Letter: New GPC has not made full disclosure

The first response of QAII Executive Chairman to the Business Page Article on June 8 dealing with tax concessions to his companies, was to dismiss the suggestion about the impropriety of the announced concessions and adding for good measure that there was nothing further to be discussed.

Since then, faced with revelations that have obviously embarrassed more than just the group, and realising that it was not the group’s call whether or not there was indeed nothing further to be discussed, the group has embarked on a weekly full page public relations campaign including easy-to-disprove statements that must surely aggravate for them an already bad situation.

Their latest was a full page advertisement in the Stabroek News of Sunday, August 3, 2008, making unfounded and misleading claims and ignoring critical questions that speak volumes about those who are supposed to protect the public interest. It is not my intention to challenge the group on every point including its wishful boast about New GPC being the largest pharmaceutical manufacturing company or that Guyana is essentially self-sufficient in pharmaceutical and medical supplies. In fact with just 39% of its revenue derived from its own production in 2006, it is only the generous definition under the tax laws that qualifies New GPC as a manufacturing company while it only needs a few minutes on the internet to show just how idle is its boast about its size. And if Guyana is self-sufficient in pharmaceutical and medical supplies then Chairman Ramroop may wish to explain why we are importing hundreds of millions of these products each year.

Unable to deal with facts, the advertisement targets me, suggesting that I had disclosed information obtained under a professional engagement. Anyone following the exchanges in the press knows that I wrote only about the discount on the sale to QAII of the additional 30% shares in GPC by the Government. At no time was Ram & McRae involved in that transaction which took place more than two years after we had done a non-audit engagement for the group in respect of an advertisement for the purchase of a 60% stake. The company also states that they did not take our advice on the engagement we did have. They did more than that – they poached the very staff member who led the exercise for Ram & McRae. That staff member is now New GPC’s General Manager!

But I am not surprised at their half-accusation. If they show such scant respect for accuracy and truth in information on straightforward matters like the losses which the acquired company was incurring and the rental QA II are paying for the Sanata Complex, it is unlikely that they will respect anybody’s reputation including their own. Let us get this straight. The source of my information on the discount offered by Mr. Brassington’s Privatisation Unit (PU) was the 2003 audited financial statements of QAII, despite its delinquency in complying with the law requiring the filing of annual reports and audited accounts. And for confirmation just read page 24 of Winston Brassington’s Paper presented to the July 29 Taxation Seminar for his convoluted justification of a discount of $45 Million on the sale of the additional shares. Using simple arithmetic I had reckoned that it was at least $30 Million. Thanks Mr. Brassington for the confirmation. As for the assertion that GPC was making $300 million in losses each year, I have to plead professional confidence.

Now let me offer the group some advice. Just in case it has any residual concerns about my professional conduct they can lodge a complaint with the Institute of Chartered Accountants of Guyana which investigates such complaints. Their PR consultant can help them – he has experience with this, albeit unsuccessful.

And please would the group, in any other full page advertisement it is advised to take, state whether it considers it ethical to have a top official of the Georgetown Public Hospital Corporation – a major buyer of GPC’s products – sitting on the board of New GPC under a lopsided contract that is not in compliance with the procurement laws of the country? Or how it feels about the incentives legislation being changed to facilitate concessions wrongly granted to members of the group.

Letter: Question for Mr. Sukhlal

I refer to the letter ‘Guyana Times is not published by Global Printing & Graphics’ (SN 27/07/2008).

Instead of dealing with the ever increasing number of issues swirling around the Guyana Times and Queens Atlantic II, its CEO Mr. Sukhlal engages in disparaging statements about me. He is free to enjoy his opinion, however malevolent or misguided. Since Mr. Sukhlal seems so informed about professionalism and so committed to ethics he should stand up to the peddling of less than half-truths by public officials with regard to transactions affecting public property and involving his paper the Guyana Times.

