Loan decisions made by two D.F.C. board members

The Commission of Inquiry into the Development Finance Corporation opened its fifth day of public hearings this morning … and continued to methodically build a case that rests on a foundation of testimony from mid-level employees and will seek answers from top management and ultimately several ministers of finance. News Five’s Janelle Chanona has the details.

Janelle Chanona, Reporting
The blame game regarding gross mismanagement of the D.F.C. funds continued today with credit and projects manager Franklin Magloire categorically stating that the Board of Directors micro-managed the financial affairs of the corporation.

Franklin Magloire, Credit/Project Manager, D.F.C.
?I think it was in November of 1998, the records for the board minutes should reflect it. Management approval levels were suspended indefinitely, so every loan, practically every decision that had to be made on a loan, had to go to a board management credit committee. In fact I would venture to call the board management credit committee, a sub committee of the board rather than a board management credit committee, because effectively, we had no say.?

David Price, Chair, Commission of Inquiry, D.F.C.
?When you say ?we? who do you mean??

Franklin Magloire
?Management had no say in what was going to be approved, what wasn?t going to be approved. There was no voting. It was either decided by the deputy chairman and the other board member, and if they said that this project was going to go through, it was going to go through.?

David Price
?Regardless of what the management component of that committee said.?

Franklin Magloire
?That is correct.?

Merlene Bailey Martinez, Member, Commission of Inquiry
?Basically there were just decisions handed down by the two representatives from the board of directors. In this case would have been Mr. Courtenay and Mr. Bou Nahra were the two board members. Why doesn?t the minutes show, were there any dissents from other members, did the other members have–let me ask the question one at time. Did the other members of the board management credit committee, which we cam B.M.C.C., did they have votes to approve or not approve? Was there a vote taken??

Franklin Magloire
?There was no vote.?

Merlene Bailey Martinez
?There was no vote was.?

Franklin Magloire
?Management did voice concerns. I know, I for one voiced concerns. Sometimes a project was outside the guidelines. We had come from an era where we were adhering to project guidelines to the T. And so if a project did not fall within the guidelines, I would one more than occasion, I don?t think the project qualified.?

One of those loans that apparently didn?t qualify was the thirty million dollar Novelo?s bus project, which was disbursed in two payments on the same day.

Franklin Magloire
?That would be an example in which you lost control when you did not control the disbursements.?

David Price
?Lost control or gave up control??

Franklin Magloire
?Well ? lost control. In my view, I would not have funded the project.?

David Price
?At all??

Franklin Magloire
?The project fell way outside of D.F.C.?s risk concentration guidelines. The D.F.C. constitution guidelines say you can lend up to five percent of your portfolio or twenty-five percent of capital, somewhere around there, and it exceeded that by far margins.?

At the time, Glenn Godfrey was chairman of the board, David Courtenay was deputy chair and Bob Bou Nahra and Beliziaro Carballo rounded out the private sector representatives. And according to Magloire, board directors made sure that their companies, and those of known associates of the People?s United Party, got their piece from the D.F.C. through the corporation?s investments in housing and real estate development.

David Price
?There was an application by CAD construction company. C.A.D., David Courtenay for the construction of some houses. Do you recall that application??

Franklin Magloire
?I recall that project.?

David Price
?Do you recall the value of that application??

Franklin Magloire
?There were three phases. I can?t quote numbers, but they were three phases to that project. The project located in Orange Walk, for total construction of about a hundred and twenty buildings. Do you have value there??

David Price
?Yes I have something in the vicinity of three million.?

Franklin Magloire
?The total loan facility??

David Price
?Yes.?

Franklin Magloire
?Yeah, it would probably be in that region.?

David Price
?Was an appraisal done of this??

Franklin Magloire
?An appraisal was done for that project.?

David Price
?What was the recommendation??

Franklin Magloire
?That it was viable and should have been funded.?

David Price
?When you say viable, you mean financially and economically??

Franklin Magloire
?Financially viable. It had to be viable. The D.F.C. was going to buy back the houses from the applicant. The way it should be is that the client comes in for a construction financing loan, and they should have the responsibility to market their own projects. That was not the way it was done at D.F.C. D.F.C. provided the credit. D.F.C. purchased the buildings on completion of project, so the market for the project basically was guaranteed. No risk for the client.?

