The Central Bank of Sri Lanka (CBSL) bond scam, which erupted in 2015, remains a dominant issue in Sri Lanka’s political and financial discourse. This scandal, marked by accusations of financial mismanagement and corruption, centres around former Governor of the CBSL Arjuna Mahendran and his son-in-law Arjun Aloysius. 

Despite various efforts by Sri Lankan authorities, including an extradition request to Singapore, the long-awaited conclusion to this legal battle remains elusive.

When contacted by The Sunday Morning, Attorney General Parinda Ranasinghe stated that Sri Lankan authorities were still awaiting a formal response from Singapore regarding Mahendran’s extradition. 

Ranasinghe highlighted that despite multiple attempts to secure Mahendran’s return, Singapore had neither accepted nor officially refused the request. 

This diplomatic delay has forced Sri Lanka to consider the option of pursuing a trial in absentia, a step that underscores the gravity of the situation.

The bond scam

The bond scam dates back to 27 February 2015, when the CBSL, under Mahendran’s leadership, advertised the sale of Rs. 1 billion in 30-year Government bonds at a coupon rate of 12.5%. However, the auction ended up accepting bids worth Rs. 10 billion, 10 times the advertised amount. 

Perpetual Treasuries Ltd. (PTL), a primary dealer in the bond market, emerged as one of the major beneficiaries of this decision. PTL was owned by Aloysius, Mahendran’s son-in-law, raising serious questions about conflict of interest and unethical practices.

Investigations into the bond issuance revealed irregularities, with critics alleging that the CBSL’s decision to accept higher bids was not in the best interest of the public or the State. The scandal not only shook the country’s financial markets but also triggered political upheaval, as Opposition parties demanded accountability from the Government. 

In response, several investigative bodies, including a Presidential Commission of Inquiry (PCoI) and a Parliamentary Select Committee (PSC), were established to probe the matter.

The findings of these investigations were damning. The PCoI’s report, released in 2017, concluded that there were significant irregularities in the bond auction process and recommended legal action against Mahendran, Aloysius, and others involved. Despite this, Mahendran fled Sri Lanka, ostensibly to attend a wedding in Singapore, and has since remained abroad.

Waiting on Singapore

The extradition of Mahendran is central to bringing the perpetrators of the bond scam to justice. However, the process has been anything but straightforward. On 17 September 2019, the Attorney-General’s Chambers of Singapore received Sri Lanka’s formal extradition request, which was acknowledged a week later. However, since then, progress has been slow.

Speaking to The Sunday Morning, Attorney General Ranasinghe explained the current status of the extradition request. 

“We have yet to hear anything official from the Singaporeans. We provided all the clarifications last time and haven’t had any update thereafter. Technically, we are yet to be told that they are officially refusing or acceding to our request.”

Ranasinghe explained that while extradition proceedings were notoriously slow, the lack of communication from Singapore was frustrating. Despite providing all the required documentation and responses to Singapore’s requests for clarification, Sri Lankan authorities remain in the dark about Mahendran’s fate. 

According to Ranasinghe, Sri Lanka has submitted additional material, including explanations regarding the legal framework and Mahendran’s role in the scam, to establish that his actions fall within the extraditable offences under Singapore’s Extradition Act. 

However, no official decision has been communicated.

The delay has forced the Attorney General’s Department to consider other legal avenues, particularly the possibility of a trial in absentia. 

This legal mechanism, which allows courts to prosecute individuals who are not physically present, has been floated as a potential solution in the Mahendran case.

Trial in absentia

Ranasinghe stressed that the lack of an accused’s presence did not prevent Sri Lankan courts from proceeding with a trial. “There is nothing preventing Sri Lanka from proceeding with anybody who is not here. When people are not available, there is an option called trial in absentia.”

He explained that this procedure allowed the court to hear evidence and make a judgment even if the accused had absconded. In Mahendran’s case, Sri Lankan authorities can begin legal proceedings against him without waiting for Singapore to respond to the extradition request. This would not be unprecedented in Sri Lanka’s legal system, as trials in absentia have been used before in cases where accused individuals have deliberately evaded justice.

Ranasinghe noted that the legal process for the bond scam had already commenced, despite Mahendran’s absence. The trial was initially delayed due to preliminary objections raised by the accused’s lawyers, which were eventually dismissed by the Court of Appeal. 

The case is now set to be taken up by the Supreme Court for arguments in January next year. Once that matter is resolved, the Attorney General’s Department will be able to return to the High Court to resume the case.

The extradition proceedings, according to Ranasinghe, will run parallel to the court case in Sri Lanka. He emphasised that waiting for Singapore’s decision indefinitely was not a viable option. “We can’t wait until the Singaporean authorities make a decision. We can commence the trial here.”

Broader investigations

Beyond the legal proceedings, the CBSL bond scam has profound political implications in Sri Lanka. The case implicates key figures in the country’s political and financial sectors, including former President Ranil Wickremesinghe. 

Wickremesinghe, who was Prime Minister at the time of the bond issuance, has been accused of turning a blind eye to the irregularities in the bond auction. However, as President, he was immune from prosecution.

This immunity has now been lifted following the conclusion of his presidency. Minister of Public Security Vijitha Herath recently announced that Wickremesinghe could now be brought before a court of law. “We now have the power to bring him before a court,” Herath said at a press conference, hinting at potential legal action against the former President.

The investigations into the bond scam are not limited to Mahendran and Aloysius. Herath also confirmed that the findings of the PCoI and the PSC would be integrated into ongoing legal investigations. These steps, Herath said, would provide the foundation for future prosecutions and ensure that all those involved are held accountable.