Bank of Ceylon and the Cigarette Stockpiling Issue

Background

The Article 6 of the Framework Convention on Tobacco Control (FCTC) recommends effective tobacco taxation as an efficient method to reduce the prevalence of tobacco use and to combat the global tobacco epidemic. In addition, effective taxation leads to reduced direct and indirect costs and negative consequences of tobacco use, which is beneficial for the governments.

However, the Tobacco Industry has used various tactics to evade taxes throughout the world. You can read more on our page Tobacco Industry Tactics to Evade Tax.

FCTC Article 5.3 recommends state institutions and their representatives to minimise interactions with the tobacco industry to avoid possible conflicts of interests.

The Incident – Bank of Ceylon (BOC) supporting D S Gunasekara Ltd in Cigarette Stockpiling

Bank of Ceylon (BOC), owned by the Government of Sri Lanka, is the largest commercial bank network in the country. D S Gunasekara Ltd is a leading passenger transport company in Sri Lanka and an area distributor for Ceylon Tobacco Company PLC (CTC), the British American Tobacco (BAT) subsidiary that holds the monopoly of cigarette trade in Sri Lanka. (Please visit the respective ‘’TobaccoUnmasked’’ pages for more details).

Towards the latter part of 2020, the proposed budget proposals for the year 2021 were presented to the Parliament by the Prime Minister, who is also the Minister of Finance Mahinda Rajapaksa, The special Goods and Service Tax (GST) was rumoured to be increased for tobacco following budget proposals.

A news website called NewsHub.lk reported a news item on an alleged transaction between the Bank of Ceylon (BOC) and D S Gunasekara Ltd, with the heading “BOC approves loan worth Rs. 2,150 Mn. (≃USD 11 Mn) to stock pile cigarettes ahead of budget increase” on 8th December 2020. The article described that Katuwana branch of BOC located in the Matara district of the Southern Province has approved this loan in September to stockpile additional cigarette stocks in order to take advantage of a potential cigarette price increase from the upcoming budget proposals in November. According to the article, the loan application has further stated that the company intended to purchase 5,400 boxes of Gold Leaf cigarettes each containing 10,000 cigarettes and 160 boxes of Dunhill cigarettes. The net profit thus intended to be earned by D S Gunasekara Ltd was reported to be Rs. 7,697 million (USD 39 million). The BOC was reportedly expected to make a profit of Rs. 85 million (USD 43.5 million) through the release of the loan.

On 29th December 2020, Mr. Wasantha Samarasinghe, the convenor of “Voice Against Corruption” organisation mentioned this alleged incident in a press conference organised by the People’s Liberation Front (JVP). He queried why a businessman from Anuradhapura (a city in North-Central Province) receives a loan from a branch of BOC in the Southern province. He further alleged that the persons closely associated with the incumbent government were making a profit from this transaction, stating that it is similar to the previous government’s associates making profit off the alleged Central Bank bond scandal. (Central Bank Bond Scandal was the pinnacle of a fratricidal political dispute within the Sri Lanka’s government in 2015, which allegedly led to a loss of Rs.688 million to the State.)

Meanwhile, we received a photograph of an alleged document of approval of the loan by the Katuwana Branch of the Bank of Ceylon, via the Tobacco Unmasked Hotspots App. The document included the signatures of the Credit Officer and the Manager of the BOC Katuwana Branch, the Area Manager of the Hambantota District, the Assistant General Manager of the Southern Province, the Assistant General Manager (Branch Credit – Ranger II) and the Deputy General Manager (Retail Banking – Range II).

Image 1: The reported image with signatures of the BOC officials of the Katuwana Branch who allegedly approved the loan. Source: Tobacco Unmasked Archives.

Discussed in the Parliament

On 19 January 2021, leader of the National People’s Power (NPP), MP Anura Kumara Dissanayake demanded answers from the Minister of Finance at the Parliament on the above allegation. An excerpt from the MP’s statement on the issue (translated) follows:

D S Gunasekara Ltd has requested a loan of Rs. 3,150,000,000 (≃USD 16 million) from the Katuwana branch of Bank of Ceylon (BOC), mentioning the reason as the intention "to stockpile cigarettes ahead of its price increase through the upcoming budget proposals". Uditha Gunasekara, the son of D S Gunasekara, is currently the Chairman in the Pulmudai Mineral Sands Corporation (Lanka Mineral Sands Company), and is a close associate of this government. The loan has been approved [by the BOC branch], with the guarantee of the same person. The interest ratio was mentioned as AWPLR+1%; the interest rate normally given to the best customers of this bank. Then the approved proposal comes to the board of directors [of BOC]. I’m thankful to the director Mr. P. Rathnayake, who pointed out three reasons to reject this loan, which are:

• A government bank is entitled to accommodate developmental projects only, but this is not recognised as such;
• The aim of the government is to reduce cigarette smoking. Therefore, BOC supporting the cigarette trade goes against the government’s principles.
• Third, and the most important point is, the cigarette prices are to be increased due to the increment of the government taxes. If this load of cigarettes is kept with the Tobacco Company, this increased tax comes as an income to the government. Due to this proposal, this tax income, which should come to the state treasury, is channeled away to a private business.

Despite his objections, the board of directors decided to approve the loan. I would like to ask from the members of the government, specially from the Minister of Finance or the State Minister of Finance, how the Katuwana branch of the BOC approved a loan of Rs. 3,150,000,000 to stockpile cigarettes ahead of its supposed price increase..

The complete speech he made is available on the Hansard, and the video can be watched on our TobaccoUnmasked Archive. We note that MP Anura Kumara Dissanayake may have been misinformed of the name of the CEO of D S Gunasekara Ltd. The current chairman of D S Gunasekara Ltd is Muditha Wijesinghe, the grand-son of Mr. D. S. Gunasekara, the founder of the company; but not Uditha Gunasekara as mentioned by him.

