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Reply to Thisaranee Gunesekera
Of war and peace
One wonders whether Thisaranee Gunesekere is a member of the UNP, an ex-member of the UNP or the sponsor of a candidate aspiring for leadership of the UNP. Her virulent attacks on the present leader of the UNP increase in proportion to her desperation as time goes by and current events do not go according to her plans.
Just five weeks have passed since the Presidential elections. While UNP supporters all over the country are being subjected to post election violence by the P.A., the Party leadership has been attacked by a handful of frustrated ex-UNP members who engaged in anti-UNP activities during the election campaign. Immediately after the election this group attempted to take over Sirikotha with a band of thugs. When this failed they went all out in a do-or-die campaign to get UNP MPs to cross-over to the P.A. This also failed, leaving M/s Thisaranee Gunesekere, Sirisena Cooray and others to take refuge in a vitriolic media campaign.
Unable to prove her allegations she keeps repeating the same old theme about the Interim Council deliberately omitting words which do not suit her purpose. While Ranil Wickremesinghe’s Interim Council is comprised of Sinhalese, Muslims, Tamils and LTTE and is limited to two years as explained by him to the people, M/S Gunesekere’s Interim Council, borrowed from P.A. pacha propaganda, consists entirely of LTTE who will stay put. As the proposal emanated from Mr. Wickremesinghe he has to be regarded as the authority on its functioning rather than be guided by the malicious distortions of his opponents. According to his statements on TV it was an open invitation to the LTTE to join the Interim Council for the N & E along with Sinhalese, Muslim and
Tamil members. The life of the council was two years and no mighty effort was needed to dissolve it at the end of the period as claimed by M/s Gunesekere.
The reference to the J. R. Jayewardene constitution has again been misinterpreted by M/s Gunesekere. That reference was made to show that there would be no delays in implementation due to amendments to the constitution. M/s Gunesekere’s attempt to base peace proposals on leaders killed before and after a certain date is puerile. The need to end the war in the J. R. era was as urgent then as now. The Interim council was a practical and speedy solution which had not been tried out. Approved by a two third majority in Parliament could it be stupid and perfidious as described by M/s Gunesekere? It is infinitely preferable to handing over the N & E to Prabhakaran for ten years as suggested by the President to the Time magazine or the division of the country in the Package, neither of which M/s Gunesekere condemns.
There is no need for the UNP leader to justify his efforts to settle the ethnic problem which is an universal demand. As a responsible Parliamentary politician for twenty three years he has acquitted himself honestly and ably in the tasks he undertook. As Opposition Leader he has a duty to participated in solving this crucial issue.
The fact that the UNP MP. for Batticaloa and the Bishop of Batticaloa announced that the LTTE would support the UNP was no reason to-alienate voters against the UNP. Chandrika Bandaranaike Kumaratunga won the 1994 election despite having a known understanding with the LTTE and despite the assassination of Gamini Dissanayake before the election. The alleged LTTE bomb of 18th December 1999 contributed to Ranil Wickremesinghe’s defeat because the bomb attack was utilised by the PA to create sympathy for CBK on state television up to the very last day before the election. Mrs. Srima Dissanayake did not have that advantage in 1994 and was in addition politically inexperienced.
I welcome M/s Gunesekere’s admission that the UNP leader did condemn the bomb attack at the Town Hall, but she now complains that he did not mention the LTTE connection with the bomb. Twenty four hours after the bomb could he accuse the LTTE or anybody else when up to date the assailant has not been identified and wild allegations are being made of "conspiracies"? It would have been highly irresponsible for the leader of the opposition to make such an allegation.
While Mrs. Kumaratunga was being rushed to hospital the UNP leader rushed to a mammoth UNP meeting at Maradana where he was billed to speak and informed the crowd of the bomb attack at the Town Hall. He requested them to disperse to their homes quietly and abruptly ended the last pre-election meeting of the UNP. To prop up this complaint M/s Gunesekere makes another one - that Ranil Wickremesinghe did not criticize the LTTE during his election campaign. There was no Presidential candidate from the LTTE for him to criticize is the reason, obvious to all reasonable persons whose minds are not distorted by prejudice. Mud-slinging and abuse may be the style today, but, thank goodness, it is not the style of the UNP leader who is attempting to introduce a new political culture in this fast degenerating society.
It is unfortunate that M/s Gunesekere is not prepared to accept Rev. Soma’s statement on television and prefers to treasure a bus stand leaflet which he has disowned. Reliance on such sources of information can only lead to errors of judgement.
As for M/s Gunesekere’s figures and facts regarding elections, I prefer to consult less biased sources for information. The UNP has lost elections while in power with "strong men" like Sirisena Cooray directing operations against less formidable forces. Betraying the party for portfolios, fighting for power and position in the party only disgusts the public. On the other hand clean and responsible politics, loyalty to the leader elected by the party and a national vision earn respect and support. Win or lose the UNP has played the game well at this election. Let not greed for power return the party to bishanaya and dushanaya.
Sathya
(This correspondence is now closed)
UNP rebels’ foiblesBy Deshavimala
While the People’s Alliance government is busy trying to find a lasting solution to the ethnic problem and working for a new constitution to replace the existing one, the five UNP rebels who supported President Chandrika Kumaratunga are busy fighting for their survival in the political arena. During the past two months the rebels made many moves to extend the life of the present parliament and even got the PA’s blessings for a Cross Over Bill. Both these attempts failed. They then tried to get more UNPers to cross over to give the government the required two thirds majority to pass a new constitution.
This attempt too failed as UNP leader Ranil Wickremesinghe surprised the PA extending his support to the government. He made a statement in Parliament and also sent a letter to President Kumaratunga stating he had certain reservations regarding the devolution package but if the President had no other way he would give the required two thirds majority to pass a new constitution. This move by Wickremesinghe put the rebels back at square one.
The five UNP rebels in the PA now have to fight for their survival as it is believed PA the may absorb only Dr. Sarath Amunugama and Nanda Mathew, the two ministers with special assignments if they lose the supreme court case. The political future of the other three, Wijayapala Mendis, Susil Moonesinghe and young Chula Bandara are at stake if they lose the court case.
Infighting among the five rebels has already begun and Chula Bandara is reported to have criticised the senior rebels to some UNP parliamentarians this week alleging that they misled him. Chula Bandara entered parliament to fill the vacancy created by the resignation of Gamini Jayawickreme Perera to contest the North Western Provincial Council elections. Susil Moonesinghe, a well known critic of the PA’s devolution package is not much liked by the PA seniors who favour the package.
The PA feels it cannot absorb Moonesinghe as it has to give preference to the Gunawardene brothers-Indika and Dinesh - at future elections in the Colombo District from the Homagama-Awissawella area - the political base of the two Gunawardenes’ for decades.
Dinesh Gunawardene supported President Kumaratunga at the December election urging the people to support the President to defeat Prabakaran whom he said was supporting Wickremesinghe.
Susil Moonesinghe’s statement he would not support the devolution package unless certain amendments were moved to the document has displeased the architect of the package Minister G. L. Peiris who wants the package to be passed in its original form.
Wijayapala Mendis a UNPer for five decades who did not accept a cabinet portfolio from Kumaratunga won’t join the PA or the SLFP in the future if the Supreme Court case is lost but may choose to retire from politics. Recently he had told UNP’s Dr. Rajitha Senaratne in the Parliament Members’ restaurant that he was a UNPer at heart and that he defected to support the president only because he had differences with Wickremesinghe. He had also stated that at whatever the results of the Supreme Court case he would not join any other political party.
After Mendis spoke to Dr. Senaratne he was followed by Dr. Amunugama for over two hours in the parliament with Ronnie De Mel also joining them. Senaratne informed Ranil Wickremesinghe of his discussions with Amunugama and Mendis.
Though Amunugama had spoken of ways and means of uniting the UNP while stating that many in the party had reservations about the manner Party General Secretary Gamini Athukorale was handling the administrative machinery at Siri Kotha.
Amunugama who appears to have differences with Athukorale is learnt to have defected due to his differences with Athukorale.
Ranil Wickremesinghe last week reduced the powers of Athukorale at Siri Kotha and appointed a committee headed by Karu Jayasuriya to revamp the activities at the party headquarters. Though Jayasuriya was asked to lead the new team, UNP sources say that Wickremesinghe’s confidante, Charitha Ratwatte who is also in the committee was playing the lead role in the affairs at Siri Kotha much to the dislike of many seniors in the party.
Wickremesinghe, who earlier insisted his partymen should seek prior permission to talk to the rebels who were trying to attack his men into the PA fold to get the credit from the president that they got the required fifteen voters to ensure the two thirds majority now does not object to their talking to the rebel as he had offered his party’s support if the president wanted to change the constitution making the rebels exercise futile.
When Senaratne informed him about the talks with Mendis and Amunugama, Wickremesinghe said: ’Go ahead, talk to them as now they have no one to talk to’. Senior rebel Nanda Mathew is liked by his PA colleagues in the Ratnapura district except for one or two in the district have reservations about Mathew’s future in the Alliance. Mathew and PA senior minister in the district John Seneviratne are close friends and if the supreme court judgement goes against Mathew, his friends in the PA are ready to accommodate him in the SLFP.