Mr. Sukhlal has other urgent problems requiring his attention. A good beginning would be to ensure that his paper complies with the law requiring it to state who its printers are. Then he should check on the true rent to be paid by QA II for the first five years. When he has done this he should tell his readers who look to the Beacon of truth whether it is really $50 million. Next he should expand his really suspect knowledge of the history of Sanata and when the property was “abandoned”. Such mistakes and misrepresentations raise doubt about another of his assertion – clean up cost of $1.5 bn. rather than the G$400 million the group’s principals have been telling others.

Admittedly it will cost a couple of pennies to clean up the mess caused by the distortions, misrepresentations and mistakes by his group and the public officials who at times appear to be spokespersons for the group rather than holders of the public trust.

Half-truths and misrepresentations do not fit well with the motto of the paper Mr. Sukhlal part owns. Or is that too an exaggeration of his interest?

The role of the Privatisation Unit in the QAII deal

Introduction
The President’s postponed Privatisation and Taxation Seminar finally gets underway this Tuesday at Le Meridien Pegasus, on a by-invitation only basis. I am touched at the unusual number of enquiries about my travel arrangements which I hope reflect an interest in my welfare and are unrelated to the seminar. The invitation does not include a programme, which is probably still being worked on, as the government this week was cleaning up the relevant incentives legislation which it passed with much fanfare in 2003 and then misunderstood and misapplied for five years. Hopefully the sponsors of the seminar will tell us how much their failure has cost the nation and how the government plans to regularise all the improprieties since the hurriedly introduced legislation does not. I understand that the seminar will be addressed by Messrs. Winston Brassington, Geoff DaSilva and Khurshid Sattaur of the Privatisation Unit, Go-Invest and the Guyana Revenue Authority respectively, all associated with the Queens Atlantic Investment Inc (QAII) deal that has raised serious concerns about governance, accountability, the rule of law and competence.

Readers will recall that when Business Page entered the exchange on the QAII deal on June 8 it sought mainly to clarify some issues arising from statements made by President Jagdeo on the perceived tax concessions given to QAII. As early as then, this column suggested to the newly established Guyana Times that it run its own story on the concessions and called on the government to observe its own laws and disclose in the Official Gazette information on the fiscal incentives granted, as required by section 37 of the Investment Act 2004. The whole truth from those with access to the relevant information would have avoided much of the speculation among members of the public who have become cynical with the knee-jerk reactions and piecemeal, half-accurate information from the government. The consternation generated is partly responsible for the corresponding deluge of information which well-placed members of the public have volunteered, and that highlights serious credibility problems particularly for the Minister of Finance and the agencies under his control.

Without exonerating the Cabinet and very specifically the Minister of Finance for the disastrous public relations and credibility problem caused by the handling of this matter, the role of the Privatisation Unit (PU) headed by Mr. Winston Brassington has been seriously exposed by a document I received earlier this week titled Privatisation Board/Cabinet Submission dated May 3, 2007. It is clear from that document that Mr. Brassington was prepared to rush the Privatisation Board – which includes Ministers Robert Persaud and Manniram Prashad – into an agreement with QAII. Notice of the meeting to consider the application for concessions was given even before the application had been received from the company,  and within one day of an unsigned application involving hundreds of millions of dollars, the PU had not only considered but could actually recommend the concessions sought. To place that into perspective, my experience is that it takes the Unit more time to return a simple telephone call!

Schedule of planned construction
According to QA II the project should have started in 2007, but for reasons unknown there has been a delay of about one year. Making allowance for this the investment programme of QAII will run into 2013 as follows:

Without seeking to understate the group’s much hyped promised investment, the only project set for completion within a year is the printery, with the construction of a hardware warehouse and a bonded duty-free pharmaceutical warehouse scheduled for completion in two years. Contrary to what the President had said the only commitment on a textile mill is for a feasibility study to be completed within 18 months, while two full years are expected to elapse before a 3½ year construction of the antibiotics plant, to be followed five years later by the construction of the Research and Development Facility. In other words the 600 jobs will be a long time in coming, if they come at all, and so too, will the much emphasised US$30 million investment. In any case they will be very welcome, and assuming that the investors have been acting in good faith, Business Page wishes them well.

