Prime Minister Kamla Persad-Bissessar today tabled in Parliament the report arising out of the Commission of Enquiry into the failure of the Hindu Credit Union (HCU).
The report contains nine 'terms of reference' looking into the circumstances, factors, causes and reasons for the collapse of the HCU and the CL Financial Group. Additionally, Section M highlights recommendations to the Director of Public Prosecutions (DPP) outlining 18 grounds under which criminal charges could be brought against former HCU chariman Harry Harnarine.
Following if the full report:
GOVERNMENT OF THE REPUBLIC OF TRINIDAD & TOBAGO
OFFICE OF THE PRIME MINISTER
SPEAKING NOTES OF
THE HONOURABLE KAMLA PERSAD BISSESSAR, SC, MP
PRIME MINISTER OF THE REPUBLIC OF TRINIDAD & TOBAGO
STATEMENT TO THE HOUSE OF REPRESENTATIVES
HCU COMMISSION OF ENQUIRY REPORT
FRIDAY 18TH JULY 2014
When my Government assumed office on May 24, 2010, we inherited the collapse of two major financial institutions which had grave repercussions for our economy and society. I refer of course to the fall of the financial behemoth the CL Financial Group of Companies and the Hindu Credit Union Co-operative Society Limited (HCU).
The effects of the CLICO fiasco transcended our shores and posed a threat to the local and regional economy with implications for several of our Caribbean neighbours. The former administration misdiagnosed the problems in CLICO and treated what was a solvency issue as though it was a simple liquidity problem. The temporary liquidity financial support it provided therefore failed. It was as if money was being poured into a dark, bottomless well.
The HCU was financially compromised and although the impact was not the same on the economy, the distress experienced by innocent citizens who, had in good faith invested in the HCU, was no different.
I adopted a two pronged strategy to address this crisis. We immediately set about the task of cauterizing the crippling financial effect and consequences by devising an innovative plan to stabilize CLICO. To date, the resolution of this fiasco has burned a hole in the Treasury of over TT$22 billion dollars. The HCU was of course, deemed to be insolvent and a liquidator was appointed.
We then turned to the thousands of grieving citizens who had been left broken hearted and left empty handed as they stood silently and witnessed their financial Rome burnt to the ground. The Government’s offer of relief for the aggrieved CLICO and Hindu Credit Union Depositors saw the full payment to all depositors and shareholders with balances under $75, 000.00 with a deferred payment option in zero coupon Government bonds in $1000.00 dollar denominations with varying maturities over twenty (20 ) years.
Whilst we nursed and tended to our inherited financial wounds, so that the body of our economy could heal, I remained firm in my conviction and belief that there should be a comprehensive investigation into the facts and circumstances that led to the collapse of these two institutions to determine if there was any culpability.
I could not, Mr. Speaker in all good conscience turn a blind eye to the pain, suffering, humiliation and distress that had been inflicted upon our innocent citizens.
I was determined to pursue justice on behalf of those who had been disenfranchised and pauperised by the alleged mismanagement, greed and corruption of those who were in charge of these two institutions. The voices that cried for justice to be done did not fall on deaf ears.
