Breach of the Leadership Code and Misuse of Cyclone Betsy Account by Formet Prime Minister Maxime Carlot Korman [1998] VUOM 6; 1998.06 (26 February 1998)

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BREACH OF THE LEADERSHIP CODE
AND THE MISUSE OF THE CYCLONE BETSY ACCOUNT
BY FORMER PRIME MINISTER
MR MAXIME CARLOT KORMAN

'Were they ashamed when they had committed abomination? Nay, Nay, they were not ashamed, neither could they blush; therefore shall they fall amongst those that fall. 'I will surely consume them' saith the Lord '

2.1 This is an Own Initiative investigation done under section 14(1)(d) of the Ombudsman Act No 14 of 1995. The investigation was initiated after an article was published by Trading Post Newspaper on 20 July 1996.

4.1 During the term of his Government from 1991 to 1995, Mr Korman opened an account with Banque d’Hawai'i allegedly to be used for disaster relief stemming from Cyclone Betsy. The account was named Carlot Maxime (Comité Secours Cyclone Betsy). It is alleged that he had used this account as a personal account and had misused the account for his own and/or his party’s interest.

5.1 The investigation into the operation of the account of Cyclone Betsy ('Betsy Account') revealed that Maxime Carlot Korman ('Mr Korman') is unwilling to distinguish between the funds which belong to the people of Vanuatu and those funds which are his own.

5.2 It is evident that the Cyclone Betsy account was used by Mr Korman to disguise funds received by him for transactions he did not want people to know about and thought they may be hidden behind an account with a 'social name'.

5.3 It strongly appears that Mr Korman used the account to disguise the payments to persons for votes in the November 1995 elections.

5.4 Our investigation partly looks into the question of the origin and the use of some Vt120 Million which was deposited into the Betsy account (Vt 67 Million) and the personal account of Mr Korman (Vt59 Million), less an allowance for some Vt6 Million for movements between the accounts, during the period 1995 - 1996.

5.5 Our investigations also revealed that the opening of the account did not follow the proper procedures set out in the Government Financial Regulations ('GFR')

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

(2) In particular, a leader shall not use his office for personal gain or enter into any transaction or engaged 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 subarticle (1).

(i) gives money or procures any office to or for any voter or to or for any other person on behalf of any voter or to or for any other person in order to induce any voter to vote or refrain from voting;

(ii) corruptly does any such act on account of any voter having voted or refrained from voting; or

(iii) makes any such gift or procurement to or for any person in order to induce that person to procure, or endeavour to procure, the election of any candidate or the vote of any voter;

or if upon or in consequence of any such gift or procurement he procures or engages, promises or endeavours to procure the election of any candidate or the vote of any voter;

(b) if he advances or pays any money or causes any money to be paid to or to the use of any other person with the intent that such money or any part thereof shall be expended in bribery at any election, or knowingly pays any money or causes any money to be paid to any person in discharge or repayment of any money wholly or in part expended in bribery at any election;

(c) if before or during an election he directly or indirectly, by himself or by any other person on his behalf, receives, agrees or contracts for any money, gift, loan or valuable consideration or any office, place or employment for himself or for any other person for voting or agreeing tor agreeing to vote or from refraining or agreeing to refrain from voting;

(d) if after an election he directly or indirectly by himself or by any other person on his behalf receives any money or valuable consideration on account of any person having voted or refrained from voting or having induced any other person to vote or refrain from voting.

(1) The offences of personation, bribery, treating and undue influence are corrupt practices for the purposes of this Act.

(2) a person convicted or a corrupt practice shall be liable on conviction to a fine not exceeding VT100,000 or to imprisonment for a term not exceeding 5 years or to both such fine and imprisonment.

'accountable officer' means any public officer, including an accounting officer, concerned in or responsible for the collection, receipt, custody, issue or payment of public moneys, stores, stamps. investments. securities, or negotiable instruments whether the same are the property of Government or on deposit with or entrusted to the Government or to any public officer or any other person.

(1) No Government bank account shall be opened without the prior written approval of the Minister of Finance.

