Maladministration and Political Interference of Loans by the Development Bank of Vanuatu [1999] VUOM 12; 1999.12 (13 August 1999)

It is very clear from the accumulated evidence that there was a very damaging absence of integrity and prudence in the activities of irresponsible officials and those in authority! Public money was dispensed in ways that everyone concerned knew were contrary to honesty, as well as to regulations.

The borrowers obviously held the Bank in contempt and treated it accordingly. Political favour was once again in evidence, as well as personal partiality and slackness. Attempts to remedy the situation were pitifully weak and inadequate.

By deliberately and systematically abusing the loan procedures using inappropriate political influence and non-repayment of loans over many years, the people involved in this report must bear the responsibility for the destruction of the Development Bank of Vanuatu (DBV), the only institution that was providing development funding to ni-Vanuatu.

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Because of the irresponsible and greedy illegal actions by those leaders, the ordinary man and woman in the outer islands now has no access to such financial assistance to improve their lives by starting projects.

The irony is that many -- perhaps most -- of the political leaders who have ignored their repayment obligations for many years are now repaying following the setting up of the Asset Management Unit.

If these repayments had been enforced in the normal way at the appropriate time, this whole sad story of the destruction of the Development Bank of Vanuatu should not have happened.

This report describes how political influence and weak management led to the destruction and the dissolution in Parliament of the Development Bank of Vanuatu on 14.09.98 as if 'it were a company being liquidated'. DBV suffered at the hands of politicians who applied their influence to obtain loans for themselves or their supporters and through the inability of the management to withstand political pressure. Mismanagement resulted in the granting of rural loans for legitimate development purposes but that violated sound banking principles. It was this same lack of good management that allowed many loans to go uncollected for years.

For example, we are looking at loans granted to Members of parliament and Ministers; Serge Vohor, former Prime Minister (3.4 million vatu), William Edgell (2.6 million vatu), Romain Batick (4.3 million vatu), Dr Edward Tambisari (4.4 million), Rassen Jerethy (2 million), Amos Andeng (2.7 million), Jimmy Meta Chilia (2.3 million), Kisel Lop (3.2 million), and other big men: J.P. Virelala (25 Million), General Manager of Air Vanuatu, Augustine Garae (2.2 million), former Managing Director of DBV, and political people: Charley Pakoa (3.4 million), Eddie Silas (9.4 million) Member of the board: former Chairman of DBV, Denis Vira (3.7 million), Louis Kapalu (4.5 million), Peter Malsungai (7.2 million), Kalpokor Kalsakau (4.9 million), Dinh Van Moi (5.2 million), and former staff: Emiliano Bouletare (9.2 million), Etienne Kombe (1.5 million), Mark Bebe, (11.3 million), Josette Malatu (2.5 million), Odile Kasten (3.4 million), Leitausel Ligo (2.7 million), Alick Kokona (2.9 million), Jennifer Manua (7.1), Ietonga Aiong (5.5 million).

DBV failed for two reasons. The first factor was political interference. As former DBV General Manager, Augustine Garae, stated in a recent letter to defend his actions: 'There was direct intervention from high government authorities as well as the Board to have the loans concerned approved. ... We were under pressure continuously from the high authorities to approve the loans.' Political interference led the DBV to grant bad loans and to forego collecting those loans when the politicians (or their supporters) failed to repay their debts. The second, and most important, factor in DBV’s failure was mismanagement. The Bank’s Manager and staff frequently ignored established policy guidelines and/or sound banking principles in granting loans, obtaining security interests, disbursing funds, and collecting monies owed. Poor management weakened the Bank’s ability to withstand political pressure. Mr Garae admits that, 'The Bank’s Management could not do much about stopping [political loans] from being approved.'

That mismanagement was the biggest contributing factor to DBV’s collapse is confirmed by the experience of the Asset Management Unit, which took over the collection of the unpaid DBV loans. According to AMU, every single loan from DBV’s rural sector is now being satisfactorily repaid. AMU has also received a high level of cooperation in collecting the political loans. If DBV management had employed the same sound principles that AMU uses, many of bad loans could have been recovered and DBV may have survived.

DBV was the only institution where ordinary ni-Vanuatu could obtain funding for projects or businesses. The destruction of DBV by irresponsible management and greedy politicians has denied these men and women the opportunity to improve their lives and our country through economic development at the grassroots of both urban and rural society.

In addition to finding the administrative practices of DBV clearly defective, this report includes the following Findings:

The Conduct of former DBV Board Members Messrs Augustine Garae, Meto Nganga, Iolu Abil, Johnson Lengkon, Anatole Lingamat, Kalo Nial, Michel Noel, James Tungu, John Aswin, Aisen Obed, Douglas Malosu, Tom Masitai, Simon Liu, Alexander Batick, Kalo, Joe Joseph, Moses Kondara, Amos Andeng, Antoine Pikioune, Petre Malsungai, Kalpokor Kalsakau, Alfred Maliu, Louis Kapalu, Rene Luc, Dihn Van Moi, Abraham Gaua, John Luen, Denis Vira, Aileh Rantes, Willie Korisa, Daniel Dick, David Bong, Joel Nocklam and Malakai Kalo was blatantly unreasonable. Some of the Board Members breached the Leadership Code, Article 66 of the Constitution, by their actions. The members have heavily contributed to the downfall of the DBV and its dissolution. As we now know this has removed the only means of introducing development in the islands and in the rural sector.

DBV General Manager Augustine Garae and his successor, Managing Director Mr Tele Harry, breached the Leadership Code Section 66 of the Constitution.

The former DBV Board Members must not be appointed to any other boards of public authorities, statutory bodies or to any other position of public trust.

Former DBV General Manager Augustine Garae and Managing Director Tele Harry must not be appointed to any other managerial posts with any other public authority or to any other position of public trust.

The AMU should continue in its efforts to collect the debts owed on outstanding DBV loans.

The AMU must remain independent of any government or political influence in its efforts to collect outstanding debts owed to the government.

The AMU must remain independent of any political influence and must be excluded from the State Investment Corporation (SIC), which would be dominated by a board appointed by the Council of Ministers, if Parliament enacts the SIC Act.

1.1 The Constitution and the Ombudsman Act allow me to look into the conduct of government, related bodies, and Leaders. This jurisdiction includes the Development Bank of Vanuatu, its Board of Directors, employees and those entrusted with authority to make decisions regarding its administration and operation. I can also look into defects in laws or administrative practices, including improper granting of loans.

2.1 The purpose of this report is to present as required by the Constitution and the Ombudsman Act.

2.2 The scope of this report is to establish the facts about the administration of loans granted by the Development Bank of Vanuatu staff and Board of Directors to its clients, politicians and public figures and to determine whether the granting of loans was based on sound prudent lending guidelines and policy as laid down in the Development Bank of Vanuatu Lending Policies manual.

2.3 This Office collected information and documents by informal request, summons, letters, interviews and research.

66. (1) Any person defined as a leader in Article 67 has a duty to conduct himself in such a way, both in his public and private life, so as not to-

(a) place himself in a position in which he has or could have a conflict of interests or in which the fair exercise of his public or official duties might be compromised;

(d) endanger or diminish respect for and confidence in the integrity of the Government of the Republic of Vanuatu.

(2) In particular, a leader shall not use his office for personal gain or enter into any transaction or engage in any enterprise or activity that might be expected to give rise to doubt in the public mind as to whether he is carrying out or has carried out the duty imposed by sub-article (1).

One of the functions of the Credit Officer is to assist entrepreneurs and investors in the preparation of their business plans. The Credit Officer will not necessarily identify specific business opportunities, and will not prepare business plans on behalf of individuals, but may provide advice to potential borrowers on the opportunities available, the Bank’s policies for development of a particular subsector, sources of information about potential investment opportunities and the requirements of a good business plan.

The purpose of screening enquiries is to review the prospective borrower and the enterprise for their eligibility for support and to assess the prospective borrower’s creditworthiness. The Credit Officer should only allow the prospective borrower to make a formal application for a loan and only commit resources to appraising the loan after a thorough screening of the enquiry.

Thorough screening of enquiries makes the application appraisal and approval process efficient. Following a review of the application documentation for completeness, the applicant’s business plan is appraised. The appraisal aims to verify all aspects of the plan including procurement, processing, marketing, management and costs and returns. As a result of the appraisal, a recommendation is made to approve or decline a loan. If the recommendation is positive the amount of financing required and the loan terms and conditions are specified.

Loan approval is the formal procedure by which a loan, recommended at appraisal, is approved. The approving authority will always be different persons from the one carrying out the appraisal. The identity of the Approval Officers is determined based on the total exposure of the Bank to the borrower if the loan is approved.

Once a loan is approved, but before it can be disbursed, the loan must be documented. In particular, legal documents to secure the loan must be executed by the borrower. When documentation is complete, loan disbursement may begin.

Loan disbursement takes place during the investment period of implementation and may continue during the start-up if an increasing amount of capital (for example, working capital) is needed to reach the operations period. Whenever possible, the Bank makes disbursement directly to suppliers against evidence of purchase of the items to be financed.

Loan supervision starts at the beginning of the investment period and continues through implementation of the business plan until the loan is repaid in full. The process of monitoring is regular checking of the physical and financial progress of the business against the targets in the plan and checking that the loan is correctly utilised. Supervision includes intervention, where appropriate, to provide businesses with guidance to avoid or correct departures from the plan or to assist management with re-planning.

Recovery is the process of collecting the repayments (principal, interest and other charges). This process normally occurs in the start-up and operations periods of the business plan implementation, when the business is generating sufficient income to repay. Loan recovery also covers the procedures followed when a business is unable to repay its loan on schedule: the management of default, rescheduling, and collection action.

