If you think this title is for the latest brand of household cleaner, you would be wrong. I drew that title from the famous statement by deceased US Supreme Court Justice Louis Brandeis, in reference to corruption and fraudulent dealings: ‘sunlight is said to be the best of disinfectants.‘
Of course, this is all about the impending Colman Commission of Enquiry into the failure of CL Financial and other companies (including CMMB) and the Hindu Credit Union.
We are attempting to understand our situation in this financial fiasco – how was the entire collapse caused? Who is responsible? What can we do to avoid a repetition?
Our House needs a serious cleaning and we need a new commitment to serious retrospection if we are to succeed in understanding this scandalous situation.
To set the stage, there are four principalities being represented in this Enquiry –
CL Financial Chiefs – The people who had Direction and Control of the entire failed group – that would include the shareholders.
The Regulators – The Supervisor of Insurance, Securities and Exchange Commission (SEC) and the Central Bank.
The Auditors – PriceWaterhouseCoopers and Ernst & Young – the former being auditors for the CL Financial group and the latter acting for the Central Bank.
The aggrieved Policy-Holders and Depositors – Several groups have been formed to seek the return of all the monies owed to these investors.
My first point about this Colman Commission is how welcome it is, as a tangible sign of a change in how our country is being run. No, I did not vote for either group in the last election, but it seems to me that neither of the last two regimes (Manning or Panday) would have initiated a public enquiry into this financial fiasco.
As much as I approve the decision to have this public enquiry, the purpose of this article is to warn against some of the forces now being assembled to erode the enquiry’s effectiveness. Even though, in this respect, political times have changed, we need to remain vigilant if the Colman Commission is to be effective.
To be sure, the four principalities I listed comprise very powerful players for whom this enquiry is a literal nightmare, since they will be obliged to explain some of their biggest decisions and actions, which they would never have had to explain to anyone outside of their own circle.
If the Enquiry takes place as intended, we are going to be afforded an unprecedented insight into the workings, dealings, arrangements and situations in our leadership class – all of it at a depth and range never before recorded. Matters that had been only the subject of picong, ole talk and so-called urban legends will all now become part of the official record. Yes, our Republic will be coming of age.
Our country is a Republic, which to me means that no class of citizen ought to enjoy rights which are superior. But there has been a pattern of behaviour in this fiasco which has been very disturbing because it violates those Republican expectations. Of course, I am referring to the fact that a three-tier system seems to have been in operation during the entire meltdown.
The lowest tier comprises those many persons who are now fretting over their investments with this failed group. Those people have to decide between continued protest action, legal action or just plain pleading to get some relief. A significant number of them would have placed undue reliance on the CLF products and would be suffering extra stress because they put too many, or all, of their eggs in one basket.
The middle tier is the lucky and/or well-connected people who were able to get back their money after the group collapsed. When the Prime Minister announced this Enquiry on 1st October 2010, she promised to release details of who received the monies disbursed in that period – i.e. after 30th January 2009. That list of names and who received what sums would be an absolutely explosive one.
Of course, the top tier and the absolute insiders would be those who had early warning of the oncoming collapse and took steps to preserve their wealth. That group would have to include the top CL Financial chiefs who left in the 12 months before the collapse – Monteil, Fifi and Mayers. Major depositors and investors would also have been part of this privileged group. The Governor of the Central Bank and the last Minister of Finance also withdrew monies just before the collapse.
Maybe I am entirely wrong and there was complete surprise when the CL Financial group collapsed. But if that is the case, one is really contemplating a slack system of management systems and an entire swath of our ruling elite who are not ‘fit and proper’. The question of who knew what and when, will be a main point of dispute, because either way you slice it, the picture is unappealing.
You can be sure that the people in the top layer will do anything in their power to protect themselves from the stern scrutiny of those in the lowest group, not to mention the public, who are paying for all this.
I wrote a previous column in this series, entitled ‘Taking in front‘ and on this occasion, in light of what is at stake, I, too, am taking in front. Having suffered a defeat in that the Colman Commission has now been established, the members of the Code of Silence can be expected to try halting, delaying or just diluting the Commission.
We have already had former Hindu Credit Union (HCU) chief, Harry Harnarine, defeated in the High Court in an attempt to stop the Colman Commission. I was not surprised to read reports that Harnarine is planning to appeal that decision. We can expect other strong challenges as this historic process unfolds.
If the members of the Code of Silence are unable to derail the Commission itself, we should not be surprised if they try to cloak the proceedings in some kind of blanket to prevent too much information escaping.
Readers, please note that the process of asking the Court to prevent publication of a particular piece of evidence is a very swift one, with the ruling expected in the very same sitting. That is because if those proceedings are too drawn-out, it can be actually self-defeating, since the matter which they are seeking to have concealed can be published and discussed while a decision is awaited.
That is the reason we need to beat this drum now. We cannot wait for the filing of injunctions and then seek to publish. By then, it would be too late.
The new algebra is simple and inescapable –
Expenditure of Public Money – Transparency = CORRUPTION
The preface of that Report contains an instructive paragraph, at page xii –
“…This report is not the sole repository of what the panel found. A website — www.fcic.gov — will host a wealth of information beyond what could be presented here. It will contain a stockpile of materials — including documents and emails, video of the Commission’s public hearings, testimony, and supporting research — that can be studied for years to come. Much of what is footnoted in this report can be found on the website. In addition, more materials that cannot be released yet for various reasons will eventually be made public through the National Archives and Records Administration…”
The US legislature is determined that the inner lessons and testimony on this important crisis are available to all interested parties for the years ahead. That represents a solid commitment to a learning society, which will at least attempt to draw lessons from the bitterest of experiences. In my opinion, that commitment is worthy of emulation.
Has our society reached the stage of maturation to commit to an entirely transparent process of retrospection? That is the question which will be tested in the weeks and months to follow.
The entire proceedings of the Colman Commission must be held in public. The proceedings must be on TV and available on the internet. The Colman Commission needs a strong internet presence, with its own website.
Afra Raymond’s third submission to the Commission of Enquiry into the failure of CL Financial Limited, Colonial Life Insurance Company (Trinidad) Limited, Clico Investment Bank Limited, Caribbean Money Market Brokers Limited, and The Hindu Credit Union Credit Union Co-operative Society Limited
My name is Afra Martin Raymond and I am a Chartered Surveyor, being a Fellow of the Royal Institution of Chartered Surveyors. I am Managing Director of Raymond & Pierre Limited – Chartered Valuation Surveyors, Real Estate Agents and Property Consultants. I am also the President of the Joint Consultative Council for the Construction Industry (JCC), an umbrella organisation which represents the interests of Engineers, Surveyors, Architects, Town Planners and Contractors in this Republic.
This submission is being made in my personal capacity and does not represent the position of either Raymond & Pierre Limited or the JCC.
My work on this vital issue has all been based on the public record and can be seen at www.afraraymond.com.
I am willing to give oral evidence before the Commission.
Questioned about allegations that he had helped finance the PNM’s campaign leading up to the last general election, Harnarine replied: “We have assisted all major political parties in consideration of the HCU’s membership, which has a large base.”
Harnarine said he went out of his way to help the UNC, COP and even organised a meeting between Manning and the Indian businessmen.
It is my view that these persons must be questioned by the Enquiry if we are to properly comprehend the extent of the financiers’ influence –
former Prime Minister Basdeo Panday
former Prime Minister Patrick Manning
former PNM Chairman and Minister in the Ministry of Finance, Conrad Enill. Enill was also the Campaign Manager during the 2007 and 10 elections, so he will possess a clear knowledge of the campaign finance trail.
former PNM Treasurer and Minister in the Ministry of Finance, Mariano Browne.
I do believe all the items in this submission to be true and correct.
