Dookeran's resolution plan for clico was nothing but daylight robbery

FINANCE BY DAVID WALKER ACCOUNTANT & DATABASE EXPERT

Before you can fully appreciate the expensive and corrupt mess that is the CLICO rescue, you first must wrap your mind fully around the Resolution Plan, as called.

When Winston Dookeran presented his alternative plan to the public and Parliament it was heralded as the only means by which the taxpayer could be saved from the cost of the conventional rescue which was put at just over 14 billion dollars. The Resolution Plan by Winston Dookeran and his colleagues was advertised as the means of saving billions of dollars, partly by underpaying policyholders.

Description of Dookeran’s Resolution Plan

So what was this model of frugality called the Resolution Plan and how much money did it save? What impact did it have on the various parties and can it be described as a success? Let’s start with a description of the Resolution Plan. Under the Resolution Plan, the government via Central Bank would not bail out CLICO directly by injecting more funds to cover CLICO’s commitments to policyholders. No, Minister Dookeran decided that they would instead purchase the rights of policyholders and presumably would eventually exercise those rights against CLICO when CLICO’s assets recovered their value after the economic crisis. By way of analogy, your business has encountered difficulties and your brother bails you out, but instead of giving you the money, he gives it to your creditors and he will claim directly from you what you had owed to your creditors. So far so good, you might say. But it gets a little messier under Minister Dookeran’s plan. The first kink is that he decides that he won’t pay policyholders the full amount owing to them but he will still acquire 100% of their rights. In fact, he comes up with a scheme where he pays via 0% bonds over twenty years. The effect of that was to pay about 73% of the real worth. More than that, he stopped accrued interest as stated in contracts at a date many months before the payment is made thereby denying policyholders up to a further 10% interest relative to contract terms.

Gov’ts claim against CLICO will be for 100%

We have not been told, but it is conceivable that when the government makes its claim against CLICO standing in the shoes of policyholders it will be for 100% of the value of the contracts, which by my calculation could be as much as double, what they paid those policyholders. Put another way, they bought the debt at 73% of an already reduced value because of the denial of interest, only to then claim against CLICO for the full contract sum inclusive of interest both before and after the settlement date. Of course, all attempts to ascertain the amount claimed against CLICO for the rights of policyholders have been met with silence or refusal. Policyholders have been robbed in broad daylight.

Not satisfied with that, however, the Dookeran team then decided to redeem the first ten years’ bonds, as policy-holders were clamoring for their funds in a liquid form. The Dookeran team decided to enter into an agreement with chosen financial institutions to convert the first ten years’ bonds to cash at prices to be dictated by the institutions but with a minimum payment of 80%. That agreement has also never seen the light of day despite a Freedom of Information request on my part. The cost of those bonds and their redemption costs accrued to the intermediaries. The substantial income to them is undisclosed to this date. All that money should have gone to policyholders.

The Resolution Plan is a total travesty

That was then followed by an even more convoluted scheme that used CLICO shares in Republic Bank as assets to be placed in a new holding company, shares of which were exchanged for the final ten years’ bonds held by policyholders. This added even more to the bounty enjoyed by the chosen financial institutions and intermediaries. We have not been told but all these unnecessary costs have probably been added to the claim against CLICO. To use the analogy of your business being bailed out, it is as if your brother bought 1000 dollars of claims from your creditors but is now charging you 1200 dollars because he chose to pay them through intermediaries. You surely would only pay the 1000 dollars that you owed. In this case, though, the government and Central Bank are both payer and payee (running CLICO), so who is to complain?

I have just scratched the surface of the Resolution Plan and the many ways in which it is a total travesty. You must put this in the context of the amended Central Bank Act whereby there can be no oversight by the courts of any action by the government and Central Bank. At least that is what we have been led to believe. I have already explained that because the Resolution Plan is a transaction between the government and policyholders, the immunity provided by the Act does not apply. Policyholders and shareholders, perhaps even taxpayers have the freedom to utilize the courts to secure justice for themselves. Remember also that the regulator, the Central Bank has run CLICO for all these ten years.

Connected parties

It is of more than passing interest that some of the financial institutions referenced above are owned and led by persons with connections that should have ruled them out of the running for any such transactions. I will delve more deeply into that aspect when I look at the whole issue of connected parties and ask why the Central Bank did not provide a definition of connected parties, and a course of action that would have removed such parties from key positions, and vetted any of their transactions in the period leading up to the rescue, as is standard practice.

We now know from data supplied via the accounts that CLICO could have been rescued for an injection of significantly less than the 14 billion dollars quoted by Minister Dookeran and Prime Minister Persad-Bissessar. Policy-holders, by and large, had accepted the need to wait for their money as well as a drastic reduction in the rate of interest going forward. What that meant was that the call for cash from the government would not have exceeded a further 3 billion or so before the assets could be leveraged to repay the government.

Dookeran’s Resolution Plan impoverished policyholders

The unlawful Resolution Plan was foisted upon us instead. By that decision, the Dookeran team has cost the nation more than 20 billion dollars and ten years of anguish with more still to come. CLICO could have been made whole and paying taxes as a profitable enterprise at the heart of the economy. I hold strongly to the view that the experts at Dookeran’s disposal were fully aware of the consequences of the decisions being made. The results are damning:

• Impoverished policyholders

• Rather than reduce the cost of the rescue, it increased it by over 10 billion dollars

• It removed a major player and contributor from the economy

• It destroyed confidence in our financial system

• It demonstrated contempt for our laws and legal system • It gave free access to financial intermediaries and institutions at the public trough

If we fail to understand and accept how wrong the Resolution Plan was, and its disastrous impact on the economy, then we have no chance of recovering. Legal action may well be the only way of forcing successive recalcitrant ad-ministrations to remedy the costly ills once and for all.