Minimum borrower contribution requirements are listed below (expressed as a percentage of total of project cost):

	BORROWER CONTRIBUTION
All projects minimum	25 %
Purchase of new vehicles	35%
Purchase of re-conditioned vehicles	40%
Purchase of new or used marine vessels or boats for use in transport projects	40%
Repairs to vehicles or marine vessels or boats	50%
Purchase of industrial equipment	35%
Transfer of ownership of assets, shares, etc	35%
Construction of buildings and related works	30%
Working capital including stock	50%

The Development Bank will support projects which, in its own opinion, are economically justified, technically viable and financially viable, for any and all individual Vanuatu citizens and for companies operating within Vanuatu which are owned by Vanuatu citizens or a combination of citizens and non-citizens, provided these individuals and companies are, in the sole opinion of the bank, credit-worthy. Companies wholly owned by non-citizens will not be considered for finance.

Individuals or companies will not be considered for financing if (a) they have any accounts in arrears with the Development Bank or any other bank or financing institution, (b) they have a criminal record, (c) in the sole opinion of the bank, the results of a credit investigation cast doubt on the credit worthiness of the applicant. Applicants will not normally be considered for financing loans which are scheduled to finalise after the applicant’s 55th birthday. Exceptions will be made in the case of applicants who offer co-borrowers under the age limit.

This office contacted AMU for an update on the repayment status of the loans from clients of DBV. AMU has advised that it is not in a position to release confidential information on the loans mentioned in this report. We have decided not to look further into the re-payment to AMU because that is not the direct subject matter of this inquiry. Our investigation looked at DBV process of granting loans and the wrongful conduct of the people involved.

Nevertheless, we understand from AMU that they have managed to enter effective re-payment agreement with most of the clients.

The sampled clients we reviewed were those identified as 'bad loans', most of which were considered as political loans by the Bank. The sample also included selected former employees of the Bank. When 'current balance' is used, it denotes figures expressed as at 11 November 1998.

4.1.1 Mr Silas, a strong UMP supporter, was granted this loan during the time UMP was in Government. Hon Willie Jimmy, who was Minister of Finance responsible for the affairs of the Development Bank of Vanuatu and the shareholders’ representative, offered his land to Mr Silas as security for the loan. This loan was requested and approved during Mr Jimmy’s term as Finance Minister. Credit Officer Mr Thompson Pakoa from Tongoa was responsible for preparing and processing the loan for approval by the Board.

4.1.2 The original loan of VT9,471,257 was granted to re-finance Mr Silas’ loan worth VT6,241,000 and to provide working capital of VT3,500,000 for an intended garage operation. Mr Silas made no cash or in-kind contribution. This appears to contravene the Bank’s policy requiring borrowers to contribute some 30% equity to the project financed by the loan.

4.2.1 Mr Charley’s loan application was approved on 16/1/89, before the DBV Credit Manual was adopted. Mr Charley did not contribute any cash towards the loan. He valued his own contribution, in kind, at VT500,000. Credit Officers Peter Sakita and Beatrice Wawase processed his loan application and Sam Karie, Agriculture Loans Officer, recommended approval. The application was then submitted for approval to Mr Garae.

4.2.2 The loan was made in order to finance repair of two fishing boats and purchase of a new diesel engine. The current statement shows an outstanding balance of VT2,562,896 with a nearly equivalent value in arrears. The Bank wrote off the amount of VT443,733. Although the Traders Bill of Sale was provided as collateral for the loan (and there is evidence of legal costs relating to its preparation), the documentation has not been maintained in the file. Normal banking practices would require that the boats be insured, but DBV failed to take insurance, or to require Mr Charley to buy insurance, for the boats. DBV claimed that it held a bill of sale over the boats.

4.2.3 The project received a viability recommendation from the Fisheries Department. DBV relied heavily on the assumption that the project would function well to generate income to service the loan, but had no ‘fall back’ mechanism. The project failed. Mr Charley’s capacity to repay his loan during the time of loan disbursement was inadequate to service the required repayment level of VT46,021 per month.

4.2.4 At the time of the loan, Mr Charley was employed as Office Supervisor (a political appointee) with the Finance Ministry. The Bank failed to take an assignment of salary on his regular income to enforce Mr Charley’s financial obligation.

4.2.5 On 16 March 1993, Credit Officer Beatrice Wawase recommended urgent sale of the boats. Mr Charlie refused to sell them. A Letter of Demand was issued on 2/6/93 for Mr Charlie to repay the loan in full. Mr Charley had repeatedly called on the Managing Director to make alternative arrangements without the knowledge of the credit officers who had proceeded with legal action. DBV moved to garnish the guarantor’s (Mrs Charley) salary for VT30,000 per month, which was insufficient to satisfy the outstanding balance.

4.3.1 The loan was approved during the period Mr Moi sat on the DBV Board of Directors. The original amount disbursed was VT3,000,000, with small additional disbursements thereafter despite poor repayment history.

4.3.2 The loan was to cover Mr Moi’s personal expenses and not for developmental purposes. This loan violates the Bank’s mandate. Mr Moi’s failure to make regular payments resulted in a current balance of VT5,291,218 with VT5,761,965 in arrears.

4.3.3 Mr Moi made no contribution and offered no security apart from the personal guarantees of Mr Dinh Van Tu (his brother) and Mrs Thi Tham Goiset (his sister). There is no evidence that Mr Moi submitted a written application. Mr Garae handled the loan personally. This account was restructured several times with instalment levels reduced in favour of the client. The Bank did not attempt to enforce the personal guarantees.

4.4.1 Mr Kapalu was a former member of the DBV Board of Directors and a strong supporter of UMP Party. His original loan was classified as a ‘political’ loan. Mr Kapalu was granted three loans during the time he sat on the Bank’s Board of Directors. The first loan, in the amount of VT1,626,172, was disbursed on 30/6/93 to purchase a transport truck to be used as taxi transport on his island, Tanna. A reputable valuation expert did not appraise the vehicle and Mr Kapalu made no contribution, in violation of the Bank’s policy. The vehicle purchase was fully funded by the Bank. The Bank took a Bill of Sale over the vehicle.

4.4.2 The Bank demanded that Mr Kapalu pay registration fees, stamp duty, road taxes, and other related expenses, but he refused to do so. The Bank nevertheless disbursed the funds for the purchase.

4.4.3 This first loan was already in arrears when Mr Garae approved an additional loan of VT555,000 for the purchase of a water pump engine and cement block manufacturing machine. The decision to grant another loan ignored an important banking consideration: Mr Kapalu’s ability to repay. Mr Kapalu received a monthly salary of VT15,000 but was expected to make monthly payments of VT56,520.

4.4.4 The second loan was approved on the basis of a letter of request only. Mr. Kapalu did not submit a loan application based on a standard bank form. Mr Rex Lapen, Credit Officer on Tanna, demanded that Mr Kapalu contribute some cash towards fees, but the client did not. The Bank nevertheless granted Mr Kapalu this additional loan. This action exposed the Bank to further risk.

4.5.1 Mr Lop is a strong UMP supporter who was employed by the UMP Government as the Public Works Department’s foreman on Tanna.

4.5.2 This loan was granted before the DBV Credit Manual was adopted. Mr Lop did not submit an application form. The Bank processed the loan based on a letter of request. . The Bank’s Board of Directors approved Mr Lop’s loan and, on 30/4/83,he received VT800,000 to purchase a second-hand mini bus for tour operation. The loan agreement required the repayment in three years, but the term has now been extended to more than ten years, exceeding the authorized period.

4.5.3 The security was never evaluated and its value is not known. The Trader’s Bill of Sale documentation was defective and cannot be enforced. As of 11 November 1998, the loan balance stood at VT1,577,423, with its interest set at zero to stop its further growth. Following Mr Lop’s failure to make regular repayments, DBV seized the vehicle. There is no evidence as to whether the vehicle was sold by the Bank or returned to Mr Kapalu following an alternative arrangement.

4.6.1 Mr Kombe was formerly employed as Senior Administrative Officer with DBV. In 1989, Bank management terminated Mr Kombe’s employment. From 1992 to 1995, Mr Kombe worked as Principal Electoral Officer. During the change of government in May 1997 until February 1998, Mr Kombe worked as Private Secretary to Prime Minister Serge Vohor.

4.6.2 Mr Kombe’s housing loan application (for VT1,500,000) was submitted and approved while he was a staff member and Augustine Garae was Chairman of the Board of DBV. (This loan pre-dated the adoption of the DBV Credit Manual.) This loan was a personal staff loan. One of the conditions of the approval was that Mr Kombe pay, from outside sources, the legal costs related to the mortgage preparation, stamping and registration. Mr Kombe arranged his mortgage documentation with the Bank’s lawyers. Mr Kombe applied to the Bank for the approval of a separate loan (VT112,000) to enable him meet the legal costs and other associated fees. This violated the conditions of the loan approval.

4.7.1 Honourable Serge Vohor, former Prime Minister of Vanuatu, was Minister of Economic Affairs and President of UMP, the then-ruling party. As Minister of Economic Affairs, Mr Vohor was responsible for the Development Bank of Vanuatu. The Board of Directors, the majority of whom were UMP members, approved Mr Vohor’s loan.

4.7.2 His initial request was for a loan of VT2,300,000 to purchase a truck. He agreed to contribute VT1,226,583 and to repay the loan at VT80,900 per month. He later declined to make the contribution and requested the Board’s approval for the Bank to finance the truck purchase in full. It appears from the documentation that the loan was disbursed before it was formally approved. Security documentation was prepared months after the release of the funds.

