Afra Ray­mond

I am start­ing to look at the CLI­CO In­vest­ment Bank (CIB) and its op­er­a­tions, as re­vealed by the on­go­ing bailout. CIB is a very in­ter­est­ing part of the saga, be­cause even pri­or to the col­lapse of the CL Fi­nan­cial group there was a wide­ly-held view that CLI­CO and CIB were parts of the group which were re­spon­si­ble for rais­ing fi­nance for their am­bi­tious plans. Even though the in­ter­est rates of­fered by CLI­CO and CIB were in­cred­i­bly high–about twice the av­er­age of­fered by oth­ers–it would have been much more ex­pen­sive for the CLF group to bor­row those funds via loans. In April this year the Cen­tral Bank ap­plied to the High Court to have CIB 'wound-up', due to its in­sol­ven­cy, es­ti­mat­ed in that sub­mis­sion to be of the or­der of $4.7Bn. That ap­pli­ca­tion to wind-up is be­ing op­posed by the NGC and the Na­tion­al In­sur­ance Board (NIB); those mat­ters are still be­fore the Courts.

The mys­tery re­mains�Was CIB an au­da­cious, well-run op­er­a­tion which had be­come a vic­tim of a de­clin­ing mar­ket or, even worse, a sin­is­ter con­spir­a­cy? Or was it a much less glam­orous sto­ry of the Caribbean's largest-ever busi­ness con­glom­er­ate ac­tu­al­ly be­ing some kind of Naipaullian 'Thing with­out a name'? I have read some of the af­fi­davits in this case and the con­tents will be se­vere­ly dis­turb­ing to any right-think­ing read­er, even if you are not a fi­nan­cial ex­pert. This week, I am look­ing at two af­fi­davits of the In­spec­tor of Fi­nan­cial In­sti­tu­tions, Carl Hi­ralal. There is a way that the en­tire read­ing is sur­re­al, since the very per­son who was sup­posed to safe­guard us from ex­ten­sive wrong­do­ing and risk-tak­ing, now has to swear to the Court that the in­sti­tu­tion has failed so bad­ly it needs to be wound-up.

The main points were:

The ini­tial meet­ing

At para­graph 5 he states "...On Jan­u­ary 15th 2009 as part of its nor­mal reg­u­la­to­ry process, the Cen­tral Bank held a meet­ing with of­fi­cials from the Pe­ti­tion­er..." (CIB). Now that is lit­er­al­ly an un­be­liev­able sen­tence. Hi­ralal is swear­ing that this was a rou­tine meet­ing. We are be­ing asked to for­get that the then Min­is­ter of Fi­nance told the Par­lia­ment on Feb­ru­ary 4, 2009 that "...I would like to read in­to the record of Hansard, a let­ter from Cli­co In­vest­ment Bank ad­dressed to the Cen­tral Bank. That let­ter is dat­ed Jan­u­ary 13, 2009. It is on the let­ter­head of CL Fi­nan­cial, ad­dressed to Mr Ewart Williams, the Gov­er­nor and signed by Lawrence A Duprey, Group Ex­ec­u­tive Chair­man..."

See page 628 of HY­PER­LINK "http://www.ttpar­lia­ment.org/hansards/hh20090204.pdf"http://www.ttpar­lia­ment.org/hansards/hh20090204.pdf

It seems that Hi­ralal does not want to have the 'bailout let­ter' cit­ed in this Court mat­ter at all, for what­ev­er rea­son. You see, if it were cit­ed, the Cen­tral Bank would have been forced to file a true copy. So we have this in­cred­i­ble state­ment for starters. We are be­ing asked to be­lieve that Lawrence Duprey's let­ter re­quest­ing ur­gent, mas­sive fi­nan­cial as­sis­tance and the meet­ing two days lat­er were un­con­nect­ed.

Rea­sons for wind­ing-up

At para­graphs 9 c and 10 g he states "...the Pe­ti­tion­er (CIB) was not main­tain­ing high stan­dards of fi­nan­cial pro­bity and sound busi­ness prac­tices..." Stun­ning, and in a sworn af­fi­davit from the chief reg­u­la­tor. This is the high of­fi­cial re­spon­si­ble for main­tain­ing good or­der of the play­ers in the fi­nan­cial sys­tem. Those Di­rec­tors, Au­di­tors and Of­fi­cers of CIB, the ones who presided over this sit­u­a­tion, do you still con­sid­er them to be 'fit and prop­er' Mr Hi­ralal? Yes or no? If Yes', how come? If 'No', what are you go­ing to do about it? And when? But there is more.

Board of In­land Rev­enue

At para­graph 23 he states "...With re­spect to the Cred­i­tors of the Pe­ti­tion­er, the Pe­ti­tion­er has met the statu­to­ry oblig­a­tions for the Board of In­land Rev­enue (ex­cept for Cor­po­ra­tion Tax Re­turns for 2007, 2008 and 2009 which are be­ing pre­pared and re­main out­stand­ing)..." I spoke with a very ex­pe­ri­enced ac­coun­tant and a cor­po­rate at­tor­ney be­fore writ­ing this and the com­mon view is that the mean­ing of that state­ment is that the Cor­po­ra­tion Tax owed by CIB is un­paid for 2007-2009. If they owe those tax­es we are deal­ing with peo­ple who do not pay their tax­es, yet ex­pect the tax­pay­er to as­sist them in times of need.

