Mahogany Heights mess

Amid it all, the DFC got stuck with the Mahogany Heights housing project that has been tied up in a land dispute, because Government purchased a property that was not legally available for sale. On that land, Government began the La Democracia Housing project for the New Satellite City (later to be known as Mahogany Heights), and then passed the project on to the DFC to administer.

However, the DFC later learned that Government, itself, had not done its due diligence. The property was not clear of encumbrances, because it had been mortgaged to a third party.

At the hearing today, it was revealed that homeowners have still not been able to get their land titles, and there is no indication that the rivaling ownership claims have been disentangled.

Government, apparently, did not do a routine General Registry check before it purchased the land from Abdul Hamze of Ladyville. DFC?s chief appraiser, Emerson Burke, who testified Tuesday, was called back to complete his testimony today. During his testimony, Burke said that it was while he was checking the coordinates of the property in late 2002 to early 2003 that he found out that the property was 6,000 acres, and not 7,689 acres as the document had claimed. Beyond that, he found out that a mortgage deed had been lodged right at the Registry, indicating that the property was not free to be transferred to those who were purchasing properties under the Mahogany Heights project.

Burke indicated that Hamze had mortgaged the Mahogany Heights property to Chun Hung Kuo, aka Johnny Kuo. The mortgage was executed on August 25, 1993 between Hamze and Parrot Hill Corporation, and the mortgage documents had been lodged at the General Registry on March 16, 1994, long before the Government purchased the property.

Appraisals bypassed the Chief

Burke was also questioned about procedures for appraisals and loan disbursements, and three major projects were highlighted while he was before the Commission: The Toledo Free Zone (for Luke Espat), the Government Printing Corporation (succeeded by Print Belize Limited for Lawrence Nicholas), and the Belize Resort Development Limited (for Arnaldo ?Pappy? Pe?a).

On the matter of appraisals, Burke said that while he did the appraisal for the Voice of America (VOA) compound that was later to become the Toledo Free Zone (TFZ), he knew nothing about any appraisal done for the Printery?a transaction he said he only learned about through the media.

On December 19, 2002, Burke valued the VOA land and buildings at $2.734 million, but he said that he could not place a value on the equipment, and so he recommended to his superiors to have the equipment valued by the respective Government ministry.

He does not know if this was ever done, but according to Commission chairman, David Price, the board of directors? minutes of July 30, 2003, indicated that management had advised the board that Government had transferred the VOA property to the DFC for $3 million. The additional $300,000, Burke assumes, must have been the value of the equipment on the VOA site.

How the VOA property later came to be in the hands of the TFZ and for what value were not explained today. Burke told the Commission that he does not know how the value of the equipment was derived.

The Commission revealed that there was a marked contrast in format between the valuation done by Burke for the VOA property and that done for the Printery. Burke stated that he has no knowledge of the valuation that was done for the Government Printery, even though he was the DFC?s chief appraiser at the time. He does not know of any request to perform a valuation, and further claimed that such a valuation was not discussed at any meeting in his department.

Burke?s VOA valuation was 19 pages long, and included diagrams and photos; the Printery valuation by Calvin Neal, a senior certified appraiser of Belmopan, was a mere 2 pages and contained no such visual attachments.

Burke asserted that he has no say in the outsourcing of valuations, and further mentioned that there were valuations, including those done by his own colleagues, that never crossed his desk as chief appraiser.

Neal assigned a $3.8 million value to the Printery, but Commissioner Price pointed to board minutes of July 30, 2003, in which management had advised the board that the land, buildings and equipment had been transferred to the DFC for an aggregate value of $2.37 million. Burke said that he could not account for the disparity in the values.

Another botched valuation was that done for Belize Resort Development Limited. This was cited as an example of gross under-valuation of properties held as collateral. Specifically, the collateral held was swampland off the Western Highway, valued first at $7,500 per acre, but later tagged at $500 per acre. In an internal DFC report, Burke had described the former valuation as ?ridiculous.?

Securitization placed severe pressures on staff

Natalie Ewing Goff, who was terminated forthwith from the DFC in November 2000 after 12 years of service, indicated that just after the new administration took office in August 1998, DFC became engaged in a new program?securitization.

That program could have benefited Belize greatly, she said, but the flaw was that the monies earned from selling mortgage pools were put back into housing projects and not into the productive sector to drive growth.

