Former Minister of Finance, Winston Dookeran, has often shied away from controversy in his long political career.But in an explosive affidavit in response to a lawsuit against the Government's handling of the Clico affair, brought by his former Cabinet colleague, Ramesh Lawrence Maharaj, Dookeran makes some astonishing revelations, including:
• It may take a further $21 billion to resolve the Clico issue;
• Why Clico's assets could not have been sold in 2009 and 2010
24. CL Financial is the parent company of the Group. The Group includes companies operating in banking and financial services, manufacturing, trading, retail and distribution, general and life insurance, medical services, forestry and agriculture, real estate development, energy and petrochemicals, marine services and also in the media and communications sectors. It was the largest privately held conglomerate in Trinidad and Tobago and one of the largest in the Caribbean. In early 2009, the group owned or controlled over 30 companies and numerous additional subsidiaries under many of those companies, located in the Caribbean, the USA, Europe and the Middle East.
25. From the information which came to me on assumption of office, it was evident that the group pursued an objective of international expansion. It acquired a number of companies in the alcohol industry and to this end acquired spirits manufacturing and distribution companies in the USA (including Todhunter International Inc., and Lawrenceburg Distillers, Indiana) and Europe. It also acquired Burn Stewart Distillers Limited, Belvedere SA and Hine Cognac.
26. These acquisitions were largely funded by intra-Group lending, a significant amount of which came from Clico.
27. Some key members of the Group's manufacturing arm included Angostura Holdings Limited (AHL) and Lascelles de Mercado {LdM) and, in the energy and petrochemical sector, Methanol Holdings Trinidad Limited (MHTL). CLF relied on dividend income from such profitable subsidiaries to fund its expansion programme, although it obtained that income through its direct subsidiaries, particularly Clico, which owned the shares in the relevant companies.
28. Apart from those businesses, the other significant sector in which CLF was involved was financial services. Group companies included:
(a) Clico Investment Bank (CIB). This was another Group company which was frequently used to provide intra- Group funding. Following a run on CIB in early 2009 (due in part to a large portfolio of non-performing loans), CIB went into liquidation; and
(b) Caribbean Money Market Brokers Limited (CMMB), which was subsequently transferred to First Citizens Bank Limited (FCB).
29. Clico together with CIB also held a 55 per cent shareholding in Republic Bank Limited (RBL), the largest bank in Trinidad and Tobago.
30. As of December 2007 (latest audited financial statements), the Group's assets were declared to be in the region of TT$IOO billion, 43 per cent of which related to companies operating in the financial services sector. As TT$IOO billion was broadly equivalent to 70 per cent of the 2009 GDP of Trinidad and Tobago, the size of the Group and its significance to the economy of Trinidad and Tobago cannot be overstated. Given the magnitude and diversity of the Group's operations, any insolvency issues within the Group would have created a real potential for systemic risk to the financial system of Trinidad and Tobago.
The Group borrowed over TT$6 billion from financial institutions in Trinidad and Tobago. A large portion of this debt was with two institutions upon whom the collapse of the Group would have impacted negatively, and such a collapse would have affected Trinidad and Tobago citizens directly and indirectly. This would have put at risk the stability and endurance of the financial system of Trinidad and Tobago.
31. Due to an apparent lack of effective management and corporate governance structures, the Group lost billions of dollars on its acquisitions, a number of which were subsequently sold. A number of significant group companies across the Caribbean are currently insolvent and under judicial management or in liquidation including BAICO (Bahamas), Clico (Bahamas) and Clico (Barbados).
32. One particularly significant member of the Group is Clico, which is a
regulated insurance company under the Insurance Act, Chapter 84:01. Clico writes traditional policies, which generally involved the payment of regular premiums, with the policies providing benefits either at a particular point in time or upon the occurrence of a particular event.
33. Clico also wrote a range of STIPs, including EFPAs, which were sold to resident as well as non-resident individuals and groups. Clico was also the sponsor, manager, and distributor of a series of mutual funds.
34. Clico was one of the largest financial institutions in Trinidad and Tobago, with a customer base of around 250,000 clients, representing approximately 20 per cent of the population of Trinidad and Tobago, and including more than 15,000 pensioners and around 100 credit and trade unions. Of those clients, 225,000 held traditional policies and 24,800 held EFPAs or mutual fund investments.
35 .In accordance with section 37 of the Insurance Act, Clico and British American Insurance Company (Trinidad) Limited (BA) were required to establish statutory funds in respect of their liabilities under all of their long-term insurance business, including the EFPAs (these funds are herein referred to together as the statutory funds, and the fund relating to Clico is referred to as (the statutory fund), though by 2009 the assets in the Statutory Funds were not sufficient to cover the liabilities. The statutory funds were created in accordance with section 37 of the Insurance Act and no separate trust deed governing the operation of the Statutory Funds exists.
