Provision of Bank Guarantees in the Sum of USD100,000,000.00 in Breach of the Leadership Code [1996] VUOM 12; 1996.01 (3 July 1996)

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5.1 Bank Guarantees
5.2 Trading Programmes
5.3 Results of Searches
5.4 Similarities with Cook Islands Scam
5.5 Special Report of the Commercial Crime Bureau
5.6 Chronology of Events

On the publication of this Final Report on a transaction by the Vanuatu people’s representatives which will continue to unfold its shameful and dangerous implications as the weeks go by, it is the opinion of the Ombudsman that the most helpful and important contribution at this particular moment is to try to cut through the complexities of international finance and leave the maze of legal technicalities to be unravelled by the appropriate authorities.

To put the matter bluntly and clearly, evidence is emerging that Vanuatu has been, and still is at this moment, the victim of a fraudulent scheme (or "scam" as the world describes these matters). It appears that the country’s leaders were duped into believing that a visiting group of so-called "promoters" or "investment managers" were able to secure vast profits for Vanuatu if the country’s leaders would provide them with written guarantees for billions of Vatu - in this particular case, 100 million United States dollars (approximately eleven billion Vatu equivalent).

For whatever reasons - whether of ignorance or greed or both - our leaders at the highest level went along with this incredible plot - even to the extent of issuing some of these foreign adventurers with Vanuatu Diplomatic Passports, in order to make their dubious transactions more "credible".

As a result, there are at this very moment official Vanuatu "I.O.U.’s" circulating in unknown hands among the international community, amounting to more than twice the total foreign reserves of the Vanuatu people. In other words if these "I.O.U.’s" are presented, Vanuatu can be bankrupted.

The most disturbing aspect of this matter is that it appears that our Finance Ministry and bankers were either pitifully ignorant or criminally neglectful in agreeing to involve the country in this disastrous enterprise, being prepared to swallow the "fairy tale" that somewhere out there in the international money market there are reputable and sensible finance people willing and able to make huge profits to hand over to small countries of limited resources like Vanuatu.

In the past 2 years since the appointment of the Ombudsman, it has become increasingly obvious that many - indeed most - or our officials and office-holders have very little idea of 2 things - firstly, the realistic demands of the job they have been allocated, and secondly, the moral and ethical standards by which the public is entitled to be served. There is no realistic method in place whereby newly elected or appointed representatives can be effectively taught what "Government Service" ought to mean.

Many officials are indignant when told that their responsibility is to make decisions according to law and Constitution, and not simply on the basis of a personal opinion that they may hold. There is in addition a huge misconception that representatives are entitled to pursue and advocate opinions which are simply the beliefs of their particular political party, and not rooted in the country’s law and Constitution.

When this is added to the unfortunately widespread belief that promotion of the interests of relatives or friends is a proper function of power, it is little wonder that the country finds itself at this very moment in acute and realistic danger of fatal attack by financial speculators - not resident business men, but people who fly in with money and smart talk, and fly out with quick license to exploit the Vanuatu people.

When we look at the current difficulties of our neighbouring Pacific countries, there must be developed urgently the clear realisation that our country is a small one with very limited resources, and any dreams that she can secure great wealth quickly or simply by issuing pieces of paper as licenses of one kind or another can easily become nightmares. While it is true that lack of a broad or extensive education may be some sort of handicap, it is not lack of education which is the main shortcoming, but lack of what the Biblical prophet describes as "the Fear of the Lord which is the beginning of wisdom". Already, the Custom leaders as well as Church men are warning of declining standards, in danger of becoming what the prophet Hosea described:

"The Lord hath a controversy with the inhabitants of the land, because there is no truth, nor mercy, nor knowledge of God in the land. By swearing and lying, and killing and stealing, therefore shall the land mourn and everyone that dwelleth therein shall languish."

That many leaders regret the appointment and role of the Ombudsman is apparent by the many obstructions encountered and the hostility expressed during investigations. Promises of co-operation are made, only to be followed by unwillingness to be open with the truth.

If the people of Vanuatu really wish the office of the Ombudsman to be an effective one, they themselves will need to ascertain where truth and justice are being served, and to be vigilant in ensuring that offenders are effectively dealt with. It is easy to become bored by official reports and legal technicalities but the prosperity and future of the country depends in the long run on the quality of leadership which the people select. It is commonplace for the Ombudsman to be accused of personal bias, or political partisanship, or Colonialist mentality, etc., etc. when conducting investigations. The public should have no difficulty in knowing why these personal charges are made by those being investigated.

The Ombudsman will continue to seek to fulfil her duties to the best of her abilities by keeping the public informed.

On or about the 1st April 1996 the Honourable Prime Minister Maxime Carlot Korman, the Minister of Finance Honourable Barak Sope, Samson Ngwele, Reserve Bank Governor, and George Borugu, First Secretary to the Minister of Finance executed Bearer Bank Guarantees on behalf of the Government of the Republic of Vanuatu and the Reserve Bank of the Republic of Vanuatu with a total value of US$100,000,000.

This sum is significantly greater than the entire foreign currency reserves of the Republic of Vanuatu. This action has been examined by the Attorney General and the Governor of the Reserve Bank. The Attorney General advised that the transactions were illegal. The Governor of the Reserve Bank has advised that in his view the "Trading Programme" in respect of which the Bank Guarantees have been issued is a scam and could lead to the bankruptcy of the Republic of Vanuatu.

Having now examined this matter fully I agree with both of these views. A power of Attorney has been given to Peter Harold Swanson to act on behalf of the Government in respect of the Bank Guarantees and it would appear, other matters.

To date the Bank Guarantees are still in circulation and the Republic of Vanuatu remains exposed to Bankruptcy.