(2) Where it is considered necessary to open a Government bank account, the Accounting Officer concerned shall submit a written request to the Director General of Finance giving reasons why such a facility is required. The request shall include the following detail:

(3) Upon receipt of the application, the Director General of Finance will, if he considers it expedient and necessary, recommend to the Minister of Finance to authorise in writing the opening of the account. The Director General of Finance will confirm in writing:

The Director General of Finance shall write to the bank and make the necessary arrangements for the opening of the account and the supply of the initial specimen signatures of the authorised signatories to the account, etc.

(4) The Auditor General is to be informed of all opening or closures of Government bank accounts

All cheques and instruments drawn upon a Government bank account will be signed by two officers, one of whom shall be the accountable officer responsible for the operation of the account'

No accounting officer shall open any public or official account in any bank without the authority in writing of the Minister' The Minister is the Minister of Finance.

The Minister may make financial provision for the establishment of special funds.

7.9 One of the main purpose for the strictness of the regulations and Public Finance Act is to prevent fraud and to ensure control is kept and supervision of the spending of public money maintained.

8.1 In early 1980 the Representative Assembly voted and passed the Public Finance Regulations. The Regulations came into operation on the day of Independence. In section 7 (3) of the Regulation it states:

No accounting officer shall open any public or official account in any bank without the authority in writing of the Minister' The Minister is the Minister of Finance.

8.2 In September 1985 another Interim Financial Regulations was introduced. This set of regulations sets out and strengthened the financial procedures. In July 1993 a new set of Government Financial Regulations was introduced which replaced the old Interim Financial Instructions introduced in 1985. Regulation 274 and 275 stated in sections 7.4 and 7.5 clearly states all the procedures of how to open a Government Account (see 7.4 above).

8.3 In January 1992, tropical Cyclone Betsy severely hit most of the islands of Vanuatu. Considerable damage was done to Government houses, Government buildings, schools, public roads, urban water supply, wharfs and airports. After the cyclone, the National Disaster Management Office together with the Department of Finance coordinated the donations of money and supplies received from various countries.

8.4 The Department of Finance set up appropriate procedures to account for the relief assistance and the spending of this assistance. The assistance that was accounted for by the Department of Finance came from British Government, Chinese Government, Forum Secretariat, Vanuatu Government, USAID, Australian High Commission and private donations. There is no record at the Department of Finance of any donation from the French Government.

8.5 Mr Korman was aware of the funds from other countries and that they were being controlled by the National Disaster Management Office and the Department of Finance. However, in February 1992 Mr Korman opened a separate account with the Banque Indosuez, now Banque d'Hawai'i (Vanuatu) Ltd. The account was to receive funds received from either the French Government or Paris Municipality. (We have tried, through the French Embassy in Port Vila, to confirm details of who the funds were from but have still to receive a reply). At the time Mr Korman opened this account, he did not have authority from the Minister of Finance as set out in S7(3) of the 1980 Public Finance Act, nor had he gone through the procedures set out elsewhere in the same regulation.

8.6 The opening statement of the Betsy account (annexure 'A') shows that Mr Korman is the sole signatory to the Betsy account and Father Gerald Leymang (Fr. Leymang) had power of attorney on the account, which means that he can also sign by himself. This is in breach of the Public Finance Act S7(3) and Financial Regulation number 275 which requires all cheques to be signed by two accounting officers (refer 7.5 above). Neither Mr Korman or Father Leymang were accounting officers and they were also not able to sign cheques with only one signature according to the regulation.

8.7 Mr Korman and Fr. Leymang did not consult the Minister of Finance nor have his approval to open the account. (See letter from the then Minister of Finance attached as annexure 'B') They did not ask the Department of Finance for details of the correct procedures for opening accounts for Public Funds. Had they followed correct procedures, they would have been advised that a regulation was in place preventing any department, Minister or other person from opening an account without written authority from the Minister of Finance.

8.8 The definition of an 'accountable officer' stated in 7.2 also shows that Mr Korman and Fr. Leymang are not accounting officers. Because Mr. Korman and Fr. Leymang were acting as Prime Minister and First Secretary at the time, they were not in a position to collect, receive, keep custody of, or issue money on behalf of Vanuatu. It is not their duty to be responsible accounting officers. Even if they were accounting officers, they still needed consent of the Minister of Finance to open a government bank account.

