Archive for August 30th, 2011

Alden condemns Mac’s attack

Alden condemns Mac’s attack

| 30/08/2011 | 59 Comments

(CNS): The opposition leader has described the premier’s attack on the auditor general and his staff as shocking. In a national radio broadcast on Tuesday, Alden McLaughlin said the bitter, verbal attack which led to the governor publicly chastising McKeeva Bush was unwarranted and a deplorable example of intimidation. The PPM leader said the premier had abused his power in an effort to try and reduce the credibility of the public auditor, who holds a critically important office.  McLaughlin called on Bush to stop criticizing the AG and take note of his reports, and in particular the need to cease political interference in the awarding of government contracts.

The opposition joined the governor in condemning the “deeply personal, vitriolic and unwarranted attacks on the auditor general”, which were unbecoming of the premier’s office and were an abuse of authority because they were clearly meant to intimidate the auditor general, McLaughlin stated.

“Given the recent findings of the auditor general on the way in which the premier … has handled the award of major government contracts, it is understandable that (he) would not presently be very happy,” the leader of the opposition said, adding that while it was understandable Bush would feel the need to respond to the criticisms in the reports, how the premier responded was “unjustifiable, disproportionate and deeply regrettable”.

“It is alarming that the premier, without proper basis, would claim that the auditor general and his staff are 'individuals who are partially informed, spiteful and their main motive is to cause bureaucratic interference and harassment'.  Describing the auditor general as a 'hit man', as 'vindictive' and of telling 'lies of omission' is clearly a determined effort by the premier to lower the auditor general in the estimation of the general public which he serves,” he added.

However, as wrong as the behavior was, McLaughlin said it was what people had come to expect from Bush. 

“The former auditor general, Mr Dan Duguay, was the recipient of similar verbal assaults and many, including me, believe that the non-renewal of Mr Duguay’s contract was heavily influenced by the campaign waged against him by the premier.  In the present circumstances, we applaud the governor for publicly standing up to the deplorable intimidatory tactics of the premier,” the opposition leader stated.

Acknowledging a degree of tension between elected officials, public servants and the Office of the Auditor General (OAG), McLaughlin said this was a necessary part of the local system of government. The OAG is independent and constitutionally protected because of the nature of the work the office undertakes. The PPM leader said it was one of the most important checks and balances on the exercise of executive authority by those who have been elected, and unwarranted attacks on the holder of that office must be viewed very seriously as an attempt to undermine the system of government.

“The reports of the auditor general which have resulted in the firestorm from the premier have brought into focus alarming instances of political interference by the premier and other members of his government in the process of awarding government contracts.  The reports have highlighted the politicization of the government procurement process under the current administration and have shown what happens when, as the premier has declared, the regulations are overridden to ensure 'substance over process'.” 

"Although in his responses the premier has insisted that interference by him and his Cabinet has saved the country millions of dollars, in no instance has the auditor general been able to find that the political interference and the failure to follow the proper process resulted in any savings to the Cayman Islands Government,” McLaughlin added.

“On the contrary, the political interference has incurred additional costs to the Cayman Islands Government, created the risk of fraud and corruption within the government and has undermined the reputation and integrity of the Cayman Islands,” the opposition leader stated.

McLaughlin noted the auditor’s warnings of the risk for fraud and corruption and said the case studies revealed “cause for grave concern”, in particular the handling of government financing and the Cohen and Co loan deal.  The opposition leaders said the premier's claims that he saved the country $3 million in interest costs by delaying the loan were not borne out by the facts in the auditor general’s report. 

“The delay in entering into the CI$155M loan was not because of any decision of the premier,” McLaughlin stated. “It was because Cohen and Company was unable to deliver on the promised long term loan, which actually resulted in costing the government more money in both arrangement and interest costs. The premier breached the Financial Regulations, overrode the Central Tenders Committee’s decision, ignored the advice of the financial secretary and other staff in the Ministry of Finance and on the recommendation of the UDP Treasurer, Peter Young, awarded the financing contract to Cohen and Company in October, 2010,” he said.

In the end Cohen were not able to provide the promised $24M in interest costs which “were just fantasy”, McLaughlin said, adding that the concerns and criticisms of the auditor were properly founded and he encouraged Bush and his government to turn their attention to addressing them and stop interfering in the tendering process.

