436. Claimant submits that at the time of the investigation, the Central Bank and Governor Cabraal were forced to defend their role in relation to the hedging program amid substantial public criticism303
437. Claimant points out that the Central Bank has offered two alleged motivations for its investigation: 1) foreign exchange concerns because of the substantial payment CPC was required to make in US dollars; and 2) alleged surprise that CPC was required to make large payments following a decline in world oil prices
. They openly used the investigation of the banks to deflect such criticism. By placing the blame on the banks and excluding further payment by CPC, the Central Bank and its Governor managed to exculpate themselves and have largely avoided further public criticism.
304
438. Claimant argues that as to the first, CPC’s burden on Sri Lanka’s foreign exchange was in fact substantially reduced as a result of the fall in oil prices since the majority of CPC’s requirements were unhedged. Mr. de Mel confirmed that CPC’s monthly saving was over USD 200 million and that “the foreign exchange outflow from Sri Lanka was reduced by
that amount”
. According to Claimant, neither motivation is credible.
305
301
Core 7/313, p. 2.
. As to the second point, the Central Bank was well aware that in the event of a fall in oil prices, CPC would be required to make payment, and this was the cost of hedging.
302 Id.
303 Core 6/251.
304 Witness Statement of Ranee Jayamaha, 31 March 2010, para. 45; First Witness Statement of Nanayakkara Wasanwakwella Gamage Raja Dhammika Nanayakkara, 31 March 2010, para. 25 [“Nanayakkara First Witness Statement”].
97
439. Furthermore, Claimant recalls that Governor Cabraal directed Mr. Karunaratne “to hold the
outstanding payments to banks for a while” in a telephone call on Friday 7 November
2008, a week before the investigation into the banks had even commenced306. Claimant submits that Sri Lanka has offered no explanation for the omission of this highly relevant fact from Mr. Karunaratne’s witness statement307. According to Claimant, Deutsche Bank only became aware of it because it was included in Mr. Karunaratne’s evidence in the SCB claim. Acting on this instruction, Mr. Karunaratne did not make the payment to Citibank which was due that day. On Monday 10 November 2008, following media reports of a “default” by CPC over the weekend, the Governor had a change of mind and instructed CPC to make payment and to follow this up with a press conference which CPC duly did308
440. Respondent’s submission that only a payment to Citibank was in fact delayed misses the point in Claimant’s view. The instruction was a general one preventing payments to all of the banks. Claimant submits that moreover, in any event, what is significant is that the Governor was making a direction to CPC and before any investigation was commenced. The instruction was given and followed without question which is clear evidence that CPC is not independent of the State.
.
441. According to Claimant, having been forced by media pressure to reverse his instruction of non-payment to the banks, Governor Cabraal immediately decided to commence an investigation into the hedging transactions. Although it was commenced on Thursday 30 November 2008, Dr. Jayamaha gave evidence that Governor Cabraal informed her of his decision “a couple of days before the investigation commenced” 309
442. Deutsche Bank submits that the outcome of the investigation was clearly a foregone conclusion. In Claimant’s view, this is further made clear by Governor Cabraal’s actions at the meeting with Mr. Rodrigo on 19 November 2008, just four working days after the commencement of the investigation. He stated that the Central Bank had already concluded that Deutsche Bank had not followed proper procedures in relation to the Hedging Agreement and that the Monetary Board (chaired by the Governor) would take actions against Deutsche Bank. He refused to provide any details of the alleged breaches but stated that if Deutsche Bank came up with an “acceptable solution” for CPC, the Central Bank . According to Deutsche Bank, the timeline speaks for itself: the Governor instructed CPC not to make payment to the banks on Friday 7 November, reversed this instruction because of concern that it would be perceived as a default event on Monday 10 November and by Tuesday 11 November decided to commence an investigation. Claimant submits that the Governor had decided that he would need to achieve the desired result, non-payment by CPC, by means of an investigation, to prevent further suggestion of default by CPC which could affect Sri Lanka’s credit rating.
306
Core 8/333, para. 206.
307 Karunaratne Witness Statement, supra note 255, para. 214. 308 Core 8/333, para. 207.
309
98
and the Monetary Board would not pursue the matter any further310
443. Claimant argues that Mr. Rodrigo’s account is supported by two contemporaneous emails he sent to update colleagues on the meeting with the Central Bank noting that the Central Bank was “resorting to strong arm tactics”
. According to Claimant, this is an improper conduct for a regulator.
311
. It is also consistent with a contemporaneous note prepared by Mr. Haswel of SCB312
444. Deutsche Bank points out that Dr. Jayamaha only belatedly challenged Mr. Rodrigo’s account of the meeting in her second witness statement. According to Claimant, her evidence is not credible. During the hearing, she first stated that she could not recall whether or not the Governor had made certain statements at the meeting, before eventually stating that she disagreed with the accounts of Mr. Rodrigo and Mr. Haswel
. Mr. Haswel was informed that the alleged failings on the part of the banks included Mr. de Mel’s lack of authority and inadequate risk assessments, criticisms which were later made in the Central Bank’s report.
313
445. Finally, Deutsche Bank also points out that Governor Cabraal, who had been a central figure in relation to almost every aspect of the case and was involved from the very start in August 2006, has not given evidence to the Tribunal, despite confirmation that he is in good health, working full time
. Claimant submits that Dr. Jayamaha’s account is unsupported by any contemporaneous document and should be rejected.
314