule.
Appendix I	Ministers' list.
Appendix J	Leaders' loans approved before applying.
Appendix K	Political appointees' list.
Appendix L	Political appointee's repayment period more than 2 years.
Appendix M	Leaders' supplementary loans.
Appendix N	Leaders' supplementary loans approved after fund was exhausted.
Appendix O	Willie Jimmy's letter to the Chairman of the Board.
Appendix P	Loan Rules and conditions.
Appendix Q	Granting extra funds to UMP Vice President.
Appendix R	Granting of supplementary fund by General Manager to Adrien Malere.
Appendix S	Granting of loan to Board members' son.
Appendix T	Alick Noel's letter to Willie Jimmy for Jimmy's support.
Appendix U	Willie Jimmy's letter to General Manager on Alick Noel's application.
Appendix V	Replacing Joses Kenneth with Samson Toara.
Appendix W	Inflated costs by Mr X's company.
Appendix X	Conversation between Mr X and Menzies Samuel.
Appendix Y	Advertising of Housing Officers' position.
Appendix Z	Bank documents.
Appendix A1	Letter of complaint by Mrs Z.
Appendix A2	Letter of complaint by Mr A.
Appendix A3	Repayment of Thompson Kawai's personal account.
Appendix A4	Leaders' loans approved when 'No Ceiling limit' was introduced.
Appendix A5	Different costs of 2, 3, 4 bedroom houses.
Appendix A6	General Manager's approval of Antoine Pikioune's supplementary loan.
Appendix A7	Pakoa Charlie's payment of furniture.
Appendix A8	Administrative costs.

^[1] The total amount which VNPF received from employees and employers contributions for the last three years was as follows:

31.12.94 VT 418,027,000
31.12.95 VT 473,018,000
31.12.96 VT 470,346,000
^[2] UN ESCAP stands for United Nations Economic and Social Commission for Asia and the Pacific.
^[3] AESOP Australia Executive Service Overseas Programme.
^[4] Public Report on the abuse of VNPF Tendering Procedure by VNPF Board and Management, 19 June 1997.
^[5] Hi is also one of the 23 past and present MPs who received an ex gratia payment of Vt1.500.000 as a result which was the subject of an Ombudsman public report., Public Report on Illegal Ex Gratia Payment to 23 1988 Former MPs, 4 June 1997.
^[2] This is also a breach of article 5(i)(k) of the Constitution by the Council of Ministers and VNPF Board members by not treating the VNPF members the same.

	Date of Application	Date of Approval	Amount Approved
Mr Petré Malsungai	16/04/96	26/05/95	VT 8 m
Mr A. Palavi	26/07/95	26/05/95	VT 7 m

Total number of applications received from VNPF members	784
Number of applications been approved by the VNPF Board and house loans granted	150
	____
Number of pending applications	634
	____

1994	VT 408,765
1995 (22.04.94 - 31.12.95)	VT 14,079,342
1996 (01.01. - 30.06.96)	VT 17,043,503

i.e.	FirstLoan	Second Loan	Total
1994	59,488		59,488
1995		160,921	160,921
			_______
Total amount of outstanding loan reimbursements(as at 30.06.96).			220,409

(a) To buy a government house	VT 3.397.006
(b) To build a new house	VT 5.159.000
(c) Supplementary loan	VT 909.737
Total	VT 9.465.743

1993
Representing the Government	Date Appointed

Mr Nicholson Worek - Chairman	March 1993
Mr Charlot Salwai	March 1993

Representing the Employees

Mr Alexander Palavi	March 1993
Mr Petre Malsungai	March 1993

Representing Employers

Mr Charles Bice - Vice Chairman	November 1992
Mr Andre Manamuri	March 1993

1995
Representing the Government	Date Terminated	Date Appointed
Mr Samson Toara – Chairman	December 1995	November 1994
Mr Charlot Salwai		March 1993

Representing Employees
Mr Tom Kalorib - Vice Chairman	December 1995	July 1994
Mr Andre Manamuri		March 1993

Representing Employers
Mr Alexander Palavi		March 1993
Mr Petre Malsungai		March 1993

Mr Pikioune	then VNPF Board Chairman & First Secretary in the Ministry of Finance
Mr Josias Moli	then VNPF General Manager
Mr Serge Vohor	then Minister of Trade & Commerce
Mr Joseph Tord	the Principal Price Controller

NAME	TOTAL COST OF FURNITURE
Henri Manamuri	VT 101,300
(John M Kalo)
Samson Toara	VT 669,100
Tom Kalorib	VT 888,385

Name	Total cost of Furniture
Josias Moli (General Manager)	VT 810,260
Ietonga Aiong (Operations Manager)	VT 872,129
Joses Kenneth (Manager for Inf.&Serv)	VT 334,713
Kelip Sandy (Finance & Invest. Manager)	VT1,345,892

Amount of loan given to Mr Samson Toara	= VT 16,000,000
Limit as agreed by the Board	= VT 5,000,000

Mrs Maria Kalsakau	Mrs J. Nase
Mr Alfred Massing	Mrs Leichichi Ruru
Mr Anderson Garae	Mr Nobert Sumsum
Mr John Lee Solomon	Mrs Anna Bihu
Hon. Demis Lango	Mr Jack Kallon
Mr Henry Taga	Mr Gideon Ronoleo
Mr Theodore Solong	Mr Richard Lui Kaltonga
Mr Kaltau Aiong	Mr Jack Waiwo
Mr Alfred Maliu
Mr Adrien Maléré
Mr Antoine Pikioune
Mr Francis Felomaki

Mr Henry Taga	First Secretary, Ministry of Health
Mr Alfred Maliu	First Secretary, Ministry of Foreign Affairs
Mr Adrien Maléré	First Secretary, Ministry of Agriculture
Mr Alfred Maseng	Member of Parliament for Luganville

i.e.	1995	VT 1,915,903
	1996	VT 1,008,370
		VT2,924,273

i.e.	1995	VT 1,273,963
	1996	VT 611,502
		_____________
		VT 1,885,465

i.e.	1995	VT 1,316,105
	1996	875,425
		VT 2,191,530

Vanuatu Ombudsman's Reports

Vanuatu National Provident Fund Housing Loan Scheme [1997] VUOM 7; 1997.16 (17 December 1997)