“While the substance of the matter is always critical, contrary to what the premier seems to believe, the process is also important and not just for compliance with the rule of law reasons,” the opposition leader noted.

“When due process is not followed it opens up the ominous prospect of corruption.  There are huge reputational implications for the Cayman Islands Government here.  It should not be forgotten by the premier that it is the Cayman Islands Government’s reputation for probity and reliability that has made it relatively easy for it to secure financing even in these hard economic times.

“The spectre of corruption has the capacity to undermine any government’s reputation, including ratings by Standard and Poors and Moodys.  If potential bidders come to believe that the process of awarding contracts is not fair, predictable and transparent, then the attractiveness of this jurisdiction as a place to invest is lost, with potentially dire consequences,” he warned.

McLaughlin dismissed the premier’s complaints about bureaucratic harassment and said he believed the “greatest impediment to investors staking their money and reputations on Cayman” was the uncertainty created by the way this present administration does business.

“The unprofessionalism, the failure to follow the law, rules and regulations, the conflicts of interests and the inappropriate demands of members of the government and their operatives” were the problem, he said.

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Civil servants wait for official nod on 3.2% COLA

Civil servants wait for official nod on 3.2% COLA

| 30/08/2011 | 34 Comments

(CNS): The president of the Cayman Islands Civil Service Association says the management council has received no official word yet regarding the reinstatement of the 3.2% cost of living allowance (COLA) for public sector workers. James Watler said there had been numerous queries from the membership regarding the proposed reintroduction by the premier but he said he was still waiting to hear from the deputy governor. “We have not yet received any official communication confirming reintroduction, but acknowledge that the premier has indicated he intends to hold discussion with the Foreign and Commonwealth Office,” Watler said Tuesday in the wake of the public announcement by McKeeva Bush on Friday. 

“Management Council views this dialogue as helpful given the present circumstances. To this end, we have provided comments to the deputy governor and await further developments,” Watler added in a short statement.

Following revelations by government that its year end finances for 2010/11 were significantly better than had been predicted, the premier said that he wanted to return the 3.2% COLA  which had been taken away from all public sector workers last July when government was expecting to suffer a $30 million deficit in the 2010/11 financial year.

As that prediction proved to be more than $50 milllion out, with government actually ending the year with a $25 million surplus, the premier said Friday he hoped to use the money to reinstate the cost of living allowance for the civil service.

It is not clear if Bush will require permission from the FCO to do so as the government’s balance sheet is still not complying with all of the requirements of the Public Management and Finance Law as the country’s debt burden is still more than 10% of government revenue. However, as the premier has stated that government has neither intention and or need to borrow any more cash, it is no longer clear whether the premier still needs to seek UK permission for changes to the current budget.

CNS has asked the deputy governor’s office for comment regarding the COLA reinstatement and is awaiting a response.

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Police charge one after weekend of violence

Police charge one after weekend of violence

| 30/08/2011 | 1 Comment

(CNS): Following a weekend of violence in which there was a shooting, a stabbing and two armed robberies police have brought charges against one of the suspects. Following an operation in East End the police arrested a 25 year old man on Sunday and charged him Tuesday morning for attempted murder. The man is accused of repeatedly stabbing another 25 year old man in the neck and upper body during an incident at the Cayman Islander Hotel on West Bay Road in the early hours of Saturday morning following the Wet-fete party. The suspect who has not yet been named was due to appear in court Tuesday. (Photo Dennie Warren Jr)

When police arrived on the scene of the stabbing at around 2:45am they said the victim was bleeding profusely and he was taken to hospital for his injuries which were discovered not to be life threatening.

The weekend was marred by further violence as police were also called to a shooting in West Bay when a teenager was shot in the hip by masked gunmen at around 5:10 in Anderson Road, West Bay. The victim was reportedly confronted by two masked men armed with a shotgun, who shot at him before making off from the scene. The suspects were described as being 5’10 and 6’ 0 in height wearing long pants with hoody-style camouflage jackets.

