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Improper Conduct by Government Officials in Dealing with Mondragon's Proposed Free Trade Zone in Big Bay, Santo [2001] VUOM 3; 2001.06 (6 September 2001)

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, SANOT

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

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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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1. MAIN ISSUES IN THIS REPORT

1.1 Alleged improper requests for financial assistance and other benefits by government officials.

1.2 Alleged bribery of government officials.

1.3 Alleged breaches of the Leadership Code by public officials.

2. JURISDICTION

2.1 The Ombudsman made this report under the provisions of the Constitution, Leadership Code Act and the Ombudsman Act. The above laws give power to the Ombudsman to inquire into the alleged breaches of the Leadership Code and solicitation of bribes of government officials by certain foreign investors. In this report, an enquiry was made into the conduct of some officers of the Vanuatu Foreign Investment Board, Lands Department and Members of Parliament who all come under the jurisdiction of the Ombudsman.

2.2 The main issues identified during the enquiry were; alleged breaches of the Leadership Code and alleged bribery of government officials by investors.

2.3 This Office collects information and documents through informal request, summons, letters, interviews and research.^[2]

3. RELEVANT LAWS, REGULATIONS AND RULES

A brief summary of the law is provided in this section while the full text is attached as Appendix “AAA”.

3.1 Constitution:

The Constitution defines who is a leader and lists the duties and conduct expected from a leader.

3.2 The Leadership Code Act:

The Act provides for the leaders’ code of conduct, defines duties of the leaders and outlines breaches of the Leadership Code.

3.3 Foreign Investment Act:

The Act defines the criteria an interested investor must meet to invest in Vanuatu and be issued with a certificate before any investment is carried out. It also provides for the investor to declare information on personal particulars such as criminal records, tax evasion convictions and bankruptcy records.

3.4 The Financial Transactions Reporting Act

This act provides for the establishment of the Financial Intelligence Unit and its obligation to report suspicious transactions.

4. THE FACTS

4.1 DECLARATION OF PRINCIPLE

On 14 October 1991, the Declaration of Principle was signed by the Union of Moderate Parties (UMP). The signatories were Mr. Serge Vohor, the President and Custom-owner, Mr. Jean Marie-Leye, Vice-President and Mr. Willie Jimmy, National Treasurer

The Declaration of Principle stated that upon winning the forthcoming national election in 1991, UMP agreed to form a government dedicated to free trade to enhance and develop the economy of Vanuatu. The intention was to implement a free trade enclave pattern following the present Hong Kong structure. Such a free trade zone would have an area of not less than 80,000 hectares.

The free trade zone would be established through a lease with a term of ninety-nine years. The lessee would be Bramad Pty. Ltd of St. Kilda Road, Melbourne, Australia. Alternatively its nominee would buy an annual lease for that portion of land actually used or selected for development by Bramad Pty. Ltd or its nominee at an annual rate determined in United States currency per hectare.

The lessee would have the right to assign or sub-lease the property or any portion thereof in accordance with the laws of Vanuatu, for those purposes set forth in the Declaration. Each successive sub-lessee or assignee shall have the same right (see Appendix “A” for details of the Declaration of Principle).

4.2 CONTINGENT CONTRACT FOR LEASE

On 14 October 1991, the Contingent Contract for Lease was signed between Mr. Serge Vohor, (custom land-owner) and Bramad Pty Ltd. According to this lease contract, the sum of one hundred and fifty thousand US dollars would be provided to UMP for expenses in connection with the election. The funds would be provided upon presentation of bona fide receipts for expenditures by UMP and would be expended solely for the purpose for providing UMP a fair chance of reaching the voters of Vanuatu with their message and platform in the upcoming election.

The agreement would come into effect to the benefit of the parties and be binding upon the parties and their heirs and their assigns. The parties agree that the lessee may assign its interest in this agreement to a third party. The agreement would be subject to the laws of Vanuatu (see Appendix “B” for details of the Contingent Contract for Lease).

4.3 THE DEED MADE BETWEEN BRAMAD AND CODY INVESTMENTS

On 20 January 1992, a Deed was signed between Bramad Pty Ltd and Cody Investments Limited, a company registered in Ireland. This allowed Cody Investments to buy one hundred per cent (100%) ownership of the Contingent Contract of Lease and rights under the Declaration of Principle from Bramad Pty Ltd for the sum of US$60,000.00 (see Appendix “C” for details of the Deed)

4.4 THE DEED SIGNED BETWEEN CODY INVESTMENTS AND CARMAL PROPERTIES INC.

On 27 of September 1998, a Deed was signed between Cody Investments Ltd and Carmal Properties Inc, a company registered in the British Virgin Islands. The Deed was for Carmal Properties Inc. to take over about 15% ownership of the Contingent Contract Lease and rights under the Declaration of Principle. The Deed mentioned that Carmal Properties Inc. undertakes to invest or cause the investment of US$ 2.5 million in the development of land in Vanuatu, over a period of three years from the date of this Deed (see Appendix “E” for details of this Deed).

4.5 MEMORANDUM OF UNDERSTANDING

On 22 July 1999, a Memorandum of Understanding (MOU) was signed in London between Mr. Willie Jimmy, Deputy Prime Minister of Vanuatu and the Honorable Lord Keyes of the Mondragon Group/Cody Investments.

Subject to obtaining the relevant approval from the authorities in Vanuatu and complying with the relevant laws the country, the parties to the MOU confirmed their interest and agreed to cooperate for the execution and promotion of the following projects:

Free Trade Zone: The Mondragon Group intends to lease or buy an area of 80,000 hectares of land on the island of Santo for establishing a free trade zone with full exemption from all taxes, duties and other levies.

Consular Services: The operation of consular offices of the Republic of Vanuatu with financial support from Mondragon Group world wide, starting in Israel and Belgium.

Internet: Internet operation on an exclusive basis of a specialized internet technology entailing the use of the Vanuatu internet suffix prefix “VU” to be established, operated and funded by the Mondragon Group.

Air Services: The Government of Vanuatu confirmed its interest and commitment to upgrade and enlarge its international airport and the Mondragon Group confirmed its interest in purchasing at least 49% of Air Vanuatu.

Fishing: Fishing rights within the territorial waters of the Republic of Vanuatu would be given to the Mondragon Group upon terms and condition to be agreed upon by the parties. (See Appendix “I” for the details of the MOU)

4.6 CODY INVESTMENTS LIMITED

Cody Investments Ltd is a company registered in Ireland. The company has an authorized capital of 10,000 British pounds sterling, which is equivalent to 2,054,000 vatu. The paid up capital of the company is equivalent to 2 British pounds sterling in two shares valued at one British pound sterling each. Cody Investments Ltd. is based in Ireland (see Appendix H).

4.7 UNITED FIDELITY CORPORATION.

The United Fidelity Corporation was created and operates under the laws of the Cook Islands. The Company appointed Mr. Sanford Lee Wolok as one of its "true and lawful Attorneys in Fact" in the Financial Guarantee Bond given to the Vanuatu Government. United Fidelity Corporation and Mr. Wolok had also been involved in financial transactions in the Cayman Islands, the USA and with two other companies from South Africa and Bulgaria. Mr. Wolok was named in these three separate documents that United Fidelity Corporation has been involved in as Bonding Agent and Attorney in Fact (see Appendix D1).

4.8 FINANCIAL GUARANTEE BOND

In this Financial Guarantee Bond, Cody Investments Ltd., Economic Development Corporation Investments Ltd (EDCI). and the Mondragon Co-operative Society Ltd are named as “The Principal”, United Fidelity Corporation is “The Surety” and the Government of the Republic of Vanuatu is held as “The Obligee”. The Bond says that the Principal and the Surety are held and firmly bound unto the Obligee to the sum of $3, 000, 000 (three million USD), provided the purchase option has been activated by the Principal and accepted by the Obligee. The Principle has agreed to an option to purchase forty-nine percent (49%) of Air Vanuatu from the Obligee and the Obligee has agreed to sell to the Principal. This interest in Air Vanuatu pursuant to the Purchase Option Agreement between the parties. (see Appendix D1)

4.9 THE MONDRAGON COOPERATIVE SOCIETY LIMITED

The Mondragon model in Spain was created as a cooperative model, functioning successfully since 1956 in the town of Mondragon in the Basque region, in Northern Spain. Mondragon Spain has developed into a self-sufficient “economic-enclave”. The capital value of Mondragon Cooperative in Spain is estimated to be 15 million US dollars. The cooperative provides to its members employment and social services, schools, a university, hospitals, retirement homes, cultural institutions, banks and other establishments. Based on the above model, a group of business people and professionals have created the Israeli Mondragon Cooperative Society Ltd. This is to develop an autonomous and international economic, cultural and social enclave. Participation in the initial capital of the Society, to the amount of $15 million, shall not entail any financial or other risk on the part of the members. One of the goals of the Israeli Mondragon Group is to acquire a ninety-nine year lease in an offshore environment, in order to establish a Free Trade Zone and Financial Center. They decided to choose Vanuatu to do this (see Appendix EEE)

4.10 FREE TRADE ZONE

A Free Trade Zone is an isolated, enclosed and policed area in or adjacent to a port of entry. It does not have a resident population, it is furnished with facilities for loading and unloading, for supplying fuel and ship’s stores, for storing goods, and for reshipping them by land and water. It is an area within which goods may be landed, stored, mixed, blended, repacked, manufactured and reshipped without payment of duties and without the intervention of custom officials.

A free trade zone allows for the free entry of raw materials, components and finished goods of foreign origin and their subsequent re-exportation without being subject to customs duties and import and export regulations and controls. The aim of a free trade zone is to encourage and expedite foreign trade by eliminating the payment of customs duties unless and until foreign merchandise is imported into the host country’s custom territory.

The free trade zone includes the right to absorb immigrants. It has full exemption from all taxes, duties and other levies and from banking, currency, postal and other regulations. The free trade zone would establish its own bank, insurance company, postal service, currency, departmental stores, manufacturing plants, hotels and agricultural ventures. Within the framework of the Mondragon Group principles, the Free Trade Zone area to be established in Big Bay, Santo would also serve as an International Financial Center. Examples of free trade zones include: Sky City, Brisbane, Australia, the Isle of Man, Mauritius, United Arab Emirates and Uruguay. The intention of the Israeli Mondragon Cooperative Society is to establish a Free Trade Zone in Big Bay area in Santo covering an area of 80, 000 hectares of land. (see Appendix EEE).

