Corporate Management and the CL Finance Group

Property of Christopher Shand [email protected]

POLICYHOLDERS AND INVESTORS

EMBROILED IN THE CL FINANCE

DEBACLE ARE ENTITLED TO EXPECT

A SOLUTION IN THEIR FAVOUR SINCE

REGIONAL GOVERNMENTS AND

CENTRAL BANKS REPEATEDLY

ASSURED THEM THAT THEIR

INVESTMENT WAS GUARANTEED

AND OR SAFE.


The recent corporate failure of the Caribbean’s largest financial group, the Trinidad based CL

Financial Limited, has sparked the interest of many and has also raised a plethora of issues in

relation to what many believe to be the worst financial crisis experienced by the region. Central

to the discussion surrounding the collapse is the role to be played by the government in the

rescue or rehabilitation effort, in light of certain guarantees they had made to policyholders of the

group’s investment companies and investors of the other subsidiary companies of the group.

While some believe that government should intervene to bailout out the group on the ground that

it made certain guarantees in relation to the safety of investments, or on the ground that it

exercised poor regulation which allowed the group to operate too freely or even on the basis that

it was to extend its hand as the lender of last resort to a company that was too big to fail, there

are others who take the view that a bailout would serve as an incentive to poor monitoring of a

board by the shareholders, it would be at the expense of taxpayers and there would have also

been no lesson learnt from the difficulty they had encountered.

This paper is divided into six parts. Part 1 will provide an overview of CL Financial Limited

(CFL) and the financial debacle in which the group found itself. Part 2 will then outline the role

of government in regulating financial institutions and detail the regulatory framework that was

existing in Trinidad and Tobago. Part 3 places focus on the role of the Board of Directors to

manage the affairs of the company, placing special attention on group enterprises. Part 4 seeks to

illustrate the duty of shareholders to monitor actions of the Board and its officers. Part 5 will

place the auditors under the microscope. Lastly, Part 6 will provide a discussion as to whether

government should intervene to bailout the collapsed institutions in order to make payment to

investors and policyholders.

CL Financial Limited is a privately owned conglomerate that was established in 1993 as a

holding company for Colonial Life Insurance Company (CLICO) which started its operation way

back in 1936 and is the flagship of the CL Financial Group. CLICO rose to prominence as the

largest insurance provider in Trinidad and Tobago after its acquisition of portfolios of other

insurance companies. This rise was also occasioned by the growth of the Holding company CL

Financial Limited. To illustrate the rapid expansion of the regional based conglomerate, the

Chairman Lawrence Duprey, in a letter to shareholders boasted “Today CL Financial has a

presence on virtually every major continent in the world, making it the largest, diversified


conglomerate in the Caribbean. Our investments are spread over 65 companies in 40 countries

worldwide with an asset base in excess of TT$100 billion.”1 The geographical spam of CL’s

business grew from Trinidad and Tobago to the Caribbean to later include North America

(especially Florida), South America (especially Guyana), the UK and Europe and the Gulf

(especially Oman).2 The report also emphasized that the group had diversified its investments to

include enterprises operating within the Insurance sector, Banking and Financial Services, Real

Estate, Manufacturing, Retail and Distribution, Forestry and Agriculture, Energy and

Petrochemicals and Health Services.

Several factors precipitated the collapse of CFL, but the most immediate cause was the

company’s illiquidity when faced with numerous withdrawal requests triggered by a fall in

energy and real estate prices, two sectors in which the group had invested heavily. Following a

request by the groups chairman Lawrence Duprey to the governor of the Central Bank of

Trinidad for assistance, the central bank presented a bailout proposal. This bailout would

comprise an immediate payment of $75,000 to depositors with a principal not exceeding

$75,000, and those with a principal exceeding that sum would be paid in annual installments

over a 20-year period by means of a government bond. One question that remains in the minds of

many is how this regional financial giant found itself in this messy financial situation. A number

of reasons have been put forward, which includes poor corporate governance of the group

enterprise, poor risk management, an ineffective and outdated legal framework for regulation of

financial entities among others.

