DFC?s pot of gold was running over with millions of dollars, and while these funds were purportedly intended to grow the Belizean economy, the DFC evidently became a willing milking cow for a highly favored few. It has also been revealed that a growing number of loans that the DFC gave out (over 2,000) have fallen into the non-performing category.

DFC got its funds from foreign sources, but also from the Social Security and the Government of Belize, along with a couple of local banks.

The foreign loans, which accounted for the bulk of DFC?s borrowings, were all guaranteed by the Government?which ensured that taxpayers would foot the bill if DFC proved unable to do so.

DFC?s ability to service its debt depends substantially on the performance of its loans. When there are shortfalls in receipts, the Government, which is the sole owner of the corporation, has to meet payments.

A high rate of bad loans increasingly challenged the DFC?s ability to stay afloat financially. But it had Government?s guarantee, especially for the securitization programs it was called to participate in; so when the Godfrey Group of Companies defaulted, the Government of Belize?and hence taxpayers?became responsible for ensuring that the payments to the foreign creditor stay current.

To date, it has also been demonstrated that DFC was extremely flexible in accommodating a number of influential individuals: The Novelos family (Novelo Bus Line), Arnaldo ?Pappy? Pena (Belize Resort Development Company Limited), James Jan Mohammed (Royal Palm Inn) and Glenn D. Godfrey (Western Caribbean Properties).

The testimonies

Three witnesses?Orlando Magana, Ann Wiltshire, and Emerson Burke? were called to testify on Tuesday, August 8, 2006. The content of their testimony is as follows:

(1) Orlando Maga?a, the DFC?s debt management clerk:

Maga?a revealed that most of the money that DFC lent was from foreign sources. Local creditors are the Social Security Board, the Central Bank, the Alliance Bank and the Belize Bank. Commissioner Merlene Bailey-Martinez highlighted that 20 loans from the SSB were made since 1993, and the last payment is due by 2016.

Foreign creditors are the Caribbean Development Bank, the European Investment Bank, and PEFCO ? Private Export Funding Corporation, which financed prefab houses at San Pablo (Orange Walk) and La Democracia/Mahogany Heights.

Maga?a also indicated that in the event that DFC fails to repay its loans, or in the event that DFC makes a foreign exchange loss on transactions, the Government of Belize?and hence taxpayers?will pick up the tab. This is because all the loans were guaranteed by GOB. He claims, however, that the DFC has never defaulted on any of its foreign commitments, although he did not indicate the source of funds that was used to pay foreign creditors.

It seems, from Maga?a?s testimony, that the DFC has been current with all its creditors except for the SSB.

?The DFC defaulted in 2003 on the Social Security loans. During that period, up to 2004, payments were being made but [they were] not sufficient to cover the arrears. Staggered payments were made? All local loans were being serviced with the exception of the Social Security loans,? he told the Commissioners.

(2) Ann Wiltshire, the head of the DFC?s legal division:

In her testimony, Mrs. Wiltshire explained that DFC?s legal services were not only provided by the legal division, but also by outside sources such as Senator Phillip Zuniga, who was on retainer, as well as Anderson and Associates, Norman Neal and Glenn D. Godfrey and Co. Ltd.

Conflict of interest is apparent, for Godfrey was chairman of the DFC at the time his law firm was retained. Wiltshire claimed, though, that whenever Godfrey?s law firm was retained, it was Christopher Coye who did the work.

Interestingly, it was Godfrey?s law firm that was responsible for preparing most of the legal documents for the $30 million Novelo loan.

She also indicated that the general rule for collateral on loans is that the value of the collateral must be 1S! of the loan. This means that, for the $30 million Novelo loan, the collateral should have had a value of $40 million.

Commission chairman David Price asked: ?What would explain that after liquidation, the borrower still owes $20 million??

?It would mean that the collateral was inadequate,? she replied.

The witness also revealed that on certain occasions, the General Manager/Chief Executive Officer at the time, Mr. Troy Gabb, would waive or vary the legal fees, but she could not say, when questioned, on what authority he was able to exercise such a discretion.

