CL Financial bailout – The Truth about the Truth

Continuing from last week’s critique of the revised bailout and its implications, I have further concerns as to the process by which the legislation was passed.

I am aware that the Members of Parliament were given a briefing, so that they would be better informed on this complex matter.  That briefing was conducted personally by the Minister of Finance and the Governor of the Central Bank, together with their advisers and certain CLICO officials.

The briefing provided background information on these areas –

  • The status of the various outstanding audited accounts;
  • A ‘profile’ of the monies owed in terms of amounts owed to certain classes of policyholders.  I am told that quite a small number of these claimants held a large proportion of the monies being claimed;
  • The various lawsuits/judgments against the Central Bank;
  • The rationale given for extinguishing the right to sue the Central Bank in this matter was that public rights and stability were being given preference over the exercise of private rights.

I am also told that the Members of Parliament were not given copies of the presentations, which seems to have effectively limited them to gaining certain impressions or the limited notes they would have been able to take during the briefing.

That account of events, given to me by more than one Parliamentarian, seems to suggest that the very rationale of the exercise, said to be the elevation of public rights over private ones, could have been subverted.

The reality is that, despite the extensive debate on the matter, this is the position –

  • Accounts – There has still been no proper, clear statement on the status of these CL Financial and CLICO accounts, which is unsatisfactory.  An emerging view is that this is a calculated silence, since the companies are insolvent, which would make the Directors liable for the criminal offence of ‘trading while insolvent’.  That is a considerable issue, which could only be overcome by the State issuing a guarantee to the group’s creditors, which would have exposed the Treasury to the full extent of the huge claims.  The silence is a shabby ‘third way’, which gives a further insight into why the bailout remains untenable to so many of us.
  • There is no publicly-available profile of the monies owed in terms of amounts owed to certain classes of policyholders.  That is a major omission and one can only wonder why the information is being effectively suppressed.  In addition, there were statements that the claims of Credit Unions and Trade Unions will be fully-paid, which seems to be a favourable treatment in comparison to the individual claimants.
  • In respect of the lawsuits and judgments, I do not see how the block on lawsuits against the Central Bank can stop claims in foreign Courts.
  • The rationale of public rights being preferred over private rights is a solid one in a matter of this type, but upon reflection one is left with a different impression.  How can public rights be said to prevail in a situation where the public is denied the essential parts of the picture?

The Parliament benefits from briefings on complex and important matters, but it is unacceptable that those briefings should be somehow shrouded in secrecy. The Minister of Finance and Governor of the Central Bank need to publish their full Parliamentary briefing, without delay, to remove any lingering doubts.  Good governance, transparency and accountability demand no less.

Duprey, Monteil, Sakal

Another aspect of the emerging situation is the recent reports that the Board of Inland Revenue is investigating the three top CL Financial executives for alleged non-payment of taxes. The report in the Sunday Express of 13 November stated that the tax filings of Lawrence Duprey, Andre Monteil and Gita Sakal were under official scrutiny, incredibly enough, it was also stated that Duprey’s chauffeur was in receipt of up to $3.9M in a particular year.

I had always wondered at whether people who enjoyed favour at the highest level really paid all their taxes.  I have pointed out that in the case of Clico Investment Bank (CIB) there are serious and unanswered questions on that point arising from the affidavits of the Inspector of Financial Institutions in the CIB winding-up action.  It seems that fresh and serious doubts are now arising on the tax compliance of some of the top CL Financial officials, so we will see.  In view of the relaxed stance taken in relation to Anti-Money Laundering and Tax Evasion in the revised bailout process, we should not be surprised if these BIR cases slip into obscurity.

We need to be alert to the costs and other consequences of this crisis.  Huge sums of taxpayers’ money are being spent to rescue companies who do not appear to have complied with our tax laws and there are no accounts being discussed.

Last week Wednesday and Thursday I appeared before the Colman Commission to give my testimony in this matter.  On Wednesday afternoon there was a very negative reaction to my attempts to introduce a Power-Point presentation as a way to better illustrate some of the points I have been making.  It was a frustrating and comical experience for me to hear supposedly learned men asking ‘What is this?’ and one of them even saying that he had no idea what it was…Here, in Port-of-Spain in 2011, we have learned men saying that they don’t know what a Power Point presentation is for.  Of course, I am all for transparency, so their patently transparent ‘blocking tactics’ were most welcome, because they showed the viewers on TV just ‘Who is Who and What is What’.  Thank you, colleagues, for doing a better job than I ever could have.  The public is not stupid and your behaviour has had a clear impact on those who were viewing.  That said, the Commissioner ruled that my evidence would be taken the next morning and so it was.

For those who are interested and want to know what all the fuss was about, stay tuned to www.afraraymond.com for a full article on this situation, including the so-called ‘offensive’ slides.

With respect to the method of presenting the evidence in the Colman Commission, I have some serious concerns as to the effect of relying only on written or oral testimony. The volume and complexity of the material and the fact that a wide audience, beyond the attorneys, is watching this Public Enquiry, means that there needs to be an upgrade in the way in which the information is presented. I have written to the Commission on this already and was shocked to learn that a request for further funding for multi-media was apparently rejected at the highest level.

There have been two Power Point presentations to the Colman Commission – my own and Ms. Maria Daniel of Ernst & Young, who was just before me – and in both cases the witnesses had to rent their own equipment.

The purpose of this Public Enquiry is to bring some light and justice to this very shadowy and crooked episode.  I am here asking the Prime Minister, Minister of Finance and the Attorney General to take proper leadership on this issue.  The people need to see the evidence if they are to understand.

I can well remember the Prime Minister’s campaigning words, echoing in my mind “Serve the People! Serve the People! Serve the People!”.

Finally, I am writing to the Integrity Commission this week to request, again, that they obtain declarations from the Directors of CL Financial, as required under the Integrity in Public Life Act.