It is common knowledge that it is government’s duty to regulate the financial entities that offer

services to the populace. However, there is far less agreement as to what is the objective of this

regulation. While some believe that financial regulation should prevent the failure of a financial

institution, others counter that it should only ensure that the conditions existing are favorable to

the effective operation of those institutions that are being regulated. It would seem as if the latter

view holds to be true. Rohan Barnett, Executive of the Financial Service Commission which is

the regulatory agency in Jamaica has stated that the objective of regulation is to protect investors

1 CL Financial Limited Annual Report 2007

2 ‘Stumbling Caribbean Financial Crisis Management,’ The Gleaner, September 16, 2011.


and to promote integrity, efficiency and transparency in the market. It is his belief that regulators

exist not to prevent corporate failure but to increase the likelihood that financial institutions

make prudent decisions regarding the funds that have been invested and to also try to ensure that

the customers receive the information that is necessary to make cautious and sensible decisions.

The ‘myth’ that the purpose of regulation is to prevent failure was blatantly rejected and put to

rest by Mr. Barnett, who says that “the notion that any financial regulator can totally prevent the

failure of a financial organization is false… no system of regulation can ever eliminate the

possibility of corporate reporting or governance failures… it is impossible to achieve zero failure

and any attempt to do so would destroy wealth creation as the regulatory measure that would be

employed would artificially constrict market activity.”3 This position has also been supported by

Terrence Farrell who put it really nice when he stated that “fraud may be the trigger for a

collapse of an institution, but it is not the business of the financial regulator to prevent fraud, but

rather to ensure that financial institutions have corporate governance systems and practices that

minimize fraud.”4

There has been wide speculation that the legal framework for financial regulation in the twin

island republic was grossly inadequate to effectively regulate financial institutions. It has been

reported that the Governor of The Central Bank of Trinidad Ewart Williams placed some amount

of blame for the collapse on the financial monitoring system which he considered to be

rudimentary, non-existent and fragmented. He believed that a number of weaknesses in the

operations of the over-leveraged financial group were missed and that this led to the collapse. 5

This conclusion has also been supported by Mariano Browne who suggested that the facts

pointed to weak regulation and inadequate legislation as it was not the norm for financial

institutions to go ‘bust” overnight. To support her stance, Browne noted that there was no

effective legislative framework to supervise the operations of the CL Group’s flagship company

CLICO. She noted that though the amendment to the Banking Act (No 20 of 2004) brought

3 Rohan Barnet, Executive Director, Financial Services Commission (Jamaica), Presentation “Does Financial

Regulation Prevent Institutional Failure?”, Financial Services Commission’s 10th

Anniversary Investor Briefing,

Kingston, March 23, 2011.

4 ibid

5 ‘CL Financial Collapse a ‘failure of regulation,’ The Gleaner, March 17, 2010


Insurance companies under the supervision of the Central Bank, it largely left untouched the

provisions of the 1980 Insurance Act and was not a true reflection of the recommendations set

forth by the International Association of Insurance Supervisors (IAIS) which presented a set of

Insurance Core Principles considered necessary for a supervisory system to be effective and were

intended to be the basic guideline to be followed in all jurisdictions.

Browne also chronicled a listing of the inadequacies that characterized the legal framework. As it

related to regulation of entities with a corporate structure similar to that of CL Financial Limited,

Brown ‘hit the nail on its head’when she explained, “Not the least of its egregious deficiencies,

the 1980 Act does not provide for the existence of a Financial holding company nor for that

matter a diversified one, and therefore provides no guidance on how a diversified holding

company would be monitored. This difficulty was a preexisting condition prior to the

consolidation of supervision in 2004.”6

Wayne Soverall has also lent support to the argument that the financial system in which CL

Financial Limited operated was poorly regulated. According to Soverall, “although the business

model was high risk and dangerously flawed, the regulators were not blameless. … deficiencies

in the operations of CLICO highlighted the inadequacies in the legislative framework of CBTT

[Central Bank of Trinidad and Tobago] which in 2009 still did not have the authority to conduct

on-site supervision, share information with other regulators or demand the required changes from

CLICO even though since 2004, regulatory authority for insurance companies and pension funds

had been transferred from the ministry of finance to the CBBT.”7

There have also been assertions that though the regulations were badly in need of modernization,

the regulators made a bad situation worse as they failed to enforce violations of what was in

place. In an article by William Layne, it is stated that CLICO was allowed to operate for several

years in violation of provisions of the Insurance Act. He stated “In August 1998, a report

prepared in the Office of the Supervisor of Insurance of Trinidad and Tobago [who was then

responsible for regulating Insurance companies and from whom the Central Bank took control]

6 Mariano Browne, Address ‘Too Big to Fail: An Expensive Lesson,” The 4

th Biennial International Business,

Banking and Finance Conference, Port of Spain, June 22-24, 2011.

