The Insurance (Supplementary Provisions) Bill 2009

I note that the Minister of Finance Dr. Ashni Singh has introduced legislation [The Insurance (Supplementary Provisions) Bill 2009] that will bring the functions of the Commissioner of Insurance (CoI) under the Bank of Guyana (BoG). The Explanatory Memorandum states that the “Bill seeks to pave the way for the Bank of Guyana (not the Commissioner of Insurance) to administer the Insurance Act and for a person nominated by the Bank to be appointed by the Court as judicial manager.” Because it was the first reading of the Bill, the Minister was not required to nor did he otherwise give any reason for this move which is not without considerable significance. Such a move would however have been helpful in alerting parliamentarians and the public of the thinking behind the legislation and directing their minds to the kind of preparation they should begin in order to contribute meaningfully to the progress of the legislation.

The Clico meltdown exposed in a rather dramatic and disastrous fashion some of the weaknesses of the existing legislation and its operations. But it also emphasised the need for a more exhaustive examination by an impartial body of the causes of the debacle and the steps necessary to better regulate the insurance sector and prevent similar failures in the future. Without the benefit of that exercise, I can only rely on my experience of the Insurance Act in relation to audits, revelations about Clico as well as – let’s not forget – the GuyFlag/Fidelity story in offering any opinions. Those suggest that what we need are fundamental changes both to the regulatory framework as well as how it operates. The proposed Bill falls very short.

The only change being made by the Bill is the transfer of responsibility for the supervision of the Office of the Commissioner of Insurance from the Commissioner of Insurance to the BoG. This raises the obvious question whether the Minister really believes that that is all that is necessary to fix the system that certainly failed us in the case of Clico and serves us poorly in the case of GuyFlag/Fidelity. One assumes that the Minister would have been kept fully informed by the Commissioner of Insurance that the breaches of key provisions of the Insurance Act by Clico were putting policyholders and depositors at considerable risk. Are those addressed by this Bill? I think not.

There is only one Commonwealth Caribbean country that I know of where the insurance industry is supervised by the Central Bank – Trinidad and Tobago which coincidentally has also had the biggest failure to stakeholders, other than Guyana. In Barbados and Belize the sector is supervised by a Supervisor of Insurance operating under the Ministry of Finance. Jamaica has what I consider to be the best model and one which was recommended in Ram & McRae’s Focus on Budget 2009, i.e. a Financial Services Commission. Under that umbrella can fall responsibility for the supervision of such sectors as insurance, securities, prevention of money-laundering and even the financial institutions. That would allow the central bank to deal with its core objectives, namely “the fostering [of] domestic price stability through the promotion of stable credit and exchange conditions, as well as sound financial intermediation conducive to the growth of the economy of Guyana.”

While the Commissioner of Insurance has had to take responsibility for much of Clico’s regulatory failure, the Bank of Guyana too failed to detect that Clico was engaged in deposit-taking which required Clico to apply to the Bank for a licence under the Financial Institutions Act. In fact the disclosures surrounding financial/quasi financial institutions including Clico, the Hand-in-Hand Trust, the New Building Society and the National Insurance Scheme suggest that the Bank of Guyana has its own problems. To add to its mandate supervision for the insurance sector can compound those problems.

I hope that the Bill is a mere temporary measure until the President’s promised investigation into Clico makes more extensive and meaningful recommendations. I hope we do not have to wait too long.

Clico, the NBS and NIS

Clico is by far the worst financial disaster ever to have hit Guyana. For hundreds of thousands of Guyanese the Clico saga is direct, personal and painful, a real life disaster in which many could be made paupers. And even if that calamity is averted, the so-called guarantee that the people and the opposition have been calling for will have two effects. First, the taxpayers will be worse off by several billions of dollars. And second, having demanded heads for the Clico fiasco, the opposition members of the National Assembly will give the government a crucial let-off. When it did have the opportunity, instead of mounting an investigation into Clico and related matters, the National Assembly simply asked the Economics Affairs Committee to monitor the Clico affair.

Clico in combination with Stanford is the public face of unprecedented fraud in the securities sense of the word, practically non-existent corporate governance, outrageously bad regulatory failures, an arrogant display of political ineptitude, and inexcusable conflicts of interest and duty in various manifestations. The two are our Enron, Madoff and Satyam wrapped in one. They are the stuff of which bestsellers are made; of heroes and villains exchanging roles and of juicy material for the economic historians. They offer the potential for the most intriguing legal cases of breach of fiduciary obligation, fraud, lifting the veil of incorporation in the private sector and misfeasance in the public sector.