4.11 APPLICATION BY THE ISRAELI MONDRAGON GROUP TO THE FOREIGN INVESTMENT BOARD

The Israeli Mondragon Group submitted an application of interest to invest in Vanuatu to the Vanuatu Foreign Investment Board (VFIB). The project description in the application is to develop a Free Trade Zone in an area designated by the Government of Vanuatu. n (see Appendix Z).

4.12 MR. STEFAN MANDEL

Mr. Stefan Mandel, is the Managing Director of Cody Investments who has business ties with Israeli Mondragon. Mr Mandel is negotiating with the Government of Vanuatu on behalf of his company Cody Investments Ltd and the Israeli Mondragon Cooperative Society. Mr. Mandel is a member of the Israeli Mondragon Group but he does not hold any positions in the Board of the Mondragon Group. The Australian Security Commission (ASC) has investigated Mr. Mandel over his involvement in the Australian Lottery activities.

On 17 August 1995 Mr. Mandel was declared bankrupt in Australia. Mr. Mandel was not living in Australia when the court made the declaration of his bankruptcy. (see Appendix V1).

4.13 THE RIGHT HONOURABLE LORD KEYES

Lord Keyes represented Cody Investments Ltd and the Israeli Mondragon Group during the signing of the MOU with public officials of the Government of Vanuatu in London on 22 July 1999 (see Appendix I ).

5 OUTLINE OF EVENTS

5.1 On 14 October 1991, the Declaration of Principle was signed between the following UMP leaders, Mr. Serge Vohor, President, Mr. Jean Marie-Leye, Vice-President,
Mr. Willie Jimmy, National Treasurer. Mr. Vohor also signed as Custom Owner in this document (see Appendix A).

5.2 On 14 October 1991, Mr. Serge Vohor signed the Contingent Contract for Lease as custom owner with Bramad Pty Ltd of St. Kilda Rd. Melbourne, Australia (see Appendix B).

5.3 On 20 January 1992, Bramad Pty Ltd sold the rights of the Declaration of Principle and Contingent Contract of Lease to Cody Investment Ltd, a company registered in Ireland for US$60,000.00 (see Appendix C).

5.4 In July 1993, Mr. Stefan Mandel published an article about the investigations carried out by the Australian Security Commission (ASC) over his involvement in Australian Lottery activities (see Appendix D).

5.5 On 27 September 1998, Cody Investments Ltd sold 15% of the rights of the Declaration of Principle and Contingent Land Lease to Carmal Properties Incorporation. Carmal intended to invest or cause the investment of an amount of US$ 2.5 million in the development of land in Vanuatu, (see Appendix E).

5.6 On 6 July 1999, Lord Keyes sent an invitation to the former Deputy Prime Minister, Mr. Jimmy, on behalf of the Vanuatu Government to attend a business conference in London scheduled for 21 July 1999. Cody Investments Ltd organized this conference based on preliminary discussions held between Mr. Michael Oliver and Mr Mandel (see Appendix F).

5.7 On 13 July 1999, Mr. Jimmy confirmed that a number of discussions were held between himself, Mr. Mandel and Mr. Oliver for the project in Big Bay. Mr. Jimmy also confirmed his participation in the conference which was held in London on 21 – 23 July 1999. He requested Mr. Mandel pay for the airfares of the Vanuatu Government delegation to the conference. The members of the delegation were Mr. Jimmy, Deputy Prime Minister, Mr. George Maniuri, Director General, Ministry of Trade & Business Development, Mr. Hamlison Bulu, the Attorney General and Mr. Roy Mickey Joy, Director, Department of Trade, Industry & Investment (see Appendix G).

5.8 On 13 July 1999, Vanuatu Financial Services Commission informed the Ministry of Trade and Commerce that the report received on Cody Investments Ltd. indicated that the company did not have the financial strength for proposed projects such as Free Trade Zone. The report shows that the company has an authorized capital of 10,000 pound sterling which is equivalent to 2,054,000 vatu. The paid up capital of the company is two (2) shares valued at 2 pounds sterling (see Appendix H).

5.9 On 22 July 1999, Mr. Jimmy, Deputy Prime Minister of the Government of Vanuatu and Lord Keyes of the Mondragon Group/Cody Investments signed the Memorandum of Understanding (MOU) in London. The parties to the MOU confirmed their interest and agreed to cooperate for the execution and promotion of the following projects, a Free Trade Zone, Consular Services, Internet, Air Services and Fishing Rights. (see Appendix I).

5.10 On 23 July 1999, Mr. Leon Katty of Santo sent a handwritten fax to Mr. Oliver to advise that he had found an area to build the free trade zone in Santo. Mr Katty explained that he had earlier sent the plan of the area and the map of Santo
Mr. Oliver. (see Appendix J).

5.11 On 3 August 1999, Mr. Jimmy sent a letter to Lord Keyes to thank him for the invitation to attend and participate at the Business Conference in London. He stated that the Government would provide the necessary administrative support through various forms of concessions to ensure that the projects were carried out with minimal delay and disruption (see Appendix JJJ).

5.12 On 5 August 1999, the Foreign Investment Board members made a visit to Matantas village in Big Bay. The purpose of the visit was to introduce the idea of the proposed, Free Trade Zone project to the chiefs and the custom land owners of Big Bay (see Appendix K).

5.13 On 9 August 1999, Director of Trade, Industry & Investment, Mr. Roy Mickey Joy sent a fax to Mr Mandel to inform him about the Foreign Investment Board visit to Big Bay. He stated that the chiefs and custom land owners in Big Bay expressed support for the project (refer to Appendix KKK).

5.14 On 16 August 1999, Mr. Mandel sent a letter to Mr. Joy and asked for Air Vanuatu’s latest balance sheets, including current ( unaudited ) financial reports and the amended version of the Foreign Investment Bill (see Appendix LLL).

5.15 On 23 August 1999, the Principal Lands Officer, Mr. Emil Mael sent a letter to Mr. Mandel and requested financial assistance to assist Lands officers to visit the proposed project site in Big Bay. Mr. Mael requested US$1,000.00 from Mr. Mandel. Mr. Mael advised him to send the amount through his personal account in the National Bank of Vanuatu via Chase Manhattan Bank in New York, USA (see Appendix L).

5.16 On 23 August 1999, Mr. Joy sent a letter to Mr. Mandel and advised that he had discussed the project with the two Members of Parliament for Santo, Mr. Serge Vohor and Mr. James Imbert and they confirmed their support for the project. Mr. Joy also stated that the Council of Minister had decided on 11 August 1999 to sell 49% shares of Air Vanuatu to Israeli Mondragon Group and Cody Investments Ltd. Mr. Joy advised Mr. Mandel that he could not obtain a copy of Air Vanuatu’s unaudited accounts as requested by Mr. Mandel. Mr. Joy also requested Mr. Mandel to establish a slush fund between Mr. Mandel and the Lands Department. Mr. Joy had instructed Mr. Mael, Principal Lands Officer to request money from Mr. Mandel (see Appendix M).

5.17 On 23 August 1999, Mr. Japhet Peter of the Natano Trading Company in Santo sent a letter to Mr. Oliver to advise that the Vanuatu Government has its own institution, the Foreign Investment Board that deals with foreign investors interested in investing in Vanuatu. He also advised Mr. Oliver that there are no provisions in any law that gives any rights to the Government to own land. A custom land owner has the legal right to stop any project, or dispute the use of the land if he is not satisfied with the project proposals. Mr Peter gave this advice because Mr. Oliver had indicated his interest to set up a project in the Big Bay area rather than Fanafo area which was previously proposed. Mr. Peter went on to advise Mr. Oliver that the custom land owners of Big Bay had nominated him as their agent in Luganville to facilitate and negotiate any projects (see Appendix N).

5.18 On 25 August 1999, Mr Mandel advised Mr Joy by fax that he had sent $1,000 through telegraphic transfer to Mr Mael. This financial assistance was sent to facilitate the Department of Land officers to carry out their activities in relation to the gaining consensus among the chiefs in regard to Mondragon Group’s proposed free trade zone project (see Appendix O).

5.19 On 26 August 1999, Mr Mael sent a letter to Mr Mandel to thank him for his prompt action and response for financial assistance. He confirmed that part of the money would be given to Chief Solomon of Matantas Village, Big Bay who also asked for funds in order to convene the meeting with other chiefs in Big Bay.

5.20 On 6 September 1999, Mr. Mael sent a report on how the US$1,000.00 was used to
Mr Mandel. Mr Mael confirmed that $500 was given to the chiefs. Mr. Mael also made a request for further financial assistance to Mr. Mandel. He advised that in order for the land officers to be able to convene further meetings with the chiefs of Big Bay on the proposed Mondragon project, they required an amount of US$2,500.00. He again advised Mr. Mandel of his National Bank personal account number so that this amount could be transferred via Chase Manhattan Bank of New York, USA (see Appendix P for details).

5.21 On 21 September 1999, Mr. Mandel confirmed his association with Mr. Oliver in a letter to their plans in the MOU. Mr. Mandel advised that Economic Development Corporation Israel Ltd. (EDCI Ltd.) is an investment arm of the whole Cody/Mondragon project. Mr. Mandel advised that EDCI Ltd. is the entity that is purchasing the 49% shares in Air Vanuatu, indicated in the memorandum signed in London (see Appendix R).

5.22 Mr. Oliver sent a fax to Mr. Japhet Peter and others to say that he decided to withdraw his support from any group which is now working towards establishing a free trade zone in Vanuatu (see Appendix S).

5.23 On 7 October 1999, the Head of the Environment Unit, Mr Ernest Bani wrote a letter to the Prime Minister, Mr Donald Kalpokas to voice his concerns about the proposed free trade zone project. Mr Bani raised questions about whether the project was genuine and why the Environment Unit had been excluded from the negotiations when they have been working within the Big Bay area on the National Reserve area for the past five years. Mr Bani raised concerns about the involvement of various Government bodies such as the Foreign Investment Board’s approval of the project, project application documents, absence of negotiator certificates, how funds are being committed in the negotiation process so far and the sources of funding. Mr. Bani stressed the importance of the CRP principle of transparency and accountability (see Appendix T).

