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Summary



_V_W[XWY;

REPUBLIC OF VANUATU



OFFICE OF THE OMBUDSMAN



PUBLIC REPORT



ON THE



Improper conduct



by



GOVERNMENT OFFICIALS



in dealing with



mondragon's proposed



free trade zone



in



Big bay, Santo



06.09.2001



0205/2001/06



-----------------------------------

PUBLIC REPORT



ON THE



IMPROPER CONDUCT



OF



GOVERNMENT OFFICIALS



IN DEALING WITH



MONDRAGON'S PROPOSED FREE TRADE ZONE



IN



BIG BAY, SANTO



TABLE OF CONTENTS

------------------------------------

SUMMARY


This report depicts a legend of connections between interested parties on the island of Espiritu Santo dating back to the colonial era of Vanuatu. These parties have over the last 20 years of Independence, been in contact with the political leaders of the Union of Moderate Parties

(UMP).

Their aim is to set up an autonomous jurisdiction exempt from all duties and taxes on the island of Santo called a free trade zone. While technically not illegal, this may result in attracting unscrupulous investors to settle in the country.

The Office of the Ombudsman found that a US citizen, Mr. Michael Oliver initiated the proposal for a free trade zone in Santo. Mr. Oliver has had a long history in connection with land in Santo prior to Vanuatu's Independence on 30 July 1980. Mr. Oliver's investment plans were unsuccessful then but he subsequently joined alliances with Bramad Pty Ltd, Cody Investments Ltd and Israel Mondragon Group to return to Vanuatu to fulfil the plans for a free trade zone. A more recent attempt has been crafted by Mr. Stefan Mandel, a close business associate of Mr. Oliver and who is a member of the Israeli Mondragon Co-operative Society. Mr. Mandel is the Managing Director of the Cody Investments Ltd.

Mr. Mandel has been appointed by Mondragon to facilitate their proposed free trade zone project with the Vanuatu Government.

The investigation of the Ombudsman also found that in 1991 when UMP went into power the President of UMP, Mr. Serge Vohor and the Treasurer, Mr. Willie Jimmy, signed an agreement for land in Santo with Bramad Pty Ltd. The signed document detailing the proposed free trade zone shows that the amount of land required covers an area of not less than 80,000 hectares. In 1992, Bramad Pty Ltd. sold this lease agreement to an Irish registered company called Cody Investments Ltd.

Cody Investments, Mondragon and others entered into a Financial Guarantee Bond with the government of Vanuatu to the amount of USD3,000,000. This is to be used by Mondragon to purchase 49% of Air Vanuatu. Mr. Avi Edelman, the Secretary General of Mondragon Group confirmed that Mondragon arranged for a guarantee/performance Bond, through an American Insurance Company. However, the negotiations were unsuccessful and the Bond was returned to the American company. This information by later refuted by Mondragon's lawyer who claimed the Bond has been issued.

The Ombudsman also found that MP Willie Jimmy, Mr. Roy Mickey Joy and Mr. Emil Mael requested financial assistance from Mr. Mandel outside of official government procedures. Mr. Howard Aru benefited from this assistance by attending a course in Ireland. Such assistance given outside of the government established procedures was improper. The Israeli Mondragon Group have a vested an interest in setting up a free trade zone project in Vanuatu. It was improper for Government officials to request financial assistance from them as this act may have undue influence on the officials to act impartially. Furthermore, those public officials who made such a request and have received and benefited from such financial and other assistance 'in kind' were directly involved in the policy decision to grant a certificate and business license to the Mondragon Group.

The Ombudsman made the following findings of alleged misconduct on the part of certain public officials implicated in this report:

1. Mr. Willie Jimmy, as former Deputy Prime Minister in the Government of Vanuatu was found to have breached Articles 66(1)(a)(c) & 67 of the Constitution. He had placed himself in a position in which he could have a conflict of interest and used his office for personal gain by using his position in the Government to fulfil his political party’s promise. His conduct to sign a document and commit the Government of Vanuatu to the proposed project was improper and premature as the Vanuatu Government knew very little about the investors involved. Such activities raises questions about Mr. Jimmy’s integrity as the State Minister at that time, his current position as Member of Parliament, and as a leader.

Mr. Jimmy may have also breached Section 23 of the Leadership Code Act when he improperly requested financial assistance from Mr. Mandel.