7 Soverall, Wayne (2012) CLICO’s Collapse: Poor Corporate Governance, American International Journal of

Contemporary Research, Vol. 2, No. 2


indicated that a review of the files of Colonial Life Insurance Company (CLICO)… had since

1992 found it difficult to satisfy the Statutory Fund Requirement.”8 This was a very dangerous

situation that the regulators had allowed to exist, considering the fact that the purpose of the

statutory fund was to serve as a fund to indemnify all policyholders in the failure of the insurance

company.

It is common knowledge that though ownership of a company is usually in the hands of

shareholders, these individuals are however unable to have the relevant control, this essential

element of corporate governance is usually vested in a Board of Directors and their appointed

officers. This foundational principle has been enunciated by many, including well known jurist

Lord Hoffman who says that “Under company law the management of the business of a

company is entrusted to the board of directors.”9 In all corporate governance systems, a board,

which is selected by shareholders and acts collectively, is given central role in the operations of

the company, existing primarily for the purpose of making the key corporate decisions and

supervisingthe management. This role has been summed up nicely by Salacuse, who says that,

“Together with guiding corporate strategy, the board is chiefly responsible for monitoring

managerial performance and achieving adequate return for shareholders, while preventing

conflicts of interest and balancing competing demands on the corporation.”10

The control granted to the Board is exercisable by the Board alone and it is only exceptional

circumstances that the shareholders will be allowed to interfere with their actions. There is

extensive case law on this principle, with the most oft-quoted passage being that of Green LJ in

John Shaw and Sons Ltd v Shaw. In this case, Green LJ stated, “A company is an entity distinct

alike from its shareholders and its directors. Someof its powers may, according to its articles, be

exercised bydirectors, certain other powers may be reserved for theshareholders in general

meeting. If powers of management are vested in the directors, they and they alone can exercise

these powers. The only way in which the general body of the shareholders can control the

8 http://bajan.wordpress.com/2012/03/06/recent-financial-failures-in-the-caribbeanwhat-were-the-causes-and-what-

lessons-can-be-learnt/

9 Hoffman, Leonard H. (1997) The fourth annual Leonard Sainer lecture: the Rt Hon Lord Hoffman, Company

Lawyer

10 Salacuse, Jeswald W. (2004) Corporate governance in the new century, Company Lawyer


exercise of the powers vested by the articles in the directors is by altering their articles, or, if

opportunity arises under the articles, by refusing to re-elect the directors of whose actions they

disapprove.They cannot themselves usurp the powers whichby the articles are vested in the

directors any more thanthe directors can usurp the powers vested by the articles in the general

body of shareholders.”11

Directors, by virtue of their office owe certain fiduciary and statutory duties to their companies.

These duties have been imposed to ensure that the Board is kept within the limits of the power

that has been conferred. It has been articulated that “a director like a trustee is in a fiduciary

relationship with his company and is expected always to act in good faith and for the benefit of

the company as a whole.”12

Consequently, directors are usually mandated to act for a proper

purpose and in the best interest of the company. They are usually required by law not to have a

conflict of interest and duty, neither are they allowed to make a secret profit. The statutory

provision says that “Every director and officer of a company shall in exercising his powers… act

honestly and in good faith with a view to the best interest of the company.”13

It has been

suggested by a leading Caribbean academic, that this reformed statutory provision is a “catch all’

standard [that] encompasses the various fiduciary duties established at common law… with room

for additional duties to be implied.”14

Hence, it is clear that directors will not be allowed to act in

a manner that does not conform to the objectives for which they were appointed.

