Tag: corruption

The Uff Commission – Foundation Failure?

Last week’s Property Matters ended on the note of predicting that ‘amazing scenes would be witnessed’ and here they are, in spades.

The shocking news that the Uff Commission has been functioning in breach of the Commissions of Enquiry Act could only increase the cloud hanging over these proceedings.  From the outset, there have been questions as to the underlying purpose of the Enquiry; the behaviour of UDeCOTT’s and Calder Hart’s attorneys; the continuing probe into the Cleaver Heights housing project and the official silence on the Bob Lindquist findings, to name just a few.  This latest news that the Enquiry was ‘stillborn’ is likely to increase these concerns and deepen the atmosphere of public scepticism.

A key part of my concern is with the official version, which has recently taken root, that the Enquiry must be completed and its report considered by Cabinet, before any possible criminal charges can be laid.  That is a most alarming informal statement that the police are under the direction of Cabinet.  If that is really the case, we are seeing two detrimental things at once.

Firstly, the reason why the vast majority of the Commission’s time has been spent on matters better explored by the Police Service and the Courts.  That focus on investigating alleged illegal acts has denied the Enquiry the time necessary to probe the broader strategic issues which underlie the performance issues in the public-sector construction industry.  To have made a difference, the greater part of the Enquiry’s time should have been spent on probing the decisive issues of project selection, ranking, costs, quality and delivery.  Even if all the wrong-doers are found guilty and punished by the Courts, we have not, in my view, made a proper enquiry into the failures of process that got us into this mess.  If we did not ask the right questions, there is no way we can do better.

Secondly, we are being told, in not so many words, that unless and until the Cabinet approves such, no one is to face criminal charges.  To my mind, that is plainly wrong and could only undermine our progress to ‘developed nation status’.  Despite the stated goal of modernity, we seem to remain in thrall to Sacred Cows.  How to escape the culture?

I was present on Monday morning (7th September) at the press conference held by Professor John Uff, the Chairman of the Enquiry.  The text of his prepared statement can be accessed at http://www.constructionenquiry.gov.tt/News/Professor-Uff-s-Press-Statement-09-07-09.aspx.

Despite several questions, Professor Uff, declined comment on what could be the cause of this failure to properly establish the Enquiry on a legal footing.  It seems that the fact that the Uff Commission was not published in the T&T Gazette only emerged on Friday 4th September and Professor Uff told us that he was only told on Saturday afternoon.

The Uff Commission was a remarkable spectacle, even by our unique standards.  I have never seen so many lawyers in one room and it did make me nervous from the start, for whatever reason.  Two of the original Commissioners and the head of the team of legal advisers to the Enquiry are silk and there was an impressive roll-call of other silk representing their clients –

  • Frank Solomon, appearing for Calder Hart;
  • Russell Martineau (former Attorney General), appearing for NIPDEC;
  • Deborah Peake, appearing for the Housing Development Corporation;
  • Gilbert Peterson, appearing for Dr. Keith Rowley MP;
  • Douglas Mendes, appearing for the Attorney General;
  • Alvin Fitzpatrick, appearing for the JCC;
  • Andrew Goddard, appearing for UDeCOTT.

I am finding it very difficult to believe that so many learned colleagues missed this legal oversight and one has to wonder when it was really discovered.  I leave that there.

What is the solution?  By now, we have heard the conflicting opinions as to whether a retrospective ‘gazetting’ of the Enquiry can imbue it with legality and whether a ‘Validating Act’ of Parliament can have better effect.  However you look at it, there is no doubt that the decisions on what, if anything, to do and how to do it, are for the government to make.  That is where the whole situation gets fascinating, since this new twist to the Enquiry is both an opportunity and a threat to the government.

Throughout this process our PM has been unswerving in his support of UDeCOTT as a flagship State Enterprise, doing outstanding work on the road to ‘developed nation status’.  In his historic address to the Senate on 13th May 2008, the PM was absolutely clear that his government has nothing to hide and further, that he was confident that any Enquiry would vindicate their faith in UDeCOTT.  Considerable political capital has been invested in supporting UDeCOTT and the stakes are clearly very high.

At this point, cynics might say that the Enquiry has uncovered troubling issues in the operation of UDeCOTT, which must have been of growing concern to the PM, given his earlier declaration of faith.  One could even go further to say that the recent discovery of this legal oversight would give a nervous government a handy way to thwart what could have been a damaging report.

I have another view.  It seems to me that the PM’s declaration of support was an unmistakable statement of integrity and purpose.  It would be impossible to resile from that position without inflicting deep damage to ones own notions of integrity in public life.  I cannot easily imagine our PM leaving this situation to fester without ensuring that the necessary legal steps are taken to ensure the Enquiry’s legality and proper completion.  It would be an ‘own-goal’ of shocking proportions and it seems to me very doubtful that the PM would allow that outcome.

Which leads to the dreaded possibility of the ball being ‘kicked into the long grass’.  Yes, I am referring to the probability of this entire Enquiry descending into a legal mangle of epic proportions.  Professor Uff did say that he was trying to have the issues resolved by agreement.  Given the atmosphere at the Enquiry, I am doubtful that an agreement between the parties is possible, or indeed, even desirable.

I have taken the unusual, and possibly unwise, step of making a political prediction in this column and yes, only time will tell.

SIDEBAR

I am happy to admit my error in last week’s reference to V.S. Naipaul’s classic phrase – ‘…amazing scenes were witnessed…”, it is, of course, from the ‘House for Mr. Biswas’, not ‘Miguel Street’.  I must have been thinking of busy men eternally building a series of mysterious things until the police arrested them.  The small boy would ask the busy men – “What all-you making?” and he always got the same enigmatic reply “We making the ‘thing-without-a-name…”

Afra Raymond is Managing Director of Raymond & Pierre Limited.  Comments can be sent to afra@raymondandpierre.com

The Uff Commission – The Final Chapter

After a necessary and prolonged pause to review other matters of public interest, Property Matters returns to the high-profile Uff Commission as its final hearings are set to begin on Monday 7th September.

This series of hearings was not a part of the original agenda for the Commission of Enquiry.  It was only announced at the close of its last sitting in May that the Commission would sit again to hear further evidence on the Cleaver Heights project and the testimony of Mr. Carl Khan.

I already wrote here on 18th January 2009 of the vigorous stand taken by UdeCOTT’s and Calder Hart’s attorney in the early stages of the Enquiry.  At the time, I was very critical of their stance – “…It is difficult to imagine a less-cooperative or more disdainful stance from a party under investigation…”

In their latest sally on 24th July, these attorneys issued a 12-page letter to the Uff Commission, challenging the impartiality of the Commissioners.  That letter made allegations against Israel Khan, Keith Sirju and the Chairman, Professor John Uff.  It ended by calling for all 4 of the Commissioners to recuse themselves.  Ours is a country which can guarantee a daily surprise, but this one took the prize.  UdeCOTT was continuing to resist the lawful investigation being undertaken on behalf of its owners, the people of this country, as represented by their government.

