Due diligence

The Social Security Board is responsible for the safe-keeping of the Social Security Fund.  That is one of the reasons why the recent story about the Government of Anguilla consenting to the Social Security Board taking a particular loan is so disturbing.

Below is a letter from the Government of Anguilla to the Social Security Board.  It is in the public domain.  I found it posted on the website axareality.com.  It cries out for comment and for explanation.  It is dated 9 July 2010.  It was signed by the Hon Hubert Hughes, Chief Minister and Minister of Finance.  The Minister of Finance of Anguilla is the Minister for the Social Security Board.  The Board and its Investment Committee make their own investments, but the Minister has statutory power to oversee the Board’s activities.

The letter authorises Social Security to borrow up to US$200 million from United Investment Limited of Austin, Texas.  The letter authorises the use of the Social Security Fund to be the security for the loan.  I need not remind you that that Fund is the contributors’ money.  It is not the money of the government of Anguilla or of the members of the Social Security Board.  The Board has strictly limited powers to invest the Fund.  They are charged with what I consider a sacred duty to invest the monies in the Fund for the advantage of the owners, the contributors to the Fund.  Before they begin negotiating with a supposed lender about putting the Fund up as security, we would expect that they would do their due diligence to ensure they are dealing with a reputable institution.

For such a supposedly major financier, United Investment Limited's website is remarkable for the many grammatical and punctuation errors on its various pages.  Whoever the owners are, and despite the numbers they quote, they seem not to be big enough to employ someone to proof-read their website content.  You might almost think that their promotional materials on the website were written by a semi-literate schoolchild, rather than by the marketing department of a major financier.  It is also remarkably lacking in any solid information about the company or its work.

If you do a little detective work and investigate United Investment Limited further, this is what you find:

> domain:                          ui-ltd.com

> created:                         06-Apr-2006

> last-changed:                    07-Apr-2010

> registration-expiration:         06-Apr-2011

> 

> nserver:                         ns47.1and1.com 74.208.2.7

> nserver:                         ns48.1and1.com 74.208.3.6

> 

> status:                          CLIENT-TRANSFER-PROHIBITED

> 

> registrant-firstname:            Kirby

> registrant-lastname:             Gonzales

> registrant-street1:              660 Preston Forest center

> registrant-pcode:                75002

> registrant-state:                TX

> registrant-city:                 Dallas

> registrant-ccode:                US

> registrant-phone:                +214.6329531

> registrant-email:                info@dallasfestival.com

This tells us that the United Investment Limited website was created by one Kirby Gonzales in 2006.  In 2006, Kirby advertised the company as "an OEM manufacturer and Distributor of building electrical supplies and tools for constuction of housing, commercial, medical and educational institutes. We also sell Petroleum and Gas profucts." Yet, in the space of four short years, the company now claims the ability to lend or to arrange a loan of upwards of US$200 million.  That is quite an extraordinary accomplishment.

If you go to the corporationwiki.com website, you will find a list of other companies formed by Kirby and Stacy Gonzales.  From the addresses of their various companies, it seems that they operate out of Trinidad and Tobago.  It would appear to me that Kirby and Stacy are in the business, among others, of creating shell companies in Texas.  A shell company is one that is barely worth the paper its certificate is printed on.

Of course, the matter may just have been an advance-fee fraud.  This is a lucrative but dishonest business.  It involves a person calling himself an investment adviser pretending to desperate borrowers that he can find easy, cheap money for them to borrow.  All the borrower has to do is to pay in advance a fee of a few thousand dollars to be introduced to the lender.  It is usually demanded towards the end of the transaction when the desperate borrower feels the deal is about to close.  Once the fee is paid you never hear from the investment adviser again, and the lender mysteriously disappears.  In which case, we may have risked losing only a few thousand US dollars.  I am not suggesting that is what happened here.  Indeed, there is no evidence that any advance fee was asked for or paid. 

