This morning, Magloire detailed his experiences and observations at the DFC. Magloire said that he observed changes in the management style of the DFC, whereby senior management were banned from approving even small loans, and applications had to be taken to the board management credit committee and the board for approval instead.
At last week?s hearings, DFC?s former financial controller, Natalie Ewing Goff, had also said that she, herself, had gotten disenchanted with the atmosphere at the DFC, due to too much board interference.
Magloire indicated today that this micromanagement burdened DFC?s management, citing an instance where he had to take boxes of files out of the DFC to the office of former deputy chairman, David Courtenay, for approval of loans as small as $5,000?a process that would have previously been done in-house by DFC?s management staff.
One of the consequences of this shift in management style was that in some instances, loans were approved even before project appraisals were presented to the board for approval, and disbursements were made, on at least one occasion, on a mere project profile, which is a preview of a project, rather than a proper appraisal document, he elaborated.
Another stunning revelation was that, although the minutes of board management credit committee meetings indicated that decisions were taken by ?the committee,? no votes were ever taken, according to Magloire.
He said that management really had no say at these meetings; instead, the two board members on the committee?David Courtenay and Bob Bou-Nahra?were in control.
Several loans were highlighted by commission chairman David Price, who queried whether the proper project appraisals were carried out, and furthermore, queried what DFC?s management staff were recommending in respect to those loans.
Again, the $30 million Novelo loan was brought up. Magloire said that he would not have funded the Novelo loan, because it did not meet the DFC?s risk concentration guidelines, which indicated that the institution was not to have been granted a loan that exceeded 25% of its capital or 5% of its portfolio. (Magloire did not elaborate on this point.)
He also said that when the DFC decided to release the full $30 million to the Novelo?s in a single day, in two $15 million installments, it lost control over the loan, because the collateral was ?marginal.? Apart from having adequate collateral, the only other real control the DFC could have had was to adhere to a disbursement schedule that was intended to ensure that the money was spent for what it was approved.
It was also revealed this morning that a number of big loans had become non-performing during the period under review: among them loans for the Novelo?s; James Jan Mohammed?s Royal Palm Limited; Universal Health Services and New Millennium Enterprises Limited.
It had been revealed in previous hearings that the DFC loaned money to clients to pay previous DFC debts. Magloire explained the possible reason for this practice: some of the loans in question had been securitized, and if they were not paid, then the DFC and GOB would have been called to meet those payments. A default, he said, would have hurt the country?s credit rating.
Magloire said that after DFC began this practice, three members of staff, including Magloire himself, sought the opinion of Government?s legal advisor, Gian Ghandi, who advised them that the procedure violated the loan?s servicing agreement and was illegal.
This evening, Commission chairman David Price highlighted a series of multi-million-dollar projects, and asked Magloire whether there were any third party arrangements that were necessary for those projects to be deemed viable. Specifically, Price referred to the $30 million Novelo loan and a $28 million loan for Universal Health Services.
Magloire revealed that the Universal loan would have been supported by an arrangement with the Ministry of Health and the Social Security Board, and that the hospital would be used for National Health Insurance services. In the case of the Novelo loan, the assumption was that Novelo?s would have control over the major runs throughout the country.
Magloire informed that both loans had become non-performing, however. He reported that in the case of Universal, the facility financed by the loan is functional, but in the case of Novelo?s, that company fell into receivership and DFC has begun the process of selling off the collateral to recover its money.
Magloire told the Commission that in some cases, DFC would demand a ?deduction at source? (or a deduction of loan payments at the source of the borrower?s revenue) for loans. Commissioner Merlene Bailey-Martinez cited the case of Northern Fishermen Cooperative. Magloire explained that whereas there was an agreement for a deduction at source for payment to DFC, this was difficult to enforce, since the payments to the cooperative were being made by a restaurant in the United States, which was said to be outside the Belize jurisdiction. DFC threatened foreclosure on the loan, and the deductions were enforced long after it was to have been effected, he added.
Again, the Commission raised the issue of ?sensitive loans.? Magloire was asked to identify some loans that he thinks fall within that category. Among those he identified are New Millennium Enterprises?, Indeco?s, Universal Health Services? and Arnaldo Pena?s.
Magloire opined that they could be deemed sensitive because they were of economic importance to government programs in housing and health.
Commissioner Price added that they could also be deemed ?politically sensitive? because the housing program stemmed from a manifesto promise of the present administration of central government?which was a pledge to build 10,000 homes within its term beginning in 1998.
On the matter of conflict of interest, Magloire said that in the event that any person at the DFC used his or her position to gain access to DFC funds, any such approval would have had to be vetted by ?the Minister.?
Commissioner Bailey-Martinez asked Magloire whether he could remember any loan for any board member ever being turned down; Magloire said no.
Earlier today, it was revealed that Cad Construction, a company whose principal is David Courtenay, had gotten a no-risk $3 million loan from the DFC to build 120 houses that were later purchased by the DFC, which was allegedly the agreement at the time the loan was made. It was reported that Courtenay also served at the time as deputy chairman of DFC.
The Corporation was used as the main vehicle for Government?s housing agenda, but in the process, DFC got saddled with projects that proved problematic. In one case, GOB transferred the Mahogany Heights housing project to the DFC. Abdul Hamze allegedly had the land on mortgage to a third party, Johnny Kuo, and indications to date are that the dispute over the status of the land has yet to be resolved.
According to Commissioner Price, the Ministry of Finance paid Hamze $2 million in December 1999 and $1 million in June 2000. The remainder should have been amortized through to 2008 for a gross value of $11.7 million, inclusive of 8% interest. However, Price pointed to a letter he said was from Government?s legal advisor, Gian Ghandi, calling for suspension of payments. There is no confirmation that payments were actually halted, Commissioner Price said.
After Magloire was dismissed this evening, the Commission called his successor, Juvencio Rivero, to take the stand. During a short 30-minute testimony, Rivero, who served as manager of projects after February 2002, was questioned on projects that the Commission felt should have been appraised at the DFC. A number of projects were highlighted, such as the purchase of Fountain Blue by Aqua Dives Belize for $7.2 million; Toledo Free Zone?s purchase of the Voice of America property; Print Belize?s purchase of the Government Printery assets; and a loan for Belize Gold Bananas. Rivero told the Commission that those projects, approved between 2002 and 2003, never crossed his desk.
The only fault Rivero pointed to was the lack of adherence to procedure in certain instances. He noted that there were instances where his desk was bypassed and other officers were asked to do project appraisals, but he never questioned why, he said, because he felt that management had its reasons.
Commissioner Bailey-Martinez asked Rivero about the impact of rushing through loans; what was the urgency, she questioned? She said that so far, no one has given a good explanation.
Rivero expressed his opinion that in cases where loans were rushed, due diligence was ?impaired.?
After a relatively brief testimony, Rivero was excused, but Magloire has been asked to return to the stand on Thursday, August 17, with more information on some of the aforementioned transactions, which he was asked to research.