Personal Statement Regarding the COPE Report
(Parliament, 8th July 2005)

Mr. Speaker,

During the last sitting week of Parliament, while I was abroad, it was brought to my notice that an interim report of the Committee on Public Enterprises (COPE) had been tabled in this House. Sections of this report referred to incidents that had their origins over 13 years ago and sought to imply that some of my family members including my late grandfather, Deshamanaya N.U. Jayawardena had been engaged in acts which amounted to a failure in corporate governance. The very next day, several newspapers ran sensational headlines. The Daily News for example stated that “Milinda Moragoda’s Mercantile Credit Owes Central Bank Rs. 4.7 Billion”. Besides the malicious connotations such a headline implies, it is interesting to note that the fact is that although I was an executive director at Mercantile Credit I do not hold nor have I ever held either directly or through any company owned by me a quantum of shares in MCL which could by any stretch of the imagination be interpreted as giving me control over the company, much less as making me its owner. To clarify the situation, the lawyers representing the former directors issued the following statement which was carried in the media soon thereafter.

“There have been misleading reports in the media with references to Mercantile Credit Limited which require correction and clarification.

a. The Management of Mercantile Credit Limited was taken over as a going concern by a Management Committee comprising of nominee Directors appointed by the Central Bank of Sri Lanka on the 24 th July 1991 and a nominee of the Central Bank was appointed as Managing Director thereafter by the then Governor of the Central Bank. The Directors of the Company prior to this date were not members of the Management Committee and the Management Committee ran the Company at its sole discretion.

b. The Directors of the Company, Mr. A.N.U. Jayawardena, Ms. Neiliya Perera and Mr. Milinda Moragoda along with the late Deshamanya N.U. Jayawardena resigned from the Board and the Company on the 5 th February 1992 and the management and administration of Mercantile Credit Limited was vested in the Central Bank on 6 th February 1992 as per a Gazette Notification.

c. The former Directors of Mercantile Credit Limited have no knowledge or awareness whatsoever of the operations of the Company from 6 th February 1992 , i.e., for a period of more than thirteen years.

d. Mercantile Credit Limited did not get any facilities from the Central Bank whilst the former Directors were managing the Company and all borrowings, if any, from the Central Bank were probably granted at the request of the Central Bank’s own Management Committee, when they were managing Mercantile Credit Limited.”

Mr. Speaker, owing to my family background and to a lesser extent my own capabilities, I did not have to enter politics in search of fame, fortune or power. I could have enjoyed a more secure and more financially rewarding life, with less stress, effort and less slurs on my character, if I had remained outside of the political sphere. However, I chose to try to make a difference to my country by engaging in public service.

When I entered active politics, I expected to face my fair share of character assassination and dirty tricks campaigns. I have chosen to be silent on many occasions when malicious allegations and aspersions have been made against me. However, given that a report has been tabled in this distinguished House, it is proper that the record be set straight.

Mr. Speaker, a wise person once said that in politics your opponents are in front of you, but your enemies are behind you. I must state that the malicious and misleading manner in which this particular COPE report has been drafted is proof of this observation. I am not going to waste the time of this House or to dignify those who seek to malign me by addressing every aspect in this report. However, I will highlight a few salient areas as examples of some of the gross misrepresentations that appear in the Report.

1. It is a fact that Mercantile Credit Limited in 1990, like several other leading private financial institutions, including banks, sought to obtain a facility from the Central Bank of Sri Lanka to cover debts that had gone into legal recovery as a consequence of lendings that had been affected by the disturbances in the North and East and the civil disturbances of the late 1980s. Mercantile Credit was to pay back this facility with interest over a period of time. A Cabinet sub-committee, based on the recommendation made by a high level committee of officials, approved this facility on the basis that the Central Bank would carry out the disbursement of funds. Unfortunately, the then Governor of the Central Bank of Sri Lanka , Dr. Neville Karunatilleke, had a long-standing hostility towards the founder of Mercantile Credit Limited, my grandfather, the late Deshamanya N.U. Jayawardena. It is important to note that the late Mr. Jayawardena, himself was the first Sri Lankan Governor of the Central Bank. The then Governor used this opportunity to actively cripple Mercantile Credit’s operations by deliberately undermining and destabilizing the institution. His actions in this context were in marked contrast to the manner in which other private financial institutions which received financial support were treated. In addition, he actively sought to destabilize the Sampath Bank, which was also founded by Mr. N.U. Jayawardena. In the case of Mercantile Credit, the state of affairs ultimately culminated in the management of Mercantile Credit being vested in the Central Bank. The malice that the Governor bore towards Mr. N.U. Jayawardena, can be demonstrated in the judgment subsequently given by the Magistrates’ Court and upheld by the High Court as well as the Supreme Court, which convicted and sentenced Dr. Karunatilleke to one year’s rigorous imprisonment suspended for five years, for having criminally trespassed on Mr. N.U. Jayawardena’s family property in Nuwara Eliya during this period. The judgments which I am tabling in this house today give an interesting insight into the blind animosity that drove this individual.