Winding up Clico
Despite the urgency of the matter, the Economic Affairs Committee of the National Assembly has done nothing so far. The Judicial Manager of Clico, Ms Maria van Beek is supporting the retention of (former?) Clico CEO Ms Geeta Singh-Knight who up to recently Ms van Beek was saying had persistently breached the Insurance Act. Ms van Beek must be aware that in her other role as Commissioner of Insurance she has a continuing duty to prosecute those involved in such breaches and that her endorsement of the retention of Ms Singh-Knight could be construed as granting her immunity. When Ms van Beek first approached the court she asked, as an alternative to her first choice of winding-up, to be appointed as Judicial Manager. Now she seems unclear of the nature and extent of the duties involved. Even if the Insurance Act is unclear, she should be guided by commonsense, experience, professional advice and as necessary, by the court. Logic dictates that the closest analogy to the Judicial Manager is the Receiver Manager under the Companies Act. That person displaces the management and takes control of the company. What is wrong with that formulation?

Having asked the court for a winding-up order the Judicial Manager seems bent on vindicating her initial judgment. Neither she nor the government has shown any interest in saving Clico. If they wanted to save Clico and jobs then Trinidad provided a most recent and eminently sensible model – take over the company and use the very funds of the Jagdeo guarantee as capital injection. But because of the ambivalence and dithering of the government and the Judicial Manager, Clico is collapsing faster than anyone could have predicted.

Breach of promise
And perhaps there should be a mild reminder that President Jagdeo promised that small depositors in Globe Trust would be protected. Several years later, not a single, blind cent has been paid, despite the finding of the then Chief Justice that the regulator was partly responsible. In the case of Clico, President Jagdeo again has made promises but when it comes to confirming that promise, his party in the National Assembly is silent. They and the President know that the public has become accustomed to broken promises.

Mr Jagdeo has said that Clico is insignificant in the wider scheme of things – only 3%! But does the President realize that the Clico/Stanford duo now pose a risk to the New Building Society (NBS), the National Insurance Scheme (NIS), Hand-in-Hand Trust, Trust Company Guyana Limited and undisclosed pension schemes over several sectors? Mr Jagdeo claims to be guaranteeing the Clico clients but what about the pension schemes – are their members any less important?

Milking the NBS cow
Carefully built up some sixty years ago out of the ashes of its failed predecessor, the NBS through conservative and tight-fisted management under the late Jules De Cambra, was one of the strongest financial institutions in the country. Under Moen McDoom and Nanda Gopaul, that soundness has been slipping away. It is history that the NBS was cajoled into investing in the Berbice Bridge. Its own independent consultant said it was a bad idea, that the assumptions underlying the financial projections were way too optimistic. Some members of the board were scared but not wishing to upset the government opted for a considerably smaller investment − an amount that the NBS could afford to lose. Next the board decided to spend several hundreds of millions of dollars on a state-of-the-art head office, causing two of its directors to resign in protest. Now, as Clico started to sink, the NBS again featured as a lifeline and the politicians went to work – turning up the heat and milking the NBS cow.

My understanding is that the Board of the NBS, which does not have any financial specialist and did not even meet in person to decide on buying Clico’s bonds in the bridge for $1.5B. However that decision may have been made, Dr Gopaul and his fellow directors have a duty to justify their decision to the members of the NBS. So far, the bridge is generating far less than Mr Jagdeo had predicted. It did not meet its 2008 interest obligations in their entirety. While the bridge company enjoys the most generous package of tax concessions imaginable, it will struggle to meet its obligations to pay interest or redeem the bonds as they fall due. To add to the risks, there is explicitly no government guarantee.

Despite the slippages, the government and the Bank of Guyana seem very comfortable with NBS remaining completely unregulated. The soundness of the NBS which this column has consistently praised has been undermined by the decisions and practices of the board and its bridge investment. That investment which had to be sanctioned by the Minister of Finance became possible when government did an underhand amendment to the NBS Act, through the Berbice Bridge Act. The NBS’s investment in the bridge now amounts to 40% of its reserves – an over concentration in a single company. No doubt we will hear from the President that we should not worry, that such investment represents only a small percentage of the assets of the financial sector. That is what the government said about Clico and the Bank of Guyana repeated in relation to the Hand-in-Hand Trust.