Where is the newspaper?
What is striking in reading the application by the company and the recommendations of the Privatisation Unit is the absence of any reference to the printing and publishing of the newspaper which in fact is the first real venture to materialise and which would have benefited, if not directly then indirectly, from any concessions granted to the other companies. The paper is being produced at the Sanata Complex for which QAII companies have received approval for concessions for all kinds of building materials, generators, etc.

The proposal by QAII assumes that the group will benefit indefinitely from the sweetheart arrangements it has with the government for the purchase of drugs, and speaks of being “able to order and retain buffer stocks to prevent drug shortages, which is a recurring problem with the existing system.” It does not explain, and nor does Mr. Brassington explore, the relationship between the retention of buffer stock and the vast advance payments the group receives from the government for the purchase of drugs. What if this arrangement comes to an end – does the project stand or fall on this?

The lease payment
Messrs. Brassington and DaSilva have told us that the country will receive $50 million dollars in rental per year, pegged to the US$ and adjusted for US inflation. Brassington’s document tells us otherwise. These are the arrangements:

i. The lease of the land and buildings for 99 years at the US $ equivalent of G$50/annum per square foot (payable in G$ at the prevailing exchange rate) subject to:

a. A rent free period of 5 years for the printing and dying section/with storage. This area is estimated to be approximately 6 acres; and

b. A 60% reduced rental for the remaining 14 acres for the first five years commencing from the date of execution of a lease agreement.”

While from year 6 the rent will be the equivalent of G$43.5 million in today’s money, during the first five years it is a mere $18 million for 871,200 square feet of land plus the building, and here I am giving Mr. Brassington the benefit of his miscalculation since he reckons it will be only $12 million. Let me say as well that I believe that the government’s financial experts are confusing indexation with the discount rate, but that is not an issue for this column even though the implication is a cost to the country.

Professional valuators value property including land by reference to recent transactions in the same or similar areas. In 2007 the government charged John Fernandes Limited $320 million for 6 acres of land in the same complex, so that on a proportional basis, 20 acres of land to QAII will be valued at over G$1 billion dollars.

To convert a capital value to an annual lease payment, professional valuators as a rule of thumb divide the capital sum by ten years, which would put the amount of the annual lease for the 20 acres at over G$100 million. In other words, the lease payment is reduced by over $80 million per year for the first five years with the building thrown in free! And in each year thereafter, the reduction is approximately G$50 million.

Expedient law-making
We will look next week at other issues concerning the Privatisation Unit whose very existence in law is doubtful and which takes advantage of its questionable legal status to engage in creative governmental accounting. For now we turn attention to the bill tabled by the Finance Minister this past Thursday designed to restore discretionary concessions being granted by the political directorate. It is a complete reversal of the 2003 repeal of a 1970 provision in the Income Tax Act which allowed the President to remit taxes where he had felt it was “just and equitable” to do so.  The 2003 repeal was explained as the elimination of the broad discretionary power to concede amounts of income tax payable and under some extremely narrowly defined conditions such as “natural disaster, disability, mental incapacity or death” and only if it was expressly provided for in a tax act. Five years later Bill # 14 of 2008 empowers the Minister of Finance to make regulations for the remission of all or part of the tax payable by any person or category of persons subject only to negative resolution of the National Assembly! In respect of discretionary waivers, we are now worse than we were 38 years ago, let alone 5!

If passed in its present form, the bill could render meaningless critical sections of the Financial Administration and Audit Act even as it fails to legitimise all those concessions given since 2003 based on a wrong interpretation and application of the Income Tax (In Aid of Industry) Act, including tax holidays granted to non-companies. It is possible that since the Minister and those under his control are the only persons with access to that information and further, since there appears to be no intention to comply with section 37 of the Investment Act 2004, there is nothing to correct.