Afra Raymond’s second submission to the Commission of Enquiry into the failure of CL Financial Limited, Colonial Life Insurance Company (Trinidad) Limited, Clico Investment Bank Limited, Caribbean Money Market Brokers Limited, and The Hindu Credit Union Credit Union Co-operative Society Limited
My name is Afra Martin Raymond and I am a Chartered Surveyor, being a Fellow of the Royal Institution of Chartered Surveyors. I am Managing Director of Raymond & Pierre Limited – Chartered Valuation Surveyors, Real Estate Agents and Property Consultants. I am also the President of the Joint Consultative Council for the Construction Industry (JCC), an umbrella organisation which represents the interests of Engineers, Surveyors, Architects, Town Planners and Contractors in this Republic.
This submission is being made in my personal capacity and does not represent the position of either Raymond & Pierre Limited or the JCC.
My work on this vital issue has all been based on the public record and can be seen at www.afraraymond.com.
I am willing to give oral evidence before the Commission.
My areas for focus in this submission are –
Fiduciary Duty of Directors and Officers
The burning question is – When did the Directors and Officers of CL Financial (CLF) know that the group was heading to collapse? When did the Directors and Officers of the failed subsidiaries know? What did they know and when did they know it? How much warning did their management controls give them?
The question is pertinent and the time-line is instructive –
31st March 2008 – Andre Monteil retires as CLF’s Group Finance Director.
6th August 2008 – Anthony Fifi retires as Managing Director of the Home Construction Limited group, which is wholly-owned by CLF.
Mid-October 2008 – CLF purchases Jamaica Money Market Brokers’ 45% shareholding in CMMB. Please note that CLF owns 40% of JMMB.
18th November 2008 – CLF 2007 Annual Report is published – its Consolidated Balance Sheet disclosed a Total Asset Value of $100.666Bn.
8th December 2008 – Robert Mayers proceeds on pre-retirement leave from CMMB, pending his scheduled retirement, on 28th February 2009, as Managing Director.
13th January 2009 – Lawrence Duprey, CLF’s Executive Chairman writes, detailing an asset value of $23.9Bn, to the Governor of the Central Bank to seek urgent financial assistance. See ‘Finding the Assets‘ published on 23rd August 2009 for the text of that letter.
16th January 2009 – CLF pays a dividend of $3.00 per share.
23rd January 2009 – CLF has its Annual General Meeting at Trinidad Hilton.
30th January 2009 – The bailout is announced at a Press Conference at the Central Bank.
So, there is this contradictory financial manoeuvre in the dying stages of the group. I am speaking about the CMMB share purchase, in which CLF purchases Jamaica Money Market Brokers’ 45% shareholding in CMMB at a reported $41.37M USD. That price equates to 16.5 times earnings, given that CMMB’s profit as at March 2008 was $35M. It is impossible to reconcile that earnings multiple with CMMB’s exceedingly low profit rate and the rapidly-approaching collapse.
Was a professional, independent valuation of those shares obtained prior to the purchase? How can it have been a proper discharge of their fiduciary duty to shareholders for the CLF Directors to have agreed such a massive, questionable purchase without proper advice?
That transaction drew $262M out of CLF’s rapidly-depleting coffers on terms which are suspect. It demands close examination.
Another inescapable episode is the last CLF Annual General Meeting, the timing could hardly be better for an insight into the sensibilities of these chiefs. At the date of that AGM, Friday 23rd January 2009, the bailout letter was 10 days’ old, the dividend cheques were one week old and the bailout itself was a week ahead.
What was the atmosphere at that meeting? Were the shareholders told frankly of the major challenges and that the group had been forced to seek a State bailout? Did the Directors offer an explanation for the failure of the group?
It would be important to examine that AGM very carefully.
The Second issue is the treatment of departing Directors and Officers. Note that three of the most important and senior CLF chiefs departed in the 12 months prior to the collapse. It is most unlikely that those departures were mere good fortune or coincidence.
It is difficult to probe and verify such agreements when they are oral, much less when they are between parties who are actively collaborating. Memory can be notoriously unreliable.
I am submitting that those departures can be examined from the documents if one were to approach from the compensation aspect. What I mean is that these chiefs would have been paid upon departure and that would likely have been documented.
If that approach were taken, the suggested questions would be
How much did Messrs. Monteil/Fifi/Mayers receive upon retirement?
Was that sum reduced to reflect the impending crash?
Were the amounts arrived at by a ‘set’ formula?
Were the amounts arrived at by an interpretation of an employment contract which divorced pay from performance?
This would make it possible to have some insight into the way these chiefs treated with themselves, their shareholders and the other stakeholders of the group.
Executive Flexible Premium Annuity (EFPA)
I have written extensively on the EFPA, its growth and the effect of that size upon the entire CL Financial group.
I have no further points to make on those aspects. My submission here is on the point of set-off and the burden to the taxpayer.
My submission is that in relation to the intended payments from the State to EFPA claimants is that the State must conduct itself in an exemplary fashion. The State must not be placed at any further disadvantage, having already shouldered this enormous, exceptional payout.
There are now anti money-laundering (AML) laws which require depositors to make declarations as to the Source of Funds, all in an effort to prevent the proceeds of crime from entering the legitimate economy. In my view it is necessary for the government to be satisfied that the various sums being claimed were properly declared under the AML laws. We have had shocking reports about the elementary management controls which were either absent or awry in the CL Financial group, so it would not surprise me if their AML-compliance was lax. That needs to be thoroughly checked. It would not be at all acceptable for our taxpayers’ monies to be used to rinse ‘dirty money’.
Also, the claimants who owe on their taxes – VAT, PAYE, Corporation Tax, Income Tax and so on – should not be refunded.
Finally, there is the issue of the many borrowers from Clico, British-American, Clico Investment Bank (CIB). In the case of CIB alone, we are told that about $1.0Bn of those loans are ‘non-performing’ – which means that the borrowers are not repaying their loans. It would be perverse for some of those non-performing borrowers to receive refunds from the State. This is a live part of this situation, since in the case of CIB itself, the very Inspector of Financial Institutions swore in his affidavit filed in the winding-up action for that failed bank –
…With respect to the Creditors of the Petitioner, the Petitioner has met the statutory obligations for the Board of Inland Revenue (except for Corporation Tax Returns for 2007, 2008 and 2009 which are being prepared and remain outstanding)…
That is a glaring example of the kind of wanton wrongdoing at the heart of this mess. CIB fails to file its Corporation Tax returns for three years, yet keep their banking licence and arrange for the taxpayer to bail them out when it all goes sour.
Some claimants may try to invoke the ‘corporate veil’ to shield themselves from various breaches committed by their companies, but this is an exceptional situation in which the State is making an offer. In my view, the corporate veil ought properly to be ignored, so that the long-standing commercial principle of ‘set-off’ can be applied to the claimants.
I am submitting to the Commission that everyone over seeking bailout funds exceeding $75,000 be subject to a BIR audit for themselves and any business interests that they may have earned revenues from and they should be denied a taxpayer-funded bailout if they were found to have not paid their taxes.
Political Party Financing
It is my submission that the means by our political parties are financed is at the very heart of this affair.
Governance models, regulatory frameworks and accounting conventions are all important parts of the interlocked issues, but those pale into insignificance beside the influence of this major party financier.
There can be no doubt that CLF was one of the leading contributors to political parties in this country.
In the case of the United National Congress (UNC), which is the leading element of the existing coalition government, their last leader was convicted and imprisoned for failing to declare substantial donations received from Lawrence Duprey – see here and here.
In the case of the People’s National Movement (PNM), there have been published reports as to the payment of sums of the order of $20M to that party by CLF in the 2007 general election – see here and here.
In the case of the former political party, the entire CLICO issue was raised by the respected economist Trevor Sudama MP in the 2002 budget debate. Sudama was a UNC Cabinet member and posed the question as to whether CLICO, having been found to be insolvent by the Supervisor of Insurance, should be allowed to continue in business. Sudama was strongly opposed in the debate and eventually removed from the Cabinet. This can be corroborated from Hansard (p. 757 and 800) and the reports of the Supervisor of Insurance.