TERMS OF REFERENCE
To this end, a Commission of Enquiry was appointed on the 4th of November 2010 to inquire into inter alia the circumstances, factors, causes and reasons for the collapse of the CL Financial Group of Companies and the Hindu Credit Union Co-operative Society Limited. The terms of reference were wide ranging and read as follows:
To enquire into:
(a) the circumstances, factors, causes and reasons leading to the January 2009 intervention by the Government of the Republic of Trinidad and Tobago for the rehabilitation of Colonial Life Insurance Company (Trinidad) Limited, CLICO Investment Bank Limited, British American Insurance Company (Trinidad) Limited and Caribbean Money Market Brokers Limited (CMMB);
(b) the legal and fiscal bases which informed the decision of the Government of the Republic of Trinidad and Tobago in January 2009 to inject capital or funding into Colonial Life Insurance Company (Trinidad) Limited, CLICO Investment Bank Limited, British American Insurance Company (Trinidad) Limited and Caribbean Money Market Brokers Limited (CMMB); how that injection of capital was structured; and what policies, procedures and processes were used in the distribution this capital or funding;
(c) the causes, reasons and circumstances leading to the deterioration of the financial conditions of CL Financial Limited, Colonial Life Insurance Company (Trinidad) Limited, CLICO Investment Bank Limited, British American Insurance Company (Trinidad) Limited, Caribbean Money Market Brokers Limited (CMMB) and the Hindu Credit Union Co-Operative Society Limited (hereinafter referred to as “the said companies”) which threatened the interest of depositors, investors, policyholders, creditors and shareholders of the said companies;
(d) the effectiveness or suitability of the accounting and auditing firms, the institutional, regulatory and statutory bodies with oversight responsibilities (including but not limited to the Central Bank and the Securities and Exchange Commission) governing the business and affairs of the said companies; the weaknesses, shortcomings, failures, deficiencies, breaches and omissions (if any) of the accounting and auditing firms, the institutional, regulatory and statutory bodies with oversight responsibilities (including but not limited to the Central Bank and the Securities and Exchange Commission) governing the said companies in respect of their obligations to fulfil or comply with the responsibilities and duties imposed upon them by best practices and such other institutional, regulatory and statutory framework; and the extent to which the failure or omission to fulfil or comply with such responsibilities and duties contributed to or facilitated the creation of circumstances which threatened or compromised the interests of depositors, investors, policyholders, creditors and shareholders of the said companies;
(e) the extent to which the existing accounting and auditing firms, institutional, regulatory and statutory bodies charged with the responsibility for regulating the business or conduct of the said companies fulfilled or complied with the responsibilities and duties imposed upon them -
(i) by law; and
(ii) by good corporate governance and practice;
(f) the assets and liabilities of the said companies and the extent to which the existing assets of the said companies are capable of meeting the financial demands of depositors, investors, policy holders, creditors and shareholders of the said companies;
(g) the identity of any accounting and auditing firm, person, entity, or institution, whether local, regional or international, corporate or otherwise, who or which directed, conspired towards, participated in, aided or abetted, knew or ought to have known of or could be implicated or otherwise involved in any act or omission, deed or thing leading to the circumstances whereby the interests of depositors, investors, policy holders, creditors and shareholders of the said companies became threatened; and the extent to which these accounting and auditing firms, persons, entities, or institutions acted, omitted to act, knew or ought to have known of or was implicated or otherwise involved in any of the circumstances that led to the insolvency of the said companies;
(h) the extent to which it may have been possible to prevent the interests of depositors, investors, policy holders and creditors of the said companies becoming compromised or threatened and whether the accounting and auditing firms, the institutional, regulatory and statutory bodies with oversight responsibilities (including but not limited to the Central Bank and the Securities and Exchange Commission) governing the said companies acted in accordance with best practices, their respective mandates, and in the best interests of the depositors, investors, policyholders, creditors and shareholders of the said companies; and
(i) whether any third party acted in a manner that mislead the depositors, investors, policyholders, creditors and shareholders of the said companies by negligently or fraudulently misrepresenting the true financial status of the said companies.
(2) To make such findings, observations and recommendations arising out of its deliberations, as may be deemed appropriate, in relation to:
(a) whether there are any grounds for criminal and civil proceedings against any person or entity; whether criminal proceedings should therefore be recommended to the Director of Public Prosecutions for his consideration; and whether civil proceedings should be recommended to the Attorney General for his consideration;
(b) the policies, measures, mechanisms and systems that should be implemented to detect, counteract and prevent the recurrence of circumstances where the depositors, investors, policyholders, creditors and shareholders of the said companies and other institutions or companies in the financial, banking and insurance sectors become threatened and compromised;
(c) the implementation, modernisation and harmonisation with international best practices of the institutional, regulatory and statutory framework governing and regulating the said companies and other institutions and companies in the accounting, auditing, financial, banking and insurance sectors;
(d) the establishment of a standard, coordinated and effective system of responses to be implemented by institutional, regulatory and statutory bodies charged with the responsibility for regulating the said companies and other institutions or companies in the accounting, auditing, financial, banking and insurance sectors consequent upon any circumstances which may arise to threaten the interests of the depositors, investors, policyholders, creditors and shareholders and which may necessitate the rehabilitation of such institutions or companies in the interest of and for the protection of such depositors, investors, policyholders, creditors and shareholders.
A sole Commissioner was appointed in the person of Sir Anthony Coleman who is the Deputy Chief Justice of the Commercial Law Court in Dubai and an eminent and internationally respected jurist. The Commission sat for eighty -five (85) days and received voluminous written and oral evidence and submissions.