There were reports on 6th August that the Board of UDeCOTT was instructed to withdraw those legal threats.  http://www.trinidadexpress.com/index.pl/article?id=161513988 UDeCOTT withdrew those threats, albeit conditionally.  UDeCOTT placed full-page advertisements in the press to deny the statement by Dr. Keith Rowley that they were attempting to ‘de-rail’ the Uff Commission.  The threat of legal action by UDeCOTT and its rapid withdrawal is indicative of a deep divide between the Cabinet and this flagship State enterprise.  It is the only way to make sense of the UDeCOTT Board’s incredible decision to attempt to thwart the government-appointed Commission.  The published denials made no sense at all.  You really have to wonder how many people believed UDeCOTT’s assertions that they were not trying to ‘de-rail’ the Uff Commission.  Then on 11th August, Israel Khan SC, resigned.

There have now been further attempts by UDeCOTT’s lawyers to dislodge Commissioner Kenneth Sirju, with allegations of conflict of interest.  The Commission is trying to overcome those objections by seeking consensus on the Cleaver Heights part of the session and that is expected to be decided on Tuesday 2nd September.

The main issues arising at this stage are –

  • The local limits of integrity standards – The accusations of conflict of interest made against Commissioner Sirju seem to suggest some real limits as to the extent to which we can effectively import first-world norms as to integrity and conflicts of interest.  We need to develop our own effective norms on integrity in public affairs, but, in this case, the deciding factor would be the declarations made by Commissioner Sirju.
  • Cleaver Heights – Apart from the turbid result of the Enquiry into the ‘missing money’, there are two serious side-effects of the Cleaver Heights saga.  Firstly, the inimical effect of the State seeming to target a perceived critic/rival of the PM.  In my view, that widespread impression of the State targeting Dr. Rowley is toxic to our nation developing healthy habits of public debate and dissent.  Secondly, the fact that we seem to have become distracted by Cleaver Heights and lost the opportunity to delve into substantive questions on the poor output of the national housing program.  As stated in Property Matters of 25th January, the HDC is producing less than 50% of the reduced annual target of 8,000 new homes.  The Uff Commission was appointed to enquire into the public sector construction industry and it is now drawing to a close with no time spent on this strategic shortfall.  That is a real shame.
  • The personal aspect – I have never encouraged any discussion or interest in the personal lives of the key players in this Enquiry, notably Calder Hart and his family.  To my mind, that was just sheer bacchanal which distracted from the main issues of poor process.  That said, and having heard much of the evidence, it would be interesting to see if there is indeed any ‘fire’ here, amidst all the ‘smoke and mirrors’.
  • UDeCOTT’s accounts – It is impossible to enquire into the operations of a commercial company without considering its financial situation.  On 28th January, the CoE heard sworn testimony from the Executive Chairman of UDeCOTT, Mr. Calder Hart, while he was being cross-examined by Alvin Fitzpatrick SC, to the effect that the 2007 accounts would be ready within a week a or two.  Yet we seem to have drifted into a situation in which the Commission will have to deliver its report without having considered any accounts from UDeCOTT after 31st December 2006.  If that were the case, it could have the effect of significantly discrediting the Commission’s findings as to UdeCOTT’s operations.

Our locally-grown, Nobel Prize-winning author, V.S. Naipaul created, in the seminal ‘Miguel Street’, a pregnant phrase which has come to typify this place…“…amazing scenes were witnessed…”  I expect the final series of hearings of the Uff Commission to contain many ‘amazing scenes’ as parties battle to defend their honour and, in some cases, preserve their liberty.

SIDEBAR: – The upcoming agenda

The expected agenda for the final sitting of the Uff Commission includes –

  • The testimony of Carl Khan – This is the surprise witness who gave his evidence on 19th May on his previous marriage to the present wife of UDeCOTT’s Executive Chairman, Calder Hart.  Khan also referred to the Mrs. Hart’s relatives.  This would be the first evidence to the Commission on the matters raised by Ramesh Maharaj in Parliament on 23rd May 2008.
  • The Cleaver Heights Saga – At the end of May, the government announced the new hearings for the Uff Commission to include further evidence on the Cleaver Heights project.  The initial report on Cleaver Heights was prepared by Mr. Jerry McAffrey of UK-based construction consultants, ACUTAS.  That report did not support the original allegations, made by the PM during the budget debate in October 2008, as to a ‘missing’ sum of money, said to be $10M.
  • Mrs Sherrine Hart – There have been recent reports that Mrs. Hart will be testifying in this session of hearings.

Afra Raymond is Managing Director of Raymond & Pierre Limited.  Comments can be sent to afra@raymondandpierre.com

Finding the Assets

This week, I am at last able to answer two queries which have bedeviled this series for some time.

Firstly, several readers have pointed out that there was  significant repetition of details in this series.  While it is true that that repetition was deliberate on my part, it is also true that there was a growing question…”When are you going to give us some fresh information?”

Secondly, my repeated requests for publication of the initial letter from CL Financial seeking the state’s financial support.  It seemed that those calls were being ignored and I did wonder why.  On June 11th, in ‘Do what is Right’, I wrote – “Could it be that that letter contains information which reveals too much about the true background to this tangled affair?  Madam Minister, what is your interest in further secrecy on this aspect?”.

In the course of researching another aspect of the bailout, I came across the letter about a week ago, so that is the fresh information for presentation this week.  Given that the Minister of Finance revealed that information in the first week after signing the Memorandum of Understanding, I was clearly wrong to suggest that she had any intention to conceal the letter.

The Minister of Finance was speaking in Parliament and seeking to rebut the allegations by opposition politicians that she had benefited from insider information.  This extract of her statement is taken from page 628 of Hansard of Wednesday 4th February 2009 – this can be found at http://www.ttparliament.org/hansards/hh20090204.pdf

With your leave also, I would like to read into the record of Hansard, a letter from Clico Investment Bank addressed to the Central Bank. That letter is dated January 13, 2009. It is on the letterhead of CL Financial, addressed to Mr. Ewart Williams, the Governor and signed by Lawrence A. Duprey, Group Executive Chairman.

“Dear Governor,

The severe global financial crisis has begun to impact our local and regional markets and is causing strain on liquidity in certain parts of the financial system in Trinidad and Tobago.

CL Financial being a significant part of the financial sector has been disproportionately impacted by these adverse conditions. Many of our customers are also affected and are consequently calling on their reserve cash positions.

Thus far, all our member companies have been able to deal with their commitments.  However, we wish to develop a comprehensive contingency plan to meet any further developments, if this trend were to follow a similar pattern to other countries.

As a result, CL Financial is taking urgent and decisive action.