(a) If one says that the "Trading Programme" is not a scam it makes little difference to this report as there have been the most serious breaches of the Leadership Code that one could imagine as the Laws of the Republic of Vanuatu have been totally disregarded by its Prime Minister Hon. Maxime Carlot Korman, The Minister of Finance Hon. Barak Sope, The Governor of the Reserve Bank and the First Secretary to the Minister of Finance.

(b) If indeed the "Trading Programme" is a scam as I believe then this country is facing the greatest tragedy that can befall a small nation, that is Bankruptcy.

There must on either view be urgent action taken to rectify the position and ensure that the consequences of the illegal acts are counteracted immediately.

"The Ombudsman may enquire into the conduct of any person or body to which this Article applies:

a) upon receiving a complaint from a member of the public (or, if for reasons of incapacity, from his representative or a member of his family) who claims to have been the victim of an injustice as a result of particular conduct;

b) at the request of a Minister, a member of Parliament, of the National Council of Chiefs or of a Local Government Council; or

2.1.1. Section 14 of the Ombudsman Act states, inter-alia: that the Ombudsman may also:

"a) enquire into, either on complaint of a person or body referred to in Article 62(1) (a) and (b) of the Constitution or on his own initiative, any conduct on the part of:

(B) all of, or the majority of the members of the controlling authority of which are appointed by the President, the Council of Ministers or a Minister, or an officer or employee of any such body."

On Thursday 13 June 1996 the Honourable Prime Minister, the Honourable Minister of Finance, the Governor of the Reserve Bank of the Republic of Vanuatu and the First Secretary to the Minister of Finance were provided with copies of a preliminary report in which all complaints were set out for them to comment upon. If they had any questions by way of clarification they were invited to contact me. They were asked to reply within fourteen days. The Prime Minister has sought to make comment and he did so orally. I have incorporated his comments, where appropriate, into this report. The Governor of the Reserve Bank has replied in writing. Again his comments have been taken into consideration when compiling this report. The Minister of Finance and the First Secretary to the Minister of Finance have not responded.

4.1 The objective of this inquiry is to ascertain the breaches of the Leadership Code involved in:-

(c) the giving to Peter Harold Swanson of a Power of Attorney to act on behalf of the Government of the Republic of Vanuatu;

On or about the 26th of March 1996 (although they have been dated 1 April 1996) Bank Guarantees were signed on behalf of the Government of the Republic of Vanuatu by the Honourable Maxime Carlot Korman, Prime Minister of the Republic of Vanuatu and the Honourable Barak T. Sope, Treasurer of the Republic of Vanuatu, Minister of Finance and on behalf of the Reserve Bank by Samson Ngwele, Reserve Bank Governor and George Borugu, First Secretary to the Minister of Finance.

There are ten Bank Guarantees numbered NRG1 to NRG10. The total sum guaranteed for payment is US$100,000,000. Each Guarantee is a bearer instrument and is thus transferable and is expressed to be "assignate and divisible". A copy of one of the Guarantees is annexed hereto and marked with the letter "A". The text of each is as follows: -

Contract No:NRG 1

Amount:US$10,000,000

Issued in: The Republic of Vanuatu on the 1st of April, 1996

Currency: United States Dollars

Maturity Date: 1st April, 1998

Value Date: 1st May 1996

We the undersigned on behalf of the Reserve Bank of Vanuatu, the Issuing Bank, and the government of the Republic of Vanuatu hereby irrevocably and unconditionally without protest or notification promise to pay against this Bank Guarantee to the Bearer or Holder thereof, at maturity, the sum of US$10,000,000 (Ten Million Dollars) in the lawful currency at the offices of the Reserve Bank of Vanuatu and or the offices of the Minister for Finance and Treasury of the government of Republic of Vanuatu. Such payment shall be made without set off and free and clear of any deductions, charges, fees or withholdings of any nature, now or hereafter imposed, levied, collected, withheld or assessed by the government of the Republic of Vanuatu and the Reserve Bank of Vanuatu or any political subdivision or authority thereof or therein.

This Guarantee is governed by the Uniform Customs and Practices as set forth by the International Chamber of Commerce, Paris, France, latest revision.

This Guarantee shall be governed by and construed in accordance with the laws of the Republic of Vanuatu and the regulations governing the Issuing Bank. The place of jurisdiction is the Republic of Vanuatu being the seat of that Institution.

Signed	Signed Honourable Barak T. Sope MP Samson Ngwele Esq
Treasurer of the Republic of Vanuatu Reserve Bank	Minister of Finance Governor
	Signed Signed
Honourable Maxime C.Korman MP George Borugu	Prime Minister of the Republic of Vanuatu."

"We the undersigned on behalf of the Reserve Bank of Vanuatu, the Issuing Bank, and the government of the Republic of Vanuatu hereby irrevocably and unconditionally.....promise to pay.....".

I am informed that the Bank Guarantees were initially executed by the Minister of Finance and the First Secretary to the Minister. The Finance Minister then produced them to the Prime Minister for signature by him. He refused to sign them indicating that he would not sign until the Governor of the Reserve Bank had signed and thus indicated his approval. The signature of the Governor of the Reserve Bank was then obtained by the Minister of Finance and only then did the Prime Minister sign the Bank Guarantees.

After the Bank Guarantees were executed they were delivered into the hands of Peter Harold Swanson who would appear to have then delivered them in turn to a then unregistered company called "New Resources Group Vanuatu Ltd".

From information received by my Office it would appear that Peter Harold Swanson approached the Minister for Finance at some stage early in 1996, and discussed a "Trading Programme" using "Prime Bank Instruments" as a method of making or raising money. To back up the scheme, Swanson produced a document entitled "Introduction to Bank Credit Instrument Trading" (hereinafter called the "Swanson Document").