PA sources said if Mathew loses his case, the PA would appoint him as the SLFP organiser for Pelmadulla to contest the next election. Mathew’s present political base in the district is Kolonne.
Junior rebel Chula Bandara who was in constant touch with the young UNP parliamentarians spoke to his friends Susantha Punchinilame and Imtiaz Bakeer Markar and complained that he had been misled by the senior rebels.
Punchinilame is reported to have told Bandara that although he too had problems within the party he listened to the advice of the seniors to resolve his problems while being in the party.
When Punchinilame thought he was being cornered in the party, the seniors arranged a meeting for him with the leader to iron out his problems.
Punchinilame and Bakeer Markar feeling sad about the plight of Bandara had said that they would try to convince the party seniors to help him to return to the party. Amunugama it is stated is likely to be absorbed through the national list vacancy created by the death of Y. P. Silva. President Kumaratunga has been keeping that vacancy for over one year and chances are that Amunugama may get the place if the case fails.
New Constitution
The PA committee appointed by the President for the planning of a new constitution held its’ second sitting last Monday under the chairmanship of the President who told the members not to leak information to the media about the committee’s proceedings. ’They might misreport or misrepresent facts that would lead to confusion among other parties’, she warned. She also advised the committee to sit on a daily basis to help her to finalise the draft in three weeks time.
On Monday the committee discussed the issues of the unit of devolution and the nature of the Sri Lankan state.
On the unit of devolution, the Sri Lanka Muslim Congress of Minister Ashraff had reservation over the document presented to parliament two years ago. The committee agreed to consider fresh proposals from the SLMC before making the final draft.
Various ideas were expressed on the nature of the Sri Lankan state. They first discussed the regional councils concept already presented to parliament as a sessional paper. President Kumaratunga told the committee that she was taking all possible steps to ensure that a new constitution is implemented before parliament was dissolved. She expressed her desire to put it before the LTTE after consultations with the UNP.’ I have already made arrangements for third party mediation with regard to discussions with the LTTE’, the president noted. The committee members were in agreement of this move by the president.
Norway will play the role of the mediator between the government and the LTTE. A delegation from Norway arrived here last Saturday to prepare the ground for its’ mediatory role in the future. The Norwegian involvement in the Sri Lankan peace process is known as the ‘Oslo Peace Initiative’. On Saturday night the Norwegian Embassy in Colombo hosted a reception for the visiting delegation led by State Secretary Leiv Lunde who holds the rank of a deputy minister in the Norwegian government. Tamil parties including the EPDP of Douglas Devananda, PLOTE, TELO and other parties including the TULF members were also present.
TULF General Secretary R. Sampanthan met Lunde earlier that afternoon at the Norwegian Embassy for talks which lasted nearly an hour.
Sampanthan later told his party that the Norwegians were genuinely helping the government and the Tamils in the peace process and the TULF as a party must extend its’ co-operation to Lunde. Sampanthan had pointed out to the Norway State Secretary about the need for the two main political parties, the PA and the UNP to reach a consensus before it’s discussions with the LTTE, to ensure lasting peace.
The SLMC which met Lunde did not wish to disclose much details about that meeting. SLMC General Secretary Rauff Hakeem summarised the meeting saying that Norway was keen to help the development in the East and added that the war situation was also among the other matters discussed.
On Tuesday, Lunde called on the Acting Foreign Minister Lakshman Kiriella at the latter’s office. There he had emphasised the need for all parties in the South to reach a consensus before the Tamil parties were approached. Kiriella said that the Norway government was hopeful that the UNP and the PA would now be able reach a consensus as the Opposition Leader too has pledged to help the government to find a solution to the problem. Lunde has said that his government would take the next step in the peace role once the UNP and the PA reach a consensus on the issues.
Lunde also met Minister G. L. Peiris this week at the Finance Ministry. Prof. Peiris explained in detail the recent developments in the country and the bomb explosion in December in which he too was injured and appreciated the interest taken by Norway to help Sri Lanka in the effort to find peace. Prof. Peiris explained in detail the human rights situation in the country and the improvement in that respect since 1994 after the PA took over. Lunde said he was satisfied with the human rights record in the country.
Lunde and Peiris discussed matters of economic cooperation between the two countries and the former assured his government would always extend its cooperation for Sri Lanka’s economic development.
Lunde also met UNP leader Ranil Wickremesinghe on Wednesday at a lunch hosted by the Norwegian Embassy and the two talked of help to Sri Lanka for development activities and the ethnic crisis and the war situation. UNP sources said that nothing was discussed about Norway’s role as a mediator in the peace process here.
Sources said that the UNP leader during his talks with Lunde has pointed out that the government should talk to the LTTE if it wanted to find a lasting solution to the problem. Wickremesinghe who has taken this position very much earlier urged the government in his speeches in Parliament to resume a dialogue with the LTTE.
The government spoke of the need to crush the LTTE militarily while it maintained efforts to find a solution. Even during the presidential election campaign the government dismissed moves to open a dialogue with the LTTE. Instead it accused the UNP and it’s leader of having links with the LTTE to conspire to oust the president. The change in the government stand came after Kumaratunga was re-elected. Then she disclosed the government’s earlier attempts to start a dialogue with the LTTE and how Anton Balasingham postponed the attempt.
Diplomatic Celebrations
Several Members of Parliament, ministers and VIPs were seen at the Australia Day celebrations on Wednesday. Minister Peiris was there only for a short time but utilised that time to talk about the constitutional reforms with his UNP colleagues.
"We are also supporting your package, so why are you delaying it’, asked John Amaratunga from Minister Peiris. The professor replied that the final touches were being done and it would be put forward to the UNP soon to reach a consensus. Amaratunga shot back, ’Are you abolishing the presidency in your amended package’. Prof. Peiris said that the decision to scrap the presidency was still there and there would be no change.
Dr. Kodituwakku interjected to ask whether Norway was playing the role of a mediator or it was assisting the government in the peace process. Prof. Peiris replied Norway was assisting the government in the peace process and it was too early to give a label to the role played by Norway.
The same day another celebration was held at the Indian High Commissioner’s residence in Colombo to celebrate the Republic Day of India. The topic among the politicians present at this event too was the constitutional reforms process of the government. Ministers Mahinda Rajapakse, Kingsley Wickremeratne, D. P. Wickremesinghe and Arumugam Thondaman were present with parliamentarians Karunasena Kodituwakku, Ronnie De Mel, TULF General Secretary R. Sampanthan and EPDP leader Douglas Devananda in the crowd.
Government and opposition members present briefly discussed government plans to initiate a peace process with Minister Wickremeratne playing the lead role telling his friends about the need for peace to establish economic stability to develop the trade sector.
Some members of the business community who were present agreed with the views expressed by Wickremeratne with regard to economic stability and the need to expand trade activities with neighbouring country. Wickremeratne briefed them with facts and figures about trade in the South Asian region and pointed out the avenues where Sri Lanka could gain from the trade sector in the region.
Political Thuggery
Political thuggery which raised its ugly head during the presidential election continues. The UNP alleges that PA thugs are attacking their supporters even now the latest victims being the popular radio artistes Rukantha Gunatilleke and his wife Chandralekha Perera who sang in support of UNP candidate Ranil Wickremesinghe on every UNP election platform. Rukantha even composed and sang the welcome song during the campaign for Ranil Wickremesinghe.
On Wednesday night men armed with sophisticated weapons stormed his house at Mattegoda on the Kahathuduwa police area and smashed up valuable property removed jewellery, ransacked the house and also threatened to pour tar and burn them. Later they cut the hair of the couple to disfigure them while the in little daughter screamed in fear. The attackers later fled in Rukantha’s Nissan double cab worth over three million rupees.
Rukantha and wife are the second victims after the presidential election to be identified and attacked.
Immediately after the election, a gang reported to be PA supporters stormed the house of popular actress Anoja Weerasinghe in Ampara during her absence, damaged the house and returned a second time when she was away in India and burnt the house. Valuables worth over four million rupees were destroyed.
Anoja lamented that most of her film awards and other film videos were also destroyed as a result of that dastardly act. Anoja is the sister-in-law of PA Deputy Minister H. M. Weerasinghe who represents the Ampara District. She complained to the police on her return from India but the culprits are still at large. Whenever such attacks are launched on popular figures, the government orders an inquiry but no result seems evident from the investigations.
Even police officers are not safe from political thugs. Last week when a vehicle driven by two police inspectors almost collided with a vehicle driven by a deputy minister’s son at Weliveriya, the police officers vehicle was set ablaze and the two officers set upon by the supporters of the deputy minister’s son. While one officer ran into a nearby shrub for safety, the other officer was mercilessly assaulted by the political thugs and was treated at the hospital for injuries sustained.
Though the PA government assumed office to eliminate political thuggery and violence, this promise was never kept. Instead violence reached its peak at election times with political opponents at the receiving end.