There is no shortage of allegations that the Directors and Officers of CL Financial were not

blameless in the execution of their duties to the company. Allegations that have been levied

include financial misconduct, poor risk management, conflict of interests, interlocking

directorships, excessive related-party transactions and others. An article in The Freeport News

reported that “an ongoing Commission of Enquiry into the management of the Collapsed

Colonial Life Insurance Company (CLICO) has revealed that… executives paid themselves hefty

11

[1935] 2 KB 113 at 134

12 Abugu, Joseph (2011) Directors' duties and the frontiers of corporate governance, International Company and

Commercial Law Review

13 Trinidad and Tobago Companies Act, s. 99(1)

14 Goldson, Suzanne (2003) The Commonwealth Caribbean Territories: The Reform of the law relating to the duties

of Directors, Company Lawyer


salaries to the detriment of policyholders and investors.”15

In supporting this claim, it was later

revealed that “Gita Sakal, the former corporate secretary of CL Financial, was paid a U.S.

$35,000 monthly salary and was entitled to a U.S. $2 million annual bonus. [The Former Chief

Financial Officer of CLF, Michael] Carballo said [that] a debit of U.S. $5 million was [also]

made from CL Financial’s U.S. dollar account at Royal Bank to pay Sakal’s consultancy firm,

Corporate Consultants Ltd.”16

This clearly points to the conclusion that the Directors were acting

not for the general benefit of the company but only for their individual financial gain. This

situation is even worsened when regard is had to the fact that it has been said that Gita Sakal

signed both the invoice and the bank instructions to have the U.S. $5 million funds debited to her

consultancy firm17

, which also highlighted the improper segregation of duties and that the

corporate secretary who was an essential officer of the company was in a position where she had

two competing interest, one to CL and another to her own firm.

It is well known that the CL Financial group invested in many high-risked ventures which were

considered too risky for insurance companies. The Governor of Trinidad’s Central Bank, Ewart

Williams is reported to have stated that one of the more glaring vulnerability within the group

was “the total absence of a risk management framework…”18

It is no wonder he believed that the

glaring vulnerabilities within the management of the group when coupled with the poor

regulatory environment was a potentially lethal combination, that was made even worse with the

decline of energy and real estate prices which were two very risky markets in which they had

invested heavily. Mariano Browne also believes that management was engaged in too much risk

taking. She said that the “indicators point not merely to an over leveraged financial institution in

breach of many core principles, but there was also weak risk buffers or reserves. In short the

group and the financial firms were severely undercapitalized and over exposed to risk.”19

15

‘CLICO Enquiry reveals trail that led to collapse’, The Freeport News, March 3, 2012.

16 ibid

17 ibid

18 ‘CL Financial collapse ‘a failure of regulation’. The Gleaner, March 17, 2010.

19 Mariano Browne, Address ‘Too Big to Fail: An Expensive Lesson,” The 4

th Biennial International Business,

Banking and Finance Conference, Port of Spain, June 22-24, 2011.


Another well-known fact is that there was no effective separation of the assets of individual

companies. The norm it was, for assets to be taken from the more profitable subsidiaries such as

CLICO, and reinvested into other ventures, such that CLICO became widely regarded as the

‘cash cow’ for the CL Financial Group. Soverall believes that this contributed significantly to the

collapse. He said that under the business model adopted by the corporate group, “CLICO was the

primary source of deposits that were used to finance CLF’s expansion through investments and

acquisitions held in the name of other entities in the group. Some of these enterprises were

wholly owned and managed by CLF, others were simply investments in which CLF did not

participate in management, and some were a mixture of both. In some cases CLF borrowed from

financial institutions to invest, and in most cases, it used CLICO, CIB, BA, and CMMB as the

conduit to purchase investments or borrowed from them to do so. In short, CLICO became the

guarantor for many of CLF’s assets most of which were heavily pledged and, therefore, limited

in terms of the potential proceeds from asset sales.”20

It is extremely clear that there was no shortage of incompetent management behavior and

practices at the CLF Group. However, it should be noted that this problem is not new to

corporate governance as other jurisdictions have been trying to figure out how to grapple with

such situations. Sulacuse in his writings has noted that, “the principal concern of investors,

practitioners, and scholars of corporate governance in the United States has been how to protect

the legitimate rights and interests of shareholders when faced with managers who control the

corporation.The collapse of Enron and the financial scandals at other large American

corporations have re-ignited public concern with the question of corporate governance in the

sense of how to devise systems, rules, and institutions that will induce corporate executives to

manage corporate assets in the interests of the shareholders, ratherthan their own.”21

This

Salacuse believes is a direct result of the divorce of ownership which rests in the hands of

shareholders from control, which has been delegated to the directors and officers.