We have conducted a review of the Group’s assets and the projected liquidity needs. While the Group remains strong in terms of the quantum and quality of its assets, these assets are not in a form that can be liquidated in short order without significant loss in value.”

And they gave a table setting out the estimated value, just by sector:

Real estate –          $2,505,000,000
Manufacturing Sector –          $6,300,000,000
Energy –          $7,048,993,014
Financial Services –          $8,060,000,000
Total:             $23,913,993,014

We are in the process of realigning the asset-liability structure of the Group to better match the current liquidity situation. This is a complex action plan that we are embarking on immediately, including initiatives such as merger of certain entities within the Group with strategic partners and/our sale of certain assets in order to raise liquidity.

As you would appreciate, these initiatives would need some time before they yield the desired results. In the event that the financial crisis deepens in the local market we may need urgent liquidity support to be made available to the group.

In this regard, we would like to discuss the approach of the Central Bank toward supporting the financial sector and by extension the CL Financial Group, if conditions were to deteriorate.

I thank you for your understanding in this matter and look forward to your continued support.”

That letter, as I said, was dated January 13, 2009

CL Financial Consolidated Balance Sheet is at page 23 of their Annual Report 2007 ‘The Next Wave of Growth’ –

http://www.clico.com/pdf/AR07/CL%20Financial%20Annual%20Report%202009.pdf

That Consolidated balance Sheet discloses Total Assets, as at 31st December 2007, as being $100.666 Bn – those financial statements were published on 18th November 2008.

Given accounting conventions as to intervening events and their reporting, it is startling, to say the least, that this balance sheet should have declined to $24Bn just 12 months and 13 days after their reporting date. Only 56 days after publication.  This is an aspect of the fiasco which has not been discussed in public, so far.

We need to hear some accounting of this extraordinary situation.  Just to select one item of interest, Loans and Advances are shown as $21.975Bn in the CLF 2007 accounts and yet only $8.0Bn is there at 13th January 2009.

My reading of this is that CL Financial’s assets declined in value from $100.7Bn at the end of 2007 to $23.9Bn at the beginning of 2009.  We have now agreed to restore asset value to the shareholders of CL Financial on terms which are as yet unpublished.

SIDEBAR: Out of Africa

The dominant media coverage of the wealthier countries can sometimes mask interesting developments.  I had been wondering how other developing countries were handling their own financial crises.

I was struck last week by extensive reporting of the action of the newly-appointed Governor of the Central Bank of Nigeria (CBN) in bailing-out 5 large, publicly-listed banks.  There is a widely-held view that Nigeria is one of the most corrupt countries.  CBN Governor Lamido Sanusi has taken several bold actions to restore confidence in the banking sector.  The main ones were –

  • Dismissal of 19 of the top executives of the rescued institutions, deploying seldom-used powers.
  • Publishing lists of defaulting borrowers, many of whom are prominent citizens and leading companies, along with a strong warning that all these loans must be repaid now.  Those who do not comply will face the Courts.
  • Making it clear to shareholders that the bailout funds are not for dividends at all, but to restore banking confidence.
  • A special police unit, to deal with Economic and Financial Crimes, is questioning the dismissed executives.  Those who are not being questioned are forbidden to leave the country.

This story is in the Wall Street Journal, The Financial Times and Reuters.

Emancipation

This week the meaning of Emancipation is considered alongside the CL Financial fiasco.  It is a painful, but necessary, task.  Those of us concerned to commemorate the Emancipation of African people from slavery must have the courage and clarity to reflect on our past, both the distant and the recent.  In reflection we can find direction and perhaps, the beginning of a solution.

How, if at all, is the CL Financial fiasco connected with the story of Emancipation?  I deliberately use the word ‘story’ since it is clear that there are many versions of this period in our history.  I say ‘our history’ because, whatever the race of today’s readers, the Emancipation journey is of vital concern to the progress of humanity.

There were notable and honourable African leaders who put up strong resistance to the efforts by Europeans to enslave their people.  But the sad and inescapable fact is that there were others who thought of the process differently.  It is a painful matter to discuss, but the fact is that some African rulers collaborated with the European slave-traders to capture and sell their people.  Not all, but enough to make the difference.  Without getting into the entire history, which is way beyond the scope of this column, the actions of that group of rulers were enough to ensure the success of the entire monstrous project.  The Atlantic slave-trade shaped large elements of today’s world and we have been trying to build a new one ever since.  Yes, an immoral and greedy group of rulers put a greater value on their personal enrichment than the well-being of those they were entrusted to lead.

The entire society paid the price for the selfish ambitions of these rulers.

One of the most striking things about the CL Financial fiasco is that Lawrence Duprey is one of us, an indigenous Caribbean man. Yes, a black man, with African blood flowing through his veins and that is something that has not formed part of our public discussion so far.  One of the strangest features of these times is how, despite the over-supply of media, critical issues are not discussed.  When one considers that the vast majority of the population of the region comes from an African background, it is striking that Lawrence Duprey is the only such tycoon in the region with his level of profile.  But wait, I almost forgot that there is another one.  Yes, I am speaking about Michael Lee Chin.

Whichever way you slice it, this is extremely telling and as a result Duprey carried a peculiar set of expectations.  Because of his unique profile as a black man, the fact is that Lawrence Duprey was the recipient of widespread admiration, envy and wonder.  That is our society and that is one of the ways we deal with its ugly realities.

To go further, the leading people in the CL Financial team were also black.  Yes, most of the CL Financial team have African blood flowing in their veins.  Yes, by now I can hear some readers saying things like – ‘But X or Y doesn’t think that they are Black’ or ‘So what?’ or ‘Exactly what is your point?’.  That kind of skepticism is expected when one discusses this kind of issue.  In fact it is my view that the underlying attitude is the very problem.

At the same time, let us note that the regulators are themselves black people.  Yes, the picture I am painting is that the main players are virtually all black people – the Cabinet, the Central Bank and the CL Financial/CLICO chiefs.

We African people have come from far, both metaphorically and physically.  We now find ourselves in a sorry place with this CL Financial fiasco.  We have a particular responsibility to do better this time around.  There is no escaping that fact.

CLICO was built around the ideal, by its founder Cyril Duprey (Lawrence’s cousin) that ‘Give a man service, give a man value and he will give you more business’.  Simple, but strong, those were the foundation stones of CLICO.  Truth prevailed and with hard work the company prospered.  CLICO developed unprecedented levels of investor confidence, as a black company (indigenous) in which one could have faith.  Given our history as African people, that level of investor confidence is no small or incidental thing.  It could only have been the result of solid vision and diligent long-term application, to name just two of the qualities of the founder.

CL Financial was established as a holding company and rapid diversification followed, with investments in a number of areas unrelated to conventional insurance business.    As a result of its success, CLICO was able to provide most of the cash to pay for the group’s unorthodox expansion.

