UBS faces 10-year ban from PNG as royal commission delivers verdict

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UBS Australia could face a ten-year ban from doing business in Papua New Guinea over its role in a controversial US$1.3 billion (US$956 million) loan to the Pacific nation, which has been the subject of a royal commission.

Counsel assisting the commission has recommended the Swiss Bank’s Australian unit, law firm Norton Rose and certain individuals involved in the 2014 transaction be banned from conducting business in PNG for up to 10 years.

The report prepared by the counsel assisting claims that UBS threatened state officials as it lobbied for the lucrative mandate while failing to provide “proper and independent advice” to PNG.

“They [the PNG government] thought, with some justification, that UBS were on their side, and their financial adviser solely, but they seem to be wrong about that,” counsel assisting James Renwick, SC, told the commission in his final submissions.

Among the allegations in the report was that UBS made threatening phone calls to the state’s decision makers and told PNG advisers that if it was not selected as a financier it would consider options that “may not be of the benefit of the state”. “UBS’ threatening conduct throughout the tender process, whilst not an overriding consideration by parties acting on behalf of the state may have featured in the decision-making process,” the report said.

Dr Renwick told the commission to consider banning UBS Australia from engagement by PNG or any state-owned enterprises for 10 years and for law firm Norton Rose, which declined to co-operate with its inquiry, to face a five-year ban.

He further proposed that certain individuals be banned from activities in PNG. They include Mitchell Turner and Patrick Jilek, the two UBS key personnel on the transaction. In addition, former Norton Rose lawyers involved in the transaction were singled out for potential sanction.

Those individuals were at the heart of the February 2014 deal in which UBS provided PNG with a loan which the state used to buy US$900 million shares in ASX-listed Oil Search via a placement.

The proceeds were then used to buy a 23 percent stake in PNG’s Elk Antelope project.

But a plunge in Oil Search shares triggered an effective margin call for PNG, inflicting a $400 million (US$294 million) loss on the state.

The ill-fated outcome, circumstances and legalities of the complex transaction were seized upon by the political foes of then-prime minister Peter O’Neill, who sanctioned the deal. That culminated in the establishment of the royal commission in August 2019 to determine whether laws were broken, and who benefited.

But the commission, aided by retired Australian judge Margaret White and Dr Renwick, has battled the pandemic and the reluctance of Australian entities such as Norton Rose and individuals involved to co-operate with its inquiry.

The calls for sanctions in the counsel assisting’s submissions are likely to be included in the royal commission’s final report, which was handed to PNG Prime Minister James Marape from chief commissioner Sir Salamo Injia on 05 April.

The report is due to be tabled in the PNG parliament as soon as Tuesday and Marape has pledged to take the recommendations seriously.

UBS, Dr Renwick said, had produced certain documents but did not make current or former employees available to give evidence.

A report commissioned by U.S analysts Brattle presented to the royal commission determined that UBS had overcharged PNG an aggregate amount of $180 million (US$132 million) in providing the loan.

Brattle’s calculations were described by the commission as “unchallenged” at the time the final submissions were made.

UBS submitted a second response to the counsel assisting the commission on 09 March regarding the conclusions of Brattle Group, a source close to the matter said.

“The complex UBS loan was not well understood by the state and its in-house officials and advisers, but it turns out to have involved over-charging by UBS,” the counsel assisting’s final submission said.

“The state should in our submission ask for this money back and the Australian authorities should be asked to investigate and, if appropriate, take action.”

Dr Renwick told the commission in his final submission that the ASIC had the powers to call on UBS Australia officers to give evidence and procure documents, so that it “could consider whether action should be taken against current or former UBS officers and/or the corporation itself”.

The submission said it had heard evidence that at least six months before the loan, UBS was considered to be the favoured financier to repay a loan from the United Arab Emirates sovereign fund IPIC that was due to mature.

There was no tender process involving the eventual loan and UBS engaged in threatening conduct throughout the IPIC refinancing tender process, which the commission said may have featured in the decision-making process of PNG to appoint UBS.

This included making threatening phone calls to the state’s decision makers and threats to parties acting on behalf of the state that if UBS was not selected to refinance the IPIC bond, it would have to look at other options that “may not benefit the state”.

A UBS spokeswoman declined to comment on the initial findings.

The terms of reference asked the commission to examine which entities benefited from the proceeds of the loan, which was used to allow PNG to buy 149.39 million shares in Oil Search, or about 10 percent of the company, through a placement, in February 2014.

Oil Search, in turn, used the proceeds to buy a 22.8 percent stake in a petroleum retention licence, known as PRL-15, in the Elk-Antelope gas field. The vendors were Canadian company InterOil and a locally registered company PAC LNG.

Since PNG had borrowed money to buy shares in Oil Search that were then used to invest in the stake, questions were raised as to why the state bought Oil Search shares rather than simply buying the stake in the gas field directly.

Dr Renwick’s final submission described O’Neill’s attempts to distance himself from PRL-15 as “extraordinary and so unconvincing that they give rise to the question of whether he might be wishing to conceal something and if so, what”.

Swiss businessman Carlo Civelli had control over the shares of InterOil and the PAC LNG companies, leading the commission to conclude that “much of the proceeds of the sale … would have been received by entities under Civelli’s control”.

But the commission found that O’Neill and [former Treasury secretary] Dairi Vele “wished to distance themselves from any dealings with Civelli”, to the extent that they provided contradictory evidence.

For instance, O’Neill claimed never to have met or spoken to Civelli in 2012 and 2013, despite other accounts that he had and the commission’s own findings to the contrary.

“If O’Neill’s denials were false, as we submit they were, the question is why O’Neill went to such lengths to deny it: at the very least it raises suspicions that such conversations may not have involved legitimate business dealings,” the commission said.

The US$900 million consideration paid for the 22.8 percent stake was also described as “odd given French oil giant Total paid U$S613 million for a 61.3 percent stake in the same field, just three months earlier in 2014”.

But the commission said research conducted by Brattle “concluded that they had not seen any evidence to suggest that the price paid by Oil Search was not justified and that the prices paid by Oil Search and Total were similar.”

Furthermore, the commission also did not find that the size of the gas resource had been misrepresented as had been implied by a report written by research firm Sarkal.

SOURCE: AFR/PACNEWS