As political players gain the ascendancy at the bank it is becoming increasingly subservient to the Ministry of Finance, its role diminished to collecting statistics and undertaking bank inspections. It is abandoning − or doing very badly − one of its most important roles, the oversight of the financial sector.

Milking the NIS
The other institution under severe stress from Clico and the bridge is the NIS. Again we see the overlapping roles of the Minister of Finance, other government politicians and public and private sector functionaries at various levels, but connected in one way or the other to the Office of the President. One of the members of the NIS Board is also a director of the Berbice Bridge Inc. Two leading companies have used NIS funds to invest in the Berbice Bridge and have been rewarded with seats on the board of the Bridge Company − the same company in which Mr Winston Brassington confidently guaranteed “investors” in the bridge that the “NIS will not have a director” or be able “to exercise any influence” (Business Page March 12, 2006).

Several weeks ago, I wrote the Minister of Finance about the legality of the NIS investments, having in mind the bridge, Clico and the Hand-in-Hand Insurance Company. Investments made by the NIS are required to be approved by the Co-operative Finance Administration of which the Chairman is the Minister of Finance and who appoints all its directors. He has not responded to me. The board, it seems, is operating under an Investment Framework prepared by Mr Patrick van Beek. That framework had no reference to the restrictions imposed by the act but was accepted by cabinet. If it turns out that the investments are unlawful surely there are many who should be held responsible including the entire board of the NIS.

The NIS directly and indirectly is the largest investor in the Berbice Bridge which the government likes to boast is a private sector initiative. The manner in which Mr Brassington cajoled the NIS into investing in the bridge is a matter of public record, and the country’s collective failure to take note then is coming back to haunt us. Of course this is not the first time that the government is undermining the NIS’s finances. We recall that the government forced the NIS to lend it US$4M for the part-financing of the construction of the Caricom Secretariat. That loan is repayable over 25 years at a rate of 4% in the first 15 years and 5% in the next ten years. Those rates are well below the rates of inflation, but does the government care how the cow is milked?

The cost of the Clico failure is mounting, but with ‘Clico fatigue’ already setting in public interest may wane. For the NIS and NBS the implications are huge. The Minister of Finance, the government, the regulators and the directors of the NBS would be the beneficiaries of ‘Clico fatigue.’ The misuse of the NIS funds which began with small sums now involves billions. The risky investments of the NBS have likewise increased from millions to billions. The public has to show more interest while the opposition parties need to be more consistent and persistent.

Will we ever get to the bottom of the Clico saga? Unlikely. The PNCR, which endorsed the assurances given by the government on a Clico bailout, is now calling for an “urgent and impartial” inquiry. Aware that any inquiry will only confirm their massive failures and deception of the public, the government will stoutly resist such an inquiry. As far as the Finance Minister is concerned he has outmanoeuvred the opposition by his 16-page rambling in the National Assembly. The actions (or inactions) of the government and Clico’s Judicial Manager suggest that Clico will soon be dead and gone. All it will leave to its Children of Guyana are massive debts.

Information which was challenged in column came from Insurance Commissioner’s office

The tone of the March 3 letter of Commissioner of Insurance Maria Van Beek seems to suggest that she is reacting to the pressure from several quarters over her supervision of Clico. To accuse sections of the victims of the worst insurance failure in the country under her watch of making “reckless, uninformed and irresponsible pronouncements” (GINA release published March 1) might seem to indicate that Ms Van Beek is reluctant to acknowledge the scale of the problem or the extent of public concerns about potential personal and national losses of billions of dollars. Even if the government gives a complete bailout of Clico it is we the taxpayers who will pay it, while those who contributed to the crisis lecture us on how much they have done to protect us.

A number of persons have suggested to me that I should respond to the three issues she challenged me on: 1) the statutory fund/assets; 2) her reason for the approach to the court for a winding up of Clico; and 3) the name of the company, Clico.

1. I never claim to be an expert on insurance, accounting or indeed on any subject. However Ms Van Beek can rest assured that the provisions of the Insurance Act, including the difference between statutory assets and the statutory fund, would not escape any practising accountant. It is Ms Van Beek who has some explaining to do for apparently missing the assertion in Clico’s 2007 financial statements that the company had a “statutory fund” of $46 million and not the $9B she says it should be! As the expert and regulator of the sector, Ms Van Beek should tell the public what steps she took to have such an error in the audited financial statements rectified in a timely manner.

