By J. Yanqui Zaza
Governors of the Central Bank of Liberia (CBL), whose fees increased by 109% in 2016, among many letdowns, committed two distinct failures at the CBL from 2013 through 2016:
1) KPMG Audit Firm reported in the 2017 Forensic Audit that CBL governors allowed First International bank of Liberia Limited (FIBLL), from 2013 through 2016, to illegally fund “…its operations and customers obligations with depositors’ funds and overdraft from CBL,” resulting into the loss of US $17M;
2) CBL governors excluded US $ 17M expense (CBL cash given to FIBLL clients), from the 2016 profit/loss, but included questionable revenue of US $42M (unwinding discount of element of credit impairment on GOL loan of US $13M and exchange difference on transaction to presentation of currency of US $ 29M).
The question is not only how and why the Governors violated the laws, but why former President Ellen Johnson Sirleaf and the International Monetary Fund (IMF), Liberia’s economic adviser, looked the other way. In fact, in its November 13, 2017 Report, IMF stated that, “Good progress has been made in fiscal reforms,” meaning Liberian bureaucrats were prudent managers.
Well, this old adage that says “Rules are meant to be broken,” might help you understand why the former president and/or the IMF did not take seriously the violations. However, unlike the inexperienced rule breaker, “…the master rule-breaker breaks the rules …to get something done…” good or bad, according to Mr. Dustin Wax.
A rule breaker, in addition to kickbacks, can also get a reward from society or a third party. For instance, many years ago, voters perceived rule-breaker-candidates as more efficient than those candidates who did not break rules. Recently, the former President of the United States of America, Mr. Barack Obama rehired chief executives who caused the 2008 financial debacle.
In response to many Americans who wanted the violators to be punished for causing the 2008 financial debacle, he argued that those who spoiled it know how best to fix it. So, will Liberia’s populist president yield to the call by voters to punish those who violated the laws, including FIBLL?
FIBLL used a ponzi type operation, which allowed its clients to overdraw cash from the CBL, resulting into $17M loss to Liberia, all because of CBL governors’ pervasive governance failures and delays of mitigating violations, according KPMG.
But, the $17M loss was not the only misappropriation during former President Sirleaf’s era. Just to name a few:
1) Liberian National Oil Company spent US $138M out of $148M;
2) Government spent $80M outside of the Liberian National Budget;
3) Government spent $31M for Executive Mansion renovation, without result;
4) US $30 million, allegedly donated to Liberia to finance a rice project that would have provided employment for former combatants, was siphoned;
5) Investors gave $900k to Liberian officials to amend the petroleum oil law, according to Global Witness. President Weah is new to many of these corrupt issues, but what about the IMF, an institution that has leverage over Liberia, especially since Liberia relies on loans from the World Bank (W/B), a related party?
Instead of instituting some measures such as withholding funds away from its client (i.e., the Liberian government) in order to encourage bureaucrats to pursue prudent management, the IMF commended Liberian officials as per the November 13, 2017 IMF Report 17/348. IMF wrote “…Good progress has been made in fiscal reforms, particularly in public financial management (PFM) (MEFP ¶32–34, and 37).
First, the authorities renewed their public financial management (PFM) reform strategy and action plan in July 2017 for a further three years. The new strategy focuses on areas identified by technical assistance and in past program reviews as needing improvement…” in “…cash management, expenditure control, public investment management, budget formulation, fiscal transparency and governance, and state-owned.”
Let us review some of the findings within KPMG for a better understanding. KGPM’s findings: Item # 4 (Insolvency). “In accordance with the new financial institution Act of 1999, at Section 2(22), FIBLL became insolvent in 2013.
FIBLL funded its operational activities and financial obligations by utilizing customer deposits and CBL’s overdraft…” KGMP’s findings: Item # 5 (Fraud, theft, and irregular payments-potential entity level fraud). Section 32 of 1999 Act states, “It shall be unlawful for any financial institution to receive any deposit while insolvent or for a member of the board or other officers or employee who knows or in the proper performance of his duty, should know of such insolvency to authorize the acceptance of such deposits.”
What were the financial and management activities from 2013 through 2016 at the CBL that the IMF considered to be “good progress?” To answer such a question, we should try to understand the ultimate objective of the IMF.
Is the objective of the IMF is to help poor countries become proponents of the IMF, which it has continued to propagate since 1943? Or is the objective of the IMF to create economic conditions for poor countries to borrow more money from the World Bank (WB), and in return pay more interest?
Well, a country will need money when bureaucrats break laws and/or accept bribes in exchange for favors awarded to entities such as FIBLL. Additionally, poor countries need to replace lost revenue when, for example, International Finance Company (IFC), a subsidiary of the WB, takes revenue away from Liberia because it invests in gold in Cape Mount County.
CBL governors, former President Sirleaf, and IMF were aware or should have been aware since 2013 that FIBLL and CBL governors violated Section 2(22) and section 32 of the 1999 Act. But as Mr. Wax stated, the master rule breaker has different reasons (i.e., good or bad) than the original objective for which the laws were intended to shield.
The WB would not make huge profits from its lending business, if bureaucrats were not violating laws or if Liberia, and not IFC, had invested in the gold mine in Cape Mount. Instituting Botswana’s economic type of policy would allow the government to play a role in managing its resources.
Alternatively, nowadays, WB encourages poor countries to write fraudulent agreements, which enable profiteers to reduce government revenue. It was what Liberia did, according to Robert Sirleaf, son of former President Sirleaf.
However, he stated, “…it was the WB…” that wrote the amended law. (https://www.youtube.com/watch?v=ZmGJQo419Y)
SOURCE: 1) KPMG Forensic Audit Conducted in 2017 (https://cbl.org.lr/doc/StatementCBLBoard_ForensicInvestigation-FIBLL.pdf)
2) November 13, 2017 Report: IMF Country Report No. 17/348
3) 2015: (https://cbl.org.lr/doc/financialstatement.pdf)
4) 2016: (https://www.cbl.org.lr/doc/f_statement_2016.pdf)
5) Unwinding discount of element of credit impairment on GOL loan (US $13M Reversal of impairment losses on receivables, loans, and held-to-maturity and available-for-sale debt securities is required provided certain criteria are met).
The reversal is recognized in profit or loss (IAS 39.65 and .70). Reductions of valuation allowances related to receivables and loans are recognized in the income statement. Reversals of impairment losses on held-to-maturity and available-for-sale debt securities are prohibited (ASC 320-10-35-34).
6) Exchange difference on transaction to presentation of currency of US $ 29M Recognition of exchange differences (IFRS).
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in profit or loss in the period in which they arise, except as described in IAS 21.32 – exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation (IAS 21.28).
When a gain or loss on a non-monetary item is recognized in OCI, any exchange component of that gain or loss is recognized in OCI. Conversely, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss (IAS 21.30).
Recognition of exchange differences (GAAP). A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction.
That increase or decrease in expected currency cash flows is a foreign currency transaction gain or loss, and generally included in determining net income for the period in which the exchange rate changes (ASC 830-20-35-1).
Likewise, a transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency transaction generally is included in determining net income for the period in which the transaction is settled