(Continued from this weekend’s Sunday edition, #2296 of Dec. 28, 2008)
Martha Williams – Board Member
Mrs. Martha Williams signed all the documents involved in the transactions involving the purchase of Mortgage Loans and the Assignment of Mortgages between St. James and SSB, SSB and the RMB, as well as between the SSB and the DFC.
During testimony before the Senate Committee, Mrs. Williams testified that she was unaware of the intricacies of the transactions and she affixed her signature because she was asked to do so as she trusted the lawyers and staff who prepared the documents to make sure such documents were in order.
The Committee notes that it was the board of directors which has approved the inclusion of the two mortgages in question
The Committee expresses its concern that persons appointed to the board of directors of SSB should be persons of knowledge, experience and the requisite wherewithal to ensure that the Fund is safeguarded and protected in all manner of transactions
Comments and conclusions of the Senate Committee
It is unfortunate that an organization of this size, with such highly paid executives, would be operating in such a loose manner. The only liaison between a board and management in most organizations is the Chairman, who generally is familiar with the daily operations of the organization. The General Manager/C.E.O keeps the Chairman abreast of these occurrences, and the board is then sensitized to these matters through the Chairman and by means of board papers.
The Committee concludes that Mr. May, as Chairman, and Mrs. Garcia as Manager, permitted the Mortgage Loans to be sold on the international market with all the necessary warranties and representations as well as guarantees from SSB, knowing that SSB had not in fact initiated these loans, namely the Data Pro, Aquarius, Romero, Hales, Intelco and Western Caribbean; nor had SSB purchased them from St. James as was represented in the documents.
The two Mortgage Loans for WCPL and ITL included in the pool of mortgages put up for securitization in the North American Program, had collateral which was grossly undervalued to the loan. The Chairman and the General Manager both knew this.
This inclusion of the WCPL and ITL mortgages in the program translated into an exposure to the Fund because, in the case of both mortgages, the purpose of the loans (construction of apartments) was never done.
The loans were serviced for 18 months through various entities (see Special Audit pages 118-119). Thereafter the SSB was required to make the payments because it had guaranteed payments to the DFC. In August 2004 the SSB was reimbursed for some of the payments it made on behalf of St. James, when a 6 million dollar cheque drawn on the Alliance Bank was credited to the SSB account at the same bank.
Subsequent to the Special Audit, the Fund has been reimbursed by GOB, which is now making the payments owed by St. James to the Trustee Bank under the North American Program. These losses have been covered by the GOB, but this could translate into a loss to the beneficiaries of the Fund if GOB were to raise taxes or use taxpayers’ monies to cover the debt.
In a letter addressed to the Clerk, National Assembly, dated 30 May/2006 and copied to the Financial Secretary, Mr. Gian Gandhi, Legal Counsel in the Ministry of Finance, wrote, “On 9th May 2005, however, the Government of Belize (GOB) agreed to release and discharge BSSB from any liability incurred through the Securitization Programme. This included the liability of Intelco as well as Western Caribbean Properties. A copy of this letter is enclosed. As a result, the collateralized assets became the responsibility of GOB.
“Recently, BSSB, at the request of GOB, foreclosed some of these assets and transferred the titles to GOB which in turn sold them to BTL for the sum of BZ$19.5 Million. However, these assets did not include the Cahal Pech property (which was related to the Intelco debt) nor the San Pedro property (which was related to the Western Caribbean Liability), as both these properties had been assigned to BMC as part of the securitization arrangements. Consequently, these properties are still being held as collaterals and BSSB/GOB would be able to sell them after they are released from securitization.”
The Government, through the SSB, sold some of the assets held as collateral to BTL for $19.5M. According to a letter from Mr. Gandhi addressed to the Clerk, National Assembly dated 3 July 2006, the outstanding balance on the mortgages is $4.8M.
Government holds collateral to cover the WCPL and ITL loans which, as stated in Mr. Gandhi’s letter, is assigned to the BMC as part of the securitization arrangements.
The Senate Committee obtained valuations from the Ministry of Natural Resources Valuation Department on Western Caribbean Properties held in San Pedro. According to this valuation report dated 21 March/2005, the value of the San Pedro property was an estimated ($300,000 -$350,000.00)
The valuation for the Cahal Pech property up to the time of printing of this Report was not received from the Ministry of Natural Resources.
Recommendations.
Even though the Government has reimbursed the SSB and has taken over the outstanding balance due, the bottom line is that to the extent that it did so, it had to use public funds. Therefore, although it would then appear that the SSB was not out of pocket as a result of these transactions, nevertheless some of the losses could come from public funds and the responsibility for not taking sufficient care to prevent these losses must rest with the SSB’s board and Manager.
The Solicitor General, by virtue of his office as parliamentary counsel to the National Assembly, which includes the House of Representatives and the Senate, has advised the Senate Special Select Committee to be cognizant of the fact that, as a parliamentary committee, it must operate within the principles of natural justice, which includes the right to be informed and the right to a fair hearing.