'It would be a difficult position to be in, to have to show an appraisal to ADB which was started after a loan was disbursed. I suggest that we make sure that the proper loan documentation is in place (Loan Agreement, Bill of Sale, ASD and LAOS), and fund the loan from other sources.'

4.7.6 This loan account was classified as a political loan and was only accessible by the Managing Director. Due to Mr Vohor’s failure to honor the agreement, the vehicle was seized and sold for VT850,000, which helped reduce the loan amount. Mr Vohor is expected to repay the outstanding balance, but he has not made any arrangement to have the loan repaid.

4.8.1 Mr Malsungai has held the position of UMP Secretary-General for many years. He was a member of the DBV Board of Directors at the time of the approval of his loan. Mr Malsungai’s first loan was for the purchase of a 4WD Mazda pick-up truck to be used as a taxi and provide a working capital of VT500,000.

4.8.2 Mr Malsungai applied for two loans. The first loan was disbursed on 3 August 1994 with a current unpaid balance of VT3,168,126 as of 11 November 1998. Prior to approving the loan, DBV did not undertake a proper appraisal of the borrower’s assets, and liabilities and ability to service the debt. The DBV failed to ascertain how the loan was to be repaid.

4.8.3 Despite Mr Malsungai’s bad performance history, the Bank approved a second loan for a mini-bus. The balance of the first loan was VT4,045,814 at that time. There is no evidence that the Bank examined employment or salary information, or required a formal application, before disbursing the second loan proceeds on 12 April 1996.

4.8.4 The original agreement terms, required Mr Malsungai to make monthly payments of VT194,978 per month for three years. If DBV had undertaken proper appraisals, it would have determined that the borrower would have had difficulties meeting this payment schedule.

4.8.5 The Bank issued a Letter of Demand on 17 February 1997 in its efforts to recover the debt. The Mazda pick-up truck was seized and sold. To date, Mr Malsungai owes DBV VT7,213,940. The Bank has made no further effort to collect the outstanding amount.

4.9.1 This customer was a former Vanuaku Pati Member of Parliament and Government Minister. Mr Chilia had borrowed money from DBV before and had a good performance history. His loan of VT2,320,923 was granted when he still had an outstanding debt of VT750,000. At the time, he was paying monthly instalments of VT46,436 to the Bank.

4.9.2 Mr Chilia’s monthly salary (during the period he was Minister) was VT200,000. The purposes of the loan were to purchase a 4WD truck for taxi operation and to assist with an agricultural farming project. The initial loan request was declined on 8/10/93 because he was over-committed. When he became a Government Minister, he approached the Bank to reconsider his loan application. Credit Officer Toco Mara re-assessed the application and recommended approval on 30/11/94. However, the loan had already been approved by the Board on 20/10/94, prior to review, assessment and necessary recommendations based on sound findings.

4.9.3 Mr Chilia defaulted on the loan agreement and a Letter of Demand was served on Mr Chilia on 5 November 1996. He responded by promising payment of the total accumulated arrearages in November or December of 1996. Mr Chilia failed to honour this promise. A second Letter of Demand was served on Mr Chilia on 11 December 1996. The client again promised that he would make payments in December 1996, and also complained of being given too short a notice and demanded recognition of his position as a Member of Parliament.

4.10.1 The client was formerly an UMP Member of Parliament and a Government Minister. He has played a significant role in fostering UMP party policies and has held executive positions within the party. Mr Andeng’s loan was considered a 'Loan to Board Members'. At that time, Mr Andeng was Chairman of the Board of Directors of DBV and UMP was in Government.

4.10.2 In association with a partner, Mr Andeng borrowed VT2,744,500 to purchase a 4WD truck to provide taxi service for people on Tanna. The loan file contains no application form. He did not provide detailed information of his income and expenditures and his capacity to repay was not assessed. Although the file contains references to bills of sale, vehicles and a mortgage over land title at Ohlen, the documentation does not appear in the file. The required security valuations had not been made.

4.10.3 The vehicle was financed by 100% funding from DBV without any contribution from Mr Andeng. He sought duty exemption on the vehicle and was granted provisional approval of a 50% reduction in duty by the Finance First Secretary, Mr Antoine Pikioune. On 25 March 1997, arrears amounted to VT1,095,560. The Bank capitalized the arrears by deleting the amount of arrears indicated in its records. The amount of arrears would therefore be included in the capital, then totalling VT3,840,060.

4.11.1 Mr Bebe was a staff member of DBV until he resigned to become the Manager of Lending of the National Bank of Vanuatu. While employed by DBV, he received five loans, all fully funded by DBV. The first loan was to purchase a house in Port Vila.

4.11.2 No detailed information is available about his second and third loans, beyond their outstanding balances: VT273,518 on the second loan and VT1,037,017 on the third. The fourth loan was for the purpose of constructing a house on his home island, Pentecost. The account was operated jointly with the client’s wife, Melodie Bebe. Mrs Bebe was servicing the loan as of 11 November 1998 and there was no arrearage in repaying the outstanding balance of VT1,224,893. Bank records indicate that its fifth loan to Mr Bebe, which was a personal loan, was written off with a balance of VT196,580. According to DBV records, his unpaid loans totalled VT10,090,253 as at 11 November 1998. In a letter to the Ombudsman, Mr Bebe states that it was fully repaid through an assignment of his salary.

4.11.3 Mr Bebe has worked for a World Bank-funded project for the Tuvalu Government and as the National United Party’s First Political Secretary at the Ministry of Trade, Investment and Commerce, but declined to make any payments during the periods he was employed. Mr Bebe declined all repayment arrangements proposed by DBV. He disputed the Bank’s proper preparation of the collateral and legal documentation for his loans and said he did not sign the loan documents in front of a legal person. His continual refusal to repay the loan resulted in the unpaid balance of VT2,667,273 by 11 November 1998.

4.11.4 Legal action against Mr Bebe resulted in his eviction from the house property. The property was sold for VT4.6 million, which reduced the outstanding debt. The Bank has taken no further action to recover the remaining balance. However, Mr Bebe indicates that he is making monthly payments of VT30,000 (through an assignment of his salary) against one of the other loans.

4.12.1 The purpose of this loan was to establish a tourist resort, including a restaurant, on Oyster Island. The client, a naturalized citizen, is believed to be a supporter of the UMP party and to have used his close association with UMP strongmen (when they were in Government in 1993) to have the project funded. Evidence shows that the client acquired political support from UMP politicians in government.

4.12.2 Mr Giovanni’s initially requested VT18 million and subsequently reduced the request to VT1.5 million. The Bank opted to fund the latter. The loan approved by the Bank gave Mr Giovanni five years to repay the loan with monthly payments of VT36,477. After he received the loan, Mr Giovanni did not make the monthly payments. The security he had offered was not registered under his name and he knew that the Bank could not enforce the security agreement in court if he defaulted on the repayment. The Oyster Island Resort is in operation and generates substantial income that would enable Giovanni to service the debt.

4.12.3 A Letter of Demand dated 19/2/97 was served on Mr Giovanni. He did nor respond, but the Bank took no further steps to recover his debt.

4.13.1 Mr Pakoa is known to be a strong UMP supporter. He has held political positions in the Finance Ministry and the Prime Minister’s Office when UMP was in government. The purpose of Mr Pakoa’s loan was to purchase two vehicles. He was granted the loan during the period he was Political Supervisor of the Finance Ministry. Letters of political support came from Mr Pikioune (Finance First Secretary), Mr Andeng (DBV Board Chairman), and Mr Jimmy (Finance Minister), who was the shareholder in DBV as nominee for the Government of Vanuatu. These letters of support persuaded the Loans Committee to approve the loan, against the wishes of the Bank’s management, which was prepared to decline the loan request.

4.13.2 Initially, the project was deemed non-viable and the loan was deemed to fall outside the Bank’s normal policy guideline. An expatriate staff member recommended that the loan be declined. Due to pressure applied by Government’s political executives, the Bank was forced to approve the loan (Letters of political support attached as appendices 'A' and 'B'.) Duty exemption was granted on the vehicles purchased. Because of political pressure, the money was disbursed hurriedly. The Bank’s requirement to conduct an appraisal of the project was not followed. The project was 100% funded by the Bank, with Mr Pakoa making no contribution in funds or in kind.

4.13.3 At the time of operation, the bus and taxi could not generate sufficient revenue to fully service the loan as per the agreement. Many months passed without any payment being made. Eventually, the bus was re-financed by National Bank of Vanuatu for an amount of VT1,538,349 to enable Mr Pakoa to repay the loan at a much lower interest rate. The proceeds of the refinancing were credited directly into the DBV debit account and reduced the debt somewhat. The taxi was subject to many mechanical problems. The Bank repossessed the taxi on 4/6/97. A Letter of Demand was served on Mr Pakoa on 26/3/98. No response was received from the client.

4.14.1 Mr Vira was an UMP political figure who held positions as Third Secretary and later Second Secretary of the Finance Ministry. He was a former Chairman of the Board for Development Bank of Vanuatu and the National Bank of Vanuatu. DBV granted Mr Vira three separate loans during the period UMP was in Government.

4.14.2 The first loan, disbursed on 19/10/95, was for the purchase of a bus to operate in the city of Port Vila. The Loans Committee initially refused the loan application. Mr Garae communicated the decision to Mr Vira in a letter dated 13/6/95, advising that the request fell outside the Bank’s normal lending policy.