5.24 On 11 October 1999, the Director General of the Prime Minister’s Office, Mr. Jean Sese sent a memo to Mr Bani of the Environment Unit. Mr. Sese confirmed that his office was not aware of any decision by the Vanuatu Government authorizing Mondragon Group to carry out a free trade zone project in Big Bay or anywhere in Vanuatu (see Appendix TTT).

5.25 On 11 October 1999, the Attorney General advised Mr. Bani by letter that a meeting has been called for all parties involved in this project for 13 October 1999, at the Council of Ministers’ conference room to discuss these issues raised by Mr. Bani (see Appendix UUU).

5.26 On 11 October 1999, Mr. Oliver declared to have severed all ties with Mr. Mandel and any of his associates, companies or other entities (see Appendix U)

5.27 On 12 October 1999, Mr. Mandel sent a fax to Mr. Allan Kalfabun at the National Tourism Office and stated that the Mondragon Group is involved in negotiations with Vanuatu Government for the purchase of 49% shares of Air Vanuatu. Mr. Mandel also stated that Mondragon would also be involved in the development of other projects on Santo and the establishment of a Vanuatu Consulate in Israel. The Deputy Prime Minister, Mr. Jimmy had suggested that Mr. Mandel contact the National Tourism Office. Mr. Mandel requested promotional material on Vanuatu like publications or videos to be sent to him via DHL (see Appendix VVV).

5.28 On 12 October 1999, Mr Mandel sent a fax to Mr Joy and Mr Willie to advise that Mr Oliver was trying to damage the plans for the proposed project in Big Bay. Mr. Mandel also confirmed in this fax that he had paid for Mr. Oliver’s expenses to attend and participate in a business conference held in London because of Mr. Oliver’s involvement in the Free Trade Zone in Big Bay since 1991. Mr. Mandel also asked for the list of the Vanuatu Government delegation attending a meeting in Geneva on 15 October 1999 (see Appendix V).

5.29 On 14 October 1999, the Deputy Prime Minister, Mr. Jimmy raised his concern in a letter to the Prime Minister, Mr. Kalpokas about the proposed Mondragon project. In that letter, he confirmed that the project had not yet been considered for approval by the Council of Ministers (see Appendix WWW).

5.30 On 7 December 1999, MP Willie Jimmy (Mr. Jimmy was no longer in Government) sent a hand written fax to Mr Mandel to ask for financial support in order to get back into Government. Mr. Jimmy indicated that he was elected the President of UMP. He mentioned that the funds were needed to set up an office in Port Vila, buy a fax machine, photocopier, computer, stationary, install a telephone and pay the salary for a part time secretary. Mr. Jimmy stated that by having an office, he as Deputy Opposition Leader and President of UMP will be in a better position to meet other Parliamentarians to try to convince them to join his group in order to get back into Government as soon as possible (see Appendix W).

5.31 On 17 December 1999, the Director of Trade, Industry and Investment, Mr Roy Mickey Joy sent a letter to Mr. William Tari, First Political Secretary of the Ministry of Foreign Affairs. In that letter, Mr. Joy advised that the Council of Ministers (COM) made a collective decision and approved the proposed investment undertaking by Israeli Mondragon Group in Vanuatu.

Mr. Joy also stated that the COM recommended that the Government would consider and decide upon the candidate to be appointed as Honorary Consul of Vanuatu in Israel. Mr. Joy said the proposed candidate nominated by the Government was Major General Daniel Rothschild. He advised the Foreign Ministry that in his opinion, the Minister of Foreign Affairs, Mr Serge Vohor should consider the appointment of Israeli Consul immediately. Mr Joy further advised that the Government accept the offer that the Cody/Mondragon Group would fund the establishment of a Vanuatu Embassy in Brussels (see Appendix X).

5.32 On 28 January 2000, the Council of Ministers (COM) met and appointed Major General Daniel Rothshild as Vanuatu’s Honorary Consul in Israel (see Appendix Y).

5.33 On 31 March 2000, Israeli Mondragon Group submitted an application to the Vanuatu Foreign Investment Board (VFIB) to invest in Vanuatu. The project description indicated in the application form was to develop a Free Trade Zone in an area designated by the Government of Vanuatu (see Appendix Z).

5.34 On 6 April 2000, the Training Manager of the Strategic Investment Program Course in Ireland sent an email to Mr. Howard Aru to inform him about a course that would be held in Dublin from 19 – 30 June 2000. Mr. Aru was nominated to attend that course. The total cost was $5,500 US dollars (see Appendix A1).

5.35 On 11 April 2000, the Chairman of the VFIB, Mr. Joy requested funding assistance from the Prime Minister’s Office for Mr. Aru to attend the training course in Dublin. The total amount requested was Vt986, 200, to include accommodation, per diem allowance, tuition, documentation, study tours and return airfare (see Appendix B1).

5.36 On 15 June 2000, Mr. Joy wrote a letter to Mr. Mandel and requested funding assistance for Mr. Aru to attend this training course in Dublin. He requested 2,700 pounds sterling from Mr. Mandel to pay the course fees for Mr. Aru (see Appendix C1).

5.37 On 5 July 2000, Mr. Aru arrived back in Vanuatu after attending the course partly funded by Mr. Mandel in Dublin.

5.38 On 12 July 2000, the Financial Guarantee Bond with a liability of US$3,000,000 was presented to the Vanuatu Government with the intention of purchasing 49% shares of Air Vanuatu. Signatories to the Guarantee Bond were representatives of Cody Investment Ltd, EDCI & Mondragon Cooperative Society as the Principal to the bond, and the United Fidelity Corporation as the Surety. The Vanuatu Government is held as the Obligee in this Financial Guarantee Bond (seeAppendix D1).

5.39 On 26 July 2000, the Foreign Investment Board met and approved in principle the Mondragon Group’s application for the free trade zone project in Santo (see Appendix G1).

5.40 On 28 July 2000, Mr. Aru of the VFIB advised Mr. Mandel in a letter that the Board had approved the Mondragon Group’s application in principle to establish the Free Trade Zone and other economic sector proposal projects in Santo. Mr. Aru also advised that a requirement for the approval of the Mondragon proposal would be for Mondragon to acquire all necessary documents in accordance with the appropriate laws of Vanuatu (see Appendix H1).

5.41 On 8 August 2000, Ala & Co Barristers & Solicitors advised Mr. Aru about a libel action against the Vanuatu Trading Post to be launched by Mr Mandel. Mr. Ala advised that before the libel action could be sustained Mr. Mandel must show that what was published in the Trading Post was false and defamatory. Mr. Ala also advised that the information published by Trading Post came from an Israeli paper, Yediot Acharonot Mr. Ala further advised Mr. Mandel to take action against the Israeli paper first. Mr. Ala recommended for Mr. Mandel to refute the information published in the Trading Post by telling the Vanuatu public his side of the story with evidence from law enforcement authorities in the country of his citizenship, and in those countries where he normally resides in. (see Appendix K1).

5.42 On 9 August 2000, Mr. Joy informed Mr. Mandel of the newspaper article from the Trading Post and Israeli Newspaper about the proposed project in Vanuatu. Mr. Joy stated that he is a believer in and an advocate of the Mondragon concept. He also informed Mr. Mandel that the State Law Office has been cautioning the Foreign Investment Board about the proposed deal. In his letter Mr. Joy stated that the State Law Office may have done credit checks with the subsidiaries and corresponding agencies overseas and are questioning the credibility of the Israeli Mondragon Group and the individuals behind the project. He stated that he would send some of these documents from the State Law Office and newspapers to Mr. Mandel for verification (see Appendix KKK2).

5.43 On 10 August 2000, Mr. Mandel sent a letter to the Prime Minister Mr Sope and stated that the Mondragon Group has lodged a criminal charge against the Israeli newspaper. He also remarked that libel charges were due to be lodged on September 1 2000 against the Vanuatu Trading Post (see Appendix L1).

5.44 On 15 August 2000, Mr. Mandel sent a letter to Mr. Ala and thanked him for the advice he received from him through the Foreign Investment Board. He stated again that the Mondragon Cooperative Society has lodged criminal charges against the Israeli newspaper. He also mentioned that he intended to sue the publisher of the Trading Post. He asked Mr. Ala to represent him in this case in return for US$64,000.00 (see Appendix LLL2).

5.45 On 16 August 2000, Mr. Mandel sent a fax to the Prime Minister, Mr Sope confirming that legal action would be taken against the Israeli newspaper Yediot Acharonot and the Vanuatu Trading Post (see Appendix M1).

5.46 On 18 August 2000, Mr. Aru sent a memo to the Chairman of the Foreign Investment Board, Mr. Joy about the proposed mission to Israel. Mr Aru admitted that he hesitated to join the mission to Israel. The State Law Office had verbally cautioned VFIB not to issue an approval certificate for the Mondragon project. Mr Aru confirmed that the VFIB had not received such documents to prove whether the parties involved in the proposed Free Trade Zone project are genuine investors or not. Mr Aru suggested that the mission to Israel proposed by Mr. Mandel be postponed until these issues against the Mondragon Group are cleared (see Appendix MMM).

5.47 On 21 August 2000, Mr Ala sent a letter to Mr Mandel to advise that he received a copy of a letter sent to the Prime Minister, Mr Sope informing him of the legal action taken against the Israeli newspaper. Mr Ala advised that any legal action taken against the Trading Post newspaper in Vanuatu would depend on the outcome of the case against the Israeli paper. Mr. Ala declined to represent Mr. Mandel in the case (see Appendix MMM3).

5.48 On 31 August 2000, Mr. Aru sent a memo to the State Law Office and stated that the Mondragon Group's proposed project had been the subject of criticism by the media even though the VFIB had, in principle, approved the project. He stated that the Prime Minister was quoted in the news as also questioning the Mondragon Group to clarify their status in relation to criticism raised locally and abroad. Mr. Aru pointed out that to date VFIB has not received any positive legal advice from the Government of Vanuatu or Israel in favour of or against Mondragon Group. The VFIB requested the State Law Office to attend the Board meeting on September 1 2000 in order to provide a legal opinion on the matter (see Appendix MMM4).