Then on Saturday evening a woman who suffered head injuries was treated in hospital following a robbery outside her home in Bodden Town. The victim was attacked by an armed man at about 10 pm in South Cayman Palms, Bodden Town. As she emerged from her car outside her house she was approached by an armed man. According to the police he struck her on the forehead with his gun and grabbed her handbag.  The suspect was described as being 6 ft tall, of slim build and wearing dark clothing.

On Sunday afternoon in broad daylight a man was mugged of his jewellery on a George Town Street.  The victim was confronted by two masked suspects, armed with what appeared to be handguns in Heather Lane, off Eastern Avenue. The robbers stole a gold chain and bracelet before fleeing the scene. Both were both described as being only around 5'3" in height, fair complexion, wearing white t-shirts, long jeans and black masks.

Anyone who has any information on any of thesecrimes is asked to contact George Town CID on 949-4222 or the confidential Crime Stoppers number 800-8477 (TIPS).


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Woman finally able to admit stabbing mother

Woman finally able to admit stabbing mother

| 30/08/2011 | 1 Comment

(CNS): A West Bay woman who has made at least a dozen court appearances since she was charged with attempted murder was finally able to speak to the court last Friday when an interpreter was present. 32 year old Laverne Gould who is deaf pleaded guilty via a sign language interpreter to wounding with intent in connection with the incident which took place on Finch Road in West Bay earlier this year. With the assistance of the interpreter Gould apologised to the court for her crime. The woman had stabbed her 63 year old mother, Leanna Ebanks, in the neck while she was sleeping but her parent has written to the court making it clear that she has forgiven her daughter for the attack which was made in a fit of temper.

Gould will now be sentenced on 7 October following the submission of a social enquiry report. Ben Tonner the defence counsel representing Gould said that mitigation would be made on behalf of his client, who has no previous convictions, outlining the circumstances of the attack in due course, but the interpreter told the court on behalf of Gould, "She's sorry about it; she never meant to do it."

The West Bay woman has been in custody since her arrest on 1 May and has made numerous court appearances but on each occasion despite continuous requests by her attorney no sign interpreter was available to assist Gould to understand the proceedings or speak for her. At the last appearance on 19 August Ben Tonner had pointed out with only two sign language interpreters working in the jurisdiction it was proving difficult to coordinate.

However, Justice Alex Henderson had ordered that a sign language interpreter be present at the next appearance and was finally able to move the stalled case along.

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AG promises more scrutiny

AG promises more scrutiny

| 30/08/2011 | 23 Comments

(CNS): The Cayman Islands auditor general has promised more scrutiny of government procurement as it happens rather than waiting until bids are complete, in light of his recent findings. Alastair Swarbrick told the media last week that his office would be looking more closely at all bids going through the competitive tendering processes to ensure that the rules are being followed correctly. The country’s public auditor and watchdog of the public finances said he would be publishing more reports on the subject and keeping a close eye on how public funds are being spent and how the process improves.

He said that next month he would be laying out his audit plan for the coming year and pointed out that his office would also be looking at conflicts of interests that may have arisen, or can arise, during the procurement process and what guidelines are in place for when it happens. 

Since producing his first report, the auditor general has made more than forty recommendations to improve the procurement process and protect public funds. One of the main problems identified by the auditor general was the lack of leadership in the process. In his first report Swarbrick said his office was unable to find any individual at the centre of government that was responsible for managing the procurement function.

“Some senior managers claimed responsibility for managing certain aspects of the procurement process, but no one we interviewed felt it was their responsibility to establish and implement procurement policies and procedures for use throughout the Government or even in their entity and various departments,” he said. “Although senior officials are clearly aware of significant issues around procurement in the government, no one has assumed responsibility for this important function or taken any action to establish appropriate management practices and manage the associated risks.”

As a result, the very first recommendation in Swarbrick’s report published on 5 July, some eight weeks ago, was for government to appoint an individual to take over the leadership of procurement.

“The government should appoint someone as a Chief Procurement Officer who would be accountable for the overall development, management and reporting on the government’s procurement activities,” he recommended.

Following that report the governor’s office issued a statement welcoming the “thorough and frank report” which highlighted what the governor said were “serious shortcomings” in the procurement system that needed to be addressed quickly.  Duncan Taylor said he had asked Deputy Governor Donovan Ebanks, as Head of the Civil Service, “to take the lead in preparing an urgent response to the report,” which would include drawing up an action plan.