In the case of the PNM, the link was even deeper, with the same individual being that party’s Treasurer, CLF’s Group Finance Director and Chairman of two banks – Home Mortgage Bank and CLICO Investment Bank as well as two major State enterprises in the construction sector – Housing Development Corporation and the Education Facilities Company Limited. That individual is Louis Andre Monteil.
It is clear from the many statements of the Governor of the Central Bank that they were very limited in what they could do as regulators and it is difficult to escape the impression that an undue influence was brought to bear in the case of CLF.
The last Minister of Finance, Karen Nunez-Tesheira – a former law lecturer – was found to have withdrawn her own and her family’s monies from the CLF group just before the crash, was a shareholder of CLF and accepted dividends after the bailout was requested by the beleaguered group.
Only when Nunez-Tesheira was confronted by an informed and relentless media did she admit any of those transactions. We have never had an account of those dividends.
There is a long-standing and widely-accepted doctrine of Cabinet secrecy. It is my submission that this is one of those exceptional cases in which the very purpose of the Enquiry will be frustrated unless the Terms of Reference are robustly interpreted. In this case the situation demands an examination of the conduct of these matters at the political level.
For a proper understanding of this issue, it is essential that Karen Nunez-Tesheira, Trevor Sudama and Louis Andre Monteil be cross-examined on this political aspect. It is my view that former Prime Ministers Basdeo Panday and Patrick Manning must be questioned if we are to properly apprehend the extent of the financiers’ influence.
I am basing that submission on part (i) of this Enquiry’s Terms of Reference -To enquire into “…the circumstances, factors, causes and reasons leading to the January 2009 intervention…”. There is no way to satisfy the first part of your mandate, to understand the root causes of the crisis, without getting into this fundamental issue. Political Party financing is at the centre of the fiasco. The learning from the Wall Street crisis on this question is unequivocal as to the pernicious influence of these political financiers and lobbyists.
For this Enquiry to achieve the required level of interrogation, information and insight, it must pierce the conventional veil of Cabinet secrecy. To do that, you need to take a robust view of your Terms of Reference.
I do believe all the items in this submission to be true and correct.
The audited accounts for CMMB for 2006, 2007, 2008 and 2009 were obtained from the SEC. They allow a view of CMMB’s financial affairs for the 5-year period 2005 to 2009. I have included some selected ratios drawn from those accounts.
There has been a challenge to my assertion that CMMB failed, reaching to the stage of my having been requested to provide the Business Guardian with an indemnity against possible legal costs and damages. I was unable to persuade the Editor to accept my conclusions and agreed alterations to my prior column on this matter. Regular readers will know that my concern was triggered by reports in the pages of the Business Guardian that some of the key people in CMMB have now opened a new investment house, KSBM.
Since 22nd October 2010 I have been trying to obtain the official Terms of Reference for the Colman Inquiry into this financial fiasco, but those several enquiries were fruitless until the Secretary to the Inquiry faxed me the requested document on the first working day of the New Year. Thank you. The Terms of Reference were published in the Trinidad and Tobago Gazette of 17th November 2010 – No. 144 in Volume 49. Here is the first sentence in the second paragraph, for any of those who still have doubts –
…And whereas the President on the advice of the Cabinet has deemed it advisable and for the public welfare that a Commissioner be appointed to enquire into the failure of CL Financial Limited, Colonial Life Insurance Company (Trinidad) Limited, CLICO Investment Bank Limited, British American Insurance Company (Trinidad) Limited, Caribbean Money Market Brokers Limited and the Hindu Credit Union Cooperative Society Limited with a view to ascertaining why such events occurred…
So there we have it – the President on the advice of the Cabinet – but there is more, if anybody needs more signs of a failure. The Central Bank issued a Press Release on the day of the Bailout – 30th January 2009. The first objective stated in that document is –
To stem the increasingly serious liquidity pressures being faced by the financial services companies within the Group – i.e. CLICO Insurance Company Limited (CLICO), CLICO Investment Bank (CIB), British American Insurance Company Limited (BAICO) and Caribbean Money Market Brokers Limited (CMMB)…
I am not going to spend any more time stating the obvious, but it would be interesting for the other side to give a public opinion on all this. Can anyone seriously claim that CMMB did not fail? Well, I guess we will have to wait and see. The sheer boldfaced attitude of certain people knows no bounds and with the Carnival Season starting-up, anything could play.
In my view, there are substantive issues beyond the obvious failure and those would include –
CMMB’s role in the CL Financial group. In the 5 years I examined, there was a very low rate of profit earned by CMMB.
Year
2005
2006
2007
2008
2009
Return on Assets
1.22%
0.97%
0.0015%
0.0043%
0.0094%
Given the very low profits earned during CMMB’s operations, there are two inescapable questions arising – What is the real reason for the CL Financial group to hold onto this company? and What was in it for them?
It was certainly useful for the parent company to be able to secure advances of $1.8Bn from CMMB on what were no doubt good terms. So CMMB was a useful subsidiary for CL Financial to be able to draw on when there was the need.
The JMMB (Jamaica Money Market Brokers) element. But then also we need to consider the sidebar item on the acquisition by CL Financial of the JMMB block of shares in October 2008. What could have been the rationale for CL Financial to spend $262M on securing its ownership of a company that was about to fail? No doubt that would have been a period of considerable cash-flow pressure within CL Financial itself, so it does seem to be a bizarre decision. Given all of those elements, why would CLF pay such high multiples to buy the remaining shares in a failing subsidiary? This is one of those intrigues which makes me wonder whether there was more in the mortar than the pestle, so to speak. Given that the purchase of the JMMB shareholding was only 3 months before Duprey wrote that fateful letter requesting financial assistance,what was CLF’s rationale? Could there have been a prior agreement as to the price to be paid for those shares? Was a valuation of those shares ever done? If so, by whom, on what assumptions and with what result?It seems that a huge sum of money (over $260M, by my calculations) was drawn out of the collapsing parent company, on what was virtually the brink of the meltdown, to buy the remaining shares in yet another collapsing company. It is staggering to conceive of a situation in which a financial company could spend over $260M without such elementary due diligence, which is why this aspect is an important one. At the very least, the quality of judgment of the CL Financial chiefs seems suspect. Could it be that the reporting systems of the group were so poor as to be unable to foresee the impending collapse at either the group or CMMB level?
The First Citizens’ Bank purchase. The FCB price of $1.00 shows the evaporation of CMMB’s shareholders’ capital. The apparent request by FCB’s auditors for a specific confirmation of the State guarantee is important since it is reasonable to assume that PwC, also CL Financial’s auditor, would have been aware of the fragility of the imputed security for those massive advances.
Ramcharan Kalicharan
Kalicharan’s explanation. The former CMMB Managing Director, Ramcharan Kalicharan gave a version of events in these pages on 16th December 2010? He was trying to contend that the liquidity pressure on CMMB developed as a result of the bailout of the parent company. Of course the fact that they were both in trouble at the same time – hence their being mentioned repeatedly at the time of the bailout – lends the lie to that one.
Leveraging. One of the features of the failed firms elsewhere has been the extent to which they were over-leveraged i.e. the amount of capital they had borrowed greatly outweighed the amount the firm’s owners had invested from their own money. The conventional thinking is that an over-leveraged firm would be likely to act in a more risky fashion if a smaller proportion of the partners’ own money is likely to be lost. Some of the findings of the ongoing global meltdown are causing those formerly settled principles to be re-examined. In the case of the Wall Street firms which were bailed out in the US crisis, the leverage ratios were in the 35 to 40 times range. That means that those firms had borrowed 35 to 40 times more than the capital they had committed out of the shareholders’ funds.