If you are not outraged, you haven’t been paying attention…

AUDIO: High Noon Interview – 22 September 2011

Power 102 FM

Afra Raymond is interviewed on the “Centre Stage” show on Power 102 FM in Trinidad and Tobago, hosted by Chris Seon, Cliff Learmond and Sherma Wilson, on the Colman Commission and the revelations and possible consequences.

  • Programme Date: Thurday, 22 September 2011
  • Programme Length: 0:23:21

The Colman Commission – Balancing the Scale

The Colman Commission into the failure of CLF Financial and the Hindu Credit Union is just about to move into its second round of Hearings and the public can expect to have further testimony on the losses suffered by people who deposited monies with CL Financial.

I have made several submissions to the Commission and have been invited to give evidence.  I am reliably informed that there have been strong and unanimous objections to my participation in the Colman Commission.  It would seem that only the Commission itself is interested in having my testimony go onto the record.

It is not surprising to me that objections of that sort would be arising now, but readers need to have a context.

The Colman Commission was established to find out how this fiasco occurred, recommend methods to stop a recurrence and also to identify responsible people who are apt for lawsuits or criminal charges.  The main parties can be expected to give self-serving evidence, designed to exonerate themselves from any blame.  We can also expect to hear more attempts to put the blame onto Wall Street, despite the claims in the CL Financial 2007 Annual Report– this is from the preamble –

…“The Next Wave of Growth” is the theme of this annual report, highlighting, to quote our Chairman, “that out of any crisis opportunities will emerge and our progress during the year under review prepares us to seize those opportunities and unlock value.” We have confidence in our ability to not only navigate this financial storm but to find fresh and profitable opportunities within it…

That Annual Report was published on 23 January 2009 – yes, that is 10 days after Duprey wrote to the Central Bank Governor for urgent financial assistance and one week before the bailout was signed on 30 January.

The Colman Commission is a Public Inquiry into a matter of major importance; it was approved by the Cabinet and installed by the President of the Republic.  A Commission of Enquiry can only make findings on the evidence submitted to it, so it would be very important for some people to have certain evidence omitted.

One of the most outrageous aspects of the entire Uff Enquiry was the use of public money by UDECOTT to attempt to block certain documents coming into evidence.  Those various attempts to limit the scope of the Uff Enquiry were disgusting to all right-thinking people and seemed to be a straight case of the ‘tail wagging the dog‘.

It is unacceptable that the Ministry of Finance could be taking a position which is seeking to exclude my evidence from the Commission.  If that were so, it would mean that Ministry is acting in a manner which effectively dilutes the Commission and what is more, appears to be incompatible with the intention of the Cabinet to have a full public enquiry into this matter of national concern.  In addition, the Central Bank is also reported to have objected.

The Colman Commission needs to be robust in getting at the truth of this financial disaster.

The new Bailout Plan

At the time of writing I have no details of the new bailout plan, proposed to be laid in Parliament for debate on Wednesday 14 September.  According to a report in the Trinidad and Tobago Guardian, the proposed plan is in two limbs, the first includes the issuance of new bonds to raise monies for the payment of policyholders, while the second is the creation of a prohibition against lawsuits against the Central Bank.

The three concerns I have at this stage are –

  1. Accounts– The last published audited accounts for the CL Financial group were for 2007, but despite the tremendous resources which have been deployed by the State in this matter there is no clue as to when accounts are to be brought up to date.  Given that both the 2009 agreements – the MoU of 30 January 2009 and the CL Financial Shareholders Agreement of 12 June 2009– exist in a framework of State funds being paid to the group’s creditors and recovered by asset sales, this situation is totally unacceptable.  What is more, there has never been any attempt to explain the delay in completing those accounts.

    As a result we have two insurance companies operating in our country without any accounts, which is in breach of the very regulatory framework of the Central Bank.

    The Finance Minister must address these relevant concerns if this proposal is to gain any support.  It brings to mind the recent point made by Independent Senator Subhas Ramkhelewan, in debating the recent proposals to increase the State borrowing limits, that the Parliament needs proper details of the ways in which those monies are proposed to be spent, because no person could borrow money from a diligent lender without giving details.  We need, as a country, to insist on these higher standards.

    We need to move away from the black box and the magician’s hat, towards a more transparent situation in which large-scale public spending decisions are based on a solid series of rationales.

  2. Colman Commission – The concern here is that the second limb of this proposal will prevent lawsuits against the Central Bank; at this point I am not sure if that only applies to CL Financial-related matters.  The Terms of Reference of the Colman Commission state –

    …2. To make such findings, observations ad (sic) recommendations arising out of its deliberations, as may be deemed appropriate, in relation to:

    (i) whether there are any grounds for criminal and civil proceedings against any person or entity; whether criminal proceedings should therefore be recommended to the Director of Public Prosecutions for his consideration; and whether civil proceedings should be recommended to the Attorney General for his consideration;

    It seems to me that the result of these proposals could be to thwart that part of the functions of the Colman Commission as they relate to the Central Bank.

  3. Insurance Act – Finally, I am concerned that as we are on the eve of a possible ‘solution’ to the problems of the policyholders, there may be other fragile insurance companies with solvency issues.  The fact that these matters are now so high on the public agenda means that we should not waste the opportunity to bring forward the new Insurance Bill, which has been drafted for some time, for discussion.

It is at moments like this that a responsible and long-term approach to these huge issues is in the interest of the entire nation.

CORRECTION

In this article, which was published on September 13th 2011, I stated that there were unanimous objections to my appearance as a witness at the Colman Commission. I wrote that on the basis of certain reports given to me by persons who were present at those meetings, but after receiving a challenge from the attorneys for the Trinidad & Tobago Securities & Exchange Commission (TTSEC), it was impossible to corroborate that aspect of the article – i.e. that the TTSEC had objected to my appearance.

