CL Financial – CLICO Investment Bank scandal. Inspector of Financial Institutions Carl Hiralal part of the cover-up.

Afra Raymond calls Carl Hiralal’s affidavits “disturbing”, “unbelievable”, “stunning”

The House on the Corner

by Afra Raymond

Some insights into CIB – CLICO Investment Bank

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.  The view was that the group had a legitimate method of harvesting funds on terms advantageous to them.

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, which I only mention because the documents filed there give a disturbing insight into the CIB mystery.

Carl Hiralal

We were also being fed some lyrics that the CL Financial group in general and CIB in particular were all healthy/strong companies with good assets, all fallen victim of the global financial crisis.  Despite the natural doubts on that one, I had some trust in those people who were speaking to me.  The mystery remained – Was CL Financial and 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 Naipaullean ‘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 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 of Carl Hiralal’s affidavits is surreal. 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 of Carl Hiralal’s affidavits were –

•    The initial meeting – At para 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 what the then Minister of Finance told the Parliament on 4th February 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 http://www.ttparliament.org/hansards/hh20090204.pdf.)

I am forming the impression 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 paras 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 para 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 Corporate Tax owed by CIB is unpaid for 2007-2009.  If they owe those taxes we 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 to declare his hand? Did the Board of Directors know?  Have penalties been applied?

•    Statement of Affairs – This is at para 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.

William Lucie-Smith

•    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 20th August, 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.

Next, I will be going into some more detail on how CIB actually worked, based on sworn affidavits.  The affidavits are available to read at www.afraraymond.com.

The Concentric Circles

For the purposes of this article, CIB – CLICO Investment Bank 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, which is when the divergences are specified.

The third, outer ring is the financial sector regulators, whose job is to ensure that the companies within the industries comply with the law and other guidelines created by the regulators.  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 society relies on the people in these three concentric circles to act in a ‘fit and proper’ fashion in the execution of their duties, with proper penalties in place for improper or illegal behaviour.  The idea being that there is a minimum standard of conduct and risk-taking which avoids nasty surprises in the course of normal savings and investment.

There are real questions as to what levels of risk-taking and innovation are healthy or desirable to maintain some balance between profit-levels and stability.  That is a fascinating aspect of the financial industry to be expanded on.

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 1st January 2007.  Hiralal is a well-qualified, highly-experienced professional and that only makes the contents of his affidavits all the more disturbing.

For Carl Hiralal’s biography see – http://www.ttaifa.com/downloads/2009CarlHiralalBio.pdf

The CIB Directors

At the time of the collapse, the Board of Directors of CLICO Investment Bank comprised –

Mervyn Assam (Chairman)
Amjad Ali
Anthony Rahael
Maria Thorne
Michael Callendar
Faris Al Rawi

Afra Raymond is a Chartered Surveyor.  This series on the CL Financial bailout can be viewed or readers’ comments made at www.afraraymond.com.

Barbados Free Press provided the main title, formatting, photos and a few minor punctuation and sentence breaks.

4 Comments

Filed under Barbados, Business & Banking, Consumer Issues, Corruption, Crime & Law, Freedom Of Information

4 responses to “CL Financial – CLICO Investment Bank scandal. Inspector of Financial Institutions Carl Hiralal part of the cover-up.

  1. Justice?

    If there was ever any true justice, the main contributors to those three concentric circles of checks and balances would all be doing some very serious JAIL TIME!

    Fittingly enough it should be at Dodds!

  2. See those eyes?

    -the eyes in the photo?

    Those are san paku eyes -not to be trusted.

  3. Pingback: Financial Inspector Carl Hiralal too cosy with bankers he’s supposed to supervise « Barbados Free Press