Some major players of Sukuk in financial sector have shown their concerns and reservations on the launch of Wapda Sukuk-III in haste and without a foolproof system to insulate it against fraud. Sources told Business Recorder on Saturday that while the issuance of Wapda Sukuk-III worth Rs 10 billion is on the cards, the major player of mutual fund industry has opposed the issuance of new Sukuk without a Standard Operating Procedure (SOP) regarding its security and transfer.
In the light of previous experience, the industry has raised demand for a foolproof system within Wapda to avoid fraud incident. The mutual fund industry is also reluctant to participate in the upcoming Wapda Sukuk-III in presence of current and insecure system.
"Issuance of Sukuk-III in haste and without a foolproof system may cause substantial losses not only to banks and financial institutions but also to general public being shareholders and depositors of banks/financial institutions investing in these Sukuks, as earlier happened in the case of Wapda Sukuks," sources said. The Special Judge (Central) Lahore, in its recently passed judgment on Wapda Sukuk-I fraud, has also pointed out the leakages in the Wapda system that gave a chance of fraud to its officials and states that it is also an unfortunate aspect of the case that no Standard Operating Procedure (SOP) was prescribed by Wapda to deal with the matter of transfer of Sukuks, their verification and conversion of physical Sukuks into Central Depository System. Moreover, the change of denomination of Wapda Sukuks amounting to a huge Rs 180 million at par was also carried out without placing it before the Wapda''''s board.
A judgment, passed on September 13 this year, has revealed that in 2009, some 72 physical Wapda Sukuk-I certificates amounting to Rs 180 million were fraudulently transferred from National Fertiliser Company''''s (NFC) Account to M/s Swift Engineering Solution (SES); this transfer took place without assessing the genuineness of Sukuk certificates, through Security Marker which was available with the Wapda Bond Cell. These 72 certificates were later converted into six higher denomination certificates and were even transferred to Central Depository Company (CDC) with the approval of senior Wapda officials. Later, the SES - a fake firm set up for this fraud, sold these Sukuks to a Karachi-based mutual fund.
The investigation and court verdict also indicate that the higher officials of Wapda were also found negligent to the extent that they even didn''''t take care in examining the case and blindly relied upon the mastermind, who had hatched the conspiracy of fraud while joining hands with co-accused.
The judgment states that this fraud was committed by Wapda officer namely Naqi Riaz in connivance of his relatives and others. It also states that though the main accused is Naqi Riaz, however, higher officers of Wapda including Deputy Director Finance Masood Raza, Director Finance Uzma Sagheer and Anwarul Haq General Manager Finance (Power) Wapda are found of committing gross negligence owing to which the main accused and others succeeded to commit fraud with Wapda.
The judgment also reveals that besides gross negligence, the Wapda''''s high officials even falsely implicated their sub-ordinates. The Wapda officials also forced their junior employees to operate the Global Terminal of CDC for transferring physical Sukuk into CDC, who were computer illiterate and even were not provided computers on their desks.
Since these Sukuks were sold by SES, Wapda didn''''t pay rentals for over three years and even principal amount of Rs 180 million to these Sukuk holders upon its maturity in October 2012, which resulted in a substantial loss to these Sukuk holders, which include banks and mutual funds.
The court has convicted Syed Riaz Hussain Shah, the father of Naqi Riaz and three others. Main accused Naqi Riaz and co-accused Syed Ahsan Raza are still absconding. The court has also ordered confiscation of recoveries made so far from these convicts in favour of FIA. Keeping in view the past experience, major players have urged for a secure and proper system for the Sukuk trading.
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