(Continued from last weekend’s Sunday edition, #2277 of Oct. 19, 2008)
IV. Public Testimony
Part of the mandate of the Senate Committee was to interview persons connected with the said Belize Social Security Board’s program. The following is a summary of hearings held and documents collected by the Committee.
The Committee met with witnesses twelve (12) times. Six (6) of these sessions were public hearings in the National Assembly chamber and the other sessions were held in private settings (otherwise known as in-camera hearings). During the public sessions the Committee examined witnesses under oath; their testimony was recorded and transcribed. Relevant parts of the testimony are included in this report.
The Committee interviewed, in-camera, persons it considered could provide advice on certain technical issues. It also re-examined, in-camera, some witnesses who had previously been examined in public. The testimonies given in-camera from those who had already testified in public were taken under oath and recorded. The testimonies of expert witnesses were not taken under oath and in cases where the Committee did not deem it necessary, the interviews were not recorded.
From the evidence received by the Committee it was possible to construct a clear, comprehensive and consistent narrative of the events that are the subject of this investigation. The Committee received support from the Clerk, acting as secretary to the Committee, and the staff of the National Assembly who did the administrative/secretarial work. To the date of this report the operating costs, transportation, lunch and other incidentals have been covered from the budget of the National Assembly.
The following persons were interviewed in public and under oath and the transcripts of the interviews form part of the permanent records of the Senate.
A. Hearing No. 1 conducted on December 15, 2004
Mrs. Maria Elena Contreras: Secretary Social Security Board
• Mr. Rolando Zetina: Secretary of the Investment Committee ( SSB)
• Mr. Elson Kaseke: Solicitor General of Belize
• Mr. Sydney Campbell: Governor of The Central Bank of Belize
• Mr. Antonio Cawich: Lands Officer, Ministry of Natural Resources, Environment and Industry
• Mr. Troy Gabb: Chief Executive Officer of D.F.C.
• Mr. Eberto May: Executive Chairman Social Security Board
B. Hearing No. 2 on January 19, 2005
Mr. Joseph Waight: Board Member (SSB) 1998 to April 1, 2003
• Mr. Ramon Cervantes: Chairman (SSB) Investment Committee 1998 to 2003
• Mrs. Martha Williams: Board Member (SSB) 1999 to 2003
• Mayor David Fonseca: Board Member (SSB) 1999 to 2003
• Mr. Yasin Shoman: Vice Chairman Board, Investment Committee Member (SSB) 1999 to 2003; Current Chairman of SSB
• Mrs. Narda Garcia: Manager Social Security Board, Member of the Board of Directors, and Investment Committee Member (SSB)
C. Hearing No. 3 on April 6, 2005
1. Mrs. Narda Garcia: Chief Executive Officer, Board Member, and Investment Committee Member (SSB) 1999 to 2003
• Mr. Mark C Hulse: Auditor, Member Firm of (Baker Tilly) International.
D. Hearing No. 4 on June 9, 2005
1. Mr. Glenn Godfrey: Chairman, DFC, 1998 to 2003
• Mr. Selwyn Hernandez: Valuator, International Telecommunications Limited (ITL) and Western Caribbean Properties Ltd. (WCPL).
• Mr. Roy Cadle: Board member, WCPL and St. James Building Society (St. James)
E. Hearing No. 5 on June 29, 2005
Mr. Troy Gabb: Chief Executive Officer, D.F.C., 2001 to 2003
• Dr. Carla Barnett: Financial Secretary, Government of Belize
• Mr. Alvaro Bautista: General Manager, D.F.C., 2000 to 2003
• Mr. Sydney Campbell: Governor of The Central Bank of Belize (Central Bank)
• Mr. Ian McMillan: Managing Director, (BIMCO)
• Mrs. Narda Garcia: C.E.O. and Board Member and Investment Committee member (SSB)
F. Hearing No. 6 July 21, 2005
Mr. Ian McMillan: Managing Director, (BIMCO)
• Ms. Leonora Flowers: Legal Officer, (SSB)
• Mr. Franklin Magloire: Project Officer, D.F.C.
