BAI Group Crisis
The crying lessons learnt demand that the financial sector and the regulatory framework be fundamentally overhauled, tightened and manned competently
The findings of the nTan Corporate Advisory Pte Ltd preliminary report are a damning indictment of the BAI group, the financial regulators and the auditors caught napping during their watch.
The preliminary report depicts a picture of systemic deceit contrived with the help of financial window dressing and other accounting hocus-pocus to mask the tens of billions of Rupees siphoned from investors’ funds during years until the eve of the last general elections to offshore companies, related entities or in unproductive assets. It highlights that such deceptive practices also masked the huge losses and insolvency of the BAI group since December 2013.
It also inter alia brings to light that the BA Insurance and the Bramer Property Fund whose products marketed by their agents lured tens of thousands of unsuspecting savers with promises of higher returns to invest billions of Rupees, were prime vehicles of a web of deceit. The upshot of all this was that behind an illusory facade the BAI group was a fragile shell. Weakened by billions of Rupees diverted from the investors’ pot it was under threat of collapse at any moment under the weight of its mounting commitments towards investors. The report concludes that the unsustainable cycle of canvassing and raising fresh funds from investors under the nose of regulators to cover ongoing and growing commitments to existing investors was scripted to break and cause the conglomerate to crumble.
The Bank of Mauritius has confirmed that a ‘redacted version’ of the findings of the nTan report will be published soon to enlighten the people on the modus operandi of presumably the most important financial scam committed in Mauritius.
We should recall that since March 2011, the BAI auditors at the time had to no avail warned the BAI Audit Committee comprising the top brass of the company that the company faced the prospect of a massive loss of Rs 13.5 billion in the financial year ending 31 December 2013. The owners of the company as well as the regulatory authorities entrusted with the task of assuring the sound and rigorous management of our financial sector failed to heed the alarm bells and take urgent remedial actions despite the scale of the forecasted losses and the weight and diversity of the company in the economy.
The uncovering of the scandal in April 2015 exposed the feet of clay and un-sustainability of the whole group systematically undermined by substantial haemorrhage of funds placed by investors, a business model incapable of generating adequate revenue to meet above market rate returns promised to savers and investors, toxic investments and questionable financial practices. It left tens of thousands of hapless investors from all walks of Mauritian life high and dry, profoundly anguished by the fear of losing their hard earned savings.
At the time the alleged scam qualified by government as a Ponzi scheme was exposed, there were some in the country including in the press and the opposition parties who questioned the government’s approach in handling the crisis and its motivations, some even going to the extent of making sly innuendos thereon.
Faced with a financial crisis of such enormous proportions, the Bank of Mauritius and Government had to act decisively and swiftly to ring fence its damaging impact on the financial sector and the economy as well as protect the interests of tens of thousands of savers who had unwittingly invested their savings in the diverse products marketed by the BAI group. Time was of the essence. Crisis management requires a quick and comprehensive assessment of all the facts and ramifications of the crisis before acting resolutely and firmly. In the case of the BAI group related financial crisis, this above all meant stemming serious collateral damage to the economy and the financial sector so as to quell any jitters or panic in the market place. There is no magic recipe. Prompt decision making and efficient execution are key to containing and managing the crisis.
The opposition posturing with regard to the crisis seemed intent on deriving political capital from it, thriving on parochial angst in a context when the financial sector was in danger and the multitude of savers in the country were through no fault of theirs facing the risk of losing their savings. The government was systematically criticised in press conferences, live TV debates and in the Legislative Assembly for purportedly badly managing the crisis. There was scare mongering regarding the costs of the management of the crisis to the Exchequer. There were insidious hints that the BAI group could have been somehow rescued without any indication as to how this could be done, thereby instilling doubt and confusion at a time when the common national purpose should have been to safeguard the financial sector, savers’ interests and the economy.
The findings of the nTan preliminary report thus dissipate all doubt by exposing and nailing the damming reality behind the BAI group crisis. We should remember that the web of deception brought to light occurred under the governance of the previous government with whom the MMM had powwowed and contracted (with the Legislative Assembly suspended for most of 2014 with their accord) an ill-fated political alliance to contest the last general elections. The looming financial crisis grew surreptitiously under the watch of the financial authorities, regulators and internal and external auditors who have been incriminated in the preliminary report and who would have to be answerable for any unprofessional conduct.
The report should therefore silence all those including the opposition who pandered to unavowed agendas and signify to them qu’ils se sont allègrement plantés. The compelling evidence provided by independent and internationally recognised forensic auditors should also put an end to such unseemly politicking on the misfortune of hapless investors from mainstream Mauritius.
Let’s get it right
However, an array of unfinished business remains. The report maps out the contours of a fundamentally flawed regulatory and auditing system, which needs to be urgently and robustly remedied. It can be said that the stance of government to reimburse investors’ capital in full, albeit through debentures staggered over a 5-year period, has brought grateful relief among investors. In contrast, the major raw deal meted out by government was the discriminatory and unfair treatment of investors in Bramer Asset Management (BAM), an authorised financial institution. Their capital protected investments were arbitrarily cut off by 15% and 20% at source when all other victims of the BAI/Bramer group will be reimbursed in full. No credible explanation has been given by government for this flagrant injustice. To add insult to injury some of the BAM investors have not been reimbursed, as promised, their first instalment as yet in spite of the commitment that this would be done six months ago, by 31 July 2015. Is there a pilot in the cockpit?
The nTan report warning that the recovery of billions of Rupees diverted in dubious investments in related companies is in doubt as well as the softening of the stock value of BAI/Bramer group investments in Kenya cast a shadow over the projected cash flow of funds obtainable to finance the billions of Rupees of debentures to be honoured over the next five years. Any deficit in funds will impact negatively on these commitments.
We cannot afford to grope in the dark. We need a methodical and efficient approach aimed at maximising the recovery of diverted funds, bearing in mind the scale of the exercise at hand. In view of the complex diversion of investors’ funds in a warren of companies spread in various jurisdictions and tax havens, isn’t it time for government to hire reputable professionals specialised in the recovery of despoiled funds to ensure that these are recovered to the maximum extent possible with utmost assiduousness. They should also be mandated to examine options for claiming damages from all those incriminated in the report. There is also an imperative of assuring transparency of the whole process.
In the larger context of best practices in the financial sector why is the Bank of Mauritius (BOM) not urgently stewarding the implementation of the long overdue recommendations for fairer and inclusive banking practices of the 2014 BOM report ‘Banking Your Future’ to provide an impetus to business facilitation against a backdrop of excessive fees and banking charges comforting handsome and growing profits by the main banks?
When all is said and done, a rooted culture of poor governance spawned licence and turned a blind eye on flagrant and wanton financial improprieties. These triggered a major and an unprecedented financial crisis with serious risks of damaging fallouts on the people and the economy.
The crying lessons learnt demand that the financial sector and the regulatory framework be fundamentally overhauled, tightened and manned competently to assure the highest standards of probity and governance by its actors. Let the people’s will ensure that we finally do it all right, bang on.
* Published in print edition on 15 January 2016