Tomorrow, Transparency International will be releasing its 2021 Corruption Perceptions Index (CPI) along with a comprehensive look at corruption over the last decade indicating which countries have improved or regressed over this period. Anti-corruption advocates worldwide, civil society organizations and the academia will be eager to learn how their countries have been rated and ranked on the Index.
In 2012, Guyana’s CPI score was 28 out of 100. Eight years later, it moved to 41. This 13-percentage point increase occurred mainly during the last five years when its CPI moved from 29 in 2015 to 41 in 2020. The largest increase was in 2016 when the score moved from 29 to 34. This improved performance was due to the following: amendments to Anti-Money Laundering and Countering the Financing of Terrorism (AML-CFT) Act; conduct of numerous forensic audits of State institutions; the involvement of Special Organised Crime Unit (SOCU) in investigating and instituting charges against officials based the forensic audit reports issued; establishment of the now disbanded State Assets Recovery Agency (SARA); activation of the Public Procurement Commission after a decade of delay; activation of the Bid Protest Committee; and greater appreciation of the work of Transparency Institute Guyana Inc. Guyanese no doubt are eagerly awaiting tomorrow’s release of the 2021 CPI.
This is our final article on the Santiago Principles and the extent to which the Natural Resource Fund (NRF) Act 2021 is in compliance with those principles. These principles were developed in 2008 by the International Working Group of Sovereign Wealth Funds, comprising 26 members drawn from countries having sovereign wealth funds. Although Guyana is yet to be member of this body, Section 4 of the NRF Act specifies that the Fund is to be managed ‘according to the principles of good governance including transparency and accountability, and international best practices including the Santiago Principles’.
In last week’s article, we stated that, with the Government holding the majority in the Assembly, it is likely that its representative on the Board of the Fund will be selected from among Government members and that it would have been more comforting if the legislation had specified that the representative should be from the political Opposition. Upon closer reading of the Act, a person is precluded from being appointed to the Board if he/she is a Member of Parliament. This nevertheless does not negate our concern about the composition of the Board and the persons likely to be selected. The Minister of Finance has since requested that the Parliamentary Committee on Appointments identifies the Assembly’s nominee.
So far, we have discussed the first 12 out of the 24 principles. In today’s article, we conclude our discussion by looking at the remaining principles.
Principle 13: Professional and ethical standards should be clearly defined and made known to the members of the SWF’s governing body(ies), management, and staff.
Section 41 provides for the Minister to determine a code of conduct for members of the Board, the Public Accountability and Oversight Committee (PAOC) and the Investment Committee, and for the code to be published on the Ministry’s website. The predecessor legislation had mandated the Public Accounts Committee (PAC) to develop such a code for the PAOC, with the Minister responsible for establishing a similar code for the Investment Committee and the Macroeconomic Committee. It is unclear why the PAC is not involved in the new legislation. It would have been preferable if these codes were embedded in the legislation in the form of a schedule, as is the case of the Integrity Commission Act. In this way, the development of the code would have benefited from inputs from the entire Assembly rather than from the Minister alone.
Schedule I of the Integrity Commission Act has been amended to include members of the Board, the PAOC and the Investment Committee. Since these officials have to file their annual financial returns with the Commission, they are also bound by the code of conduct contained in Schedule II of the said Act, as amended. In the circumstances, is it necessary for a separate code of conduct to be promulgated? And, if there is inconsistency between the two pieces of legislation, which one will prevail?
It has been eleven months since the Commission is without the services of the three commissioners since their tenure of office came to an end on 21 February 2021, and no new appointments have since been made. According to the Commission’s website, of the 5,363 submissions required to be made in the last four years, only 2,501 or 46.6 percent were received. Other than publicizing some of the names of the defaulting officials, there was no evidence of any further action taken, as required by Section 22 of the Act. That section states that an official who fails to make a declaration without reasonable cause, or who makes a false submission, commits an offence punishable on summary conviction by a fine and imprisonment. Nor was there evidence of any investigation undertaken to ascertain whether there was a mismatch between the financial declaration and the observed lifestyles of an official.
Section 37 requires the Commission to prepare and submit to the President an annual report of its activities within three months of the end of the calendar year. The report is to be laid in the National Assembly within 60 days later. The only evidence of compliance with this requirement over the years is a report that was submitted to the President in respect of 2018. However, it is unclear whether this report was laid in the Assembly, and hence made public. (See https://www.standardsinpubliclifecommission.ky/fronthome/download?file=CCAICACB5thAnnualConference-GuyanaIntegrityCommission CountryReport_1594927765.pdf)
Principle 14. Dealing with third parties for the purpose of the SWF’s operational management should be based on economic and financial grounds, and follow clear rules and procedures.
The Bank of Guyana is responsible for the operational management of the Fund in accordance with the Investment Mandate and the operational agreement. However, the members of the Board are yet to be appointed. As regards, the operational agreement, a Memorandum of Understanding between the Ministry of Finance and the Bank was entered into under the predecessor legislation, and therefore a new agreement needs to be put in place.
Principle 15: SWF operations and activities in host countries should be conducted in compliance with all appli-cable regulatory and disclosure requirements of the countries in which they operate.