Year
2005
2006
2007
2008
2009
Leverage (Gearing ratio)
28.7
20.1
36.4
34.5
240.8
So, the CMMB gearing ratio exceeded the 20-times range since 2005, with that startling 240-times as at the date of collapse. It seems that CMMB was run far over the ‘redline’ for a substantial period and what is worse, that this steep level of risk was disclosed in their filed audited accounts. Which leads right into the second point, which is, of course, the role of the regulators in all this. To return to the issue I raised in writing about AIC a few months ago, this speaks to the question of the proper role of the regulators of our financial system. Are they to fulfill a virtually clerical function, to ensure that statements and accounts are filed on time and in the correct fashion? Or do they have a more pro-active and forward-looking role and responsibility in identifying firms which may have all their filings in order but, by virtue of their actual behaviour in the market, may be posing serious risks to the entire system?
The medium-term implications for FCB. Finally, when I consider the levels of volatility and the cost of ‘fixing-up’ CMMB for FCB to take it, this,together with FCB’s exposure to Home Construction Limited (as evidenced in FCB’s 2009 Annual Report in which they disclosed that 9% of their entire loan portfolio (an amount in excess of $1.0BN) had been advanced in a single instrument at favourable rates to Home Construction Limited) would have the combined effect of the FCB group itself now being significantly exposed, seemingly more so than other banks, to an element of CL Financial risk.
SIDEBAR: Jamaica Money Market Brokers (JMMB)
JMMB and CL Financial established CMMB in 1999. In October 2008, CL Financial purchased JMMB’s 45% share in CMMB at a price of $41.37M USD ($262.7M TTD). That equates to a value for the entire enterprise in the range of $580M and given that CMMB’s Total Profit in 2008 was $35M, that is an earnings multiplier in excess of 16-times. See – http://jamaica-gleaner.com/gleaner/20081015/business/business1.html
KSBM directors, Brent Salvary, Ramcharan Kalicharan, Robert Balgobin and Robert Mayers
The headline was an arresting one – ‘Investment pros set up new business‘ at page 10 of the Business Guardian of 9th December. It was reported that a new investment house, KSBM, was launched and it seemed that they were profiling.
Given that all four of KSBM’s Executive Directors are ex-CMMB chiefs, there is an inescapable question… ‘Did CMMB collapse, or did they not?‘
Our society’s level of development will be limited by our capacity to reason and learn from that reasoning. The Code of Silence must be destroyed if we are to progress. It is necessary to probe this question most soberly and this is my attempt.
As is my practice, I am proceeding from the published record –
If we refer to the MoU signed on 30th January 2009 there are only two references to CMMB, in which, at clauses 1 c) and 6 b), the CL Financial group agrees to sell its shares in CMMB, along with a list of other assets.
…Today, the Government, the Central Bank of Trinidad and Tobago, and First Citizens Bank (FCB) became part of a bail-out package for CLICO Investment Bank, CLICO and British American Insurance and Caribbean Money Market Brokers (CMMB)…
The Governor’s statement made that day goes a little further, by referring to the transfer of third-party assets and liabilities of CIB and CMMB to First Citizens’ Bank.
…This is the first in a series of media conferences that the Central Bank intends to schedule to update the national community about progress with respect to resolving the financial difficulties in CLICO, CIB and CMMB…
It is reasonable to ask why it became necessary to transfer CMMB’s third-party assets and liabilities (which would have included depositors) to another financial institution. More to the point, it would seem from the events that only a State-owned financial institution was willing to partake. In my view, if CMMB were healthy and whole, it would never have been even mentioned in all of this.
But, wait, there were conditions –
The fourth reference of course was the revelation that the previous administration had created a $1.8Bn guarantee to cover CMMB’s advances to its parent company, CL Financial. First Citizen’s Bank had made that guarantee a condition of its acquiring CMMB.
On 1st October, 2010, which was the fateful Friday on which our Prime Minister discussed the CL Financial matter at length in Parliament, First Citizen’s Bank wrote to the Minister of Finance to get confirmation that that guarantee was properly in place.
…First Citizens Bank CEO Larry Howai yesterday confirmed the bank’s request and revealed that it was made in relation to the bank’s acquisition of Caribbean Money Market Brokers (CMMB) under the terms of a supplemental agreement drawn up subsequent to the Memorandum of Understanding (MOU) of January 30, 2009. CMMB had racked up a substantial debt due to loans to parent company CL Financial.
“What happened is when we acquired CMMB, CMMB was owed money by the CL Financial Group,” Howai said. “We had told the government at the time that we would only acquire CMMB if they guaranteed the debts…
It seems to me that the guarantee First Citizen’s Bank was confirming had been made in conditions of great privacy, for it was the first time I was reading about it. A Supplemental Agreement to the published MoU – one can only wonder when that is to be published.
…The terms of reference of the Commission of Enquiry include looking into the causes, reasons, and circumstances leading to the deterioration of the financial conditions at CLICO, CLICO Investment Bank Ltd, British American Insurance Company (Trinidad) Ltd and Caribbean Money Market Brokers and HCU which threatened the interest of depositors, investors, policyholders, creditors and shareholders and the circumstances, factors, causes and reasons leading to the January 2009 intervention by the Government for the rehabilitation of the companies…
Some other views have been put to me, most notably by the editor of a leading newspaper, to challenge my assertions on CMMB, so one needs to go further.
Yes, it is now time to consider First Citizens’ Bank’s (FCB) 2009 Annual Report.
As to the post-bailout events, I am considering page 77 of FCB’s 2009 annual report and Note 1 to the accounts ‘General Information’ is giving me pause – the relevant paras are cited –
…The CMMB Group comprises CMMB Limited, CMMB Trincity and CMMB Barbados…Effective 2 February, 2009, the Bank assumed control of CMMB Securities and Asset Management Limited (CSAM)…
The meaning of that series of statements is unclear to me…FCB assumed control of the CMMB Group (which we are told has 3 parts) on 2nd February 2009. Ditto for CMMB Securities and Asset Management (CSAM)…is that part of the CMMB group or not? I am not at all clear on what, if any, is the difference in these companies.
But, apart from that note, the real meat of the matter is found at Note 39 on page 131 – ‘Business Combination’ – the opening para of which, in reference to CMMB, reads –
…The acquired business contributed revenues of $369.9 million and net profit of $91.9 million to the group for the period from 2 February 2009 to 30 September 2009…
The acquired business is obviously CMMB and that profit rate, at just about 25% of turnover, is below FCB’s overall 45.5% profit rate disclosed at page 73, in the Consolidated Income Statement.
The CSAM performance, disclosed on the next page of the same note, is less impressive –
…The acquired business contributed revenues of $3 million and net loss of $0.16 million to the group…
But the body of that Note is contained in its details of Net Asset Values, to quote –
…The details of the fair value of the assets acquired and arising from the acquisition are as follows…
The Fair Value of Net Assets for the two acquisitions is disclosed as being:
CMMB Fair Value
CMMB Carrying Value
CSAM Fair Value
CSAM Carrying Value
($187,444,000)
$74,949,000
$14,219,000
($14,218,000)
I abbreviated the table to show its headings and totals only.
Fair Value is the estimated market value of the assets and liabilities, with an adjustment for any ‘special purchaser’ advantages or disadvantages.
Carrying Value is what used to be called ‘Book Value’ – i.e. acquisition cost less any depreciation.
The largest negative entry in that accounting is Other Funding Instruments, disclosed at $5.464Bn. What were these?
Point being, that, even if we ‘net-off’ the two companies, these figures disclose a negative Net Asset Value of about $173M.
More to the point – which was CMMB’s state at the date of the bailout – the table in Note 39 also discloses CMMB’s cash and cash equivalents to be NIL at the time of the bailout. CSAM’s are disclosed to have been about $7.3M.