4.14.3 Upon receipt of the Bank’s letter declining his first loan request, Mr Vira solicited support from political leaders in the government. Two days after the date of the Bank’s letter, the First Secretary of the Ministry of Finance, Mr Pikioune, asked the Bank to reconsider the loan for approval; his letter is annexed 'C'. In a letter dated 12/9/95, Finance Minister Hon Mr Jimmy expressed support for the loan application and asked that it be treated as an unsecured loan. Hon Mr Jimmy further suggested that DBV waive its requirement of a cash contribution of VT500,000 but increase the interest rate to 17%. This scheme increased the Bank’s risk exposure to 100%. Mr Jimmy’s letter is annexed 'D'. Mr Jimmy’s letter was not disputed and Mr Garae approved the loan on the terms suggested in the Minister’s letter. (The interest rate was set at 16%, instead of 17% as suggested by the Minister.)

4.14.4 Mr Vira failed to honour the loan agreement, which resulted in substantial repayment arrearages. Despite bad performance history, a second loan was granted to him on 6/2/96. Only one month later, on 20/3/96, the third loan was disbursed. Details of the second and third loans were not available in the Bank’s file. However, it is known that one of the loans was to fund a kava nakamal adjacent to Mr Vira’s residence.

4.14.5 DBV’s approval of the three loans ignored the client’s inability to repay them, as the monthly payments exceeded his monthly income. In his interview with the Ombudsman’s office, Mr Vira stated that AMU has taken the bus and sold it to another person. He said the Ombudsman’s report is good because it concerns public funds.

4.15.1 Dr Tabisari held various key positions in the Health Department, including Acting Director, for a number of years. He was also Minister of Health. He holds a Bachelor of Medicine and Surgery from the University of Papua New Guinea and a Postgraduate Diploma in Epidemiology and Health Planning from the University College of Swansea. He resigned to establish a private medical practice under the name 'Lugan Medical Centre' in Luganville, providing consultations, surgery services and pharmaceutical products. He applied for a DBV loan to finance the new practice. When appraised, the project seemed financially and economically viable, but mismanagement resulted in the project’s failure.

4.15.2 The Loans Executive Committee approved the first loan of VT2,600,000. (This loan was granted before the DBV Credit Manual was adopted.) After one-and-half years of operation, Dr Tabisari requested additional funds to stock the pharmacy. A further VT1,870,000 was approved and released to the client through his personal account at Westpac Bank Limited. Dr Tabisari misused the second loan to settle creditors’ accounts instead of re-stocking the pharmacy.

4.15.3 When the Lugan Medical Centre was in financial trouble, a reputable pharmacy was prepared to purchase its assets and establish another pharmacy in Luganville. Dr Tabisari refused to allow the assets of Lugan Medical Centre to be sold and therefore sought Vanuaaku Pati political support. A letter from the VP Chairman of Sub-Committee (in Luganville) to the Minister of Finance, Honourable Sela Molisa, requested that Minister Molisa decline to grant the incoming pharmacy a business license to operate in Luganville. However, it is understood that Minister Molisa refused this request and instead welcomed fair competition by allowing the reputable pharmacy to establish itself in Luganville.

4.15.4 Dr Tabisari made a further request to the new incoming Finance Minister Sethy Regenvanu, asking that he not approve the opening of another pharmacy in Luganville and that he prevent the sale of the Lugan Medical Centre’s assets to a foreign investor. Minister Regenvanu’s response is not available. However, we note that the reputable pharmacist in question did not establish a business in Luganville.

4.15.5 Dr Tabisari was elected a Member of Parliament in 1991 and was appointed Minister of Health. On 17/9/93, DBV re-negotiated the terms and conditions of the loan and asked that Minister Tabisari increase his monthly payments to VT90,000. The Minister did not consent and continued to make monthly payments of VT15,000. At this rate, the loan could not possibly be paid off.

4.15.6 As of 17/7/97, the loan had fallen into substantial arrears amounting to VT7,561,901. For reasons not stated in the file, the arrearages were capitalized and removed from Minister Tabisari’s statement of account. During his employment as Government Minister, he did not cooperate and declined repeated requests to increase his payments. The Bank’s Loan Officer recommended legal action on 14/6/95, but there is no record of whether this was pursued further by the Bank.

4.16.1 Mr Edgel had a logging business earning around VT150,000 per month. He established and registered a new business under the name 'William Edgel Limited'. DBV granted the loan to finance the purchase of a ship, MV Saraika, to operate under the newly established company. (This loan was granted before the DBV Credit Manual was adopted) Mr Edgel was a Member of Parliament and a Government Minister. He has worked for Luganville Municipality, Santo Urban Land Corporation and Burns Philip. He is a member of MPP Party.

4.16.2 After three months of operation, the ship was wrecked, seemingly beyond repair.. Since Mr Edgell had not paid a single instalment, DBV initiated legal proceedings against him. It was then discovered that he owned no assets of substance and the company was struck off the register.

4.16.3 Other creditors sued Mr Edgel and the court seized most of his assets. DBV did not apply to court to declare itself as a creditor and therefore did not benefit from the sale of assets by the court. As of 26/3/87, the unpaid balance of the loan amounted to VT1,777,752. The two guarantors, Mr A and Mr B, were asked to make repayment. Both were reluctant to do so but eventually, Mr B agreed to pay VT20,000 per month for a total of VT220,000. For unknown reasons, this arrangement was not completed.

4.16.4 At 2/9/96 total arrears totaled to VT5,019,600. As of that date, Minister Edgel had received a VT5 million ex-gratia payment, which was subject to an Ombudsman enquiry, but did not attempt to make any payment to this loan account.

4.17.1 Mr Boulekon worked for Telecom Vanuatu as Driver/Foreman. He applied for a loan in order to purchase a used bulldozer from Australia. The bulldozer was intended for hire to carry out earthmoving works, road maintenance constructions, bush clearing works and other construction works. The loan application fell outside the Bank’s policy (against financing used vehicles). Despite this, the loan was approved with the client contributing VT1.429,250.

4.17.2 As is the case for many loan approvals, the loan amount was disbursed 1/12/95, four months before security documentation (in this case, Lease Agreement and other legal documentation) were prepared and signed by both the Bank and the client. This practice is contrary to the Bank’s rules and procedures. All collateral documentation should have been in order prior to releasing funds. In response to the Ombudsman’s Working Paper, Mr Boulekone stated that it was not his problem that DBV did not follow its standard procedures for loans. He satisfied all the requirements requested by the Bank. Mr Boulekone defaulted on the loan agreement and a Letter of Demand dated 18/2/97 was served on him. The Bank did not pursue the matter further for at least one year, until the Asset Management Unit was formed in 1998 and seized the bulldozer and tendered it for sale. Mr Boulekone said he is repaying the balance for his loan.

4.17.3 Most correspondence regarding the loan was copied to Charlot Salwai, First Secretary of the Ministry of Education. Information received showed that Charlot Salwai and Gildas Tabiaga corresponded with the Bank about the loan for some reason. Mr Boulekone explained that correspondence was sent to Mr Salwai because he had appointed him to oversee his business affairs. Mr Salwai confirmed this statement in his interview with an Ombudsman officer. Mr Tabiaga was a guarantor for his loan and was asked by Mr Boulekone to correspond with DBV on his behalf on one occasion.

4.18.1 Mr Batick was a UMP Member of Parliament and former Minister of Education. The Bank granted him two vehicle loans while he was Education Minister.

4.18.2 The first loan of VT2,209,400 was released on 13/1/94. The Minister contributed VT400,000 cash. The vehicle was purchased duty free. The loan agreement required monthly payments of VT79,047. The Bank classified this loan as a political loan and graded it accordingly until it was reclassified without explanation. When the Minister’s payments became irregular, the Bank seized the vehicle and sold it to another Member of Parliament, for VT750,000; Minister Batick remains liable for the unpaid balance.

4.18.3 The first loan was in arrears by VT474,282 when the second vehicle loan was approved and funds disbursed on 4/1/96. Disbursing loan funds under these circumstances violates to the Bank’s lending policy. The client was expected to pay monthly instalments of VT70,000 for the second loan. These vehicles were purchased to provide rural taxi service, but that enterprise did not generate sufficient revenue to service the two loans. On approximately 22/10/96, the Bank seized the second vehicle and sold it to another client for VT1,600,000. Mr Batick is expected to pay the remaining unpaid balance of the two loans, totalling VT2,013,085.

4.19.1 Mr Virelala obtained these loans while he was Chief Accountant with the Bank and before the DBV Credit Manual was adopted. He was subsequently employed as Manager of Personnel and Administration of Telecom Vanuatu Limited. At the present, he is Managing Director of Air Vanuatu.

4.19.2 Mr Virelala obtained five loans during his term of employment with the Bank. Two of these loans were to purchase property, animals and equipment for Ranch de la Falaise, a cattle ranch. These two loans were amalgamated and stood at a total amount of Vt17, 546,067. A mortgage was taken over the property and a Bill of Sale over the machinery. The Bank also granted loans for a house, car and a store. At the time the Bank approved the loans for the house and car, the first two loans were in arrears. This violated the Bank’s lending policy to grant subsequent loans only when prior loans were performing satisfactorily and not in arrears.

4.19.3 The term of the loans have been extended due to irregular payments. The Bank made no attempt to foreclose on the mortgage on Ranch de la Falaise, land title no. 12/0641/001, situated at Teouma.

4.19.4 It was evident that the Bank attempted to restructure the loans in order to help Mr Virelala meet expected repayments, to no avail. Eventually, the Bank wrote off the VT 1,728,070 balance for the store loan. The Bank had a mortgage over the store, but again no legal action was taken against Mr Virelala.

4.19.5 Upon the termination of Mr Virelala’s employment with the Bank, his loan terms and conditions should have been changed to normal customer’s rate. The Bank failed to do so, and Mr Virelala continued to enjoy privileged treatment.