This notice is to correct the record in that respect, I do regret any inconvenience or damage caused to the TTSEC by my publication of those allegations. – a Correction with similar effect was published in the Business Guardian of 18th November and I do regret the delay in publishing this one here for blog-readers.

Afra Raymond

Fifth submission to the Commission of Enquiry into the failure of CL Financial Limited, et al

9th September 2011

Afra Raymond’s fifth 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 can be seen at www.afraraymond.com.

I am willing to give oral evidence before the Commission.

This submission is supplementary, providing an update on the work which I have published since the fourth 4th July 2011.

The three articles in this submission are –

Date of Publication Title Abstract
6th July 2011 Colman Commission considerations Questioning the reluctance of persons who lost monies in the CL Financial fiasco to appear as witnesses.
27th July 2011 Lessons from the Financial Crisis Probing the causes and consequences of the crisis.
30th August 2011 The Colman Commission – Cloudy Concessions The concession to allow witnesses’ statements as to the quantum of their investments to go unpublished is critiqued.

I do believe all the items in this submission to be true and correct.

……………………………………………..
Afra M. Raymond B.Sc. FRICS
http://www.afraraymond.com

Apt. #14, Highsquare Condominiums,
1a Dere Street,
Port-of-Spain
625 8168 (h)
678 9802/350 6215 (c)
625 6230 (d)
afraraymond@gmail.com

The Colman Commission – Cloudy Concessions

The Colman Commission held its first session of Hearings in the last week of June, so we were able to have moving reports from witnesses who had lost-out from various investments with the Hindu Credit Union (HCU).

I read those transcripts and it was painful to see the shape of this problem.  The most striking aspect for me was that the various attorneys seemed to have struck a compromise as to the parts of that evidence which would form part of the public record.

HCU Investors were allowed by the Colman Commission not to state investment amounts. They seemed to set the agenda.

The main concession was that those witnesses did not have to state the amount of their investments for the record.  The reasoning seems to have been a stated fear of crime, but it is my view that this concession will compromise the effectiveness of the Colman Commission.  Given that the Commission is scheduled to resume its Hearings on 19 September, it seems timely to put these matters forward now.

To begin with, the two Golden Rules of investment are –

  1. The Risk and Reward paradigm – Risk and Reward have an inescapable relationship – i.e. the greater the Risk, the greater the Reward and vice versa.
  2. Investments need to be spread out so as to avoid undue concentration of risk – in colloquial terms, you should not put all your eggs into one basket, or bet all your money on one horse.

From these time-honoured ‘Golden Rules’, we derived the ‘Prudential Criteria’ which guide how financial institutions balance risk and reward.

Yet, despite the ‘Golden Rules’ the CLF and HCU chiefs were able to devise products which tempted tens of thousands of people to abandon those basic safeguards and invest in their products.  People who were normally sensible were tempted to abandon good sense and break both ‘Golden Rules’.  That is the measure of this tragedy.

Another point is that it was not only individuals who made that type of error, there were other people, with responsibility for managing monies, who also gave into the various temptations.  The sidebar has details on that.

Let us be clear that the scope of this fiasco is as broad as it is deep, with boundaries stretching from the delayed and misleading accounts to the mismatched funding/investment practices of the core companies, from the absence of proper corporate governance described by Dr. Euric Bobb to the negative impact of the extensive political donations made by the CLF group.  The Executive Flexible Premium Annuity (EFPA) is at the heart of the tragedy – the most successful investment product ever designed and built in the Caribbean, while being, at one and the same time, arguably the most toxic.

The duty of the Colman Commission is to probe how this fiasco occurred, recommend methods to stop a recurrence and also to identify responsible people who are apt for lawsuits or criminal charges.

We are now contemplating an inquiry into a large-scale financial collapse, which appears to have conceded the right of witnesses to withhold details about their investments.  We are able to read the name and age of the witness, but effectively barred from information as to the size of their investment or the proportion of their total portfolio that figure represents.  A Public Enquiry into a financial failure has conceded the right of the public to the basic financial information.  I say basic, because the fact is that without those thousands of EFPA and INC investments, there would not have been the cashflow to allow CL Financial to embark on that fateful journey.

This appears to me to be a cloudy concession, to say the least, since it might represent the thin edge of the wedge in setting a precedent to allow subsequent witnesses to try obscuring or omitting financial details.  More importantly, the effect of that kind of concession is that it will almost certainly mask the extent to which the basic financial rules were violated.  That is not a philosophical question, because the CLF disaster only attained this scale and consequence as a result of these basic rules being broken.  Ergo, it is not at all possible to credibly examine the causes of the crisis, if one has conceded that those are areas which will not be publicly examined.

There was public campaign to persuade people to make these risky investments.  That campaign was calculated to have them set aside the norms of good sense – the ‘Golden Rules’ were abandoned.  The Agents, many of whom masqueraded as ‘Investment Advisors’, appealed to people to close-off their other accounts and sell other investments so as to put as many eggs into that one basket as possible.  After all, the more money you put with them, is the more interest CL Financial was offering.  We all know that is how the thing went.

At the same time, these agents were busy telling people that their product offered these tremendous rates of return and complete security of funds, etc. etc.  I bet everyone reading this heard those lyrics, at least once.

This concession is short-sighted and I am urging the Colman Commission to reconsider its position urgently.  There must be no easy concession to allow less light.

Sunlight is the best disinfectant.

The depth of this tragedy can only be plumbed if we are able to see the true extent to which the ‘Golden Rules’ were broken.

The Colman Commission has to keep its focus.  That concession needs to be renegotiated, if it is not already too late.

SIDEBAR: The levels of responsible investors

Apart from the individual investors who suffered from their misplaced faith in the CL Financial and HCU Products, there are others who also need to be examined by the Colman Commission if we are to have a proper picture of those events.

Firstly, there are the Credit Unions, who were acting for many small and relatively unsophisticated investors.  Several Credit Unions placed heavy investments into these EFPA products, which of course was a product approved for individual investors.  The nature and extent of those Credit Union investments need to be a living part of this enquiry.