….The Group’s total assets were $27.8 billion as at the end of September, 2009 up $11.9 billion or 75%. This increase was mainly as a result of the acquisition of CMMB which accounted for just over $7.6 billion of the Group’s total assets…
I am unable to reconcile the contents of Note 39, which specify a negative Net Asset Value of at least $173M, with this statement as to the additional $7.6Bn in total assets.
The conflict in the narrative is evident even in the very CEO’s statement –
At page 13, we read –
…During the year, the most significant event for the Group was the acquisition of Caribbean Money Market Brokers (CMMB), the largest brokerage house in Trinidad and Tobago. The acquisition contributed to growth in assets, profits and funding…
Then, at page 14…
…we were called upon by the Central Bank to assist with the payments to depositors of CLICO Investment Bank (CIB) and to acquire CMMB, both of whose customers were seriously affected by the necessary interventions made by the authorities to stabilize the system…
How were the CMMB customers ‘seriously affected by the necessary interventions’?
Nothing in FCB’s 2009 Annual Report leads me to doubt my original conclusion as to CMMB’s collapse. I am sure more details will emerge during the Colman Commission, the Terms of Reference for which were again requested from the AG’s office this week.
But in fact more details emerge in the Business Guardian column of 16th December ‘First Citizens profits from Duprey’s CMMB‘. Two quotes from the First Citizens CEO will suffice –
“As far as First Citizens chief executive officer, Larry Howai, is concerned, the bank and the government together saved CMMB – ‘They would not have been able to continue in business much longer’”
“CMMB had serious impairment of between $1.6 and $1.8billion which would have had to to have been written off or provided for in some other way”
It would really be refreshing to have one of those CMMB chiefs (Ram Ramesh or Robert Mayers, maybe?) assist us in gaining a clearer picture of the events.
In summary, we have CMMB
reportedly with NIL cash balances as at the bailout
reportedly with a negative Net Asset Value
with its customers stated to be ‘seriously affected’
acquired by the State-owned bank
The terms of which acquisition include a secret guarantee for $1.8BN of presumably irrecoverable advances to its parent company
The subject of the oncoming Colman Commission
The big question for me is how come the chiefs of CMMB, a financial institution which is known to have failed on this scale, can be permitted to open another one? We are acting as if we have no capacity to learn from our errors. Just carrying on as though nothing happened. What is the role of the SEC and the Central Bank in all this? Have we learned nothing?
I certainly hope that my colleagues in the press are going to be as insistent and detailed on this matter as the circumstances demand.
Afra Raymond sits with hosts, Fazeer Mohammed and Felipe Nogueira on the Morning Edition television show to discuss the code of silence surrounding the CLICO bailout. Video courtesy TV6
The Code of Silence has formed the subject of several columns in this series.
I am referring to the unwritten agreement amongst the leadership group in our society to maintain silence in matters of white-collar crime. The guiding principle of the Code being that the members of that group must never be exposed to the same scrutiny and penalties as the common criminal.
That Code of Silence is poisonous to the progressive development of our society. Unless we can bury the notion that white-collar crime pays, our society is doomed to lurch from crisis to crisis. White-collar crime will never be truly challenged until the Code of Silence is tested to destruction. I welcome anything which would dismantle the Code of Silence. Literally anything.
The Commission of Enquiry into the various financial collapses which have beset us – Clico, British-American, Clico Investment Bank, Caribbean Money Market Brokers, the CL Financial group and the Hindu Credit Union – was announced by the Prime Minister in her 1st October address to Parliament.
On 17th November, Sir Anthony Colman QC was sworn in as the new sole Commissioner – he replaced the original choice – Sir Gavin Lightman QC, who had an apparent conflict of interest. The Secretary to the Colman Commission is Judith Gonsalves, who served the Uff Commission in that role. It is reported that Colman intends to hold open hearings and that those should start sometime in this month.
So, we are seeing three powerful channels emerging –
CIB winding-up action – ongoing litigation from National Insurance Board and National Gas Company to stop the Central Bank’s winding-up action. Those court actions have been set for hearing in April and the sum of money at stake is an estimated $1.8Bn.
Policyholders challenges – The various policyholders’ groups have now declared their intention to take legal action to recover the monies they feel are owed to them. The sum of money at stake in that series of actions is estimated to be $12Bn.
The Colman Enquiry – This is an overall, public investigation into the causes of the large-scale financial collapse as listed above. Given the continuing failure to produce the accounts, the total sums of money involved are unknown.
So, what is the likely effect of these lawsuits and the oncoming Colman Commission of Enquiry on the entrenched Code of Silence in our society?
To begin with, I expect a series of legal challenges to the very hearings of the Commission, with the likely grounds being the long-established principle that no person should suffer ‘double jeopardy’, in terms of two sets of charges to be answered. It will be an attempt to completely derail the entire Commission of Enquiry.
I would not be very surprised if certain state agencies also sought to shut the enquiry down. That would be a repeat of the unprecedented recent situation in which UDeCOTT went to court to challenge the Uff Commission.
The beneficiaries of the Code of Silence will make great efforts to avoid any deep examination of its members and the public needs to be alert to this point. There is absolutely no shame in that group and we should also prepare ourselves mentally for the ‘memory loss’ defence of the kind we saw from Hafeez Karamath in the recent Uff Commission.
After generations of operating unexamined, the very bowels of the society’s leaders are about to be opened up to a disgusted and skeptical public. The motivations, links and payoffs between these leaders are to be exposed to view. The exposure is going to be critical. Given the speed with which our legal system operates, the exposure is likely to be lengthy. Given the range of active media in our society, the details are going to be all over the place.
So, what is at stake here? What else can we expect, apart from legal challenges?
To begin with, I believe that the sums of money involved are several times more than in the Uff Commission. In addition, the slowing economy and the pattern of behaviour have set the public into a very critical mood.
In my view, these are some of the people we would see publicly cross-examined in the Commission of Enquiry and various lawsuits –
Lawrence Duprey
Most important of all, the Chief of Chiefs, Lawrence Duprey – Will he or won’t he show up for the many hearings? What can we expect to hear? Can Duprey offer an explanation for the shocking discrepancy between the $100BN+ asset valuation as at the end of 2007 and the $23.9Bn asset value he specified in his letter of 13th January 2009 to Ewart Williams? A mere 56 days separate the publication of those 2007 accounts – on 18th November 2008 – from Duprey’s letter, which has been hidden from view, despite my two Freedom of Information applications. The only reason we have some idea of this discrepancy – no…that is the wrong word, maybe staggering decline is better – is the anxiety of the then Minister of Finance to clear her name from allegations of Insider Dealing. That anxiety led the Minister to read this letter into Hansard on 4th February 2009.
Andre Monteil
Second most important of all, the Chair of Chairs, Andre Monteil – Monteil is now in retirement as a farmer and his testimony is surely one of the most awaited in recent times. As former PNM Treasurer, CL Financial Group Finance Director, Chairman of Education Facilities Company, National Housing Authority, then Housing Development Corporation and Clico Investment Bank, it is difficult to imagine a player who was more central. It is almost like a spy movie called ‘The Man who knew Too Much’.
Patrick Manning
Patrick Manning – When one considers the huge donations reportedly made by CL Financial to the PNM and the tangled web of this entire affair, it is difficult to see how Manning can escape serious, hard questions on many aspects. For instance, his 2002 decision to stop enquiries into HCU by then Minister in the Ministry of Finance, Conrad Enill, will surely be open to question. Manning’s recent bizarre behaviour might well be the beginnings of a defence. We will see.
Karen Nunez- Tesheira
Karen Nunez-Teshiera – The Minister of Finance who had to go to Parliament twice to attempt to clear her name in this matter. Firstly, from allegations that she withdrew her money from CIB early, having had inside information. Secondly, from allegations that as a CL Financial shareholder, she was biased in her dealings with the bailout, having failed to recuse herself from the discussions. Not one person I know, even blindly-loyal PNM-ites, is willing to openly defend the behaviour of Nunez-Teshiera. Not one. Imagine that. I think the phrase is “…A jury of one’s peers…” I wonder whether her Cabinet colleagues knew that the Minister was a shareholder? We won’t have to wait long.