When one considers the plentitude of powers that have been delegated to those in control, it

raises the question, who is responsible for ensuring that the use of such powers is not abused or

20

Soverall, Wayne (2012) CLICO’s Collapse: Poor Corporate Governance, American International Journal of

Contemporary Research, Vol. 2, No. 2

21 Salacuse, Jeswald W. (2004) Corporate governance in the new century, Company Lawyer


that the exercise is within the limits of what is allowed. The traditional watchdogs of the use of

management powers have been the shareholders themselves who are considered to be owners.

According to McConvil, “It has traditionally been assumed that company directors were

sufficiently accountable to shareholders as owners given that directors are normally elected by

shareholders at a general meeting, as well as because directors are constrained in the way in

which their power can be exercised owing to a number of legal duties (under statute, equity and

the common law) to which they are required to adhere.”22

Shareholders can exercise their

supervisory role through their general meeting in which they have an opportunity to fully discuss

the actions of the directors and if allowable, take necessary action. The importance of the general

meeting received attention in the case of Isle of Wight Railway v Tahourdin, where the court

refused the directors of a statutory company an injunction to restrain the holding of a general

meeting, one purpose of which was to appoint a committee to reorganize the management of the

company. According to Cotton L.J. “It is a very strong thing indeed to prevent shareholders from

holding a meeting of the company when such a meeting is the only way in which they can

interfere if the majority of them think that the course taken by the directors, in a matter intra

vires of the directors is not for the benefit of the company.”23

It must however be noted that a

later case clearly established that the division of power between the board and the general

meeting was entirely dependent upon the statutory contract, the articles of association, which in

our context refers to the articles of incorporation. Furthermore, individual shareholders can take

steps necessary to become cognizant of the actions of the Board to which they should be privy.

According to Rohan Barnett, “by far the best way for the customers of financial institutions and

investors in financial markets to protect their monies is to do research, ask questions and play an

active role in monitoring their investments.”24

He further goes on to say that while the regulators

have a very important role to play in the regulation of financial institutions, their function cannot

replace the responsibility of the prudent institutional or individual investor.

22

McConvil, James (2005) The separation of ownership and control under a happiness-based theory of the

corporation, Company Lawyer

23 (1884) L.R. 25 Ch. D. 320

24 Rohan Barnet, Executive Director, Financial Services Commission (Jamaica), Presentation “Does Financial

Regulation Prevent Institutional Failure?”, Financial Services Commission’s 10th

Anniversary Investor Briefing,

Kingston, March 23, 2011.

http://web2.westlaw.com/find/default.wl?rs=WLW12.01&db=4910&vr=2.0&tc=-1&rp=%2ffind%2fdefault.wl&utid=8&fn=_top&tf=-1&findtype=g&mt=WestlawUK09&serialnum=1884252478&sv=Split


Shareholders of a company are usually greatly assisted by the reports of independent auditors

who are empowered to present an accurate report of the financial position of the company. This

allows for an objectively ascertained indication of the financial status of the company. Abugu

considers the auditor to be the shareholder’s watch dog on corporate finance. He accordingly

believes that “audit is the process by which compliance with statutory and accounting standards

are measured so asto ensure that management presents a true and fair view of a company's

financial performance.” 25

Layne has suggested that the auditors must also take blame for the collapse as they were found

lacking in the execution of their duties. In support of his position, he said that though CLICO

Trinidad and Barbados Life Company had failed to satisfy their obligations under the statutory

indemnification fund, no mention was made of this in the company’s audited statements.