5.49 On 7 September 2000, Mr. Aru sent another memo to the State Law Office to convey the Board’s gratitude for the frank legal advice given on the Mondragon Group's proposed project. The State Law Office had advised VFIB to treat Mondragon with extreme caution and carry out due diligence checks on appropriate investors proposing to do business in Vanuatu (see Appendix MMM6).

5.50 On 21 September 2000, Geoffrey Gee & Partners Barristers & Solicitors advised the Ombudsman in a letter that they act on behalf of Mondragon Group and Mr. Mandel. They also advised that they were in the process of completing a Writ of Proceedings against the Trading Post for defamation in respect of its news articles. They advised that Mr. Mandel would provide them with documents to prove the articles in the Trading Post were false (see Appendix N1).

5.51 On 22 September 2000, Mr. Mandel sent a fax to the Chairman of VFIB, Mr. Joy to confirm that General Rothchild is a member of Mondragon Group. General Rothshild was appointed by the Council of Ministers on 28 January 2000 as the Vanuatu Consul in Israel. Mr. Mandel requested for a precise plan of action to be prepared by both Mr. Joy and himself to outline what the Chiefs of Big Bay expect and what Mondragon should offer to ensure the successful completion of the project (seeAppendices X & Y).

5.52 On 25 September 2000, Mr. Mael of the Lands Department sent a fax to Mr. Mandel to inform him that they have sent the land use map of the island of Santo following the request from the Chairman of VFIB, Mr. Joy (see Appendix NNN).

5.53 On 3 October 2000, in a letter to the Ombudsman, Mr. Aru, CEO of VFIB confirmed that VFIB has in principle approved the Free Trade Zone concept. As such, no approval certificates have been issued to any investor as yet. He also confirmed that Mr. Joy met Mr. Mandel to assist him (Aru) in meeting the cost of attending a training program in June 2000. Mr. Aru claimed that he accepted the offer in good faith. He also confirmed that on 1 September 2000, the State Law Office issued a caution relating to future dealings with Mr. Mandel or Mondragon . (see Appendix O1).

5.54 On 9 October 2000, the Chairman of VFIB, Mr Joy, denied that any requests were made to Mr Mandel for financial assistance by the VFIB officials. He stated that any personal financial assistance requested from Mr. Mandel would be a matter of discretion by Mr. Mandel and the individual concerned. Mr. Joy denied having any information or record of Government officials who received financial assistance from Mr. Mandel. (see Appendix P1).

5.55 On 11 October 2000, Mr. Jimmy responded to the enquiry by the Ombudsman and confirmed that he was aware of the agreement that Mr. Serge Vohor signed with the Australian Bramad Pty Ltd. Mr. Jimmy claimed that he did not know who authorized Mr. Vohor to sign the agreement on behalf of the custom owners. Mr. Jimmy denied having any information about the UMP receiving the amount of US$150,000.00 in exchange for the 80.000 hectares of land to be leased. He denied any knowledge about the signed land lease agreement by Bramad Pty Ltd that was sold to Cody Investments Ltd and later to the Israeli Mondragon Group. Mr. Jimmy confirmed signing the MOU in 1999 in front of the Attorney General. He denied receiving any financial assistance or gifts in kind or cash from Mr. Mandel in London since signing the agreement. Mr. Jimmy confirmed that all travel and accommodation expenses for the Vanuatu delegation for the business conference in London to sign the MOU was paid for by Cody Investment Ltd and the Mondragon Group. Mr. Jimmy maintained that nothing whatsoever contained in the MOU can be implemented unless it has obtained the relevant approval from the appropriate authorities in Vanuatu and has complied with all relevant laws of Vanuatu (see Appendix Q1).

5.56 On 12 October 2000, Mr. Mael, Principal Lands Officer confirmed in a letter to the Ombudsman that he had requested financial assistance from Mr. Mandel. Mr. Mael claimed that the financial assistance was not for personal purposes. He confirmed that he requested Vt150, 000 from Mr. Mandel. This amount was used to finance some Government officers to travel to Santo to carry out feasibility studies and awareness meetings regarding the free trade zone proposal. The Department of Lands did not have sufficient funds to pay for this feasibility study. He stated that it was important that this study be conducted for technical assessment purposes to assist the Government and the landowners in knowing the advantages and disadvantages of such an important undertaking (see Appendix R1).

5.57 On 29 March 2001, officials from IMondragon and the 17 landowners of Big Bay area in Santo signed another document for the Group to establish a Free Trade Zone Project in the area (see Appendix U1).

5.58 On 3 April 2001, Mr. Aru wrote a letter to the former Minister of Lands, Mr. Maxime Carlot Korman and urged the Minister to consider and sign the land lease. He stated that as far as the Department of Lands is concerned, the lease is in order (see Appendix U1).

5.59 On 9 April 2001, Mr Joy wrote to the Director of Lands, Mr George Tambe over a statement made by Lands Valuation Officer, Mr Alick Kalmelu.that the lease document signed by the investors and the landowners of Big Bay were unofficial documents (see Appendix UUU2).

5.60 On 23 April 2001, Mr. Joy wrote to Mr. Kalmelu indicating that the outgoing Lands Minister, Mr. Korman did not want to sign the schedules to the lease of the proposed land area. He said that although Mr. Korman was given an opportunity as well as proper brief by technical experts in the Lands Department that the proposed schedules were in order and did satisfy all the provisions of the Land Lease Act Mr. Korman did not sign the schedules. Mr Joy stated that the Lands officers proposed the legality of the Land Lease arrangements as submitted by the landowners and the investors were to be considered by the new Minister of Lands as a matter of urgency. Mr. Joy also stated that the agreement to lease land signed by the landowners of Big Bay and the Mondragon Group officials was official but not legal. (see Appendix UUU3).

5.61 On 20 June 2001, 16 chiefs of Big Bay sent a 10-point petition to the Honorable Prime Minister, Mr. Edward Natapei. The petition asked the Government not to allow Mondragron Group to invest in Big Bay (see Appendix UUU4).

5.62 On 29 June 2001, the Official Trustee of Bankrupt Estate in Australia, Mr Kenneth Lamb confirmed that Mr Stefan Mandel was declared bankrupt on 17 August 1995. He owed money in excess of $500,000.00 Australian dollars as commissions for life insurance policies sold. He was declared bankrupt when he left Australia and lived in Romania. Mr. Lamb also confirmed that Mr. Mandel was involved with Bramad Pty Ltd (See Appendix V1).

5.63 On 12 July 2001, Mr. Michal Neva-Barak, Director of the Department of Enforcement of the Israeli Securities Authority (ISA) sent an email to the Ombudsman Office to confirm that the court in Israel had granted a temporary injunction against Mondragon Cooperative Society. The injunction stipulated that Mondragon refrain from offering memberships in their society which entitled their members to a piece of land in Vanuatu. The offering of shares in a company without a prospectus is a criminal offence in Israel (see Appendix W1).

5.64 On 18 July 2001 the Ombudsman received a copy of the Israeli court order imposing a temporary injunction on the Mondragon Group to stop offering shares for land in Vanuatu without approved prospectus. The court order was in Hebrew with an English translation (refer to Appendix XX7 for a copy of the Court Document in Hebrew and the English translation)

5.65 On 23 July 2001, Mr. Avi Edelman, the Secretary General of Mondragon Cooperative Society advised in a fax to the Ombudsman that Mondragon Cooperative Society Ltd was founded and registered on September 16, 1998. He also denied that Mondragon Group had been involved in any agreement seven years earlier, simply because it was not around that time (refer to Notarised Certificate of Formation attached to Appendix XX5). Mr. Edelman stated that Mr. Mandel assisted in the conceptual design but he only became a member of Mondragon in October 1998 and he has never held office nor any official position in the Mondragon Group (see Appendix XX5)

5.66 On 31 July 2001, Mr. Edelman advised that Mr. Mandel is a private person and his past and present actions do not relate in any way to Mondragon Cooperative Society. Mr. Mandel is not a member of the Executive of the Mondragon Cooperative Society. With regard to the injunction against Mondragon, Mr Edelman confirmed there was a dispute between the Israeli Authorities and Mondragon over the application by the Securities Authority for an injunction to prevent Mondragon from making an offer to the public without an approved prospectus. On the financial guarantee bond issued by Mondragon to Vanuatu Government, Mr Edelman advised that they 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 (see Appendix XX6).

5.67 On 5 August 2001, Mr. Jacob Harkavy, Advocate for the Mondragon Group, responded to the Ombudsman’s queries about the financial guarantee bond and temporary injunction and stated that Mondragon has never issued a falsified financial guarantee bond to the Vanuatu Government. He stated that Mondragon is not a bank nor a financial institution and cannot issue a bond. On the issue of temporary injunction imposed by the court, Mr. Harkavy confirmed the decision by the court however he stated that Mondragon would be appealing the decision. Mr. Harkavy confirmed that Mr. Mandel has never held a position in the Mondragon Group. However, Mondragon does have business ties with Cody Investments where Mr. Mandel is Managing Director (see Appendix XX8).

5.68 On 21^st August 2001, Mr Shani Erez and Mr Elazar Meir, (who claim to be members of the Mondragon Cooperative Society) visited the Office of the Ombudsman. They advised that Mr. Mandel initiated the idea of free trade zone in Vanuatu with the Mondragon Group. They confirmed that Mandel does not hold any position in the executive of the Cooperative Society. They also advised that Mr. Mandel had the approval by the Mondragon Group to lead the negotiations with the Vanuatu Government because of his knowledge about this part of the world. Mr Erez and Mr Meir agreed that any investors coming to Vanuatu must respect the laws of this country. They stated their dissatisfaction when informed about Mr. Mandel giving financial assistance to public officials outside of official procedures. They stressed that Mondragon Cooperative Society is a genuine Cooperative society in Israel.