For the loan to have been authorised by government it would need to have been approved by the Executive Council.  Heaven alone knows how ExCo could have authorised the Chief Minister to sign such a thing as that letter.  The whole transaction should have been suspicious from the start.  It appears to have been a proposition that almost suckered in our Chief Minister.  Fortunately, the transaction seems to have been stopped by someone who did his due diligence.  In my opinion, the due diligence should have been done before the Chief Minister was asked to sign the letter. 

This is all very disturbing.  If you were unkind and wanted to be sarcastic you might say that this incident clearly indicates that Anguilla needs to declare immediate independence so that our leaders can work for the people without the interference of the “meddling British”.

Related posts:

Fevered

Secured loans

British Minister's Visit

Henry Bellingham visits. The word I am hearing is that the British Minister stopped off in Turks and Caicos Islands and Anguilla for specific reasons.

        We know why he visited TCI. It has been published. The elections set for July 2011 will be delayed to allow time for anti-corruption and good-government reforms to take effect in the islands. You can read about it by clicking here: http://tcijournal.com/index.php?idsub=3249&id=8

        No reason for his visit to Anguilla has yet been suggested by any British or Anguillian official. However, I am informed that one of the first meetings that Mr Bellingham had was with the Social Security Board and the Executive Council.

        We know that since the election in February of this year the Government of Anguilla has borrowed some $60 million from the Board to pay civil service salaries. We know that was contrary to the “borrowing guidelines” that are by agreement binding on the Anguilla Government.

        We can expect that the FCO is not happy at this breach of the Guidelines.

        Could this be the reason for Mr Bellingham's visit to Anguilla?

No authorisation

Well, I have received a reply to my Freedom of Information Act request.  It reveals that there is no letter of authorisation for the Government of Anguilla to borrow funds from the Social Security Board.  All the borrowing from the Social Security Fund has been unauthorised.  Unauthorised borrowings to this date amount to some EC$43 million.  At this rate the Fund will be depleted, I estimate, in two years time.

This is the correspondence I have received:

This is the attachment referred to:

I have to tell you that I am grateful for what I consider to be a prompt and complete response to my request.  

I would like to hear what you make of it all.

Related posts:

Information

Information

My first request under the British Freedom of Information Act:

To: Foreign and Commonwealth Office
Subject: Freedom of Information request - Borrowing guidelines for the Anguilla Government

Dear Foreign and Commonwealth Office,

I should be grateful to know if you are aware that the Anguilla government has been borrowing upwards of EC$10 million a month from the local Social Security Fund to pay public service salaries since February 2010. The Fund holds approximately EC$160 million, and stands to be depleted in less than one and a half years.

I should also be grateful to know if such borrowing has been approved as being within the borrowing guidelines.

Finally, I should be grateful to receive a copy of any letter from the FCO to the Anguilla government approving such borrowing.

Yours faithfully,

Don Mitchell CBE QC

http://www.whatdotheyknow.com/request/borrowing_guidelines_for_the_ang

Foreign and Commonwealth Office

29 June 2010

Dear Mr Mitchell

Thank you for your Freedom of Information request. It has been assigned a unique reference number (above) and has been passed to the relevant section within the Foreign and Commonwealth Office to deal with. They will be in touch with you should your request need clarification.

We received your request on 29 June 2010 and will aim to respond within 20 working days.

Yours sincerely

Katy Shaw

Information Rights Team

Information Management Group

Secured loans

Secure lending?  I have been asked the question.  Has the Anguilla Social Security Board ensured that any advances they are making to government from the Social Security Fund have been properly collateralised?  Is there a security of some kind that has been given by government for the loan?  Is there an instrument that can be acted on if government defaults?  If the Board bought government bonds, that would be an investment.  But, if they are making an unsecured loan to a penniless government is that an investment?

