By Andre Bagoo Sunday, July 20 2014
A REGULATOR employed in the civil service to police the operations of credit unions faces possible criminal charges, including one of misfeasance in public office, in the wake of the first set of findings of the Sir Anthony Colman Commission of Inquiry into the 2008 collapse of the one-time largest credit union in the country, the Hindu Credit Union (HCU).
Sir Anthony, in his 378-page report tabled in Parliament on Friday, recommends the Office of the Director of Public Prosecutions (DPP) examine whether Keith Maharaj, the former head of the State’s credit-union watchdog, should be charged with violating the Criminal Offences Act due to failing to fulfill his duties and “misrepresenting” to the Central Bank the true state of the HCU during the years that lead up to the HCU’s disastrous collapse.
“The conduct of Mr Keith Maharaj was such that the DPP should take immediate steps to test the sustainability of criminal proceedings against him,” Sir Anthony states. The jurist stated aspects of Maharaj’s conduct during his tenure in the post known as Commissioner for Cooperative Development (CCD), “give rise to or evidence criminal liability”.
The Commissioner for Cooperative Development is the head of the Cooperative Development Division of the Ministry of Labour and Small and Micro-Enterprises. His functions are set out in the Cooperative Societies (CS) Act and Regulations and include: supervising and regulating the cooperative sector in which credit unions operate.
Maharaj served in the post from April 1995 to May 2006, making him the longest-serving Commissioner for Cooperative Development. Appointment to the post is determined by seniority.
Sir Anthony, in his report, finds that in general, the regulators in the Cooperative Development Division had a “somewhat cosy” relationship with the people they were meant to police: the HCU board. However, he makes a specific recommendation in relation to Maharaj.
“Aspects of his conduct could be found, upon further investigation, to give rise to or evidence criminal liability in respect of the offence of misfeasance in a public office at common law contrary to Section 2 of the Criminal Offences Act,” the Report states. It says this arises “by reason of his acting or failing to act contrary to his public duty and knowing, or being subjectively reckless as to whether he was acting or failing to act contrary to such public duty.” Twenty specific aspects of Maharaj’s conduct are criticised.
Sir Anthony criticises Maharaj for “misrepresenting” in 2003 the state of the HCU to the Central Bank in relation to its suitability to open a bureau de change.
The Report also states Maharaj failed to stand up to an improper directive from former Minister of Labour Danny Montano who called for the supervisory unit to desist from moves to probe the HCU. Sir Anthony suggests Maharaj should have taken the matter to the Prime Minister at the time, Patrick Manning. (Montano is not subject to adverse recommendation in the Report.)
The failures continued right until the very end of his tenure when, according to Sir Anthony, Maharaj failed to properly brief Diaram Maharaj, his successor, on issues and problems relating to HCU. The failures of the regulator listed in the Report include:
(i) Failing in 1999 to act on the advice of Mr Joel Edwards (an independent accountant) by directing and monitoring steps to improve corporate governance with regard particularly to the operations of the (HCU) board of directors and the credit control.
(ii) From 2000 onwards taking no or no sufficient steps to evaluate the justification of HCU’s application for increases in maximum liability.
(iii) Failing to investigate and monitor HCU’s corporate governance to ascertain whether it complied with the requirements under the Cooperative Societies Act 1971, the Statutory Regulations and the Bye-Laws specifically with regard to the functions of the Supervisory Committee and the Credit Committee.
(iv) Failing to introduce any or any effective system within the CCD Division for monitoring and enforcing compliance by HCU with the CS Act 1971, the Statutory Regulations and the Bye-Laws with regard to making loans, taking deposits and making
investments and its adherence to the PEARLS standards.
(v) Failing in November 2001 to follow the recommendations of one of (the regulatory) officials, Mr Diaram Maharaj, in his report on HCU.
(vi) Failing in early 2002 to cause to be investigated breaches by HCU of the Maximum Liability limit reported by a CCD Accountant, reports by an anonymous whistle-blower of falsified valuation reports and by members of the public to MOF with regard to financial impropriety by HCU.
(vii) Failing, before giving retrospective permission for investments in subsidiaries in June 2002 to evaluate the financial viability and propriety of investments in new companies with regard to HCU’s ability to protect its liquidity margin in the context of its business as a whole.
(viii) Failing after 2002 to insist that no investments should be made in newly-formed companies or subsidiaries without first drawing up a business plan, making adequate provision for management and funding and obtaining prior approval from the CCD for such matters.