At that stage, the activities of the group shifted to reflect the new ambitions of its new chiefs, most notably its Executive Chairman, Lawrence Duprey.  Those activities ultimately undermined the stability and health of the whole.

The Emancipation story has many lessons, but the central one, from my point of view, is that many of our rulers lost sight of the balance between private wealth/privilege and the public good.  Are we doing better now?  For us, in this Emancipation week, it is useful to consider the extent to which we have learnt from our past.

The actual behaviour of the CL Financial chiefs and the group’s shareholders in this moment is instructive.  At every turn, the public good has been shafted in favour of private wealth.  From the payment of dividends while CLICO’s Statutory Fund was in deficit to the payment of dividends to CL Financial shareholders after they wrote for urgent financial assistance from the State.  The pledging of assets which had already been pledged and the attempted sale of assets contrary to the original MoU.  The shocking statement of CLICO’s new boss that $5.0Bn was missing from its Statutory Fund and the utter silence subsequently as to its whereabouts.

All this shocking behaviour and no sign of any reprimand, charge or censure from our rulers.  Instead, we are told that our entire Treasury has been pledged to assist savers and restore shareholder value.  Trinidad & Tobago is a land of many firsts, but this is a tragic one.

How did we get to the point of pledging our common wealth to restoring value to a few privileged people who are showing no proper regard for the public good?

Do we have the moral fibre to recognize what has gone wrong in our past and behave differently?

Figuring it out

“We are not serious,

Very few conscious,

So I cannot agree wid mih own chorus!”

from ‘Trinidad is Nice, Trinidad is a Paradise’ by Brother Valentino (Emerol Philips)

The 12th June agreement is to be voted on by CL Financial’s shareholders on Wednesday 15th July.  By the time this is published, there ought to have been a decisive vote on the matter.

I maintain my position that the 12th June agreement is taking us in a completely different direction to that outlined in the original MoU of 30th January.  I am also saying that the new direction is a detrimental one for this country with not even an attempt being made to explain the underlying rationale.

The flagship of the CL Financial group was CLICO, according to the Central Bank Governor, on 13th February – “In the CL Financial business model, Clico was a major source of cash much of which was used to finance investments held in the name of other entities in the Group.  In this model, Clico has ended up as guarantor for many of the Group’s assets most of which are heavily pledged.”  CLICO’s most successful product in this model was a high-interest one which promised more than any other investment available in the market.  Even at those high rates of interest promised to their investors, it was cheaper for CL Financial to raise funds in this way than to borrow.

CL Financial is no longer able to rely on CLICO for a source of cheap funds, so we are all thrust into a new, perilous position.

CLICO is now unable to offer the highest rates of return which once distinguished its products and is suffering an unwelcome migration of its better sales agents.  What future for CLICO?

We were often regaled with stories of Lawrence Duprey’s prowess, as a commercial negotiator, in securing the best terms.  It seems to me that CL Financial has arranged a new line of finance from the Treasury to go forward.  We are not told what, if any, interest rate is being charged by our Treasury for this massive line of unsecured borrowing.  Overdue Tax payable to the BIR attracts a punitive interest rate of 20% per annum, being rightly regarded as the taxpayers’ unsecured borrowings from the Treasury.  Are we seeing a plain case of double-standards?

As part of the new agreement, Lawrence Duprey has resigned from his Directorships of the companies in the CL Financial group.  He has retained his significant shareholding and it is clear that Michael Carballo, the group’s finance director, continues as his representative.

Some of you may think this is all OK, since the public funds being advanced to clean up this fiasco are ultimately protected by CL Financial’s agreement to sell assets so as repay.  Time to think again.  The assets which were pledged in the original MoU, were already pledged elsewhere.

Yes, the CL Financial chiefs tried to sell the same thing twice.

But what about the assets which were not pledged?  Oh, those were treated differently.  For example, CL Financial agreed to sell its majority shareholding in CLICO Energy Company less than a week after agreeing to seek the State’s prior written approval to any asset sales.  That action triggered the Central Bank’s legal action to both halt all further assets sales and demand a declaration of all assets.

Yes, CL Financial chiefs tried to sell off one of the remaining assets, contrary to the terms of the MoU.

So we have Republic Bank and Methanol Holdings shares being effectively unsaleable, since they are reliably reported as having been fully pledged before the original MoU.  Next we have the aborted attempt to sell other assets, not yet pledged.

So what is left?  Wait, what about the Liquor and spirits brands, the Angostura and Jamaican rum companies and such?  Well, according to its most recent Notice to Shareholders, Angostura is itself owed some $633M by CL Financial.  Given that its 2007 accounts disclose sales of $818M, that is a colossal amount of money for Angostura to be owed.  So much for that.

As for those Jamaican Rum assets, Lascelles de Mercado is Jamaica’s leading spirits company, controlling the top rum brands of Wray & Nephew and Appleton.  CL Financial owns about 87% of Lascelles de Mercado, which still has some 1,500 minority shareholders.  The Jamaica Gleaner of 17th June (at http://www.jamaica-gleaner.com/gleaner/20090617/business/business1.html and http://www.jamaica-gleaner.com/gleaner/20090617/business/business4.html) contained two instructive reports on that CL Financial subsidiary.  The first one highlights the payment of dividends to holders of ordinary shares for the first time in 2 years – “Lascelles de Mercado said Monday it would pay dividend amounting to $14 per share, ending a drought for ordinary shareholders who have received no returns for at least two years.” That subsidiary appears to be doing well.  The second report tells us  –

  • “Duprey…has bowed out as chairman of CLF, but remains chairman of Lascelles.”
  • Referring to the 12th June agreement – “Carballo said the government was in control of the management and running of the Caribbean conglomerate, but what has not changed is the ownership.

“The shareholding hasn’t changed. There is no intention to change the shareholding. It’s an agreement for about three years whereby the assets are managed and restructured and then the company will be returned to the shareholders,” he said.

  • There is more – “”So the question of selling does not arise,” he (Carballo) added, referring in this instance to Lascelles.”

So there you have it.  If we are to believe Michael Carballo – and I see no reason to doubt him – the good assets which are not pledged are to be retained by CL Financial.

Having lost grip of CLICO and its positive cash-flows, the CL Financial chiefs have now negotiated a new survival strategy.  On the other hand, we have now agreed to finance the recovery of the CL Financial group on terms which are unknown, to restore the value of its assets and return it to its shareholders.

The rueful regulator

The Governor’s statements on 13th February are really perturbing. On 13th February, at his first (and only) CL Financial briefing, the Governor of the Central Bank said – “Meanwhile, with the assistance of the Manager appointed to Clico by the Central Bank, we have made much progress in clarifying the present financial position of CLICO, which unfortunately, appears to be much worse than we had envisaged.”  How could it be much worse?  Are we being told, in not so many words, that CLICO’s filings and accounts were misleading?  Or did the regulator make a poor reading of the information?