Carl Hiralal
The Regulators – from both the Supervisor of Insurance, and the Inspector of Financial Institutions, Carl Hiralal. Just imagine the Supervisor explaining how Clico kept its licence all those years its statutory fund in serious shortfall. Or the Inspector justifying how CIB can fail to file its tax return and yet keep its licence. Mr. Hiralal must be considering his position most carefully at this point.
Ewart Williams
Central Bank Governor – Imagine Ewart Williams reconciling his several statements on Clico being a problem case since 2004, with his having two fixed deposits at CIB. Williams must also be having a few reflective moments.
The Directors – What is to be the position of the Directors of these failed companies? According to an affidavits filed in the Central Bank’s winding-up action, CIB made an undocumented loan with no interest rate or repayment period agreed. That loan was in the sum of $162M USD – yes, about $1.03Bn of depositors’ funds were lent to Angostura (a related party) with no documentation. It would be interesting to hear the Directors explain the degree to which that sort of advance is compatible with their fiduciary duty. It is important to note that the phrase fiduciary duty in this case refers to the obligation of those CIB Directors to act with the depositors’ interest as their first priority. But remember that CIB was wholly-owned by CL Financial. So, can one properly reconcile the fiduciary duties owed to depositors with those owed to the sole shareholder? It is a veritable conflict to be loaning depositors’ monies to the main shareholder, but that is why the loan agreements and credit committees exist. So as to provide safeguards against incautious loans, which can jeopardise depositors’ funds, so as to ultimately destabilize the bank itself, as in this case. There was no agreement. None at all. For a loan exceeding one billion dollars. All of the safeguards to balance the several duties of the prudent Director seem to have been ignored in this situation. Just imagine the Chairman who presided over the meeting of CIB’s Board which approved that loan, answering a series of critical questions, explaining just what they were doing dispensing with depositors’ funds in that loose fashion. I can scarcely wait.
The Auditors – The various PWC professionals who prepared and signed those audits. Will we see the release of the hidden accounts? How much longer can they remain concealed? There must be some quiet desperation creeping into Balisier House and PWC, just edging forward, along Victoria Avenue.
Robert Mayers
Robert Mayers – When he retired on 7th December 2008, did he or did he not know that Caribbean Money Market Brokers (CMMB) was heading for a financial collapse? Of course, we now know from the official statements that CMMB collapsed a mere 7 weeks after Mayers left office as its Managing Director. So, which is it to be? Is it that the collapse came like a bolt of lightening from a clear blue sky? Were there any warning signs? Do CMMB’s accounts give any clues?
Dr. Bhoendradatt Tewarie
Dr. Bhoendradatt Tewarie – He is former principal of UWI’s St. Augustine campus and now heads UWI’s Institute for Critical Thinking. Dr. Tewarie was a Board Director of the parent company, CL Financial, at the time of the collapse. Was he aware of Duprey’s letter to the Central Bank Governor, a mere 3 days before that Board authorized payment of a dividend to CL Financial’s shareholders?
The same characters and many of the same questions are in the HCU part of the story.
The members of that Code of Silence are probably considering how best to escape the consequences of their actions and inactions. It will be a truly unique Christmas season for some of them. There are probably not enough lawyers in the country to handle this tidal-wave of legal actions.
The stakes are huge and the burning question for me is – Can this be the first time that prominent people go to jail? Serious sentencing? Will any stolen monies be recovered?
Can the Code of Silence survive this challenge?
The Code of Silence must be destroyed if we are to progress.
We are now entering a bizarre endgame in this rounds of musical chairs. The children’s game has returned for us adults, but with a vengeance.
As I wrote on 10th September in this space, the real question is ‘When exactly did the CL Financial group collapse?’.
To understand this huge matter we need to put things in the correct order –
Firstly, the CL Financial chiefs left others holding the risks. Some dates and names, to support the theory –
L.A. Monteil – retired at the end of March 2008
M.A. Fifi – retired in August 2008
Robert Mayers – retired in December 2008.
What did they know and when did they know it?
Secondly, there was a series of large-scale, rapid withdrawals of funds which preceded the start of the bailout. That pattern of activity would have speeded-up the collapse. It would be very interesting to see details of who broke their deposits and failed to ‘roll-over’ in that crucial final stage.
Thirdly, post-January 2009, we have the massive payout of State funds, as detailed in the Guardian editorial of 25th October. Who was the recipient of those funds? Who benefited? On 1st October, the Prime Minister promised to publish that list and we await with interest.
Now, with the PP government taking the decision to review the bailout process, we have entered a truly bizarre stage of this matter. This is the part where all those trusting people who were told to wait and have faith, are realizing that the people in the know have already withdrawn and secured themselves. Some of those people in the know were the same ones who were telling the faithful to keep on waiting. What a thing.
There now appear to be at least four groups representing these investors –
The Clico Policyholders’ Group (CPG) – which is the most visible one with Peter Permell, Manny Lawrence and Norris Gomez etc.
The Clico Policyholders’ Protection Association (CPPA), which is the one with Harold Sookhan and Ramesh Lawrence Maharaj.
South Action Group – with Solomon Hem Lee
Denbow Group – a small number of Clico investors who are being represented by Dr. Claude Denbow SC.
Some of the positions being taken by the various groups are indicative of the degree of desperation of the parties, hence the title of this article. The general view emerging from these groups seems to be that the CL Financial group is basically healthy and profitable, so there should be no issue about returning their investment.
I do not know what those views are based on and it is impractical to continue basing our discussions on the series of rumours and draft reports and suchlike. We need good quality information to make a quality decision and that is not negotiable. We need to insist on that as a minimum.
After the first round of organizing and attorneys’ letters, followed by the Prime Minister’s important address on 1st October, we are now into what appears to be an even stranger place.
Two of the stranger proposals emerging from the CPG’s Port-of-Spain meeting on 24th October were –
Prem Beharry of the CPG was reported in the Trinidad Guardian to have said – “…Ryan ALM are saying they would take US$600 million and would convert it to the best debt instrument in the world which is US Treasury Bills,” Beharry said. “The Ryan ALM group is saying, within three months if they are engaged, they would be able to sell those bonds and get in cash of US$1.8 billion which is equal to the debt of TT$10.5 billion—that money would be used to pay all the policyholders…” That is literally too good to be true. It is the same approach that created this mess in the first place – both at the CL Financial group and Hindu Credit Union. It seemed to me that the CPG was recommending that the government put $600M USD of our taxpayers’ money into this scheme. Yes, I said scheme. Maybe if it was really so good they should have just accepted the discounted rates being offered in the budget and invested those funds with Ryan ALM. After one time is really two times, yes. I recently read that one Prem Beharry was appointed to the National Gas Company Board.
Another proposal, this one reportedly stated by Peter Permell, the CPG’s most prominent spokesperson was for the state to pay 40% immediately with the balance being payable in 5 to 7 years. The persons waiting for delayed payments would earn interest of 4-4.5% on those unpaid balances and also be entitled to a 51% share of any uplift in the value of sold assets. No, there was no proposal for those CPG members to share in any losses if assets had declined in value.
It may all just be a series of negotiating positions, but it seems pretty clear that no one from these various investors’ groups intends to take a discount or ‘haircut’ on the monies owed to them. The unstated assumption is that if someone has to stand the bounce or take a haircut, that someone must be the taxpayer. That could never be the correct position. So, we need the facts.