8.9 During the time Mr Korman was Prime Minister (1991 to 1996) new regulations were issued by the Ministry and Department of Finance in July 1993. Despite these new regulations setting out the procedures for opening Government Bank Accounts, Mr Korman did not rectify the situation with the Betsy Account. Mr. Korman did not close the account and attempt to comply with the laws of Vanuatu. Instead, he continued to use this government account, as his own private account. Mr. Korman's conduct is outrageous, because as recently as February 1998 we found the account was still open and operating.

8.10 The first deposit the Betsy account received was Vt1,993,000 on 27 March 1992.

Details obtained from bank transfer of FF100,000 reveal the beneficiary of the funds was to be the committee for the cyclone Betsy relief 'Comité Secours du cyclone Betsy' and was being remitted by 'R.G.F. de Paris - Ville de Paris'. (annexure 'C'). As mentioned above in 8.5 we have yet to determine if these funds were remitted from the French Government or the Paris Municipality. The funds were however specifically for meant for the committee dealing with the Cyclone Betsy relief.

(c) Funds received from a company named Mascot Holdings Limited This account is an account belonging to Mr Korman as confirmed in his facsimile to Mr Lien Than, 'Honorary Consul for Asia' in August 1995. Details of Mr Korman’s facsimile to Mr Lien Than is as follows:

'For my election, I make this request to our Asian Trade Commissioners, Special Representative like Mr. LAI and Matsumoto, and Honorary Consuls:

Trade Commissioners:	Mr. Ricky,	Malaysia	$ US5,000
	Mr. Yu,	Taiwan	$ US5,000
	Mr. Wong,	Hong Kong	$ US5,000
	Mr. LAI	TAIWAN	$ US 5,000
Special Representative:	Mr. MATSUMOTO	JAPAN	$ US 5,000
Honorary Consul:	Mr. Yatiskera	JAPAN	$ US 10,000
	Mr. MOTERE	Thailand	$ US 10,000
	Forget Name	Singapore	$ US 10,000

I ask them to transfer their contribution as requested my ASIACITI TRUST Company in Hong Kong and Shanghai. Banking Corporation 10 Collyer Quay, # 01 Ocean Building, Singapore 0104 A/C MASCOT HOLDING INC # 141 - 246660 - 01. (Bold added)

Paul, the Singapore Honorary Consul is already put 10.000 dollars US in my account. Mr. Matsumoto promises me to meet me in Tokyo and give me 5 000 dollars on 24 August.

Please Paul ask the others to do their part immediately. I we received negative answers from the others by the end of this month I will personally as P.M. and Minister of Foreign Affairs cancel their nominations as Vanuatu Government Rep in overseas.

Paul please give me reply immediately by Fax because I’m leaving on # 24 August in the morning.

(d) Funds received from an account at Bank Bumiputra Malaysia Berhad Airport Branch. This is the other account mentioned in Mr Korman’s facsimile to Mr Lien Than requesting funds from the Honorary Consuls.

8.13 The total funds credited to the Betsy account during the years 1992 to 1996 are as follows:

Details of major deposits, together with copies of some bank deposits, made into the Betsy account during 1994-1997 are attached as annexure 'F'

8.14 Investigations into the account revealed a number of transactions are connected with the personal account of Mr and Mrs Korman, as follows:

(a) Funds were transferred from Betsy account to Mr Korman's account and from Mr Korman’s account to Betsy account

(b) Funds from the same source were credited to both Mr Korman’s account and the Betsy account on the same day.

8.15 The following table shows some of the movements of funds between the Betsy Account and Mr Korman’s account:

Date	Vatu amount	Account transferred from	Account transferred to
6.10.95	3,139,054	Betsy- 20536	Korman - 19400
19.12.95	500,000	Korman - 19400	Betsy - 20536
26.2.96	50,000	Korman - 19400	Betsy - 20536
27.2.96	837,410	Korman - 19400	Betsy - 20536
21.3.96	110,800	Korman - 19400	Betsy - 20536
26.4.96	350,150	Korman - 19400	Betsy - 20536
14.10.96	199,428	Korman - 19400	Betsy - 20536
17.2.97	250,000	Korman - 19400	Betsy - 20536
14.4.97	145,638	Korman - 19400	Betsy - 20536

Note: 20536 is the Betsy Account number and 19400 is Mr Korman’s account number.

