Tag: conflict of interest

Sagacity and Veracity

The sheer rash of recent events, many of them contradictory, make it necessary to draw the connections between the emerging fiascos at both CL Financial and UDeCOTT.

The CL Financial crisis concerns every citizen, whether or not you had any funds invested there.  Indeed, given the scale of the fall-out, it seems that every Caribbean citizen ought to be concerned as well.  CL Financial was a trail-blazer in too many ways for this column to encompass and their problems are, in every way, also ours.  Just to show two ways, think firstly of the thousands of employees and other stakeholders who are affected by the unfolding crisis, then think of the way this episode is affecting the already poor levels of investor confidence.

The challenge at these times is to see what lessons we can usefully draw from the revelations thus far.  Yes, I am going to make a link between CL Financial and UDeCOTT and no, I am not going to make any comment on HCU.

About half of the nation’s insurances reside with the CLICO group.  CLICO’s agents were all trained to speak about the range of impressive assets which were owned by the CL Financial group – the Methanol plant, US and local real estate, Republic Bank Limited, the Home Mortgage Bank, lucrative Liquor brands and so on.  We all knew CLICO agents and have heard the lyrics.  But, as we have now found out, the decisive thing was the extent to which those various impressive assets were used for collateral and the way in which the parts worked together.  It seems that the actual returns on these investments were less than those originally anticipated.  So much so, that the liabilities eventually eclipsed the assets.

Point being that ownership of assets is necessary, but not sufficient, to add value to a portfolio.  The decisive aspect is the way in which those assets and liabilities are matched.  The related question being how much latitude to manoeuvre would the group have if times changed.

It seems to me that there are 3 aspects of the CL Financial fiasco to be highlighted in order to see the picture.

  1. The large-scale ‘Act of God’ events such as the fall in methanol prices, the stock/finance collapse and the declines in the real estate markets which no one corporate group could avoid.
  2. The viability of the business model and the emerging issues on the Statutory Fund.
  3. The struggle to retain selected assets for the CL Financial group by the corporate leadership.

UDeCOTT is the subject of the Uff Commission and we have learned that they have carried out a feasibility study on only one of the many office buildings they are responsible for erecting.  That feasibility study is itself discredited by the fact that the land was omitted.  It is true that our capital city is being greatly altered by the many commercial projects done by UDeCOTT, but the fact is that none of the projects are feasible and all of them are financed by US$ borrowings.  There is no doubt that this represents a great tranche of investment, but what is the rate of return?  Can anyone say?  Is the interest rate greater than the rate of return?

These are object lessons in hubris and the social costs of empire-building.  There are benefits to be sure, but we are witness in both cases to agendas to privatize the benefits and nationalize the losses.  It is particularly important at this point to guard against attempts to confuse us by blaming the respective fiascos on the large-scale events mentioned above.  In both cases we need to separate the ‘Acts of God’ from the imprudent and improper acts for which the public now has to pay.  Those events did indeed take place but it does seem that their impact would have been reduced, had proper prudent procedure been followed.

Commission of Enquiry

There have been calls for a Commission of Enquiry from Mary King, Dennis Pantin and Ramesh Lawrence Maharaj.  I support those calls.

It is not ‘every Monday morning’ that one can have a Commission of Enquiry, but we need to know what happened if we are to prevent a repetition of this fiasco.  This is a ‘bail-out’ in excess of $10Bn, which is a colossal sum at any time.  This is historic and we need to enquire vigorously into the causes of the collapse.  We constantly hear of our aspirations towards regional leadership, particularly in the finance arena.  We cannot learn from this fiasco unless we know what went wrong.

Just two questions could illustrate the issues –

  1. In light of the obvious insolvency, when exactly did CIB and CLICO stop soliciting investments?  This one is almost personal because I spoke, along with two other panelists, at CIB’s inaugural Investment Seminar at the CL Duprey Box at the Oval on Thursday January 22nd.  Yes, that’s right, the official version is that  “…on January 13 2009, Clico’s Chairman formally raised the issue of possible financial assistance from the Central Bank…”
  2. Did CL Financial pay dividends to its shareholders in January 2009?  CIB is wholly-owned by CL Financial (CLF) and CLICO is about 98% owned by CLF.  If CLF had to write on 13th January seeking urgent assistance from the State it is obvious that the parent company was unable to meet the looming obligations.  That is a situation tantamount to insolvency and one can only wonder if it is true that a dividend was paid in these circumstances.  As is my practice, I am sticking to the facts and not indulging in innuendo or ole talk.  I have myself seen the Minister of Finance’s name on the register of shareholders for CL Financial Limited as filed on 17th February 2009.  What a thing.

The CL Financial Fiasco contains lessons at all levels and these would include –

  • the type of regulatory framework
  • the independence, degree of discretion and diligence of the regulators
  • the culpability of Directors and Executives.

There are many solid and troubling accounts of the last days which would emerge during a Commission of Enquiry.

SIDEBAR: An easy guide to the CL Financial and UDeCOTT Fiascos

Six quick pointers for our readers –

  1. Ambitious Empire-building – Huge and dazzling development is envisaged and implemented.
  2. Other peoples’ money – Use of either taxpayers’ or investors’ monies as ‘seed capital’.
  3. Excessive borrowings – Make sure to borrow for the majority of the costs.  As we are discovering in the CL Financial case, assets have been heavily pledged – i.e. borrowed against.  In the case of UDeCOTT, most of the massive borrowings are in $USD with the situation tantamount to the taxpayer having given a blanket guarantee.
  4. No cogent planning or feasibility checks – Independent professionals of integrity are marginalized or erased from the script.  Witness the long-overdue audits of both CLICO and UDeCOTT, usually a sign of some adverse news.  CLICO’s 2007 audited accounts were only issued in November 2008.  On 28th January 2009, UDeCOTT’s Executive Chairman told the Uff Commission under oath that “…my understanding is that probably before the end of next week we shall have our 2007 accounts…”.  The plain meaning of that statement is that those accounts would have been ready a month ago.  No accounts yet.  The silence and its implications are equally concerning.
  5. Real Profits? – Is it possible for CL Financial to pay dividends at the same time as writing to seek the State’s urgent financial assistance?  How could UDeCOTT be employing commercial strategies and declaring improving profits as a property-development company, if every one of their projects is not feasible?  As usual, the figures will reveal a lot to careful readers.
  6. Strategic Agenda – The common agenda is to privatize the benefits and profits while being careful to nationalize the losses.  We reject that agenda.  Moral hazard has to be upheld as a reality if we are to develop a progressive nation.