2. Ms Van Beek claims that I accused her of saying that it was Clico’s business model and investment strategy from which its problem stemmed. I did not invent that. Ms Van Beek said so in paragraph 10 of her affidavit. Ms Van Beek has insisted that it was the decision by The Bahamas authority to liquidate their Clico that triggered her move to the courts. It is not that decision which imperilled Clico Guyana’s investments.

Those unlawful and injudicious investments were impaired long before the move by The Bahamas authorities and required action, not excuse. But no, she waited until the property market in the US had collapsed taking with it huge amounts of Clico’s funds and then waited even further and longer on the Bahamian authorities.

3. Ms Van Beek writes that I wrote from an uninformed position concerning the name of the company. In her very affidavit she also refers to the company as SA!

In other words, everything Ms Van Beek accuses me of came out of her office.

Finally let me say that I welcome the press statement made by Ms Van Beek on the state of the company and note that she has taken several of the steps I advocated some weeks ago, including calling in the debts and guarantees of the related parties and giving specific advice to policyholders about the state of their insurance coverage. However she continues to repeat the vague promise she “attributes” to President Jagdeo that “no policyholder in Clico (Guyana) will lose their money.”

By now she should have sought written confirmation from the Minister of Finance to whom she reports, and not the President, of the precise nature and scope of the guarantee which in my view has to have parliamentary approval. Perhaps Stabroek News can clarify their report that Ms Van Beek “re-emphasised the assurances given by President Bharrat Jagdeo and Finance Minister Dr Ashni Singh, that no one with investments in the company will lose their money.” That goes well beyond policyholders and was not contained in the statement issued to the press. It would however naturally raise the hopes of investors including the NIS. It would be painful if that assurance turns out to be false.

Clico and the related crisis: Confusion continues

It has been an incredibly hot week in Guyana. In fact so hot that the President who was directly or indirectly involved with every single financial decision made in the public sector for the past sixteen years decided it was just too hot and took off for a change of climate engagement. He asked his Finance Minister Dr Ashni Singh who has carried statutory responsibility for the operation of the Insurance Act and therefore supervision of Clico for more than two years as well as of the National Insurance Scheme, the biggest single potential loser in the Clico debacle, to make a statement to the National Assembly.

Clearly stung by the revelations of what may prove to be a major loss to the country there has been heightened activity by the government. Even as lower-level letter writers were at work, the government called into their corner big guns like Messrs Yesu Persaud and Clifford Reis for a panel discussion with the Minister of Finance. We heard again from the Bank of Guyana not on whether it has continued to track and assess “every bit of information being provided on the issue as it develops” but to “dispel the misrepresentations” by persons whom the Bank did not name. We heard as well from Ms Maria Van Beek, the Commissioner of Insurance/Judicial Manager of Clico, witnessed a press conference by the directors and management of Hand-in-Hand Trust, TV interviews with economist Ramon Gaskin and TUC President Gillian Burton and disturbing but not surprising fears expressed by insurance broker Mr Bishwa Panday and leaders of the teachers’ union. By the end of the week it was clear that there was little confidence in everything said by the government and the regulator in relation to Clico. Having done next to little so far, the Minister of Finance rather than the Judicial Manager is impressively rushing papers to The Bahamas to prove our debt. We all hope it is not too late.

Red herring
The Bank of Guyana and the big guns were called out mainly to speak about the strength of the banking system, as if that was the issue. There are currently many questions about the banking system but not about its strength. Yes, different persons in varying degrees and sometimes with varying justification question many things, such as the role of the non-bank cambios in the underground economy, the absence of any meaningful interest or effective efforts to stamp out money laundering, the interest rate policies and the conservative approach inherent in banking, and the increasingly troubling failure of the Bank of Guyana and the government to bring the New Building Society under the Financial Institutions Act. But the strength of the banking system has not been an issue to academics or depositors who place increasing sums with the sector, which must surely be a big test. Raising it was a pure red herring.

Experience has taught that the public is more sensible than it is given credit for. It knows that failures do not arise only in weak systems, with Globe Trust being a good case in point. It knows how toxic assets can contaminate good ones akin to Gresham’s law and money. It is concerned that the NBS has just invested some $1.5 B in the Berbice Bridge, hardly on the grounds of an investment but more as a bail-out using poor people’s money. It would still be sceptical about the optimism of the Board of HIHT to withstand a near billion dollar loss in Stanford and wonder whether the Bank of Guyana was too soft in allowing such a concentration of assets. None of these issues was raised by the moderator of the panel or by the Bank of Guyana. It is wrong to believe that because the public does not have access and opportunities it is voiceless or does not understand.