CNS contacted the governor’s office last week to ask how that was progressing and if a person had been identified or recruited to take up the oversight of procurement in general. The governor’s office said the administrative arm of government was “actively working at improving the guidance on public procurement” as a result of the reports.

“We have also started work towards a broader review of procurement. We would like this review to take place as soon as possible but realise it is going to take a few months,” the office stated. “The governor is keen that, amongst other things, the review looks at how accountability might be strengthened.”

However, there was no mention of whether government intended to put in place a procurement manager from the existing senior ranks of the civil service or if a recruitment process would begin to find a suitable candidate.

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Tourist dies after snorkelling in rough waters

Tourist dies after snorkelling in rough waters

| 30/08/2011 | 11 Comments

(CNS): Police said that a 42-year-old man who had been snorkelling off Barkers yesterday afternoon (Monday 29 August) died after getting into difficulty. The authorities received a report at about 2:40 pm that the man was in distress on the beach in the Pappagallo area. It appears that the visitor and his partner, who are both visiting Cayman from the US, were snorkelling about 400 meters from the shore when the sea became choppy. As the pair made their way back to shore the man got into difficulties. He was assisted onto the beach and his partner administered CPR. Ambulance personnel attended the scene and the man was taken to the Cayman Islands Hospital in George Town, where he was found to be dead on arrival.

Police enquiries into the incident are ongoing but at this stage there would appear to be no suspicious circumstances.


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Professional body offers business case for integrity

Professional body offers business case for integrity

| 30/08/2011 | 1 Comment

(CNS): The UCCI’s Executive Training Centre has a few limited slots available at a special free workshop on integrity at work. Presented by the Chartered Institute of Securities & Investment, the interactive workshop, aimed at all business professionals, will look at the economic case for behaving honestly. The UCCI said that the 75 minute session has been presented to over 5,000 people worldwide and poses real business dilemmas to the participants, who are askedto respond anonymously using interactive technology. The collective results will be revealed, however, and will form the basis for debate during the workshop when presenters will demonstrate the case for integrity at work.

The workshop, which is free, is open to all but there only a few places available. It will take place at the UCCI training centre on 15 September and starts at 5pm. To reserve a spot on the much lauded workshop contact

There will be a cocktail reception following the session.

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US cable accuses CHEC of being involved in bribery

US cable accuses CHEC of being involved in bribery

| 30/08/2011 | 0 Comments

(Insidethegames): Hambantota, which is bidding for the 2018 Commonwealth Games, has found itself at the centre of the latest WikiLeaks controversy after it was revealed that the United States Government believed the Chinese were bribing Sri Lankan officials to win contracts linked to the redevelopment of the city. China has been the driving force behind a major infrastructural development phase with an international airport, international port, and railway line being built in Hambantota, which was devastated in 2004 by the tsunami. Phase Oneof the new Hambantota Port was constructed by the China Harbour Engineering Company (CHEC) at a cost of $360 million.

"It is likely that corruption and political patronage are significant factors playing into the focus on Hambantota," said the cable sent from the US Embassy in Sri Lankan capital Colombo published on WikiLeaks.

"Often when Chinese companies win contracts, their success is due in part on their widespread distribution of graft to senior Sri Lankan Government officials. While it is currently unknown to what extent President Mahinda Rajapaksa is involved in Hambantota development, it seems logical that his hand is also out when commercial enterprises, especially the Chinese, jockey for contracts and projects."

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PAC to decide on witnesses for AG’s reports

PAC to decide on witnesses for AG’s reports

| 30/08/2011 | 7 Comments

(CNS): The new chair of the public accounts committee says it will be up to the members to decide when and who to call as witnesses when the committee begins to examine the auditor general’s latest reports. Having officially been voted into the chair at the last sitting of the Legislative Assembly, Moses Kirkconnel as held one meeting with his committee members so far to recap and prioritise what work the committee has to do, he said. The PAC has been without a chair since the former holder of the seat, Ezzard Miller, said he could not do his work because of the failure of the government members in particular to turn up for meetings. (Photo Dennie Warren Jr)

The member for the Sister Islands, who was the only opposition member of the previous committee, was appointed chairman by the other members of the LA earlier this month and Kurt Tibbetts, the former leader of the opposition, was appointed as a new member.

