Introduction

I intended to start today a two-part column on the recent disclosures on Hand-in-Hand Trust Corporation Inc. I wanted to evaluate the annual reports of the company and do an examination of the role played or not played by Mr Winston Brassington and his brother Jonathan Brassington in what the first Brassington described as “saving the company from going down the Clico road.” Ideally I would have preferred to consider the company’s financial position prior to its becoming another victim of Alan Stanford’s high profile Ponzi schemes, its performance since then and its current financial position, before addressing the role of the Brassingtons.

I am in possession of the company’s 2011 annual return, report and audited financial statements which I think raise some serious questions which in the interest of the public and more specifically of depositors of money in HIHT need to be answered. But aware that too many unanswered questions about a financial business can have serious consequences, including the loss of confidence in the institution, I will seek first some clarification from the company before commenting on the company’s performance and condition. Of course I am not unaware of the reluctance of the company and especially its point man Mr Keith Evelyn to avoid the press when things are not going well. On this occasion, such an approach is foolhardy and counterproductive and must be discouraged by the board chaired by the more enlightened Paul Chan-a-Sue.

Winston‘s rescue

The board must surely recognize that Winston Brassington’s famous rescue statement was intended not to defend the Hand-in-Hand Trust but solely to counter strong public suspicions that he had misused information acquired in his official capacity for the benefit of his brother. In fact, what he did say amounts to an indictment of the Bank of Guyana as financial sector regulator, as well as the standards of governance in HIHT of which one of the country’s oldest insurance companies is a controlling shareholder.

That $225 million can save a company which was a victim of one of the region’s most high profile Ponzi schemes suggests either that there was in fact no real problem in the first place – an unlikely proposition given that the company’s equity base had been completely wiped out – or that the rescue was not as solid or deep.  If the latter is the case, then the company’s financial problems and its damaged capital base might merely have been deferred rather than solved.

In a long interview given to the Stabroek News Mr Brassington side-stepped the question of whether his brother Jonathan Brassington benefited from insider information before investing in HIH Trust by stating that he had done nothing illegal or unethical. Adding that the government company of which he Winston is head, had ceased to be represented on HIHT’s board from 2002 onwards, he disclosed that he and his entity “only had access to information which a normal shareholder would have access to – annual reports.” For good measure, Winston added that “the financial institution’s business is confidential other than what is in the financial statements.”

Memory lapse

In this matter, Mr Winston Brassington either suffered a critical memory lapse or is simply dissembling. Any increase in a company’s share capital requires an amendment to the company’s articles by way of a resolution passed at a shareholders’ meeting. This has nothing to do with the company’s annual report. As the representative of the government’s 10% shareholding in the company, Mr Winston Brassington would have received a notice of the meeting and a copy of the proposed resolution to increase the company’s share capital.

Mr Brassington is also reported as saying that he had sought to clear his action by writing to the Minister of Legal Affairs and Attorney General and to the Minister of Finance. He said that both of them had responded that they found no conflict of interest in his brother taking up shares in the company. Again, Mr Brassington might wish to reflect on the fact that conflict of interest is not how honest one might think one is, but whether there is in the mind of the ordinary person the perception of a conflict. The fact that Mr Brassington sought out what he might have considered independent opinion suggests that even in his own mind there was a perception of a conflict.

Exchange

To ensure maximum fairness to Mr Brassington, early last week I sent to him the following email:

“Dear Winston,

“I propose writing on Hand-in-Hand Trust this weekend and would be grateful if you would provide me with a response to the following:

“1. a) Did Jonathan learn that HIHT was looking for investor(s) by way of any public announcement by HIHT?

“b) If the answer to a) is no, did you approach him and if so in what capacity?

“c) Does Jonathan have any other major investment (over $25 million) in Guyana?

“2. Did you play any role in Jonathan’s due diligence investigation in HIHT? (This does not mean that there would be a conflict.).

“3. Do you hold a power of attorney for Jonathan in respect of his shares in HIHT?

“4. Did the Attorney General and Dr. Ashni Singh provide you with written responses to your request for advice on whether or not there was or was likely to be a conflict of interest?

“Thanks and I am again extending an invitation to you to come on Plain Talk.

Christopher Ram”

To which Mr Brassington responded as follows:

“Chris:

“I have already responded to many of the relevant issues on this matter.