(ix) Failing to evaluate the impact of the granting of permission to increase HCU’s Maximum Liability on its liquidity margin.
(x) Failing, after receiving the external auditor’s report on HCU’s year to 30 September 2002 and the report of Mr Hyder Ali (Ag CCD) to the Permanent Secretary of the MOL of 9 March 2005, to take enforcement action against HCU on the grounds of its having made unauthorised investments.
(xi) Failing up to January 2003 to take any sufficient steps for the inspection of HCU’s financial operations.
(xii) Failing in April 2003 to deploy the CCD’s in-house accountants to analyse and advise upon HCU’s submitted business plans for Bankers Insurance and HCU Foods Corporation.
(xiii) Repeatedly abdicating decision-taking as to HCU’s affairs in favour of the Deputy CCD.
(xiv) In July 2003 recommending by way of misrepresentation to CBTT that HCU was suitable to open and operate a bureau de change.
(xv) Failing in November 2004 to set up an inspection or an inquiry under Section 4 of the CS Act 1971.
(xvi) Failing in December 2004 to take enforcement action in respect of unauthorised loans and mortgage on seven properties set up in breach of Section 43(2) of the CS Act 1971.
(xvii) Failing in March 2005, after receipt of CCD’s in-house accountant’s report on HCU and on the external auditor’s disclaimer letter, to take immediate steps to set up an inquiry under Section 4 of the CS Act 1971.
(xviii) In May 2005 acceding to HCU’s request to postpone commencement of the PKF Section 4 Inquiry until the new minister of Labour (Mr Montano) had expressed his view.
(xix) Failing to exercise the independent power of his office by refusing to agree to Mr Montano’s view that a Section 4 Inquiry should not be set and by failing to take his refusal to provide fuming to the Prime Minister.
(xx) Failing upon his retirement in January 2006 to brief his successor, Mr Diaram Maharaj, on issues and problems relating to HCU.
In his report, Sir Anthony cites a meeting between HCU officials and officials of the CCD as an example of, “the on-going somewhat cosy relationship between the CCD and HCU.” At that meeting, the HCU’s president Harry Harnarine persuaded CCD officials to not conduct an on-site probe of the HCU. On June 11, 2003, the CCD’s office wrote the HCU confirming deferral of the examination in a letter ending, “This office is committed to facilitating your growth and development as you continue to provide for a better quality of life for your membership and the wider community.”
In relation to the Central Bank, Sir Anthony states on July 15, 2003, Maharaj wrote to the CBTT enclosing the HCU’s application to set up a bureau de change and recommending and supporting the application. Amongst the reasons justifying this support was what Sir Anthony describes as a “remarkable” comment, namely that, “The Board of Directors and other Statutory Committees (and ad hoc Committees) perform their functions in accordance with the Bye-Laws of the Credit Union, consistent with sound business management practices and in the Interest of the membership.” Of this, the Report states, “it was entirely misleading and it thereby raises questions as to the objectivity of the CCD in dealing with HCU.”
In another instance, Maharaj approved the HCU forming a subsidiary without proper documentation, instead relying on the “philosophy” behind the issue.
“The reason that he approved investment in HCU Food Corporation was because its objectives had noble ideals and it was to be a means of feeding the poor and was a sort of outreach to those less fortunate in society,” Sir Anthony states. “He made the point that no government minister had ever criticised any of his decisions to approve investment by a credit union in companies with diverse activities.”
The Report continues, “This mind-set of personal sympathy with the socio-economic advantages of credit union investments may well go some way to explaining why during his long tenure as CCD Mr Keith Maharaj was prepared to tolerate the dangerous level reached by HCU’s defective corporate governance and flawed investment policy.... the CCD was allowing HCU’s investment operations to be effected outside supervisory control.”
While the public hearings of the Colman Inquiry heard evidence of claims of bribery such as thick gold chains in baskets, Sir Anthony states he did not receive conclusive evidence of corruption. However, the evidence showed a system of regulation which was “ was tentative, haphazard, and unfocused”.
“This Commission entirely accepts this evaluation of the system ofsupervision of HCU by CCD which was tentative, haphazard, and unfocused. Lack of transparency, little accountability and poor managerial capacity all applied to HCU,” the Report states. “The fact remains, however, that the benevolent and inactive approach of the CCD to non-compliance by HCU with the CS Act 1971, the Regulations and its Bye-Laws simply went to encourage Mr Harnarine.”