Much of what was said by our men of learning had little impact. What really had the country and the Minister of Finance going was a statement by the Prime Minister of The Bahamas that “there appears to be no record available at this time” of Clico (Guyana)’s investment in Clico (Bahamas). That is contrary to everything accepted by all including the company’s auditors Deloitte and Touche and the Commissioner of Insurance. In fact the Minister of Finance confidently told the press that there was “a plethora of correspondence, including wire transfers of substantial amounts, dating as far back as 2004” supporting the investment.

I have looked at the 2006 and 2007 financial statements of Clico (Bahamas) and these seem to support the qualified statement by the PM. In the books of the Bahamian company, note 12 (2007) and note 10 (2006) show the following (in Bahamian dollars which is equivalent to US dollars):


And note 22 (2007) shows that the figure of $212,723 at December 31, 2007 is made up of amounts owing to Barbados, Suriname and CL Financial Limited which is the parent company. Nothing is shown as owing to Guyana. Over the three years 2005-2007 the only year shown with a balance with Guyana is 2006 where the amount was stated at $275,317.

Transactions with Guyana over the same years are shown as follows:


The Guyana books showed investments at 31 December 2007 in Clico Bahamas of $5.95B and accrued investment income of $329M. Can it be that the balance owed by the Bahamas company to the Guyana company is shown somewhere else in the accounts? That is possible, but given that the accounts are both audited and in both cases by the same auditing firm − but by different offices − it is hard to understand why the Minister chose the route of the plethora of documentation rather than having the Judicial Manager call in the auditors for an explanation, to be followed by the paperwork. After all, the auditors would respond quickly, bringing their audit working papers files, anxious to avoid the implications of what seems on the face of the financial statements to be a major discrepancy which routine audit procedures should have revealed. Yes the paperwork is necessary, but surely the persons who have given their stamp of approval on the accounts would be a good place to start.

Different strokes…
One of the very striking features of the still far-from-over saga is how the two countries have treated the matter at the regulatory and more so at the political level. The Prime Minister of The Bahamas made an early and clear statement to their Parliament on the whole issue including offering advice to affected persons. Our President has chosen to make several statements including one before he departed these shores repeating his assurances about meeting all valid claims against Clico. From reports of a meeting Mr Panday had with Ms Van Beek and the information conveyed to the teachers, it does not appear that Clico is relying on those assurances.

There is also some discrepancy about the timing of Mr Jagdeo’s contacts with his counterpart in The Bahamas with the latter saying that it was after the announcement of the move to liquidate the Bahamas company that President Jagdeo called him. But what is more significant is Mr Jagdeo’s revelation that he had proposed as (part) settlement of the debt by Clico (Bahamas) to Clico (Guyana) to take over the Florida real estate in which the Bahamian funds were invested through one of its subsidiaries. It is not clear whether his intention is that our politically-controlled Privatisation Unit would then sell the asset, but surely our President, who is never hesitant to pronounce on matters legal, ought to have realised that that was not possible as a potentially fraudulent preference. The suggestion by a columnist in another newspaper that our President say nothing further in this matter has a lot of merit and was reflected in the call by the Finance Minister to “ensure that the court appointed process is allowed time to exhaust all avenues to protect the assets of CLICO Guyana.” Regrettably there is too much at stake for the public to wait on the necessarily cautious and deliberate court process.

Huge costs
Liquidation costs are enormous and are a first call on the proceeds of any sale of company assets. Many of the assets of the Bahamas company are pledged to secure debts other than deposits, and we therefore need to prepare ourselves for a substantial loss by Clico (Guyana) of its investment in the Bahamian company, assuming that there is such an investment. This then raises the question about Mr Jagdeo’s assurances which the Commissioner of Insurance through GINA initially reaffirmed, ie that all polices held in CLICO (Guyana) will be protected. This of course, whatever form it takes, will have to come from the taxpayers.