The last hope is that the Audit Office will highlight the improprieties and one hopes the almost two year delay in the publication of the 2006 Audit Report has allowed the Office enough time to do a thorough job, including the Investment Act section 37 omissions. The bill now allows the Minister of Finance in his discretion to grant tax holidays in respect of infrastructural development for an indefinite period as opposed to existing legislation which does not include infrastructural development and limits tax holidays to ten years. It will also allow the Minister to grant tax holidays to value-added wood processing, rice millers and chicken farms, sugar refining and of course to the QA II investments like textile production, new pharmaceutical products (new to science or to Guyana?) and the processing of raw materials to produce injectables. Instead of limiting tax holidays to 30 + room tourist hotels the Minister will now be able to grant these to any tourist facilities, the definition of which he will decide for himself.

The bill
It maintains the geographical as well as the industrial-type classes of investment for which the Minister can grant tax holidays so that in practice, once the activity creates new employment in a widely defined range of economic activities that leaves out mainly financial and distribution services, it  can benefit from the Minister’s generosity. The scope of this legislation in my judgment and experience borders on the reckless, and if this is the government’s considered view then it may as well abolish Corporation Tax altogether.

Conclusion
Business Page offers no prize for guessing who will finance all this extravagance – of course it will be the salaried workers in the more legitimate and formal businesses and the consumers in the form of VAT. Coupled with the generosity of the politicians to some entities, this is a dangerous piece of legislation that shows how little the powers understand the tax system and how it works.

I hope that the debate on the bill in the National Assembly will be lively and that it will resonate with civil society and the trade union movement. Most of all I hope that that debate starts at the seminar or else more difficult times will lie ahead for the working and unemployed poor. And I hope too that the International Financial Institutions that have helped so much to avert economic disaster are now paying attention.

Another try at preventing money-laundering

Introduction

The current select committee review of Bill No 18 of 2007 Anti-Money Laundering and Countering the Financing of Terrorism Bill 2007 took me back to the Hansard report of the debate on The Money Laundering (Prevention) Bill 1998 which was piloted by then Attorney General Charles Ramson when he famously announced how proud he was to be associated with a government that had “zero tolerance for corruption.”

On that occasion the government rejected pleas by the parliamentary opposition to refer the bill to a select committee and seemed to have paid little attention to the submission of the Guyana Association of Bankers (GAB) on the bill. To read Mr Ramson extolling the bill’s virtues, strengths and capacity to solve what had become a scourge that distorted every single measure of the economy was like celebrating the discovery of sliced bread. He said for example that the new law if given scope could exorcise the much wider range of illegal schemes which can be “disruptive of the conventional economic matrix.” He did not explain what constituted that matrix.

Ten years on a select committee of the National Assembly is meeting to bury that bill which has really never seen much light or action, although there is a Financial Intelligence Unit (FIU) that was set up not within the Bank of Guyana as recommended by the GAB, but essentially as a one-man operation within the Ministry of Finance and which never published a single report on its activities.

The 1998 bill became law and is still on the statute books as The Money Laundering (Prevention) Act 2000, but for the near-life of the act (an SN editorial to mark the third anniversary of its enactment described it as a “bear in hibernation”) it has been more words than action.

The list of persons who pronounced on the act at various stages included then Finance Minister Sasenarine Kowlessar who after the act’s assent announced that no decision had been made as to who would supervise the act; President Jagdeo, who one year after the act was passed said no funds had been budgeted for its implementation; then Director of Budget Dr Ashni Singh who pronounced that “money-laundering could have significant influence on currencies, market prices and financial stability”; Home Affairs Minister Gajraj who in discussing money-laundering spoke of non-working millionaires and the “Siamese twins of the narcotics scourge”; his successor Ms Gail Texeira who called on consumers to boycott drug lords’ businesses and Commissioner General Kurshid Sattaur who announced that GRA’s software would pinpoint money launderers.