6. RESPONSES TO THE WORKING PAPER

Copies of the Working paper were sent to those persons implicated in this report and heads of authorities that would assist to resolve outstanding issues in this matter. Public authorities and persons who assisted the Ombudsman in this enquiry were also given copies of the Working Paper to comment on the issues of facts and findings made in the Working Paper before the Public Report is issued.

The summaries of the responses are as follows:

6.1 Mr Howard Aru:

In a letter dated 31 July 2001 Mr. Aru denied in his the allegations made in the Working Paper against him with a statement that he did not received direct financial assistance from Mr. Mandel. The funds paid by Mr. Mandel for his course fee were paid directly to the Training Manager of the Course in Ireland.

However, he admitted to have made a mistake in accepting Mr. Roy Mickey Joy’s proposal for Mr. Mandel to pay for his participation fee at a training program in Ireland in June 2000. Mr. Aru also confirmed that the VFIB failed to make a thorough check on Mr. Mandel and the Mondragon Group's background as stipulated by Section 6(2)(i)(j) & (k) of the Foreign Investment Act.

Mr. Aru further stated that after attending the training partly funded by Mr Mandel, he has taken a very clear stand on certain issues concerning the Israeli Mondragon Group. This would be evidence to show the falsity of the accusations that the financial assistance he received influenced any decision made by VIFB towards Israeli Mondragon Group's application to invest in Vanuatu. The evidence Mr. Aru gave included his regular contacts with a local law firm, Ala & Co Barristers & Solicitors and Financial Intelligence Unit in the State Law Office. Mr. Aru stated that the advice and information given to him helped him make the decision not to join the delegation to Israel. He advised the Chairman of VFIB that when questions and doubts about Mondragron Group are not cleared yet to the citizens of Vanuatu, he is not going to Israel. He claimed that he cooperated with the Financial Intelligence Unit (FIU) in the State Law Office for advice and he assisted the Ombudsman Office with the enquiry.

Mr Aru’s argued in his response that he did not receive financial assistance from
Mr. Mandel for personal gain. He argued that it was essential that he attended this course for the benefit of the Foreign Investment Board and the Government of Vanuatu. It was essential that he attended this training course in Ireland to assist with the advancement and the development of the VFIB.

Mr. Aru also claimed in his response that his letter to urge the Minister of Lands to sign the land lease for Big Bay was based on technical advice received from technical personnel from the Lands Department. Mr. Aru wrote the letter to the Minister of Lands to sign the land lease for the Project as the land lease documents were in order (refer to Appendix XX1 for details of Mr Arus’s response)

(The Ombudsman’s comments on Mr Aru’s response can be found in “Finding of Facts” No 7.7 and 7.8)

6.2 Mr Roy Mickey Joy:

On July 26 2001, in a letter to the Ombudsman Mr. Joy claimed that the request for the financial assistance from Mr. Mandel to pay the course fees for Mr. Aru to attend the course in Ireland was done in good faith. The course attended by Mr. Aru has enormously benefited the VFIB and the Government.

Mr. Joy also claimed that arrangements were made for Mr. Aru to attend this course when it became inevitable that they could not find the funds to pay for his course fees. The financial support given by Mr. Mandel to finance Mr. Aru’s course was done without any favour or without any strings attached. Mr. Mandel paid the funds directly to the Institute in Ireland.

The initial Mondragon Group’s application to the VFIB was processed and considered in the same transparent manner as the other investment projects. There was no favor or personal support attached other than the merits and the economics of the project. The Board met in July 2000 and approved the Mondragon Group’s application in principle pending a fully fledged submission and break down of the projects that the Group may wish to begin implementing in Santo.

With regards to the financial support given to Mr. Emil Mael, Mr Joy claimed that the intial work relating to the proposed land in Big Bay and the land owners consent to the use of their land was fundamental to the free trade zone project. As Principal Lands Officer, Mr. Mael has the responsibility to fully inform the custom owners and ensure that they are aware of the various components of the project.

The Department of Lands did not budget for such project but it was its responsibility to ensure that land owners are fully aware of the advantages and disadvantages of any development that is intended to be imposed on their land. Mr. Joy confirmed in his response that he initiated the idea for Mr. Mandel to give financial assistance to Mr. Mael.

Mr Joy also confirmed that the funds paid to Mr. Mael’s account were principally to assist in his visits to Santo to conduct consultations with the appropriate custom owners and chiefs in respect to the proposed project. It was done in good faith basically to ensure that initial work and other technical preparations for the proposed projects are implemented according to the laws of Vanuatu.

Mr. Joy claimed that Mr. Mandel’s financial assistance to Mr. Mael was on the basis of facilitating and accelerating the process for the land lease to be finalized and signed. He confirmed that to date, there is an impasse surrounding the land lease and Mondragon Group’s proposed project (refer to Appendix XX2 for details of
Mr. Joy’s response)

(The Ombudsman’s comments on Mr Joy’s response can be found in “Finding of Facts” No 7.10)

6.3 Emil Mael:

In a response dated 8 August 2001, Mr. Mael stated that he requested financial assistance from Mr. Mandel in good faith to facilitate the wishes of the investor, the custom owners and the Government in order to promote investment in Vanuatu. In his verbal response earlier on to the report, he confirmed that he was approached by
Mr. Joy to assist in this project and to request funding from Mr. Mandel. He indicated that with his experience in the Land Use Planning Office he was given the task to facilitate awareness meetings and workshops to bring out advantages and disadvantages of the various components of the proposed project to the land owners. Mr. Mael confirmed that the Lands Department did not have the budget to undertake such facilitation, nor did the VFIB.

Mr. Mael stated that after the signing of the MOU in London by the former Deputy Prime Minister Mr. Jimmy, followed by the approval of the project in principal by VFIB there were requirements for the Department of Lands to undertake feasibility studies at Big Bay. Mr. Mael stated that it was the size of the land, 80,000 hectares, that was the main concern to him and other lands officers to motivate them to ensure that the land owners are well educated and are fully aware of the various components to the use of their land.

Mr. Mael confirmed that Mr. Joy advised him to write to Mr. Mandel and request financial assistance. He confirmed to have received the money in his private account in the National Bank of Vanuatu. The reason to transfer the funds to his personal account was because the transfer would be much faster than sending the money to the Government treasury.

Mr. Mael claimed that the issue of requesting funds directly from Mr. Mandel was approved and resolved in a meeting held on 13 October 1999 by some Director Generals and the Attorney General. Mr. Mael claimed that the Attorney General had advised in that meeting that the Government would be facing budget problems because of the Comprehensive Reform Program (CRP). Therefore if individuals wish to pursue investments in Vanuatu, they may do so and provide government officials with financial assistance to facilitate the requirements and laws of Vanuatu regarding investments. (refer to Appendix “XX3” for details of Mr Mael’s response)

(The Ombudsman’s comments on Mr Mael’s response can be found in “Finding of Facts” No 7.4)

6.4 Mr. George Maniuri – Director General of the Ministry of Trade & Economic Cooperation.

On the 31^st July 2001, in a letter to the Ombudsman, Mr. Maniuri stated that the role of the Ministry of Trade & Investment responsible for the Foreign Investment Board is to coordinate the formulation and implementation of the Government’s policy in the area of trade, tourism, investment and economic cooperation.

Mr. Manuiri further stated that attracting and facilitating foreign direct investment into the country is a major challenge of the Ministry. The Government’s allocation of budgetary resources to the VFIB is inadequate. With respect to Mondragon, VFIB officials are pressured when the approval in principal had been made by the Council of Ministers to adopt the MOU signed in London as Government policy. Mr. Maniuri claimed that when VFIB officials were faced with such circumstances with no budget to carry out a Government policy, they would have to take some risks based on their professional judgement and assessment as long as the established legal framework is respected.

Mr. Maniuri claimed that circumstances such as this had forced the VFIB officials to request financial assistance from private sponsors (Mr. Mandel) to assist the process of advancing the proposed free trade zone project in Santo. He also claimed that such assistance is accepted and does not constitute a breach of any legislation.

Mr. Maniuri confirmed the financial assistance was requested by the officials from
Mr. Mandel. He further claimed that financial assistance provided by Mr. Mandel and Mondragon Group does not constitute a crime or an act or omission prohibited and punishable by an Act of Parliament. However, he agreed that such actions taken by Mr. Joy and others may amount to a breach of legislation. Mr. Maniuri argued that when such actions are not yet proven by any court of law, the Ombudsman’s report should not label the allegations as serious crime such as bribery and corruption against the officers of the VFIB. (see Appendix XX4 for details of Mr Maniuri’s response)

(The Ombudsman’s comments on Mr Maniuri’s response can be found in “Finding of Facts” No 7.11)

7 FINDING OF FACTS

7.1 Facts to show the connection between Michael Oliver, Stefan Mandel, Lord Keyes & UMP leaders to set up a free trade enclave in Santo.

Mr. Michael Oliver, Mr. Stefan Mandel, Lord Keyes and UMP leaders are found to be associated with Bramad Pty Ltd and Cody Investments when the Contingent Contract for Lease and the Declaration of Principle were signed on 14 October 1991. (see Appendices A, B, C, D & V1). The documents are connected to the proposed land to establish a free trade zone for businesses. This was confirmed in letters of 6^th July 1999 and 13^th July 1999 between Lord Keyes and Mr Willie Jimmy (see Appendices F & G).

The proposed plan for the Free Trade Zone was affirmed by all parties when they met in London to sign the Memorandum of Understanding on 22^nd July 1999 (see Appendix I). This interest was further confirmed in the letters sent to Mr. Oliver by Mr Leon Katty (23^rd July 1999 and Mr. Japhet Peter 23^rd August 1999) (see Apendices J & N). Mr. Mandel also confirmed his association and connection with Mr. Oliver to establish a free trade zone in Santo which he claimed dated back to 1991 in a fax sent to Mr. Roy Mickey Joy on 12^th July 1999 (see Appendix V).

Mr. Mandel also further confirmed his connection to Bramad Pty Ltd in a document he issued in July 1993, when he formed a “Watchdog Association” with the same address to that of Bramad Pty Ltd mentioned in the Contingent Contract of Lease (see Appendix D). The Registered Bankruptcy Trustee in Australia confirmed Mr Mandel’s involvement with Bramad Pty Ltd (see Appendix V1).