Secondly, there were yet another species of large-scale investors who were the chiefs of the State-owned National Gas Company (NGC) and the nation’s largest pension plan, the National Insurance Board.  Those two companies were reported to have invested the sums of $1.1Bn and $700M, respectively, in a Clico Investment Bank (CIB) product called the Investment Note Certificate (INC).  This was another ‘gravity-defying’ product which offered attractive rates of interest along with the guarantee of being backed by good-quality investments.  Like a close relative of the EFPA.  In ‘Taking in Front’ published here on 25th April 2010, I examined the NGC’s involvement in those CIB products.  At one point, up to 40% of NGC’s money was with the CL Financial group, so it is clear that its own Board policy on the placement of large-scale, short-term deposits did not insulate that State Enterprise from the temptations which afflicted others.

Given that the highest levels of commission were paid to the agents for these products which yielded so much cash for the CL Financial group, Colman has to ask whether inducements were ever offered to these people in positions of trust.  Apart from the question of possible inducements, the real question is whether the kind of over-concentration of deposits which exists is at all compatible with the proper execution of one’s fiduciary duty.  Colman will never know unless he withdraws that fatal concession.

Property Matters – Taking Stock

As part of this pre-budget series, I am going to ‘take stock’ of some recent, significant happenings in relevant areas.

Given the unstable situation in relation to the State and its operations, many examples of which have been set out in previous ‘Property Matters’ columns, it is very important that a critical stance be maintained.  That said, it is also important that any progress be properly recorded and acknowledged.

The notable items were –

Housing Development Corporation (HDC)

hdc-logo
I was very pleased to read of the success HDC was having in collecting the serious rent arrears owed by its tenants, reportedly in excess of $240M.  Of course this is not the first time there has been an effort to rectify this situation, so hopefully this will be a sustained program as it is vital that housing be treated with proper responsibility.  That responsibility would extend from the quality of the designs and construction, the treatment of contractors and suppliers all the way to housing policies which respond to the needs of the needy.

Last week, there was a report in this newspaper that the Housing and Environment Minister, Dr. Roodal Moonilal, disclosed a new housing policy.  According to that report, the new policy will favour distribution of serviced lots, with foundation slabs, over the provision of new homes.  I have been calling for a review of our housing policy for some time now, so it was very disappointing to read that Cabinet had recently approved this important new policy without some formal process of dialogue or seeking wider views, much less a thorough examination of the shortcomings of the 2002 policy.  Yes, a new housing policy was sorely needed, but there are solid benefits to wider dialogue.

Housing is too important an element of our Welfare State to ever become solely a creature of Cabinet, whatever the credentials of the current crop of Ministers.

This leads directly into my point about the poor flow of basic information, which can be detrimental to the best intentions.  The 2002 housing policy disappeared from the internet about 6 months ago, but despite several written requests I have had no success in having those links restored, for whatever reason.  The new housing policy is also not available online.  In contrast, last month the Ministry of Finance issued a revised State Enterprises Performance Monitoring Manual and that is available online, together with the 2008 Manual it replaced.

Building code

Dr. the Honourable Roodal Moonilal, Minister of Housing and Environment
Dr. the Honourable Roodal Moonilal, Minister of Housing and Environment

The impending new Building Code is to be welcomed, having been developed in collaboration with key stakeholders.  There needs to be a solid commitment by all parties to establishing proper enforcement of those critical standards.  The Building Code will cover important areas such as earthquake and fire hazards as well as other quality issues.

The initiative is being piloted by Dr. Roodal Moonilal, Minister of Housing and the Environment.  UDECOTT and the HDC both form part of his responsibilities, so that is a good fit.  We will have to be vigilant to ensure that all State construction conforms to the new standards.

I can scarcely believe that the very Minister who understands the importance of collaborating with stakeholders on the new National Building Code, would state a week earlier that the new Housing Policy had been agreed by Cabinet, with no visible attempt at consultation.  Incredible, but true.

A Culture of Consequence

I have consistently stated that the absence of consequence is inimical to any development and that consequence has to be restored to a proper place if we are to progress.   Up to last Thursday, 11 August, I stated at a public meeting that I was unaware of any government in this country taking decisive action against its own appointees in the State Enterprises.  The pattern has been one of charging people from the last political administration in what almost always looks like revenge.

Dawn Annamunthodo, former chairman of the National Schools Dietary Services Ltd. Photo © Trinidad and Tobago Guardian
Dawn Annamunthodo, former chairman of the National Schools Dietary Services Ltd. Photo © Trinidad and Tobago Guardian

The Sunday Guardian headline of 14 August ‘Cabinet fires Chairman of School-feeding Programme’ was as welcome as it was surprising.  It was reported that the Cabinet had taken decisive action to fire a Chairman who had been appointed about 6 months before and that is a positive step, the first time any government in this country has done that, as far as I am aware.

According to that exclusive story, the fired Chairwoman of the National Schools Dietary Services Ltd (NSDSL)—Dawn Annamunthodo – had obtained extensive and expensive security guards for herself, due to some alleged death threats.  There were also details of what seemed to be deceptive attempts by that individual to become a signatory to the bank accounts of that State-owned company.  If those reports are true, there are two serious implications –

Firstly, it is extremely unlikely that this is the first time that this individual was involved in acts of that kind.  Grown people do not just change their behaviour in a few months’ time, we all know that.  My point being that this episode calls into question the screening which is carried out in relation to these appointments.  Whatever screening processes now exist, will definitely have to be made stronger, together with ongoing reviews of Board performance.

Given that the Prime Minister is widely reported to have approved the Chairpersons of State Boards, that screening process needs to be reviewed urgently so as to preserve the integrity of that office.