8.16 The following table shows funds received from the same source for the credit of Mr and Mrs Korman’s account and the Betsy account:

Date	Vatu amount in Korman’s Account	Vatu amount in Betsy Account	Source of funds and details
19.7.95	1,000,000	1,050,000	Vatu Cash
18.9.95	2,000,000	1,250,000	Vatu Cash
13.10.95	1,000,000	3,000,000	Vatu Cash
13.5.96	914,175	1,075,500	Proceeds from the sale of $ US - cash
24.5.96	1,000,000	2,453,839	Funds transferred from Noumea
1.8.96	327,600	1,037,400	Proceeds from the sale of $ US - cash
5.8.96	656,400	437,600	Proceeds from the sale of FF (French Franc)- cash
21.8.96	644,100	429,400	Proceeds from the sale of FF cash
27.8.96	600,000	300,000	Cash Deposit
27.9.96	1,197,240	1,197,240	Proceeds from the sale of $ US - cash

8.17 The investigations revealed that there were no records maintained at the Prime Minister’s Office ('PM’s Office') in respect of the use of the Betsy account. Accordingly there is no supporting documentation for payments made from the Betsy Account. The PM’s Office confirmed that there was no documentation in the letter attached as annexure 'G'

8.18 During December 1995 (the month after the 30 November 1995 elections) some 256 payments were made from the Betsy account. Many of these were cash cheques and were for amounts between Vt15,000 and Vt80,000. A copy of the Cyclone Betsy account bank statement for the month of December 1995 is attached as annexure 'H'.

8.19 It appears that these payments relate to the purchase of votes for the November 1995 general elections. Many of the cheques were dated 28 November 1995, two days before the elections. These facts taken together with the request for money from the Honorary Consuls points to conduct by Mr Korman to encourage the receivers of that money to vote for either himself or his party. Such payments are contrary to the provisions of the Representation of the People Act as stated in section 7.2 of this report and may amount to the offence of bribery. Why else would 256 cheques be signed by Korman at the time of the elections?

8.19a This allegation was put to Mr Korman in the preliminary report and he did not make any comment, nor denied it.

Mr Korman’s reply to our preliminary report (paragraph 8.19a to paragraph 8.19d)

I am surprised to see a report produced by your office concerning one of my personal bank accounts. The Ombudsman Act (even though it doesn't actually exist legally) does not allow you to investigate into the Government's private businesses and particularly one individual's businesses, unless the Court allows you by means of an official document to obtain necessary information your office may require in order to produce a report.

I consider your report as an attack on the rights and the life of an individual (citizen) of the Republic of Vanuatu. I qualify it as illegal and unconstitutional.

8.19b In his reply to the Ombudsman Mr Korman did not answer or offer any explanations for the allegation. Instead he made only general statements. His main remark was that he claimed the Ombudsman has no right to investigate his personal business.

8.19c Mr Korman is incorrect. Firstly, the initial funds placed into the account were public money. Secondly, where the Ombudsman is investigating a breach in the leadership code corruption or misappropriation the Ombudsman is authorised by Section 19(5)(b) to obtain information of a personal nature, including, as in this case, access to bank records of a leader. If Mr Korman truly believed the Ombudsman’s office did not have the right to investigate his personal business or his accounts he would have referred the matter to the courts. He did not.

8.19d Most significantly Mr Korman has not denied the allegations contained in the preliminary report.

8.20 In June 1996 some of the payments made from the Betsy account were to various boat owners for transportation of UMP delegates to and from Efate for the UMP congress held at Erakor in May 1996. These payments are as follows:

Date	Amount	Payment made to
31.5.96	300,000	MV St. Joseph
31.5.96	200,060	MV Sowentis
6.6.96	190,000	MV Saraika
6.6.96	150,000	MV Makila
6.6.96	150,000	MV Makila
31.5.96	100,000	Mv Saratoka
31.5.96	150,000	Mv Tali
3.6.96	180,000	Mv Kotu

8.21 In June 1992 a payment of Vt194,000 was made to a supplier of fuel, Societe Mobile and Mr Korman also paid himself Vt100,000. (See copy of cheque attached as annexure 'J'.)