7.2 Facts about Mr. Mandel.

The Australian Security Commission carried out investigations against Mr. Mandel for suspected illegal activities in lotteries (see Appendix D). The Registered Bankruptcy Trustee in Australia confirmed that Mr Mandel was declared bankrupt on 17 August 1995. Mr. Mandel was not living in Australia when the bankruptcy occurred. Mr. Mandel was made bankrupt on the petition of Regal Life Insurance Co. Ltd who which owed in excess of $500,000.00 Australian dollars (see Appendix V1).

7.3 Facts to indicate that MP Willie Jimmy requested financial assistance from
Mr. Mandel and the Mondragon Group.

In a letter to Lord Keyes on 13 July 1999 Willie Jimmy requested that Cody Investments Ltd pay for their airfares from London to attend a business conference to sign the Memorandum of Understanding for Mondragon to invest in Vanuatu (see Appendix G). Mr. Jimmy also requested financial assistance from Mr. Mandel in a hand written letter on 7 December 1999. He requested funds to buy a fax machine, photocopier, stationary, install a telephone, pay a salary to a part time secretary and establish an office in order to get back into Government (see Appendix W). However, in a letter dated 11 October 2000, Mr. Jimmy denied receiving any financial assistance from Mr. Mandel. He also denied any knowledge of UMP receiving the amount of US$150,000.00 in 1991 for the land lease signed between Bramad Pty Ltd and Mr. Serge Vohor. (see Appendix A & B). Mr. Jimmy was the National Treasurer of UMP in 1991 when the lease was signed (see Appendix B). He was also the Minister of Finance in the Government of Vanuatu from 1991 to 1995.

7.4 Facts to show that Mr Mael requested financial assistance from Mr Mandel.

Mr Emil Mael requested US$1,000.00 from Mr Mandel in a letter dated 23 August 1999. He gave his personal bank account in the National Bank of Vanuatu to Mr. Mandel. The Account Number is 500 44164 30 (refer to Appendix L). The National Bank Office in Port Vila confirmed this number as belonging to Mr. Mael (corrections made by NBV that last digit in the account is not 30 but 31). In a fax dated 25 August 1999, Mr. Mandel advised Mr. Roy Mickey Joy that he had sent US$1,000.00 through telegraphic transfer to Mr. Mael (see Appendix 0). Mr. Mael confirmed that he had received the US$1,000.00 as indicated in the letter to Mr. Mandel dated 6 September 1999. Mr. Mael advised that he gave US$500 to the chiefs of Big Bay (see Appendix P). Mr. Mael requested a further US$2,500.00 from Mr. Mandel on 6 September 1999 (also refer to Appendix P). On 12 October 2000, Mr. Mael confirmed to the Ombudsman Office that he requested and received Vt150, 000 from Mr. Mandel (see Appendix R1).

7.5 Facts showing the request for financial assistance by government officials was improper

On 23 August 1999, Mr. Mael requested financial assistance from Mr. Mandel (see Appendix L). Mr. Mandel advised in a letter to Mr Joy that he had sent the amount to Mr Mael’s personal account in the National Bank on 25 August 1999 (see Appendix O). On 6 September 1999, Mr Mael requested further financial assistance from Mr Mandel (see Appendix P) On 13 October 1999, the Attorney General called a meeting for all parties who have concern about the Mondragon Group's proposed project. It was this meeting which Mr Mael claimed that legal advice was given to request financial assistance from private sponsors (see Appendix UUU). On 7 December 1999, MP Jimmy requested financial assistance from Mr Mandel (refer to Appendix W). On 15 June 2000, Mr Joy requested financial assistance from Mr Mandel for Mr Aru to attend a training course in Ireland (see Appendix C1). On 1 September 2000, the State Law Office advised VFIB on Mondragon Group’s proposed project to treat the project with “extreme caution” and carry out due diligence checks on the appropriate investors (see Appendix MMM6). On 24 October 2000, the State Law Office also advised that the financial assistance given to VFIB by the private sponsor for Mr. Aru to attend the training course in Ireland should not have been accepted.

7.6 Facts to confirm that Israeli Mondragon Group submitted an application to Foreign Investment Board to invest in Vanuatu.

Israeli Mondragon Group submitted an application to invest in Vanuatu on 31 March 2000. The project description in the application is to develop a free trade zone in an area designated by the Vanuatu Government (see Appendix Z). The Foreign Investment Board issued a project paper dated 26 July 2000 indicating the Israeli Mondragon Group has passed the Board’s criteria by scoring 23 out of 30. The Board Secretariat recommended that the Board grant approval to the business license requested (see Appendix G1). Mr. Aru advised Mr. Mandel in a letter dated 28 July 2000 that the VFIB has approved in principal the Israeli Mondragon Group’s application to establish a free trade zone project (see Appendix H1).

7.7 Facts to show that Mr. Howard Aru accepted financial assistance from
Mr. Mandel.

The CEO of the VFIB, Mr. Howard Aru was to attend a training course in Dublin, Ireland from 19 - 30 June 2000. The total cost of the course was US$5,500.00. The Chairman of VFIB, Mr. Joy requested funding assistance from the Prime Minister’s Office on 11 April 2000 for Mr. Aru to attend this course. The amount requested was Vt986,200 (see Appendix B1). The Prime Minister’s Office responded and confirmed that they would only pay for Mr. Aru’s airfares and subsistence allowance. Mr. Joy then sent a letter of request for financial assistance to Mr. Mandel on 15 June 2000. Mr. Joy requested Mr. Mandel to pay 2,700 pounds sterling for Mr. Aru’s course fees (see Appendix C1). Mr. Aru went to Dublin to attend the course partly funded by Mr. Mandel. Mr. Aru arrived back from Dublin on 5 July 2000. Mr. Aru confirmed in a letter dated 3 October 2000 that he did receive financial assistance from Mr. Mandel in good faith to enable him to attend the course in Ireland (see Appendix O1). Mr. Aru confirmed attending this course in Dublin partly funded by Mr. Mandel in an interview with the Ombudsman on 9 May 2001. The financial assistance to support Mr. Aru to attend the course was requested from Mr. Mandel on 15 June 2000 (see Appendix C1). Mr. Mandel responded and paid the amount directly to the Institute in Ireland.

7.8 Facts to show that Mr. Aru and the VFIB failed to thoroughly check the particulars of the primary individuals behind the proposed free trade zone and continued to facilitate Mondragon Group’s interest in establishing the project in Santo.

The Mondragon Group submitted their application to the VFIB on 31 March 2000 (refer to Appendix Z). Mr. Aru admitted in his response in a letter dated 3 July 2001 that the Office of the Foreign Investment Board failed to make a thorough check on the Mondragon Group right at the very start of the negotiations (see Appendix XX1). By such failure, Mr. Aru failed to comply with Section 6(2)(i), (j) & (k) of the Foreign Investment Act (see Appendix AAA)

On 12 July 2000, the Mondragon Group’s delegation arrived in Vanuatu and presented the Government with the alleged fraudulent financial guarantee bond in an attempt to buy 49% shares of Air Vanuatu (see Appendix D1). Mr. Aru put the Mondragon Group’s application before the VFIB on 26 July 2000 and recommended that the Board approve the application and grant an approval for the business license (see Appendix G1). VFIB only approved the application in principle. Mr Aru advised Mr Mandel about the Board’s decision on 28 July 2000 (see Appendix H1). Ala & Co. Barristers & Solicitors also gave legal advice to the VFIB after the application was approved in principal (refer to Appendix K1 and MMM3). Despite this legal advice, Mr Aru continued to facilitate the Mondragon Group’s interest to establish the proposed project in Big Bay. On 3 April 2001, Mr Aru urged the Minister of Lands in a letter to consider and signed the land lease for Big Bay.

7.9 Facts to show the attempts by Mondragon to obtain the Financial Guarantee Bond to purchase 49% shares of Air Vanuatu

The Financial Guarantee Bond dated 12 July 2000 was presented to the Vanuatu Government to purchase 49% Shares of Air Vanuatu. The bond has a liability of US$3 million and was signed by Cody Investments Ltd, EDCI and Mondragon Group as the Principal, United Fidelity Corporation as the Surety of the bond and the Vanuatu Government as the Obligee. Mr. Sanford Wolok was named as one of the Attorney-of-fact for this Bond (see Appendix D1).

In a letter dated 31 July 2001, Mr. Avi Edelman, the Secretary General of Mondragon Group confirmed that they 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 and, naturally, it is no longer in their possession (see Appendix XX6).

In another letter dated 5 August 2001, Mr Jacob Harkavy, Advocate for the Mondragon Group stated that Mondragon is not a bank or financial institution and cannot issue any bond. However, he confirmed that Mondragon approached a recognized financial institution with the securities and was given the bond. But he denied that the bond was fraudulent (see Appendix XX8)

7.10 Facts to confirm that Mr. Roy Mickey Joy was aware of the financial assistance given to him and other public officials despite his claims to the contrary.

The Chairman of VFIB Mr. Joy denied any requests for financial assistance from
Mr. Mandel in a letter dated 9 October 2000 to the Ombudsman. He denied having any information or record of whether government officials are making financial deals with Mr. Mandel.(see Appendix P1). However, according to the fax dated 25 August 1999, Mr. Mandel advised Mr. Joy that he had sent US$1,000.00 through telegraphic transfer to Mr. Mael. Mr. Mael is the official representative of Lands Department on the VFIB (refer to Appendix O). Mr. Joy also contacted Mr. Mandel by telephone to request financial assistance. Further to that telephone conversation, Mr. Joy, in a letter dated 15 June 2000 requested 2,700 pounds sterling for payment of the course fees for Mr. Aru to attend a training course in Ireland (see Appendix C1). This indicates that Mr. Joy was aware and assisted the officers in getting financial assistance from Mr. Mandel and the Mondragon Group.