The Commissioner as Judicial Manager has to act independently and professionally. She has been instructed by the court to return promptly to them with a plan and no court will accept such vague assurances as those given by President Jagdeo and later repeated by her. She should not be unmindful that medical service providers have refused to extend further credit to the company while holders of short-term policies are already looking elsewhere for their coverage. In repeating the President’s assurance about guarantee, Ms Van Beek will recognise that this cannot be open-ended. If we care about our constitution and the Fiscal Management and Accountability Act, any such guarantee has to be given by Parliament.

In this regard, it seems a fair assessment that the President has not been sufficiently informed of the liabilities which his assurances that “all claims” will be met are interpreted to guarantee. The motion submitted by the PNCR calls on the government to take all necessary steps “to guarantee the savings, pensions and investments of all CLICO (Guyana) investors including the National Insurance Scheme (NIS), depositors, policyholders and contributors.” That would cost the government billions of dollars even if Clico’s actual and contingent assets are taken over. In Trinidad and Tobago Mr Lawrence Duprey had to give up huge chunks of assets in exchange for the government’s assumption of liabilities. Assuming we take over the liabilities, what do we get in return and how? It seems that Clico (Guyana)’s main assets – other than the Bahamas investment, are the loan to Caribbean Resources Limited ($1B), shares in the Berbice Bridge Company with a book value of less than $80M and any remaining bonds in the Berbice Bridge Company.

The President in his typical style has threatened prosecution against the directors and management of Clico if fraud were found. The President may not be aware, as disclosed by Business Page of February 8, that there is only one Guyanese director who is also the CEO who less than ten weeks ago he lavishly praised and made a director of his revamped GuySuCo Board. We are now paying the price for our failure to take governance seriously, not only in what I have referred to as public interest companies but in all public and state-owned companies.

Next week I will continue looking at the implications of this debacle but for now, please if we are thinking of selling off any of the policies to other companies, remember that there will have to be actuarial valuations done. From what I have seen we have not even begun to deal with this problem.

Clico, contagion, containment and concealment

If a loss of public moneys should occur and, at the time of that loss, a Minister or official has caused or contributed to that loss through misconduct or through deliberate or serious disregard of reasonable standards of care, that Minister or official shall be personally liable to the Government for the amount of the loss.

This is a direct quote from section 49 of the Fiscal Management and Accountability Act which President Jagdeo signed into law in late December 2003. The Clico affair and related matters may be a good time to draw attention to the provision which has never been tested at the higher levels. When the dust settles, the taxpayers, NIS contributors and beneficiaries, members of pension and medical schemes and depositors in Clico and potentially in Hand-in-Hand Trust (HIHT) and the New Building Society could lose collectively several billions from the fall-out in the financial sector.

Other consequences will be equally severe, if not always as direct. Jobs will have to go. Moreover, with perhaps billions invested in Stanford Investment Bank (Stanford) by the HIHT and other so far unidentified pension schemes and individuals, their losses and their income stream − all in US dollars – will be gone. With the assertion that our economy is ring-fenced having proved naively misleading, and claims by Clico, the President, the Minister of Finance and the Commissioner of Insurance − all acknowledged as very bright persons − having proved to have been misguided at best and been guilty of misrepresentations at worst, there is a loss of confidence not only in the judgment and competence of our economic managers, but also in the independence and ability of the regulators to protect the public interest.

Last Wednesday, Ms Maria van Beek, the Commissioner of Insurance, presented a petition to the court seeking an order that Clico be wound up or alternatively, that a Judicial Manager be appointed. One day later, Ms van Beek was granted her wish by Chief Justice Ian Chang in an order returnable tomorrow, Monday, appointing her as Judicial Manager of the entity which she has supervised for more than five years. Instead of immediately issuing a statement advising affected persons – numbering tens of thousands – of the implications that flow from the order, Ms van Beek proceeded to the Office of the President for a press conference, where along with the Minister of Finance Dr Ashni Singh and the Governor of the Bank of Guyana (the Bank) Mr Lawrence Williams, she sat silently as the President made excuse after excuse for the failure of Clico and gave vague statements about protecting pensioners without once using the G word – guarantee − which is what people, worried about their savings, pensions, medical schemes and jobs most need.