4.20.1 Mr Garae was the Managing Director of DBV. He applied for this loan to re-finance outstanding debts valued at VT1,759,347 and to reimburse the Bank for VT520,000 in imprest money he spent on personal items while on a tour in the USA. The new Managing Director, Mr Tele Harry, allowed an additional VT106,890 to be released to cover Mr Garae’s personal telephone expenses. It is understood that the use of Bank money by staff should be subject to disciplinary action; it should not be covered by a loan from the Bank.

4.20.2 This unsecured loan was granted for a very generous nine-year term and required monthly payments of VT36,100. Mr Garae drew it as a personal loan in breach of standing DBV rules, which set VT200,000 as the maximum amount for personal loans to staff.

4.20.3 Upon termination of his employment with the Bank, new loan conditions were arranged whereby he was required to pay VT69,674 per month at 16% interest. In addition, the loan term was reduced to 5 years. Mr Garae, after taking employment in the Federated States of Micronesia with a monthly salary of over VT400,000, Mr Garae negotiated a reduced monthly payment of VT50,000 with the Loans Committee, thereby increasing the term of the loan. Thereafter, he made only one monthly payment and went into default.

4.20.4 The Bank did not attempt to enforce Mr Garae’s obligation. To date, the loan remains unsecured. DBV failed to take appropriate security to cover the loan, although Mr Garae owns two houses with discharged mortgages. The Board of Directors allowed the Bank to make termination payments directly to him, rather than applying them to his outstanding debt. This violated policy set out in the Staff Manual, which states that all staff loans are payable upon termination or resignation.

4.20.5 No effort was made by the Bank to pursue the default in court in order to obtain a judgement to garnish Mr Garae’s salary. However, in a letter to the Ombudsman, Mr Garae states that he has started sending monthly payments to the AMU through automatic deductions from his salary (at FSM Development Bank).

4.21.1 Mrs Malatu is a former employee of the Bank. She borrowed these funds during her employment, in order to purchase land and housing materials, under the DBV Staff Housing Loan scheme. The loan application was processed by Brigitte Stanislas and approved by Mr Garae. Although DBV records indicate that the Bank failed to take a mortgage on the property at time of the loan, both Ms Malatu and Ms Stanislas stated in separate letters to the Ombudsman that a mortgage was, in fact, placed on the property.

4.21.2 During her employment, Mrs Malatu was required to pay VT16,745 per month. Payments were deducted from her salary beginning November 1989.

4.21.3 On 22 May 1997, Mrs Malatu’s employment with the Bank was terminated. She thereafter refused to make any payment at all. Bank personnel made personal visits to her home in an attempt to get her to sign security documentation but she refused. It appears that she has a lawsuit alleging wrongful termination pending against the Bank.

4.21.4 The Bank served a Letter of Demand dated 7 November 1997 on Mrs Malatu, but she did not respond. The Bank took no further action until five months later, on 3/4/98, when it issued another Letter of Demand. Again she failed to respond. The Bank forwarded the matter to its lawyer on 28 July 1998.

4.22.1 The client was an employee of DBV until 22 May 1997, when her employment was terminated. This housing loan for VT2,700,000 was approved and disbursed under staff housing loan scheme while she was still with the Bank. (The DBV Credit Manual had not been adopted at the time the loan was made.) The housing loan was amalgamated with a previous loan from 1983.

4.22.2 Repayment terms included monthly payments of VT20,852 at 6% interest. These favourable conditions ceased when Ms Kasten’s employment was terminated.

4.23.2 Mrs Ligo’s employment with the Bank was terminated on 3 January 1995. The conditions of the loan were changed to normal terms: the interest rate was increased from 8% to 16%; monthly payments increased to VT27,300; and the term of the loan was reduced. Other loans drawn by Ms Ligo were amalgamated with the housing loan.

4.23.3 When the loan went into arrears due to non-payment, the Bank charged penalty interest of 1.5%. A Letter of Demand dated 18/2/97 was served on Mrs Ligo, but the file contains no evidence of a response. The matter was forwarded to the Bank’s lawyer on 6 March 1997, but there is no evidence of legal action in the file.

4.24.1 Mr Kokona was a staff of the Bank until he was compulsory retired in January 1995. His brother, Hon Willie Jimmy, was Minister of Finance at the time he applied for a loan to purchase an irrigation system and provide working capital for squash cultivation on the Teouma plains. As security, Mr Jimmy offered a vehicle registered number T344 and the irrigation system. The value of these properties are not known. The Bank took a Bill of Sale over these assets. Mr Kokona stated in his interview with this office that the loan was a normal loan, rather than a staff loan.

4.24.2 Mr Jimmy applied for the loan when he was employed by the Nambawan Bottle Shop. Mr Antione Pikioune, who was First Secretary of the Finance Ministry, supported the application through his letter dated 5/4/95 (see appendix 'E'), which stated in part 'I recommend that this application be appraised for the Board decision'. Mr Pikioune addressed his letter to Mr Tele Harry, then Acting Deputy Managing Director. The Managing Director authorized Mr Harry to handle the application. In an interview with this office, Mr Kokona said the project was his own and, as part of his contribution, he provided tools. The loan had nothing to do with the fact that the Minister of Finance was his brother.

4.24.3 The loan agreement required repayment over a period of seven months, with instalments of VT58,796 until a lump sum payment was made to retire the loan. Mr Jimmy did not honour the agreement and the loan entered arrears. The entire amount outstanding is in arrears. After many contacts and proposed arrangements to garnish Mr Jimmy’s salary (as manager of Vanuatu Holdings) failed, the Bank issued a Letter of Demand dated 13/2/97.

4.24.4 The security assets were put out for tender. Another person purchased the irrigation system for VT650,000 on 1/10/96. The Bank took no further action to recover outstanding funds owed.

4.25.1 Mr Rongo operated the Vanuatu Colour Market and applied for a loan in order to establish himself as an exclusive agent to sell British Paints in Vanuatu. At the time he received the loan, he was employed as a salesman for Burns Philip Hardware. At present, Mr Rongo is First Political Adviser to Foreign Affairs Ministry.

4.26.1 Ms Manua is a former DBV employee. During her employment, she obtained several loans from the Bank. To date, two loans are outstanding: a housing loan for VT3,731,540 and a trade store loan with a balance of VT3,457,694.

4.26.2 Ms Manua received a housing loan in 1992. It appears that the parties discussed a mortgage on a house property (title 11/OA22/051), but there is no documentation of such a transaction. In her letter to the Ombudsman, Ms Manua states that she paid fees to the Bank’s legal department to prepare the security documents. When Ms Manua retired from the Bank, her loan account was restructured to comply with normal customer terms and conditions, according to normal procedure. The Bank requested her consent, but she refused by responding 'I have decided not to sign until the Bank extends the loan period and lower the instalment amount to say VT34,000 or VT35,000'. In her letter to the Ombudsman, Ms Manua states that the house is currently being rented and that she is making monthly payments of VT70,000 on the loan.

4.26.4 The loan was being repaid satisfactorily while the store was under management of a Mr R until Ms Manua’s husband took over the business. The loan account deteriorated and fell into arrears on 30/4/95. By 25/6/97, the loan was in arrears by VT2,076,307. For reasons unknown, the Bank later capitalized the arrearage.

4.26.5 The Bank attempted to garnish salaries of Ms Manua and the loan guarantor, but was unsuccessful. The Bank failed to arrange a payroll deduction from Ms Manua’s. teaching salary.

4.26.6 The store loan was unsecured, as the Bank did not take any interest in the stocks and the fixed assets of the store. Furthermore, no mortgage was taken over the permanent building housing the store, as the lease title under which the store was constructed was in another person’s name. The Bank was apparently unaware of this fact before it extended an offer for settlement of debt, when it proposed that it take a Bill of Sale over the stocks and fixed assets and a mortgage over the property. Nothing has happened and the loan remains unsecured to date. Ms Manua states in her letter to the Ombudsman that the Bank owes her VT984,022 in severance pay, which she needs in order to satisfy the outstanding trade store debt.

4.26.7 It is understood that both Ms Manua and her husband are currently employed.

4.27.1 Ms Garae is the niece of Mr Augustine Garae, the then General Manager of DBV. Eight employed guarantors supported Ms Garae’s loan. Mr Garae processed the loan application personally. However, in a letter to the Ombudsman, he states that her loan was approved on merit.

4.27.2 This loan was for the purchase of a vehicle that the Bank had seized from a Mr M, who had defaulted on his loan. The vehicle was transferred to Ms Garae, who assumed Mr M’s outstanding debt and VT192,700 in repair costs. Ms Garae made no contribution. The Bank obtained no information regarding her assets and liabilities, income and expenditures. The Bank did not conduct a credit check.

4.27.3 The vehicle was shipped to Longana area on Ambae to be used as a taxi. The vehicle could not generate sufficient revenue to meet the required VT105,500 monthly payment. The repayments were irregular and an arrearage began to accumulate by 5/2/97, only five months into the collection period. When the Bank attempted to execute its assignment of salary deduction, two guarantors requested that their guarantees be cancelled. The Bank declined both requests.

4.27.4 The Bank, the client and Mr. B., a guarantor, met regularly and, on 17 November 1997, the Bank restructured the loan and offered new conditions favourable to Ms Garae. Up to this date, a total of VT662,900 has been repaid. The Bank decided to write VT662,900 off of the debt, reducing the balance to VT3,514,743. Other terms and conditions remained unchanged. Even with this new arrangement, Ms Garae could not meet her obligation, and the account has continued to deteriorate.