7.11 Facts to show that financial assistance given by Mr. Mandel may have influenced the decision of the Foreign Investment Board

The Chairman of the VFIB, Mr. Joy was part of the Vanuatu Government delegation that went to London in July 1999 to sign the MOU with the Mondragon Group (refer to Appendix G & I). On 5 August 1999, Mr. Joy and other members of the VFIB visited the proposed project site in Big Bay (see Appendix K). On 23 August 1999, Mr. Mael requested financial assistance from Mr. Mandel (see Appendix L). On 25^th August 1999, Mr. Mandel advised Mr. Joy that he had sent the funds to Mr Mael as requested (see Appendix O). On 6 September 1999, Mr Mael requested further financial assistance from Mr. Mandel (see Appendix P). On 7 December 1999, Mr Jimmy requested financial assistance from Mr. Mandel (see Appendix W). On 17 December 1999, Mr. Joy wrote to the Ministry of Foreign Affairs and advised the Minister to appoint a member of the Mondragon Group as Vanuatu Consul in Israel in order to assist the Mondragon Group’s proposed investment undertaking in Big Bay (see Appendix X). On 28 January 2000, the Council of Ministers approved Mr. Daniel Rothshild, a member of Mondragon Group as Vanuatu Consul in Israel (see Appendix Y).

On 31 March 2000, the Mondragon Group submitted their application to establish free trade zone project in Big Bay Santo, to the Foreign Investment Board (see Appendix Z). On 15 June 2000, Mr. Joy requested financial assistance to support Mr. Aru to attend the course in Ireland (see Appendix C1). Mr. Mandel responded and paid the funds directly to the Institute in Ireland and Mr. Aru attended the course from 19 – 30 June 2000. He arrived back in Vanuatu on 5 July 2000.

On 12 July 2000, the Mondragon Group’s delegation presented the Vanuatu Government with the financial guarantee bond in an attempt to buy 49% shares of Air Vanuatu (see Appendix D1). On 26 July 2000, the Foreign Investment Board approved in principle the Mondragon Group’s application (see Appendix G1 & H1).

On 26 July 2001, Mr. Joy confirmed that Mr. Mandel was appointed by Mondragon Group to liaise with Vanuatu Government in regards to the proposed project undertakings (see Appendix XX2).

7.12 Facts to confirm that Messrs Joy, Mael, Aru and Jimmy were leaders at the time of their alleged misconduct.

Mr Joy is the Director of Trade, Industry & Investment and Chairman of the VFIB. Therefore he is a leader under the Leadership Code Act.

Mr. Mael is the Principal Lands Officer in the Department of Lands. He is also a representative of the Lands Department on the VFIB. As such he is also held to be a leader under the Leadership Code Act No.2 of 1998.

Mr. Aru is the Chief Executive Officer of the Foreign Investment Board. Chief Executive Officers of Boards are held as leaders under the Code.

Mr Willie Jimmy was a Minister of State then and is currently a Member of Parliament at the time of these allegations. Ministers and Members of Parliament are leaders under the Constitution and the Leadership Code Act.

8. FINDINGS OF ALLEGED MISCONDUCT

The following are findings made against public officials of the Government of Vanuatu who have failed to comply with the laws of Vanuatu.

8.1 FINDING 1: MR WILLIE JIMMY MAY HAVE BREACHED THE PROVISIONS OF THE LEADERSHIP CODE UNDER THE CONSTITUTION & THE LEADERSHIP CODE ACT.

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 did not know much about the investors involved. The engagement in such activity now raised questions about Mr. Jimmy’s integrity as the State Minister of that time, and his current position as Member of Parliament, and as a leader.

The Ombudsman also found that Mr. Jimmy may have also breached Section 23 of the Leadership Code when he asked for and received from Mr. Mandel financial assistance for air tickets for his delegation to attend the business conference in London in July 1999. Mr. Jimmy also requested on 7 December 1999 financial assistance to establish an office in Port Vila. Mr. Jimmy was in a position at that time to have influenced the decision making body of the Vanuatu Government to adopt the proposed project as a Government policy and to implement the Mondragon Group’s interest.

8.2 FINDING 2: MR ROY MICKEY JOY MAY HAVE BREACHED THE PROVISIONS OF THE LEADERSHIP CODE UNDER THE CONSTITUTION & THE LEADERSHIP CODE ACT.

The Ombudsman also 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 VFIB to assist to ask for and obtain financial assistance for Mr. Howard Aru and Mr. Emil Mael from Mr. Mandel. Such financial assistance 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 and interest in investing in Vanuatu.

Mr Joy was also found to have allegedly breached Section 23 of the Leadership Code Act. Section 23 states, “a leader must not corruptly ask for or receive, or agree to ask for or obtain any money or other benefit or advantage of any kind for himself, or another person in exchange for his acts or omissions as a leader being influenced in any way, either directly or indirectly”. Mr. Joy is the Chairman 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 had lodged its application to VFIB when Mr. Joy requested financial assistance from Mr. Mandel.

8.3 FINDING 3: MR HOWARD ARU MAY HAVE BREACHED ARTICLE 66 OF THE CONSTITUTION AND THE PROVISIONS OF THE LEADERSHIP CODE ACT.

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 for an advantage and benefit in accepting financial assistance from Mr. Mandel to attend the training course in Ireland. Such financial assistance has given rise to doubt in the public mind as to whether such benefits and advantage might influence the decision of the Foreign Investment Board on Mondragon Group’s application to invest in Vanuatu.

Mr. Aru may have breached Section 23 of the Leadership Code Act in a similar fashion as Mr. Joy. Mr. Aru is the CEO 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 had lodged its application to VFIB when Mr. Aru benefited from the financial assistance requested from Mr. Mandel and the Mondragon Group

8.4 FINDING 4: MR EMIL MAEL MAY HAVE BREACHED THE PROVISIONS OF THE LEADERSHIP CODE UNDER THE CONSTITUTION & THE LEADERSHIP CODE ACT.

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 for an advantage and benefit, when he requested and obtained financial assistance from Mr. Mandel. Mr. Mael claims the assistance provided by Mr. Mandel was used to carry out a feasibility study of the proposed area for the 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 invest in Vanuatu.

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

9. RECOMMENDATIONS

Upon the establishment of the facts and alleged breaches of the laws of the Republic of Vanuatu, the Ombudsman has made the following recommendations:

9.1 Recommendation 1: The Foreign Investment Board must provide information to justify the proposed investment and reassure the Government, custom owners and the people of Vanuatu that the persons behind the Mondragon Group wishing to establish a free trade zone in Big Bay are genuine investors and have the financial capability to invest.

The Foreign Investment Board should immediately seek and obtain information from appropriate national and international Government agencies, law enforcement authorities and other professional entities on the Israeli Mondragon Group and the individuals behind this proposed free trade zone project.

9.2 Recommendation 2: The Ministry of Lands should delay signing any land lease for this proposed free trade project until VFIB finds evidence to verify the Government, land owners and the people of Vanuatu the project will attract genuine investors

The facts in this report found that the proposed project would cover a large area of land in Big Bay. There is still no information given by the VFIB to justify to the Government, the custom owners and the general public that this free trade zone project would attract genuine investors. The Ombudsman recommends that the Ministry of Lands delay signing this land lease until VFIB makes such justification to the Government and the general public.

9.3 Recommendation 3: The VFIB must find out the full particulars of every member of the Mondragon Group intending to invest in Big Bay before they approve any certificates or business licenses for the Co-operative.

This enquiry revealed that the Foreign Investment Board's approval in principle of the Mondragon Group’s application has contributed to Mondragon making offers for membership to the Israeli public to join the Group, which would include a piece of land in Vanuatu. The Board failed to follow the provisions of Section 6(2) of the Foreign Investment Act by failing to find out the full particulars of the individuals behind the proposed free trade zone project in Vanuatu. Therefore, based on these facts, the Ombudsman recommends that the Board must find out the full particulars of any member of the Mondragon Group who intends to invest in Big Bay before they approve any certificates or business licenses to the co-operative.

9.4 Recommendation 4: The Chief Executive Officer of VFIB should provide detailed information about any money, gifts or financial assistance that members of the Mondragon Group has been providing to government officials in Vanuatu over the past years.

The information in this enquiry has revealed some of the financial assistance that has been given to some of the public officials in the Foreign Investment Board and the Government. Some of these gifts or assistance given to the public officials by
Mr. Mandel of the Cody Investment Ltd. has been made contrary to the laws of Vanuatu. The Ombudsman recommends that the Chief Executive Officer of the VFIB, Mr. Aru provide detailed information about all financial assistance and any other gifts that have been given to public officials connected with this project.

9.5 Recommendation 5: The Public Service Commission should consider taking disciplinary action against Mr. Joy, Mr. Mael and Mr. Aru.

The finding of facts revealed that Mr. Joy, Mr. Mael and Mr. Aru benefited from a favor or advantage from financial assistance requested from Mr. Mandel. Such financial assistance has been held as having been done contrary to the Public Service established procedures and the laws of Vanuatu. Therefore, as public servants, the Ombudsman recommends that the Public Service Commission should consider taking disciplinary action against Mr. Joy, Mr. Mael and Mr. Aru, after the alleged offences made against them are proven in a court of law.

9.6 Recommendation 6: The Public Prosecutor should decide if there are sufficient grounds to lay charges and prosecute Mr. Roy Mickey Joy, Mr. Emil Mael, Mr. Howard Aru and MP Willie Jimmy.

The facts and findings made in this report alleged that, Mr. Joy, Mr. Mael, Mr. Aru and Mr. Jimmy acted contrary to the provisions of the Leadership Code Act. The Ombudsman therefore recommends that, the Public Prosecutor should decide immediately if there are sufficient grounds to lay charges and prosecute Mr. Joy,
Mr. Mael, Mr. Aru and Mr. Jimmy on alleged Leadership Code breaches.

9.7 Recommendation 7: The Vanuatu Government should cease to engage any government officials and resources on this proposed project until such time that the public officials learn to understand to observe and comply with the official rules and laws of Vanuatu governing their respective Ministries and Departments.

There are enough indicators in this report to show that public officials neglected to observe and follow the laws of Vanuatu. The Ombudsman recommends that the Vanuatu Government should cease to engage any government officials and resources on this proposed project until such time that the public officials who are appointed to be engaged in the project again understand to observe and comply with the official rules and laws of Vanuatu.

9.8 Recommendation 8: The Government of Vanuatu should make an official declaration that the Contingent Contract of Lease and the Memorandum of Understanding are not official and legal documents under the laws of Vanuatu.