• Mr. Rolando Zetina: Financial Comptroller, (SSB), 1999 to Present
The following persons were recalled to give testimony in-camera by virtue of the need to clarify certain issues and expand on their previous testimony given:
Mr. Eberto May: Chairman, (SSB) 1999 to 2003
• Mr. Antonio Cawich: Lands Officer, Ministry Natural Resources
The following persons were invited to give expert evidence in chambers:
Mr. Gian Gandhi: Legal Counsel in Ministry of Budget Management/former Solicitor General of Belize
• Mr. Luis Zabaneh: Consultant, Ministry of Budget Management 1999
• Ms. Alma Gomez: Supervisor of Insurance ,Ministry of Finance
The following persons assisted the Committee with legal advice from time to time:
1. Mr. Elson Kaseke: Parliamentary Counsel Part Two:
Investments
The following are the findings based on the documentary evidence and testimony.
After approximately twenty one (21) months of in depth investigation undertaken by the Senate Committee, it makes the following findings, which incorporate information from documentary evidence, oral testimony and information from the Special Auditor’s report.
The task to investigate and review the investment and loan portfolios with particular reference to the securitization programs actually covers the amount of $249,350,989.00 as of September 30, 2004.
Investments consist of the following types. (Page 3 of the Special audit report):
1. Short term investments: –
$69,585,945.00
2. Investments in associates:
– $28,098,482.00
3. Long-term investments:
– $151,666,562.00
———————————
$249,350,989.00
(I). Short term investments consist of the following:
• Certificate of deposits with local institutions for $65,684,096.46 and
A short term loan to the Citrus Growers Association for $3,901,848.26
A. Certificate of deposits
At September 30, 2004, thirty-eight point nine percent (38.9%) or $25,555,997.17 of the deposits is held by the Alliance Bank. This represents twenty-five point forty-seven percent (25.47%) of the total time deposits held by this bank as at the quarter ending September 30, 2004 as per the Central Bank of Belize report.
Eleven point three percent (11.3%) or $7,418,510.25 of time deposits is held by Scotia Bank ( Belize) Ltd. This represents six point thirty eight percent (6.38%) of the total time deposits held by this bank as at the quarter ending September 30, 2004 as per Central Bank of Belize report.
Fifteen point two percent (15.2%) or $10,000,000.00 of time deposits is held by Atlantic Bank Ltd. This represents ten point forty seven percent (10.47%) of the time deposits held by this bank as at 30th September 2004 as per the Central Bank report.
Twenty-two point four percent (22.4%) or $14,709,589.04 of time deposits is held by The Belize Bank Ltd. This represents five point twenty six percent (5.26%) of the time deposits held by the bank as of September 30, 2004 as per the Central Bank of Belize report.
Seven point six percent (7.6%) or $5,000,000.00 was held by the First Caribbean Bank Ltd. This represents eleven point seventy three percent (11.73%) of the time deposits held by this bank as of September 30, 2004 per the Central Bank of Belize report.
The Belize National Building Society (BNBS) held more than four percent (4.6%) or $3,000,000.00
B. Short term loan
The only short-term loan was to the Citrus Growers Association (Special Audit report, page 9). The loan was for one (1) year at interest rate of nine percent (9%).
Comments on short term Investments
The Belize National Building Society (page 8 of Special Audit report) held $3,000,000.00 or 4.6% of the deposits for the SSB. The committee understands that these deposits were opened with the BNBS as part of an out of court settlement in 1999. These deposits were made during the period September of 1999 to March of 2000. BNBS paid interest on these deposits only once. Although interest is payable semi-annually, there has been no additional payments of interest. SSB demanded payment of the first deposit when it matured in September 2004, but BNBS has still not paid the deposit. The parties are now in litigation, and the Senate Committee notes that dependent on the judgment of the court, SSB could sustain losses.
(II). Investment in associates
BEL Shares
The only investment in associates held by the SSB as of September 30, 2004, consisted of shares in Belize Electricity Ltd. (Special Audit report, page 10). Investments in associates are investments in which the SSB holds twenty-five percent (25%) or more of the shares in the entity and holds a seat on the board of directors.