A copy of this document is annexed hereto and marked "B". The Swanson Document appears to have been prepared by "Dowdell Dutcher & Associates, Inc" and "Christopher Olson & Associates". It is a badly drawn document and is at best amateurish. What is described in this document in fact appears to be the trading of bank bills, financial paper and like securities.

From enquiries made by me to experts in the field of international finance and based upon the opinion of the Governor of the Reserve Bank of the Republic of Vanuatu the claims made in the document are fraudulent. There is a legitimate market in such securities, but what is described in the Swanson Document has little relationship to the way in which the international money market in fact works.

There are numerous references in the documents to "significant profits" that can allegedly be made. From my investigation the "Trading Programmes" outlined in the document simply do not exist. Reference is further made to "leveraging of a sort" for reserve requirements by regulations of certain countries. It is said that bank debenture instruments are used for this. Again, in a duplicated series of paragraphs in the Swanson Document it is said that "Significant profits are attainable".

I have made significant searches in the United States of America concerning the associates of Swanson who have been involved in this matter. I am not at liberty to disclose the details in this part of the report as to do so may compromise any legal action, however I can say:-

(1) That addresses supplied of alleged businesses are either non-existent or are of residential properties.

(2) Telephone lines of these alleged businesses have in some cases been cut off.

(3) A number of the businesses are not registered as required by the laws of the United States of America.

(4) Some of those involved have been dealt with for fraud and misleading conduct in business involving securities.

(5) The individuals involved are not involved in the money market and many of their businesses have failed.

(a) He has been dealing in Adelaide with a company, "New Resources Group Vanuatu Limited" without having such company registered in Australia. He has claimed that this company has its head office in Adelaide. See annexure ‘C".

(b) His dealings and the dealings of New Resources Group Vanuatu Limited in Australia appear to be in breach of the Australian Securities legislation and the Corporations Law of South Australia.

(c) Swanson is a discharged bankrupt. He was bankrupted in 1990 or thereabouts and discharged in 1993 or thereabouts. His discharge from bankruptcy was as a result of the operation of a law that provides for discharge after three years, it was not because he had paid his creditors in full! Nowhere has he disclosed this to anybody in Vanuatu.

(d) As is apparent from the curriculum vitae provided by Swanson he acted in the management of at least two companies during the period when it is now apparent that he was a bankrupt. This was in breach of the laws of Australia.

(e) Swanson has been behaving as if New Resources Group Vanuatu Ltd was incorporated when it was not. This company was not incorporated until 17 May 1996. He purported to execute agreements in the name of that company at a time when it had not been incorporated.

(f) In early 1996 Swanson held himself out as being a "Financial Consultant" in Australia. I do not believe that he has the necessary registration in respect of this.

The scam in this case is very similar to that perpetrated in the Cook Islands. This is evident from reading the Report by the Serious Fraud Office of New Zealand. A copy of this Report is available at my office for those who would wish to read it.

Swanson and his associates have claimed to be "international securities dealers". From my inquiries they are not. They have, (as was the case in the Cook Islands) obtained guarantees of US$100,000,000.

There is no money market with such spectacular returns on a risk free basis or at all. This is simple common sense.

There has been a Special Report of the Commercial Crime Bureau, which is based in Paris and is part of the International Chamber of Commerce. The Report covers such scams as in this matter. A copy of this Report is available at my office.

"1.4. Potential investors are persuaded to invest their monies in these questionable schemes which can provide them with risk free high yield returns of at least 12 to 14 percent per annum. It is also alleged by participating in a "Roll Programme", the money can be used to buy and sell prime bank instruments in a secondary market. It provides 2% per week or 200% per annum profit for the money invested".

In this scam the "Roll Programme" is called the "Trading Programme" and the expression "leveraging of a sort" is used in the Swanson Document.

"A secondary, public, market exists wherein investors can purchase ....... This secondary market is very active..... Outside the USA this secondary market can be legally accessed by all of the institutional groups ...."

And further under the heading "Prime Bank Credit Instrument" Swanson’s group say:

"One method of raising this cost and capital is through the issuance of off-balance sheet credit instrument. Historically such off-balance sheet credit instrument have taken the form of Letters of Credit. Bank Promissory Notes and Bank Guarantees .......... it is important that the reader of this document understands that the most majority of the banks that buy and sell bank debenture instrument record these transaction "off-balance sheet". By treating these transaction in this manner the banks are able to buy and sell these instrument without concern for reserve requirements placed upon them by the regulators of the countries in which they function".

Quite amazingly in January 1994 the Special Report of the Commercial Crime Bureau wrote directly on this point;

"1.5. Those promoting Prime Bank Investment claim these are off-balance activities of banks and only available to a handful of ‘special customers’. They say it is the best kept secret of banks and, if asked no banks will admit that they are involved in these transactions".

"Many of the documents used in these transactions refer to codes, rules and publications of the International Chamber of Commerce (ICC). In most cases the rules are misquoted or non-existent. This terminology is used to give the transaction the appearance of being a genuine banking transaction".

It is interesting to note that the Bank Guarantees prepared by Mr Swanson state:

"This Guarantee is governed by the Uniform Customs and Practices as set forth by the International Chamber of Commerce, Paris, France, latest revision".

On page 18 of the Swanson Document there is provided an example of "Typical profits from Trading Programmes".

It is interesting to note also that it uses the same sum of money as used in the Cook Islands scam, it differs in the percentage used, it being 7.71% rather than 6%. It also refers to 40 trading weeks, as in the Cook Islands scam. The annual profit is shown as being US$365,000,000. The figures used do not relate in any way whatsoever to the manner in which the international Money Market functions on any level at all.