The facts and findings made in this report have shown that Mondragon Group has taken advantage of the Contingent Contract of Lease signed in 1991 and Memorandum of Understanding signed in 1999. The Mondragon Group has been making offers for membership overseas by offering shares and packages for interested investors to buy land in Vanuatu. The Ombudsman recommends that the Government of Vanuatu make an official declaration that the Contingent Contract of Lease signed in 1991 and MOU are not official or legal documents under the laws of Vanuatu. Such a declaration should be sent to the authorities in the countries where the documents are being held and used as official documents.

9.9 Recommendation 9: The Foreign Investment Act should be reviewed and amended to include the provisions to build its investigative and regulatory capacity to be able to quickly identify fraudulent and unscrupulous investors to prevent them from operating in Vanuatu

The proposed Free Trade Zone project has raised many questions in the government and the general public due to the huge land area involved in the proposed lease. There were also other indicators found in the report, such as the financial guarantee bond that have raised questions in the public mind as to whether Mondragon Cooperative Society and the individuals behind it are genuine investors. The provisions of the Foreign Investment Act do not satisfactorily provide initiatives for such information for the Foreign Investment Board to scrutinize potential investors proposals. The Ombudsman recommends that the Foreign Investment Act should be amended to cater for the provisions for investigation and regulatory capacity for VFIB officers to be able to use these provisions to quickly identify fraudulent and unscrupulous investors and prevent them from operating in Vanuatu.

9.10 Recommendation 10: The Chairman of the VFIB should be appointed amongst persons from the business community.

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.

10. CONCLUSIONS

10.1 Following this enquiry, the Ombudsman is of the view that Cody Investments Ltd and the Israeli Mondragon Cooperative Society do not have the capability to carry out the proposed Free Trade Zone project in Santo. There has been no legislation prepared or passed by Parliament for a Free Trade Zone. The Memorandum of Understanding signed by the former Deputy Prime Minister with the parties concerned does not constitute a formal agreement. The Government of Vanuatu is to take this matter seriously and should consider terminating any further discussions or negotiations with the Cody Investments/ Mondragon Group until proper investigation is conducted into the proposed project.

10.2 The Vanuatu Government must ensure that individuals in the institutions established under the laws of Vanuatu providing services for the social and economic development of the country, must observe and comply with all laws governing their jurisdictions. The Foreign Investment Board is found to have failed to comply with Section 6(2) of the Act which this institution was established. Such failure contributed to this complaint and this Ombudsman’s report.

10.3 Public Officers and leaders should also be aware that they will be held accountable for any action contrary to the provisions of the Leadership Code Act.

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11. APPENDICES OF THE REPORT

AAA Relevant Laws and Regulations

A Declaration of Principle.

B Contingent Contract of Lease.

C Deed between Bramad Pty Ltd and Cody Investments Ltd

D Document from Mr Stefan Mandel.

E Deed between Cody Investments Ltd and Carmal Properties Inc.

EEE Information about the Mondragon cooperative.

F Letter of Invitation from Lord Keyes to Deputy Prime Minister, Mr Willie Jimmy to attend a Business Conference in London.

G Acceptance letter from Mr Jimmy to Lord Keyes to indicate his attendance and his request for funding the airfares for the delegation.

H Advice from Financial Services Commission to Ministry of Trade & Commerce about Cody Investments not having the financial strength.

I Memorandum of Understanding.

J Leon Kathy’s letter to Mr. Mike Oliver.

JJJ Mr Jimmy’s letter to Mr Mandel for the Government to ensure that the projects are carried out without delay and disruptions.

K Mr. Emil Mael’s report on his fact finding mission to Big Bay.

KKK Mr Joy’s letter to Mr Mandel to inform him of the land owners interest after his visit to Big Bay.

L Mr. Mael’s request for US$1,000.00 from Mr. Mandel.

LLL Mr Mandel’s fax to Mr Joy to request for Air Vanuatu’s balance sheets of it financial reports.

M Mr. Roy Mikey Joy’s letter to Mr Mandel dated 23 August 1999.

N Mr Japhet Peter’s letter to Mr Mike Oliver.

O Mr Mandel’s letter to Mr Joy confirming sending US$1,000.00 to Mr Mael.

P Mr Mael’s letter to Mr Mandel to confirm receiving US$1,000.00 and requesting further US$2,500.00.

R Mr Mandel’s letter to Mr Oliver to confirm their association.

S Mr Oliver’s fax to Mr Japhet Peter to advise of his withdrawal to support for the free trade zone in Vanuatu.

T Mr Ernest Bani letter to Prime Minister, Mr Donald Kalpokas, in which he raises concern about the proposed free trade zone project in Big Bay.

TTT Mr Jean Sese’s memo to Mr Bani confirming that the prime minister’s Office is not aware of any decision by the Government authorizing the project.

U Mr Oliver’s advice to have broken all relationship with Mr Mandel.

UUU Mr Ham Bulu’s letter to Mr Ernest Bani to inform him of the meeting to be held to discuss the above concern.

V Mr Mandel’s fax to Mr Joy and Mr Jimmy confirming his association with Mr Oliver and their plans for a free trade zone in Big Bay.

VVV Mr Mandel’s fax to Allen Kalfabun at the NTO requesting him to sent him promotion materials on Vanuatu.

W Mr Jimmy’s letter to Mr Mandel requesting financial assistance.

WWW Mr Jimmy’s letter to the Prime Minister to voice his concern about Mr Bani’s comment on the project.

X Mr Joy’s letter to Foreign Affairs to advise of the Council of Minister’s decision to appoint Mr Daniel Rothschild, as Vanuatu Consul in Israel.

Y Copy of the Council of Minister’s decision to appoint Daniel Rotschild as Vanuatu Consul in Israel.

Z Israeli Mondragon Group’s application to Foreign Investment Board.

A1 The fax to Foreign Investment Board on details on the training course to be attended by Mr Howard Aru in Ireland.

B1 Request for financial assistance from Prime Minister’s Office from Foreign Investment Board for Mr Aru to attend the course.

C1 Mr Joy’s request to Mr Mandel for financial assistance to pay course fees for
Mr Aru.

D1 Financial Guarantee Bond.

G1 Foreign Investment Board document indicating that the Mondragon Group Project has passed the Board’s criteria and recommended that the Board grant a business license.

H1 Mr Aru’s letter to Mr Mandel to advise him about the Board’s decision to approve the Mondragon’s proposed project in principle.

K1 Mr Ala’s advice to Mr Mandel to provide information to prove that the articles about Mondragon published in the Trading Post are false.

KKK2 Mr Joy’s Letter to Mr Mandel to inform him about the articles that the Prading Post has published against the Group and the State Law Office expressing extreme caution on the project.

L1 Mr Mandel’s letter to Mr Sope to claim that he has lodged a case in court against the Israeli Newspaper.

LLL Mr Mandel’s letter to Mr Ala to request him to act for him.

M1 Mr Mandel’s letter to Mr Sope to indicate the court case he has lodged in court against Israeli newspapers.

MMM Mr Aru’s memo to Mr Joy to advise that the proposed mission to Israel be postponed.

MMM2 The Israeli journalist denied being taken to court by Mr Mandel in a Trading Post newspaper article.

MMM3 Mr Ala’s letter to Mr Mandel to advised that he declined to act for him.

MMM4 Mr Aru’s letter to the State law Office requesting them to give a clear legal advice to the Board about the Mondragon project.

MMM6 Mr Aru’s letter to Mr Rowan Downing to thank him for the extreme caution legal advice.

N1 Geoffrey Gee’s letter to the Ombudsman to advise that they have been appointed by Mr Mandel as Mondragon’s Lawyer.

NNN Mr Mael sent a fax to Mr Mandel to inform him that they have sent him the maps of Santo.

O1 Mr Aru’s letter to the Ombudsman to confirm that Mr Mandel has paid for his course fees in Ireland.

P1 Mr Joy’s letter to the Ombudsman denying receiving any financial assistance from
Mr Mandel..

Q1 Mr Jimmy’s letter to the Ombudsman denying the receipt of any financial assistance from Mr Mandel.

R1 Mr Mael’s letter to the Ombudsman to confirm having received financial assistance form Mr Mandel.

U1 Mr Aru’s letter to Mr Maxim Carlot Korman, Minister of Lands requesting him to sign Land lease in Big Bay.

UUU2 Mr Joy’s letter to Mr George Tambe to voice his concern about a statement made in the Trading Post by Mr Alick Kalmelu.

UUU3 Mr Joy’s letter to Mr Kalmelu about the article he made in the Trading Past about Mondragon’s project in Big Bay.

UUU4 16 Chiefs of Big Bay sent a ten (10) point petition to the Prime Minister.

V1 Information from the Official Appointed Trustee of Bankrupt Estate in Australia,
Mr Kenneth Wayne Lamb to confirm that Mr Mandel was declared bankrupt on 17 August 1995.

W1 The Israel Security Authority 's information on court injunction against Mondragon

XX1 Mr Howard Aru’s response to the Working Paper

XX2 Mr Roy Mickey Joy’s response to the Working Paper

XX3 Mr Emil Mael’s response to the Working Paper

XX4 Mr George Maniuri’s response to the Working Paper

XX5 Mr Avi Eldelman’s comments to the enquiry

XX6 Mr Avi Eldelman’s response to the main issues to the Working paper

XX7 The Court documents (in Hebrew with translation in English) to confirm the courts decision to imposed temporary injunctions

XX8 Mr Jacob Harkavy’s response to the main issues to the Working Paper

[PacLII's editorial note: please refer to the downloadable PDF at the top of this page for the full text of the Appendices]

^[1] This should include practical examples of past and current projects being carried out in other parts of the world. At the very least, the VFIB ought to obtain a prospectus, or profile of the Israeli Mondragon Group and its legal standing in Israel.
^[2] Certain documents classified as "restricted" or "prohibited" obtained during the course of this enquiry were included in the confidential working paper pursuant to section 27(6) of the Ombudsman Act. This was to provide a complete understanding of the report to those implicated. The Ombudsman is not disclosing this prohibited or restricted information in the public report pursuant to section 27 (1) (a) of the Ombudsman Act.