But perhaps the most striking non-action was the establishment in 2001 of a special task force under Dr Roger Luncheon to oversee the implementation of the act – that too never got anywhere. Significantly, never a word from the Director of the FIU.

History favours pessimists

History is not therefore on the side of the optimists. Between then and now money laundering has earned itself – helped by the inaction of the politicians and technocrats – to become one of the most significant segments in the economy although the Bank of Guyana hardly thinks it worthy of comment in its just released report for 2007. The non-bank cambios, almost all controlled by individuals, have become lawful vehicles for the pursuit of unlawful activities. Someone needs to explain why we would not allow insurance companies and commercial banks to operate as sole traders but would do so for the non-bank cambios, with little reporting obligations and no audit requirements.

To argue that we need the cambios because of the fear of driving foreign currency transactions underground is to admit that there is something wrong with the market and the regime for foreign exchange, including the exchange rate. As currently operated the cambios have legal cover to transact transactions, a number of which involve laundering.

A more ambitious task

What is different this time? The 2000 act had the modest objective of “the prevention of money laundering and for matters connected therewith,” and had a total of twenty-nine (29) sections. The new bill is far more comprehensive and now extends to the prevention of the financing of terrorism, a consequence of the attack of September 11, 2001, that allowed US President Bush to reorganise the priorities of all regulators in a one-size-fits-all solution. The bill now extends to “politically exposed persons,” and I hope that the lawyer/politicians now reviewing the bill will cover all the bases and not leave any technical loopholes to be exploited by their political parties, particularly at elections time.

The bill, an immensely complex piece of legislation covering some one hundred and fifteen (115) sections, will require several pieces of supplementary legislation to support it and confers both powers and duties, some of which are mandatory and others discretionary. Even if only some of these were to be carried out with minimum efficiency, it would require a significant bureaucracy and budget which the government may be unwilling or unable to finance, and external financing may be required for its viability. In fact we will probably hear, as we did with its predecessor, that there is no money to operationalise it.

The bill optimistically assumes that a politically appointed director supported by an attorney-at-law and an accountant with personnel trained in financial investigation or other employees (s. 9) will be able to administer this legislation that would include both domestic and cross-border transactions. The same structure and person could not enforce the 2000 act, and never prepared a report or analysis to indicate the favourable features and its weaknesses, so it must therefore be wishful thinking to believe that a similarly structured FIU could administer a more complex piece of legislation.

Look out

I believe it would be helpful if various options across similar jurisdictions with similar legislation were explored. Data suggest that while FIUs appear to be the most common form in the Caribbean, these are not uniformly staffed and that there is no single, uniform structure. As drafted, there is no parliamentary oversight and the minister is not required to table the annual report of the FIU in the National Assembly.  In Barbados the FIU comes under the Anti-Money Laundering Authority that has wide professional membership including the Commissioner of Police, the Comptroller of Customs, the Commissioner of Inland Revenue, the Supervisor of Insurance, the Registrar of Corporate Affairs and Intellectual Property and representatives of the Governor of the Central Bank and the Solicitor General.

Look at

Despite some serious lapses that have eroded public confidence, the bill presupposes adequate regulatory mechanisms, the existence of a capacity and independence within the police force and Office of Director of Public Prosecutions to investigate and prosecute suspected wrongdoers, and a court that is attuned to the many forms of money-laundering. Will the court under the new law allow a major public company to refuse to divulge to its regulator the identity of the individuals behind major blocks of trustee-held shares?

Ministerial authority for the legislation is split between the Ministers for Legal Affairs and Finance. Yet the Ministry of Legal Affairs has taken a secondary role at the select committee level, and one wonders whether this will be another example of one thinking the other will act and both ending up doing nothing. The other main legislation where there is such joint responsibility is the Companies Act 1991, which has not been very successfully implemented and which cries out for amendments. It must be over one year ago that I made detailed representation to the Minister of Finance on some necessary amendments to the Companies Act but all I have heard is that the recommendations are engaging the attention of the Ministry of Legal Affairs.