Even if the tax­es are paid-up in full, there is still the el­e­men­tary and in­escapable gov­er­nance ques­tion of how and why CIB failed to file a tax re­turn. Did PwC re­port on this in ei­ther their au­dit or man­age­ment let­ter? Was Hi­ralal aware of CIB's fail­ure to file be­fore he was forced by the pro­ce­dur­al re­quire­ments of the wind­ing-up pe­ti­tion to de­clare his hand? Did the Board of Di­rec­tors know? Have penal­ties been ap­plied?

State­ment of Af­fairs

This is at para­graph 12 and ap­pears to con­tra­dict the pri­or state­ment in that it does not show any amount for ei­ther 'Tax­a­tion Re­cov­er­able' or 'Tax­a­tion Payable'. There needs to be an ex­pla­na­tion on this.

Au­di­tors

CIB's au­di­tors were Price­wa­ter­house­C­oop­ers (PwC), who were fea­tured last week. Lu­cie-Smith's view – William Lu­cie-Smith, for­mer Man­ag­ing Part­ner of PwC, re­spond­ing to blog­gers on his Ex­press ar­ti­cle 'CL Fi­nan­cial: A new strat­e­gy re­quired'– replied on Fri­day Au­gust 20, like this "...In­deed I dont (sic) know why any­one as­sumes the books were wer (sic) wrong at any time and did not re­flect ac­cu­rate­ly what was hap­pen­ing..." Just my first read of those af­fi­davits made me ques­tion the re­li­a­bil­i­ty of the ac­counts. (See HY­PER­LINK "http://www.trinidad­ex­press.com/com­men­taries/CL_Fi­nan­cial_A_new_strat­e­gy_re­quired_.html"http://www.trinidad­ex­press.com/com­men­taries/CL_Fi­nan­cial_A_new_strat­e­gy_re­quired_.html

Next, I will be go­ing in­to some more de­tail on how CIB ac­tu­al­ly worked, based on sworn af­fi­davits. A longer ver­sion of this ar­ti­cle and the af­fi­davits are avail­able to read at HY­PER­LINK "http://www.afraray­mond.com" www.afraray­mond.com

The Con­cen­tric Cir­cles

For the pur­pos­es of this ar­ti­cle, CIB is at the cen­tre of the page, with its Di­rec­tors and Of­fi­cers be­ing in charge of its strat­e­gy and man­age­ment. They bear pri­ma­ry re­spon­si­bil­i­ty for the com­pa­ny's af­fairs on be­half of the share­hold­ers and oth­er stake­hold­ers.

The sec­ond ring is the au­di­tors, usu­al­ly a lead­ing firm of Char­tered Ac­coun­tants, who ex­am­ine the ac­counts pre­pared by the com­pa­ny to re­port whether those ac­counts of­fer a true and cor­rect pic­ture of the com­pa­ny's fi­nan­cial health. The au­di­tors use in­ter­na­tion­al ac­count­ing stan­dards as a bench­mark for qual­i­ty and com­pa­ra­bil­i­ty of fig­ures, if there are ma­te­r­i­al di­ver­gences from those stan­dards, the au­di­tor's opin­ion can be qual­i­fied.

The third, out­er ring is the fi­nan­cial sec­tor reg­u­la­tors, whose du­ty is to en­sure that the com­pa­nies with­in the in­dus­tries com­ply with the law and oth­er guide­lines. The reg­u­la­tors ex­am­ine the au­dit­ed ac­counts and oth­er in­for­ma­tion from the com­pa­nies in or­der to de­ter­mine the ex­tent to which the rules are be­ing fol­lowed. We, the sav­ing and in­vest­ing pub­lic, are out­side of that se­ries of con­cen­tric cir­cles and once there are no alarm bells, we will place our sav­ings with these ap­proved fi­nan­cial in­sti­tu­tions. The rea­son for all that is to pre­serve the most frag­ile and vi­tal in­gre­di­ent of the cap­i­tal­ist sys­tem. Yes, I am speak­ing about trust, which is al­so an im­por­tant as­pect of the wider so­ci­ety.

The Reg­u­la­tor

The chief Reg­u­la­tor at the Cen­tral Bank, with re­spon­si­bil­i­ty for both Banks and In­sur­ance com­pa­nies, is the In­spec­tor of Fi­nan­cial In­sti­tu­tions. That of­fice is held by Carl Hi­ralal, who was ap­point­ed on Jan­u­ary 1, 2007. Hi­ralal is a well-qual­i­fied, high­ly-ex­pe­ri­enced pro­fes­sion­al, which on­ly makes his af­fi­davits all the more dis­turb­ing. For more de­tails, see HY­PER­LINK "http://www.ttaifa.com/down­loads/2009Carl­Hi­ralal­Bio.pdf"http://www.ttaifa.com/down­loads/2009Carl­Hi­ralal­Bio.pdf