That discretion was used in the case of Arnaldo ?Pappy? Pe?a, owner of Belize Resort Development Company Limited?for whom the CEO had waived legal fees for a housing project.

One of the problems that the DFC came across as a result of such irregular procedures was that the properties they came to hold as collateral were also being claimed by other parties. Here, Glenn D. Godfrey affiliate, Western Caribbean Properties (WCP), comes up again. The DFC found out that some of the lots that were placed as collateral had been claimed by parties who had had dealings with Sunset Coves Limited, a company that went into bankruptcy in the late 1990?s and sold its assets and liabilities to WCP. It is still unclear what led to this entanglement, and how the dispute was settled.

Wiltshire claimed that the DFC?s legal division had done checks on the WCP properties, and that each land title appeared to be free of encumbrances.

Apart from checking out land titles, her division also advised on legal matters being undertaken by the DFC. For example, during the securitization process, the SSB passed on a pool of mortgages to the DFC for inclusion in the North American Securitization Program, which included a loan for Western Caribbean Properties. The SSB had given the DFC a guarantee, but, as has been revealed during the course of the recently concluded Senate investigations into the SSB, the SSB expected the DFC to release it from that guarantee with a deed for discharge.

SSB?s former CEO, Narda Garcia, had written the DFC; and the then chairman, Glenn Godfrey, had given Garcia a letter of undertaking, promising to issue the deed to the SSB.

But when the letter and draft deed went to Wiltshire?s division, they advised the DFC that they could not enter into such an agreement.

Wiltshire said that the execution of that deed of release would have been ultra vires the DFC Act, and also that it could not bear the DFC?s seal and relevant signatures without the approval of the DFC?s board via a resolution.

She furthermore noted that the letter promising the discharge carried only Godfrey?s signature as the DFC?s chairman. Her recommendation to Gabb in July 2002 was that the deed should not have been executed, but she does not know if it was eventually carried out.

Wiltshire told the Commissioners that the letter from Godfrey is void and ultra vires the Act.

While the DFC?s legal division had a chance to see those letters and draft deed, it was vastly in the dark about other transactions. The SSB would draft the agreement for DFC loans?the DFC?s legal division had nothing to do with it, Wiltshire said. She also informed that contracts for Johnson International Limited for houses at Los Lagos did not originate with the DFC. The Los Lagos and Mahogany Heights projects originated outside of the DFC and were later assumed by the Corporation, she explained.

Wiltshire testified that there were times when the CEO would request documents and they could not produce them for this reason.

One such transaction that appeared to be outside their domain was the Novelo loan, on which the borrowers later defaulted. According to Wiltshire, the lands that were to be held on legal charge were not held on the onset and the CEO had written Coye concerning the omission of documents.

It was also revealed that in the case of James Jan Mohammed and his associated company, Royal Palm Inn, the collateral offered to the DFC was strata title that contained units for third parties. According to Wiltshire, the DFC had to later prepare deeds of release for the individual owners.

?Would you consider that to be an irregularity?? Commissioner Price asked.

?I would consider it not the norm,? Mrs. Wiltshire replied.

Another practice that went against established norms was DFC?s issuance of loans to persons who already had loans with the Corporation that were in default. The Commissioners revealed that in the case of Arnaldo ?Pappy? Pe?a, a series of loans were given for ?working capital,? even after the DFC had written him, reminding him that he was in default of a prior loan.

Commissioner Merlene Bailey-Martinez pointed out that there were 12 to 14 such ?working capital? loans, even though they only know of 5 promissory notes to back these transactions. Each of these five offers read at the hearing was for about $10,000.

Mrs. Bailey-Martinez revealed that only days after these working capital loans for Pe?a were finalized, the exact same figure would appear as a credit on the borrower?s ledger for Pena?s resort, Belize Resort Development Limited.

