Former Sri Lanka bank chief engaged in insider trading: probe

Former Sri Lanka central bank chief Arjuna Mahendran was sacked in 2016

A former governor of Sri Lanka's central bank has been accused of insider trading by a damning presidential report into a high-profile bond scandal that cost the island millions.

The long-awaited inquiry recommended the state recover a $4.4 million loss caused by the actions of then bank chief Arjuna Mahendran in 2015.

He leaked sensitive information to his son-in-law Arjun Aloysius, a bond trader, according to the report released Wednesday by the president's office following an 11-month investigation.

"Mr. Mahendran acted wrongfully, improperly, mala fide, fraudulently and in gross breach of his duties as governor of the CBSL (Central Bank of Sri Lanka)," it said. Mahendran was sacked in 2016.

The scandal has deepened acrimony between President Maithripala Sirisena and his coalition partner Prime Minister Ranil Wickremesinghe, who handpicked Mahendran to head the central bank.

Sirisena has publicly accused Wickremesinghe's United National Party (UNP) of being more corrupt than the previous regime they toppled together in 2015 after cobbling together an alliance.

The allies ended the 10-year rule of strongman president Mahinda Rajapakse, whose regime had been accused of graft and nepotism, but the bond scandal has shaken the union and damaged their promise of clean governance.

Sri Lanka's parliament ordered an investigation after legislators' private phone records were leaked to the presidential commission looking into the scandal.

The commission denied tapping phones, as Sirisena blasted politicians from his own coalition for frustrating the probe.

Sections of the 1,154-page report released a fortnight ago recommended prosecuting Ravi Karunanayake, finance minister at the time of the scandal, for graft and perjury over his links with Aloysius.

He resigned as foreign minister in August last year after his association with the controversial bond dealer went public.

The investigation also recommended a forensic audit of the central bank during the Rajapakse era, saying insider trading had also occurred under his rule.