Party of Parties

This week’s title is as deliberate as it is appropriate.  The focus last week was on certain aspects of the 12th June agreement with CL Financial to show the fundamental shift from the original MoU of 30th January.

This week, it is time to focus on the parties to the new agreement and the way in which they are dealing with each other.  The differences in treatment are plain and pregnant.

CL Financial are said to have secured the support of about 66% of its shareholders in relation to that agreement.  CL Financial published a Notice to Shareholders of a meeting to be held on 30th June to seek the approval of 75% of the shareholders to the 12th June agreement with the State to appoint a new Board with the mandate described in last week’s column.  The shareholders were to be offered an opportunity to read the agreement and make up their minds as to whether they would vote in support of it.

There was a subsequent Notice to Shareholders which stated that the Board had decided to defer the voting-meeting to respond to certain concerns which had been put to them by shareholders: the shareholders were still invited to attend on the 30th to read and consider the agreement.  It was reported in this paper that a shareholder had written to the CL Financial group finance director, Michael Carballo, to make certain demands in return for his vote in support of the agreement.  There are also other reports of a block of shareholders, led by a Duprey family member, making demands before their support could be assured.

As I write, there is no word as to when CL Financial will be holding the decisive meeting to solicit shareholders votes on the new agreement.

Some serious questions now arise and these would include –

  • The rationale – As outlined last week, the new agreement marks a significant shift from the goals and terms of the original MoU.  What is missing here is the rationale behind the shift in strategy.  It is not to say that there can be no grounds for changing the terms of agreement in the course of large-scale and complex situations, but rather, that there ought to be a cogent rationale for such a drastic shift.  What is the reason to move from a scenario of support with consequent liquidation of assets to match the cost to the Treasury, to one of restoring asset value?  Are we being told, in not so many words, that the assets of CL Financial are in fact insufficient to meet its liabilities?  Is it fair, in all the circumstances, for the public to make that assumption?
  • The new audits – Some time ago, we were informed by the Minister of Finance that audits were being performed on the CL Financial group by Ernst & Young and KPMG.  There have also been several reports that the renowned forensic accountant, Bob Lindquist, was engaged to audit CLICO.  Where are the audit reports of those firms?  Surely, by now the Minister of Finance and the Central Bank would have had those interim audit reports.
  • The New Agreement – Are we to take it that the new agreement is an irrevocable commitment by the State?  Do CL Financial’s shareholders possess the sole right to veto?
  • Lack of Public information – The new agreement remains invisible to the public and there is no word as to when it is to be published.  Given that we taxpayers are to pay for this entire operation, it seems highly unsatisfactory to me that we are not yet in a position to evaluate the agreement.
  • The question of scale – The newly-reappointed AG is reported to have said that he is concerned over how our country will deal with a $97Bn commercial enterprise in the context of a $150Bn national economy.  What is the true nature and extent of the commitment we have now entered?
  • The character of the parties – As explained last week there are legitimate, sobering concerns over the conduct of and relationships between the parties to this huge agreement.  The conduct of CL Financial’s chiefs and the shareholding in that group by the Minister of Finance would give any reasonable person cause to pause.  The huge donations made by CL Financial to the ruling PNM is yet another reason to frown.  The treatment being enjoyed by the CL Financial shareholders at this point, having been paid dividends from a group which would seem to have been essentially insolvent, to now being invited to consider the new agreement, is vexatious.  Hence the title of this week’s column.

Where is the taxpayer in this huge, long-term and expensive set-up?  I am, once again, demanding that we, the public, be given the information necessary to support the new agreement.  This is a glaring case of democratic deficit, in which our elected rulers feel free to enter onerous agreements without affording us the basic information which company law would demand on behalf of shareholders.  There is little doubt that the new agreement will impose heavy burdens on our economy and widespread support will be essential to preserving the investor confidence and legitimacy which is at the heart of this unprecedented mission.  There is no better way to start winning that support than to start sharing information with the public in the same fashion as enjoyed by the CL Financial shareholders.  We do not want a party with General Admission having the worst view and only the VIPs enjoying the best view…especially when we in General Admission are paying the price of the whole party.  Not so.

SIDEBAR

We have all read the public statements by the newly-reappointed Attorney General, John Jeremie, that he is intent on taking the necessary action to enforce the law if wrong-doing is discovered at CL Financial.

We need to determine if our newly-returned AG is indeed a serious upholder of our laws.

Mr. Jeremie, it is reliably reported that CL Financial paid its shareholders dividends of $3.00 per share on 16th January, some 3 days after writing to the Central Bank for urgent financial assistance from the State.  Now that the State-appointed Directors are on the CL Financial Board, it is possible to obtain evidence of that, with or without the co-operation of the Minister of Finance (herself a CL Financial shareholder).  I am putting it to you that, as a matter of urgency, we need to hear from you on three questions –

  1. Firstly, is such a payment of dividends a legal act?  Can such an act be considered to be fit and proper?
  2. Secondly, did that reported act take place?
  3. Thirdly, what steps, if any, are you now prepared to take against the CL Financial Directors who authorized payment of that dividend?

Fit and Proper

On Friday 12th June, the Acting Minister of Finance, Conrad Enill, signed a new agreement with the CL Financial chiefs.  That agreement has not yet been published, so we have to rely on the Ministry’s press release and news reports. A further new spurt of information has been the story in the Sunday Express of 21st June, which detailed huge campaign donations by CL Financial to the ruling PNM. We have also seen a strong denial from PNM Treasurer and Minister in the Ministry of Finance, Mariano Browne, that CL Financial enjoys any undue influence over government policy as a result of those donations.

Those events form the background to this week’s column –

Change of Course

This new agreement has been presented to us as a supplement to the original one, intended to facilitate its implementation.  The Ministry’s press release informs us that “….This new agreement is designed to give substance to the Memorandum of Understanding (MOU) of January 30th 2009…“  Having considered the available material, I have come to view this new agreement as a complete change of course from that outlined in the original MoU.    The original MoU spoke to the crisis at 4 of CL Financial’s subsidiaries – CLICO, Clico Investment Bank, British-American Insurance and Caribbean Money Market Brokers.  The process outlined was one of immediate State financial support of those companies, with CL Financial to pay back the taxpayers’ funds advanced by agreeing to sell their best assets.  Those assets included majority shareholdings in Republic Bank Limited and Methanol Holdings Trinidad Limited.  The stated goal at that point was to stabilize the entire financial system against the loss of confidence which would surely have followed a collapse of those companies.