Then, what about the borrowing guidelines given to us by the British Government?  Were the borrowing guidelines breached?  In the event that the lending has knowingly been made in contravention of the borrowing guidelines, what effect, if any, would this breach have on the ability of the Board to enforce any obligation of government to pay back the lending?

We have all read about international companies misusing their employees' pension funds to pay off company debts.  They do so without an ounce of conscience.  We read that the companies then go bust and are not able to pay back their employees.  We all feel justifiable outrage. 

           What are we supposed to feel if it is our own government and Social Security Board that are rummaging about in our social security funds?

Investment?

What controls or restrictions does the Social Security Act place on the investment of the monies of the Social Security Fund by the Social Security Board and its Investment Committee? Section 13 of the Act provides that the investment of money of the Fund shall be made by the Director in accordance with the directions of the Board and the Investment Committee. The Board had long ago set investment guidelines that prohibited lending to government.  The previous Board viewed lending to government as a misuse of the trust funds held in the Fund.  It appears that those guidelines have been altered by the new Board. 

In the absence of any restrictions in the  Act, we look to the ordinary meaning of the words.  To “invest” is defined by the Oxford Dictionary as meaning to employ money in the purchase of anything from which interest or profit is to be expected.  The notion of investment is one of placing money into some form of profitable property.  The restrictions are not set out in the Act.  They are waiting to be defined by the court.  Someone will have to have the impudence to bring a law suit to have them finally determined. 

I venture to propose, though, that the common man would answer the question by stating that the duty of the Social Security Board is to prudently manage the Social Security Fund for the benefit of the persons who essentially own it, the contributors.  

 If people are dutifully paying their dues to the Board then, in return, the Board is duty-bound to apply those funds to such matters as pensions and sick leave and maternal leave payments, and nothing else.  Surplus funds are expected by all of us to be profitably invested.   

The implicit responsibility of the Board and its Investment Committee is to invest the funds of the Board wisely so that the contributors may receive their entitlements whenever it is necessary to claim them. 

Any idea that some of us may have had, that the Social Security Board was prohibited from advancing to government the trust funds held by the Board for the working men and women of Anguilla, was misplaced.  In the absence of any public disclosure or other information this is just what I understand is going on.  Indeed, it may well be perfectly legal for the Board to keep on advancing to government the monies needed until the entire fund has been depleted.

That is, it would be perfectly legal so long as such advances legally qualify as an investment.  It is at least questionable whether advancing $10 million a month from the Social Security Fund to government for the purpose of paying the wages of government workers from those funds are a legitimate form of investment.  Especially if it is to go on for a year or more.  And, especially if it is an unsecured loan.  And, especially if the government has not demonstrated any possibility of paying it back. 

At this rate, the total funds of the Social Security Board will have been depleted in less than a year and a half.

Controls

I have had a look at the Social Security Act to see if there is any control on how the fund is to be administered.  Section 3 sets up the Social Security Board.  By the Schedule to the Act the Board is to consist of 7 persons to be appointed by the Minister of Finance, viz, the Director, 2 representatives of Government; 2 representatives of employers; and 2 representatives of employed persons.  Sounds eminently fair, and no doubt it would be, if only it worked like that.  (The Social Security Act should be able to be read on the Board’s website, but both links provided are dead!)

Needless to say, immediately after the general elections of February 2010 the new Minister of Finance (Hubert Hughes) fired the cronies of the previous Minister of Finance (Victor Banks) who had been appointed to the Board and appointed instead his own cronies.  The rule in Anguilla, as elsewhere, is the winner gets all.

We know who the new members of the Board are from The Anguillian Newspaper.  They are Thomas Astaphan, chairman; Alkins Rogers, vice-chairman; Timothy Hodge, Director; Dr Aidan Harrigan, member; Evan Lake, member; Pastor Victor Hugo Brooks, member; Kirkley Carty, member.  Astaphan and Harrigan represent Government; Carty and Lake are said to represent employers; and Rogers and Brooks to represent employees.