“Regards

WB“

Insider information

More developed markets and economies have been grappling with the phenomenon of insider dealing for decades. These almost invariably deal with the use of information by “insiders” a term generally defined to mean directors and officers but which in some cases includes a 10% shareholder as NICIL is in Hand-in-Hand Trust. The rationale here is that of the fiduciary obligation imposed by law on those in a position of trust, an obligation owed in any case to the company and not to any shareholder or member of the public.

Guyana’s general laws on the use of insider information are not well developed and any progress appears to have ceased with the Securities Industry Act 1998. The 1991 Companies Act was an improvement over the Companies Act it replaced, but as far as insider trading goes, it deals with the concept only in respect of narrowly defined transactions and persons. The Financial Institutions Act and the Securities Industry Act are both limited in their scope and only to companies within the ambit of those two Acts. The FIA’s provisions deal with conflicts of interest involving directors and officers and the disclosure of customer information, while the SIA defines “insider” to include a person (an outsider) who is informed of a material confidential fact by an insider.

This is not unlike the UK Criminal Justice Act 1993 which creates a distinction between a primary insider (a person who has direct knowledge of inside information) and a secondary insider (a person who learns inside information from an inside source). Under this definition, Winston Brassington would clearly be, at the very least, a secondary insider, except that the SIA deals only with a certain kind of company.

Wrong advice

But even applying private laws as Dr Luncheon ('NICIL is a private company') and Mr Brassington ('I did nothing illegal'), Mr Brassington may in fact be considered an insider. The general perception is that he made use of confidential information (an offer) which was not available to members of the public.

More relevantly, the persons who are reported to have supported or defended Mr Brassington including two Attorneys General, a Finance Minister and a medical doctor fail to recognize that his conduct has to be judged against the specific circumstances involving a public officer and a state company in which matters like conflicts of duties and duties are as likely to arise as those of conflicts of interest and duties in a private sector setting, which the Companies Act addresses.

It would be unfair to expect Dr Luncheon and possibly Dr Singh to know that the framers of our Companies Act had explicitly rejected the Companies Act as the medium under which government companies should operate. That concession is certainly not available to any Attorney General.

A different dimension

But it suits their purpose to look at these general laws rather than whether Mr Brassington’s role was tantamount to misconduct in public office, which is a common law offence. Few would ascribe to the Guyana Police Force any capacity to recognize any breach of the Companies Act let alone pursue such a complex matter of misconduct in public office which seems relevant to this issue. Nor would they be able to count on the office of the Director of Public Prosecutions which appears to suffer from a crisis of confidence about its ability and capacity. In any case, the Attorney General Mr Anil Nandlall has already pronounced, gratuitously and wrongly in my view, that there is no conflict of interest.

It ought not to come as a surprise to Mr Brassington’s assurers that a recent West Indian book, Corruption: Law, Governance and Ethics in the Commonwealth Caribbean written by Derrick V McKoy, a former Jamaican Contractor General deals extensively with the question of such misconduct. What I found surprising is that in the nascent Caribbean jurisprudence, there is already a useful body of case law on the subject.

Conclusion

As the Ombudsman of Victoria Australia wrote in a paper recently sent to me, he finds particularly troubling the widespread, mistaken belief that a conflict of interest is not of concern if there is no actual wrongdoing. He noted that the ‘perception’ of a conflict of interest – even when the conduct of a public officer is nothing short of exemplary – is as damaging to public trust as any misconduct.

The Guyana State Corporation of yesteryear has effectively been replaced with nothing. There is a vacuum in the governance of state-owned companies particularly in key organisations where ministers and their surrogates play a dominant role. Mr Bharrat Jagdeo has left a legacy of weak, corrupt or no governance. Things will get worse, particularly as the state increases its participation in the economy. The deafening silence of regulators in the face of calamitous developments in Globe Trust and Clico will almost certainly guarantee that they are not the last of the country’s financial failures.

We need to have rules of governance of state-owned or controlled enterprises. The head of one state body should never be placed in a position where he or a family member has to use their personal resources to save a regulated financial business as the Brassingtons claim to have done. The OECD has published a model Governance of State-owned Enterprises which we may find helpful. Let us use it.

Next week I will review the annual reports of Hand-in-Hand Trust Corporation Inc.

Note: Ram & McRae acted as advisor to the Privatisation Unit on the privatisation of the GNCB Trust in 2002. The issues raised in this column all relate to events which took place at least seven years after that engagement came to an end and are all matters in the public domain.