4.28.1 Mr Jerethy applied for this loan to establish a fisheries project to buy fish from the local fishermen and sell it to Santo and Vila. His brother, Rassen Jerethy, who was a Member of Parliament at the time, made the loan application. His application had the support of the First Secretary of the Ministry of Economic Affairs, Mr Alfred Maliu, as evidenced by his letter dated 12/2/93 (Appendix 'F').

4.28.2 The Bank approved an initial loan of VT300,000 before an additional VT20,000 was requested. The Managing Director, Mr Garae, instead approved an additional VT100,000 loan, more than the amount recommended by Credit Officer and the Fisheries Department. Mr Garae stated that his approval was based on Credit Manager Tele Harry’s written recommendation. The Bank did not conduct a credit check and disbursed the loan proceeds before putting the securities in order. In fact, the debt remains unsecured to date.

4.28.3 During the project cycle, Mr Jerethy made no payments on the loan. Although the Bank had a branch office at Lakatoro, the branch office did not review the project’s operations. There was no record in the file to show that the Bank attempted to garnish the guarantor’s salary when the project failed. No legal action was taken against the borrower. In response to the Ombudsman’s Working Paper, Mr Jerethy advised that the business’s ice-making machine has not worked for four years. (The machine is operational but the generator is not.) He suggested that the Asset Management Unit could take the machine and sell it.

4.29.1 This loan was obtained to purchase a four-wheel drive truck to operate as taxi on Tongoa. The original file containing the loan application and information on processing, approvals and security is missing. Mr Popongi contributed VT800,000 for this loan.

Lon hemi stap long nem blong mi be hemi go from wan projek blong olgeta long Tongoa. Mane ia olgeta i peim wan trak oli kolem 'Umai transport'. Mane blong lon hemi Vt2.8 million.

Long tu yia trak i stap wetem lokol gavman long Tongoa afta we DBV I karem aot trak long komuniti long 1994.

Afta long taem ia Eddie Silas i tekem aot trak long lokol gavman. Mi ko tekem aot trak long hem afta we DBV ino save mekem wan samting mo i stap aftarem mi from lon ia.

Long lukluk blong mi, DBV i save ol loa mo prosidja blong banking be oli no tekem wan action mo go luk polis blong tekem aot trak ia. Mi nomo i mas tekem aksen ia from mi gat pikinini mo mi no wandem go long prisen from trak ia.

4.30.1 Mr Jerethy was an UMP Member of Parliament. when he obtained this loan to purchase a truck to use as a rural taxi on his island, Malekula. The loan was guaranteed by a policeman and his brother, Johnety Jerethy. MP Jerethy contributed VT400,000 cash toward the project. The loan was approved by Tele Harry. In violation of banking principles and DBV policy, the Bank disbursed loan funds before putting the securities in order. The Bank did not conduct a credit check to assess his creditworthiness.

4.30.2 During the first few years, the taxi generated sufficient income to service the loan. Problems arose in mid-1997 and, on 25 September 1997, the Bank asked MP Jerethy to surrender the vehicle. (The Bank held a Bill of Sale security over the vehicle.) He declined and stated that, as an MP, he did not wish to be belittled by the Bank’s removing the vehicle from him.

4.30.3 The Bank took no legal action to recover the funds. Execution on the Bill of Sale should have been straight-forward, but the Bank has not done anything. As of 5 November 1998, the account was VT893,150 in arrears. In response to the Working Paper, Mr Jerethy stated that AMU took the truck away from him last year. He said he has no source of income to repay his loan.

4.31.1 Ms Aiong was the former General Manager of National Provident Fund. She obtained this loan while she was employed as the Bank’s Senior Administrative Officer, responsible for the administration of loan files and withdrawal approvals. Her monthly salary of VT61,000, was inadequate to meet her VT55,000 monthly payment obligation under the loan agreement. The Bank granted this loan without carrying out a credit check and a full analysis of her ability to repay.

4.31.2 The loan violated the Bank’s lending policies because no contribution was made. Although Mrs Aiong indicated in her application that she would make a contribution, the proposed amount was less than 30%, and she failed to contribute it. It further appears that she received an over-disbursement of VT446,956, which came to light only after she resigned from DBV.

4.31.3 The Bank disbursed the loan proceeds before putting the securities (a mortgage) in order. Afterwards, the Bank discovered that it could not take a mortgage over the property, as the house was constructed on rural customary land. The loan remains unsecured to date. Ms Aiong purchased a lawn mower with loan funds, but the Bank could not take a Bill of Sale over this machine.

4.31.4 Ms Aiong’s payments were irregular and less than required under the loan agreement. A Letter of Demand, dated 8/6/87 and threatening legal action unless all outstanding funds were repaid, was served on Mrs Aiong. In response, Mrs Aiong made one payment of VT45,000. The Bank accepted the payment and stated that it could forego legal action if she granted an Assignment of Salary and the outstanding arrearage was paid. Ms Aiong make no further payments, and the Bank requested that its legal counsel issue a writ to obtain a garnishee order over her salary with the National Provident Fund. There is no evidence in Mrs Aiong’s file to show any legal action taken.

4.31.5 On 21/1/94, the client requested capitalisation of all amounts in arrears. The Recoveries Committee eventually approved the request and her monthly payments were raised to VT40,000. A new letter of offer DBV gave the client 211 months (21 years) to settle the loan. This approved term violates the Bank’s maximum allowable term of 10 years (or 120 months). (Although the loan was granted prior to the Bank’s adoption of a Credit Manual, the new terms were negotiated after it came into force in 1993.)

4.32.1 Mr Lop was a former UMP Member of Parliament. He applied for the loan to purchase a truck to be used as a rural taxi on his island of Tanna. Mr Lop’s loan application was approved by the Loans Committee. Ministry of Finance First Secretary Mr Antoine Pikioune approved MP Lop’s request to purchase the vehicle duty free.

4.32.2 MP Lop offered a Bill of Sale over the vehicle as security. Two primary school teachers, Markum Lough and Okes Malia, guaranteed the loan. Unlike many political clients who did not make a contribution, MP Lop contributed VT817,617 towards the loan.

4.32.3 During the initial operational phase of the project, the loan was repaid as agreed. After three years operation, MP Lop began to make irregular payments. The situation deteriorated and on 24/10/97, the Bank seized the vehicle and sold it for an unknown amount. The Asset Management Unit, after acquiring the Bank’s assets, obtained an Assignment of Salary deduction from one of the guarantors.

4.33.3 Mr Bouletare obtained the housing loan made under the Staff Housing Scheme, which granted favourable terms (a 20-year term at 10% interest with monthly payments of VT46,518). While employed by the Bank, Mr Bouletare faithfully made his payments. Upon his dismissal from the Bank, the loan was restructured to comply with normal customer terms and conditions. The monthly payments were raised to VT109,657. However, Mr Bouletare did not accept these new terms.

4.33.4 The housing loan involved property at Anambrou (titled 11/OG22/017). The Bank instructed its lawyers to lodge a caution over the title. Normally, one would have expected the Bank to take a mortgage on the property, but in this case the Bank did not. The Bank’s Legal Department is responsible for preparing and registering mortgage documentation. Mr Bouletare was manager of the Legal Department.

4.33.5 Upon Mr Bouletare’s dismissal, the Bank discovered that the collateral documentation was missing. The Bank never recovered these documents. DBV Management was responsible for ensuring that staff loans were properly administered, that all files were maintained intact, and that staff did not remove documents from the premises.

4.34.1 The Ombudsman’s attempts to obtain the loan file from the Asset Management Unit failed. It is believed that the file is being held with Mr Kalsakau’s lawyer, and that the AMU had difficulty in obtaining it from the lawyer and forwarding it to the Ombudsman’s Office. Many details on this loan are therefore unavailable.

4.34.2 The loan was approved on 28 February 1978, prior to the adoption of a Credit Manual. Mr Kalsakau received favourable terms and was given 139 months (until 1990) to repay the loan at 7% interest. Mr Kalsakau held the position as Government Minister of Finance under the Vanuaaku Party Government for many years. He was also UMP Member of the Board of Directors of the DBV from 1992 to 1994. During these times, he chose not to repay his outstanding loans. It appears that Mr Kalsakau currently owes the Bank VT4,912,146.

4.34.3 Mr Kalsakau is believed to own substantial assets, both in Vanuatu as well as overseas. The Bank has been very generous by not vigorously pursuing repayment. Instead, it has written off the entire amount.

5.1 On 30 September 1998, DBV’s Legal Officer presented a report on the status of security of the accounts transferred to the Asset Management Unit. His report indicated the following:

Often mortgages remain in force where they should be discharged once loans are repaid in full. Leases titles should be released.

There are often situations where the mortgage should be a third-party mortgage but it is instead a straight mortgage. Their enforceability is questionable.

The Bank regularly failed to comply with the pre-disbursement requirements as set out in its Form 3A, 'Authority to Disburse'. Through deliberation or ignorance, senior DBV officers frequently provided incorrect or false information that enabled loan proceeds to be disbursed prematurely. For example, one question asks whether all security has been registered; senior officers frequently ticked 'yes' when in reality the security had not been registered.

The damaging consequence is the DBV looses huge sums of money through bad loans. In many instances, the Bank ends up being an unsecured creditor.

5.2 The Ombudsman received information from Chairman of the DBV, Mr Julian Ala, provided through Moore Stephens, which stated the following:

(a) The total value of loans and debts (liabilities) transferred to the AMU were:

(b) The total value of loans and debt (liabilities) transferred to NBV were as follows:

5.3.1 In all loan appraisal reports undertaken by DBV, it was obvious that credit officers appraised project proposals favourably to enable the project to be justified and the applicant to qualify for development funds. In a way, the appraisal reports were prepared by DBV Loan Officers to convince management and the Board to approve projects rather than to objectively analyze the project risks involved and to help management decide the fate of applications on the basis of established prudent lending policies and practices.