I have today Mr. Speaker, received a copy of the report delivered to His Excellency of the Republic of Trinidad and Tobago, Mr. Anthony Carmona by Sir Anthony Coleman on the Hindu Credit Union aspect of his inquiry. I am advised that the Commission has already started working on the report for the CLICO aspect of the inquiry.
Today Mr. Speaker, consistent with my promise for justice to be done, I have the honour to table the Commission of Enquiry report into the collapse of the HCU.
I also wish to report on the recommendations made for civil and criminal action to be taken against alleged wrongdoers who are involved in the executive management of the Hindu Credit Union.
Section M: Recommendations to the Director of Public Prosecutions, under
Paragraph 2(i) of the Terms of Reference
M1 Mr Harnarine
The conduct of Mr Harry Harnarine was such that the Director of Public Prosecutions (“DPP”) should take immediate steps to test the sustainability of criminal proceedings against him. The following aspects of his conduct could be found upon further investigation to give rise to or evidence criminal liability in respect of the following criminal offences.
M1 (a.) Conspiring during the period from 1 January 2002 to 23 July 2008 with the principal officers and members of the BOD and/or the managers of HCU, namely Gayndlal Ramnath, Yadwanath Lalchan, Jameel Ali, and Ravindra Bachan (referred to collectively as “the Co-conspirators”) to defraud members of HCU and their depositors
in HCU by agreeing dishonestly to put at risk the value and recoverability of the members’ investments and/or deposits by members and others as evidenced by some or all of the following conduct more fully described in Section F of this Report.
(i) The commercial relationship between Mr Harnarine and the Co-conspirators, which was dominated by Mr Harnarine, supported particularly by Mr Ramnath.
(ii) Recklessly pursuing an improvident investment policy by causing HCU to purchase tangible assets at an over-value, without the prior approval of the BOD and without the prior valuation of such property by independent valuers and without obtaining prior adequate advice on title, for example causing HCU USA to purchase in 2003-4 the Miramar Property in Florida, the property of Seepersad Harnarine in Pembroke Pines, Florida, and the property at Macaya Trace, Florida.
(iii) Recklessly causing HCU to form and/or acquire subsidiaries and to manage them without prior permission from the CCD and without exercising prior due diligence and without any or sufficient business plan, which subsidiaries were incapable of producing sufficient revenue to finance their day to day operations and which could only survive with loans from HCU and recklessly failing to procure adequate monitoring of the deteriorating financial condition of those subsidiaries.
(iv) Knowingly or recklessly causing HCU to solicit deposits at a time (2005-2008) when it could not meet its immediate liabilities.
(v) Causing HCU’s reckless anD excessive expenditure on items which were not in the interests of HCU or its members, specifically payments for personal purposes to Mr Harnarine (amounting, according to the Liquidator to $5,994,953) and to HCU’s directors and managers and to related parties.
(vi) Knowingly or recklessly causing HCU to use moneys derived by HCU from members’ deposits or other payments to support, by means of loans the operating expenses of loss-making subsidiaries.
(vii) Knowingly or recklessly causing the misappropriation of HCU funds deposited by members and others for the personal benefit of other directors and managers, in particular the purchase of property later transferred to directors and related persons, for example the Macaya Trace transaction more fully described in Sections F and G of this report.
(viii) Recklessly causing HCU to diminish liquidity without regard to the risk of the repayment requirements of depositors and in particular to solicit funds from members in order to pay moneys due from HCU to other members.
(ix) Knowingly or recklessly causing HCU to make loans to nonmembers, such as subsidiaries in breach of the CS Act 1971 and in breach of HCU’s Bye-Laws.
(x) Knowingly or recklessly causing HCU to make loans to members of the BOD and senior management in excessive amounts and without security or the completion of the normally required application forms and even when the borrower was already in default on previous loans in respect of repayment of the principal due or the payment of accrued interest.
(xi) Knowingly or recklessly causing HCU to fail to acquire and maintain sufficient liquid assets to enable it to meet its liabilities to its members.
(xii) Knowingly or recklessly causing HCU and its subsidiaries and the subsidiaries of HCU Financial to trade while insolvent.
(xiii) Knowingly causing HCU to fail to comply with its statutory duties to provide accurate financial statements to the CCD.
(xiv) Knowingly or recklessly causing inaccurate and misleading financial statements to be issued to members of HCU.
(xv) Knowingly or recklessly inducing members of HCU to retain deposits in HCU by issuing to them misleading letters of comfort and assurances that HCU was solvent.
