THE STANFORD SAGA: IMPLICATIONS FOR THE EASTERN CARIBBEAN

UNCLAS SECTION 01 OF 02 BRIDGETOWN 000136 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: ECON KCRM EFIN XL SUBJECT: THE STANFORD SAGA: IMPLICATIONS FOR THE EASTERN CARIBBEAN -------------- SUMMARY -------------- ¶1. (SBU) The Eastern Caribbean is still bracing itself for the full impact of fraud allegations against Texas billionaire and financier, ¶R. Allen Stanford. Some effects from the fall-out have already been felt across the region, most notably in Antigua and Barbuda, where Stanford was the largest private-sector employer and one of the most generous philanthropists. Broader uncertainties are starting to surface over the impact this case might have on the region's offshore banking sector, with unwanted extra scrutiny falling on these island nations at the same moment that they are looking nervously over their shoulder at a Capitol Hill they see as poised and eager to slap sanctions on so-called Caribbean "tax havens." End summary. -------------- IMMEDIATE EFFECTS FELT IN ANTIGUA AND BARBUDA -------------- ¶2. (U) The disclosure that the Securities Exchange Commission (SEC) had brought fraud charges against Antigua resident and regional financier, R. Allen Stanford had immediate effects in the twin island state of Antigua and Barbuda where the Stanford Group of Companies is based. Hundreds of Antiguans descended on the offices of the Stanford's domestic Antiguan bank -- the Bank of Antigua -- to withdraw their savings. In addition, many investors travelled into Antigua in a futile attempt to reclaim their investments in Stanford International Bank (SIB),whose assets had been frozen. ¶3. (U) The run on the Bank of Antigua and efforts of foreign SIB investors prompted immediate action by both the Antigua Government and the Eastern Caribbean Central Bank (ECCB). The Government of Antigua appointed a receiver to take control of Stanford International Bank Ltd and Stanford Trust Company Ltd., while the ECCB seized control of Bank of Antigua to insure the remaining domestic deposits. ¶4. (U) The uncertainty surrounding Stanford's businesses and investments in the island state has left the Antiguan economy enveloped in uncertainty with many jobs in jeopardy. Stanford is omnipresent in Antigua, with an estimated one billion dollars invested in banking, real estate development, tourism, and even an ownership stake in the country's biggest newspaper, the Antigua Sun. With some 4,000 people employed in his business concerns on the island, Stanford is the second largest employer in Antigua -- trailing only the public sector in jobs created. Just three weeks before the SEC's announcement, Stanford had announced the elimination of 200 jobs at the Stanford Development Company Ltd., the Group's land development company. There was little prior evidence that the global economic crisis was having a significant impact on real estate development or investment-led growth, according to a local real estate developer. Now, however, many in the business community have told us that the economy is deteriorating rapidly. -------------- ELECTION FALLOUT UNCERTAIN -------------- ¶5. (SBU) The allegations surrounding Stanford and his dealings in the twin island state has cast a dark shadow over the upcoming general elections, which are slated for March 12. Both the incumbent United Progressive Party (UPP) and the opposition Antigua Labour Party (ALP) have tried to distance themselves from Stanford. Economic woes in Antigua and Barbuda are a critical issue in the election campaign. The UPP government recently recalled Parliament after it was dissolved in preparations of the elections to discuss the economic impact of allegations against Stanford, and is proposing, inter alia, the expropriation of all of Stanford's real assets in the country, amounting to some 250 acres of land and 45 properties. ¶6. (SBU) According to some Embassy contacts, the prevailing opinion that Stanford's close ties to the opposition ALP would lead to an electoral boost for the UPP has so far not materialized. Stanford's largesse over many years has endeared him to many Antiguans, who hope he is cleared of all charges so the gravy train can continue. Many other Antiguans have long resented Stanford's deep pocketed efforts to curry favor and see the SEC case as a long overdue comeuppance for a non-Antiguan with a domineering reputation. Stanford has always been close to the ALP, and it is likely that any negative fallout against Stanford would likely hurt the ALP's chances at the polls in the March 12 elections. ¶7. (SBU) The ALP has most recently attempted to mount a defense for Stanford in parliament, accusing the UPP of denying him due process and of acting precipitously to expropriate his property before all the facts are in. ALP leader Lester Bird has cast this as a sovereignty issue, claiming to be defending Antigua's land from encroachment by U.S. authorities and as the first salvo in an BRIDGETOWN 00000136 002 OF 002 all-out war against Antigua's offshore banking sector. -------------- REGIONAL ECONOMIC FALL-OUT -------------- ¶8. (U) Stanford's investments and financing stretched into the Eastern Caribbean, and beyond. Governments in the region, especially those in the Leeward Islands, have been caught up in the tsunami of Stanford's financial problems. Regional institutions such as the regional airline, LIAT, and regional cricket governing body, West Indies Cricket Board (WICB),have not been immune to the fall-out since the allegations against Stanford were disclosed. In a press statement, LIAT CEO Mark Darby sought to underscore that Stanford has never had any interest or stake in the regional airline. Similarly, the WICB has announced that it does not stand to lose any financing or investment, as it tried immediately to distance itself from Stanford. This announcement came as a surprise to many given a five year agreement which was signed between the WICB and the Stanford organization and the staging and payout from last year's Stanford 20/20 cricket tournament. -------------- RENEWED FOCUS ON CARIBBEAN FINANCIAL SYSTEM -------------- ¶9. (SBU) Looking at the long term, the Stanford case has once again brought scrutiny on the Caribbean offshore financial system. Some in the region have voiced concern that the case will strengthen arguments they fear are being made on Capitol Hill to take action against so-called "tax havens" in the Caribbean. These fears were intensified by recent reports that many U.S. institutions receiving federal bailout money, including many major U.S. banks, maintain subsidiaries in the Caribbean (notably the Cayman Islands) specifically to avoid U.S. taxation. This unwanted attention comes at a particularly bad time for Caribbean economies, many of which rely on offshore services as economic drivers. ¶10. (SBU) The sole bright spot in the Stanford episode has been the performance of the Eastern Caribbean Central Bank and its widely respected Governor, Sir Dwight Venner. The ECCB's quick action to send liquidity to the Bank of Antigua in the initial hours of the panicked run on the bank, and the institution's deft and expeditious establishment of a receivership of the bank to restore depositor confidence, was a tough test well met by Venner. Such responsible, level-headed action should prove a long-term plus for the Eastern Caribbean financial and investment climate, and proves there is a solid basis for regional integration at least at the OECS level. -------------- COMMENT -------------- ¶11. (SBU) As many Eastern Caribbean countries already battle high unemployment, decreases in remittances, increased prices and other effects from the current global economic slowdown, the allegations of fraud against Stanford have exacerbated a feeling of economic uncertainty in the region. The economic effects from the Stanford saga will be far-reaching, especially in Antigua and Barbuda where the Stanford Group played an integral role in its economy. Depending on how the case against Stanford progresses, the prospect of the GoAB expropriating his holdings could make remuneration of his previous investors a tricky issue in our bilateral relationship down the road. HARDT