Blame The Bahamas
President Jagdeo, who is not the responsible Minister, told the nation that it was the collapse of Clico Bahamas that triggered the action by the commissioner. Yet that is not what the commissioner said in an affidavit sworn to the court one day earlier. She said it was the business model and investment policies pursued by the company. The President, seeking to protect Ms van Beek and by extension his Minister of Finance, told the nation that the commissioner had told Clico more than one year ago that they should have regularised their investment position. So, did the commissioner write the company and then sit back as they breached the law even further? The problem with the President’s style of intervention is that at best, he does not check the accuracy and implications of the statements he makes and increasingly often, he is wrong. There is no need to remind anyone of the damage caused by such lack of respect for accuracy as we saw in the saga of tax concessions necessitating an amendment in the law to facilitate Queens Atlantic Investment Inc’s tax concessions.

In matters financial details are important and so is judgment, particularly when it involves self-serving statements. When the President assured the nation on February 5 that Clico’s assets were sufficient to meet its liabilities he was repeating a company line without having read the December 31, 2007 analysis showing that 81% of the company’s assets was invested in related parties, all of which were under various degrees of threat (SN February 7 and Business Page Feb 8 reported on this analysis). In fact as Minister-Extraordinaire he should have known that the 2008 figures had shown some deterioration, suggesting that the commissioner’s call was ineffective and/or ignored. Both he and the Minister of Finance should have wondered how a company that issued “insurance policies” with premiums running into billions of dollars only needed a statutory fund of under fifty million dollars.

Disregard for reasonable care
The disregard for reasonable care does not end with them. The nation would have expected the Commissioner of Insurance and the Bank of Guyana to recognise that those policies were investment products dressed up as insurance. It is hard to believe that such a major issue would have escaped the attention of the Bank with illustrious directors of the calibre of Drs Gobin Ganga, Prem Misir and Cyril Solomon.

Given the poor oversight exercised by the regulators in general and the Commissioner of Insurance in particular, the court would have been reluctant to appoint Ms Van Beek to manage the operations of Clico under its supervision. Her demonstrable failures to act expose her inappropriateness for such a job, or even to have been the lead regulator for an industry which also required legal expertise. The problem for the court is that the law appears to have given it little choice. Yes, the court could have made a winding up order on the ground that Clico is insolvent, and use the more practical test of “inability to pay one’s debt on demand” that may very well have been the case. But the Insurance Act makes it a bit more difficult for the court by requiring a determination of the value of a troubled company’s assets and liabilities, never an easy task even for accountants. The President compounded the difficulty by volunteering that he hoped that the entire sum from The Bahamas company would be recovered even as he failed to address the billion dollar debt owed by CRL, the Guyana forestry product subsidiary of the troubled CL Financial which has guaranteed the debt.

Once the court chose not to go with the winding-up option – though this may still happen at some time – section 68 of the act gave it no choice but to appoint the commissioner as the Judicial Manager. Apart from the fact that her past supervision of Clico inspires little confidence, and her inattention to detail was embarrassingly exposed when she wrongly identified the name of Clico in her petition, what then becomes of her statutory role and function as Commissioner of Insurance over Clico and the rest of the industry, including Fidelity, which would ordinarily require full-time attention? Additionally, there appears to be a conflict between her two roles which the court would have to consider given that the court itself is not equipped to make business judgments.

The poor NIS could stand to lose six billion dollars in investments in Clico which may not have been made in compliance with the NIS Act. This is no small change. It is the equivalent of more than 20% of earnings accumulated over forty years by the Scheme and about one year’s benefits payment. To check on the propriety of the investments, I wrote Minister of Finance Dr Ashni Singh a letter on February 24, pointing out that the NIS Act only allows the NIS to invest in securities approved of by the Co-operative Finance Administration (COFA) established under the Co-operative Financial Institutions. I pointed out that he is not only the Chairman of COFA but as Minister, appoints the Board of COFA. The Minister of course also appoints the Board of the NIS. I asked him the following questions:

1. The names of the persons he appointed to COFA currently serving as members of the administration, and the commencement and termination dates of their appointments.

2. The securities which COFA approved for purposes of investment.

3. Whether the NIS had sought and received approval for any investments other than those determined by the administration and if so, the securities which have been so approved.

4. Whether the administration during his tenure as Minister has ever taken the opportunity under section 4 of the act for its Chairman or Secretary to attend any meeting of the National Insurance Board, and in particular the meeting at which any decision was made by the board for any special investments.

I am awaiting his response. But if it were owing to the Minister’s “misconduct or through deliberate or serious disregard of reasonable standards of care” COFA did not approve of NIS investing in Clico the Minister would have some serious questions to answer, not to Business Page but to the nation.

