Ruling looms in controversial $3 billion NIF share purchase

Without disclosing any supporting data, the labour ministry has asserted that there were no financial losses to taxpayers from the nearly $3 billion worth of shares the National Insurance Fund (NIF) purchased more than seven years ago in breach of government guidelines and internal policies.

The country’s top prosecutor has confirmed, too, that a ruling is imminent on whether criminal charges should be laid against anyone involved in the controversial acquisition of the shares.

The NIF administers the National Insurance Scheme.

Between February 2015 and September 2017, the NIF acquired ordinary and preference shares in 11 companies at a cost of J$903 million and US$340,200 without any review by its investment committee and the approval of the board, a 2018 report by the Auditor General’s Department (AuGD) found.

During the same period, the NIF also shelled out $1.19 billion to purchase shares in two entities – identified as company No. 8 and company No. 11 – on the junior stock market without the approval of the finance minister, the report said.

The NIF investment policy at the time stipulated that the board had the non-discretionary authority to approve outlays of up to 0.5 per cent of the entity’s net asset value (NAV) on the recommendation of the investment committee.

Investments between 0.5 and 1.5 per cent of the NIF’s NAV required the approval of the finance minister. Six other share acquisitions at the time received the requisite approvals from the board and/or the minister.

The shares purchased in all but two of the 13 companies remain in the NIF’s portfolio, Collette Roberts Risden, permanent secretary in the Ministry of Labour and Social Security, disclosed to The Sunday Gleaner on June 15.

Shares in two of the companies were “redeemed by the issuer at par value and yielded a weighted average return to the fund of 8.0 per cent p.a. (per annum)”.

“There has been no loss to the National Insurance Fund from the acquisition of these shares,” Roberts Risden insisted.

But the responses from the ministry ignored The Sunday Gleaner’s request for a list of the 19 companies in which the NIF acquired a stake and the earnings generated by the shares, including those that were divested.

An executive at a well-known private sector entity confirmed that the NIF is among several state agencies, private companies, pension schemes and ordinary citizens who are shareholders.

However, he said the company had no knowledge of the circumstances surrounding the share acquisition.

“We would not have sold any shares. The public buys and sells the shares and we have no control over that,” said the company executive.

The Sunday Gleaner has opted not to name the company because there is no allegation of impropriety.

“Our shares are very good shares,” he said, pointing to the appreciation in the value over the seven-year period.

‘UNANSWERED QUESTIONS’

But a pro-accountability group, which has been keeping a close eye on the controversial transactions since they were made public, said the “good news” that the NIF suffered no financial losses does not obviate the risk or concern of corruption.

“If these guardrails were so blatantly ignored, … what guarantee is there that officials at the NIF, aware of what this huge investment would do for those companies, did not benefit from insider trading?” questioned Jeanette Calder, executive director of Jamaica Accountability Meter Portal (JAMP).

“These unanswered questions remain and it is JAMP’s hope that the work of the FID will provide assurances that despite the clear opportunity, no official benefited personally from these transactions,” she added, making reference to the Financial Investigations Division.

According to JAMP, the FID has been waiting 11 months for a ruling from the Office of the Director of Public Prosecutions (ODPP), while the country has been waiting four years and three months since the AuGD’s report.

A case file was reportedly submitted to the ODPP in June last year.

The FID declined to provide an update on the case, but chief prosecutor Paula Llewellyn confirmed last week that the case file was being reviewed by two senior prosecutors and indicated that a ruling would “soon” be made.

“There is a certain degree of complexity in it and I understand from the two senior prosecutors that they have been in dialogue with the FID in relation to obtaining some outstanding materials,” Llewellyn, the director of public prosecutions, said in explaining the delay.

‘MIND-BOGGLING REPORT’

According to the report, an audit of equity purchases revealed a conflict of interest, whereby the NIF acquired listed shares totalling $27 million in company No. 8 and company No. 11, which were owned by the spouse of a senior officer employed to the NIF’s equity management unit.

It noted that in the first instance, the NIF purchased 1.96 million shares in company No. 8 at a cost of $12.1 million, or $6.18 each, on April 25, 2017.

Before that, the NIF also acquired shares in company No. 8 between April 21 and 24 that same year, at prices ranging from $5.00 to $5.75.

In the second instance, the report said the NIF acquired 3.35 million shares in company No. 11 for $4.45 each or $14.9 million on July 27, 2017.

The auditors found that the requisite approvals were not sought from the finance ministry for the share acquisitions, which is a breach of the NIF’s investment policy. Further, the AuGD disclosed that the NIF did not present “any evidence that the conflict of interest was brought to the attention of the Chief Technical Director and the board by the senior officer, contrary to the Staff Order”.

Calder said the 2018 audit report by the AuGD on the investment decisions of the NIF “stood out among dozens as a mind-boggling report of total disregard for internal controls, regulations and chain of command”.

“It raised questions of the culture at the NIF that would leave any public servant(s) feeling sufficiently empowered to spend approximately $3 billion without clearance from an internal investment committee, their advisory board, the minister of finance and approval of Jamaica’s Cabinet,” she said.

livern.barrett@gleanerjm.com