Workers in peoplised bus depots who supported the candidature of Ranil Wickremesinghe are now being transferred from one depot to another. Some have been assaulted. UNP parliamentarian Imtiaz Bakeer Markar submitted a list of names of victims in all bus depots throughout the country to his party leader this week. He told this columnist that UNP supporters are transferred from one place to another and when they go to take up duties they are bundled into a room and assaulted by gangs of PA men forcing them to give up work. He said that an employee from the Kalutara depot, identified as Anura Fernando had been thrashed on arrival at the Panadura depot by PA men and is now hospitalised at the Panadura Hospital in a serious condition.
Ranil meets PC members
UNP leader Ranil Wickremesinghe summoned his party provincial councillors for a meeting this week at Siri Kotha to obtain their views on the party restructuring programme initiated by him. A large number of PC members from all councils including several parliamentarians from all provinces were present. At the outset Wickremesinghe told them about the steps taken to change the administrative machinery at the party headquarters. He then called upon the members to air their problems.
Maithri Gunaratne and Asoka Dhanawansa opened out saying that the defeat at the presidential election was due to not appointing organisers to some areas. Gunaratne claimed that the failure to counter the government’s allegation about giving the North and East to the LTTE for two years was another reason for the defeat. Several MPs present endorsed the views expressed by Dhanawansa and Gunaratne. Wickremesinghe requested them to submit the shortcomings of the party in writing to enable the committee handling the administration of Siri Kotha to remedy them. The members present agreed to submit reports on district basis within a week.
Meanwhile, Muslims in the UNP representing the East are battling for the vacancy in the national list in parliament. During the presidential election campaign Wickremesinghe said the vacancy would be offered to a Muslim in the East. Those fighting for this vacancy are former UNP Trade Minister A. R. M. Munsoor, Segu Issadeen and M. Majeed. In a bid to resolve this tussle, the party General Secretary summoned a meeting of the Muslim members of the party at Siri Kotha on Monday. Messrs; M. H. Mohamed, Ali Zaheer Moulana, Imtiaz Bakeer Markar, U. L. M. Farook and A. H. M. Alavi were present. A. R. M. Abdul Cader from Gampola who was absent sent in his recommendations by way of a letter.
UNP’s Eastern MPs Chandradasa Galapaththy and Yasendra Bakmeewewa backed Segu Issadeen. It was decided to offer the vacancy to Issadeen till the life of this parliament and the future vacancy of the national list in the next parliament to M. Majeed, who is a retired Deputy Inspector General of Police. Latest reports from Siri Kotha said that though these decisions were arrived at the meeting nothing final has been reached by the party leader. It is learnt that another meeting would be summoned by the party leader shortly to take a final decision.
There appears to be another problem in the UNP opposition in the North Western Provincial Council. The UNP members boycotted sitting saying the election was rigged. But Asoka Wadigamangawa and H. B. Abeyratne took their oaths, three weeks ago taking the party leadership by surprise. On Wednesday the other fifteen members took their oaths before the NWP Governor. They wore black bands in their arms as a protest to say the elections were rigged.
But, Gamini Jayawickreme Perera, the senior member in the group was the only person who did not take his oath. He still stands by the decision to boycott the Council. Now there is competition for the position of Leader of the Opposition in the Council. The competitors are Asoka Wadigamangawa who sacrificed his parliamentary seat to contest the provincial election and former NWPC minister of the UNP Johnston Fernando. Wadigamangawa says he will remain in the council without contesting future parliamentary elections. Fernando says he got the highest number of preference after Jayawickreme Perera and he is the most eligible person for the opposition leader’s post. The UNP leader is expected to meet the duo shortly to iron out the problem.
Meanwhile former UNP strongman finally came out from the political wilderness this week to announce his return to politics by putting up banner like posters in Colombo Central. A huge poster was displayed in Colombo Central with Cooray’s picture and that of his political mentor, Ranasinghe Premadasa. The poster read that an independent battalion would follow Cooray. This is clear that Cooray will contest the next general election with an independent group to pose a threat to the UNP vote bank.
by Dr. Wickrema Weerasooria
From about 1970, I have been interested in banking law and since then I have written several text books on the subject, both in Sri Lanka and in Australia. As part of this interest, in 1972, I collected and published all the decisions of the Sri Lankan Courts on banking law. There were only a few cases - not more than sixty to seventy on the subject. In 1996, I compiled a second edition of that text for the Bankers Institute of Sri Lanka and to my surprise I found that between 1972 — 1996 there were not more than ten new cases on banking law issues.
No one likes litigation. In that context, bankers in Sri Lanka should be happy that there are so few cases on banking issues. There appears to be a special reason why banking litigation in Sri Lanka is not frequent. In other countries, for example, the United States, England, Canada, Australia and even India, banking litigation normally arises when banks have to institute legal proceedings against defaulting borrowers. When customers who have borrowed from banks fail to repay their loans, banks have to go to Courts to recover the monies due to them. But in Sri Lanka, banks need not go to Court or institute legal proceedings to recover their loans from defaulting borrowers. This is because they enjoy special statutory rights and privileges in recovering loans from debtors and in realising securities taken in bank lending. This special legislation is basically found in two statutes. First, the Recovery of Loans by Banks (Special Provisions) Act No. 4 of 1990 and secondly, the Debt Recovery (Special Provisions) Act No. 2 of 1990 as amended by the Debt Recovery (Special Provisions) Amendment Act No. 9 of 1994. Under this special legislation, all that a bank need do is to pass a resolution of its Board of Directors stating that a customer of the bank’s had borrowed from it and not repaid the loan. That Board resolution has then to be published in any newspaper so as to give public notice to the banks borrower that the bank is taking action against him to recover the loan. The bank can then sell by public auction any land or other security that the borrower had given for the loan and thus get back the money it lent with all accrued interest. Everyday one sees in the newspapers Board Resolutions passed by several of the Commercial Banks advertising the sale of property mortgaged to the bank by customer-borrowers.
I have shown above why there has been so few banking cases in Sri Lanka relating to banks and banking. I now turn to a landmark decision, which I wish to highlight. It is a good judicial decision and the Additional District Judge of Hambantota (Mr. P. W. D. C. Jayatilleke) should be congratulated for the way he had carefully analysed the evidence and legal issues involved. The facts leading to this important case are also interesting.
Mr. Gamini Fonseka, Sri Lanka’s best known film actor, (who later became a Member of Parliament, Deputy Speaker and Governor of the Northern and Eastern Provinces) had sued the People’s Bank and the Manager of its Tissamaharamaya branch for divulging confidential information relating to Mr. Fonseka’s bank account which information had been used by the well-known media personality — Mr. Victor Ivan, the Editor of the Ravaya newspaper. The issue of the ‘Ravaya’ of 24th May 1992 had carried a front page article with a banner headline which stated in essence that Gamini Fonseka had committed a fraud of 25 lakhs on the People’s Bank. As we all know, the People’s Bank is a state owned bank. The article, which was clearly defamatory of Mr. Gamini Fonseka, described in detail (with dates and figures) loan and overdraft transactions which Gamini Fonseka and a hotel company he owned at Tissamaharamaya called Sanasuma Holiday Resorts, had with the People’s Bank at Tissamaharamaya.
Briefly stated, it was true that Mr. Gamini Fonseka had obtained loan facilities from the People’s Bank for about Rs. 1.5 million to run and operate his tourist hotel Sanasuma. This hotel had been burned down and completely destroyed by the JVP. Subsequently the National Insurance Corporation had compensated Mr. Fonseka for the loss of the hotel which it had insured. Mr. Fonseka, who was at that time the Deputy Speaker of Parliament, had negotiated a settlement with the People’s Bank and the amount due to the Bank by way of loan and interest had been paid off. However, despite these negotiations and agreed settlement of all debts and outstanding dues between the People’s Bank and its customer, Mr. Gamini Fonseka, the Ravaya newspaper of 24th May, 1992 carried this headline news story alleging a fraud on the Bank by Mr. Fonseka.
On seeing the Ravaya news item Gamini Fonseka took immediate action. As stated earlier, he was Deputy Speaker at that time. on 25th May 1992, he reported the matter to the CID On 27th May, the CID inquired from Mr. Victor Ivan, Editor of the Ravaya. Mr. Victor Ivan is well known in Sri Lanka as a fiercely independent media personality. Mr. Victor Ivan told the CID that he stood by what he wrote. He also told the CID that the article was based on information and facts he had obtained from the People’s Bank files (‘Bankuwe Lipi gonuwalin’ were his exact words). He added that he had personally perused the files and returned them to the source who made them available to him. However, Mr. Victor Ivan — in his well known media style — refused to divulge the name or source of the People’s Bank’s officer who provided him with the Bank’s files and the information on which he had based his headline story.
The CID recorded a statement from Mr. Victor Ivan to the effect that the Ravaya article was based on the "Bank’s Files". On 28th May the CID obtained an order from the Tissamaharamaya Magistrate to search and take copies of all relevant files from the People’s Bank branch at Tissamaharamaya. On that same day (28th May) CID called on Mr. Cyril Lokuruge, the Manager of the People’s Bank Branch at Tissamaharamaya and after a full search of the bank’s premises, took into possession several files relating to Mr. Gamini Fonseka’s Bank Account on which the Ravaya article was said to be based. The Branch Manager, Cyril Lokuruge told the CID that there were no other relevant files or documents and the CID officers returned to Colombo.