The striking features of the new agreement are –

  • New CL Financial Board – The new agreement installs a new Board of Directors for CLF: stated to comprise 4 Directors nominated by the State and 3 nominated by CL Financial.  Michael Carballo is CL Financial’s Group Financial Director and has been retained as a Board Director under the new agreement.  Carballo has been reported as stating that the CL Financial group will be returned to the control of its shareholders after a maximum of 3 years.  The State is now taking over the strategic management of the CL Financial Group.  That was never part of the original MoU.
  • Asset Sales – The Ministry’s press release also states that– “…The MOU imposes requirements on CL Financial to sell its assets in order to repay GORTT for advances and other costs arising from closure of CIB and the restructuring of CLICO and BAT. The achievement of this objective requires continuing goodwill, cooperation and participation by CLF over a period of several years since there is no intention of engaging in a fire sale of CLF assets…”  The emphasis is mine.  For some time now I have been critical of the obscure official rationale for deferring the asset sale agreed to in the original MoU.  I have gone so far as to label that rationale as being a stupefying one.  Here is official confirmation that that is the new policy.  No attempt was made in this rounds to give a rationale for deferring the sale of these assets.  Dry so.  That was never part of the original MoU.
  • Shareholder Value – The new agreement seems to have, as one of its central features, a mission to rescue the CL Financial group on behalf of its shareholders.  Readers should note that CL Financial has only 325 shareholders.  Angostura Ltd. is an important part of the CL Financial group and their Notice to Shareholders published on Saturday 27th June is instructive – “…Shareholders should also note that on June 12th 2009, a formal agreement was signed between CLF and the Government of Trinidad & Tobago (GORTT), whereby a new Board has been constituted at CLF.  The mandate of the new Board, empowered by the GORTT will be to restructure the debts of the CLF group to ensure that they are properly satisfied and also that the Parent company and subsidiaries are placed on a proper and sustainable path to achieve growth and value optimization…”  The restoration of shareholder value was never part of the 30th January MoU.

Entirely new objectives are being presented as ‘giving substance to’ the original MoU.  The examples cited here are enough and one expects to find more food for thought when the document is published.  The 30th January MoU was published on the Finance Ministry’s website on 9th April – about 10 weeks after its execution – which means that this second agreement is not yet, on that basis, overdue.  However, given the increased burdens being imposed on the Treasury and the silence on critical aspects of this unfolding fiasco, I am calling for it to be published without delay.

Let us re-cap how we got here, so that we can understand the moment.

Our Treasury was originally pledged to bail-out savers in 4 troubled finance houses.  The use of public funds to stabilize the financial system by ensuring that depositors and policyholders were safeguarded was itself questionable on grounds of moral hazard, but at least the Treasury was to be repaid by sale of the assets held by the parent company.

We have now learnt several new things –

  1. CLF assets, specifically pledged in the original MoU, were already pledged elsewhere.
  2. CLF, having agreed not to sell or pledge any further assets, agreed to sell assets to German investors, less than one week later.
  3. CLF, having written on 13th January for urgent financial assistance, issued dividend cheques to shareholders 3 days later.
  4. The Minister of Finance is herself a shareholder in CLF.
  5. The CLF group is a major donor to the ruling PNM, even during those years when the CLICO Statutory Fund was in deficit.

We are now being told that the government is to restore shareholder value.  Cool so.  As yet, we have no report from the KPMG team or the Bob Lindquist team examining the books.  No attempt at explanation or providing background information.  Our Treasury has now been pledged to assist the 325 shareholders of the CL Financial group.

Now that the State is in control of the CL Financial board will they now be obliged to submit the affidavit identifying all their assets?  Will the ongoing Court case between CL Financial and the Central Bank be abandoned, now that shareholder and taxpayer interests are so completely aligned?

The Governor of the Central Bank, speaking at the press conference on 30th January made a penetrating point – “…In the Bank’s view however, the current financial difficulties being faced by CIB and Clico have more to do with…excessive related-party transactions which carry significant contagion risks …”

‘Excessive related-party transactions…’ – I could not agree more, Governor.

Do What Is Right

Once again, the information flow on this fiasco is so erratic that one has to wonder if that is intentional.  We not so easy to destabilize.  Madam Minister, it is our taxpayers’ money that you are spending, so the time to account is now.

In the history of our region’s development, it is my view that this episode is arguably the most shattering failure – economically, financially and regionally – in living memory.  It is important to distinguish this from externally-propelled events since it is Caribbean people, principally from our country, who were the architects and engineers of the CL Financial empire.  We are the driving force in this fiasco, both those who designed and built the seductive savings and retirement plans, as well as those who invested with CLICO/CL Financial.  Those who designed the fancy car and those who got on for the ride.  Those who did not take the fancy ride are being asked – no, told! – to help those people injured in the crash of the largest and fanciest ride on the road.  We are very kind people and it is never any problem to help those who are in need, but please don’t tell us that the ‘driver lost control of the vehicle’.  Time to change gears and shift our thinking.  Who is our leader?

Some of the important aspects of this situation are –

  1. CL Financial letter – The CL Financial letter of 13th January which requested urgent financial assistance from the State has never been published.  Yes, that is the appeal signed by Mr. Duprey 3 days before dividends were paid on 16th January.  We have never even been told why the letter has not been published.  It is no excuse that these items of correspondence are never normally published.  The sheer size, financial consequence, political linkages and regional impact of the CL Financial failure are all sound reasons to declare this an exceptional case to the extent that a new standard of transparency is required.  That 13th January letter is obviously part of the public record yet it is not available.  Why is that Minister?  Could it be that that letter contains information which reveals too much about the true background to this tangled affair?  Madam Minister, what is your interest in further secrecy on this aspect?  The atmosphere is heavy with claims, counter-claims and, most oppressive of all, the scripted silence of the chiefs.  It is my view that your continued concealment of this vital document is only going to feed an unhealthy degree of skepticism, which is already present in this sorry affair, for reasons we are all too familiar with.
  2. The new MoU – We are told that a new agreement was signed with CL Financial on Tuesday 2nd June.  I have been unable to get sight of that agreement but there are reports that the State has now taken control of the troubled group.  What are the terms of that agreement?  Does CL Financial have assets sufficient to cover their liabilities?  Is there an option to call on the assets of the CL Financial Directors and Officers to settle any shortfall?  When can we expect the new MoU to be published?
  3. The Dividend – We have heard the Minister attempt a rebuttal of the parliamentary allegations she faced on early withdrawals of her various CIB deposits and the potential conflict of interest issues.  Minister, we have that part of your message, even if only a few of us have accepted your version.  That is all part of public life, but what we are not hearing from you is any statement on the CL Financial dividend.  You are a noted attorney and former lecturer at the Law School in UWI, so what is your learned opinion on the payment of dividends by an organization which was unable to pay their financial obligations in proper priority?  Am I asking an improper question?  Are we, as a country with ambitions of becoming an International Financial Centre, going to let these shareholders keep their dividends in this failed group?  That would be a real shame and completely incompatible with our stated ambitions.  Minister, your continued silence on these aspects of the fiasco of the century will only increase the clouds of suspicion and disrespect now swirling through the public mind.
  4. CLICO’s new business model – The newly-appointed Chairman of CLICO, Dr. Euric Bobb, has made recent statements on the development of a new business model for CLICO.  The recovery of this company will face challenges from the departure of key sales agents; the withdrawal of their high-return products, which were CLICO’s unique selling point; and of course, the missing $5.0Bn from the CLICO Statutory Fund.  It did not help that the new board released a high-profile series of advertisements in February which went to pains to assure the public that it was ‘business at usual’ at CLICO.  That is absolutely the last message they could, or should, have been wanting to send.  The CLICO model is what put us into this mess and the new board should have been making efforts to point out that they would not be repeating the errors of the previous CLICO chiefs.
  5. The Court case – We are still no wiser as to why on earth is the CL Financial legal battle being fought in closed court.  Someone must have applied to have the hearings closed: I wonder who?  And why?  You see, the fact that the hearings are closed means that we are forced to rely on ‘leaks’ to see only part of the story.  Of course, that is only the part the person leaking would like us to see.  So we need to have those hearings opened to ensure a good quality of information.  Even beyond that burning concern is the recent reports that the High Court has made an order to prevent the State from using information in this case for criminal cases.  No doubt that order was obtained at CL Financial’s request, but what is the thinking underlying the ruling of the Court on this aspect.  I would like to hear some better explanation of that.
  6. The last days – I believe that a full, public investigation of this entire sorry fiasco is vital, if we are to learn all its lessons.  I am not entirely sure if a Commission of Enquiry is the way to go, or if another form of investigation can also be effective here.  For example, I would have liked to see the Arthur Lok Jack School of Business undertaking some extended studies on this.  It would be very interesting to see a list of those who broke their investments/fixed deposits in the Group in the last 90 days.  That would be very instructive.