Secondly, this individual is reported to have attempted to convince Republic Bank’s Ellerslie Plaza branch to make her a signatory and that matter must be promptly investigated by the Fraud Squad, with charges to follow if those allegations are true.  It is an echo of the point I made here last week about a dutiful police officer allowing a motorist with a defective vehicle to just drive-off after a ticket is issued.  Not good enough, if we are serious about road-safety.  We have to restore a Culture of Consequence if White-Collar Crime is to be challenged.

But, even though no money appears to have been stolen in that School-Feeding episode, the saddest part was the bold-faced question that individual asked the Guardian reporter, when invited to give a comment

How did you get hold of those documents? Those are state documents.   These questions are state business.

It reminded me very much of the response of Jewan Ramcharitar, former PriceWaterhouseCoopers partner, who suddenly resigned as eTeck Chairman almost a month ago.  That entire affair remains mysterious, with Stephen Cadiz, the line Minister, stating that it was due to a ‘difference of opinion’ and the departed Chairman reportedly stating –

I am actually working on a project in the public service arena on a full-time basis and my time at eTeck is eroding the time and attention I pay to that.

“Just what that project is, he won’t say.”

I wonder if Ramcharitar would have found that dismissive answer to be acceptable when he was a partner at PWC?  Probably not, yet we are continually beset by these evasive attitudes in public affairs.  We need to hold our leaders to a high standard.

The latest twist is the sudden resignation of George Nicholas as Chairman of Caribbean Airlines and the opaque statement by the Minister of Transport, Devant Maharaj – “…Yes. I can confirm this. I am in receipt of his letter but I cannot say anything more…

In the three cases, bare-faced conflation of State Business with Business which is private, personal or confidential.

Good steps are to be recognized and applauded, but we must always strive for better.  We need to continue onward and upward.  It would be good to have a statement from the Minister of Foreign Affairs and Communications as to the governments’ commitment to a progressive policy in these important matters.  The Housing policy needs to be published for comment and we also need to have a clear statement as to whether there can be any such thing as a confidential state policy.

Confidential State Policy may seem like an oxymoron, but readers will be aware of the reluctance of the Education Facilities Company Limited to publish its new Confidentiality Policy.  I don’t want to say refusal, but when this budget season is over we will be continuing to examine those EFCL operations.

Property Matters – State Enterprise Accounts

State Enterprise Performance Monitoring Manual
In the next few weeks, this column will cover some of the issues which are likely to have a bearing on the 2012 Budget.

In my view the State and its Agencies must perform in an exemplary fashion if we are to progress.  A good example is worth a thousand words.

At page 22 of the 2010-2011 budget statement, the Minister of Finance said –

…Mr. Speaker, no coherent, co-ordinated planning or strategy for state enterprises exists.  As a result we have begun to rationalise the state enterprises, including the special purpose companies, which will incorporate a new accountability system that goes beyond the presently operating company ordinances. It is these loopholes in public accountability that resulted in the UdeCOTT scandal. This must never again happen in Trinidad and Tobago…

The Ministry of Finance has now published a new State Enterprises Performance Monitoring Manual 2011, it is over three times longer than the previous edition, so it will be something to consider in weeks to come.

Certainly, there are stricter requirements in relation to the filing of accounts – at pg 30 of the 2011 guidelines –

3.2.5 AUDITED FINANCIAL STATEMENTS

State Enterprises are required to submit the following:

  1. Audited Financial Statements (2 originals and 120 copies) to the Minister of Finance within four (4) months of their financial year end. These reports are to be laid in Parliament and subsequently submitted to the Public Accounts and Enterprises Committee for consideration;
  2. Copies of their Management letters issued by Statutory Auditors…

At pg 16 of the 2008 edition –

1.3.10 Publishing of Financial Statements by State Enterprises

Government has agreed that State Enterprises be required to publish in at least one (1) major daily newspaper a summary of the audited financial statements within four (4) months to the end of their financial year and a summary of the unaudited half-yearly statements within two (2) months of the mid-year date.

Such summary statements must be in accordance with the requirements of the Securities Industry Act, 1995.

The new guidelines appear to be stricter, but the requirement to publish to the press seems to have been removed.

There are swirling issues on this –

  • No accounts for years – As I have pointed out before, some of the largest State Enterprises have published no accounts for years.  UDECOTT and NHA/HDC are just two examples of this flagrant breach of the shareholders’ instructions as set out above. In the case of HDC, there is a greater concern in my view, since sections 18, 19 and 20 of the HDC Act require the audited accounts to be produced and published.  Anyhow you try to spin it, those are terrible signs.  For a private company to have no accounts, for even a few months, is indicative of poor performance at the very least.  No accounts for years is unacceptable.  One can only wonder how clearly could anyone plan if basic information is being obscured in this fashion.  We expect better from the chiefs of these State Enterprises and certainly we expect better from the Peoples’ Partnership.  In his preamble to the 2010-2011 budget, Minister Dookeran said –

…We must at all times remember who we work for. We must make Government work for the people.  As our Prime Minister always says: serve the people, serve the people, serve the people…

  • Serious debts outstanding – There are continuing reports, despite some efforts, that contractors, consultants and suppliers are owed substantial monies by State Enterprises for extended periods.  That has a disastrous effect on our local economy both on an immediate tangible level and in terms of the more subjective element of confidence.
  • Ambitious new projects continue to be announced, even as the basic accounts are incomplete and substantial bills remain unpaid.

Apart from the evident confusion, at the very highest levels of the State and Government, the unacceptable part is that there is not even an attempt to explain what is the hold-up or what areas of the accounts remain unresolved.  The few times anyone in authority has attempted to explain the delays in those accounts, it has been a model of vagueness and ambiguity.  That uncommunicative behaviour does not augur well.  These State Enterprises are not building a wartime bunker or a new spy satellite, only new homes and offices.