2. As mentioned earlier, this conflict further spread to the Sampath Bank. The then Governor falsely spread the story that Sampath Bank was unstable and through a series of machinations forced the removal of Mr. N.U. Jayawardena. At this time, the Board requested that his son, my uncle, Mr. Nimal Jayawardena, take over the chairmanship of the Bank. However, a unanimous family decision was taken that all family members including Mr. Nimal Jayawardena, the late Dr. Lal Jayawardena and myself resign. At no time did the share holders seek the removal of the family directors as the COPE report states. This can be easily and factually corroborated from available documentation.

Mr. Speaker, it is an uncontested fact that it was owing to my grandfather’s vision that Sampath Bank became the pioneering institution in the financial sector which many banks have since emulated, and which is still flourishing today. During my grandfather’s stewardship, Sampath Bank was the first financial institution to introduce new banking technologies such as automatic tellers and other automated banking services. Under my grandfather’s leadership, Sampath Bank had the most successful and most widely held public share issue at that time, contributing significantly to the success of the Colombo Stock Exchange, of which again my grandfather was a founding member and one-time chairman. As you are aware, he was a self-made man from humble beginnings in Tangalle who made his way up to the highest positions in our financial and corporate sectors through sheer dedication, hard work and ability.

It is also tragic to ponder what Mercantile Credit which was the largest, and one of the oldest finance companies which dominated the market at that time, would have been had this intentionally destructive interference not been allowed to take place. It is clear that although all the depositors were settled by the Central Bank’s appointed management, the institution which had been built up through hard work and visionary leadership was brought to the ground because of a personal vendetta.

3. As far as National Mercantile Bank is concerned, the authors of the COPE report, whoever they may be, have deliberately or otherwise included malicious insinuations about me. The fact remains that the banking licence for NMB was obtained in a transparent manner, but unfortunately the authority to deal in foreign exchange (which a commercial bank is explicitly entitled to receive) was delayed by some two years, as a direct consequence of my own political affiliation with the United National Party and was only obtained as a consequence of the filing of a Fundamental Rights application. This was only one of the times when my political activities adversely impacted my business interests. Because of the losses incurred as a result of this unjust action by the Government, the National Mercantile Bank had to be restructured resulting in financial loss to the shareholders, but without recourse to Government financing. Today it operates successfully as DFCC Vardhana Bank.

4. Finally, there has been reference to a report by the accounting firm, Coopers and Lybrand. However, it failed to mention the other reports carried out at that time by firms of equal stature such as Ernst and Young and KPMG, which have expressed different opinions from those of Coopers and Lybrand. Those concerned appear to have deliberately chosen to omit these reports. Those who have attempted to cast aspersions on my reputation and that of my family, even fail to mention that on page 63 of that very same Coopers and Lybrand report, it is stated categorically that there were no monies outstanding to Mercantile Credit from companies owned by the N.U. Jayawardena family.

Many more inconsistencies can be pointed out. However, my purpose in presenting this statement in the House today is to provide insight into the background of these past incidents. These events occurred nearly 15 years ago. If there had been any malpractices or misdeeds, we can be certain especially given my political affiliations that one government or the other would have taken action. To misrepresent facts, maliciously casting aspersions on the character of decent persons in an effort to attack one person for narrow political gain, is particularly reprehensible, immoral and unjust. It is even more so especially when Deshamanya N.U. Jayawardena and two of the other senior directors who were associated with Mercantile Credit Limited and Sampath Bank are no longer living, and unable to take issue with them.

Mr. Speaker, I am also convinced that this whole development would not have taken place if I had not been seated in this House and in politics today. I feel saddened that this House which you and I hold in high regard, is being cynically manipulated for narrow personal objectives. As you are aware I have always stood for creating a political culture that does not tolerate character assassination, that focuses on substance as opposed to personalities, that seeks to build rather than destroy, that is founded on decency as opposed to vindictive conduct. I wish to reiterate my commitment to these values as I make this statement for the record.

Mr. Speaker, let me remind those who seek to malign me for reasons best known to themselves, of some lines from verse 125 of the Dhammapada:

“To the fool who does evil…. the evil returns to him like dust thrown against the wind.”