Judgment Time – Moral Hazard, Part III

The drama continues and we learn of it in weird, spasmodic bursts.  The Information Age is here.  To err is human.

So many threads to pull from, but here goes –

  1. The Minster of Finance – Thus far, I have not touched the issues of the Minister’s shareholding, or joined the calls for her to resign.  I heard for myself on radio 102.1FM, one morning recently, the aggressive statements made by the Minister of Finance and those prompted me. There are 2 aspects of this in my view –
    • The first is that it is safe to assume that the Minister knew that CLF paid dividends after they had written to the Central Bank for urgent financial assistance.  Did she take exception to this action by the CLF chiefs?  What is her view on that?  In any case, did she instruct her negotiating team to attempt to recover those dividends?  Was that ever an agenda item in those MoU negotiations? Does the Minister have a view as to that decision by CLF’s Board of Directors?  Is that a decision which, in her learned view, would be taken by ‘fit and proper’ people?
    • The second one flows from the Minister’s defensive statements made in Parliament to explain the broken fixed deposits and so on.  Without going into the details of those statements, the line of defense went like this – I, like many other citizens, knew of the problems being experienced by the CLF group; I was also advised of those by my sister, who is engaged at a senior level in the financial sector; as a result of those factors, I decided, as a matter of prudence, to withdraw the various monies held in the group; CLF did not write the Central Bank ‘til 13th January and that is when my official knowledge began.  I accept the Minister’s statement as factual, but that is the very problem.  To my mind, the oath of office which is taken by our parliamentarians and cabinet ministers obliges them to put country first.  The first action of any responsible Minister of Finance, upon becoming aware of an impending crisis at CLF, was to seek an immediate meeting with the PM and other colleagues to discuss an urgent solution.  A key cabinet Minister states openly that she was seeking her own interest first and then effectively waiting for the other shoe to drop.  Utter irresponsibility and the lack of consequence writ large.
  2. The Governor – The Governor of the Central Bank has described the challenges of trying to regulate the CLF group in its several subsidiaries.  We have no reason to doubt his account of the perils posed by the CLF business model and the Central Bank’s various attempts to grapple with those.  The Governor also issued a private statement to clarify the position around the opposition allegations that he had taken advantage of his special knowledge to withdraw fixed deposits held at CIB.  I also accept as true his clarification on that matter.    If you accept both accounts, as I do, there is a real issue as to quality of judgment.  We are contemplating that the very man who knew, more than any other ‘outsider’, of the deep challenges and high-risk business-model of CLF was also making investments with CIB.  I am unable to reconcile that picture, which seems to be correct, with responsible judgment.  What is the manner of man to make those investments?
  3. The Sakal saga – I read in the Sunday Express of 24th May an expose of the Gita Sakal story.  It seems from that story that CLF has made allegations against Ms. Sakal that she attempted to obtain certain monies from the sums which were obtained by their sale of a shareholding in CLICO Energy to a German company.  That sale was been agreed on February 3rd and was one of the subjects of the ongoing court action between the Central Bank and CLF.  Up to that point, according to the Sunday Express story, there appears to be little dispute on the facts.  That court action started when the Central Bank obtained an ex parte injunction on Carnival Sunday and the action continues, in closed hearings.  The Sunday Express expose quoted Michael Carballo several times in setting out the case against Ms. Sakal.  I am proceeding cautiously here since the author of the Sunday Express piece is an esteemed colleague and the entire matter is very delicate, centering on ‘Who is to guard the guards?’  Some points to consider –
    • The MoU – was signed on 30th January and clause 20 of it prohibits CLF from disposing of any of its assets without the prior approval of the State.  Yet, on Tuesday 3rd February CLF entered an agreement to sell its 51% shareholding in CLICO Energy to its German partners.  That story was made public in this paper on 24th March at http://guardian.co.tt/news/general/2009/03/24/duprey-energy-fire-sale-raise-severance-money.  What kind of person agrees on Friday to clear terms and by next Tuesday is acting in breach of the prior agreement?  That is the one burning question in all this…What is the manner of man we are dealing with?  Amidst all the talk of visionaries and plots and schemes for his downfall…
    • One Caribbean Media – are the owners of the Express newspaper.  According to their 2007 Annual Report, CLF hold a 33.1% shareholding in One Caribbean Media.
    • Director – Michael Carballo, the Group Financial Director of CLF, is also a Director of One Caribbean Media – http://www.onecaribbeanmedia.net/index.pl/hdir.
    • The burning question – given that my colleague had access to Michael Carballo and some key documents, is why not enquire as to the genesis of the share sale?  That seminal issue appears to have been sidelined and we in the media who seek after clarity and integrity, must take special care at this time to preserve our own.

    4. Please note that I am not, in any way, defending Ms. Sakal.

  4. The MoU – We are also hearing reports that both parties have agreed that the MoU is to be renegotiated.  Can this be true?  Will the Governor please update us on these matters?  I ask again, ‘Who are we negotiating with?’
  5. Executive Remuneration – The new Chairman of CLICO, Dr. Euric Bobb, was reported to have recently stated that the new management would not be continuing the level of excessive remuneration which had been a pattern in the past (at CLICO).  It would be good to know the previous levels of salary and benefits which led to this complete fiasco.
  6. CLICO – Dr. Bobb also gave recent clear statements as to the strength of CLICO under the new management and that was important.  We are getting increasing reports that some of CLICO’s most productive sales agents are joining other insurance companies and, if those are true, CLICO’s future could be very challenging.