Merlene Bailey Martinez
?No risk for the client, but certainly a risk for D.F.C.?

David Price
?April, May of 2000 as well, an application for a loan of one million five hundred thousand by Arnaldo Pena for the assembling and construction of nine eight plex Colbe buildings for rental purposes at the Corozal Free Zone, and refinancing an existing loan. Was an appraisal of that loan done??

Franklin Magloire
?I can confirm that, yes an appraisal was done.?

David Price
?What was the recommendation of that appraisal??

Franklin Magloire
?That it was a viable project, and it was recommended for favourable consideration.?

David Price
?It was approved by the board on third of May, 2000. What is its performance status at the end of 2004??

Franklin Magloire
?I don?t think the project ever got off the ground. The buildings weren?t constructed, so it?s not performing.?

David Price
?But the loan was disbursed??

Franklin Magloire
?The loan was disbursed.?

David Price
?Full loan??

Franklin Magloire
?Full loan.?

And when those creditors defaulted in repayments on securitized loans, D.F.C. made it a habit to lend more money to the borrowers.

Franklin Magloire
?Eventually, we, without the authorization of the then chairman who was there and the C.E.O., the legal officer, myself and the manager of finance officer sought an audience with Mr. Ghandi. I then wrote a memo to the C.E.O. on the fifth of the fourth 2004, and I say: on March thirty-first, 2004, the board approved a loan for one point three million dollars to Novelo, currently under receivership. The proceeds of this loan were intended for the debt servicing of account 300059,which forms a part of the B.M.C. portfolio. B.M.C. being Belize Mortgage Company. Further to this approval, the securitization committee, the three of us that I mentioned, held discussions with Gian Ghandi, legal council to Ministry of Finance, regarding the legality of this transaction under the deal of parameters. It was concluded that section 402, articles fourteen and thirty-six prohibits the advancement of loans to mortgager or to any parties on behalf of the mortgager for debt servicing of loans under the deal. We concluded in this document here, that the securitization committee recommends the cancellation of drawn balances of this loan, loan to Novelo. And also the same is being recommended for loans similarly affected, Royal Palm Limited and Belize Resorts and Development.?

David Price
?Did you perceive conflict of interest in that sense??

Franklin Magloire
?From the sense of people using their position to gain access to D.F.C. services that sort of thing??

David Price
?Yes.?

Franklin Magloire
?Well I know board members have loans with the organization. But to get those loans it must be approved by the Minister, and the loans are approved by the board.?

Today?s second witness, Juvencio Rivero, took over Magloire?s job as manager of projects, when Magloire was promoted. Rivero says under his watch, the irregularities continued.

Juvencio Rivero, Branch Manager, D.F.C.
?Sometimes managers would call a senior project officer, and say Mr. So and So please investigate, work on it and submit it to us one time, bypassing my office. Sometime we would see the officers there and I would say, what are you working on? And they would say boy I?m working on so and so. Basically that is how I would get to know that there is something. Now if it didn?t pass my office there is a reason, so I say well it is directly to the board. That is where I kept my distance.?

Herbert Lord, Member, Commission of Inquiry
?When you found out about this if you did ? did you bring it up with the person about it?”

Juvencio Rivero
?No.?

Herbert Lord
?You just left it as that??

Juvencio Rivero
?Yeah, I just left it like that.?

Merlene Bailey Martinez
?Why did you do that??

Juvencio Rivero
?I believe that if I?m working at anyplace and management decides well certain things will bypass your office, there?s a reason for it. And if they did pass it through my office they have a reason for it, so I won?t question why it is not being passed through my office.?

Janelle Chanona
?Sworn testimony today was that many of the controversial loans at the D.F.C. hinged on political promises and government policies, and as such, were treated differently by the D.F.C.?s Board of Directors. The impact of that fact on the corporation is expected to be highlighted on later this week with more from Magloire, and statements from the D.F.C.?s securitization officer, Jane Longsworth. Reporting from the Belize Institute of Management, for News Five, I am Janelle Chanona.?