Since Millerresigned, the Auditor General Alastair Swarbrick has submitted three new reports. There is one further outstanding report which has never been made public as it was undertaken by the previous auditor general (in connection with the affordable housing project) prior to the law being changed which allows publication of the auditor’s reports in the immediate wake of the documents being handed to the Legislative Assembly.

Given the gravity of Swarbrick’s findings, the public is likely to be watching closely for the witnesses that the committee chooses to call on the reports delivered to the country’s parliament about the mismanagement of the government’s procurement process. However, Kirkconnell said he expected that the committee would still be prioritising the progress on government’s overall accounts and ensuring that the country finally gets a set of up to date accounts for the most recent financial year on time.

The new chair said he was unable to supply a date for when the PAC would be holding a public session to scrutinize the findings of Swarbrick’s office but said it would be discussed at the next closed door session of PAC, which he said was due to take place on 6 September.

“When we meet on 6 September we will prioritise how we will deal with all of the outstanding reports,” Kirkconnell told CNS. “I believe that there are reports that will require more witnesses to be called but part of the process is that the committee must decide. I agree that the report on procurement is an important one.”

Kirkconnell said that now that the committee has a chair, following the long period of the committee not meeting, the important thing is to take stock and try to get things back on track.

The chair will also be looking at the issue surrounding the process under which the auditor general’s reports are made public documents. In the past the public had to wait until the Public Accounts Committee had examined witnesses and assess those reports before they became public. This resulted in important reports remaining under wraps for many years and some never seeing the light of day. The standing order was changed, however, to allow reports to become public documents as soon as they were handed to Speaker at the Legislative Assembly.

In order to give the MLAs some time to digest the reports and ensure all members received a copy, the Office of the Auditor General (OAG) had agreed to give the LA a few working days grace before presenting its reports to the media and the wider public. The OAG’s most recent report on the procurement case studies was leaked, however, before the AG had schedule a media conference, illustrating the increasing difficulty in a modern democracy of trying to keep things secret and fuelling the AG’s position that once the report is handed into the LA, it should also be presented to the public as well.

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Amateur Hour Cancelled

Amateur Hour Cancelled

| 30/08/2011 | 20 Comments

It was bound to happen. There are over 10,000 directors serving Cayman Islands funds – everyone from rank amateurs to serious professional firms – and fund governance has been one of the fastest growing sectors within the hedge fund industry.

Questions had been raised in the press by some institutional investors about the performance of some independent directors during the recent financial crisis and now many of these questions have been decisively answered by the Grand Court of the Cayman Islands Financial Services Division (the “Court”), in its August 26th, 2011 judgment against the independent directors of the Weavering Macro Fixed Income Fund (the “Fund”).

Substantial case law on directors’ duties and responsibilities to trading companies already exists, but this is the first time that the Court has dealt with a case specifically involving directors’ duties to a hedge fund.   In a sound, well reasoned decision, the Court found the independent directors guilty of willful neglect or default in their duties to the Fund and ordered them to pay US$111 million in damages.

This blockbuster award should send a strong message to all recalcitrant directors to either perform their duties and responsibilities properly, or pay a heavy price. 

Now this judgment may not end the discussion about whether amateur or professional fund governance is more effective – Luddite beliefs that are deeply ideological – but the Court did repeatedly confirm its view that independent directors should perform a “high level supervisory role” in a “professional, businesslike manner”.   Fair minded people can form their own judgments about what “professional” and “businesslike” mean when they see it.

To illustrate, the guilty directors fit the amateur model completely – retired and working from home; numerous years of investment management experience with reputable institutions and no other directorships.  The Court found they “had appropriate professional credentials and met the ISE's (Irish Stock Exchange’s) independence requirement.”  

For proponents of the amateur model, they could not have been more perfect examples – yet investors suffer devastating losses at their hands.  It is highly doubtful that this catastrophe could have occurred in a professional fund governance firm, with professional full-time directors having vast fund directorship experience, ably assisted by professionally qualified staff following established policies and procedures based on industry best practices.

