CREDIT UNION BOBOL
ANDRE BAGOO Tuesday, July 10 2012
WHILE there were signs of bobol (fraud and corruption) in the credit union sector since 1992, the State failed, under successive governments, to act to protect shareholders from the industry-wide corruption that served as the backdrop to the disastrous collapse of the Hindu Credit Union (HCU) in 2008, the Colman Inquiry heard yesterday.
Anthony Pierre, former head of the ill-fated Credit Union Supervisory Unit (CUSU), a division of the Ministry of Finance which lasted only six years, told the inquiry that successive Ministers of Finance failed to take heed of his recommendations to bolster the State’s regulation.
In fact, instead of addressing deficiencies in the regulatory framework, the State appeared to make things worse with its ministries engaging in a “turf war” over who had power to handle credit unions.
There was also confusion, Pierre said, caused by the political turmoil between the years 1995 to 2002, which saw rapid changes in Government administrations and, in one instance, a hung Parliament. Even after 2002, two draft bills meant to reform the sector were rejected in 2003 and 2005 and, to date, the legislative framework remains the same.
What is more, the State’s own regulators at the office of the Commissioner for Cooperative Development, who had some degree of statutory power to deal with improper practices at credit unions like the HCU, were not exercising those powers. There were reports, Pierre noted, that long-standing Commissioner Keith Maharaj (who held the office from 1995 to 2006), was aligned to the HCU’s Harry Harnarine.
In one instance, an anonymous whistle-blower once phoned Pierre and remarked, “the Commissioner for Cooperative Development is a waste of time. He is in conspiracy with Harry.”
Even the Credit Union Supervisory Unit (CUSU), ostensibly set up in 2000 as a kind of alternative to the office of the Commissioner for Cooperative Development, could not function. It employed a woefully inadequate staff of just three people, according to Pierre, testifying at the Winsure Building, Richmond Street, Port-of-Spain.
Further, according to another witness who testified yesterday, the unit, which was in the Ministry of Finance’s Investments Division, did not have legislative backing. “The unit had no teeth because there was no legislation governing it,” former permanent secretary in the Ministry of Finance Vishnu Dhanpaul said.
Pierre noted the issue of “emerging problems” in the credit union sector was raised since 1992, according to a Cabinet Minute. In that year, under the PNM, a task-force was appointed to inquire into the problems and submit a report. Twenty years later, that report is yet to be seen by the inquiry.
By 2004, things were so bad that the Inter-American Development Bank (IADB), commissioned to do another report on the state of financial regulations in the country in 1996, was able to conclude the credit union sector showed widespread signs of a “lack of transparency, little accountability and corruption.” The report, Pierre confirmed, noted the movement of credit unions away from core “vanilla” activities of savings and loans into risky schemes such as investments in stocks and mutual funds. Four years before the HCU collapsed, the IADB issued a prophetic warning.
“This combination of factors could easily be a prelude to disaster,” the Bank said in its report, parts of which were read out at the inquiry. Pierre, a chartered accountant with a firm belief that credit unions should stick to their core activities, called out the names of former ministers who ignored his advice over the years.
The chorus included Ministers of Finance Brian Kuei Tung (UNC) and Gerald Yetming (UNC), as well as Ministers in the Ministry of Finance Conrad Enill (PNM) and Ken Valley (PNM), who served under former Prime Minister Patrick Manning. Manning also held the Finance portfolio at various points during his tenures as Prime Minister.
The 2004 report of the IADB found that the political will to enforce the present legislation appeared to be lacking. It noted the sector could function properly “if there was a political will to enforce the Cooperative Societies Act.” The IADB even went as far as to suggest that the then Prime Minister, Manning, could issue directives to his Minister of Labour who had oversight over credit unions according to the Act.
Yet ‘Cassandra’s warnings’ (from Greek mythology in which Cassandra was the daughter of King Priam and Queen Hecuba of Troy. Her beauty caused Apollo to grant her the gift of prophecy. However, when she did not return his love, Apollo placed a curse so that no one would ever believe her predictions) were ignored.
Years later Manning, according to evidence previously heard at the inquiry, openly assured HCU officials that his administration would not launch an inquiry into their affairs. Pierre said it was the feeling among some at the Ministry of Finance that there was no political desire to reform the sector.“That was the general feeling of some of us at the Ministry at that point in time,” he said. Efforts at reform, such as an IADB recommendation calling for financial supervision of credit unions to be hived off from administrative oversight, were never fully implemented.
While there were problems with the legislative framework, Pierre said, some enforcement of the laws would have been preferable to none.
“The powers of the Commissioner under the Cooperative Societies Act are quite extensive and the situation could have been arrested,” he said.
He said the years 1995 to 2002 were “turbulent” given political upheavals.
The former CUSU head noted that in 1995 the PNM lost government to a UNC-led coalition. In 2000 the UNC returned to power on its own.
But in 2001 there was a collapse of the government and another election was called, resulting in the famous 18-18 tie which hung Parliament for almost a year.
By 2002 there was another election and the PNM returned to power.
Pierre said not only was there uncertainty over the fate of legislative reforms and lines of accountability but also deeper problems.
“For quite a while, we operated without any policy at all,” he said. With the CUSU falling under the Ministry of Finance and the office of the Commissioner for Cooperative Development falling under the Ministry of Labour, a “turf war” ensued.
There was, “contention between the various departments of government.” At least $12.6 million was pumped into the CUSU before it ceased to operate in 2006. Dhanpaul, now an executive director at the World Bank, suggested the CUSU should have been placed in an apolitical setting, possibly the Central Bank. “It was misplaced at the Ministry of Finance,” he said.
Pierre recalled forwarding reports of corruption to Minister in the Ministry of Finance Conrad Enill, before Enill was fired from that post by Manning.
The witness said he got several phone calls from a whistle-blower, whom he felt was possibly a director at the HCU, who informed the CUSU of “financial impropriety”; “falsified valuations” in relation to properties and “secret scholarships.”
“I had no reason to disbelieve what he was saying,” he said. “I reported this to the Permanent Secretary and to the Minister (Enill).” Pierre’s claims are in addition to separate claims already heard in the inquiry alleging Enill, who served as Minister in the Ministry of Finance from October 10, 2002 to November 7, 2007, was among several PNM ministers who failed to act on concerns of money-laundering at the HCU and Clico.