To make matters worse for the NIS, Clico was allowed, even while Commissioner van Beek, the Minister of Finance, the President and the Bank of Guyana were “monitoring” the imperilled insurance company, to divest itself of $1.5 billion dollars of bonds in the Berbice Bridge Company Inc. The Board of the NIS, all the members of which are either ducking or hiding, needs to explain to the nation whether the terms of their $6 billion investment in Clico were breached by the sale of the bonds and whether the Scheme feels that its investment is any safer now.

The New Building Society
More than ten years after privately as a director of NBS and publicly as a columnist, I advocated that the country’s only building society with more than one hundred thousand persons’ savings and loans involved be brought under the supervision of the Bank of Guyana, the Bank exercises no jurisdiction over the NBS. During that time the government has drastically increased the lending limits while relaxing the conditions and security required to back the loans made. One only has to consider the Savings and Loans crisis in the US in the late eighties to appreciate the possible consequences of such laxity. But there is more to worry about. The board has also become increasingly politicized with its current Chairman being Head of the Public Service in the Office of the President and the decision about the new Head Office involving hundreds of millions of dollars being made against technical professional advice. Quietly, the NBS has been joined in the failed attempt to prevent the demise of Clico. The NBS has bought over $1.5 billion dollars of bonds in the Berbice Bridge Company Inc from Clico, and it is unlikely that this would have happened without the official agreement and sanction of the Office of the President in which both the Chairman of the NIS and the Chairman and one director of the NBS are based, or the Ministry of Finance which has to approve investment in securities issued by the Berbice Bridge Company.

The danger is obvious. The NBS with assets in excess of $30 billion is unsupervised and unregulated but subject to powerful political influences. If the bridge company which is proving the sceptics right about the hugely optimistic traffic projections, and the board, which is chaired by the Clico CEO, cannot meet its financial obligations to bondholders, $1.8 billion of the funds of the NBS – representing about 40% of its reserves – would be at risk. That is real money which added to the Head Office being constructed at a cost of approximately $800 million could pose real trouble for the society.

Once again the recurring players are the President, the Minister of Finance and the Bank of Guyana, the last-named of which has failed to assume any jurisdiction as it should have. Of course this in no way exonerates the Chairman and directors of the NBS from their fiduciary obligations.

Hand-in-Hand Trust
The President also referred at the press conference to the investments made in Stanford by the Hand-in-Hand Trust, which holds depositors’ funds and manages some of the country’s largest pension schemes. He said that in the case of the HIHT, “total current exposure” to the Stanford Group amounts to $827 million or US$4 million, in addition to $297 million or US$1.5 million invested on behalf of pension funds. He then went on to confuse the nation by referring to the direct exposure which he said represented 9 per cent of the total assets of HIHT.” Whether it is 9% or closer to 10% is less important than the fact that this is not how one measures exposure. With the head of the Bank of Guyana and the Minister of Finance sitting in at the press conference as his technical advisors, the President as an economist should know that the measure should have been total exposure of the company – direct and indirect – relative not against total assets which do not belong to the company but only to equity which does. In other words he was downplaying the problem in more than one way.

The question has also been raised whether it was permissible for the HIHT, regulated by the Bank of Guyana under the Financial Institutions Act, to place so much of its funds in a single investment – what lay persons would refer to as putting too many eggs in one basket, but which the more technically-minded Bank of Guyana would call asset concentration. In the case of the failed Globe Trust, the Bank of Guyana received more than a mild criticism from then Chief Justice Carl Singh for its poor oversight. It must now hope that by some miracle the investment by HIHT in Stanford will be recovered. If that does not happen, then the Bank can expect not only a strong rebuke but perhaps even a lawsuit.

Faced with a financial crisis, the first step is containment. Instead we had concealment with the consequence that it has widened and enlarged now including, with potential negative and costly consequences, the National Insurance Scheme, the New Building Society, pension schemes and savings accounts of hundreds of thousands. Confidence is also crucial but this comes only from the competence, judgement and independence of our leaders and regulators. None of these qualities has been adequately demonstrated in this instance by the President, the Minister of Finance, the Commissioner of Insurance, the Bank of Guyana, the National Insurance Scheme and the New Building Society.

The rest of the financial sector and perhaps with one exception the insurance sector all appear very solid. Every effort must be made not to contaminate them and to restore confidence in the entire system. I believe that the National Assembly needs to take an active role in this.