This view is entirely consistent with all the advice that I have received from experts consulted by me in relation to this scheme.

(1) On 26th March 1996 a Non-Circumvention/Non-Disclosure Agreement was executed between a company called T.L.Dowdell & Associates Inc., the Republic of Vanuatu and New Resources Group (Vanuatu) Ltd. I make the observation that such an agreement would be entirely unnecessary if this were a proper transaction. I am of the opinion that this agreement was brought into existence in an attempt to give credibility to the scheme. I am entirely unable to conclude who T.L..Dowdell is, but I assume that he is connected in some way with Dowdell Dutcher & Associates, Inc, one of the apparent authors of the Swanson Document. This business is one of those that I refer to above in paragraph 5.3.

(2) On 26 March 1996 it would appear that the Bank Guarantees were executed. They were given the date of 1 April 1996

(3) On an unknown date, but probably around 26 March 1996, a Power of Attorney appointing Peter Swanson to act on behalf of the Government of Vanuatu was executed on behalf of the Government. I have attempted to obtain a copy of this document, however the Minister of Finance has refused to provide it to me under section 17(1) of my Act and he has failed to appear before me when summoned and has indicated on 11/6/1996 in a letter to the Ombudsman:-

"I hereby advise that the above matter is highly confidential and I cannot present the documents to you until I further notify you.........

I also advise you that I will not attend this summons at short notice as my disclosure of the information demanded would jeopardise what is an essential project of the highest nature for Vanuatu".

I understand that no one but the Minister of Finance and Mr Peter Swanson have copies of the powers of Attorney. I believe that it is unlikely that even the Prime Minister has seen the document.

(4) On 27 March 1996 the Minister of Finance provided a letter to Mr P.H. Swanson Financing Consultant, with the following enclosures:

2. A certified copy of a declaration of the total off-shore reserves of the Reserve Bank of the Republic of Vanuatu detailing in which country the reserves are held.

(Note that at this time there appears to have been no written agreement in place pursuant to which the Bank Guarantees were delivered to Swanson. They were not delivered into the hands of New Resources Vanuatu Group Ltd and could not have been as that company did not exist at that time.)

(5) On 29 March 1996 the Minister of Finance provided a further letter to Mr Peter Swanson in which he set out the priorities for development projects and an estimated cost for the same. The total value is US$250,000,000. This figure fits in with a later projection of profits stated by Peter Swanson in a letter of 14 May 1996 to Symmetry International, a U.S. company, to Mr Swanson of 28 April 1996.

(6) A series of self serving letters that I suspect were brought into existence to complement the scheme have been provided to the Finance Ministry by Peter Swanson. These are not reproduced as part of this Report as such publication may compromise any Court proceedings brought.

They appear to indicate that they will be able to generate US$250,000,000 from the US$100,000,000 by April 1998. This in my view is not possible in any circumstances.

I note that letters have come from Symmetry International, the address of which is "395 Sawdust Road, Suite 2001, Woodlands Texas, 77380", Cornerstone Capital, of "6727 Ambler Drive Spring Texas 77379", (I also note that these "Towns" are located in the same district as can be seen from the postal "zip" numbers).

These addresses are either non-existent or are of residential homes. Barton, Jamison & McMillan Inc., another company that has sent letters is said to have an address in St. John’s, Antigua, West Indies, but also has a U.S Office; "c/- 395 Sawdust Road Suite 2001, The Woodlands, Texas, 77380. This is exactly the same address as Symmetry International.

Barton Jamison & McMillan is a US$2 shell trust company, it does not trade in any business. I further note that a number of the letters contain references to how "God fearing" Swanson is. There is absolutely no reason to put this in a business letter and this would be done in my view only as part of a confidence trick.

In some of the letters from Peter H. Swanson to Symmetry International and Cornerstone Capital, Swanson refers to a number of large sums of money and mentions numerous large and internationally respected banks. It is my view that he has done this with the intention of giving his "scheme" some credibility. I note in particular the following paragraphs taken from a letter of 13 May 1996 from "New Resources Group Vanuatu Ltd to a "Robert Henry Ptak Esq. President, Cornerstone Capital ...."

Following our discussion, the writer is pleased to confirm receipt of your correspondence dated l0th May, the content which is duly noted.

In relation to your due diligence it is noted that you have now confirmed that the bank trading programme is well known to senior banking groups and international authorities. However, as discussed a number of would-be entrants to the programme have been at best fraudulent.

However, as you are aware we are not in any way shape or form involved in such activities.

In relation to your comments concerning Citicorp, Chase Manhattan Group and Bankers Trust you have in fact confirmed that their combined holdings in such programmes are in excess of US$ 2.7 Trillion however, please know that the actual sums travelling through the programmes on a global basis may not be defined in an actual monetary terms due to the actual sums fluctuating on a daily basis - obviously vast is a term that comes to mind.

As to Mr. Ron Forrester, the Trade Manager for the company, it is interesting to note that his credentials via the State Department, Central Intelligence and Interbank Securities are seen as exceptional with the added advantage that he is viewed as political neutral by all the banking and governmental groups who have had the pleasure of dealing with him.

It is noted that Mr Forrester to date has executed 27 trading programmes between 35 million and 3 billion per trade. On behalf of the company please extend to your Associates the writer's appreciation for authorising and directing that we are indeed to deal with this individual........

Once again we should like to thank you for your kindness devoted attention and care in relation to this most important matter for the people of the country for whom we are destined, guided and in some respect directed to help.