The most startling development is the Central Bank’s full page adverts on Thursday 28th October, repudiating the claims that it had offered any guarantees in this situation. The reaction was immediate, with the CPPA publishing large adverts in opposition the next day and a new anti-bailout group emerging for the first time – at last! The CPG’s response was a nadir in their campaign, with the Trinidad Guardian reporting that – “…Permell went on to say that they do not care where the Central Bank gets the money from once they guarantee the policyholders’ contracts…” – I could scarcely believe what was on the page before me. Even the most militant Trade Unionists use more reasonable language.
Which brings us right to the meat of the matter, the order of things. What is the reason that the investors’ groups are now at the front of the line for assistance from this government? I could be wrong, but it is easy to get that impression when one hears of Cabinet discussing the matter twice in one week, certain groups giving threatening timetables and so on. I do not know if our Cabinet – PNM, UNC or PP – has ever given such a total priority to any matter in the past.
There are other claims on the limited monies available to the State. All of those claims existed before these investors groups. All.
Many people have poor water supply. Outstanding payments to contractors and suppliers are in excess of $7.0Bn, according to Central Bank estimates. Insufficient money for OPVs – the estimated cost of $3.0Bn is too much for the country to bear, so national security is falling behind. More guns and drugs entering our homeland. Public Servants claims are about $3Bn and that is also a strain on the Treasury. Not enough police cars. Sad situation in the public hospitals.
The CPG issued a 2 page advert in the Guardian on Thursday 4th November and it deserves careful reading. It was good to see their call for the publication of the correct financial information before making a decision. They set out their proposals for the relief of CPG members – those are the latter of the two above, with the added condition that they be given two seats on the boards of CL Financial and Clico.
The CPG claims that its proposals place no additional burden on the taxpayers, which is a good thing, if that is truly so. The CPG’s proposals are silent as to how the monies already spent are to be recovered.
The real test will be if the accounts and asset valuations reveal the group to be insolvent. Will the various investors’ groups accept that or are we in for a long, bitter fight?
SIDEBAR: The Commission of Enquiry
The Attorney General recently announced that he had withdrawn Sir Gavin Lightman QC as the sole Commissioner, due to an apparent conflict of interest. Lightman had appeared for Clico in a 1991 court case and the PNM did well to have stopped this before it went too far.
Two important further points, though –
Firstly, this is the second such occasion. In the first case, the Commission of Enquiry into 1990 was announced with retired Appeal Court Judge Mustapha Ibrahim as its chair, until he pointed out that he too had a conflict of interest. There needs to be some more care taken on this count.
Secondly, the terms of reference need to be qualified, since the AG was reported to have said that “…The COI, he said, covers CL Financial, Colonial Life Insurance Company (Clico), Clico Investment Bank, British American Insurance Company and the HCU…” Having been frustrated in my efforts for the past fortnight to get confirmation of the Terms of Reference from the AG’s Ministry, I am forced to rely on press reports. Question being, why is CMMB being omitted?
Throughout this series of articles on the CL Financial bailout I have touched on the existence and effect of a Code of Silence amongst our ruling elite.
This is sometimes called the Information Age, with the latest news and ideas being ‘pinged’ or ‘tweeted’ across the Social Networks. The new reality demands a complete shift in our attitudes to information. Our leadership class has blatantly refused to share their information and insights at moments of crisis, which shows the challenge facing us if we are to progress. Just to give two examples, think of the many secret reports from all the Commissions of Enquiry before the Uff Commission and the steadfast refusal of our political leaders, for many years, to even consider a Commission of Enquiry into the Coup. It is widespread and literally sickening to all right-thinking people.
We have had a new start and some reason to hope for change, by the PP government’s appointment of Commissions of Enquiry into the 1990 Coup and the financial collapse (CL Financial and Hindu Credit Union).
Even now, alongside those hopes, the new government has still not published the Bernard Report into the Piarco Airport Project.
Despite the progress, we cannot be complacent, the slope is slippery and the stakes are high.
The Code of Silence is deep and powerful in the case of the CL Financial bailout.
On 3rd October, I set out a few of the failures on the part of the regulators. Those failings are real and serious, but sometimes a shift in focus can be beneficial.
If we look beyond the legally-empowered regulators, there are other informal ‘regulators’ upon whom society relies to make decisions. Those would include Civic Society Organisations, Trade Unions, Institutions of Higher Learning and Professional Bodies. Society has been able to rely on these because they are seen to represent collective knowledge and insight, rising above individual interests to attain broader perspectives.
Those bodies, with one notable exception, have been silent throughout this CL Financial fiasco and have failed the broader society in this colossal matter. I am being forced by these events to re-examine my fundamental assumptions on the degree of our reliance on these bodies. This is the real nadir of corruption, when we seem to have lost our way in the long grass and we not even talking about the politicians and so on. This one is not about them. It is about us and our feet of clay.
Let me explain –
Law Association – This is one of the leading Professional Bodies and their silence has been deafening. The President of the Law Association is former Independent Senator, Sunday Express columnist and eminent Senior Counsel, Martin Daly. Daly is widely regarded as a fearless and irreproachable voice on many matters.
The tangled web in this CL Financial bailout has included early withdrawals, overlapping Directorships between depositors and bankers, payment of dividends after asking for state financial assistance, misleading negotiating positions taken by the CL Financial chiefs, a huge zero-interest payout to the CL Financial chiefs which left their shareholdings intact, attempts to sell assets in breach of the MoU. Most of all, the serious and inescapable conflict of interest of the then Minister of Finance, who is an attorney – every single attorney I have spoken with agrees that this was a clear case of conflict of interest.
Yet, not a word from the Law Association. Am I alone in expecting any better?
Institute of Chartered Accountants of Trinidad & Tobago (ICATT) – The entire collapse is shot through with a failure of accountants at several levels and yet this professional body has been silent on all this. After ignoring my open letter and other attempts to start some dialogue on this, Anthony Pierre, ICATT’s President, agreed to appear on a TV interview with me on CNMG. That interview was broadcast on Sunday 26th September 2010 – it can be viewed at http://wp.me/pBrZN-qW – in the ‘Sunday Morning Politics’ slot. When I put the question to him as to the errors and/or omissions of the professional accountants in this huge collapse, Pierre took the position that there was no cause for concern. I do not accept that position, but of course the Commission of Enquiry and hopefully the publication of those long-overdue accounts will shed some more light.
University of the West Indies (UWI) – There has been very limited engagement from UWI on this matter, which is a pity when one considers that the areas of study there include economics, finance, law, business management and accounting.
Of course, the former Campus Principal and now Director of UWI’s Institute of Critical Thinking is Dr Bhoendratt Tewarie, who was also a member of CL Financial’s pre-collapse Board. That is the same Board which approved payment of a dividend 3 days after CL Financial’s Executive Chairman wrote to the Central Bank for urgent financial assistance. Dr Tewarie is also reported to have been at the final Annual General Meeting of CL Financial, held at Trinidad Hilton on 23rd January 2009. The timing couldn’t be better for a report to shareholders – after all, the Central Bank had been written to 10 days before, the dividends approved a week before and the bailout itself was just 7 days away. So what happened at that AGM? Were shareholders given an honest report from the custodians of their capital?
The late Professor Dennis Pantin did write several times on the CL Financial collapse and bailout in his Sunday Guardian column. Dennis made the early call for a Commission of Enquiry into this entire mess and that has now been acted upon.
Sen. Dr. Patrick WatsonAnother UWI figure in the whole mess is Dr. Patrick Watson, who is Professor of Economics and Director of the Sir Arthur Lewis Institute for Social and Economic Studies (SALISES). Professor Watson is a government Senator in the current Parliament, who after maintaining his silence on this economic catastrophe since January 2009, has now become most vocal since the budget speech.
Is a straight case of nearer to Church further from God.
Trade Unions – The two groups which one can normally expect to have a public position on these long-term, large-scale issues are the Oilfields Workers’ Trade Union (OWTU) and of course, the Federation of Independent Trade Unions and NGOs (FITUN). Neither of those bodies rose to the challenge and we are the poorer for it.