The Senate Select Committee is satisfied that there was negligence and recklessness in the execution of duty in the approving of the purchase and sale of the Mortgage Loans listed below, and the signing of documents covering the following Mortgages, namely Data Pro, Aquarius, Romero, Hales, Intelco and Western Caribbean properties and the inclusion of these in the securitization package without performing or ensuring the proper checks were carried out in order to ensure the Fund is protected.
As a result of the these findings, the Senate Select Committee further recommends that all those persons who were members of the board and (board members who were investment committee members, including the manager at the time of the negligent actions, should no longer hold office, positions nor membership on the board and positions at SSB.
The Senate Select Committee expresses its grave concern over the financial loss that has occurred as a consequence of the negligence in the handling of the mortgages and recommends that the Minister responsible for SSB pursue appropriate action to recover such losses.
Recommendations
The Senate Select Committee is of the view that the information contained in this Report in respect to the documents covering the following Mortgages: Data Pro, Aquarius, Western Caribbean Properties Ltd, International Telecommunications Ltd, and the two other mortgages which were signed containing representations and warranties and other statements that are or may be misleading, false or deceptive; may amount to offenses under the Criminal Code Chapter 101 and, in particular, Sections 20 153(1) 164 (1) (2) , 165 (2), and recommends that the DPP pursues this matter for which the Committee makes its report available to him .
The Senate Select Committee is of the view that the issuances of two insurance certificates to ITL and WCPL appear to be in breach of the Issuance Law Chapter 251 and recommends that the DPP also pursues this matter.
Part Six:
The Senate Select Committee, as a further part of its mandate, is required to recommend any corrective actions necessary to the laws or procedures to prevent recurrence of such incidents.
As the Honorable Senate knows, this is the second time the SSB funds are under investigation and the committee feels that if the following recommendations, which were made as far back as year 2000, were implemented in a timely fashion, the events that have led up to the present situation would not have occurred. The ultimate objective is to ensure that the funds are at all times as secure as is reasonably possible without preventing the use of the funds to aid in the genuine growth and development of the nation and, naturally, the growth of the fund pool itself through sound and secure investments.
1. The Senate Select Committee recommends that the Act be amended to require that every director or officer of the SSB board shall disclose to the board and publish in the Government Gazette any interest, either directly or indirectly, any property or mortgage to be considered by the SSB for a loan purchase or for sale. Such disclosure shall be made thirty (30) days before the transaction is considered, and any such SSB member shall not participate in any vote dealing with the action if they have a financial interest or gain of any kind in the action, and a criminal penalty be included in the Act for any breach of this amendment.
2. The Committee further recommends that in order to prevent any possible loss to the SSB Fund as occurred under the Securitization Programme and to prevent a recurrence of the situation, with loans being under secured and or unsecured,. legislation be enacted to implement and enforce what the Political Reform Commission has previously suggested, to “make it mandatory for the Social Security Board to publish in at least two (2) consecutive issues of the Government Gazette, its intentions to lend out or invest its money, or make donations, giving all pertinent details.” Further, the SSB should be required to submit a quarterly report of all loans, donations, purchases and/or sales of mortgages and property to the National Assembly.
3. The Committee further recommends that the Social Security Reform Commission recommendation no.13 should be implemented as early as practicable through the enactment of the required legislation. Furthermore, the Government should consider enacting these legislations before the end of this fiscal period. Further, penalties for breach of the provisions of the Act should be included in the revised legislation with a goal to leave no ambiguities or loopholes in the Act that can be used to affect a recurrence of any violation.
4. The Committee further recommends the Act be amended to make it absolutely clear the areas of investments that the board can engage in and the criteria for these investments. Portions of the investment guide including (1) Management of the Investment Portfolio, (2) Investment Policy and Practice, Guidelines for Investments, (3) Procedure for Handling Investment Proposals, and (4) Investment Rate Policy be incorporated into the Act, and not remain as policy and guidelines only, as these are too often circumvented, as proven in this report.
5. The Committee further recommends the Act be amended to include a representative of the union and a representative from the business community in forming the quorum of the board. The Senate Select Committee considers it important to preserve the integrity of the Fund. It is necessary to ensure that all decisions of SSB protect the monies of both the employer and the employees of the SSB Fund, and therefore the Committee also recommends that the decisions of the Board be made by at least a majority of the members appointed by the government and a majority of the members appointed by the union and the business sector voting jointly. The Act should be amended to prevent no more than a reasonable proportion of the Long Term Benefit Branch Fund, as determined by the actuary, from being invested in long-term projects. The Short-Term Benefit Branch Funds shall be placed in secure short-term investments only. It is also recommended and highly encouraged that the Board take the necessary legal actions to recover arrears from delinquent borrowers.
(To be continued in next Wednesday’s edition of the Amandala, dated January 7, 2009, issue #2298)