For the second week going, our financial sector has tumultuously been at the centre stage of national preoccupations.
It began with the revocation of the banking licence of Bramer Bank of the BAI group on Friday 3rd April. The reason given for the revocation of the licence was that the bank had run short of liquidity.
From here, events latched on more deeply into the BAI group. The insurance arm of the group, the British American Insurance was put into conservatorship by the insurance regulator, fearing that the revocation of the licence of Bramer Bank might expose it (the insurance company) to systemic risk.
On the political side, allegations were made to the effect that the insurance company (BAI) might be involved in a Ponzi scheme. One minister came to explain that it qualified as a Ponzi because the company would be employing funds collected from premiums received from the issuance of new policies to redeem sums due to holders of policies which reached maturity. From the political side, statements have also been made to the effect that significant amounts of funds belonging to the financial institutions of the group would have been siphoned off outside the country.
The latest allegation is that huge and unaccounted for payments would have been made to members of the Rawat family on a regular basis. To cast a deeper doubt as to the recoverability of some specific insurance product, notably the company’s Super Cash Back Gold (SCBG) policy, a member of the government has alleged that the funds collected from this source would have simply vanished. There has been a proposal therefore to set up a new insurance company in lieu of the BAI to pick up and securely manage all the portfolios of the insurance arm of the group, except the SCBG which might involve tens of billions of rupees owed to policy-holders. This is a sort of guarantee that government will back all policy-holders except those who have subscribed to the SCBG.
Given the speed with which the BAI group had made numerous business acquisitions in the past and expanded itself across several sectors of economic activity in and out of the country – including insurance, construction, property, furniture business, electronics, car dealing, retail, and so on – the political accusations about mishandling of funds by it carried some weight in the public perception. The perception of misuse of funds by the main sponsor of the group, Dawood Rawat, was reinforced by the latter’s dominant position in the group and his well-known proximity with the former Prime Minister, Navin Ramgoolam, whose party he is suspected of having funded. The group’s rapid expansion has been projected as a return of favours by the government of Navin Ramgoolam. In this situation of great turmoil, the BAI Group has now appointed an Administrator to look after the interests of some 30 odd companies forming part of it. The Administrator’s mission is to protect the value of the assets of the group companies put into his charge.
How does all this translate itself?
Government has taken over the Bramer Bank and possibly also the British American Insurance (BAI) or the better part of it, informing the public that they will be fully compensated. The SCBG is something that is yet to be sorted out, separately. There has prevailed a feeling so far that policyholders might be left out in the woods regarding this tranche of the business.
Two questions arise. First, assuming that there are significant funding gaps between the assets taken over from the BAI and the amount of claims to be settled overall, especially after the distress situation in which the insurance company’s assets have been placed by putting it into conservatorship, why should the citizens of Mauritius bear the cost of all this mess? There is no good reason the government should lean on funds belonging to the people to pay up for gaffes the people are not responsible for.
Second, section 16 of the Constitution of Mauritius states that no law shall make any provision which is discriminatory either of itself or in its effect. This section goes on to state that “no person shall be treated in a discriminatory manner by any person acting in the performance of any public function conferred by any law or otherwise in the performance of the functions of any public office or any public authority”.
The question is whether the government, splitting apart the portfolio of the insurance arm of the BAI Group, will not effectively be discriminating between one set of policy-holders against the others. The fact of putting all the “good assets” in favour of one group of policy-holders in the new insurance company to be created, coupled with the statement made by one member of the government that there would be next to nothing as assets to back up the SCBG, would amount to discrimination against the latter group of policy-holders. The proposed segregation of the insurance company’s assets into two distinct parts raises a big interrogation mark about the legality of this proposal.
The people’s feelings about the local financial market have been seriously ruffled ever since a couple of scandals have erupted up and several irregularities unearthed in this sector down the years, culminating in the revocation of the Bramer Bank’s licence. The regulators have been publicly told by certain politicians that they would not have done their duty as they should have. Respect for the regulators – an essential element of public confidence in the institutions they regulate – has been explicitly and publicly undermined in the process. Should we carry on just the same? A gradual rebuilding of the eroded trust in our financial institutions should help. The sooner the disruptive matters that have come out in public are resolved to the complete satisfaction of all the clients of the BAI group, the less hard will be the necessarily negative scrutiny that international observers, including rating agencies, are bound to have on us as a jurisdiction after this episode. For the good of the country, we should put behind this tumultuous episode as soon as possible.
Along with this episode, the smell of corruption has filled the air. Political adversaries may have fought against each other, using one or other business “empires”, the latest being the the BAI group of financial institutions as their punching ball. But the public has always held the view that corrupt support of political parties cutting across the board by financial and non-financial institutions of the country, has been here since long, maybe even before the Air Mauritius list of donations was made public.
For long, people have suspected that political parties of all hues and colours must have requited for the significant “donations” they have so received through various undue favours at great public cost to the “generous” donors of funds to political parties. Many have also suspected that the funds so obtained by the various political parties have not gone to the parties themselves but to the few closely related parties who are in absolute control of them.
The time has come for people to be reassured that no covert donations of funds will henceforth be handed over to political parties by private companies to the detriment of the public. A de facto and quickly implementable ‘Right to Information Act’ has become imperative if we have to stop the rot of corruption continuing to taint our political parties – and to ensure full accountability of all public officers for all decisions taken, check any impropriety, laxism or abuse at all levels in the service, parastatal bodies, regulators, and other similar bodies. All should be made publicly accountable. This could be one of the few positive fallouts of the scandal that has smeared the otherwise good financial landscape of Mauritius of late.
* Published in print edition on 17 April 2015