The only reason for the inclusion of such paragraphs is to attempt to gain credibility as part of the scheme. If this were genuine then there would be no need to cover any such matters. Note also the strong assertion to a Christian motive and the statement in paragraphs two and three to the fact that Ptak and Swanson do not regard themselves as being fraudulent. From my researches the statement about Ron Forrester is not correct and is again self serving.

(7) On the 13th May 1996 Swanson, apparently on behalf of the New Resources Group (Vanuatu) Ltd. entered into an agreement with Barton, Jamison & Mc Millan Inc called the "Option Purchase Agreement". I note that Swanson and Barton, Jamison & Mc Millan Inc. (this is the $2 trust company I have referred to above) would appear not to be at arms length in these dealings.

There are a significant number of spelling mistakes in this agreement. The confusion in the drafting of this agreement is consistent with it having been brought into existence in very great haste and with a view to probably never actually being relied upon by the operators of the scam as it could not be construed by a Court as making sense. New Resources Group Vanuatu Ltd was not an incorporated company on 13 May 1996 and thus did not exist so as to be able to enter into this agreement.

This is a pivotal document in the whole scam, although it is very difficult to understand it.

It appears that the effect of the agreement is to ensure that Barton Jamison & McMillan, Inc will receive a commission of 3% of the guarantees (that is US$3,000,000) per "trade". If there are ten "Trades’ in all the Guarantees then the commission payable will be US$30,000,000. The actual income raised by this is unlikely to exceed 7% per annum for the holder of the guarantees.

The Commission will be paid before the repayment of the sums due in respect of the redemption of shares as referred to below. The consideration for the use of the Guarantees would appear to be US$7,000,000 of stock in Barton Jamison & McMillan, Inc. These stock are, it would appear, to be redeemed (or, in other words bought back).

The major problem with this is that Barton, Jamison & McMillan Inc. is a company located in Saint John’s, Antigua, West Indies. It appears to have no assets and the stock or shares are going to be worthless although it is pretended that they will be worth US$7,000,000.

The ultimate effect is that it appears that it was planned that there would be default in the repayment of the sums due, after the commission of US$3,000,000 has been paid. The consequence of which is that the property in the Bank Guarantees would then transfer to New Resources Group (Vanuatu) Ltd without it having paid anything for them. That is New Resources Group (Vanuatu) Ltd acquires free of charge the property in the guarantees without having paid the People of Vanuatu anything for them. Thus the situation is that at the beginning of the transaction the Republic of Vanuatu had guarantees worth US$100,000,000 (although only backed up with a percentage of their value) at the end of the day.

However the Vanuatu Government will probably end up with only 30% of what is left as that is its shareholding in New Resources Group (Vanuatu) Ltd. (See clause 2.5). The other shareholders who would then benefit would be Peter Harold Swanson 25%, Genesis International Ltd 15%, and Shefa Provincial Government.

The V.F.S.C. is unable to say who is the owner of Genesis International Ltd as it is an exempt company, however a search in Australia of this company shows that Genesis International Pty Ltd., a company believed to be associated with Swanson as a shareholder has as its director Robert Ah Seng Yeo and Sarajine Yoe. Both are citizens of Malaysia, and it is likely that these people are in no way involved in the scam and are merely nominal directors of this company.

Thus the main winners in this affair are Barton Jamison & McMillan and Peter Swanson, if the agreement is acted upon. I repeat however that this agreement is merely part of the scam and not actually intended to be acted upon. That is, it is merely part of the documentation to support the scam.

I would not be surprised if it was the intention of Swanson to appear to pay some money to Vanuatu as a supposed dividend. If this occurs in the short term it will in fact be a small return from the capital that has been given to him. It will not be income! But it will be intended to fool people into believing that this scam is genuine!

(8) Between 29 March 1996 and 17 May 1996 or there about Swanson was paid the sum of AUD50,000 from an unauthorised loan account opened by the Minister of Finance, Mr Barak Sope in the National Bank of Vanuatu.

(9) I also note that from information that I have received it appears that the FBI of the United States of America is currently investigating the trading of at least one of the Guarantees. This is in breach of the agreements and understanding between the parties as indicated in the documents. This tends to be entirely consistent with this whole matter being a scam. As is the stated need for secrecy.

(10) Peter Harold Swanson has been provided with a Vanuatu diplomatic passport by the Department of Foreign Affairs.

(11) There would appear to be other agreements executed by the Minister of Lands and others.

I am unable to say how the Bank Guarantees were passed from Swanson into the hands of New Resources Group (Vanuatu) Ltd for the on dealing by Barton, Jamison & McMillan. As presently advised it would appear that they were a gift by the Government as certainly between the Government of Vanuatu and Swanson there is no consideration. This must also be true in respect of New Resources Group Ltd as it was not registered at the time that it is said to have had possession of the Bank Guarantees.

The Prime Minister became concerned about the issue of the Bank Guarantees and obtained reports from the Attorney General and the Governor of the Reserve Bank. These reports expressed the view that the "Trading Programme" was illegal as it had not been entered into in conformity with the laws of Vanuatu and was a scam. No immediate action would appear to have been taken by the Prime Minister in relation to this advice that was given.

The question of the actual issue of the Bank Guarantees was not discussed at a Council of Ministers Meeting.

(14) On 5 June 1996 the Prime Minister expressed his doubts about the "Trading Programme" in a letter addressed to the Minister of Finance in which he requested that some action be taken in respect of the matter.

(15) On or about the week commencing 17 June 1996 the Prime Minister referred the matter to the Vanuatu Police for investigation by them.

(16) On or about 24 June 1996 I believe that the Council of Ministers considered but did not approve the issue of the Bank Guarantees.