Consequently, policyholders would have been effectively prevented from realizing the true

financial position of the company. Other concerns have also been raised, one such being the

disparity between the audit done by Price Waterhouse Coopers and another accounting firm

Ernst & Young of CLICO Investment Bank. When the audit was performed by Price Waterhouse

Coopers in December 2007, the balance sheet reflected assets totaling $12.587 Billion and

liabilities totaling $11.699 Billion. Another audit done by Price Waterhouse Coopers showed that

at January 31, 2009 the assets of the company amounted to 12.264 Billion and liabilities

amounting to 10.692 Billion. However, the audit done by Ernst and Young of the same period

brought startling findings, showing total assets of a mere $6.387 Billion and liabilities of $11,080

Billion. The revelations made have caused a lot of eyebrows to be raised amidst claims of poor

financial assessments and inspections. Accordingly, Afra Raymond has asked, “Where did all

this money go?… For $5.9 Billion in assets to vanish in 13 months is an incredible failure of

corporate governance and state oversight… it seems that neither the auditors nor the regulators

performed properly in this case.”26

Raymond also sites paragraph 7 of the affidavit of Ernst and

Young Director Maria Daniel to support his point. In the affidavit, it was stated that “…The

financial record keeping in CIB was weak. The financial accounting system was not

25

Abugu, Joseph (2011) Directors' duties and the frontiers of corporate governance, International Company and

Commercial Law Review

26 http://barbadosfreepress.wordpress.com/2010/09/17/when-did-cl-financial-and-clico-actually-collapse-answer-

long-before-it-was-announced/


appropriately designed and implemented…”27

The affidavit also stated that bank reconciliations

were not properly prepared and that CIB’s reconciliations contained errors that were not

corrected in a timely manner, there was little evidence to suggest that the loan portfolio was

being properly administered by management and that there were inadequate efforts to recover

delinquent loans, amongst other problems relating to loan arrears and their investment portfolios.

With all these prevailing conditions it would seem as if the fiscal management when combined

with the other shortcoming of the CF group made for a lethal combination.

Having considered all the relevant facts, one can then tackle the central issue, whether the

government should be obliged to intervene to compensate investors and policyholders for their

loss, and to the extent that such investors agree to. Though the government has traditionally been

expected to be the lender of last resort, it is my opinion that they should not extend their hand

any further than they already have, to help in any rescue or rehabilitation of the failed Caribbean

corporate giant. Several reasons account for this which I will deal with individually. These

include the moral hazard of intervention, the use of taxpayer’s money to fund a bail out as well

as allegations of excessive political interference that existed.

Moral hazard, a term used widely in economics, posits that if some one pays you for your

accidents, you will spend less time trying to avoid them.28

It consequently suggests that if

government is to engage in a bailout of financial institutions then that institution would have an

incentive for engaging in risky behaviour, as government would step in to assist where there was

financial difficulty. Ayotte and Skeel Jr expressed their view in another way, stating, “Moral

hazard is the familiar concern that someone who is protected against the consequences of a risk

has less incentive to take precautions against the risk.”29

The effect of government intervention

has negative consequences on corporate governance that goes way beyond the particular

company being rescued. Dijkstra and Faure have even taken the position that intervention may

encourage reckless behaviour from such companies. They accordingly state that “when

depositors know ex ante that the government is going to bail out large financial institutions

27

ibid

28 Stern, G.H. and Fieldman, R.J. (2004) Too Big to fail: The Hazards of Bank Bailouts, Brookings Institution Press

29 Ayotte, Kenneth &. Skeel, Jr., David A (2010) Bankruptcy or Bailouts, Journal of Corporation Law, Vol. 35:3


whenever they fail, they have little incentive to monitor these institutions themselves due to the

fact that they will not face any damage at all…”30

They even extend the argument to include

directors whom they believe will, in the event of a bailout have faced no legal consequences

because depositors would have incurred no damage.