This was further debated in the parliament on 9 February 2021, as the opposition leader Sajith Premadasa of Samagi Jana Balawegaya questioned Ajith Nivard Cabraal, the State Minister of Money and Capital Market and State Enterprise Reforms on this issue. Premadasa stated that, D S Gunasekara Ltd has been blacklisted by the Credit Information Bureau of Sri Lanka, due to defrauding more than Rs 150 million. He further questioned if it is consistent with the principles of the Bank of Ceylon (BOC) to approve a loan to a company that hopes to stock cigarettes to earn profits. As a response, Minister Cabraal stated that the Bank of Ceylon (BOC) has not gone beyond their usual procedures when providing this loan of Rs 3.1 billion to the D S Gunasekara Ltd. He further mentioned that, this stock of cigarettes had been released to D S Gunasekara Ltd after it had settled the loan and the Bank of Ceylon (BOC) had generated Rs 31.3 million due to this transaction.

Reported in Media

Another news report on this incident was published on the news website ‘Siwdesa’. It alleged that D S Gunasekara Ltd has recently been in a severe financial crisis, and its CEO Muditha Wijesinghe had planned to make profit from the cigarette stockpiling, following discussing it with the Prime Minister Mahinda Rajapaksa. However, as the cigarette prices were not increased, Wijesinghe now has faced with an even greater financial loss.

Another news website, ‘The Leader’ published an article on 30 December 2020, stating that the Prime Minister had instructed his security division to prohibit a particular businessman, who was allegedly linked to stockpiling cigarettes, from entering the Prime Minister’s residence.

“The Leader” published another article on the same incident next day, on 31 December 2020, under a heading, which means when translated into English: “Bank of Ceylon Engages in Tobacco Trade because of Muditha”(NB: the word “Muditha” here indicating ‘empathy’, one of a set of four important qualities described in Buddhism. ) (ලංකා බැංකුවේ 'මුදිත ගුණය' නිසා සිගරට් වෙළඳාමට බසී!).

The incident was reported in the news website “Anidda” as well.

Several national television channels and newspapers published the questioning in the parliament, highlighting the involvement of a state bank in a tax evasion attempt in relation to the tobacco trade.

(We note that there is some discrepancy in the exact amount of the loan as quoted by different sources. Since no official record of the transaction has been made public, we could not find the accurate amount.)

Interestingly, a Sri Lankan YouTube channel named “Hello Hello” had made a prank call to Katuwana branch of the Bank of Ceylon, requesting for a loan for stockpiling arrack. Apparently, the loans department of the bank agrees to grant him the loan despite keeping the stock with them, if he maintains an account for several months. They further mention that if the stock of goods is something which is legally approved in Sri Lanka, and something that does not perish, there is no obstacle in obtaining the loan.

Industry Response to the Allegations

Neither the D S Gunasekara Ltd nor the Ceylon Tobacco Company PLC (CTC) responded publicly regarding this allegation.

Request for Information from the BOC and their Response

Centre for Combating Tobacco (CCT) made a formal request from the information officer of the Bank of Ceylon (BOC) on 11th January 2021 under the Right to Information Act.

The responses of the BOC are stated below.

Response 1 – Dated 11 January 2021

We received this response rejecting our request for information on 27 January 2021. The reason stated for the rejection was that this particular information is exempted from the information covered by the Act via Section 5 (1) (a), which states that:

"information relates to personal information the disclosure of which has no relationship to any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual unless the larger public interest justifies the disclosure of such information or the person concerned has consented in writing to such disclosure”.

Image 2: Response letter from the BOC to the request made by the CCT under Right To Information Act. Source: Tobacco Unmasked Archives.

CCT forwarded an appeal against this rejection citing that this is an issue of public interest; it was a violation of not only the implementation of Framework Convention on Tobacco Control (FCTC) Articles 6 and 5.3, but an issue discussed in the Parliament, highlighting its importance as an issue of public interest. BOC being a state-owned bank, has violated the FCTC Article 5.3 by engaging with the tobacco industry if this allegation is true.

Response 2 – Dated 29 March 2021

The Bank of Ceylon responded by a letter dated on 29th March, mentioning that the appeal was accepted and a response will be sent within three weeks.

Image 3: Response letter from the BOC accepting the appeal made by the CCT. Source: Tobacco Unmasked Archives.

Response 3 – Dated 19 April 2021

This letter asked for an extension of the time period to convey the decision with regard to provision of the requested information. The reason stated was that they had to request permission from the D S Gunasekara Ltd to provide the information.

Image 4: Response letter from the BOC asking for an extension of the time period to provide the information. Source: Tobacco Unmasked Archives.

Response 4 – Dated 29 April 2021

On 29 April, more than three months after our initial request letter, BOC sent the final letter denying provision of the information saying that D S Gunasekara Ltd had not given consent to provide the requested information.

Image 5: Letter from BOC rejecting the appeal for the information. Source: Tobacco Unmasked Archives.

Tobacco Unmasked Resources

• Bank of Ceylon (BOC)
• D S Gunasekara Ltd
• Muditha Wijesinghe
• FCTC Article 6: Price and Tax Measures to Reduce the Demand of Tobacco
• FCTC Article 5.3
• Tobacco Industry Tactics to Evade Tax
• British American Tobacco Influencing Cigarette Tax in Sri Lanka
• Ceylon Tobacco Company PLC (CTC)
• British American Tobacco (BAT)
• Mahinda Rajapaksa
• Anura Kumara Dissanayake
• Sajith Premadasa

The local language translations