Cayman Islands Auditor General Alastair Swarbrick said Wednesday that the country’s Premier did not break the law in arranging a US$185 million loan to finance government operations during the last budget year.
However, Premier McKeeva Bush’s decision to disregard the established bidding process for the loan and choose a New York financing firm based on the advice of his political party members was in violation of the financial regulations attached to Cayman’s Public Management and Finance Law.
Sections 33 and 34 of the Public Management and Finance Law allow the country’s minister of finance – Mr. Bush – to arrange loans on behalf of the Cayman Islands government. In Mr. Swarbrick’s view, the law itself would supercede the regulations.
So, in effect, Mr. Bush – while contravening the regulations in awarding the loan financing contract to Cohen & Company – did not violate the law itself. Mr. Swarbrick admits it’s a bit of an odd situation.
“There’s a slight conflict between the law and the financial regulations,” he said. “In any case, I would still expect [the Premier] would follow the appropriate process.”
The findings of the auditor general’s report reported in the Caymanian Compass on Wednesday, revealed that Mr. Bush’s decision to choose the Cohen firm over a joint venture of two locally-operating banks for the financing eventually cost the Cayman Islands government an extra $450,000 in temporary loan costs.
Had the government proceeded with Cohen & Company to finance its long-term debt requirements, Mr. Swarbrick said fees associated with that arrangement would have cost government an additional $850,000 – compared to an earlier long-term financing arrangement with Royal Bank of Canada and FirstCaribbean.
In the end, the long-term financing arrangement that was finally agreed did represent good value for money, the auditor general said. However, the previous processes used to get there were less than ideal, he said.
“While the government ended up with a good loan at a reasonable rate, with reasonable fees, at the end of the day the intervention by the minister of finance ended up costing government more than $450,000 just for arranging the interim financing portion of the loan facilities,” Mr. Swarbrick said.
Opposition Leader Alden McLaughlin said he disagreed with Mr. Swarbrick’s interpretation of the financial regulations and financial management law.
“The sections [33 and 34] mentioned give the minister of finance the authority to enter into loan agreement, certainly,” Mr. McLaughlin said. “But that authority is subject to the financial regulations. I’m not sure how he can say that and come to the conclusion that [the Premier] is not breaking the law.”
Premier Bush, in a statement issued by his office on Wednesday, said government’s pursuit of the “national good” led to costs of CI$854,775 stated in the auditor general’s report.
“The government firmly maintains that efforts to minimise costs – which are for the good of the Cayman Islands – represent good-value efforts,” Mr. Bush’s statement read.
Premier McKeeva Bush’s office provided a specific breakdown of the costs related to the temporary financing loan and said the full $854,000 reference in the auditor general’s
Not all of the cash was provided to Cohen & Company, Mr. Bush said.
“The amount of CI$854,775 referred to in the auditor general’s report….is made up as follows:
*Arrangement fee paid to Scotiabank – CI$191,937
*Arrangement fee paid to Banque Havilland – CI$75,600
*Arrangement fee paid to Cohen & Company – CI$149,400
*Arrangement fee paid to Scotiabank for extending its initial temporary loan – CI$116,203
*Legal and miscellaneous fees – CI$321,635
Mr. Bush’s office said the Premier would be making a full statement on the auditor general’s report in the Legislative Assembly.
Short term deal
Details of that short-term financing arrangement, made public fully for the first time in the auditor general’s report, are curious.
The first temporary loan arranged by Cohen & Company was for $US92.5 million through Scotiabank in October 2010. However, a second tranche of funding was obtained through an entity called Banque Havilland for approximately US$36 million.
Audit Manager Martin Ruben said the additional temporary loan was needed because government had begun to run out of money in December 2010 and needed additional bridge financing to make it through the end of the budget year.
“The additional loan was required because of cash shortages and the inability to put long-term financing in place,” the auditor general’s report stated. Mr. Swarbrick also noted that no one in the ministry of finance had any control over the temporary loans that were obtained by Cohen & Company, acting as the financier.
But the decision to go with Banque Havilland – a European private financing operation that had opened in September 2009 – was considered unusual by auditors.
“The bank is owned by the Rowland family of Great Britain,” Mr. Swarbrick wrote in his report. “From our review of worldwide financial institutions, it is not a top-tier bank or lending institution. We expected that the government would deal exclusively with top tier banks and financial institutions.”
Although the auditor general’s office believed Premier Bush was in the clear with regard to actual law-breaking in organising the Cohen & Company loan financing deal, his office was not as sure about the 2009 Cayman Islands Jazz Fest contract.
In October 2009, the Cayman Islands Department of Tourism awarded a $1.25 million contract to Black Entertainment Television’s Event Productions to coordinate the production of the Cayman Jazz Fest – which was held in December 2009.
The department did not go out to tender for this contract that year.
“The requirement for a contractor to produce Jazz Fest 2009 should have been subjected to not only a public tendering process, but oversight by the Central Tenders Committee,” Mr. Swarbrick said. “This was not done.”
The auditor general declined to state whether what had occurred with the Jazz Fest contract was in fact worse that what happened with the temporary loan arrangement.
“They’re probably on equal par,” he said.