The case has also been made that the moral hazard presented by the rescue of conglomerates

such as CL Financial Limited may have even greater consequences due to the reach of the risks

that they take. Herring has noted that “a market perception that such firms will benefit from

official support in times of stress gives them a competitive advantage completely unrelated to

their ability to add value to the financial system. It dulls the incentives for creditors to demand

disclosure of risky positions and monitor such exposures. Weakened market discipline will

enable such institutions to take larger, riskier positions without paying appropriately higher risk

premiums to their creditors. The result may be larger potential insolvencies that require still

larger bailouts to forestall systemic risk.”31

It is therefore clear that a bailout by government has

the potential to rob the investors of the necessary lesson they were to receive as to the

importance of monitoring the operations of the company they are considered to be owners of and

why they must be prudent when making their investments. The argument has also been raised

that a rescue will set a bad precedent as other companies will come to expect ‘a solution in their

favour’ irrespective of their failure in effectively managing and monitoring the affairs of the

company.

Furthermore, government interference is exacerbated by the fact that the moral hazard created is

always at the expense of taxpayers. It is puzzling that government should correct the mistakes of

CFL when high ranking company officials were allowed to blatantly squander the company’s

money right under the watch of these investors, and out of the public purse. In a letter to the

ruling People’s Partnership Government, attention was drawn to this. The author who is

anonymous states, “Why should the 25000 CLICO depositors pressure us into paying our tax

dollars to fund the repayment of their loss in CLICO, when they knowingly invested in high risk

ventures? Where were they when they were raking in their profits? Now they say they want 12

30

Dijkstra, Robert J. and Faure, Michael G. (2011) Compensating victims of bankrupted financial institutions: a law

and economic analysis, Journal of financial regulation and Compliance

31 citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.197...


Billion Dollars because they are dying and in need. This is another case of the poor people of

Trinidad being forced to bear the burden of the mistakes of an entitled minority.”32

The writer

then goes on to talk about the depressing social and economic conditions of the masses and

suggests that the amount being request should be used to improve their situation. This is a timely

consideration owing to importance of the tax dollars within the economy and any reallocation of

these funds to compensate investors for the risks they have taken on.

Also relevant to this discussion is the infiltration of political interference that may lead to claims

of political prefence or political bias. The possibility exists that where government rescues one

financial institution and fails to do the same for another company in a similarly situated position,

there may be allegations of political favouritism. “CLICO has become intensely political. Its

former chairman, Lawrence Duprey, was openly aligned with the former leader of the UNC, one

of the constituent parties of the current administration, the People’s Partnership, while the CL

Financial Group Financial Controller, Andre Monteil, was the Treasurer of the PNM and a

constituency campaign manager. The former Finance Minister’s late husband was a senior

executive of CLICO and the former Junior Minister of Finance was himself once a senior

executive of the CL Financial group. Two other senior CL Financial executives were government

ministers in the UNC government. CLICO is known to have made campaign contributions to the

PNM and more than likely to the UNC as well.”33

When one considers the level of political

connections and cronyism between CF Financial Limited and the ruling People’s Partnership

government, it is almost certain and justifiable that political questions will arise.

It will be argued by many that a bailout may be necessary as CFL was ‘too big to fail’ due to its

size and its reach. It is argued that CFL played a very integral role in Caribbean economies and

that its failure would possibly threaten the solvency of other institutions throughout the region

that were financially connected to it and to each other. The Governor of the Central Bank has

given support to this argument, stating that the difficulties being experienced by CFL presents

significant contagion risks to the entire financial landscape of Trinidad and Tobago and possibly

32

‘To the Peoples Partnership Government,” Trinidad Guardian, October 29, 2010.

33 Terrence W. Farrell, Presentation on ‘The Political Economy of Financial Regulation: Global and Caribbean

Perspectives,’ The 25th

Adlith brown Memorial Lecture, the 42nd

Annual Conference of the Caribbean Centre for

Money and Finance, November 10, 2010.


the entire Caribbean. While this may be true, there is clear evidence that the end to be achieved is

not justified by the means. It is my belief that a rescue of such large institutions rather than

assisting economic recovery, actually further promotes a culture of moral hazard within the

corporate environment. Additionally, it provides an unfair competitive advantage to those

companies that engage in risky practices against the others that put into practice principles of

prudent corporate governance and fiscal management. All in all, a government rescue in this case

will do more harm than preserve the solvency of an important corporate giant, it will make the

government hands more constrained when it comes to public spending.

Corporate Management and the CL Finance Group

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Transcript of Corporate Management and the CL Finance Group