FSC urged to investigate Barita's practises over $50m loan to PM's company

The Integrity Commission has recommended that the Financial Services Commission (FSC) investigate Barita Investments Limited's $50 million loan to a company owned by Prime Minister Andrew Holness, citing concerns about the firm's practises.  

The commission, Jamaica's main anti-corruption body, flagged potential "irregularities" in the loan process, raising concerns about Barita's risk assessment and approval practises.

Barita is a subsidiary of Cornerstone Financial Holdings Limited. 

The loan was granted to Imperium Investments on March 18, 2021, with 10 million shares in Derrimon Trading Limited pledged as collateral, alongside a legal mortgage on a property reportedly owned by Imperium and an insurance policy.

However, Director of Investigations, Kevon Stephenson, revealed that when the loan was issued, Imperium did not own the Derrimon shares, which cost approximately $25 million.

He revealed that of the loan amount in question, $24,999,998.40 was used to purchase the Derrimon shares and the remaining $24,781,982.79 was later transferred on November 10, 2021, to an NCB account belonging to Imperium. 

Additionally, the property offered as security for the loan was not registered in Imperium's name until November 10, 2021, months after the loan was approved.

This discrepancy meant that the mortgage could not be registered, creating a significant gap in the loan's security, the commission said in its report released on Tuesday. 

It said the mortgage documents also contained errors, including incorrect land identification information, which would have made it impossible to secure the asset if Imperium defaulted on the loan. 

In response to the commission's enquiries on the non-registration of the mortgage on the property title, a Barita officer explained that the company uses its discretion based on the status of a client.

“This is not an unusual business practise when it comes to premium customers and a discretion is usually exercised in situations where a risk assessment leads to the view that the probability of default is low. If, however, default occurs the mortgage would be registered," the official told the commission. 

The report pointed out that the insurance policy supposedly assigned to the loan was incomplete and critical details were missing.

The investigator also said key details of the insurance policy were not provided.

He said the Barita officer provided a collateral form dated March 18, 2021 that was signed by Holness, with an explanation. 

"A line was drawn through the first page of the document and the schedule on page 3 is blank. This is because after this document was signed, we learned that the pledged land was undeveloped (bare land) and consequently there was no insurance to assign to us," the officer said. 

However, the commission said the pledged property owned by Imperium, "was in fact not undeveloped but contained the residential property" owned by Holness in Beverly Hills, St Andrew.

The Integrity Commission's investigation suggested that Barita's intention was to have security in place should Imperium default on the loan. 

“The foregoing, therefore, resulted in what appears to be an unintended consequence of Barita issuing an unsecured loan to Imperium, where a secured loan was intended,” Stephenson explained.

He criticised Barita's practise of keeping documents in "registrable form" without formally securing the loan, calling it “unsatisfactory". 

Stephenson concluded that Barita's failure to properly register the mortgage and the incomplete assignment of the insurance policy exposed significant risks.

“If the borrower were to default on the loan, Barita would not be able, without the borrower's assistance, to register the mortgage against the property put up as collateral,” he noted.

Stephenson recommended that the FSC conduct an audit of Barita's operations and loan practises to ensure compliance with the Financial Services Commission Act and industry regulations.

He also urged the FSC to assess whether Barita's actions were consistent with the terms of its licence and, if any breaches were found, to impose appropriate sanctions.

“The conduct of Barita in its grant of a $50,000,000 loan to Imperium raises several prudential concerns. The DI's conclusion is grounded in the fact that collateral said to have been provided for the loan either did not exist in the name of the borrower (Imperium), or did not exist at the material time,” the chief investigator said

The $50 million loan carried 7% interest and was structured as an interest-only loan, with one annual payment over two years.

The first payment was to be interest and the second being the final interest payment, together with principal repayment, the report said. 

Despite this, the loan was repaid in six instalments between March 2022 and August 2023.

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