The Prime Minister, The Minister of Finance and the Governor of the Reserve Bank did not obtain any legal or other advice from officers of the Government before any of the documentation was entered into.

6.1 The method of operation used in this scheme is not unlike that used by others that have been the subject of reports, and is very similar to the scam used in the Cook Islands. I am advised by experts in international financing and money markets that the documentation used in this scam is very poor but is very similar to that used in other "Trading Programme" scams.

6.2 I note that I have ascertained that all the documentation has been arranged by Peter Swanson. The Prime Minister and the Minister of Finance failed to obtain any legal advice before executing any of the documents. The signing appears to have been rushed so as to ensure that the normal and proper channels of authorisation were avoided. The Minister of Finance applied pressure to the Governor of the Reserve Bank for him to execute the documents. Documents were prepared on Reserve Bank letterhead, but without having been typed at the Reserve Bank premises. It has been pointed out that this is evidenced by the fact that in many of the documents the name of the Governor of the Reserve Bank has been misspelt.

6.3 Officials have been instructed to keep all details of these transactions "Secret". If all was above board and proper there would have been no need for this. The Minister of Finance in his letter to the Ombudsman of 11/6/1996 states the need for secrecy of this whole transaction.

6.4 Peter Swanson is not in fact a banking expert. He does not have a law degree as appears to be the inference from his curriculum vitae. He is a discharged bankrupt. He has mislead people about himself and his past. He is not a fit person to have been given power to act on behalf of the Republic of Vanuatu in any financial matters or at all.

6.5 The associates of Swanson in the United States of America are not international money market dealers and have no experience in the area and are party to the scam.

6.6 The Reserve Bank Governor has in my view improperly executed the Bank Guarantees. I believe that he did this as a result of pressure that was placed upon him by the Minister for Finance. It was his duty as an independent office holder to resist any political or personal pressure that was placed on him. It is improper and a serious breach of the law for a Reserve Bank to be party to pledging the total foreign reserves of this country.

6.7 The reserves of a country are set aside for special use . Such a special use may be if the country is faced with crisis, such as a devastating cyclone. These funds may then be used as a last resort. They are the country’s international financial security. Vanuatu is, by world standards, certainly not a rich country, but its reserves and a significant amount more have now been pledged.

6.8 I note that I have been informed that the assets of the Reserve Bank are held on trust for the people of Vanuatu. The Reserve Bank has a primary duty to protect such a public asset.

6.9 The Governor of the Reserve Bank even though he himself signed them has stated in a report he wrote at the request of the Prime Minister that in his view the Bank Guarantees are counter to the interests of Vanuatu.

6.10 The Guarantees have been issued in breach of the Laws of Vanuatu. For legal purposes the Reserve Bank is the Agent of the Republic. The Guarantees have been given by both the Government of the Republic of Vanuatu and the Reserve Bank of Vanuatu.

6.11 The Minister of Finance has provided Swanson with details of the foreign reserves held by Vanuatu. In so doing he has risked the loss of the reserves.

Additionally this was done under the guise of letting Swanson and his associates know that Vanuatu had sufficient funds to enter the "market". It is evident from the amounts involved that Vanuatu does not have anything like the sums that are the subject of the Bank Guarantees. The fact that the matter still proceeded is clear indication of this being a scam.

6.12 There has been no authorisation by the Council of Ministers for the execution of the Bank Guarantees by either the Prime Minister or the Minister of Finance.

6.13 There has been no authorisation for the giving of the guarantees by Parliament as required by Section 13 of the Public Finance Act. The terms of the Reserve Bank Act have been breached, as have the terms of the Economic and Social Development Act.

6.14 There has been no consideration and authorisation by the Board of the Reserve Bank for the Governor of the Reserve Bank or George Borugu, First Secretary to the Minister of Finance to execute the Guarantees.

6.15 I observe that an advice has been given by the Honourable Attorney General that the Bank Guarantees are "void ab initio", because of the failure to comply with the domestic Laws of the Republic. I agree with this advice in so far as it relates to any action commenced in Vanuatu. The balance of my findings in relation to this part are contained in the confidential part of this report.

6.16 There has been no authority for the giving by the Minister of Finance of a Power of Attorney to Swanson.

6.17 Swanson has been given a Vanuatu Diplomatic Passport. Whilst it would appear that no law has been breached in respect of such, it is improper to give such to non-citizens in the context of matters such as this.

6.18 It would appear from information that I have received that at least one of the Bank Guarantees has been negotiated.

6.19 It is apparent from my investigations that the Reserve Bank of the Republic of Vanuatu did not in any way initiate the Bank Guarantee scheme and that whilst the Governor of the Reserve Bank executed the Bank Guarantees he did so under duress and subsequently provided advice to the Prime Minister (which was done in an entirely proper way) with great speed after it had been requested and in the knowledge that the contents of the advice were against the personal interests of the Governor. In my opinion, whilst in this report the Governor of the Reserve Bank is criticised by me for signing the Guarantees, his actions after this are to be commended as he has clearly attempted to remedy the situation.

I am of the view that the scheme that has been entered into in breach of the Laws of the Republic of Vanuatu is a scam.

I conclude that there has been a breach of the Leadership Code by the Prime Minister, the Minister of Finance, the First Secretary to the Minister of Finance and the Governor of the Reserve Bank in that they have all failed to comply with the Laws of the Republic of Vanuatu.

7.1 A breach of Section 3(3)(b) of the Government Borrowing and Guarantee Act Cap.149 in that the Minister of Finance, the Honourable Barak Sope did not obtain prior approval of the Council of Ministers before the execution of the Guarantees.