Then, two days later something very surprising occurred. On 30th May, 1992 (which was a Saturday), the Manager of the People’s Bank, Tissamaharamaya branch, Mr. Cyril Lokuruge turned up at the CID office in Colombo Fort with another file relating to Gamini Fonseka’s Bank Account. The interesting question is why did the People’s Bank Manager come on a Saturday morning to the CID office in Colombo all the way from Tissamaharamaya when the CID had called at his branch two days earlier on 28th May and he had handed over all the files and documents relating to Mr. Gamini Fonseka’s Bank Account to the CID. At that time, he had told the CID that there were no other files or documents but two days later the Branch Manager came voluntarily to the CID office in Fort bringing another file.
The only inference to this strange behaviour of the People’s Bank Manager was that the file he brought along with him on Saturday 30th May 1992 was at the office of the Ravaya Editor, Mr. Victor Ivan in Colombo. So after the CID left Tissamaharamaya on 28th May, the Manager had hurriedly gone to Colombo and picked up the file from the Ravaya Office and then taken it to the CID. This is the only possible explanation for this sudden appearance of another bank file at the CID office on 30th May.
The CID had done a good job on Mr. Gamini Fonseka’s complaint. Their investigations clearly revealed that the Ravaya article was based on documents contained in the People’s Bank’s files and now all the relevant files were in the CID’s possession. The CID inquiries also revealed that in all probability, it was the Manager of the People’s Bank branch at Tissamaharamaya that had made the files available to the Ravaya newspapers. The Ravaya article on Mr. Gamini Fonseka and his loan transactions with the People’s Bank were based on those files.
Next, we consider why the Ravaya article was defamatory of Mr. Gamini Fonseka? The headline of the article and its contents clearly carried the impression that Mr. Gamini Fonseka had committed a fraud of over Rs. 2.5 million on the People’s Bank. But these were not the true facts. If all the relevant documents and negotiations between Mr. Gamini Fonseka and the People’s Bank had been carefully studied, it would have been clear that Mr. Gamini Fonseka had not committed a fraud on the People’s Bank. All documents relating to the Bank’s settlement with Mr. Gamini Fonseka were NOT in the files maintained at its Tissamaharamaya branch since head office documents were not in those files. All the relevant documents showed that Mr. Gamini Fonseka’s settlement with the People’s Bank, had been in order and had also been approved by the People’s Bank Board of Directors. However, all this information was not in the files perused and used by Mr. Victor Ivan for his Ravaya lead article. So the Ravaya article was clearly defamatory of Mr. Gamini Fonseka because it did not give all the facts and Mr. Fonseka had not committed a fraud on the People’s Bank.
The heading of the front page Ravaya article said "Gamini Fonsekage Laksha 25ka Pollak". The English translation of this is "Gamini Fonseka puts a Bar (Pollak) on Rs. 25 lakhs". If one reads the entire article, it outlined how Gamini Fonseka had borrowed money from the People’s Bank to develop his tourist hotel Sanasuma at Tissamaharamaya and how later he did not pay back the sum borrowed and the interest due but had used political influence to prevent the People’s Bank from recovering the true amount due to it. As the District Judge commented in his judgment, the use of the word "Pollak" in the Ravaya headline was deliberate. A "Pollak" is a heavy stick with a thick end. This word had been used to convey the idea to the readers of the Ravaya that Gamini Fonseka, who was then a Member of Parliament and Deputy Speaker of Parliament, was using a ‘heavy stick’ (pollak) to avoid paying his due debts to the People’s Bank. On the above facts, the CID referred the matter, together with all the evidence obtained by them, to the Attorney-General’s Department for instructions as to whether they could proceed by way of a criminal action against the Ravaya newspaper. After a careful study of the evidence, the Attorney-General quite rightly advised the CID that there was no criminal case for the following reasons. The Ravaya article was not about Gamini Fonseka as the Deputy Speaker of Parliament but about Gamini Fonseka as a customer of the People’s Bank. Also, although the Ravaya article may have been defamatory of Gamini Fonseka yet because it related to a loan transaction between Gamini Fonseka and the People’s Bank relating to Mr. Fonseka’s tourist business, it was more a civil matter and not a criminal issue. On the basis of these views expressed by the Attorney General, the CID informed Mr. Gamini Fonseka that they were not instituting criminal proceedings in relation to his complaint.
On the above situation, Mr. Gamini Fonseka consulted lawyers. He was fortunate that he went to Mr. Ben Eliatamby, Presidents Counsel. Mr. Eliatamby is a very able lawyer who has an excellent knowledge of commercial and banking law. An average lawyer would have advised Mr. Gamini Fonseka to sue the Ravaya and its Editor (Mr. Victor Ivan) for defamation. Mr. Victor Ivan is not a stranger to defamation cases, but to sue a newspaper like the Ravaya was not the best course of action because it is a golden rule when you have to institute legal action that you must only sue persons who have the money to pay your damages. Courts are also reluctant to award damages against newspapers because they feel that media freedom is necessary for a democracy to function. Even if Ravaya was guilty of defamation, the amount of damages recoverable against such a newspaper is doubtful. So Mr. Ben Eliatamby quite correctly advised Mr. Gamini Fonseka to sue the People’s Bank. For procedural purposes, he also advised that the Manager of the Tissamaharamaya Branch be also sued in the same case as a second defendant.
As advised by his counsel Mr. Ben Eliatamby, in December 1992, Mr. Gamini Fonseka filed civil action No. 1907/money in the District Court of Hambantota against the People’s Bank (as the 1st defendant) and Mr. Cyril Lokuruge, the Manager of the Bank’s Tissamaharamaya branch as the 2nd defendant. The basis of his legal claim was —
(1) The Ravaya article of 24th May 1992 was defamatory of him.
(2) The Ravaya article was based entirely on facts contained in files of the People’s Bank
(3) Those files had been made available to the Ravaya newspaper by the Manager of the People’s Bank’s Tissamaharamaya branch — Mr. Cyril Lokuruge.
(4) In making those files available to the Ravaya newspaper, Mr. Lokuruge breached the Bank’s duty of secrecy to its customer — namely Mr. Gamini Fonseka.
(5) Because of this breach of secrecy by its Branch Manager, Mr. Gamini Fonseka had suffered damages to his reputation and therefore the People’s Bank as Mr. Lokuruge’s employer was vicariously liable to Mr. Fonseka. Mr. Fonseka claimed Rs. 300 million as damages.
Please note that it is not the object of this article to comment on whether Mr. Gamini Fonseka had acted fairly by the People’s Bank from whom he had borrowed money or whether his negotiated settlement with the Bank was just and reasonable. The District Judge held on the facts that the Ravaya article was a distortion and therefore defamatory of Mr. Fonseka. The major issue before the judge was whether the Ravaya article was based on information unlawfully leaked to the newspaper by the Branch Manager of the People’s Bank, Tissamaharmaya Branch. It is this second issue of breaching a bank’s secrecy that this article examines.
On 13 December 1999, seven years after, Mr. Gamini Fonseka initiated his case, the Additional District Judge of Hambantota (Mr. P. W. D. C. Jayatilleke) delivered judgement in favour of Mr. Fonseka. However, the Judge awarded Mr. Fonseka only Rs. 2.5 million as damages and not the Rs. 300 million he had claimed. This writer has been informed that both the People’s Bank and Mr. Gamini Fonseka are appealing to the Court of Appeal from the District Judge’s order. In their respective appeals, the People’s Bank wants the District Judge’s decision reversed while Mr. Gamini Fonseka wants the damages awarded increased. Subject to the pending appeal, we now examine the legal and practical issues for the banking community that arise from this important decision.
Significantly, the judgement confirms that banks owe a duty of secrecy to all their customers. This duty of secrecy is also called a duty of confidentiality. It means that all banks and all staff employed by a bank must ensure that banks accounts of all their customers are maintained and operated with the highest secrecy. No bank or its employee should divulge to outsiders any information about their customers. Such information can be divulged only with the consent and approval of the customer — not otherwise. Sometimes information about a bank account may be required by the Police or criminal investigators. In such an event, the bank must insist that the Police obtain a Court Order directing the bank to disclose such information. Without such a Court Order, no information should be given even to the Police. Banks may also be required to disclose information about their customers by some statutory provisions. A good example of such a situation is the Inland Revenue Act which empowers the Commissioner General of Inland Revenue to obtain information about a bank customer for income tax purposes.
This duty of banks to maintain secrecy about their customers’ accounts is not only a moral duty but it is a legal duty. This duty was first recognised by the English Court of Appeal in a landmark case in 1924 in the case of Tournier v National Provincial Bank. Because of this case the legal duty of secrecy is now popularly referred to as the Tournier duty. And since the law governing banking in Sri Lanka is the English Law, the Tournier Duty of Secrecy applies to all banks operating in the island.
