Colombo (News 1st) – The Employees Provident Fund (EPF) is currently the largest Social Security Scheme in Sri Lanka. It was created by the government for the benefit of the people, in order to provide them comfort and financial security in retirement after years of hard work.

The fund is made up of contributions made by the employees of Private Sector institutions, State Sponsored Corporations, Statutory Boards, and Private Businesses.

The aim of the EPF is to assure financial stability to employees during the latter part of life and it is the common view that this fund needs to be managed by professionals so that the fund is not prone to abuse by anyone such as the Former Central Bank Governor Arjuna Mahendran or Perpetual Treasuries.

In Bond Scam I the Commission of Inquiry noted that at least Rs 8.5 billion was lost due to political interference.

On the 29th of March 2016, the Employees Provident fund had purchased Rs. 1 Bn worth of bonds in the primary market and Rs. 10 billion of the same bond in the secondary market.

The EPF enjoys the status of being a Primary Dealer which enables it to purchase bonds at the primary market – in short, it means cutting out the middleman in the secondary market.

(A primary dealer is a firm that buys government securities directly from a government, with the intention of reselling them to others, thus acting as a market maker of government securities. The government may regulate the behavior and number of its primary dealers and impose conditions of entry.)

By making purchases in the secondary market EPF permits the middlemen (including Perpetual Treasuries Ltd.) to gain unusual profits.

If the EPF bid the entire 10 Billion at the primary auction the government otherwise would have generated Rs. 1.95 per every Rs. 100 of debt.

Since the EPF only purchased Rs. 1 Bn worth of bonds, the fund lost Rs. 550 Million directly affecting the people.

Evidence led before the Presidential Commission identified that Perpetual Treasuries Ltd. fixed this auction and enjoyed profits financially, due to the connections they had with individuals across several institutions including the EPF on its payroll.

According to the Auditor General, the estimated immediate loss was calculated at Rs. 784.89 Million.