But there is more, according to S. 99 (1) of the Companies Act 1995

  1. every Director of a company shall in exercising his powers and discharging his duties act honestly and in good faith with a view to the best interests of the company; and
  2. exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

Those provisions make mismanagement of a company an offence.  It is literally impossible to manage or direct the affairs of a multi-billion dollar company in the absence of audited accounts.  So there must be serious concerns as to how the Directors of those State Enterprises without accounts could have properly discharged their obligations under S. 99 (1).

SEC logoApart from these points, there is now the fact that the SEC has made Orders in respect of Contraventions of the Securities Industry Act 1995 and the Securities Industry Bye-Laws 1997.  Those Orders are in relation to the failure of these huge State-owned Enterprises to publish their accounts –

  1. 19th March 2010 against HDC, with fines totalling $121,000 – see http://www.ttsec.org.tt/content/pub100326.pdf.
  2. 15th June 2011 against UDECOTT, with fines totalling $120,000 – see http://www.ttsec.org.tt/content/Order-for-settlement-re-UDECOTT.pdf.
  3. 25th July 2011 against HDC, with fines totalling $400,000 – see http://www.ttsec.org.tt/content/Order-for-settlement-re-Trinidad-and-Tobago-Housing-Development-Corporation.pdf.

I was pleased to see the SEC taking this firm action against these offending State Enterprises, it is an important and necessary intervention.  I am not at all sure what, if any, ongoing penalties are being applied.  If there are no ongoing punishments or fines, this important regulator needs to take a tougher stand.  It is simply not good enough in my view for the regulator to levy these fines and allow the companies to carry on with ‘business as usual‘.  That would be like a dutiful policeman ticketing a motorist for smooth tires, no seatbelt and no headlights – issuing the ticket and then letting that motorist drive off.  The SEC needs to consider heavy daily fines and banning orders against Directors of these companies in breach of the law, if such do not already exist.

The era of irresponsibility in high office needs to be brought to a close.  The role of the Treasury in supporting this grossly irresponsible behaviour is questionable.  The silence on the missing accounts is intolerable.  The chapter of getting away with it needs to be ended.

Expenditure of Public money – Accountability – Transparency = CORRUPTION

CL Financial Bailout – Lessons from the Financial Crisis

This is an edited version of my address to the 4th Biennial Business Banking and Finance Conference (BBF4) held at the Trinidad Hilton from 22 to 24 June, 2011. The session I participated in was devoted to ‘Lessons from the Financial Crisis: The Resolution of Failed Entities.’ [See the acknowledgement letter from the conference convenor here.]

Thanks for the invitation to speak at this forum, it was last-minute, but welcome, since our local Institutions of Higher Learning have not spent the necessary time to explain and analyse this financial fiasco.  I have been very critical of the Institute of Business, the Institute of Social and Economic Research, the Faculties of Economics and Management and the Caribbean Centre for Money & Finance, so it is great to see you making a start on this overdue work.  It is my pleasure to participate in these proceedings.

I want to start by shifting focus to the arena of the mind and the existence of elements such as moral and ethical values, as well as social standards. In 1971 there was a famous series of psychological experiments in which selected students entered a two-week role-play as prison-guards in control of other people who were playing the role of prisoners.

That experiment was conducted at Stanford University in California and the results were that most of the prison guards adopted cruel behaviour with most of them being upset when the experiment was stopped after only six days. The entire experiment was filmed and the prisoners suffered from regular acts of wickedness, abuse and sheer perversity – one-third of the guards acted sadistically.

The Stanford Prison Experiment as it is now known, was heavily criticised as being unethical and unprofessional.  Of course the other aspect is that it re-opened the perennial discussion into the nature of things.  The nature of our nature, as it were – ‘Are we humans naturally evil and cruel?‘  The learning seems to be that well-adjusted and reasonable people can very quickly lose their moral compass in a situation with a lack of the conventional controls such as disapproval and laws.

No surprise to those familiar with history and politics, but the lesson for us in T&T is that if you let people get the idea that they can never be punished, there is virtually no limit to the rules they will break.  Asset-stripping, Bribery and Corruption can become the new norms of a governing class and that is what has happened in our country.

We have never had a strong tradition of detecting and punishing White-Collar Criminals, so if we are to make a start in terms of the resolution of failed entities, that has to be the starting-point.  We cannot reconstruct or resolve the failed entities if we do not change that aspect of our culture – the absence of consequence has to be abolished.

The absence of consequence is inimical to any development – personal, national or regional.  It is no point bringing new regulations or ‘approaches’ to this huge problem, until and unless the basic culture changes.

So that is the challenge for us – we have to change the way we think and behave around these issues of White-Collar Crime.  It is a very damaging type of crime which can affect the lives of many, many people – as we have seen in the CL Financial fiasco.  But we have to make that choice to change our culture around these issues.

The current financial disaster amounts to the greatest ever destruction of capital in peacetime – these are literally epochal events, but we do need to be careful as there is yet another big lie out there.  It suits the CL Financial chiefs to promote a version of events that has the blame attached to the Wall Street events of 2007/2008. The people promoting that version are buffoons, whose story is unable to withstand serious examination. I call it the Wall Street hoax and it is useful since it allows the CL Financial chiefs to escape the reality of their failure, to put it charitably, by blaming events way beyond their control.

Nothing could be further from the truth. We need to be very clear on the scale of this particular lie and the public mischief it represents. Even close examination of CL Financial’s 2007 audited accounts shows only tiny exposures to Wall Street  But what is worse is that the entire CL Financial pattern of behaviour and the burning question of the extent to which the CLF chiefs were ‘fit and proper’ are not new issues.  If we consider the 15 July 1996 ‘Circular Letter to Shareholders‘ issued by Republic Bank Limited under the hand of then Chairman, the late Frank Barsotti, it is all there. Fifteen years ago we knew the threat to which we were exposing this country by letting CLICO take over Republic Bank…it is 66-pages long, but very important to read – it is on my blog.