Cash inflow from dividends over the years 2000 to 2003 amounted to $4,380,791.14. In 2003, Social Security entered into a dividend re-investment plan offered by Belize Electricity Limited (BEL), and through this plan, either a portion or possibly all of the cash dividends are reinvested in additional shares at $2.75 per share. SSB acquired an additional 400,952 shares through the plan at a value of $ 1,102,618.00. Equity interest in the company has grown to $10,766,207.06, and SSB holds over twenty-six (26.5%) of the total shares of BEL. Dividends earned over the period from 2000 to 2003 equal twenty-five percent (25%) of the cost of the investment in the shares, and the equity interest equals more than sixty-two percent (62.12%) of the investment.
BTL Shares
Up to March 2004, when the entire shareholding was sold, SSB held 9,459,518 ordinary “C” shares in BTL. Dividends received over the years from 2000 to 2002 totaled $8,155,842.89 and the equity value had grown to $30,183,714.28. Proceeds from the sale were listed at $51,866,566.23; this was invested in various Time Deposits at the commercial banks and in a loan to the Citrus Growers Association. (Page 12 of the Special Audit report)
Dividends earned over the years of 2000 to 2002 inclusive, before a dividend reinvestment program of 2003, represented $8,155,842.89 or a percentage of 44.14% of cost of shares at 2002. The equity interest in the company of $30,183,714.28 represented 143.96% of the cost of investment in shares at the time of sale. The returns from this investment were adequate. The Senate Committee finds it unfortunate that the SSB divested its interest in BTL; this however was a decision of the board.
(III).Long-term investments
Investments that mature after twelve months or that will be held for more than twelve months are recorded as long term investments. At September 30, 2004 SSB’s long-term investments included equity investments, real estate investments and loans to the private sector and the DFC. The loans constituted over fifty percent (52.2%) of the total portfolio.
As at September 30, 2004, SSB recorded the value of the following long term investments as follows:
Equity investments of $6,152,490.00 or 4.06% of the total long-term investments;
• Real Estate investments of $13,206,300.91 or 8.70% of the total long term investments;
• Private Sector loans of $79,194,968.68 or 52.22% of the total long term investments and Mortgage Portfolio of $53,112,802.78 or 35.02% for a total long term investment of $151,666,562.37. (Special Audit report page 14)
Equity investments are shares held in entities that SSB has less than 20% of voting rights. (Special Audit report page 15).
(B) Real Estate investments at September 30, 2004 consisted of properties located in Vista Del Mar, San Pedro, St. George’s Caye and Mile 8 on the Western Highway. Details of these are covered in the special audit report on pages 17 through 20.
It is important for the Senate to note, that at the date of the audit, no title for the plot in San Pedro procured from Government of Belize (GOB) had been obtained even though land title documentation should have been finalized by the first week of September of 2004, as per a letter from the Financial Secretary dated August 13, 2004 (Special Audit Report page 19). SSB is also paying for the survey of the property. The total value of this investment in SSB’s account is $6,607,848.00.
In a subsequent development, the SSB presented to the Senate Committee a copy of the Minister’s Fiat Grant no 12 of 2006 covering 2,487.443 acres of land at San Pedro. This document settles the matter as the SSB is now the legal owner of the land in San Pedro.
Another property of 1000 acres was purchased from Belize Hotels Ltd. as part of redemption of shares agreement. The value of the shares, $2,775,686.68 plus an additional $1 million dollars, was paid for the property which is located seven (7) miles north of San Pedro Town on the west side of the island. SSB has title to this land and the value of this investment in the SSB’s accounts is $4,000,000.00.
(C) Private Sector Loans totaled $79,194,968.68 as of the balance sheet date of September 30, 2004. This includes nineteen (19) loans to the DFC at an outstanding value of $41,912,442.98 or 52.92% of the total loans. SSB holds promissory notes as security for the DFC loans. As of September 30, 2004, SSB had not received any repayments from the DFC for 15 months. (Special Audit report pages 22 through 35)
(a) DFC loans
The loans to DFC are categorized as follows:
Housing: $8,546,559.78
Student: $12,605,744.61
Large Private Sector Special Loans transferred to DFC: $20,760,138.59
I. Housing and Student Loans
The Housing & Student loans were made to DFC on a promissory note only. There is no appraisal or monitoring reports on the files presented to the committee in respect of these loans. There is no guarantee of payments on file from the DFC or GOB on behalf of DFC. As can be seen from the Special Audit Report, up to the date of the conclusion of the audit all the loans are in arrears for both Principal and Interest.