This has been adequately dealt with in the NRF Act.
Principle 16: The governance framework and objectives, as well as the manner in which the SWF’s management is operationally independent from the owner, should be publicly disclosed.
Already dealt with under Principle 2.
Principle 17: Relevant financial information regarding the SWF should be publicly disclosed to demonstrate its economic and financial orientation, so as to contribute to stability in international financial markets and enhance trust in recipient countries.
By Section 33 of the NRF Act, monthly, quarterly and annual reports are required to be published in the Ministry of Finance’s website and generally made available to the public.
Principle 18: The SWF’s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing body(ies), and be based on sound portfolio management principles. The policy should guide the SWF’s financial risk exposures and the possible use of leverage as well as address the extent to which internal and/or external investment managers are used, the range of their activities and authority, and the process by which they are selected and their performance monitored. A description of the investment policy of the SWF should also be publicly disclosed.
An Investment Mandate is to be prepared by the Board in accordance with Section 27 which deal with, among others: directions on the management of credit, liquidity, operational, currency, market and other financial risks; direction on ethical investments; and percentage of the Fund to be invested in each eligible class assets. Additionally, Sections 22-26 detail other requirements, including eligible asset classes; minimum investment in very safe investments; investment for long-term savings; reference to the Second Schedule relating to investment ceilings; the need for the Fund to remain unencumbered; and passive investment management.
Principle 19: The SWF’s investment decisions should aim to maximize risk-adjusted financial returns in a manner consistent with its investment policy, and based on economic and financial grounds. If such decisions are subject to other than economic and financial considerations, these should be clearly set out in the investment policy and be publicly disclosed. The management of an SWF’s assets should also be consistent with what is generally accepted as sound asset management principles.
Already dealt with under Principle 18.
Principle 20: The SWF should not seek or take advantage of privileged information or inappropriate influence by the broader government in competing with private entities.
Issues of confidentiality and penalties for disclosing confidential information are dealt with in Sections 34 and 38, while Section 41 provides for a code of conduct for members of the Board, the PAOC and the Investment Committee. These officials are also bound by the code of conduct contained in the Integrity Commission Act.
Principle 21: SWFs view shareholder ownership rights as a fundamental element of their equity investments’ value. If an SWF chooses to exercise its ownership rights, it should do so in a manner that is consistent with its investment policy and protects the financial value of its investments. The SWF should publicly disclose its general approach to voting securities of listed entities, including the key factors guiding its exercise of ownership rights.
The Fund is wholly owned by the Government of Guyana and therefore the issue of shareholder ownership rights is not applicable. The governance arrangements are detailed in the NRF Act
Principle 22: The SWF should have a framework that identifies, assesses, and manages the risks of its operations. This risk management framework should include reliable information and timely reporting systems, which should enable the adequate monitoring and management of relevant risks within acceptable parameters and levels, control and incentive mechanisms, codes of conduct, business continuity planning, and an independent audit function. The general approach to the SWF’s risk management framework should be publicly disclosed.
By Section 7, the Bank of Guyana required to develop a risk management framework and internal procedures for the effective management of the Fund, including internal audit. Hopefully, when a new Memorandum of Understanding is entered into with the Bank, these will be publicized.
Principle 23: The assets and investment performance (absolute and relative to benchmarks, if any) of the SWF should be measured and reported to the owner according to clearly defined principles or standards.
This has already been dealt with under Principle 18.
Principle 24: A process of regular review of the implementation of the GAPP should be engaged in by or on behalf of the SWF.
There is no provision for a review of the Generally Accepted Principles and Practices (GAPP) of SWFs contained in the Guyana legislation. Any such review will depend on future changes to the Santiago Principles. However, this does preclude Guyana from making its own changes, once they are not inconsistent with those principles. Section 17 nevertheless provides for the Minister to cause to be reviewed periodically the ceiling for withdrawals as contained in the First Schedule but ‘not less than once every five years’.
Conclusion
From our scrutiny and analyses contained in this and our two previous articles, we can say that the 24 principles contained in the Santiago Principles for Sovereign Wealth Funds have all been taken into account in the drafting of the legislation on Guyana’s Natural Resource Fund. Most of the contents were extracted from the predecessor legislation. Notable changes include: the establishment of a Board of Directors to replace the role of the Minister as regards the overall management of the Fund and the corresponding restriction in the role of the POAC; and the removal of the requirement to have a Macroeconomic Committee to advise on the maximum Economically Sustainable Amount that can been withdrawn from the Fund, taking into account macroeconomic variables and other factors; and replacing it with the First Schedule outlining the maximum amounts that can be withdrawn annually.
Any future amendment to the Act should take into account, among others, the following:
Ensuring that an enhanced governance arrangement is in place, especially as regards the size and composition of the Board and the method of selection of its members;
Reinstating the provision for the establishment of a Macroeconomic Committee to provide advice to the Minister as regards withdrawals from the Fund;
Revisiting of the First Schedule dealing with withdrawals based on the advice of the Macroeconomic Committee; and
Revisiting the composition of the PAOC as well as its role as a public oversight body.