Having had the opportunity to appear before the select committee I was struck by the exuberance of some of the members about the expected effectiveness of the bill which is largely an imported piece of legislation. Its origin is the international Financial Action Task Force set up by western governments, but even that body recognises in the Glossary to its 40 Recommendations and 9 Special Recommendations that “countries have diverse legal and financial systems and so all cannot take identical measures to achieve the common objective.” There is little evidence, however, that this bill has been sufficiently localized, and it does not identify the necessary consequential amendments to a number of other statutes, including the Bank of Guyana Act. Unless this is done, we can expect some lawyers having a real field day as they draw attention not only to the conflicts with other laws but also with the constitution which is the supreme law.

Gail’s barons

Apart from the laundering associated with the drug barons, the fuel smugglers and those who are called businesspersons, money-laundering is also related to tax evasion for which we already have many laws and other arrangements which are seldom invoked. We clearly need to develop capacity in the Guyana Revenue Authority to deal with rampant tax evasion, the proceeds of which must themselves be laundered, and I can only wonder why better use is not made of the Property Tax Act and the exchange of information provisions under the Double Taxation Treaties with Canada, the UK and Caricom states and the Income Tax (Exchange of Information) USA Order.

There is in fact a raft of other legislation that can help to ferret out money-laundering, with the Integrity Commission Act coming to mind, but what about the Companies Act itself, section 496, which allows for the Minister of Finance “on his own motion” and for the protection of the public to appoint inspectors to look into the affairs of a company. Certainly one prominent company comes to mind, but is there the will?

Conclusion

The real test of this bill is in the detailed provisions as well as the subsidiary legislation to follow. These should ensure a balance between dealing with money laundering and the financing of terrorism and the pursuit of legitimate business. But in the final analysis it will be in how serious the government is in stamping out money-laundering or whether this bill will be simply as ineffective as its predecessor.

Statement on the rate of the Value-Added Tax

Following my presentation at the launch of Ram & McRae’s Value-Added Tax (VAT) Handbook on November 16, 2006, I have largely stayed out of the public debate on the Value Added Tax.

Part of the reason is that early in 2007, after the launch of VAT, a very senior political functionary had confided in me that the Government had discovered a significant error in the computation of the rate of the VAT resulting in the rate being higher than it should be. I was told of course that if I sought to divulge that information it would be denied.

Recent events and statements by public officials, letters in the press, and the increasing evidence of the effect on poor people of the ever-increasing spiraling rise in prices while the Government seeks to gain political mileage from their “initiatives to help the poor”, cause me to regret that I had not addressed this matter earlier.

I had decided that I would await Budget 2008 to see how the collections of VAT and Excise Tax compared with the amounts budgeted in 2007, since the Government had also publicly committed to a revenue-neutral regime of VAT and Excise taxes. The increase was a staggering 76% over budget for VAT and a more modest 20.9% for Excise Tax, an overall increase of 47.8%. Shortly after the Budget was presented I wrote my source reminding him of the conversation about the rate and offered the view that while part of the increase was attributable to the 4.7% growth in the economy and a 14% increase in imports over Budget, “a significant portion of the excess was attributable to the VAT rate initially being set too high”.

In my letter I recommended a reduction in the rate to 12%. My letter was acknowledged promptly but to date its contents have not been addressed with me.

The public is also aware that I openly posed two questions to the Minister of Finance on the issue (see Stabroek News June 19, 2008) as I was concerned about statements coming out of his Ministry and the Office of the President which could not accurately reflect their knowledge and which served to mislead the nation. In fact my information about the incorrect computation of the VAT rate was confirmed only recently by another senior political functionary and I would find it hard to believe that the Minister of Finance was not equally informed.

I hope the Government will now act honourably by correcting its mistake and reduce the rate at which VAT has been wrongly imposed for more than eighteen months.