Section 12 of the Act sets up a Social Security Fund Investment Committee.  The Committee is said to consist of the Chairman (Tommy Astaphan), the Permanent Secretary Finance (Kathleen Rogers); two persons nominated by the Minister, and the Director (Timothy Hodge).  That amounts to almost complete control of the funds available for investment by government officers from the Ministry of Finance.  More worrying, a search of the Social Security website, four months after the general elections of February 2010, does not reveal who are the other two members of the Investment Committee.  The membership of neither the Board nor the Investment Committee is mentioned on the Board’s website.

Borrowing

Social Security has been advancing trust funds to government to pay bills since before the elections.  Both the past and present governments have been dipping their sticky fingers into the Social Security Fund.  The borrowing, we are told, is meant to meet their monthly recurrent salary bills.  

Why is it that I feel a personal slight at receiving this information? After all, I have never made any social security contributions.  I am retired now.  When I worked as an attorney self-employed persons were not required to make contributions.  The Social Security Board will never have to advance one red cent to me. None of my personal funds are invested in Social Security.

Yet I feel more than slighted: outraged, soiled, and dirtied even, at this information.

Am I right to feel instinctively that, no matter what the circumstances, this is a breach of trust by the Board?  Or, is it just that there is something wrong with me, and I am being super sensitive?

While we are dealing with section 7 of the Constitution and government’s power to confiscate private property let us spend a few minutes looking at the question of government “borrowing” money from Social Security.  

Social Insecurity

At Last! The 2003 Accounts.

I recently received a message that the long overdue Social Security Annual Report for the year 2003 has been published. I had a look at the website. The letter of transmittal and other reports are undated. We have to assume that the Minister received the Report when it was published, in August 2007. I would have thought this was a tad in arrears for a Social Security Board?

My correspondent was not impressed. He sent me a query he had received recently. I shall publish his response at a later date. This is what the query he received said:

We finally get to see the Social Security Annual Report for 2003. As expected, it is not very revealing. How much does Tim earn? You tell me:

6. ADMINISTRATIVE EXPENDITURE	2003 $$	2002 $$
Salaries & Allowances of Admin staff	1,577,200	1,408,037
Allowances & Expenses of the Board	139,257	140,801
Other Expenses of Administration	1,402,705	1,654,122
Other Expenses	89,083	76,110
Total	3,208,245	3,279,070

This trough has room for countless snouts.

They have over $14 million in a Smith Barney account. In 2002 it lost over $3.5 million. Madre de Dios!

They own an unstated number of vehicles, having a total depreciated value of $69,000+ at the beginning of 2003. I don't know what they cost, or how many of them are devoted to Tim's "official" use.

They spend, very roughly, $4 million a year to give out $3 million in benefits. This does not include the Development Fund.

The Development Fund gave a $100,000 grant to the Jazz Festival.

What else do you see here that might interest Don? He has a somewhat limited fascination for financial statements.

Is this what they call a faith based initiative?

Yours faithfully etc,

I know that Director Tim Hodge honestly believes that Social Security is transparent and likety-splick clean. However, the Social Security fund is one of the largest honey pots of potential for misuse on the island. There must be few funds, other than the government’s total income housed in the Consolidated Fund and the entire asset base of one of our major banks, that are larger than the public monies held in trust by the Social Security Board. To this end, the Board must expect that its accounts will be subject to the most stringent examination and analysis. Tim is an old friend of mine. But, old friendships must not be permitted to stand in the way of rigorous examination of the accountability of the Board for the funds upon which future generations of employees must depend. The Social Security Board has no shareholders meeting to face questions. It is all the more incumbent on them to provide us with the fullest details of where our money is invested and what is being done with it.

I have to agree with my correspondent that the explanation of administrative costs published on Social Security's website, no matter how acceptable it is to the accounting profession, should not be acceptable to us here in Anguilla. Later, my correspondent's response to the above letter.