We don’t have a Wall Street problem, what we have here is a St. Vincent Street problem.  Yes, from the Central Bank (at the foot of the Street) to the Treasury (paying for the whole entire wretched bailout) to the Red House (where the real discussion has never taken place), right up to #29 – the CL Financial headquarters. Yes, is a real St. Vincent Street problem we suffering from. This is we own creation we fighting with.

The CL Financial fiasco is estimated to be costing at least ten times as much, as a proportion of GDP, as the Wall St. crisis.  Yet we still have mischief-makers who want to make misleading comparisons between the two, to justify the bailout.

A powerful parallel with the Wall Street crisis is the fact that the CL Financial fiasco was also characterized by ‘Shadow Banking’, meaning vast sums of money solicited from investors and being traded outside of the conventional regulatory umbrella.

Here are some extracts from the Financial Crisis Inquiry Commission’s Final Report (the FCIC is the US government’s official Commission of Inquiry into the Wall St crisis) –

From pg. XX (20) of the ‘Conclusions’ section –

…Within the financial system, the dangers of this debt were magnified because transparency was not required or desired. Massive, short-term borrowing, combined with obligations unseen by others in the market, heightened the chances the system could rapidly unravel. In the early part of the 20th century, we erected a series of protections—the Federal Reserve as a lender of last resort, federal deposit insurance, ample regulations—to provide a bulwark against the panics that had regularly plagued America’s banking system in the 19th century. Yet, over the past 30-plus years, we permitted the growth of a shadow banking system—opaque and laden with short-term debt—that rivaled the size of the traditional banking system. Key components of the market—for example, the multitrillion-dollar repo lending market, off-balance-sheet entities, and the use of over-the-counter derivatives—were hidden from view, without the protections we had constructed to prevent financial meltdowns. We had a 21st-century financial system with 19th-century safeguards…

Every line of that paragraph rings true to our local situation.  We are grappling with a shadow banking threat to the savings of the nation.  Our national wealth has been pledged to rescue adventurers at the very edge of the financial universe and that is what is wrong with the bailout.

I am no supporter of the Peoples’ Partnership, but what is right is right and the fact is that our Minister of Finance, Dookeran, is spot-on with this part of his analysis and action.  When Dookeran spoke in his inaugural budget speech on 8 September 2010, he took the approach of combining the assets and liabilities of both CLICO and British-American Insurance, which showed an insolvency in the order of $7.3Bn.

More to the point, the approach showed ‘traditional insurance‘ liabilities – i.e. Health, Pension and Life – of the order of $6Bn and ‘non-traditional/investment’ liabilities – i.e. EFPAs – of the order of $12Bn.

So what we are seeing is insurance companies whose non-insurance business is twice the size of their insurance portfolio and what is more, the supposedly guaranteed investment is nowhere to be found, hence the tremendous problem in repaying the EFPA holders.  That is the dilemma facing the country now and that is what Dookeran was explaining to us – a Shadow Banking arena that has grown to eclipse the core business and threaten the entire nation.

Another important part of the false discourse in all this is the promotion of the utter nonsense that there is any such thing as a ‘Guaranteed Investment’.  Absolute and complete lies.  There is no such thing and that is the fact.  Yet we have had CL Financial’s  Boards of Directors of the ‘Great & Good’ promoting that kind of deceptive dangerous nonsense.  You Investment Professionals need to find the courage of your convictions to speak-out on this smartman behaviour.

We had a product being promoted as offering twice the market rate of interest and also your entire investment is guaranteed and blah blah blah.  The Central Bank and the Supervisor of Insurance sat there and allowed that deceptive advertising to take place and it was a campaign, with thousands of letters.  A straightforward assault on good sense and the gatekeepers stood silent.

The final point we need to drive home is that, whatever the temptations, we must not lay the entire blame onto Lawrence Duprey & Andre Monteil.  It took plenty more than the main CL Financial chiefs to get us to this point.  There is a network of lawyers, accountants, agents who pretended to be financial advisers and of course, the many Board Directors.  That network is hundreds of people all of whom share a responsibility, quite probably culpability, for this crisis.

The Colman Commission has to work very hard to preserve its effectiveness.

The Duprey Letter

clf-cbtt letterThis is the CL Financial letter of 13th January 2009, signed by their ‘Trinity Chief’ Lawrence Duprey, for readers’ comments. I dub Lawrence Duprey the ‘Trinity Chief’ since he was the majority shareholder, Chairman of the Board and CEO of CL Financial.

I made three applications for this document under the Freedom of Information Act. The first was to the then Minister of Finance, who held over 10,000 shares in CL Financial, Karen Nunez-Tesheira. The reply to that application directed me to the Central Bank, to whom the letter was addressed, which was an obvious ploy to thwart my enquiry, since Central Bank is immune from the Freedom of Information Act. My two subsequent applications (2 & 3) to the current Minister of Finance, Winston Dookeran, have done little better – those were never even acknowledged.

It seems to contain the same text as the one Karen Nunez-Tesheira read into Hansard on 4th February 2009 – see ‘Finding the Assets‘ – except that the table in the copy is titled “CL Financial Group – Assets Available for Restructuring“.

CLF LETTER TO CENTRAL BANK

CL Financial Bailout – The final AGM

bhoe-knows* In response to a question whether he took part in the reported decision to pay CLF dividends even after the approach to the State in 2009.

CL Financial’s final Annual General Meeting was the most interesting meeting in the saga of its collapse.

That meeting took place at the Trinidad Hilton on Friday 23 January 2009, so consider the timeline –

  • 18 November 2008 – CLF publishes its 2007 Annual Report, including its audited accounts, which showed assets of $100.666Bn and after-tax profits of $1.74Bn.
  • 13 January 2009 – CLF writes, under Lawrence Duprey’s signature, to the Governor of the Central Bank to request urgent financial assistance.  See pg 628 of Hansard of 4 February 2009 for the text of that letter, which specified that CLF’s asset value was $23.9Bn.
  • 16 January 2009 – CLF pays a dividend of $3.00 per share.
  • 23 January 2009 – CLF convenes its final AGM before the ‘official’ collapse.
  • 30 January 2009 – The bailout of CLF is announced at a Press Conference at the Central Bank.  All the speakers at that event stated the CLF asset value at $100Bn.