7.2 A breach of Section 13 of the Public Finance Act Cap.117 in that the Guarantees were executed by the Prime Minister, the Honourable Maxime Carlot Korman, the Minister of Finance, the Honourable Barak Sope, the Governor of the Reserve Bank, Mr Samson Ngwele and Mr George Borugu, First Secretary to the Minister of Finance, without having obtained a resolution of Parliament before the guarantee is given effect to.

7.3 A breach of Section 23 of the Reserve Bank Act by the Governor of the Reserve Bank, Mr Samson Ngwele in that he is under a duty to ensure that the value of external assets of the Bank does not reduce to more than 50 percent of the total demand liabilities of the bank. This has occurred as a result of the dealing in this matter.

7.4 The Governor of the Reserve Bank did not have the approval of the Board of Directors of the Reserve Bank and he thus acted ultra vires by executing the Guarantees and the Non-Circumvention Agreement. I find that he so executed the Guarantees under pressure from the Minister of Finance.

7.5 Section 38 of the Reserve Bank Act prohibits the Reserve Bank from making advances to the Government except in circumstances specified in Sections 27, 36 and 37. Section 38 has been breached.

7.6 Funds have been committed in the Non-Circumvention Agreement by the Minister of Finance in Breach of Section 3(3)(b) of the Government Borrowings and Guarantee Act without approval of the Council of Ministers.

7.7 The structure and effect of the agreements is to transfer or give away the entirety of the external assets of the Republic of Vanuatu.

7.8 And I find the following GENERAL BREACHES OF THE LEADERSHIP CODE and PROPER GOVERNMENT PRACTICE have been made:

(i) No, or no proper inquiries were made by the Minister of Finance or the Prime Minister of Peter H.Swanson and his associates before executing the Guarantees.

(ii) No legal advice was obtained by the Minister of Finance or the Prime Minister before executing the Bank Guarantees. Such advice was not sought until at least five weeks after the event.

(iii) No check was made of the incorporation of New Resources Group (Vanuatu)Ltd, which was in fact not incorporated on the date of the purported execution by it of the Non-Circumvention Agreement.

(iv) By executing the Bank Guarantee the Honourable Prime Minister, Maxime Carlot Korman, the Honourable Minister of Finance, the First Secretary to the Minister of Finance and the Governor of the Reserve Bank have risked losing the entirety of the external assets of the Republic of Vanuatu and have thereby exposed the Republic to total Bankruptcy.

(v) If the guarantees are enforced then Vanuatu will have been led into bankruptcy by the Minister of Finance, the Prime Minister and the Governor of Reserve Bank as the sum guaranteed greatly exceeds the external assets of the Republic of Vanuatu.

(vi) The Honourable Prime Minister, the Minister of Finance and the Governor of Reserve Bank must all be taken to have been purposeful in the actions by them given that the documents involve the largest sum of money ever committed by Vanuatu. Not one of them can deny liability by saying that they signed because the others did and thus assumed that the proper procedures had been gone through. To do so would be an abrogation of responsibility and of their high office. They hold power over the assets of this nation in trust for the people.

(vii)To have acted as they have as outlined above will diminish respect and confidence in the Government the Republic of Vanuatu in a way contemplated by Article 66 of the Constitution. This may occur even if what I believe to be a scam should prove not to be such, because the Prime Minister and Minister of Finance, arguably the two most important political leaders in Vanuatu, and certainly the most important so far as the Finance Centre is concerned, have chosen deliberately and forcefully to entirely disregard the Laws of the Republic of Vanuatu. The Laws that they have breached or caused others to breach were put in place by Parliament to ensure that what has now occurred would not happen.

(vii) The Prime Minister and the Minister of Finance have acted contrary to the Leadership Code by regarding themselves as being above the Laws of the Republic of Vanuatu and have thereby caused incalculable damage to the Republic of Vanuatu internationally.

(viii) Vanuatu will now be regarded as being a money laundering centre by its involvement in this scam through the participation of the Prime Minister and the Minister of Finance.

(ix) The Prime Minister and Minister of Finance have brought Vanuatu into international disrepute and thereby forever damaged its hereto good international financial reputation in general and with the International Monetary Fund, the World Bank, The Asian Development Bank and all aid donors to Vanuatu.

(x) The Prime Minister and Minister of Finance have further caused a serious breach of the Leadership Code by acting as they did on the advice of a non-citizen. They permitted him to prepare documents which take the control of the assets of this country from the leaders of this country. They failed to consider properly or at all the ramifications of bearer instruments which, from banking experience, will almost certainly be purchased at a discount by somebody unknown and unapproved by Vanuatu, who will use them as security loans and will then default causing the liability and bankruptcy of Vanuatu to occur in April 1998.

(xi) The Prime Minister and Minister of Finance failed to properly analyse and consider the scheme or make any or any appropriate researches.

(xii) In early May 1996 the Prime Minister sought and obtained urgent advice from the Attorney General and the Governor of the Reserve Bank. The Governor of the Reserve Bank advised of specific and urgent action that was to be taken. The Prime Minister has taken no appropriate action in respect of this matter and has thereby breached Article 66(1)(b) and (1)(d) of the Constitution in that he has demeaned his office and diminished respect for and confidence in the integrity of the Government of the Republic of Vanuatu.