In 1988, this duty of secrecy imposed on bankers by an English judicial decision was made a statutory duty in Sri Lanka by the Banking Act No. 30 of 1988. Section 77 of the Banking Act of 1988 now imposes on banks in Sri Lanka even a higher duty of secrecy of customers’ accounts. Under this statutory provision banks can divulge information about customer’s bank accounts only when authorised by the customer or when directed to do so by a statute. (For example, the Inland Revenue Act) or by a Court of Law.
Accordingly, on the above stated legal position, in Mr. Gamini Fonseka’s case, the People’s Bank was liable because one of its Branch Managers (Mr. Cyril Lokuruge) had divulged information about a customer’s bank account to a third party (Ravaya newspaper) without the Customer’s consent or approval. The People’s Bank then argued that what its Manager Mr. Lokuruge did was not authorised or sanctioned by the Bank and therefore the Bank should not be held liable for an unauthorised act by one of its employees. This argument was also rejected by the Court because it is well established that an employer is vicariously liable for all acts of his employee — even where the employee had done something irregular and breached his duty.
Two decisions of the Supreme Court of Sri Lanka did not support this argument of the People’s Bank to avoid liability for the wrongful acts of its employee, Mr. Cyril Lokuruge. These were the cases of Collettes Ltd. v Bank of Ceylon and Mrs. Lily de Costa v Bank of Ceylon. In both these cases, the Supreme Court held that an employer must accept vicarious liability for the wrongful act of an employee that causes injury or financial loss to a third party.
Mr. Gamini Fonseka’s legal victory over the People’s Bank is a good eye-opener to all banks operating in Sri Lanka. All banking institutions should refer to this case and the issues raised by it and send out circulars to all their staff reminding them of the need to observe strict secrecy about their customers banking transactions. Here it is also relevant to note that Sections 77 of this Banking Act of 1988 requires every employee of a bank to sign a declaration pledging to observe strict secrecy in respect of all transactions of the bank and customers’ accounts. One wonders how many banks have got all their employees to give such a written pledge.
As a final comment, it is this writer’s view that Mr. Gamini Fonseka was able to conduct this case successfully because of the initial investigations conducted by the CID. The CID had recorded statements from the Ravaya Editor and had taken possession of the relevant files from the People’s Bank. This information and evidence was available to Mr. Fonseka’s lawyer, President’s Counsel, Mr. Ben Eliatamby who used that evidence to conduct the case so successfully for his client. But not all clients in litigation will be as fortunate. They may be able to retain able lawyers like Mr. Ben Eliatamby, but they may not be able to get the CID or the Police to conduct investigations in the way that it was done on the complaint made by Mr. Gamini Fonseka who was the Deputy Speaker of Parliament at that time.
Another significant feature of this case was that the person sued was not the newspaper that published the defamatory article. Normally this is what happens in the case of a defamation issue. You sue the paper, the editor and the publisher. But in this case Mr. Ben Eliatamby very wisely advised Mr. Fonseka to sue the People’s Bank and proved that the bank was liable for breaching its duty of secrecy by disclosing confidential information to the newspaper. All these factors made it an unusual case.
Mr. Gamini Fonseka’s successful litigation against the People’s Bank is a good lesson for banks in Sri Lanka. They must ensure that their staff maintains secrecy about their customers’ accounts. Even in fun or on social occasions, a bank employee must not divulge information about a bank’s customer. Banking is a business and not a profession. One can understand professional persons like doctors and lawyers having to maintain secrecy about their clients. It is well established that a Doctor cannot tell others about his patients and their problems. So also, lawyers cannot divulge to third parties information about their clients. But there is no such duty on normal businessmen. A tailor can tell others about suits or dresses he makes for a customer. A shopkeeper can tell others about what a regular customer buys from his shop. So also a hairdresser or beautician can disclose to others about the hair styles and beauty therapy they perform on their regular clients. But even as businessmen, courts have imposed a strict rule of secrecy on bankers. This is because the operation of a bank account normally contains considerable confidential information about the customer of the bank. It has been judicially remarked that a bank account is like an x-ray of a person’s body. By examining a bank account, you can find out many things about the customer who is the account holder. Thus from very early times, the English Courts decided that bankers, although they are businessmen and not professionals, owe a duty of secrecy about their customers accounts.
The above litigation clearly shows how important it is for banking institutions to ensure that their staff act with integrity and honesty and observe established traditions of banking practice and banking law such as maintaining strict secrecy over their customers accounts. Currently there are about thirty commercial banks operating in Sri Lanka. Of this number, about ten are domestic banks and the balance twenty, foreign banks. The domestic banks — led by the Bank of Ceylon and the People’s Bank — have about one thousand one hundred branches through the island while the foreign banks currently have about forty two branches.
Mr. Gamini Fonseka’s incident arose because of a breach of the law by an employee of a branch of a bank. As far as the law is concerned, there is no difference between what is expected of head office staff and staff at the branches. The bank as an institution is liable for the acts of all its employees wherever they are working. Thus, the senior Management of a bank must ensure that all staff of the bank from managers to clerks and even minor staff act with responsibility.
In concluding this article, I wish to refer to another important case where the Supreme Court made observations about the high standard of integrity and morality expected from staff employed by banks. This was the case of National Savings Bank v Ceylon Banks Employees Union (1983) 2 Sri Lanka Reports at P 629. There the National Savings Bank had dismissed one of its staff because he got caught cheating at a public examination conducted by the Bankers Training Institute. The dismissed employee applied to the Labour Tribunal for reinstatement. The Labour Tribunal expressed the view that the dismissal was too harsh because it was not connected to some misconduct within the bank. The Labour Tribunal ordered that the dismissed employee be reinstated. The National Savings Bank appealed against the decision to the Supreme Court. The Supreme Court said that the Labour Tribunal has failed to appreciate that the dismissed employee was the employee of a bank. An employee of a bank who is caught cheating at a public examination cannot be trusted. Such a person has lost all integrity and honesty and should not be permitted to work in an institution like a bank, which deals with members of the public. How can customers of the bank rely on such an employee who has a past history of cheating, which is a fraudulent act. Accordingly, the Supreme Court held that the National Savings Bank was entitled to have dismissed that employee. This case shows the high standard of honesty expected of banks staff.
Please note that it is not the object of this article to comment on whether Mr. Gamini Fonseka had acted fairly by the People’s Bank from whom he had borrowed money or whether his negotiated settlement with the Bank was just and reasonable. The district Judge held on the facts that the Ravaya article was a distortion and therefore defamatory of Mr. Fonseka. The major issue before the Judge was whether the Ravaya article was based on information unlawfully leaked to the newspaper by the Branch Manager of the People’s Bank, Tissamaharamaya Branch. It is this second issue of breaching bank’s secrecy that this article examines.
E-Commerce - Posing New Challenges to the Revenue Department
By C. P. E. Gunasingam,
Attorney-at-Law,
Tax ConsultantRecently The Hindu newspaper reported that Asthma sufferers and those with chronic obstructive pulmonary disease will use a portable monitoring device to record their breathing patterns upto four times a day in the comfort of their own homes. The data will be sent via a modem and a telephone line to a central disease management system where it will be processed and the results sent directly to the patient’s consultant using the Internet.
Another newspaper article reported how an innovative Anglo-American company orchestrated a far reaching revolution in music by opening up an enormous interactive Website on the Internet. As a result of its tentative foray into this new field the company has already found that the potential applications are virtually limitless. Directly stemming from this technology it is not just artistes and audiences who can now connect and interact without touching each other. A theatre director and a design team can create an international production across continents without ever going near an airliner.
A much in demand conductor can rehearse a complete Wagnerian Ring Cycle with busy soloists, chorus and orchestra carrying on with other commitments in a demanding schedule and located in a dozen different duties scattered around the globe. They now only need to fly to the chosen opera house the night before the dress rehearsal. It goes without saying that savings in time stress, hotel bills and even personal relationships let alone controversial public funding will be immense.
The above are just two examples of how the Internet has changed the world and is set to change the globe still further.
As noted by President Bill Clinton, "the invention of the steam engine two centuries ago and the subsequent harnessing of electricity for communications ushered in an industrial revolution that fundamentally altered the way we work, brought the world’s people closer together in time and space, changed the way we organise our economies, and brought us greater prosperity. Today we are on the verge of another revolution. Inventions like the integrated circuit, the computer, fibre optic cable and the Internet are changing the way we work, learn, and communicate with each other."
While it would be difficult to find a person who has not heard the term "Internet" do we really know what its entails? The "Internet" may be defined as the international computer network linking computers from educational institutions, government agencies, industry and many individual computer users. Once a tool reserved for scientific and academic exchange the Internet has emerged as an appliance for everyday life accessible from almost every point on the planet. Students and teachers can have immediate access to a vast store of knowledge; doctors can administer diagnoses to patients in remote parts of the globe from their offices and citizens of many nations are finding additional outlets for personal and political expression.
But as the Internet profoundly changes and reshapes our lives, it is also changing classic business and economic paradigms. New models of commercial interaction are developing as businesses and consumers participate in the electronic marketplace and reap the resultant benefits.