8.22 During Mr Korman’s term as Prime Minister Mr Korman received a salary of Vt2,800,000 per annum. As a Minister he received Vt2,400,000.

8.23 In 1995 as well as the Vt47 Million credited to the Betsy account, over Vt39 million (non salary amounts) were credited to his personal account. This is a total of Vt86 Million. This is 30 times his annual salary as a.

8.24 In 1996 Vt20 Million was credited to the Betsy account and over Vt20 million non salary payments were credited to his personal account. This is a total of Vt40 Million for the 1996 year. This is 14 times his annual salary.

8.25 In total for the years 1995-1996 Mr Korman received into the Betsy account and his personal account taking into consideration some funds were transferred from his own account to the Betsy account could be as much as Vt120 Million.

Schedules of the funds received into his personal account for 1995 and 1996 are attached as annexure 'K' and annexure 'L'.

9.1 It appears that Mr Korman has breached the Representation of the People Act in that he directly gave or promised money to persons in order to induce them to vote for himself or other UMP candidates.

9.2 Mr Korman acted with gross misconduct in the operation of this public account for the following reasons:

9.3 Mr Korman breached S 7(3) of the Public Finance Act mentioned in paragraph 7.6 above by not obtaining the authority of the Minister of Finance to open the Betsy account.

9.4 Mr Korman breached Financial Regulation 1 mentioned in section 7.3 above by allowing himself to become an accountable Officer. According to Regulation 1, being a Prime Minister at that time he was not in a position to collect, receive, keep custody of, or issue money on behalf of Vanuatu.

9.5 In addition to finding No. 1, Mr Korman breached regulation 274 mentioned in paragraph 7.5 above. He did not get the written approval of the Minister of Finance prior to opening the Betsy account. Mr Korman failed to submit a written request to the Director of Finance to open this public account. The Director of Finance would have therefore made arrangement for the opening of the account.

9.6 Mr Korman also breached regulation 275 mentioned in section 7.6 by allowing him to be the sole signatory to the Betsy account. Accordingly a Government bank account will be signed by two officers, one of whom shall be the accountable officer responsible for the operation of the account.

Finding No. 5 - Breach Of Article 66 Of The Constitution -The Leadership Code By Maxime Carlot Korman

9.7 In view of the above findings (1 to 4) Mr Korman breached the Leadership Code of the Constitution. Mr Korman failed to meet the standard expected of leaders under the Constitution. Art 66 (1) says that a leader:

. . . 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 right be compromised;

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

9.8 On the evidence available and given his inability to satisfactorily explain the following:

(b) Why he was in possession of large amounts of money far in excess of his salary as Prime Minister;

(d) Why he was handing out hundreds of cheques for cash a few days before the 1995 election;

(e) Why he was transferring money from the Betsy into another personal account held in his and his wife’s name

Mr Korman appears to have misused public money for private purposes. Another name for this is theft. In this case, his actions will certainly give rise to doubt in the public mind about acting in his own interest or his party’s interest. It is difficult to see how he can hold any respect or making any claim to integrity. That the Prime Minister has conducted himself in this shameless and potentially criminal fashion must strip respect away from the Vanuatu Government.

9.9 Mr Korman has shown himself contemptuous of the public he was elected to serve both in his conduct of robbing public funds for his personal use (including breaking the election laws by paying money to people for the elections) and his refusal to explain himself to the same public.

10.1 In accordance with section 23 of the Ombudsman Act: Procedures after an enquiry under chapter 10 (Leadership Code) of the Constitution if a 'leader had failed to carry or has breached any of the duties and responsibilities of office imposed on him under Art 66(1) of the Constitution and is guilty of misconduct in office', I recommend:

RECOMMENDATION 1: THE PUBLIC PROSECUTOR AND OR THE POLICE SHOULD INVESTIGATE THE PAYMENTS MADE BY MR KORMAN PRESENTED TO THE BANK IN THE PERIOD AROUND THE NOVEMBER 1995 ELECTIONS WITH THE VIEW TO CHARGING HIM WITH BRIBERY AND POSSIBLY OTHER OFFENCES UNDER THE PENAL CODE [CAP 135].