Trinidad & Tobago Transparency Institute (TTTI) – Yes, the TTTI did make a strong statement calling for improved accountability in the bailout process. That is a Civic Society body doing its job.
What really happened?
But apart from us in the Civil Society, there is another level of the Code of Silence being practiced in that some of the very people who were in charge of this huge crash have rejoined public life, saying nothing about the crash.
They have been recycled. Yes, I know that recycling is good, but this one is toxic.
Caribbean Money Market Brokers (CMMB) – Robert Mayers was the former Managing Director of CMMB, who retired on 8th December 2008 – see http://legacy.guardian.co.tt/archives/2008-12-09/business2.html – which is less than two months before that company collapsed. Mayers is a most articulate and willing public speaker, who was recently discussing the national budget on the electronic media.
We have heard nothing from Mayers on how the collapse presented itself and there is no concerted attempt to pass on any lessons learned to a younger generation of citizen.
Clico Investment Bank (CIB) – CIB was chaired by Mervyn Assam, recently appointed as a Special Ambassador with responsibility for Trade and Industry. Faris Al-Rawi, attorney-at-law, was a Director on that Board and he is now a PNM Senator.
Neither man has made any attempt to publicly explain CIB’s shocking insolvency, which was estimated by the Central bank to be of the order of $4.7Bn.
All those people appear to have been anointed, in what must have been a private ceremony, then re-presented as ready to serve. We deserve no less than a proper explanation from these Directors and Officers and I was pleased to see PNM Senator Penelope Beckles recently joining me in calling for them to be questioned publicly.
The case of AIC Finance Ian Narine, writing in the Business Guardian on Thursday 14th October – http://guardian.co.tt/business/business-guardian/2010/10/14/there-enough-everyone – attempted to point out the way he had tried to warn the investing public on the perils of CL Financial. That column made interesting reading, but what would be the position of the press if any such situation were unfolding right now?
In the last part of September, AIC Finance has been advertising surprisingly high rates of interest in daily newspaper adverts which also offer ‘Preferential rates to Trinidad & Tobago Association of Responsible Persons (TTARP) members’.
COMPARISON TABLE for 12-month fixed deposit rates for amounts up to $500,000 as at 30th September 2010
Financial Institution
Range of interest rates
First Citizens’ Bank
1.25% to 2.1%
RBTT
0.2% to 1.45%
Scotiabank
Up to 0.75%
Republic Bank
0.30% to 0.75%
Unit Trust Corporation (Money Market Fund)
2.15%
First Citizens’ Bank Abercrombie Fund
1.90%
Fidelity Finance (part of the Maritime group)
1.8%
AIC Finance
4.25%
If CL Financial could not sustain this strategy, how can AIC continue to offer these rates in today’s market?
That is the question.
According to recent press advertisements, the Board of Directors of AIC Finance Limited comprises –
Michael Montrichard
Krishna Narwani
Clarry Benn
Robert Almeida
Hugh Williams
Myrnelle Akan
Hugh Edwards
If you think this title is for the latest brand of household cleaner, you would be wrong. I drew that title from the famous statement by deceased US Supreme Court Justice Louis Brandeis, in reference to corruption and fraudulent dealings: ‘sunlight is said to be the best of disinfectants.‘
The audited accounts for CMMB for 2006, 2007, 2008 and 2009 were obtained from the SEC. They allow a view of CMMB’s financial affairs for the 5-year period 2005 to 2009. I have included some selected ratios drawn from those accounts.
The JMMB (Jamaica Money Market Brokers) element. But then also we need to consider the sidebar item on the acquisition by CL Financial of the JMMB block of shares in October 2008. What could have been the rationale for CL Financial to spend $262M on securing its ownership of a company that was about to fail? No doubt that would have been a period of considerable cash-flow pressure within CL Financial itself, so it does seem to be a bizarre decision. Given all of those elements, why would CLF pay such high multiples to buy the remaining shares in a failing subsidiary? This is one of those intrigues which makes me wonder whether there was more in the mortar than the pestle, so to speak. Given that the purchase of the JMMB shareholding was only 3 months before Duprey wrote that fateful letter requesting financial assistance,what was CLF’s rationale? Could there have been a prior agreement as to the price to be paid for those shares? Was a valuation of those shares ever done? If so, by whom, on what assumptions and with what result?It seems that a huge sum of money (over $260M, by my calculations) was drawn out of the collapsing parent company, on what was virtually the brink of the meltdown, to buy the remaining shares in yet another collapsing company. It is staggering to conceive of a situation in which a financial company could spend over $260M without such elementary due diligence, which is why this aspect is an important one. At the very least, the quality of judgment of the CL Financial chiefs seems suspect. Could it be that the reporting systems of the group were so poor as to be unable to foresee the impending collapse at either the group or CMMB level?
…The CMMB Group comprises CMMB Limited, CMMB Trincity and CMMB Barbados…Effective 2 February, 2009, the Bank assumed control of CMMB Securities and Asset Management Limited (CSAM)…
The Auditors – The various PWC professionals who prepared and signed those audits. Will we see the release of the hidden accounts? How much longer can they remain concealed? There must be some quiet desperation creeping into Balisier House and PWC, just edging forward, along Victoria Avenue.
Throughout this series of articles on the CL Financial bailout I have touched on the existence and effect of a Code of Silence amongst our ruling elite.
This is one of the leading Professional Bodies and their silence has been deafening. The President of the Law Association is former Independent Senator, Sunday Express columnist and eminent Senior Counsel, Martin Daly. Daly is widely regarded as a fearless and irreproachable voice on many matters.
The entire collapse is shot through with a failure of accountants at several levels and yet this professional body has been silent on all this. After ignoring my open letter and other attempts to start some dialogue on this, Anthony Pierre, ICATT’s President, agreed to appear on a TV interview with me on CNMG. That interview was broadcast on Sunday 26th September 2010 – it can be viewed at http://wp.me/pBrZN-qW – in the ‘Sunday Morning Politics’ slot. When I put the question to him as to the errors and/or omissions of the professional accountants in this huge collapse, Pierre took the position that there was no cause for concern. I do not accept that position, but of course the Commission of Enquiry and hopefully the publication of those long-overdue accounts will shed some more light.
There has been very limited engagement from UWI on this matter, which is a pity when one considers that the areas of study there include economics, finance, law, business management and accounting.
The two groups which one can normally expect to have a public position on these long-term, large-scale issues are the Oilfields Workers’ Trade Union (OWTU) and of course, the Federation of Independent Trade Unions and NGOs (FITUN). Neither of those bodies rose to the challenge and we are the poorer for it.
Yes, the TTTI did make a strong statement calling for improved accountability in the bailout process. That is a Civic Society body doing its job.
Robert Mayers was the former Managing Director of CMMB, who retired on 8th December 2008 – see http://legacy.guardian.co.tt/archives/2008-12-09/business2.html – which is less than two months before that company collapsed. Mayers is a most articulate and willing public speaker, who was recently discussing the national budget on the electronic media.
CIB was chaired by Mervyn Assam, recently appointed as a Special Ambassador with responsibility for Trade and Industry. Faris Al-Rawi, attorney-at-law, was a Director on that Board and he is now a PNM Senator.
Ian Narine, writing in the Business Guardian on Thursday 14th October – http://guardian.co.tt/business/business-guardian/2010/10/14/there-enough-everyone – attempted to point out the way he had tried to warn the investing public on the perils of CL Financial. That column made interesting reading, but what would be the position of the press if any such situation were unfolding right now?
In the last part of September, AIC Finance has been advertising surprisingly high rates of interest in daily newspaper adverts which also offer ‘Preferential rates to Trinidad & Tobago Association of Responsible Persons (TTARP) members’.
A version of this commentary appeared in print on October 17, 2010, on page A31 of the Sunday Guardian.
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