The Court decision reaffirmed what astute fund investors and sponsors already know – the professional fund governance model does far more work and is far more productive than the amateur model.  I’ve operated both models and can tell you unequivocally that the professional model is far more effective. 

The Court made some meaningful observations in key areas that are instructive to the fund industry:

Board meetings

Some hold that that the number of board meetings is the litmus test for director performance; however, it is not uncommon for some directors to hold frequent meetings to go “through the motions” believing that the more meetings mean the better (especially if the meetings are being held in attractive locales) and that their obligations begin and end in the boardroom.  This spectacle is pure form over substance.  Amateurs love this approach and scoff at the SEC’s recommendation to hire staff with the appropriate skills to assist them in discharging their duties.  Perhaps now they will heed the SEC’s advice and better understand the value of having professional staff and why they can’t simply attend a few meetings, pick up their check and hit the golf course.  

The Court exposed this charade and did not accept that the regular quarterly board meetings could be “relied upon as the single most important way in which they claim to have discharged their functions”.

Purely focusing on board meetings misses the big picture, as the Court found, as they maybe held merely to “create the impression that the Directors were reviewing the affairs of the company on a regular quarterly basis”.

Duties and responsibilities

In confirming that director duties go beyond the board meeting, the Court held that directors have “a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company's business to enable them properly to discharge their duties as directors.” They need to satisfy themselves, on a continuing basis, that the various professional service providers are performing their functions in accordance with the terms of their respective contracts and that no managerial and/or administrative functions which ought to be performed are being left undone.”  The Court was also critical of the directors in that they never prepared an agenda for the board meetings, never asked any of the service providers to participate in board meetings and never inquired of the service providers – yet another example of where the professional model excels.   It is difficult to imagine any directors meeting the Court’s expectations without employing a team of professionals with a broad range of deep hedge fund skills to assist the director in reviewing complex matters, researching issues and asking probing questions.

Fund operations

Fundamentally a hedge fund is different from a trading company in that it operates through delegates and not employees.  The Court repeatedly recognized the ability, indeed the necessity, for directors to delegate to competent service providers within the hedge fund structure, but also made very clear that such delegation does not absolve the directors of the duty to supervise such delegation, albeit at a “high level”.  Importantly, the Court confirmed that the “directors were not expected to supervise [the "Fund"] trading activities”, making clear that a director is neither a shadow or pseudo investment manager as some have promoted themselves.


Although, these directors were indemnified in the typical manner under the Articles of Association, such indemnification did not protect their egregious conduct.   Effectively the Court’s decision proves the speculation that indemnification leads to directors behaving with impunity to be patently false. Indemnification is intended to protect conscientious, well meaning directors from frivolous actions and the Court will not tolerate any misuse of indemnification provisions.

Crisis management

Historically independent directors responded to a crisis by resigning and distancing themselves from a fund.  During the recent financial crisis, questions arose whether directors acted too precipitously in imposing gates or acted too slowly in liquidating positions.  Reasonableminds can debate these issues, but these directors found a way to do even worse – they did nothing.  Despite not having any other directorships, these directors did not perform effectively.  Directors prove their worth in a crisis and the 2008 financial crisis was the true stress test of a director’s capacity to perform effectively.   The Court agrees “the way in which these Directors behaved during this most serious financial crisis is, in my judgment, the most compelling evidence that they never intended to perform their duties as directors.”


The Court found that the directors were “not able to explain why he signed these agreements or how he thought that the arrangement could benefit the … Fund.”  They were also not able to demonstrate the basis for approving certain side letters observing that “there is no evidence that the Directors made any enquiry or sought to understand whether or not the execution of side letter agreements of this sort could impact adversely on the macro fund.”  The Court further observed that “whilst it is common practice for Cayman Islands funds to enter into side letters of this sort, it seems to me that independent directors need to be alive to the issues which are likely to arise.”

While the case did not turn on this issue, the industry should find the Court’s emphasis on documentation noteworthy.

Overall, this is an excellent decision for fund investors and continued confidence in the Cayman Islands fund and alternative investment industry.  It proves that the system works effectively and should blunt any criticism by those proposing extreme concepts and agitating for radical overhaul.   Simply put, the Cayman Islands will hold directors accountable for their poor performance.

Don Seymour is the founder and a Managing Director of dms Management Ltd.

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