The development of "electronic commerce", which may be loosely defined as business transactions based on the electronic transmission of data over communications networks such as the Internet can be ascribed to a coincidence of innovations over the past two to three decades, starting with the Internet in the late 1960’s and the subsequent lifting in the 1970’s of restrictions on its commercial exploitation. The World Wide Web emerged in the 1980’s followed by the widespread diffusion of interface technology, such as browser programmes, in the 1990’s. These developments were underpinned by the availability of affordable communications infrastructure including normal telephone lines. Constant breakthroughs in hardware and network technologies and higher investment in communications after liberalisation of telecoms all helped to accelerate the process. It was hardly surprising therefore that enterprises, large and small, and their customers would quickly see in the Internet an opportunity for doing business.
Economic growth
According to several estimates commerce on the Internet will total tens of billions of dollars by the turn of the century and could expand rapidly after that, helping fuel economic growth well into the 21st Century. For this potential to be realised governments must adopt a market oriented approach to electronic commerce, one that facilitates the emergence of a global, transparent, and predictable environment to support business and commerce. Government officials must respect the unique nature of the medium and recognise that widespread competition and increased consumer choice should be the defining features of the new digital marketplace.
Forecasts are always tricky, and for electronic commerce some have been a little over optimistic. But even the most conservative private estimates predict ten-fold volume growth in electronic commerce by the end of the year 2000. Forecasts based on current reported growth rates-an expansion from a few billion dollars in 1997 to over US$300 billion in 2001- still hint at the prospect of a US$1 trillion electronic marketplace in the not too distance future. In the UK alone in the last Christmas season around 3.5 million people were expected to have spent around £450 million shopping on-line. This prompted Britain’s retail giant Marks and Spenser to go on-line as well.
According to Dataquest Asia’s electronic commerce market will see explosive growth over the next four years. Business to business transactions will increase from US$4 Billion in 1999 to US$280 Billion in 2002. Business to consumer transactions will grow from US$5 Billion to US$40 Billion.
In the light of the above figures it is hardy surprising that electronic commerce has been described as the "engine of economic growth in the 21st Century with the potential to invigorate economies by enhancing productivity, streamlining distribution, facilitating trade and revamping corporate structures".
The reason why electronic commerce is set to become a formidable economic force is that it dramatically reduces the economic distance between producers and consumers. Consumers can make their purchases directly without involving traditional retailers, wholesalers and in some cases distributors. They benefit from improved information, lower transaction costs and thus lower prices, larger choices which can indude products tailored to individual requirements, and instant delivery for intangible services and products in digital form.
For sellers, electronic commerce also presents many advantages: producers can gain access to a global marketplace with relative ease. Specialist resellers enjoy the same advantage. Neither need maintain a physical store or shop and inventory can be managed more efficiently. Labour cost savings too can be considerable. For instance, one estimate places the cost of buying software over the Internet at US 20 cents to 50 cents per transaction as opposed to $5 for a telephone order and $15 for a traditional retailer. But just as electronic commerce offers new market opportunities, it will also intensify competition.
The Committee on Fiscal Affairs (CFA) the main tax policy body of the Organisation for Economic Co-operation and Development (OECD) in a paper entitled "Electronic Commerce: Challenges to Tax Authorities and Taxpayers has expressed the view, that to tax an economic activity the tax authority must be able to identify a taxable event. In the case of income taxes, this requires identifying and measuring the income generated by an activity. To achieve this the CFA considers it necessary to identify the following types of economic activities that are carried out on the Internet, where they are carried out and by whom.
The sale-lease of goods - there are numerous Websites enabling buyers to select, pay and order physical goods which are then delivered by traditional mail order methods. Some digital "goods" can already be downloaded (e.g. computer software, magazines and newspapers) and it is expected that most "goods" capable of being digitised (e.g.: compact discs, videos) will be able to be delivered by downloading within the next few years.
The provision of services - Many traditional services are available via the Internet. Web sites offer offshore banking services, ticketing arrangements, stock-brokerage services the provision of health care advice and other professional services.
The provision of on-line information: Services such Lexis and Nexis have created large computerised databases which can be accessed by customers with the information either being read on screen or printed.
Advertising - Commercial enterprises are increasingly using the Internet to advertise their goods and services
Gambling - The internet opens up new possibilities for 24 hour global gambling: the ultimate Las Vegas
Global Dealing - This refers to the capacity of financial institutions and Multinational Enterprises to engage in 24 hour, trading with the "book" moving between time zones.
The OECD is an organisation composed of most of the world’s developed countries. It plays an important role in international taxation by providing a forum for discussing and co-ordinating international tax policies. The OECD’s Model Tax Convention serves as the basis for most of the tax treaties around the world.
Positive Force
Electronic commerce is set to be one of the driving forces behind the global economy. It is a potentially positive force which can improve the ways people participate in society as citizens, consumers, workers and entrepreneurs. The US approach to electronic commerce is encapsulated in the Bill Clinton’s Presidential Directive on electronic commerce, wherein it is stated:
"I direct the Secretary of the Treasury to work with State and local governments and with foreign governments to achieve agreements that will ensure that no new taxes are imposed that discriminate against Internet commerce; that existing taxes should be applied in ways that avoid inconsistent national tax jurisdictions and double taxation and that tax systems treat economically similar transactions equally, regardless of whether such transactions occur through electronic means or through more conventional channels of commerce."
The Inland Revenue and HM Customs and Excise have issued a joint paper on United Kingdom tax policy with regard to electronic commerce. The following is an extract of same:
"The taxation principles that the UK will follow include neutrality certainty, effectiveness and efficiency. Tax must not be allowed to stifle the growth of electronic commerce. The aim should be for tax rules and tax compliance to be neutral between electronic commerce and more traditional forms of commerce...."
"...Electronic commerce has the potential to amplify significantly some existing areas of risks to tax compliance. United Kingdom tax policy must ensure that our tax base is adequately secured. The revenue departments are therefore looking at the emerging risks from:
• taxpayers using the Internet to conceal their identity, their location and/or particular transactions;
• encryption of documents and financial records or the holding of them in other jurisdictions to try to prevent the tax administrations gaining access to them;
• any electronic record keeping systems which allow transactions to take place without leaving an audit trail or where the trail may be easy to alter or destroy."
It may be noted that this discussion is limited to Direct taxation issues with particular reference to income from business and is meant for general information purposes only.
The OECD has emphasised in particular that maintaining an international consensus is the key to enabling the Internet to develop to its full capacity and at the same time enabling tax authorities to protect their revenue base. This consensus could in practice be more important than decisions on the actual rules.
The CFA has articulated five key principles as the guideposts for evaluating the operation of tax systems.
Neutrality: Taxation should seek to be neutral and equitable between forms of electronic commerce and between conventional forms of commerce. Business decisions should be motivated by economic rather than tax considerations. Taxpayers in similar situations carrying out similar transactions should be subject to similar levels of taxation.
Efficiency: Compliance costs for tax payers and Administrative costs for the tax authorities should be minimised as far as possible.
Certainty and Simplicity: The tax rules should be clear and simple to understand so that taxpayers can anticipate the tax consequences in advance of a transaction, including knowing when, where and how the tax is to be accounted.
Effectiveness and Fairness: Taxation should produce the right amount of tax at the right time. The potential for evasion and avoidance should be minimised and counteracting measures should be proportionate to the risks involved.
Flexibility: The systems for taxation should be flexible and dynamic to ensure that they keep pace with technological and commercial developments.
The CFA has also emphasised that it believes that the principles which underlie the OECD Model Tax Convention are capable of being applied to electronic commerce.
The aspects of electronic commerce over the Internet that have implications for tax systems are basically twofold
Jurisdictional Issues:
• where the transaction involves several tax jurisdictions it would be necessary to determine which countries have the right to exercise taxing rights over the taxpayer..
• Determining the character of the income
• Transfer pricing
Prevention of evasion:
The potential speed untraceability and anonymity of electronic commerce may create new possibilities for tax avoidance and evasion particularly by locating the source of the electronic commerce in an offshore haven or low tax jurisdiction.
Jurisdictional Issues:
Determining where the activity arises
The nature of the system in which electronic commerce operates is that it has no physical location. Unlike conventional businesses which have a readily ascertainable physical domicile, E-Commerce takes place in cyberspace; and thus permits traders to ignore geography altogether.
Jurisdictional rules applying to taxes and tariffs are generally based on concepts of physical geography, such as place of supply or residence of a taxpayer. As electronic commerce is not bound by physical geography it may become more difficult for taxpayers and governments to determine jurisdiction and revenue rights.
This discussion seeks to highlight the direct taxation issues relating to resident and non-resident persons in respect of income from electronic commerce operations through Web Sites/Servers.
The World Wide Web (www) an Internet based system is many things to its millions of users. It is used as a market place, art gallery, library, community centre, school, publishing house and whatever else its authors create. Users are attracted to the world wide web because it is easy to handle and combines text, graphics, sound, and video making it a rich communication medium. The web facility on the Internet is made up of a collection of servers, and clients that can exchange information. According to Inter NIC’s Internet Domain Survey (January 1998) more than 29 million web host computers support Interactive hyper media information. These are the Websites on the Internet.
