As regulators in the Caribbean and Latin America scramble to cope with the shock announcements that powerful United States Authorities are investigating a significant financial institution with a major presence in the region, are they fit for purpose?
The Caribbean FAFT has given Antigua & Barbuda a triple 'A' rating.
Crucial to any evaluation of sovereign debt sustainability are the policies and values of the issuing country.
Half Moon Bay Resort has been owned by U.S. citizens for almost forty years, during which time it had contributed greatly to the economy and standing of Antigua.
However, the Government of Antigua has expropriated this private property of foreign investors, which places it in breach of investment agreements with the US, UK and Canadian nations.
Over time, officials have named entities led by Texan R. Allen Stanford and British entrepreneur and Grenada's Mount Cinnamon owner, Peter De Savary, as beneficiaries of choice for a public private partnership to re-develop the property expropriated for "public purpose."
In recent years, the Government of Antigua and Barbuda has regularly issued investment Prospectuses, which omit vital investment information that materially and seriously mislead investors with regard to risk.
These consistently failed to mention either the material facts of the Privy Council case or the expropriation of foreign owned private property valued at $60,000,000, for which compensation has never been paid.
Indeed, the investment section of the Government's official website is seriously misrepresentative. Whilst acknowledging that the Cabinet has the power to expropriate foreign investors' property, it specifically and falsely states that it has never expropriated foreign private property.
Meanwhile, the prospectuses rely on claims that the Government collaborated with the Stanford Group of Companies to establish the Empowerment for Ownership Initiative. This is a $10 million revolving fund through which loans are granted to micro and small business ventures at low interest rates, and on concessionary terms. The prospectuses claim that more than 149 such loans totalling over $5.4 million, have been granted to businesses engaged in varying types of economic activity.
The Government also claims in its Prospectuses that it has had financial assistance from the Canadian International Development Agency (CIDA) and London-based, Houlihan Lokey Howard and Zukin (Europe) Ltd, to develop and implement a debt strategy for Antigua and Barbuda.
CIDA advised that "its officials have never acted as advisors to the Government of Antigua & Barbuda in the preparation of prospectuses or in any securities offering. In June 2005, the Agency, through the Canadian Cooperation Fund funded and assisted the Ministry of Finance of the Government of Antigua in its transparent selection and hiring of an independent expert to develop a sustainable debt restructuring strategy. The expert selected was Houlihan Lokey Howard and Zukin. CIDA officials were not involved in the actual development of the strategy and did not intervene in the work of the expert."
Houlihan Lokey added that "it is not an advisor to the Antiguan authorities in this respect and that it had no involvement in the preparation of any prospectuses issued by the authorities."
In another example of trying to improve the credibility of the Prospectuses they state "to support its efforts to encourage investment in Antigua and Barbuda, the Government secured Antigua and Barbuda's membership in the World Bank's Multilateral Investment Guarantee Agency (MIGA). MIGA provides guarantees to investors undertaking investment projects in developing countries and also offers technical assistance to improve the investment climate and promote investment opportunities in developing countries. The Government anticipates that its membership in MIGA should help improve investor confidence and improve the credibility of Antigua and Barbuda."
It is hardly likely that expropriation of property legally owned by foreign investors, with or without compensation, will encourage MIGA or other insurers to issue guarantees, let alone improve investor confidence.
So where are the independent regulators and the compliance departments of the licensed intermediaries, ABI Bank Limited, Antigua Commercial Bank Limited, Bank of Nevis Limited, Bank of Saint Lucia Limited, National Commercial Bank (SVG) Limited, National Mortgage Finance Company of Dominica Limited, National Bank of Anguilla Ltd, St. Kitts Nevis Anguilla National Bank Limited, Republic Finance and Merchant Bank Ltd. (FINCOR) and Caribbean Money Market Brokers Ltd (CMMB)?
In July 2007, the local regulator, the Eastern Caribbean Securities Regulatory Commission, passed these concerns to its Regional Debt Co-ordinating Committee and expressed the importance of complete public disclosure.
Since then further Prospectuses have been issued, which continue to fail to mention expropriation of foreign property.
Meanwhile, Leroy King, head of Antigua's Financial Services Regulatory Commission said he had received no customer complaints or credible evidence that would require a formal probe of Stanford International Bank, the Caribbean arm of Stanford Group, which is being looked at by U.S. regulators.
Later that day he said his agency was responding to inquiries from U.S. investigators.
But King re-iterated that no customers have complained and no credible evidence had emerged to trigger a formal investigation. The agency's last examination of Stanford, a few months ago, raised no red flags, he said.
"It was indeed satisfactory," King said in a telephone interview. "We have no credible information coming to us to say that they are not sound."
Whilst Antigua is still reeling from international humiliation over the Sir Vivian Richards cricket stadium debacle, the most serious question remains - are its regulators fit for purpose?
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