10.2 For this purpose I will make a sworn complaint to the Acting Public Prosecutor pursuant to section 35 of the Criminal Procedure Code [Cap 136]

RECOMMENDATION 2: MR KORMAN CLOSE THE BETSY ACCOUNT AND HAND OVER THE REMAINING FUNDS TO THE VANUATU GOVERNMENT.

RECOMMENDATION 3: MR KORMAN HAND OVER THE AUTHORITY FOR THE MASCOT HOLDINGS LTD ACCOUNTS IN SINGAPORE AND MALAYSIA TO THE VANUATU GOVERNMENT SO THAT THEY CAN BE AUDITED.

10.3 I recommend a full audit of these accounts be carried out by the internal audit section of the Department of Finance or the Auditor General’s Office. Should the audit show that the funds received into this account are public monies then I recommend that the Attorney General send a formal letter of demand requiring repayment of the full amount. If repayment is not forthcoming I consider that the Attorney General should start civil legal proceedings to recover the money.

RECOMMENDATION 4: MR KORMAN REFUND THE GOVERNMENT FOR ALL MONIES USED BY HIMSELF FROM THE BETSY ACCOUNT.

10.4 If Mr Korman is unable to do this I recommend that the Attorney General send a formal letter of demand requiring repayment within 14 days. If payment is not done I consider that the Attorney General should start civil legal proceedings to recover the money.

RECOMMENDATION 5: MR KORMAN SHOULD NOT AT ANY TIME BE APPOINTED PRIME MINISTER OR A MINISTER OF THE GOVERNMENT OF VANUATU NOR TO ANY POSITION INVOLVING PUBLIC MONEY.

10.5 This is not the first time that Mr Korman has been the subject of adverse findings and trenchant criticism from me. His conduct in this particular matter suggests that he is both dishonest and uncaring of the laws of Vanuatu. It is therefore imperative that he not be placed in a position of trust again.

RECOMMENDATION 6: PARLIAMENT SHOULD PASS A BILL ENFORCING THE PRINCIPLES OF THE LEADERSHIP CODE

10.6 This report provides yet another clear example of exactly why Vanuatu desperately needs a legislation codifying the Leadership Code that appears in the Constitution and we strongly recommend for the Leadership Code to be passed in the next session of Parliament

RECOMMENDATION 7: PARLIAMENT TO ENACT LEGISLATION REQUIRING DISCLOSURE AND REGULATING POLITICAL DONATIONS TO POLITICAL PARTIES

10.7 I have also previously made this recommendation in the Ombudsman’s report on the Cleaning Contract at Bauerfield Airport dated 25 October 1996. At that time I recommended as follows:

Accordingly, I recommend that the Attorney General’s Office draft legislation regulating political donations. Such law must

(b) Require full and open disclosure by political parties and politicians of who has donated and how much

10.8 I repeat this recommendation. The necessity arises because Mr Korman was able to use his position as Prime Minister to ask various 'Honorary Consuls' for donations for his 1995 election campaign. This was a misuse of public office for private gain - the gain being that he and his political party were enriched by the donations collected. A law requiring disclosure and a limit on the amount of donations would put all candidates for elections on a more equal footing.

RECOMMENDATION NO. 8 A FULL INVESTIGATION INTO THE BETSY ACCOUNT AND MR KORMAN’S ACCOUNTS SHOULD BE CARRIED OUT

10.9 I recommend that a full investigation be carried out on both the Betsy account and Mr Korman’s account by the Office of the Auditor General or the Audit Section of the Finance Department or depending who will be the appropriate authority the Public Prosecutor or the Police in order to determine the total value of funds deposited into these account that should be regarded as Public Funds.

1992	Vt1,993,000
1993	Vt2,254,928
1994	Vt5,132,950
1995	Vt47,431,590
1996	Vt20,368,029
1997(Jan - April)	Vt1,047,354

Vanuatu Ombudsman's Reports

Breach of the Leadership Code and Misuse of Cyclone Betsy Account by Formet Prime Minister Maxime Carlot Korman [1998] VUOM 6; 1998.06 (26 February 1998)