(xvi) Knowingly or recklessly causing HCU to acquire illiquid assets without regard to the risk of the repayment requirements of HCU members and other depositors.
(xvii) Knowingly or recklessly causing HCU to make imprudent loans to subsidiaries which were unlawful and irrecoverable, those loans having been made without the prior consent of the CCD to non-members of the credit union.
(xviii)Recklessly causing HCU to diminish its liquidity without regard
to the risk of the repayment requirements of depositors by failing to make any or any sufficient provision for defaults on unsecured loans.
M1(b) Contrary to Section 34 of the Larceny Act causing HCU to obtain deposits of money from members and others by falsely representing that HCU was solvent by misrepresenting in management financial statements the value of assets and other accounting information.
M1(c) Contrary to Section 34(2)(b) of the Larceny Act causing HCU to cause or induce by false pretences other persons to accept a valuable security by knowingly or recklessly drawing or causing to be drawn cheques in settlement of depositors’ withdrawal claims.
M1(d) Contrary to Section 3 of the Larceny Act causing HCU to transfer property (vehicle PBN 2827) to Mr Harnarine’s wife.
M1(e) Contrary to Section 3 of the Larceny Act causing HCU to make payments to Mr Harnarine in 2003, 2004 and 2005 in response to his claims for foreign travel expenses which were not established by vouchers or other contemporary or other evidence to have been incurred for the purposes of HCU.
M2 There were also facts which would have justified further investigation by the DPP into the possibility of the commission of numerous summary offences had it not been for the fact that such offences are now all time-barred.
(i) Causing HCU to be in breach of Regulation 14 by its failure to obtain prior consent of the CCD for increases in its Maximum Liability.
(ii) Causing HCU to obstruct inspection by the CCD as explained in the evidence of Mr Maharaj.
(iii) Causing HCU to fail to provide timely financial statements to the CCD.
(iv) Causing HCU to make investments in and from subsidiary companies without the prior approval of the CCD.
(v) Causing HCU to make loans to non-members without the prior approval of the CCD.
(vi) Causing HCU to make ultra vires payments of fees and stipends to directors.
Section N: Recommendations to the Attorney General under Paragraph 2(i) of the Terms of Reference
N1 Civil remedies that upon further investigations may be available to the Attorney General, as follows:
N2 Those depositors who are owners of investment deposits in HCU and who have been determined to be eligible to receive grant relief up to $75,000 from GORTT under the Grant Relief Payment Scheme are to assign or have already assigned to GORTT all benefits, entitlements, interests in and under their respective investment deposits. Those benefits, entitlements and interests include the right to apply to the CCD under Section 65 of the CS Act 1971 to inquire into the contract of any director and officer of HCU and whose conduct may, upon investigation, involve that he or she has misapplied or retained or became liable or accountable for money or property of HCU or may involve that the he or she has misapplied or retained or become liable or accountable for money or property of HCU or may render him or her guilty of misfeasance or breach of trust in relation to HCU.
That right to apply to the CCD has been assigned to GORTT and is exercisable by the Attorney General on its behalf. If the CCD decides to accede to any such application, he may make an order requiring that person to repay or restore such money or property with interest to the assets of HCU or to contribute to assets of HCU by way of compensation in regard to any such misapplication, retainer, dishonesty or breach of trust as the CCD may find to be established such sum as the CCD thinks just.
I have instructed the Hon. Attorney General to deliver copies of this report to the Director of Public Prosecutions and Commissioner of Police so that an immediate criminal investigation can be launched. I have further instructed the Hon. Attorney General to pursue civil action for the recovery of monies and damages in accordance with the Coleman recommendations.
I have also instructed the Hon. Minister of Finance to examine Section L of the report which deals with attempt to reform the regulation of credit unions so this can inform the drafting of a new law for the proper and effective monitoring and supervision of credit unions to prevent a recurrence of this debilitating fiasco.
I wish to also take this opportunity to apologise on behalf of the Government to the thousands of our citizens for the pain and suffering, distress and inconvenience they have been forced to undergo as a result of the shortcomings and failures on the part of so many including the regulatory mechanisms of the state. I wish to end by giving them the reassurance that those responsible for their hurt and pain will feel the full brunt and weight of the law. The chips will fall where they must, no stone shall remain unturned in this quest for social justice on behalf of the people.
July 18, 2014