5.3.2 Almost all securities held and maintained by the Bank were defective. Security documentation was usually not signed, witnessed, stamped or registered. Floating charges were not taken. In terms of company borrowing, no directors’ guarantees (or director’s fees) are in place, and there are no company resolutions authorizing the company to borrow. Trader’s Bills of Sale were not properly completed, signed, dated, stamped, or registered at the Supreme Court Registry. Records of vehicle registration books had not been maintained by the Bank, making it extremely difficult to locate registration records and therefore complicating the process of transfers to new owners in situations where the Bank seized and sold the vehicles. Usually, mortgages over the different properties were mentioned as being held as security but often there was no supporting documentation in the file. The Bank did not stamp mortgages to reflect updated outstanding levels of debt. Personal guarantee documentation was defective and it was therefore difficult to execute on them. The list goes on.

5.3.3 Too often, Form 3A (Authority to Disburse) was not completed in each account and is absent in almost all accounts we reviewed. One question asked in Form 3A is whether all security is registered and in order. In some of the 3A forms we reviewed, the senior officers responsible to answer this all indicated ‘yes’, but the security were not in order.

5.3.4 All political loans were processed by the Managing Director. The computer system prohibits unauthorized entry and access to these loans, except by the Managing Director. Some obvious characteristics of political loans include: they usually fall outside the Bank’s normal policies and procedures; the borrower usually made no contribution; and they were usually unsecured, so the Bank carried 100% risk exposure.

5.3.5 One would assume that a Letter of Demand would be a standard letter containing the necessary legal language and served on borrowers as a last resort prior to instituting legal proceedings. The Letters of Demand we reviewed were not consistent and could easily be interpreted as information letters or 'Letters of Request' that lack the necessary legal terminology. Normally, Letters of Demand are authorized (or signed) by those with powers of attorney. Those reviewed were signed by credit officers. One would expect that authorizing such Letters of Demand be the responsibility of the Managing Director or his deputy so that it carried more weight.

6.1.1 We provided copies of the Working Paper to: all the borrowers listed in this report; the AMU; present Chairman of DBV, Mr Julian Ala; and all persons implicated in this report.

6.1.3 Comments received from the clients are included in the facts regarding their respective loans in Section 4, 'Factual Information'. Below are the comments from individuals against whom the Ombudsman has made findings.

Ombudsman’s comment: Giving out the country’s money should not have been treated lightly. Board members were appointed by the State to carry out the functions of the Bank competently and in the best interest of the nation. Therefore they must be expected to ensure that loans were given out properly based on the standard banking policies. They should have acquainted themselves with the Bank procedures and guidelines, which were very clearly drafted by the successive advisers. Furthermore, there were repeated incidents where the Board went against the advice of the management. The Board members were given a task: not to be 'yes men' for the managers but to analyze the information they were given. If they were not capable of doing this job, they should not have accepted their appointment as Member. Their role was to supervise the management and their failure to do so led to the end of the DBV.

6.1.4 Denis Vira. In his response Mr Vira furnished the Ombudsman a copy of a letter written by Mr Garae (26 June 1997) regarding a DBV audit of Mr Garae’s loans. Mr Vira said that those loans were granted pursuant to a decision by the Board.

Mr. Garae’s loans were not made in accordance with the DVB rules and procedures. Nothing can make right something that was not. The audit report does not contradict our findings. The fact that there was a need to have an audit report on the Manager’s loans is quite self-explanatory.. The imprest account that Mr. Garae borrowed from the Bank (for an international trip) and did not reimburse should not have been transformed into a DBV loan and to pay personnel expenses is not within the ambit of DBV’s activity. Mr. Vira was a member of the board and should have decided for himself what to do in accordance with the DBV procedures and standard rules. This is not an excuse that other people committed wrong conduct with him.

The period referred to when I was a director of the DBV is more than 10 years ago and I cannot recollect the specific details under which the indicated loans were granted.

During the period when I was a director of the DBV, there were 4 managing Directors – 3 expatriates (Messrs Bastien, Donovan, Forgett) and 1 local (Mr. Garae). As a Board member I believed that the loan requests were properly appraised for viability and serviceability, as they should have been, before submission to the Board.

The report concentrates on bad loans, however clearly there seems to be a lot of loans that were repaid indicating a lot of good loans were made during the period also. It was a period of national pride at being a new nation and some risks had to be taken in the absence of prior experience. I believe loans granted were made in good faith with no favours. This is not an experience. I believe loans granted were made in good faith with no favours. This is not an excuse, but I don’t think that early Board’s conduct can be compared to that of later Boards.

I cannot recollect that during my period as a director that the Board was politically motivated and manipulated as is evident by the report on the activities of later Boards.

It appears the report has taken a board view on the outstanding loans and it is not apparent that the process of granting the loans and the conduct of individual Board members, and I suppose the Board as body, which is documented in the minutes of the meetings, has been taken to account. In conjunction with point 3 above I think due fairness should be displayed by taking the whole picture into account and not that painted by a few loans that went bad.

I wish to state that my conduct as a director of the DBV, as was and is my conduct with all other bodies I have ever been and am associated with, was always professional and of as high a standard as I could set myself. At no time in my various employment and appointments have I knowingly allowed my judgement and decisions to be politically influenced or compromised, without good reason.

We appreciate Mr Nganga’s answer and take into account the possibility that there were not as many bad loans at the time he was on the Board. However, the evidence indicates that DBV finally collapsed because of the bad loans and during his mandate we found cases which were not handled in accordance with the standard banking procedures.

We appreciate and accept Mr. Karie’s comment on the fact that he was not responsible for the documentation of security. However, his main responsibility was to follow basic sound banking practices and to have a back-up security, such a guarantor or and an assignment of the client’s salary, in place. To depend exclusively on the project functioning well was hazardous and defies basic common sense.

'Political Loans: True, you could refer to these as ‘political loans’. The Bank’s Management could not do much about stopping them from being approved. There was direct intervention from high government authorities as well as the Board to have the loans concerned approved. It was an extremely difficult time for the Bank’s Management to do anything. We were under pressure continuously from the high authorities to approve the loans. But we did our best despite the difficulties.'

Ombudsman’s comment: Mr Garae confirms that he allowed himself to be swayed by political influence. His admission indicates that he lacked the personal integrity to carry out his duties responsibly, but instead bowed to pressure from politicians. The fact that he left DBV without repaying his loans (or providing security for his debt) further demonstrates his willingness to put the interests of others and himself ahead of DBV’s. There is no additional comment that can be made in front of such admissions except to remind Mr. Garae that, by this type of attitude and lack of integrity and courage, he contributed greatly to the downfall of the DBV.

'Loan to Raelene Garae: It is very unfair to assume that I gave the truck loan to Raelene because she was my niece. That assumption is incorrect. The loan was given on its merit. It is very unfair for your office to make a distinction because with such a small country like Vanuatu, you are bound to approve loans for people whom you might know very well like friends and relatives. ... All loans at the Bank were approved either through the Credit Committee or the Board, depending on the amount. There was no by passing of procedures.'

Ombudsman’s comment: Mr Garae again reveals that he accepted conflicts of interest as a necessary aspect of banking, rather than looking for ways to avoid conflicts in granting loans to family members. For him, 'Wantoks' loans must be made. The whole reason that the Comprehensive Reform Program has come about is that attitudes like Mr. Garae’s have caused (and are causing) enormous difficulties and a downtrend in the economy. These attitudes are the foundation of corruption.

Furthermore, on the loan itself, a loan on a used car in a serious state of disrepair could not have been given 'on merit'. The Bank could have attempted instead to sell the repossessed car.

Mr Garae’s general observations on the operation and purpose of development banks, and DBV in particular, are set out in full in Appendix 'H'.

Ombudsman’s comment: The difficult role and public importance of DBV are the very reason why its management should have been handled with integrity and independence. As is mentioned in other parts of the reports, according to the AMU, DBV’s biggest problem was its management. All the excuses used by Mr. Garae are not borne out by the experience of AMU. Under AMU’s care, all the loans in the rural sector are being reimbursed, including the political loans. AMU has sent some of its staff to the rural sector and they are very satisfied with the results. Some borrowers did not even know how to repay and are very willing to do so once AMU provided them the proper information. Obviously DBV’s collection system was bad. It also appears that DBV’s management was so afraid of leaders or 'bigmen' that it did not, apparently, even ask them to repay their loans.

Finding 1: Conduct of Board Members (1983) Messrs Augustine Garae, Meto Nganga, Iolu Abil, Johnson Lengkon, Anatole Lingamat, Kalo Nial, Michel Noel and James Tungu was blatantly unreasonable

7.1 The above mentioned persons granted a loan to Mr Willie Lop without a proper loan application made and valid security documents collected. The loan was granted without any personal contribution by the borrower.

Finding 2: Conduct of Board Members (1987) Messrs Augustine Garae, Meto Ngana, Iolu Abil, John Aswin, Anatole Lingamat and Kalo Nial was blatantly unreasonable and based on improper grounds

7.2 Three loans granted from the customers selected for 1987 were given to staff of the Bank. Mr Virelala, former Chief Accountant of the Bank, was granted 5 loans. Subsequent loans were disbursed even though previous loan was in arrears, contrary to policy. Another staff, Odile Kasten was given a loan that was more than the original amount in the Loan Agreement. The third loan was given to Mrs Aiong, former Senior Administrative Officer of DBV. Mrs Aiong made no contribution for her loan. She also failed to provide securities for her loan.