Goff served as DFC?s financial comptroller at the point where the inquiry begins in 1999, and then as the assistant general manager before her termination in 2000. She said that while securitization was not new to the international financial markets, it was new for us here in Belize. DFC was assigned to carry out the program without the staff being adequately trained to effectively execute it, she opined.

A consultant?s report had warned that DFC was not equipped with the kind of organizational structure and human resources necessary to handle such a program, Goff said. She also indicated that there was too much haste in dealing with large loans, and she felt that the DFC had a duty to ensure due prudence. She also stated that lower-level staff had limited input because a lot of things were being done at the board level.

The main purpose of the securitization program was to get cash for the organization, but that cash came free of stringent Caribbean Development Bank (CDB) guidelines, which had forced the DFC, in previous years, to keep a tight rein on its finances.

Goff said that she was there for three tranches of securitization with the Royal Merchant Bank (RMB) of Trinidad and Tobago. She informed the Commission that she had done an analysis that showed the DFC could have lost $20 million over the life of the program – $12 million from the first tranch, $2.3 million from the second tranch, and $6 million from the third tranch. Nonetheless, using that money to invest in productive projects would have led to an overall gain, she indicated.

Before there could be a tranch 4, Goff (along with two other managers) was given her walking papers in what she described as a humiliating experience?she was given a day to pack up and leave.

Commissioner Merlene Bailey-Martinez pointed out that Goff had gotten an excellent performance appraisal in late 1999. She and Commissioner Price asked what could have been the catalyst for her termination.

Goff suggested that there was a fallout with management, and that fallout, she said, may have resulted from her asking too many questions.

She had met personally with Mr. Guiseppe of RMB to ask questions about the securitization program. She did not care to attend board meetings and she felt that the board of directors was too involved in the day-to-day operations of the DFC.

She did not elaborate on the nature of the board?s interference, and the Commissioners did not probe further.

Taxpayers kept DFC afloat

A basic, yet important, principle was highlighted in today?s hearing. DFC is a Government-owned bank, and even when its own cash flow was strained, the Government kept it afloat with public funds.

This was highlighted when Herman Morris, DFC?s accountant, read from audits for 2002/2003 and 2003/2004, conducted by Deloitte and Touche, that revealed that DFC had been experiencing financial hardships for years following the securitization program. Were it not for Government support, it would have been broke.

It was not firmly established, however, that the woes were directly due to the securitization program, though there was some indication that the strain of the program and its inefficient execution contributed to the problem.

Peculiar transactions

Finally, a series of peculiar transactions were identified today:

(1) There was a ?one shot? disbursement for the $30 million Novelo loan, which later fell into default. Morris confirmed that two cheques for $15 million each were cut the same day, one of them in the name of David Novelo. While he claimed that he could not remember to whom the second cheque was paid, he presumes it must have been for Zabaneh, for the purchase of assets formerly belonging to his bus company.

(2) $3.4 million for Luke Espat?s Toledo Free Zone was recorded on a borrower?s ledger, but the entry was later reversed, which Morris said could mean that the loan was paid off or transferred to another account. The notation says ?GOB settlement.? Morris told the Commission that it is very likely that Government paid it off.

(3) The audited financials for 2002-2004 indicate that the DFC assets listed for resale were grossly overvalued by over $100 million.

(4) An example was given of a transaction where the disbursement date was changed from April 17, 2001, to August 20, 2002?more than a year later. This would mean that the interest that should have been paid for that period was erased from the books. Morris said that such an alteration of the books would be ?illegal.?

Last week, during the first series of hearings, it was revealed that a mounting volume of loans, substantially made up of what were described as ?politically sensitive? loans, became non-performing. It was also demonstrated that in some peculiar instances, DFC gave loans to borrowers to pay off other loans that were already in default. The Commission indicated that this appeared to be the case with Arnaldo Pena and his company, the Belize Resort Development Limited. In some cases, multi-million-dollar transactions were approved by the board of directors through a process called ?circulation??which means that the approvals were done via telephone and later ratified by the board when they met in person.

On Tuesday, head of the DFC?s legal division, Ann Wiltshire, indicated that the legal documents for the $30 million Novelo loan were prepared by the law firm of Glenn D. Godfrey, and not by her division.

It was also revealed by debt management clerk, Orlando Maga?a, that the DFC had continued to pay all debtors except the Social Security Board. It defaulted on its loan in 2003, he said.