An Unhealthy Choice

Sen. Michael Annisette. Photo courtesy TTParliament.org
Sen. Michael Annisette

I was perturbed to read in the press that our President had selected Mr. Michael Annisette to serve as an Independent Senator in our next Parliament.

Apart from his well-known role as head of the SWWTU, Mr. Annisette also sits on the Boards of the Urban Development Corporation of Trinidad and Tobago Limited (UDeCoTT), the Trinidad and Tobago Mortgage Finance Company Limited (TTMF) and the Vehicle Maintenance Corporation of Trinidad & Tobago Limited (VEMCOTT).  These 3 Directorships are in significant State-owned enterprises and it is a widely-held view that such appointments, especially to those who are not experts in the relevant fields, are only offered to those in political favour.  To put it plainly, one would hardly expect to see UNC or COP members, however expert, on State Boards under a PNM administration.

Whatever its latent defects, one would have to agree that an important part of our Parliamentary health is derived from our Independent Senators.  At this time, with national concerns on constitutional reform looming large, it is vital that we have a vigorous, outspoken and articulate cadre of Independent Senators.

It raises serious questions as to process that our President was able to use his power to nominate Mr. Annisette.  Of course one expected that Mr. Annisette would have resigned his Directorships of those State enterprises before his swearing-in as an Independent Senator, but that is the central issue.  We were then being asked to accept that an individual who was loyal to the party in power, to the extent of gaining those sought-after appointments, would have, upon taking the oath of office, become an Independent Senator.  Even a tolerant nation such as ours has its limits.

I recently read a story in the Express of 29th December headlined ‘Independent Senator resigns as EBC commissioner’ and the first paragraph deserves repetition – “After accepting the President’s request to serve on the Independent Bench in the Senate, Independent Senator Corinne Baptiste-McKnight has resigned as a Commissioner on the Elections and Boundaries Commission.”  Imagine that.  The Chairman of the EBC, Dr. Norbert Masson, was quoted as saying “She did the right thing”.

We are witnessing the slow erosion of unwritten standards of public life in so many worrisome ways and here is yet another such.  We are now being asked to believe that it is possible for an individual to serve on the Board of 3 State-owned companies and also serve as an Independent Senator.  The Express story mentioned above states that Mr. Annisette was still a Director of those State-owned companies.  There has been no denial, retraction or correction to my knowledge.  This is an utterly unacceptable state of affairs in my view.

Consider the nature of the Independent Senators in our Parliament.  Andy Johnson wrote a column entitled ‘One of the President’s men’ in the Express of 20th December 2007 and it makes interesting reading since he mentions that a known CoP supporter is now amongst the ranks of our new Independent Senators.  Johnson did not name the person but said that the other 2 parties in the Parliament knew of his affiliation and hinted that this could become controversial.

Given the way in which distractions are used in our country, we need to reflect with the necessary degree of seriousness on all this to properly distinguish these 2 cases.  The lower House of our Parliament is made up of Members elected nationally.  The upper House is comprised of the Senators selected by the PM, the Leader of the Opposition and the President.  They are allowed to nominate sixteen, six and nine Senators, respectively.  The party in power and the opposition are represented in both Houses of the Parliament.  But our constitution implicitly recognizes that these 2 elements alone cannot be enough, hence the third group of Senators we have come to call Independents.

For our President to nominate a Senator who comes from within the ranks of PNM or UNC loyalists seems contrary to the spirit of the constitution.  In contrast, the ranks of our Independent Senators is an appropriate place for supporters of ‘third parties’ together with other matured, expert and committed citizens.  We expect our Parliament to be a place in which major policy issues are debated and settled, but the reality is much different.  The decisive issue here is whether we have the vision and will to stop practices which further dilute the authority of our Parliament.

To challenge or remove the so-far-unnamed CoP supporter in the ranks of Independent Senators in this 9th Parliament will do violence to the spirit of the Constitution.  To allow Mr. Annisette to continue as an Independent Senator while holding 3 Directorships in State-owned companies is to invite ridicule and disrespect.  Even if he were to resign those Directorships now, one is bound to ask, ‘What next?’

It would be wicked to repeat here the scandalous suggestions I received in discussing this question with various people.  Out of some latent regard for the little respectable that is left, I will just say that there are still ways to deal with this unpalatable situation.

The President’s selection of Mr. Annisette was questionable.  For an Independent Senator to continue in his roles as Board Director of 3 State companies is completely unacceptable.  Due to the constitutional immunity extended to that office, it is impossible to legally challenge any of the President’s decisions, so one is forced to take action in the Court of Public Opinion.  Our President should himself take the necessary corrective action now.  He has the power, under Section (43) (2) e of our constitution, to declare Mr. Annisette’s seat vacant.

The silence of the UNC-A and CoP on all this is damning.  It would be interesting to see what views are expressed by other concerned citizens.  The peril we face is Civil Obedience.  Public apathy and cowardice are as corrosive to the health of our Republic as the menace of crime.