Resident Person and Non-resident person
In terms of Section 2 of the Inland Revenue Act No: 28 of 1979 (the Act) a person resident in Sri Lanka for tax purposes would be taxed on his world-wide income. An individual is deemed to be resident in Sri Lanka for tax purposes if such individual is present during a tax year for a period of 183 days or more; or in the case of a company it is treated as resident if such company is incorporated in Sri Lanka or the control and management of the company are exercised in Sri Lanka.
Any other individual or company would be treated as a non resident.
If a resident person carries on electronic commerce operations in Sri Lanka he would be liable to tax in Sri Lanka on the business profits.
If the person resident in Sri Lanka carries on such operations through a permanent establishment in another country with which Sri Lanka has a tax Treaty the business profits which are attributable to that permanent establishment only would not be liable to tax in Sri Lanka but in the other country. Sri Lanka has to date entered into tax Treaties with 27 countries.
If a Sri Lankan resident carries on such business in another country with which there is no Treaty he will be liable to tax in Sri Lanka on the business profits. But if that income is taxed both in Sri Lanka and the other country certain reliefs are provided under the Act.
Where a non resident person carries on business through a Web Site/Server situated in Sri Lanka, he will be taxed only when such business is carried on through a permanent establishment in Sri Lanka, if Sri Lanka has entered into a treaty with the non-resident’s country of residence. However tax liability is limited to the profits attributable to the permanent establishment.
A non resident from a country with which Sri Lanka has no treaty, carrying on such business in Sri Lanka will be liable to Sri Lanka tax on the business profits in accordance with the provisions of the Act. If the profits are subject to double taxation certain reliefs are granted under the Act.
Under the OECD Model the concept of the permanent establishment determines the tax jurisdiction of the source country. The expression "permanent establishment" though defined in the respective treaties can for the sake of brevity be described as a fixed place of business through which the business of the enterprise is carried on either directly or through an agent who can conclude contracts which bind the enterprise.
The Working Party No. 1 on Tax Conventions and Related Questions is the sub group of the OECD Committee on Fiscal Affairs which is responsible for updating the OECD Model Tax Convention. This Working Party has recently prepared and issued draft proposals on the application of the permanent establishment definition in the Model Tax Convention in the context of electronic commerce for comments by interested parties in order to review and finalise the proposals in the light of the comments at the February 2000 meeting. The draft however does not consider the broader and ultimately more important issue of whether any changes should be made to that definition or the permanent establishment concept should be abandoned.
The pivotal question raised in paragraph 1 of the Draft is whether the mere use of computer equipment located in a country though which electronic commerce operations are carried on in that country could constitute a permanent establishment.
Further, fixed automated equipment operated by an enterprise and located in a country may constitute a permanent establishment in that country. Automated equipment that does not require on site human intervention for its operations may still constitute a permanent establishment. A fully automated Web Server can display information’ receive orders, independently accept the orders, settle the invoice, and supply the goods and/or services in digital form to the customer through the Internet.
An Internet Web Site may be seen as a combination of software and electronic data which is stored on and operated by a server. The Website itself which is software and data only does not involve any tangible property. And therefore cannot itself constitute a "place of business" as there is no facility such as premises or in certain circumstances machinery or equipment. But the Server through which the Website is operated is a piece of equipment which itself needs a physical location and may thus constitute a place of business of the enterprise that operates it.
As to a Web Server the Draft states that the Web Server in a country will result in a permanent establishment only if the Server is owned or rented by a person who uses the Server to host its Website. Mere use of a Web Server in the country will not by itself result in a permanent establishment of the person that uses the Web Server.
When access to the Internet is provided by an Internet Service Provider (ISP) which among the services that it provides hosts Web Sites of other Enterprises on its own server, the ISP will not generally constitute a permanent establishment of the Enterprises that carry on electronic commerce operations through web sites operated through the server owned and operated by the ISP.
No permanent establishment may be considered to exist where electronic commerce carried on through computer equipment located in a country is restricted to preparatory or auxiliary activities.
The draft however does not address the issue of how much income should be attributed to electronic commerce operations carried on through computer equipment in circumstances where there would be a permanent establishment. The issue of attribution of income to the permanent establishment is currently being examined by the Steering Group on Transfer Pricing.
The Draft addresses treaty countries only. Taxpayers residing in non treaty countries are not certain as to whether a Server causes taxability in a country. The Working Party cautions that the Draft proposals do not constitute the official views of the OECD or any of the OECD member countries.
The UK Government believes that the detailed application of the permanent establishment to electronic commerce needs clarifying. In particular, businesses would be concerned to know whether a Website on a server could be a permanent establishment and if so in what circumstances. The Revenue considers that a Website used only for advertising would probably not be a permanent establishment as it could easily be moved. They are also looking at the effect of video conferencing on the definition of ‘central management and control’.
Determining the character of the income
As noted below a number of electronic substitutes exist for physical goods. For instance software can be distributed either on a physical media such as a diskette or CD — ROM or by electronic transfer such as downloading the software from the Internet.
When a fee is paid for this electronic transfer of a digitised product the question arises whether this payment is business profits or royalties. The OECD is presently reviewing the guidance it has given on the nature of the payments for computer software in its Model Tax Convention on income and capital. The OECD has proposed that the character of payments either as business profits or royalties would depend on the nature and extent of rights that the transferee acquires under the arrangement regarding the use and exploitation of the program. Copyright law generally distinguishes between rights in the underlying copyright and rights in a copy of the computer program, whether or not such copy is embodied in a material medium or proved electronically. Payments made for the acquisition of partial rights in the copyright will generally represent a royalty. Such arrangements will indude licenses to reproduce and distribute the copyrighted program to the public. In other types of transactions the transferee only acquires the rights necessary to operate the program. Payments for these types of transactions should be dealt with as business profits.
Transfer Pricing:
The UK Inland Revenue has no definite answers to this issue and is continuing to monitor the situation. Electronic communication increases the problem of determining arms length prices for transactions between associated persons in different jurisdictions. As increasing amounts of trade are conducted over the Internet it becomes harder to determine the stage at which value had been added and to trace, identify and quantify cross-border transactions.
Evasion
Since the Internet pays little or no regard to national boundaries this could present the real headache to the tax gatherer in that it could result in large scale evasion as well. Tax systems are focused upon charges which are resident based, or source based. These charges can easily be avoided by locating the source of electronic commerce in an offshore haven. As noted by Mahesh Gupta "present day technologies enable taxpayers to shift their business operations in a matter of seconds, from one part of the world to another lock stock and barrel."
He further notes that electronic commerce for which the Internet provides a significant global marketplace is confined not only to trade in traditional goods and services which it greatly facilitates but handles in addition a variety of growing new products that have no physical entity. These e-products include computer software, data and info-products, audio and visual compositions and many other services. All these are capable of production, storage, transmission sale and even final consumption within the cyberspace. E-products are capable of delivery from one place to another through computer communications bypassing traditional shopping and transportation methods and the age old formalities of crossing international borders. All such transactions can be conducted from mobile establishments by anonymous entities and can remain invisible to the physical world. Their books of account can easily be written, amended, erased or rewritten at convenience. It is a kind of hyper-world operation beyond the laws of the physical world.
Lack of any user control as to the location of the activity:
The nature of the system is that it has no physical location. Users of the Internet have no control and in general no idea of the path travelled by the information they seek or publish. Many participants in the system are administrators or go betweens who have no control over what type of information travels over their computer. In practice it makes no difference whether the data or digital tokens sought to be transmitted are within one jurisdiction or between several as the Internet pays little or no regard to national boundaries. As the physical location of an activity whether in terms of the supplier, service provider or buyer of the goods or user of the service becomes less important’ it becomes more difficult to determine where an activity is carried out.
No means of identification of users
In general proof of identification requirements for Internet use are very weak. The pieces of an Internet address or domain name, only indicate who is responsible for maintaining that name. It has no relationship to the computer or user corresponding to that address or even where the machine is located. In addition it is not difficult to introduce a new computer to the Internet which has the ability to be recognised anywhere else on the Internet. Registration requirements are not difficult to satisfy and there is little to prevent transfer of the site to new controllers.
Reduced use of information reporting and withholding institutions
In general tax compliance is facilitated by identifying key "taxing points" for example reporting and withholding requirements can be imposed on financial institutions which are easy to identify. In contrast, one of the greatest commercial advantages of electronic commerce is that it often eliminates the need for intermediating institutions. Although from a purely economic perspective such friction free capitalism may be an advantage of the new technologies, the potential loss of these intermediating functions poses a problem for revenue administrations.
Finally the use of electronic commerce technologies, in the form of intranets, by multinationals and collaborative groups may tend to increase the prevalence of transfer pricing and increase the difficulty of detecting such behaviour. The predicted growth of international electronic commerce much of which may be undertaken by smaller less sophisticated businesses, may mean that the number of unintentional breaches of international revenue laws could increase.
Sale of digitised Products
Where the transaction involves the sale of physical goods the electronic transaction resembles a mail order sale of a product.
The real headache for the tax gatherer would involve the sale of digitised on-line products. The Internet provides a market place for a significant number of digitised products which have no physical entity. These on-line E-products are capable of delivery though the computer communications system by-passing customs systems thus rendering obsolete the traditional ways of monitoring international trade.
