BELIZE: FORENSIC AUDIT UNCOVERS "POSSIBLE ILLEGALITIES" IN

UNCLAS BELMOPAN 000097 SIPDIS SENSITIVE SIPDIS DEPT FOR WHA/CEN (MACK) TREASURY FOR IA/WHA (LEVINE) E.O. 12958: N/A TAGS: ECON EFIN PGOV BH SUBJECT: BELIZE: FORENSIC AUDIT UNCOVERS "POSSIBLE ILLEGALITIES" IN FINANCING SCANDAL REF: A) Belize 094 B) 06 Belize 973 C) 06 Belize 708 and previous THIS CABLE IS SENSITIVE BUT UNCLASSIFIED, PLEASE PROTECT ACCORDINGLY. ¶1. (SBU) The draft report of a forensic auditor's review of the Development Finance Corporation (DFC) - released on February 1 - revealed conflicts of interest, procedural irregularities, and possible illegalities. Mark Hulse, a chartered accountant, appeared before the DFC Commission of Inquiry - the body tasked with investigating the financial misdeeds of the DFC - and placed much of the blame for the corporation's implosion with former DFC Chairman Glenn Godfrey and former Deputy Chairman David Courtenay. ¶2. (U) Hulse read portions of his report aloud, noting that in at least two instances, financial entities connected to Godfrey were involved in questionable transactions with the DFC. Further, said Hulse, Godfrey appeared to have been a beneficiary through his legal practice and his shares of Alliance Bank Ltd. (Note: As detailed in Ref. C, Alliance Bank Ltd. absorbed the St. James National Building Society, which was owned by Godfrey. End note). Hulse also opined that as Chairman and Deputy Chairman, respectively, Godfrey and Courtenay "usurped" decision-making authority from the DFC board and noted that in 2001 a consultant hired by the GoB to examine DFC operations reached the same conclusion: "These two board members [Godfrey and Courtenay] are involved personally in real estate development and banking in Belize and appear to dominate decisions of the board...their judgment may be biased by government's growth objectives and the faith of their personal investments." ¶3. (U) Hulse's draft report also highlights DFC's fiduciary irresponsibility and reckless mismanagement. For example, contrary to its lending guidelines the DFC continued to approve loans for businessman Arnaldo Pena despite the fact that his existing loans - totaling almost BZ $2.7 million - were non-performing. In another case, the DFC concealed the non-performing BZ $30 million loan to Novelo's Holdings Limited by creating new loan accounts, on which Novelo's ultimately defaulted. In closing, Hulse suggested that the Commission seek legal advice "on the question of initiating legal proceedings against members of the board in connection with potential breaches of fiduciary duties and consequent recovery of funds. ¶4. (SBU) Comment. With only four hearings remaining, the DFC Commission of Inquiry is attempting to obtain as much testimony and gather as much information as possible before delivering its conclusions. Each witness seems to bring the investigation closer to the top of the food chain; Hulse's testimony represents at least the second time that Glenn Godfrey, a former cabinet minister and People's United Party crony, has been implicated in DFC misdeeds. It remains to be seen whether such testimony will be enough to civilly or criminally penalize Godfrey and his ilk. End comment. DIETER