Finding 3: Conduct of Board Members (January to June 1988) Messrs Augustine Garae, Meto Ngana, Aisen Obed, Douglas Malosu, Tom Masitai, Simon Liu, Alexander Batick and Kalo Nial was blatantly unreasonable

7.3 Two loans granted to Dr Edward Tambisari and Mr Kombe, a former staff of the Bank without any contribution and security. Mr Kombe was given additional loan against the Board’s initial decision to have his mortgage processed through other sources.

Finding 4: Conduct of Credit Officers Peter Sakita, and Beatrice Wawase, and Agriculture Loans Officer Sam Karie and General Manager, Mr Augustine Garae was blatantly unreasonable

7.4 The above-mentioned Bank officers failed to sound banking principles by approving an unsecured loan for Mr Clement Charlie.

Finding 5: Conduct of Board Members (1989) Messrs Joe Joseph, Meto Ngana, Aisen Obed, Douglas Malosu, Tom Masitai, Simon Liu, Alexander Batick and Moses Kondara was blatantly unreasonable and based on irrelevant considerations

7.5 For the year 1989, Mr Mark Bebe, a DBV staff member, was granted five loans without any contribution or security. Out of the five loans a personal loan of Vt196,580 was written off. Personal loans are not within the Bank’s lending policies. The other staff member who received a loan was Josette Malatu.

Finding 6: Conduct of Board Members (1992/93/94) Messrs Amos Andeng, Antoine Pikioune, Petre Malsungai, Kalpokor Kalsakau, Alfred Maliu, Louis Kapalu, Rene Luc and Dihn Van Moi was blatantly unreasonable and based on irrelevant considerations

7.6 During these years, political loans were granted to 4 different individuals including Mr Vohor who was then Minister for Economic Affairs responsible for the Bank. These loans were for the purchase of vehicles. Except for one member of Parliament, Mr Jerethy Rassen, who contributed Vt400,000, the others did not make any contribution. Board Members, Messrs Louis Kapalu, Dihn Van Moi, Amos Andeng and Petre Malsungai were also granted loans during 1992-1994. Messrs Kapalu, Andeng and Malsungai were granted loans for purchase of vehicles without any contribution and security. On the other hand, Mr Moi was given a loan of VT 3 million for personal expenses which was outside the Bank’s lending policies. Mr Moi did not make any contribution nor did he provide security for his loan apart from naming his family as guarantors for his loan.

Finding 7: Conduct of Board Members (1995) Messrs Amos Andeng, Antoine Pikioune, Petre Malsungai, Kalpokor Kalsakau, Alfred Maliu, Louis Kapalu, Rene Luc and Abraham Gaua was blatantly unreasonable and based on irrelevant considerations

7.7 Two loans in 1995 were granted as a result of political support in favour of Messrs Alick Kokona Jimmy and Denis Vira. Mr Kokona was a former staff of the Bank and brother of Minister of Finance Willie Jimmy. Letters of support came from the Ministry of Finance and Minister Jimmy for both applications. In Mr Vira’s case, his loan application was refused by the Bank management but when the political support came the application was presented to the Board and approved. The other loan was given to a staff member and Mr Eddie Silas, business partner of Minister Jimmy. Mr Silas failed to contribute the minimum required amount of 30% equity for his application.

Finding 8 Breach of the Leadership Code, Article 66 of the Constitution by Willie Jimmy

7.8 Writing to the Board to process Messrs Kokona and Vira’s applications without proper consideration was a direct interference with the Bank’s standard Lending Policies. Mr Jimmy also directed the Board to consider Mr Vira’s loan under unsecured loan conditions and to waive the contribution of Vt500,000. Mr Jimmy’s conduct placed him in a position in which the fair exercise of his public or official duties might be compromised. As Minister responsible for the Bank he should have been acting in the interests of the Bank and not against the Bank.

Finding 9: Conduct of Board Members (1996) Messrs, Kalpokor Kalsakau, Alfred Maliu, Louis Kapalu, Rene Luc, Abraham Gaua and John Luen was blatantly unreasonable, based on irrelevant considerations and a breach of the Leadership Code

7.9 In 1996, a political loan for the purchase of a vehicle was granted to the then Minister of Education Mr Romain Batick. During that year the Board also approved a loan to the General Manager’s niece Miss Raelene Garae without any contribution and security. The Board placed themselves in a position where the fair exercise of their public duties might be compromised by granting loans outside the Bank’s lending policies.

Finding 10: Conduct of Board Members (1997) Messrs Denis Vira,
Aileh Rantes, Willie Korisa, Daniel Dick, David Bong,
Joel Nocklam and Malakai Kalo was blatantly unreasonable, based on improper grounds and a breach of the Leadership Code

7.10 The Board granted Mr Garae a loan in 1997 to re-finance personal debts valued at VT 1,759, 347 and to reimburse the Bank VT520,000 for imprest he used on a trip to the USA. A further loan of Vt106,890 was granted to pay for Mr Garae’s personal telephone bills at his residence. The Board have placed themselves in a conflict of interest and demeaned their position where the Bank’s Lending Policies are ignored to assist the General Manager of the Bank with personal loans.

Finding 11: Breach of the Leadership Code, Article 66 of the Constitution by General Manager, Mr Augustine Garae

7.11 The Managing Director, Augustine Garae, breached the Leadership Code. In exercising his duties as Managing Director, he put himself in a position where he had a conflict of interest when he turned his outstanding imprests into loan, in violation of a management directive not to do so. In completing an application for a loan and justifying the reasons for granting a loan to a family member, Raelene Garae, he placed himself in a position where the fair exercise of public/official duties could be compromised.

Finding 12: Breach of the Leadership Code Section 66(1)(a) of the Constitution by Mr Tele Harry, Managing Director, after the departure of Mr Garae.
7.12 Tele Harry, in his position as Managing Director, authorized a third party, Eddie Silas, to remove a vehicle from the Bank’s custody and operate it. This arrangement has been deemed illegal as the formal agreement was made between a Sam Lorry Popongi and the Bank. Mr Silas made no payment towards taking possession of the vehicle. This illegal arrangement was authorized by Mr Harry. Mr Harry also recommended to the Board that Mr Garae’s loan of VT106,890 for personal telephone bills be approved. Mr Harry acted in breach of Section 66(1)(a) of the Constitution where he put himself in a position where the fair exercise of his public or official duties might be compromised.

7.13 Clearly, shocking mismanagement was the primary factor in the failure of DBV. While political interference caused many problems, the AMU’s success in recovering loans demonstrates that DBV management could have done the same, if it had performed its duties. There was widespread of extreme maladministration of all loans granted by the Bank to its customers. The Bank’s management and officers were negligent of the existence of the Bank’s governing rules and procedures in regard to processing and approval of loan applications. Loans were granted contrary to established lending policies.

7.14.1 It was found that the Bank failed in its function to properly administer processing of loans leading up to approval. Many project loans were poorly appraised and lacked detailed financial analysis. After loans were approved, the Bank further failed to monitor clients’ loan performance. When the Bank found defaulting loans, it did not incorporate speedy recovery measures to salvage projects thereby enabling clients’ loans to continue to deteriorate to stages where it would be almost impossible to reverse positions.

By deliberately and systematically abusing the loan procedures, applying inappropriate political influence and failing to repayment loans over many years, the people involved in this report must bear the responsibility for the destruction of the Development Bank of Vanuatu (DBV), the only institution that was providing development funding to ni-Vanuatu. The Board Members carry the biggest responsibility.

This report clearly demonstrates the harm done when managers lack the personal integrity to withstand pressure from politicians and other 'Big Men.' Individuals holding responsible positions in public bodies cannot be 'forced' to betray the public trust; they can choose to stand by their ethical principles and refuse to bow to the pressure, or they can resign. Not only did Mr Garae allow himself to be pressured to ignore sound banking principles for the benefit of politicians, he benefited personally by taking loans himself. Furthermore, ass evidenced in his correspondence to the Ombudsman, Mr. Garae totally accepted the proposition that one must give in to political pressure and wantok influence as part of public life. This type of attitude exposes society to total corruption that has proven to be so catastrophic for many countries in the world.

The AMU, which was created after the dissolution of DBV, has effectively applied sound legal principles to collect the debts of DBV. As a further measure, AMU should consider the advisability of initiating bankruptcy proceedings against those who are in default on their 'political' loans from DBV. Vanuatu law does not allow individuals who have been declared bankrupt by the court to hold most of the public offices.

Under review at the present time is the proposed 'SIC' (State Investment Corporation) Act, which would create an umbrella board to oversee appointments to all boards of statutory bodies and public authorities. Its main role would be to supervise Government businesses. If enacted, this 'Super Board' would be appointed by the Council of Ministers and would therefore be an entirely political body. The AMU must be excluded from the jurisdiction of this 'Super Board' in order to maintain its independence from the bureaucrats working in SIC, the Council of Ministers, and its political influence that have caused so much damage in the recent past (for example, with VNPF). AMU’s continued independence would also avoid the types of conflicts of interest that led to the destruction of DBV. The eradication of improper political influence is one of the priorities of the CRP. The importance of this goal is especially clear in cases like this, where the AMU must recover from leaders bad debts caused by the political influence of the past.

9.1 To comply with Article 63(2) of the Constitution and Section 22 of the Ombudsman Act, the Ombudsman requests the Prime Minister and all appropriate authorities are to consider these recommendations and put them into effect.

9.2 The Office of the Ombudsman must be notified of the decision and proposed steps to implement these recommendations within 30 days of the date of this report.

Vanuatu Ombudsman's Reports

Maladministration and Political Interference of Loans by the Development Bank of Vanuatu [1999] VUOM 12; 1999.12 (13 August 1999)