(a) a gross breach of the Leadership Code by the Honourable Minister for Finance, Barak Sope in that by the actions referred to above he has, within the terms of Article 66(1) of the Constitution:

(iii) endangered or diminished respect for and confidence in the integrity of the Government of the Republic of Vanuatu;

(b) a breach of the Leadership Code by the Honourable Prime Minister, Maxime Carlot Korman in that by the actions referred to above he has, within the terms of Article 66(1) of the Constitution:

(iii) endangered or diminished respect for and confidence in the integrity of the Government of the Republic of Vanuatu;

(c) a breach of the Leadership Code by the Governor of the Reserve Bank, Mr Samson Ngwele, in that by the actions referred to above he has, within the terms of Article 66(1) of the Constitution:

(iii) endangered or diminished respect for and confidence in the integrity of the Government of the Republic of Vanuatu;

(d) a breach of the Leadership Code by George Borugu, the First Secretary of the Minister of Finance in that by the actions referred to above he has, within the terms of Article 66(1) of the Constitution:

(iii) endangered or diminished respect for and confidence in the integrity of the Government of the Republic of Vanuatu;

(1) Vanuatu is a small nation with very little wealth. That wealth has been put at risk because of the desire to raise money for the development of the Country. Vanuatu cannot borrow money on the open money market because of its size. For that reason it will always be prey to unscrupulous people who wish to exploit the fact that it wants money but cannot borrow it. The People of Vanuatu must realise that if you borrow money you must pay interest and the capital must be repaid. If the Government were to borrow US$100,000,000 the interest rate would be of the order of probably US$15,000,000 per annum with a capital repayment of U.S.$10,000,000 per annum. That would mean an annual payment of about half of the entire budget of the Government. This is simply not possible. This must be remembered at all times by those in authority.

(2) The Prime Minister stated on Thursday 13th June 1996 that all loan agreements and many financial dealings are "retrospectively authorised" by Parliament. The Prime Minister has indicated that this is a common practice in Commonwealth countries. The Prime Minister has indicated that this is because Parliament does not sit often.

(3) From enquiries I have made I do not agree that this practice is a common one amongst Commonwealth countries. The legislation in Vanuatu does not authorise "retrospective" authorisations. If there is a problem with Parliament not sitting often enough then I would suggest that the necessary amendments be made to the laws of Vanuatu to provide for more regular sittings of Parliament. It would appear that Parliament should sit more often than just two sessions a year.

Given the extreme nature of the breaches of the Laws of the Republic of Vanuatu by two of the most senior political leaders, I am unable to recommend any changes to legislation as if it is ignored as in this case then nothing done to change it will make any difference. If the laws had been complied with then the events that have been uncovered by this investigation would not have occurred.

However, I would recommend the following steps be taken to protect the external assets of Vanuatu.

8.1 Minister Barak Sope, having committed gross breaches of the Leadership Code and having ignored the laws of Vanuatu has shown himself to be unworthy of his leadership position that he now occupies, or any position of leadership.

8.2 The Prime Minister should dismiss him from the function of Minister of Finance.

8.3 The Prime Minister should at the least be reprimanded by the President of the Republic of Vanuatu and warned against acting against the laws of the Republic of Vanuatu and engaging into administrative malpractice. I leave it to Parliament to consider this matter further.

8.4 The Governor of the Reserve Bank Mr Samson Ngwele should be dismissed from his Office for serious breaches of the Leadership Code and of the laws of Vanuatu.

8.5 The First Secretary of Finance, Mr George Borugu should also be dismissed forthwith for serious breaches of the Leadership Code and of the laws of Vanuatu.

8.7 That the Government have nothing further to do with Mr Peter Swanson or New Resources Group (Vanuatu) Ltd and that an urgent application be made to the Supreme Court for an Administrator or Provisional Liquidator to be appointed over the Company.

8.9 Cancel the Power of Attorney given to Mr Peter Swanson and notify all Banks internationally of this on the SWIFT system.

8.10 In future all leaders involved in such matters must ensure that people they deal with are reputable and that the laws of the country are complied with.

To that end it is necessary to ensure that all contracts that are to be entered into are referred to the Office of the Attorney General for his approval. If that had been done in this matter the agreements would never have been executed and the Bank Guarantees would never have been issued.

I wish to stress that this is the most significant crisis that has ever been faced by the Republic of Vanuatu.

The Honourable Prime Minister has stated that he only signed the Bank Guarantees because he saw the signature of the Governor of the Reserve Bank and thereby assumed that all proper authorisations had been given.

Additionally the Prime Minister, Honourable Maxime Carlo Korman said that the matters were not submitted to Parliament as:

(a) it was the practice since independence to ask for retrospective authorisation;

Both the Honourable Minister of Finance, Mr Barak Sope and his First Secretary, Mr George Borugu were served with the Preliminary Report on the 13.06.96 and asked to advise of any comment within 14 days.

Proceedings were commenced in the Magistrate Court against the Minister of Finance, Mr Barak Sope pursuant to Section 17(7) of the Ombudsman Act due to his failure to attend in answer to a Summon from my Office. On the 26.06.96 the Minister of Finance, Honourable Barak Sope together with the Court were advised that I would not be continuing with the Court proceedings under Section 17(7).

On the 25.06.96 by letter I reminded the Minister of Finance of his right to answer the complaints made against him in the Preliminary Report. I note now that it is 21 days since the Preliminary Report was served upon him and I have still not received any communication from him by way of comment or reply.

I note that the Governor of the Reserve Bank of Vanuatu, Mr Samson Ngwele has agreed with many, if not most of the findings of fact of and concerning the bringing into existence of the Bank Guarantees and the conclusions reached in respect of the scheme being a scam. He has not agreed with the comments made which are adverse to him. He does not believe that the report is balanced in respect of him. He asserts, as noted in the report, that the Reserve Bank was never party to the initiation of the whole Bank Guarantee scheme.

Vanuatu Ombudsman's Reports

Provision of Bank Guarantees in the Sum of USD100,000,000.00 in Breach of the Leadership Code [1996] VUOM 12; 1996.01 (3 July 1996)