D.F.C. Inquiry reveals conflicts of interest, other discrepancies
When we last heard from the commission of inquiry investigating the Development Finance Corporation in June, they had just cleared a major legal hurdle in the Supreme Court: getting access to key financial documents. Since then, the three-person team has been wading through mounds of paperwork, scrutinizing files for the forty largest loans, board papers and minutes, and securitization documents for both the Royal Merchant Bank and the North American programme. The commissioners are relying heavily on the professional strengths of each other and participating in weekly discussion meetings. Already, they have determined that they have months of work ahead, but more disturbingly, even though they’ve only scratched the surface, what they have unearthed about the inner workings of the Development Finance Corporation still has a shock factor.
CONFLICT of INTEREST
David Price, Chair, D.F.C. Commission of Inquiry
“Conflict of interest seems to an everyday part of life in this country and in D.F.C. The most blatant example is the first chairman in the period in which the commission covers, that is Mr. Godfrey. Mr. Godfrey was chairman of D.F.C., he was also a principal in St. James, he was also a principal in Alliance Bank, he was also a principal in Western Caribbean, all of whom had dealings with each other, with Mr. Godfrey as chairman.”
“The conflict of interest is there whether you declare it or not. There are three other matters of conflict of interest that are of major concern to the commissioners and these happened after the commission was appointed. At the end of March, early April, I believe the then chairman, either resigned or his term of office was up. He was immediately employed the following day as a director at Alliance Bank…an institution that has financial dealings with D.F.C. A couple months later, the Chief Executive Officer was either terminated or left on his own, immediately he took up employment with Universal Health Services as Chief Executive Officer. Again an entity with whom D.F.C. has a current account. And then subsequently, a new board of directors was appointed, one of whose member is Mr. Underwood. Now I understand D.F.C. has entered an agreement with Mr. Underwood’s company, Credit Masters System, to collect on behalf of D.F.C. Now how can you run a business on behalf of D.F.C., while you are a current member of the board?”
“In the first term of office, the deputy chairman I believe was Mr. David Courtenay who served in a number of capacities that might be described as conflict of interest. For example, when it came to some of the D.F.C. housing development projects, Mr. Courtenay was employed under contract to supervise those housing projects. Now I can’t understand how a member of board in his capacity of member of board and deputy chairman can at the same time, be contracted to do supervisory work?”
LOAN APPROVAL by CIRCULATION
David Price
“What has concerned us is that in a number of these cases, at the board management credit committee level and at the board level, a number of these loans are approved by circulation. What that means we understand is that these are circulated, the particular of the loans or the application, are circulated to the individual members of the board who then indicate in some manner whether they approve or not. So in a number of cases it is done by circulation, later ratified by the whole board sitting together. Now when that happens, we have been unable to determine whether the approval by circulation is a unanimous approval or whether it is a majority approval. What is a particularly alarming?and I don’t think that this has occurred that frequently, but it has occurred, circulation by telephone. So somebody would call the other members of the board and ask?I presume?do you approve this loan?”
D.F.C. for LOAN REFINANCE
David Price
“One of them has to do a large percentage of what we have seen in terms of what is reported in the board minutes as well as the actual files we have seen of loans lent by D.F.C. for refinancing. Many of these refinanced loans are to pay off commercial banks. Quite a few of those are in the construction business, for homes. We believe that development financing is not something you use to refinance a commercial bank. If you could qualify for a commercial loan to begin with, why go then go to a development bank to refinance that commercial loan? So that is one of the areas that we are concerned about, lending for refinancing. Another major area of concern has to do with irregularities in terms of their own loan procedure. Over time D.F.C. has developed what it calls a “loans administration manual” that sets out the policies and guidelines as to how they will lend. In a number of cases their own procedures have been violated by them in approving loans. For example, I have seen cases where the board approves a loan and subsequent to that, the D.F.C. then goes on to do property appraisal. Now one would want to think that the collateral you are offering as security for that loan would precede an approval for that loan. You wouldn’t approve the loan and then see if your collateral is sufficient. In a couple of cases as well, the board has directed that disbursements take place before all of the legal paperwork has been perfected.”
D.F.C.’s CHECKS and BALANCES
David Price
“Some of the loans are serviced by way of over the counter payment. Now clearly that is necessary in cases where the people you lend to don’t have a salary, but it is alarming we think that the number of over the counter payments seem to be larger than pay-sheet deduction. It means that there is little control over if people come in to pay, hence there is a greater possibility of loans being defaulted on.”
The commissioners maintain that while their findings can be classified as irregular, the forensic auditor that Belmopan promised to review the accounts of the corporation would be the only one in a position to lay responsibility or point out criminal occurrences. Tonight we understand that the National Trade Union Congress of Belize has compromised and a local auditor will be hired to investigate the corporation, but that person has yet to be named. As for the public hearings slated to be a part of the inquiry, according to Chairman Price, the list of witnesses include past D.F.C. chairmen Omar Espejo Sr. and Glenn Godfrey, as well as former deputy chairman David Courtenay, former C.E.O. Troy Gabb, senior management staff including Roberto Bautista and members of staff that dealt with the securitization programme. The D.F.C. Commission of Inquiry is comprised of Chairman Price, Chief Magistrate Herbert Lord, and Merlene Bailey Martinez.