2. The Ombudsman found that Mr. Roy Mickey Joy may have also breached Articles 66(1) & (2) of the Constitution. Mr. Joy allowed his integrity to be called into question when he used his position as Chairman of the Vanuatu Foreign Investment Board (VFIB) to ask for and obtain financial assistance for Mr. Howard Aru and Mr. Emil Mael from Mr. Mandel. This request has given rise to doubt in the public mind as to whether such benefits may have influenced the decision of the VFIB on Mondragon Group’s application to invest in Vanuatu.

Mr Joy was also found to have allegedly breached Section 23 of the Leadership Code Act. Mr Joy is the Chairman of the VFIB, which have the obligation under the Foreign Investment Act to give approval to grant business licenses to any investors who have an interest to invest in Vanuatu. Mondragon Group has lodged an application to the VFIB when Mr Joy requested financial assistance from Mr Mandel.

3.

Mr Howard Aru, Chief Executive Officer of the Foreign Investment Board was found also to have allegedly breached Articles 66(1) & (2) of the Constitution.
Mr. Aru allowed his integrity to be called into question when he appeared to have used his position and office to his advantage and benefit in accepting the financial assistance from Mr. Mandel to attend the training course in Ireland. This financial assistance has given rise to doubt in the public mind as to whether such benefits and advantage have influenced the decision of the Foreign Investment Board when considering Mondragon's application to invest in Vanuatu.

Mr Aru may have breached Section 23 of the Leadership Code Act. Mr Aru is the CEO of the VFIB, which has the obligation under the Foreign Investment Act to give approval to grant business licenses to any investors who have an interest to invest in Vanuatu. Mondragon Group has lodged its application to VFIB when Mr Aru had benefited from the financial assistance requested from Mr Mandel and the Mondragon Group.

4. Mr. Emil Mael, Member of the Foreign Investment Board may have breached Articles 66(1) & (2) of the Constitution. Mr. Mael allowed his integrity to be called into question when he appeared to have used his position and office to his advantage and benefit, when he requested and obtained financial assistance from Mr. Mandel. Mr. Mael claims the financial assistance provided by Mr. Mandel. The money was used to carry out a feasibility study of the proposed area in Big Bay for Israeli Mondragon Group’s project. Such financial assistance has given rise to doubt in the public mind as to whether such benefits may be used as an advantage to influence the decision of the Foreign Investment Board on Mondragon Group’s application to set up a Free Trade Zone in the country.

The Ombudsman found that Mr. Mael may have also breached Section 23 of the Leadership Code Act, when he requested and received financial assistance from
Mr. Mandel.

The Ombudsman recommends that:



1. The Government of Vanuatu make a declaration that the Contingent Contract of Lease and Memorandum of Understanding signed by government officials and representatives of the Mondragon Group is neither official nor legally binding under the laws of Vanuatu.

2. The Ministry of Lands delay signing a land lease for this proposed free trade project until the VFIB verifies the true intent and investment capability of the Mondragon Cooperative Society to the Government, land owners and the people of Vanuatu.1

3. The position of the Chairman of VFIB be awarded to an independent person well versed with investment matters preferably from the business community. Senior public servants should not hold such positions, either in the VFIB or other public statutory bodies.

4. The Public Prosecutor decide if there are sufficient grounds to lay charges to prosecute Mr. Roy Mickey Joy, Mr. Emil Mael, Mr. Howard Aru and MP Willie Jimmy for alleged breaches of the Leadership Code and other offences committed under the laws of Vanuatu.

5. The Public Service Commission consider taking disciplinary action against
Mr. Roy Mickey Joy, Mr. Emil Mael and Mr. Howard Aru if the allegations of misconduct in office made against them in this report pursuant to the provisions of the Public Service Act No.11 of 1998.

6. The Vanuatu Government cease to deploy government officials and resources on this proposed project until such time that public officials understand their functions and comply with the laws of Vanuatu. By allowing themselves to be influenced and manipulated by the promise of financial gain or other benefits shows that public officials are unaware of, or deliberately choose not to follow established procedures under the laws which govern their respective ministries.

7. The Foreign Investment Act be reviewed and amended to include provisions for building its investigative and regulatory capacity to be able to quickly identify genuine from unscrupulous investors to prevent them from operating in Vanuatu.

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