CBL Gave US $17M To FIBLL. IMF Wrote: “Good Progress…”. Why?
By J. Yanqui Zaza
Economic Editor of The Perspective
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| Central Bank of Liberia |
Governors of the Central Bank of Liberia (whose fees increased by109% in 2016) among many failures committed two distinct failures at the CBL from 2013 through 2016:
- KPMG Audit Firm reported in the 2017 Forensic Audit that CBL governors allowed First International Bank of Liberia Limited (FIBLL), from 2013 through 2016, to illegally fund “…its operations and customers obligations with depositors’ funds and overdraft from CBL,” resulting into the loss of US $17M;
- CBL governors excluded US $ 17M expense (CBL cash given to FIBLL’s clients), from the 2016 profit/(loss), but included questionable revenue of US $42M (unwinding discount of element of credit impairment on GOL loan (US $13M and exchange difference on transaction to presentation of currency of US $ 29M).
The question is not only how and why the Governors violated the laws, but why former President Ellen Johnson Sirleaf and the International Monetary Fund (IMF), Liberia’s economic adviser, looked the other way. In fact, the IMF added, in its November 13, 2017, IMF Report that, “Good progress has been made in fiscal reforms,” meaning Liberian bureaucrats were prudent managers. Well, this old adage that says, “Rules are meant to be broken” might help you understand why the former President and, or the IMF did not take seriously the violations. However, unlike the inexperienced rule breaker, “…the master rule-breaker breaks the rules …to get something done…” good or bad, according to Mr. Dustin Wax.
A rule breaker, in addition to kickbacks, can also get a reward from society or third party. For instance, many years ago, voters perceived rule-breaker-candidates as efficient than those candidates who did not break the rule. Recently, the former President of the United States of America, Mr. Barack Obama rehired chief executives who caused the 2008 financial debacle. In response to many Americans who wanted the violators to be punished for causing the 2008 financial debacle, he argued that those who spoiled it know how best to fix it. So, will Liberia’s populist President yield to the call by voters to punish those who violated the laws, including FIBLL?
FIBLL used customers’ deposit to cash a check of another client with less money (i.e., a Ponzi type operation), and CBL governors cashed checks of clients of FIBLL who had minuscule or zero deposits (i.e., a bank overdraft privilege). CBL governors’ failures to mitigate these violations resulted in $17M loss, according to KPMG. But, the $17M loss was not the only misappropriation during former President Sirleaf era. Just to name a few; Liberian National Oil Company spent US $138M; 2) Government spent $80M outside of the Liberian National Budget; 3) Government spent $31M for Executive Manson renovation, without result; 4) Officials siphoned US $30M, donated to Liberia to finance a rice project in Lofa County; 5) Investors interested in Block # 13 and Wologizi Mountain bribed officials to write fraudulent laws, according to Global Witness.
President Weah is new to many of these corrupt issues, but what is about the IMF, an institution that can deny or approve Liberia’s loan requests submitted to the World Bank (W/B), a related party? Instead of instituting some measures such as withholding funds away from its client (i.e., the Liberian government) in order to encourage bureaucrats to peruse prudent management, the IMF commended Liberian officials as per the November 13, 2017, IMF Report 17/348.
IMF wrote “…Good progress has been made in fiscal reforms, particularly in public financial management (PFM) (MEFP ¶32–34, and 37). First, the authorities renewed their public financial management (PFM) reform strategy and action plan in July 2017 for a further three years. The new strategy focuses on areas identified by technical assistance and in past program reviews as needing improvement…” in “…cash management, expenditure control, public investment management, budget formulation, fiscal transparency and governance, and state-owned.”
Let us review some of the findings within KPMG for a better understanding. KGPM’s findings: Item # 4 (Insolvency). “In accordance with the new financial institution Act of 1999, at Section 2(22), FIBLL became insolvent in 2013. FIBLL funded its operational activities and financial obligations by utilizing customer deposits and CBL’s overdraft…” KGMP’s findings: Item # 5 (Fraud, theft, and irregular payments-potential entity level fraud). Section 32 of 1999 Act states, “It shall be unlawful for any financial institution to receive any deposit while insolvent or for a member of the board or other officers or employee who knows or in the proper performance of his duty, should know of such insolvency to authorize the acceptance of such deposits.”
What were the financial and management activities from 2013 through 2016 at the CBL that the IMF considered to be “good progress?” To answer such a question, we should try to understand the ultimate objective of the IMF. Is the objective of the IMF to help poor countries as proponents of the IMF have and continue to propagate since 1943? Or is the objective of the IMF to create economic conditions for poor countries to borrow more money from the WB, and in return pay more interest? Well, a country will need money when bureaucrats break laws and, or accept bribes in exchange for favors awarded to an entity such as FIBLL. Additionally, poor countries need to replace lost revenue when, for example, International Finance Company (IFC), a subsidiary of the WB, takes revenue away from Liberia because it invests in gold in Cape Mount County.
CBL governors, former President Sirleaf, and IMF were aware or should have been aware since 2013 that FIBLL and CBL governors violated Section 2(22) and section 32 of the 1999 Act. But as Mr. Wax stated, the master rule breaker has a different reason (i.e., good or bad) than the original objective for which the laws were intended to shield. The WB would not make a huge profit from its lending business, if bureaucrats were not violating laws or if Liberia, and not IFC, had invested in the gold mine in Cape Mount. Instituting Botswana’s economic type of policy would allow the government to play a role in managing its resources. Alternatively, nowadays, WB encourages poor countries to write fraudulent agreements, which enable profiteers to reduce government revenue. It was what Liberia did, according to Robert Sirleaf, son of former President Sirleaf. However, he stated, “…it was the W/B…” that wrote the amended law. (https://www.youtube.com/watch?v=ZmGJQo419Y)
SOURCES:
1) KPMG Forensic Audit Conducted in 2017 (https://cbl.org.lr/doc/StatementCBLBoard_ForensicInvestigation-FIBLL.pdf)
2) November 13, 2017, Report: IMF Country Report No. 17/348
3) 2015: (https://cbl.org.lr/doc/financial%20statement.pdf)
4) 2016: (https://www.cbl.org.lr/doc/f_statement_2016.pdf)
5) Unwinding discount of the element of credit impairment on GOL loan (US $13M
(IFRS)-Reversal of impairment losses on receivables, loans, and held-to-maturity and available-for-sale debt securities is required provided certain criteria are met. The reversal is recognized in profit or loss (IAS 39.65 and .70). |
(GAAP)-Reductions of valuation allowances related to receivables and loans are recognized in the income statement. Reversals of impairment losses on held-to-maturity and available-for-sale debt securities are prohibited |
6) Exchange difference on transaction to presentation of currency of US $ 29M
Recognition of exchange differences (IFRS) |
Recognition of exchange differences (GAAP) |