36. Although GORTT has intervened in both Clico and BA, I will confine my evidence largely to Clico as it is that intervention which is in issue in these proceedings.
38. As to paragraph 16 of the Maharaj Affidavit, it is admitted that there was a run on CIB and a rush of depositors seeking to withdraw their assets. I am unable to say whether the financial crisis, of which Ms. Maharaj speaks, led to a loss of confidence and the run on CIB.
40. Paragraph 18 of the Maharaj Affidavit is admitted save and except that the MOU makes no reference to GORTT providing collateralized loan financing to Clico and BA. The MOU in fact states that in the event that there is a shortfall in the sale of assets, CLF warrants and undertakes to provide collateral which may include a secure charge on the assets of CLF, Clico and BA, sufficient to secure any financial assistance to be provided by GORTT.
49. As to paragraph 30 of the Maharaj Affidavit, Karen Tesheira's statement to the Parliament referred to was not made on 16 June 2009. It was in fact made on 24 June 2009. In respect of the statement attributed to the KNT, I say that it must be taken in its proper context. Hansard records show that Tesheira stated at page 340:
"However, the Government and you read the agreement - there is a restructuring agreement and that is carried out in the Memorandum of Understanding signed with CL Financial - is committed to restructuring CL Financial as a going concern to ensure that if investments are realised and all those persons including the creditors, shareholders and all those persons are not left wanting, they, at the end of the day will get back and recoup all of their losses and potential losses, but to guarantee is not a guarantee to them. We guarantee the policyholders and residents of this Country that is our guarantee, but we are committed to seeing that Clico becomes a going concern because we want to ensure that the moneys that the taxpayers have invested are recouped and in so doing the persons to whom you spoke will therefore benefit because that will be part of the whole exercise of creating solvency for Clico and CL Financial. "
50. As to paragraph 31 of the Maharaj Affidavit, I have read the statements attributable to KNT as contained in exhibit "VM13" to the December 2011 Maharaj Affidavit. I am unaware that the statement referred to in the said paragraph 31 is in response to policyholders who had kept their funds in Clico beyond maturity.
52. As to paragraph 33 of the Maharaj Affidavit, I am unaware as to the media conference referred to therein and to the Governor's purported statement that he planned to put a general scheme to the Cabinet for its approval.
53. In further response to paragraphs 15 to 33 of the Maharaj Affidavit, I state what follows hereunder.
54. On 13 January 2009, Mr Lawrence Duprey informed CBTT that:
(a) the global financial crisis was affecting the availability of liquidity in Trinidad and Tobago;
(b) the Group had been seriously affected by this and many customers were withdrawing their funds;
(c) Group companies had met their obligations to customers to date, but a contingency plan was being developed in case the trend of withdrawals continued; and
(d) Group assets could not be readily liquidated without incurring significant loss, and liquidity support may be required.
55. Meetings between CLF, GORTT and CBTT commenced on 15 January 2009. On 30 January 2009, KNT, acting on behalf of the Former Administration, and CLF (acting for itself and its affiliates including Clico, CIB and BA entered into a Memorandum of Understanding (the MOU) in an attempt to correct the financial condition of CIB, Clico and BA.
56. On 13 February 2009, CBTT exercised its emergency powers pursuant to section 44D of the Central Bank Act (the CBA), and assumed control of Clico.
57. Pursuant to the MOU and following further discussions between CLF and GORTT, on 12 June 2009, CLF and GORTT (amongst others) signed a shareholders' agreement (the Shareholders' Agreement). The main purpose of the Shareholders' agreement was to regulate and formalise certain aspects of CLF's affairs and GORTT's dealings therewith.
58. Since the problems with Clico came to light in 2009, GORTT has provided various funds to members of the Group and to Clico in particular. Initially some TT$5 billion was provided to Clico. This comprised:
(a) an initial advance of $1.9 billion in cash to meet initial liquidity demands after the first stage of the intervention; and
(b) a further sum of approximately $3.1 billion in the form of long-term GORTT bonds with varying maturities and coupon rates.
59. Since that initial tranche of funding, GORTT has further committed significant sums, including, as at 9 July 2012, approximately $9.542 billion which has been paid to EFPA policyholders with policies worth more than $75,000.
60. Assuming that the restructuring of Clico proceeds as detailed below, GORTT will advance further funds totalling approximately $12.097 billion for payments to EFPA policyholders with policies worth more than $75,000.
61. I reiterate that the above numbers are approximate and represent a summary of the funds GORTT has paid out to date and is likely to advance, depending on, inter alia, the number of policyholders who accept the offer referred to below.
62. In 2010, GORTT established a Commission of Enquiry into the failure of CLF. Karen Tesheira provided a statement to the Commission of Enquiry. I have read that statement and verily believe that the former administration took the position that the financial condition of CIB, Clico and BA threatened the interests of depositors, policyholders and creditors of those institutions and po
sed a danger of disruption or damage to the financial system of Trinidad and Tobago.