When Wiltshire was asked if she observed any irregularities or wrongdoings in the area of her work, she said that there were instances where documents would bypass her division without their knowledge, and so they were sometimes not even aware that such transactions had taken place.

(3) Emerson Burke: credit officer 1997 to 2002; chief appraiser 2002 to present

?It must be emphasized that it was clearly observed that excessively high values were placed on some properties being used as collateral prior to the approval consideration. One particular case that stands out is that of the Belize Resort Development Limited [for Arnaldo Pe?a] with relatively inaccessible swampland, being valued at $7,500 per acre. On the other hand, some securities were grossly undervalued just prior to being publicly auctioned. The practices impair the DFC?s loan-to-collateral ratio and call into question the integrity of the valuation process.?

Burke read the preceding statement from the loan and collateral review reports from the central and northern branches of the DFC, which he had prepared along with the DFC?s auditor. In those reports, he had warned of the decline in efficiency and the quality of loan appraisals.

He revealed that there were times when buildings were assessed with a generic value, even though they clearly had different features that necessitated individual appraisals. There were ?drive-by? photos taken of collateral or even pages photocopied from previous valuations and placed on new files, he added.

But why did DFC?s staff engage in these anomalies? According to Burke, the pressure placed on the small staff at the DFC was excessive, and they pushed to fast-track loan applications so that they could continue to keep the securitization program progressing.

?Stringent guidelines went through the window,? he told the Commissioners.

Burke pointed out that DFC?s portfolio effectively tripled over a few years, and staff levels were not enough to effectively carry out the workload. This, he said, meant that the quality of work declined and that some routine procedures were bypassed.

Why were guidelines ignored? Because of the need to generate another pool of mortgages to sell on the market again, Burke said. In an attempt to fast-track things, some of the guidelines were not adhered to, he further stated.

Credit officers also made flawed assumptions, he indicated. In the case of Novelo, he suggested, a Government commitment to monopoly may have been assumed. But that loan, according to Burke, did not go before the DFC?s credit committee.

Chairman Price indicated that a CDB report of November 1999 recognized the same issues Burke had raised. It cited the new administration?s manifesto pledge to build 10,000 new homes and the related securitization program as sources of pressure on DFC?s staff.

Did Burke observe any irregularities or wrongdoings at the DFC? He answered that apart from people not following policies and procedures, he can?t attest to any wrongdoing.

Pe?a got moratorium on SSB/DFC loan

Pena had originally gotten a loan from the SSB, which was later transferred to the DFC. The Report of the Senate Select Committee Investigating the Social Security Board had the following to say about Pena?s loan transfer:

?Loan number nineteen (19): This loan was made to the DFC in respect of Bellevue/Arnaldo Pena (Special Audit report, page 34). The outstanding balance as of September 30, 2004, was $2,800,000.00, and the outstanding interest was at $86,137.81. This loan to the DFC transferred the balance of Arnaldo Pena?s Loan from SSB to DFC. Once again, there are no references to this transaction in the Investment Committee minutes.

The Bellevue property was originally held as part of security for a loan to Dinger Enterprise Ltd., and SSB took possession of the property in 2001 when the loan to Dinger Enterprise became past due. In February of 2002, SSB negotiated with Arnaldo Pena for rental and eventual purchase of the property. However, there were repayment problems and SSB ?divested? the loan to DFC by transferring the receivable to DFC in April 2004. The loan to DFC is for $2.8 million with an interest rate of over eight point five percent (8.5%) for fifteen (15) years with a four (4)- year grace period on the principal balance. Repayments on this loan are due monthly, but only two (2) payments against the interest were received in 2004, and the outstanding interest balance as at December 31, 2004, was $85,359.85.

Loan numbers eighteen (18) and nineteen (19) were both extended to the DFC with grace period of four (4) years on principal repayment. It is unclear why loan nineteen (19), a commercial loan, would be transferred to the DFC with such a grace period. Such concessionary terms are normally reserved for student loans and not even development projects attract this type of moratorium. The Senate committee has not established what moratorium if any was offered to Pena on this loan.?