SIDEBAR: Integrity and the CL Financial bailout – the nexus

There is an interesting nexus between the Integrity in Public Life Act (2000) and the CLF bailout.

The Act obliges that public officials make a declaration of their income, assets, liabilities and interests to the Integrity Commission on or before 31st May of each year.  There are penalties for non-compliance.  We have seen high-profile investigations and prosecutions with the proposed amendments to the Act now being debated in the Senate.

The Integrity Commission website lists ten classes of persons in public life who must file declarations with them.  That list can be found at http://www.integritycommission.org.tt/whofile.html.  The ninth class of person is “Members of the Boards of all Statutory Bodies and State Enterprises including those bodies in which the State has a controlling interest.”

CL Financial has already signed over its shareholdings in Republic Bank Ltd. (55%) and Methanol Holdings Trinidad Ltd (56%) to the State under the MoU, and the State has taken complete control of CLICO.  Will CLICO, MHTL and Republic Bank Directors be filing returns on or before 31 May?

Payback Time – Moral Hazard, Part II

There is a powerful and circular irony in the entire CL Financial fiasco.  That irony is in the manner in which risk and its twin brother, reward, were dealt with.  CLICO and British-American built an impressive reputation as safe companies with which one could invest for an uncertain future.  That reputation was such that many people in our region held the greater part of their investments with those companies.  The irony, which is now clear for us to see, is that those companies did not do an effective job of managing their risks.  Hence the disaster we are facing.

According to CL Financial’s 2007 annual report, the group held cash or cash equivalents in excess of $8.7Bn at the end of 2007.  That huge sum of money was depleted to the extent that the CLF Group had to write on 13th January 2009 seeking a massive bailout.

The same annual report also gives cause to question the manner in which the global meltdown has been blamed for the fiasco.  With the audited accounts only being completed in late November 2008, the annual report must have been finalised after that date.  The preface to the CLF 2007 annual report, at page 1 and entitled ‘The Next Wave of Growth’, refers to the meltdown like this –

  • “These are foreboding financial times – for Trinidad and Tobago, for the world. At C L Financial we are cautious but unafraid. Leaders in government and business sectors throughout the globe are taking joint action to mitigate this economic crisis, and so are we.”
  • “No organisation will be immune from the turbulence but our widespread assets and market penetration are the best shield against these uncertain conditions.”
  • “We have confidence in our ability to not only navigate this financial storm but to find fresh and profitable opportunities within it.”

Contrast those statements, finalized in the last six weeks of 2008, with the written appeal to the State for urgent help in the first fortnight of 2009.  Maybe truth really is stranger than fiction after all.

We are now getting reports that some CLF directors have resigned in the last month or so.  In addition, there was a story in another newspaper which detailed the high salary and bonuses (exceeding $2.5M US annually) paid to the CLF General Counsel/Corporate Secretary.  That story also stated that she retired on 21st April and was making claims for terminal payments of some $5.0M US.  According to the annual report, that person was the third highest officer in CLF.  I have not seen any published correction to or denial of that story.  She is also the officer who signed the Director’s (sic) Report in the CLF 2007 annual report, which declared a dividend of $3.00 per share.  Do these post-fiasco resignations and retirements exonerate directors and officers from their liabilities in this matter?

The MoU of 30th January specifies, at clause 20, that there are to be no increases in salary, payment of bonuses or share options without the government’s prior approval.  That is good, but it would be interesting to know what salaries and bonuses were paid to the CLF chiefs since the beginning of 2008.  That is a most important question, since it is the period in which the group went from a position of reported strength to one of virtual insolvency.  These directors and officers were in charge of the group’s strategy and operations in that period.  How were they rewarded?  How much of those people’s wealth is actually invested in the CLF group?

The issue is one of transparency, but that is a plastic concept here.  It is interesting to note that Royal Bank of Canada, which purchased RBTT last year, has a totally transparent policy on compensation.  I am right now looking at RBC’s website (http://www.rbc.com/investorrelations/pdf/2009englishproxy.pdf) on which they have displayed the detailed salaries of its directors and principal officers, with the rationale.  If we are going to bailout this fiasco, we need to know what were the rewards earned by the CLF chiefs.

We have seen bold moves being made in the USA to recover bonuses from executives of failed financial giants which are now seeking federal bailout.  Does our government intend to take firm and fair actions to recover those monies?

We also need to consider the role of professional standards in all this, since those exist to provide assurance to stakeholders that they are looked after in a complex world.  Not every question is for the court, since all the responsible professionals – accountants, attorneys and actuaries – belong to organizations with disciplinary codes.  Those codes can be severe in dealing with those who bring their profession into disrepute.  It is absolutely no defense for a professional to say that they were just following client’s instructions, if those instructions are in contravention of one’s professional codes of practice.  None.  Is the State intent on making the necessary reports?

This episode has important lessons for our country at a most delicate time of economic downturn and growing social unrest.  What lesson is this sending to our less-well-off citizens and our young people?  Is it going to be a straight case of business as usual or do we have the belly to make a fresh start?

SIDEBAR

The Governor of the Central Bank gave a press update on the CL Financial bailout on 13th February at which he told us that the financial position of CLICO was much worse than had been originally envisaged.  At that time, the Governor promised that that update was the first of a series.  There have been several incidental releases of information on the issue, most recently at the Monetary Policy Review press conference.  Since then it is fair to say that the entire position seems much worse than we had thought and another specific CL Financial update is now overdue, Governor.

Some of the matters I would like to propose for explanation at the next press briefing are –

  1. CLF’s letter – The CLF letter of 13th January has not been published.  Why not?
  2. CLF Dividends – Did the State negotiators know that CLF paid a dividend after writing to seek financial assistance?  If no, why not?  If yes, why not seek recovery of those dividends as a condition of the MoU?
  3. At what point did the State learn that the CLF assets pledged in the MoU had already been pledged elsewhere?
  4. When is the disposal of CLF assets, agreed in the MoU, to start?
  5. In light of the Governor’s own comments, when can we expect him to make a finding as to the CLF directors’ and officers’ being ‘fit and proper’ under Central Bank guidelines?
  6. What progress is being made in finding the $5.0Bn missing from CLICO’s statutory fund, as stated by their newly-appointed CEO?  Are the CLF chiefs, with whom you are in negotiation, being co-operative in this regard?
  7. The Court proceedings in relation to the Carnival Sunday injunction obtained by the Central Bank against CL Financial are being held in closed session.  Why is there the need for secrecy/privacy on these issues?  Who applied to the Court for the hearings to be closed to the public?