MF Global’s precipitous decline into bankruptcy last week must have jerked unpleasant memories in this region about disappearing investors’ and pension funds. The wealth manager, formerly helmed by a Wall Street high flyer, former US senator and governor of the state of New Jersey, Mr Jon Corzine filed for bankruptcy and then left clients guessing about the whereabouts of US$633M in investments. Was it with JP Morgan or not? MF Global was also guilty of exceedingly bad investment judgement, betting on the prospects of European sovereign debt a large chunk of which is held by the debt-laden and tottering economies of southern Europe.
MF Global’s plight is a stark reminder of the plundering of the region’s resources by CLICO’s parent company CL Financial and its injudicious sinking of a lot of it –certainly in terms of the Guyana National Insurance Scheme – in now depressed Florida real estate. And while Mr Corzine’s unceremonious and chastening departure showed he was prepared to take the blame it is certain that US regulators will pore over its transactions to hold the culpable accountable for any irregularities or malfeasance. The same should be so for CLICO (Guyana)’s operations but it is evident that this government will expire without an attempt to enquire into CLICO’s depredations here and to prosecute those who on the face of it recklessly executed the company’s business.
In key parts of the region there has been a recognition that those who were clearly at fault and criminally liable should be prosecuted. This is particularly so in Trinidad, the home country of CL Financial, and Barbados where the talk is beginning to translate into action.
In a report in the Barbados Nation of November 4th, Governor of the Trinidad Central Bank Mr Ewart Williams was reported as saying that there is blame to go around concerning the CL Financial debacle, but not enough fingers to point.
“CLICO was a case of systemic failure. In a geographical sense, it was a failure of regional regulators,” he was quoted as saying and added that there was inadequate insurance legislation.
Noting that Port of Spain’s insurance legislation dated back to 1966 with one major adjustment in 1980, Mr Williams said that “Our legislation doesn’t have the word annuity, so the EFPAs [Executive Flexible Premium Annuity], all the new products that caused the problem, were never part of the legislative machinery”. The EFPA was one of CLICO’s major investment grabbing mechanisms here and in the rest of the region.
On the question of the rescuing of CL Financial Mr Williams made the argument of `too big to fail’ adverting to the fact that CLICO and its investment arm CIB held 50 to 60% of the liabilities in the financial system and that CLICO also held 53% (ironically the same percentage that the Guyana CLICO was exposed to its Bahamas sister firm) of the largest bank, Republic Bank and even more worrying there was significant exposure in three or four major public institutions.
In the case of Guyana, the most dangerous and yet unresolved exposure is in the National Insurance Scheme. $6B of its assets were locked into a shadowy arrangement by CLICO Guyana with CLICO Bahamas and this money was later funnelled into Florida real estate. There has been a nebulous comfort promise to the NIS and its contributors by the Guyana Government in relation to this sum and in effect the local taxpayer would be bailing out the NIS. This investment risk has also come at a stressful time for the NIS, some of its other investments are also troubled, for the first time ever its outflows are exceeding its intake and actuarial reports have warned of dire circumstances if ameliorating measures are not taken.
Barbados’ prosecutors are said to be on the verge of bringing charges against senior management officials of CLICO International Life on that island particularly in relation to its writing of new insurance policies in 2009 despite being forbidden by the Supervisor of Insurance. Police investigators have already extensively questioned directors, managers and other officials of the company. Nothing like that has happened here at all. The inquiry in Trinidad has produced breathtaking testimony; revelations that will undoubtedly lead to action against some of its principals. At least one director of CL Financial has spoken about being sidelined and of super directors making the real decisions. In cross-examination, former group financial director of CL Financial Mr Michael Carballo has stated that CLICO was being used as a cash cow by CL Financial. CLICO’s attorney Mr Neal Bisnath argued that CLICO’s policyholders’ money was being used by the parent company without regard to risk, adding that CLICO invested US$445M of policyholders money in a Florida real estate project known as Capri while the investment was only worth US$200M. It is likely that some of the NIS’ $6B also went in this direction.
Why there has been no inquiry into the collapse of CLICO here the conduct of its then CEO Ms Geeta Singh-Knight has been the subject of much informed comment. Ms Singh-Knight’s continued presence on the restructured board of the Guyana Sugar Corporation made it plain that the government was going all out to protect her and in so doing, protecting itself at the same time. Knowing this government’s proclivity for underhand deals, shrouded in secrecy and reeking of impropriety it would not be surprising that a close examination of the accounts of CLICO and its transactions would reveal transgressions by the government, laxity and disreputable deals in the making. CL Financial’s Mr Duprey had long been favoured by the government to the extent of being on the verge of securing the country’s molasses supplies and there were also reports that he was being considered in relation to GuySuCo’s West Demerara estates. It is possible that many twisted dealings would have been at risk of disclosure.
Whatever the outcome of the upcoming general elections, foremost on the incoming government’s agenda will have to be a full, independent inquiry of CLICO’s operations here, the regulatory environment it operated in, the efforts made to bring it to heel and whether or not in the panicked days after the collapse of its parent company insider information allowed many to withdraw their deposits from CLICO (Guyana) while ordinary policyholders and the NIS were left hanging. The dynamics of the sale of the Berbice Bridge Bond by CLICO to the New Building Society during the run on it is one of the transactions that raise many suspicions.
The completely misplaced assurances in the days after the collapse of CL Financial by President Jagdeo, Finance Minister Singh and Ms Singh-Knight should also be examined and all three made to account for them.
The CLICO debacle falls into the category of a series of scandals which any self-respecting government in a normal society would have quit over or at least launched a serious inquiry and prosecuted the guilty. This government failed the test disastrously.
