After swift court proceedings, CLICO (Bahamas) is now being wound up. The final position shows its liabilities exceed its assets by US$18m and its largest asset is Florida real estate and not easily realizable at an acceptable sum.
The announcement in Nassau will immediately shift focus back to Georgetown and the cold harsh reality that the US$34M lodged by CLICO (Guyana) with its Nassau sister company will not be recovered. At last word, the Bahamian liquidator, Mr Craig Anthony Gomez was proposing to treat the Guyana sum as an unsecured intercompany advance. When this report was published in the Stabroek News last week, President Jagdeo subsequently told a briefing with some sections of the press that Guyana would oppose Mr Gomez’s classification of the Guyana amount in this manner. However, since the reporting of Tuesday’s winding up of CLICO (Bahamas) there has been no further word from the Office of the President on whether Guyana was heard in the Nassau proceedings before the final decision was made and what the next step will be.
With the winding up of CLICO (Bahamas) and the standing classification of the Guyana sum as an intercompany advance, the question of the bail-out by the Guyana Government of CLICO (Guyana) looms large notwithstanding the legal action that has been lodged by the judicial manager seeking to prevent monies owing to CLICO (Guyana) from escaping this jurisdiction.
First, however, before any bail-out can be made palatable or bearable to the Guyanese public, the government and the Insurance Commissioner must convince the public that the channelling of the US$34M to The Bahamas was done in a manner that conformed to acceptable practice for an insurance company operating under this country’s laws and was not reckless. Mr Gomez and others have pointed out that as far as they could tell the money was transferred directly from Guyana to an account in the US – presumably one to be used at the behest of the parent company C L Financial – and was not underpinned by the type of documentation that would categorise it as an insurance product. Secondly, in his argument for the classification of the US$34M as an unsecured intercompany advance, Mr Gomez proffered that CLICO (Bahamas) was never licensed to do business and has never sold insurance products in Guyana and Suriname and therefore cannot have policy owner liabilities in these countries. If CLICO (Bahamas) was not licensed for this type of business why was CLICO (Guyana) conducting these transactions? President Jagdeo, when the need arises, talks tough about the sanctions that would be applied if wrongdoing is discovered and he has made similar pronouncements in this matter. Before the President seeks to saddle the country with the burden of a US$34M bail-out he must assure taxpayers – in words and action – that no one who might be culpable in this matter will be allowed to get off scot-free.
The bail-out itself remains a troubling question. Why should the government bail out CLICO (Guyana)? Ultimately, CLICO (Guyana) and its parent company C L Financial are legally, financially and morally accountable to those who have been placed in jeopardy by the cavalier intercompany transactions and investment policies of the parent company. The Government of Guyana must continue to pursue through every court in this land and further afield the monies that are outstanding to Guyanese. This must form the bedrock of any eventual bail-out plan.
That said the bail-out question is still debatable. Every single insurance holder and investor in CLICO (Guyana) would be aware that business with any company of that type is fraught with risk and attended by caveat emptor. Had it not been for the virtual nationalizing by the US of its mortgage institutions and the mind-boggling bail-outs and rescues of all and sundry including the venerable automobile business, the move by the Guyana Government would have been frowned on in typical BrettonWoods terminology. Though the international climate for this CLICO bail-out is more receptive it sets a precedent and an example that may expose this and future administrations to similar liabilities. The question has already been asked about why this government failed to offer a similar blanket bail-out to Globe Trust. The President’s failure to act on his commitment to small deposit holders has been questioned by the business commentator Mr Christopher Ram. The Office of the President’s response has been that it was Mr Ram and others who had opposed such a move in the ambit of the court challenge to the liquidation of Globe Trust. Except that the President’s commitment to the Globe Trust deposit holders was without prejudice to any court proceedings. When President Jagdeo spoke about rescuing the small deposit holders of Globe Trust it was without any sure knowledge of what would happen in the subsequent court proceedings. Based on his original pledge, President Jagdeo is still beholden to the Globe Trust depositors, particularly in the backdrop of the generally held view that the Bank of Guyana had not been diligent enough in ensuring that Globe Trust redressed the deficiencies in its practices that eventually led to its collapse.
So if the President is to be taken at his word, the Treasury will be burdened by a charge for CLICO (Guyana) stretched over a number of years. Can it be afforded given the significant deficit financing in this year’s budget? And why should taxpayers – many of whom have contributed to the National Insurance Scheme – be assigned in effect a double penalty for the loss of the Scheme’s deposit? As bitter a pill as the bail-out will be to the Guyanese public, the only good reason for it would be to protect the NIS which faces in the coming years a deficit if there is no significant change in the contributions level to it and/or a reduction in benefits, and rescue the small policyholders. Otherwise, this bail-out would have made no sense to Guyanese and should not have been pursued. Investors, as in the Stanford example, should be made to bear their losses.
CLICO (Guyana) has much to answer for as it relates to good practice and the diligence or lack thereof it exercised in relation to policyholders’ and investors’ monies. It should not be allowed to escape lightly. Valid questions remain over the sale of the Berbice Bridge bonds by CLICO (Guyana) and the payments it enabled after a run on it in the weeks after C L Financial was bailed out by the Trinidad government.
CLICO (Guyana) should have been brought to heel much earlier by the Insurance Commissioner and made to take concerted action since 2007 to first establish the nature of the transaction with The Bahamas and then to rapidly repatriate a large part of the “investment”. While we do believe that the Insurance Act as presently constructed permitted such steps, given the explanations since offered by the government the onus is on it to move immediately to reform the Act to make it more potent and to provide greater resources to the Commissioner’s office. It should be noted that Trinidad made emergency amendments to its Insurance Act after the crisis engulfed C L Financial and is bringing entirely new legislation shortly to address the loopholes which allowed the parent company’s intercompany transactions and risky investments to endanger insurance companies in several parts of the Caribbean. Is that on the agenda of this government or was the Insurance Industry Act adequate and still good enough for any future problems?