Development of electronic payment systems
Currently about 90% of financial transactions are paid for by cash, cheques or credit cards.
However, new technology has created electronic payment systems making it possible to pay for goods and services over the Internet. Some of the methods would link existing electronic banking and payment systems including credit and debit card networks with new retail interfaces via the Internet. "Electronic money" which would be based on stored value, smart card or other technologies is also under development.
"Electronic payment" has the potential to partially displace, traditional methods of payment and to create new forms of money in which value is represented in digital form. The use of electronic forms of payment could as predicted by Gupta result in the creation of a new type of negotiable instrument. Thus the role of traditional intermediaries such as bankers will be minimised resulting in a loss of valuable revenue intelligence.
The powers of the Assessor
Where electronic commerce is taxable the operation of the Sri Lankan tax system depends upon self assessment and the existence of a physical representative of the taxpayer in Sri Lanka who can be held accountable. Foreign Internet traders cannot be sanctioned for failure to pay tax since foreign jurisdictions do not enforce another country’s fiscal regime.
In terms of Section 97 of the Act the onus is cast on the taxpayer to assess the amount of income tax to which that person is liable under the Act. When deciding whether to accept or reject the Return submitted, the Assessor should critically examine the tax Return submitted by the taxpayer and would have also to resort to the examination of additional information. While the taxpayer may be willing to proffer the required information quite often the assessor would have to resort to other sources of information to verify the validity and accuracy of the Return submitted by the taxpayer and the information furnished. To achieve this result wide statutory powers are conceded to him.
Section 92
Statutory weapons in the Revenue’s information gathering armoury are contained in the following provisions of the Inland Revenue Act.
While in terms of Section 92 of the Act the taxpayer is required to submit a Return on or before the 30 of November following the end of that year of assessment subsections (3) and (4) empower the Assessor to give notice to any person requiring him:
• to furnish fuller or further returns
• to furnish fuller and further information
• to produce or transmit any documents specified
• to attend in person or by an authorised representative for an interview.In certain circumstances the Revenue may need further information which is in the possession of a third party with whom the taxpayer conducts commercial and/or other transactions. In order to meet this exigency the Deputy Commissioner has been empowered under subsection (5) to give notice in writing to any person requiring that person to inter alia produce or transmit specified documents, books of account etc., or to attend in person to be examined on any specified matter.
By Inland Revenue (Amendment) Act No: 52 of 1998 for purposes of Section 92, the term "document" was amended to "include any diskette, tape compact disc or any other thing in which any computer programme or data is recorded in codified form or in electronic or magnet medium".
The Commissioner General of Inland Revenue is empowered to gather information from foreign countries with which Sri Lanka has a Tax Treaty. Article 26 of the OECD Model Tax Convention provides for an Exchange of information clause which enables the competent authorities of each state to exchange information.
Most tax treaties lay down general principles not only for the avoidance of double taxation but also for the prevention of fraud or fiscal evasion. To combat fiscal evasion provision is made for the exchange of information.
According to the recent Report of the UK Board of Inland Revenue during the year ended 31 March, 1998 information relating to 175000 persons were received from foreign tax authorities and nearly 150,000 sent out on a reciprocal basis. The report stressed the importance of such information to the Revenue which helped to ensure in great measure to tackle fiscal evasion.
The OECD News release on its recommendations to improve exchange of tax information dated 18, February 1997 refers to two recommendations that have been adopted by the OECD Council. The use of tax identification numbers in an international context which will use technological developments to improve the exchange of information while respecting the legitimate rights of taxpayers to confidentiality of tax information.
The use of a revised OECD standard magnetic format for automatic exchange of information.
Section 161 and Section 161A
In terms of S.161 officers are empowered to enter and search any premises (including the residence) of the taxpayers. The officers are authoritised to seize and deliver to the Commissioner General any such articles, books of account or other documents
In order to ensure that the Revenue has the ability to seize information stored in digitised form in a computer diskette or compact disk, the term "document" has been legislatively defined by virtue of Inland Revenue (Amendment) Act No: 52 of 1998. In terms of the amending legislation a "document" for purposes of Section 161 and Section 161A would now "include any diskette, tape compact disc or any other thing in which any computer programme or data is recorded in codified form or in electronic or magnet medium."
Further under Section 161A they are authorised to enter any business premises and examine books of account registers records or other documents. They may examine and take copies of or may even take possession of any such books, registers records or other documents or make identification marks thereon.
In recognition of the increased usage of computers by taxpayers in their places of business, by virtue of Section 30 of the Act No. 52 of 1998 the Commissioner General or an authorised officer may "operate any computer found in any such building and take printouts of the whole or part of any entries recorded or stored.
In the light of above mentioned amendments it would appear that the officers of the Revenue Department are armed with the requisite powers to seek additional information stored in the computer of the taxpayer. The computer however is a labyrinthian machine and even a moderately computer literate taxpayer could hide information in the machine beyond reach of the tax gatherer (e.g.: encryption of documents).
The availability of additional information gathered using the statutory powers would undoubtedly enable the Assessor to verify the accuracy of a person’s return of income. It would also serve as an alternative means of computing income by the preparation of an assets betterment statement by comparing the excess of assets over liabilities (net Assets) at the end of the year with the corresponding excess at the beginning of the year to determine the increase in net assets.
In the light of the discussion the following recommendations are submitted for further consideration:
Since the present powers conceded to the officers of the Department appear to be inadequate to detect faceless transactions in cyberspace the Revenue in consultation with foreign tax authorities may need to invest more heavily in training officers and developing/purchasing software which can detect tax evasion. While cybercops, cybercrime and even cyber terrorism have become commonplace, the time is probably right to initiate a program to develop the cyber tax-investigator capable of conducting searches in cyberspace.
As noted above the advent of electronic commerce will considerably complicate this ever evolving scenario and the Sri Lankan Revenue Authorities will have to develop modalities and policies to deal with the challenges of E-Commerce or face the prospect of a considerable loss of tax revenue. In this regard it may be pertinent to follow closely the policies adopted in other jurisdictions.
As noted by a number of writers complications relating to contract law, criminal law and evidence will arise with the advent and proliferation of electronic commerce . India is taking adequate steps in this regard. On December 16, 1999 the Indian Government introduced in the Lok Sabha the much awaited cyber law legislation to provide a legal framework for electronic commerce and governance. The Information Technology Bill 1999, proposes to make amendments to the Indian Penal Code and the Indian Evidence Act. The new legislation follows the United Nations resolution that all countries should favourably consider its model law on electronic commerce framed in 1996.
The significant part of the Bill is that it provides for a regulatory regime to supervise digital signature system, essential for carrying out financial transactions through the Internet and other electronic modes. To enable electronic governance, the Bill proposes the use and acceptance of electronic records and digital signatures in Government offices and agencies making interaction between citizens and Government easy.
The Bill also proposes to create civil and criminal liabilities for contravention of the proposed legislation. It seeks to have an electronic gazette where regulations, rules, orders, by-laws, and notifications can be accessed over the Internet.
UNCITRAL, the United Nations Commission on International Trade Law has formulated a model law on Electronic Commerce which is said to apply to "any kind of information in the form of a data message, used in the context of commercial activities". The model law deals with such diverse issues as the formation and validity of contracts, the admissibility and evidential weight of data messages, actions related to the carriage of goods etc.
The United Nations General Assembly by resolution has recommended that all States give favourable consideration to the Mode Law when they enact or revise their laws in view of the need for uniformity of the law applicable to alternatives to paper based methods of communication and storage of information.
However, despite the existence of a model law and the expected proliferation of E-commerce the Sri Lankan legislature has to date only seen fit to amend the Evidence Ordnance (by Act No. 14 of 1995), and the Inland Revenue Act in a very superficial and piecemeal way. It is submitted that the time has now dawned for Sri Lanka to actively contemplate the drafting of legislation to deal with the many aspects of this country’s cyber future. The Amendment to the Evidence Ordinance makes computer evidence admissible in any legal proceeding under certain circumstances.
In conclusion
Just as space engineers would not consider harnessing wind power on a trip to the moon, are we unnecessarily burdening electronic commerce with such anachronistic concepts as "residence", "source of income" and "permanent establishment.. It is not altogether foolhardy to forecast the development in the foreseeable future of an innovative system to enable the levy and collection of tax on income derived from and sourced in cyberspace. Such tax computed may take the form of a electronic tax levied on the income derived from each and every transaction in cyberspace, with suitable adjustments on transactions where losses are incurred.
As governments throughout the world gear up for a digital future, Sri Lanka too must consider what legislative and administrative action will need to be initiated. For as noted by John Dryden, of the OECD the formidable growth potential of global electronic commerce has pushed it towards the top of the agenda in boardrooms and government offices throughout the world. With electronic commerce comes the risk of unhealthy tax competition between OECD countries which without agreement could end up distorting the market in years to come. A whole string of high level meetings including the OECD Council at Ministerial level and summits of the G-8, have stressed the economic potential of electronic commerce. The main message from these meetings is that governments should work together with the private sector to take electronic commerce by the horns and steer its development.
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