United National Congress Caroni East MP Dr Tim Gopeesingh has written to the Ag Police Commissioner and Ag Director of Public Prosecutions (DPP) requesting a criminal probe into senior managers of the Central Bank and certain State-owned companies to determine whether they have breached insurance laws by failing to properly monitor and regulate some insurance companies which have taken out Performance Bonds for specific mega-million dollar State construction projects.

Gopeesingh is contending that this alleged failure to monitor the insurance companies is a result of deliberate neglect by various authorities which have resulted in taxpayers having to pay hundreds of millions of dollars on various State projects which have not been delivered on time by several contractors.

Gopeesingh contends that these projects could not be covered by the insurance companies because they were never in a financial position to cover such vast expenses.

The letters from Gopeesingh to Ag COP James Philbert and Ag DPP Roger Gaspard, dated November 13, 2009, are copied to Attorney General John Jeremie, Prime Minister Patrick Manning and Finance Minister Karen Nunez-Teshiera.

The basis of Gopeesingh’s complaint lies in the contents of several letters written by contractor Emile Elias to the Central Bank on the issue dating back to 2006.

THE ELIAS LETTERS

In his letters, Gopeesingh asks Philbert and Gaspard to launch the criminal probe ’into whether State Companies have been deliberately involved in insurance’s companies’ attempt to defraud citizens.’

He refers to a series of letters written to the Central Bank by Elias in 2006 and one to the former Minister of Trade and Industry, Dr Keith Rowley, in 2008.

In a Parliament session last year, Gopeesingh had read these letters into Hansard during a contribution on regulatory functions of the Central Bank, when he had requested the Finance Ministry to launch a probe into the contents of the letters.

In Elias’ first letter, dated July 5, 2006, to the Central Bank’s Deputy Inspector of the Financial Institution Supervision Department, it is noted that since 2004, the Central Bank’s responsibility for supervision had been broadened to include insurance companies ’to focus on an oversight of market conduct to manage systemic risk.’

Elias noted that in March 2006, the Inspector of Financial Institutions took action against two insurance companies and he then called on the Government ’to make the sector safer for itself.’

Elias wrote that:

’We are concerned that Governmental agencies, Statutory Authorities and State Enterprises approve Performance Bonds from insurance companies where re-insurance treaties may be non existent or vastly exceeded, or the face value of bonds are far in excess of the equity value of the insurance company; but also that a clear warning system alerting Government’s agencies Statutory Authorities, State Enterprises and contractors to an insurance potential default risk does not exist.’

Back then Elias had urged the Central Bank authorities to conduct an evaluation of how the Government and, in particular, the Special purposes companies approved insurance companies’ Performance and other bonds.

He had noted too, that in the event of an insurance company’s default on a Performance Bond, ’the financial risk of contractual failure is transferred ultimately to the taxpayer for the cost of the Performance Bond which would have to be reimbursed to the contractor by the Government; completion costs for unfulfilled contractor or supplier obligations, including costs related to contractor replacement, job acceleration and extended overhead; correction costs for defective and/or non conforming work product; and legal costs resulting from a default.’

Elias also noted that this could mean that taxpayers could end up paying billions of dollars, given the high number of mega-billion dollar projects undertaken by various State companies.

Back then, Elias had asked the Central Bank authorities to initiate the probe to ensure transparency and that ’there be timely information disclosure of a list of approved surety bond insurance companies compiled, updated quarterly by the Central Bank and sent to Government Agencies, Statutory Authorities, State Enterprises and the Joint Consultative Council or circulation to the Construction Industry.’

Meanwhile, the Central Bank should write to all State companies asking that they consult the Central Bank before accepting Performance Bonds so as to ensure that they were credible, he had suggested.

On November 3, 2006, Elias wrote another letter to the same department of the Central Bank, lamenting that he had not even had a response to his original request. He referred to Sunday Express reports, dated October 15, 2006, which dealt with the response of UDeCOTT Chairman Calder Hart when asked about using Bankers’ Insurance to issue Performance Bond valued at $17m for the Tarouba Stadium project. Hart had said then that the regulatory function of these insurance companies were not UdeCOTT’s responsibility, but rather, that of the Central Bank.

Elias said he had asked whether Hart had asked the Central Bank to advise on the appropriateness of Bankers Insurance issuing a bond. He had also requested an examination of this company’s records to see if hey were financially capable of issuing such a Performance Bond.

By April 21, 2008, Elias had penned yet another letter on this issue, this time to then Trade and Industry Minister Dr Keith Rowley, noting that he never received responses from the Central Bank to his letters to them, and asking the Ministry to probe his concerns.

Rowley was fired from the Cabinet shortly.

Elias said in an interview last week that he has received no correspondence from the Central Bank to date, nor from the Finance Ministry nor Trade and Industry Ministry.

CRIMINAL PROBE

In Gopeesingh’s letter for a criminal probe into this apparent non-action by the Central Bank, he noted that one of the insurance companies referred to in Elias letter has since been declared insolvent, and the fiscal records show that in 2008, it suffered a net loss of $2m.

He said the company in question, Bankers Insurance, had issued a $15m Performance Bond for contractor China Ningbo Construction Ltd, which was hired by special purposes company, the Educational Facilities Company Ltd in 2007, to construct the Princes Town East Secondary School. That contract was terminated two months ago with only 13 per cent of the work having been completed.

Gopeesingh said in his letter that this was precisely the kind of situation the Central Bank was asked to intervene in and prevent, three years ago.

He told the Ag CoP and Ag DPP that:

’I wish to formally request a criminal probe by your good office into these facts with a view to determining whether ’the directors of Bankers Insurance, pre and post 2009, are guilty of violating Section 447 of the Companies Act.’

He also asks that the criminal probe be extended to ’the regulators at the Central Bank, namely the Inspector, Financial Institution Supervision Department, and persons thereupon responsible for regulatory functions, to determine if they were in breach of Section 447 of the Companies Act by knowingly failing to perform their duties and thereby, directly or indirectly conspired with the directors of Bankers Insurance to defraud creditors of the company or the creditors of any other person or for any fraudulent purpose, or with reckless disregard of the company’s obligations to pay its debts and liabilities, or with reckless disregard of the insufficiency of the company’s assets, to satisfy its debts and liabilities.’

Gopeesingh further asks that the Ag CoP and Ag DPP probe whether ’directors of State owned companies like UDeCOTT and EFCL were in breach of Section 447 of the Companies Act by knowingly failing to perform their duties and thereby, directly or indirectly conspired with the directors of Bankers Insurance to defraud creditors of the company or the creditors of any other person or for any fraudulent purpose, or with reckless disregard of the company’s obligations to pay its debts and liabilities, or with reckless disregard of the insufficiency of the company’s assets, to satisfy its debts and liabilities.’