63. At paragraph 48 of W.D.4, Tesheira expressed concern that there may be a run on Clico, which could cause its collapse and lead to contagion in the wider financial services sector. Tesheira was particularly concerned because Bear Stems, a major US investment bank, had recently collapsed over the course of a single weekend.
64. The former administration's actions by entering into the MOU, and the statements it made to reassure depositors and policyholders, was necessary to prevent a run on the Trinidad and Tobago financial system and to preserve the integrity of and confidence in the financial sector.
This point is well made in paragraph 38 of the statement annexed as W.D.4, which states that if news of the issues facing the Group "leaked out and the rate of withdrawals continued and other developments were made public this would undoubtedly result in a run on CIB and Clico with a very real risk to the stability of the financial sector and ultimately of Trinidad and Tobago."
65. In a statement to the House of Representatives on Monday 2 February 2009, KNT stated that "the actions [GORTT] has taken will permit an orderly restructuring of the institutions and safeguard the interests of our citizens who are depositors, insurance clients, and pension fund members". She further stated that the intervention was "timely and necessary", and that it was "taken to protect our financial system".
66. Between January and April 2010, as part of the ongoing discussions aimed at formulating a comprehensive approach to the problems at Clico, GORTT again considered the reasons for intervention. It was clear that the objectives of the intervention were:
(a) to protect the country's economic and financial system from risk and to restore confidence;
(b) to protect resident policyholders and depositors in the insurance and financial services companies of the
CLF group;
(c) to continue Clico and BA as going concerns as the means of restoring confidence and maintaining system
stability;
(d) to repay third partyCIB depositors;
(e) to protect other system exposures that might be trans mitted through CMMB;
(f) to determine and pursue accountability within the group for the problem; and
(g) to recover funding from wherever possible within CLF
67. In the period from GORTT's initial intervention until early in 2010, various statements were made in relation to Clico, all of which are referred to in the Maharaj Affidavit and/or in the exhibits thereto.
68. In order to protect the country's economic and financial system from risk and to restore confidence, and to continue Clico as a going concern as a means of restoring confidence and maintaining system stability, it was essential that policyholders and investors maintained confidence that their investments were protected. It was to this end that those statements were made.
69. Even at this early stage, GORTT was aware that certain statements had been made creating an expectation on the part of Clico policyholders resident in Trinidad and Tobago arising from the following words: "I wish to reiterate this Government's commitment to ensure that depositors' assets will not be at risk' as stated by Tesheira in the Statement for the CIB\Clico Media Conference of 30th January 2009. In the media release of GORTT and CBTT dated 30th January 2009, it is further stated: "The Government will provide funding support to fully back Clico and BAICO to meet any Statutory Fund deficits that might emerge after the company has made all possible arrangements to place satisfactory levels of cash and other assets into the Statutory Fund in order to ensure the short as well as medium and long term liquidity and stability of Clico".
70. It was clear from April 2009 that Clico and the wider Group needed to be restructured. Otherwise, Clico would have been forced into liquidation, which could have had a devastating effect on the financial system and the wider economy.
71. Between 30 April 2009 and March 2010, GORTT and CBTT worked to manage the initial public panic and to begin to ring-fence risks within the CLF group. In relation to the insurance companies, GORTT focussed on the deficit in the Statutory Funds and provided an injection of funds to Clico, which is explained in greater detail below. Similar action was also taken in relation to BA.
72. This injection of funds had allowed GORTT significant breathing space, quelled panic, and allowed Trinidad and Tobago to satisfy the concerns of international rating agencies (which had immediately put the country on negative watch when the crisis broke). However, the funds made available could not realistically cover a demand for liquidity that could have realised all the short term policies, including EFPAs, issued by Clico. The liabilities under those policies amounted to approximately $13 billion. It was therefore imperative that GORTT find a way to address the issue of Clico's liabilities and restructure its business.
73. From the information that came to me it appeared that at the time that the MOU was signed the intention had been that certain valuable group assets,such as shares in RBL and MHTL, could be sold or collateralised. However, it became apparent that this could not happen, because:
(a) the majority of Clico's RBL shares were held in its statutory fund (which was significantly in deficit);
(b) the remainder of Clico's RBL shares were subject to security in favour of CIB;
(c) most of the RBL shares owned by CIB were
hypothecated to secure that company's borrowings;
(d) dealings in the MHTL shares owned by the Group were subject to the terms of a shareholders' agreement.
74. Given the size and scope of the Group's business, and notwithstanding GORTT's intervention, there remained substantial systemic risks inherent in the financial situation and condition of the Group. These included its third party as well as its related party debt, particularly as they impacted on state-related institutions and on Clico itself.