Given that the normal function of an AGM is to inform a company’s shareholders and stakeholders of its performance and prospects, that timeline raises some intriguing questions.

For whatever reason, there have been no published reports of that final CLF AGM, so I posed these questions to a CLF shareholder in an email exchange –

Q       Did you attend that AGM?
A        Yes
Q       Was it at the Ballroom of the Trinidad Hilton on Friday 23rd January 2009?
A        It was at the Hilton but not in their ballroom. It was in one of the restaurants/meeting rooms that overlooks the Savannah. Can’t remember the name.
Q       About how many shareholders were there in attendance?
A        I would guess about 30-40
Q       Which Directors were present?
A        Clinton Ramberansingh, Rampersad Motilal, Bhoe Tewarie, Gita Sakal and Michael Carballo.
Q       Which Executive Directors were present?
A        Roger Duprey (I think)
Q       What was the ‘tone’ of the meeting?  Was there any clue as to the grave difficulties facing the CLF group?  Was the ‘bailout letter’ mentioned at all?
A        The tone of the meeting was “normal”. There certainly was no indication that CLF  (or the CLF group) was in any imminent danger. The effects of the global downturn was mentioned in light of the reduced dividend (from $5 to $3) and we were told by Carballo that although the group, like everyone else, was feeling the effects of the global recession, it was still performing well and that he expected the performance to improve over the course of the coming year. One interesting “fact” that did emerge (I say “fact” because I have no idea as to the veracity of the claim) had to do with the value of CLF shares. One shareholder had complained about not really being able to derive any value from his CLF shares apart from receiving a dividend. No bank would accept it as security. Carballo advised that CIB would accept the shares as security for a loan………….had I known I’d have taken a big loan and never paid it back!! Certainly the bailout letter was never disclosed to the shareholders.

If true, this account of the events is deeply disturbing.

The question is whether CLF’s Independent Directors were aware of its true position.  Could it be that the Board was unaware of Duprey’s letter and that they were surprised when the bailout was announced?  If that were the case, it would mean that Board of Directors was kept in the dark over this bailout.

If the Board was informed as to the bailout letter, we would be contemplating an even more unacceptable case.  If that is what happened, it would have been fraudulent for the CLF Directors to have carried out that AGM without informing the shareholders of the company’s true position.

Michael Carballo was the CLF Group Financial Director since Andre Monteil’s retirement in early 2008. Given Carballo’s position in the group and the high quality of his professional skills, it is very difficult to accept that he did not himself know CLF’s true position.

Dr Bhoe Tewarie swearing-in
Dr Bhoe Tewarie swearing-in

According to this email exchange, neither Lawrence Duprey nor Andre Monteil attended CLF’s final AGM. With only one week to go, they would likely have been attaching more priority to the negotiations for the bailout.

So, Dr. Tewarie – a shareholder and former Director of CLF – is now appointed to Cabinet at the very moment that it is reviewing the bailout of the same CL Financial group.  That man, noted in the field of business education – his last post, before this appointment, being Director of UWI’s Institute of Critical Thinking – when asked about his attendance and participation in the Board meeting which approved those CLF dividends is reported to have said – “I cannot remember, I may have, I cannot remember the exact timing, I may have—I don’t know…The records would indicate whether I did or not...”.

We are being asked to believe that Dr. Tewarie cannot really remember this meeting, probably the final one before CL Financial folded and likely the most eventful in even a high-profile career such as his.  The old people have a saying that you start as you mean to go on.  Dr. Tewarie’s reply can hardly inspire confidence.  It verges on being dismissive and  disrespectful of the public.  We are paying for all the mess created by CL Financial and yes, that is the same public Dr. Tewarie just swore to serve.  It does not augur well.

The essential questions for Dr. Tewarie include his attendance and participation in this final AGM and what he knew about the state of the group at the time.

It seems unacceptable to me for holders of high office in our country to be persons who would be disqualified under the ‘fit and proper’ criteria.  That practice must be revised as part of the New Politics we are being promised.

Given the tremendous stakes and the complete silence by all the responsible people, we need to ensure that this affair does not carry our country any further into peril.

These responsible and silent people must be banished into obscurity, at the very least.

SIDEBAR

PricewaterhouseCoopers
It is a well-established custom that AGMs of large organisations are attended by the responsible partner of the auditor’s firm, who reads the auditor’s letter to the audience.  Did a partner of PriceWaterhouseCoopers attend this meeting?  Which one?  Did a PwC partner read aloud that auditor’s letter?

Real Responsibility
On the one hand, a Cabinet Minister is dismissed over a $100,000 contract and I consider that to be good progress in the correct direction.  The fact that a reasonable suspicion had arisen cost that Minister her job, which is good.  In keeping with the State’s exemplary behaviour, our leaders should not behave in a fashion which causes suspicion or derision.

On the other hand, we are seeing a replacement Cabinet Minister, who at last record was known to be a shareholder of the huge, failed CL Financial group and one of its Board Directors at the time of the colossal crash.  The official version is that CL Financial is a $100Bn group.  There have been recent reports that the Cabinet is about to consider a new approach to the bailout and the public is bound to wonder at the timing of this appointment.

Fit and Proper
The Central Bank’s ‘Fit and Proper’ Guideline (sic) sets out the official position as to the type of person held to be ‘fit and proper’ to be a Director or Officer of a Financial Institution.

It states –

3.1 In accordance with governing legislation a person is considered to be fit and proper if the person essentially is of good character, competent, honest, financially sound, reputable, reliable and discharges and is likely to discharge his/her responsibilities fairly.