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.

Social Security Website

Good Governance Award. One of my correspondents has sent me the following note which I publish as a guest editorial.

This week's coveted Good Governance Award goes to Timothy Hodge.

You will be pleased to know that the all-new Social Security website is up and running, and the first of the core values is Accountability. You can read about it here. No, I'm not making this stuff up!

They have solved the problem with the annual report that had the numbers removed. The entire annual report section of the website has been removed. Problem solved. Try it here.

Let me say that I am happy to see that some work, no matter how inadequate, is being done on the Social Security website. A lot of vital information is missing. We still want to know who are the various Board members. What are their salaries? How much money has Social Security been receiving year by year in contributions? How much comes from investments? How much is being spent on benefits? How much on administration? How much on “social investments”. We are particularly worried about how much, if any, might be “lent” to well-meaning and high-sounding government projects. Governments of our region love to raid social security funds. The Boards of Directors in some islands, being political appointees, are complicit in this misuse of our funds. Is this happening to us?

It is most unsatisfactory to be invited to search for the annual reports and to find only " The requested URL /annualreports.htm was not found on this server."

Come on, Tim, where is the meat?

Social Security Blackout

Social Security Blackout. Last week I did a post on Social Security. It was titled, “Social Security: Guest Editorial 4”. It attracted some of the most comments of any previous posting.

Tim Hodge is the Director of Social Security. He is a scrupulously honest person. No one is alleging any wrongdoing. The post merely asked some questions about the amount of money spent by the Board during the year 2006 on non-benefit-related matters. It suggested that the Social Security Board was keeping us in the dark about how it spent our money. In particular, it asked how the Board could justify spending so little as $5.2 million on benefits out of a total expenditure of $9.2 million in 2006. It quite reasonably, I thought, asked what the other $4 million was spent on. It compared the expenditure of the $4 million with the expenditure of various essential government departments in the year 2005.

Tim did a long emailed reply, which I posted under comments. He sent me other messages expressing outrage at the whole post and the comments. He is convinced that the Board does its work with complete transparency. Yet, every single one of the other persons who spoke to or emailed me agreed that the manner in which the Board was functioning was a public outrage.

I could not understand why Tim found it so difficult to see the reason why people are upset and suspicious about the activities of the Social Security Board. I noticed that he made no attempt in any of his messages to respond to the substance of the guest editor’s post. I decided that the old maxim that a picture is worth a thousand words applies. Let us look together at some pictures online. I invite you to Google the words “Anguilla Social Security”. Have a look at the first 10 results. See if you can find any information in any of them about anything that would interest the average inquirer. See if you can find out anything about the members of the Board, the committees of the Board, anything on the functioning of the Board, anything about the investment of our funds. See if you can find out even the most basic information. You will find that there is nothing at all published about the functioning of the Board and the way it deals with our money.

One of the first results on your Google search would have been the Board's website. You went to the various pages. You ransacked every nook and cranny in the site. Tell me if you were able to find out any useful information on it. The most recent Annual Report published on it was for the year 2003. Who else but an archaeologist would be interested in anything as old as the year 2003?

As one of my correspondents remarked, “So mucha pages, so little news.”

Come on, Tim. You have to do better than that if there is to be any claim about transparency.

Social Security: Guest Editorial 4

Social Security Overhead Scandal.

The funds paid by workers and employers into Social Security are held in trust, primarily for the hard working wage earners of Anguilla. A large element of transparency is called for.

Has anyone noticed the mysterious annual financial reports posted on the Social Security website that have had all the pages with numbers on them removed?

How does it serve the people for Social Security not to reveal what the missing pages contain?

In the "Anguillian" of 19 January we saw some self-serving data issued by Social Security. Most of it was hype, but we see, possibly for the first time this has ever been revealed to the public, a breakdown of how their overhead compares with the benefits paid to the people.

According to the graph, the benefit expenditure for 2006 was about EC$5.2 million and the total expenditure about 9.2 million. Five from nine leaves four. Over 43% of the Scheme's expenditure goes to overhead! I am astounded to learn that it costs us $4 million a year to keep the books and administer this trust fund.

In the U.S., their system operates on an overhead of less than 1%.

Just as a comparison, let us look at the last available national budget, ie, for 2005. In that year, it took:

$1.6 million to run the AG's chambers

$5.5 million to run the entire police "service", with 88 staff

$1.4 million for Immigration - 35 staff

$.3 million to administer some 1500? work permits by the Labour Dept.

$2.4 million for Customs - 58 staff

$1 million for HM Prison - 23 staff

Easy dog bite hard!

I attach a suggested illustration for this topic: A slave deck.

Health: Guest Editorial 2

“Public Health”.

I was disturbed the other day when I heard a Minister of Government discussing the National Health Fund. He remarked that local people must pay their own way.

This would be all well and good, if we were all paying on a level playing field. When our government gives away our assets of land and tax concessions to billionaire investors, and can in the same breath ask the local people to pay extra for basic needs, then I call, “Foul!”

When the Social Security Scheme takes away 5% of the workers’ salaries, and has enough money to spend on basketball courts, money to send people overseas to watch cricket, and money to support many other frivolous activities, while there are no health benefits attached to the Scheme and only 60% employment benefit, then again I call, “Foul!”

If there is enough money in the Scheme to support all of these non-health issues, I think the Scheme needs to be re-engineered to ensure that the contributors benefit maximally, before the Board of Directors can have access to dispose of the workers’ hard-earned monies for frivolous activities.

These excess funds should be channeled into the National Health Fund.

This should be done before we are asked to pay more. The investors that are creating job-demands that outstrip our local population should be made to pay their own way! That is, not only should they be made to pay to secure the health needs of all the imported workers for their projects, but, they should pay customs duties like all other local businesses, rather than we the locals be made to pay our way and theirs as well. If they are made to pay for public lands given to them, even 50% of what they are getting for those lands from their customers, then there would be lots more money available for the National Health Fund.

So, when our government ministers could preside over the systematic divestment of the island’s land resources and tax assets, and Social Security could spend our precious funds on non-health issues, and our ministers still have the nerve to announce in the House of Assembly that we must pay our way, then I have no choice but to cry, “Foul!”