II. Large Private Sector Special Loans transferred to DFC
The following are loans made by the SSB to the DFC for on-lending to entities in the private sector and in some cases loans which the SSB had made directly to entities and subsequently transferred to the DFC.
Loan number seven (7) was made to DFC specifically for the Northern Fishermen Cooperative Society. (Special Audit report page 26) This loan was for $6,000,000, and was to enable the DFC to assist the cooperative with debt restructuring. Loan repayments from DFC have been very irregular and at September 30, 2004, the outstanding principal balance was $4,644,860.12. The outstanding interest was $519,969.82. Only one interest payment has been made (October of 2004) toward this balance, and as of December 31st, 2004 the outstanding interest was $380,787.16. The DFC sold this mortgage on the North American Securitization Program. Thus loan repayments to DFC made by Northern Fishermen cooperative are to be utilized to facilitate the mortgage (bond) payments which are a priority. Because of the lengthy delinquency period of this loan, it appears that the DFC does not have the additional income to honor this outstanding commitment to the SSB. It is unclear why at the time of securitization the loan was not settled with the SSB, and perhaps even more puzzling is why the SSB did not follow up with a request for repayment.
Loan number ten (10) is the aggregate of loans to three separate medical institutions which was originally made directly to them by the SSB and subsequently transferred to the DFC from SSB. (Special Audit report page 28 through 29). The loans are as follows:
Universal Health Services:
$ 4,000,000.00
Belize Medical Associates:
$ 5,000,000.00
3. Physical Therapy Center:
$ 73,837.72
As stated above these loans were originally made by the SSB to these entities; however they were later transferred to the DFC and became a receivable for the SSB.
These loans were all securitized by the DFC in the North American Securitization program, but at that time the proceeds of the securitization were not paid to the SSB. Payments made by these institutions to the DFC are to be utilized to repay the secured bonds which are a priority. Because this loan has been delinquent for some time, it is not clear whether the DFC has any additional income to repay the SSB. Once again, it is unclear why the SSB did not follow up with the DFC when these were securitized and recovered its money at that time.
Loan number eleven (11) is a loan to the DFC in respect of Agriculture & Industrial Credit. (Special Audit report page 29 thru 30) The outstanding loan balance is $900,158.26. According to the special auditor’s report the SSB has no details as to the use of this loan. Although the first disbursement was September 13, 2000 and final disbursements were October 5, 2000, the Investment Committee makes no reference to this loan in any of its minutes for the year 2000.
Loan number fifteen (15) is a loan made originally to Maya Land by the SSB and subsequently transferred to the DFC from SSB. (Special Audit Report, page 32) The outstanding principal balance of this loan was $1,997,608.72 at September 30, 2004. The outstanding interest was $221,199.23. As mentioned above, this loan was originally a direct loan to the borrower; however, after several difficulties with collections, SSB decided to exercise its power of sale. The Board advertised its intent to sell in May of 2002, and the DFC made an offer to purchase on or about November or December of 2002. The receivable was transferred to the DFC in January 2003.
As at the date of the special audit, SSB had not received payment from the DFC in regards to loan 15.
Loan number eighteen (18 ) is a Special Assignment loan. (Special Audit report, page 34) According to the auditors, details of this loan were not made available from SSB. The outstanding Principal and Interest balances as at September 30, 2004 were $2,500,000.00 and $310,428.10 respectively.
The investment register gives the purpose of the loan as the “Sale and Assignment of Mortgages from DFC to GOB to SSB.” There is no reference to this loan in Investments Committee minutes of 2003, even though the loan was disbursed on September 25, 2003. The original amount approved was $2,500,000 at an interest rate of over eleven percent (11.17%) for 15 years with 4 years grace period on principal repayments. Repayment is scheduled monthly. However, only two (2) payments of interest were received in 2004, one in September and the other in December.
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 .
(To be continued in this weekend’s Sunday edition of the Amandala, October 26, 2008, issue 2279)