Tuesday, October 10, 2006

The Trafigura effect

This year, blessed with a quiet hurricane season, Jamaica has created our own category 10 hurricane, Trafigura. The issue has been the subject of hot debate over the last two weeks, with charges and counter charges being laid. It is of both national and commercial importance, making it very easy to forget the underlying issue for Jamaicans.

When news first broke, it was posited as a reason for the current PNP government to resign en bloc, by the JLP. The PNP denied anything illegal or immoral about it, and at first seemed to deny that the account name, CCOC, had any particular meaning and then back tracked. They then stated that Trafigura made the contribution as a political donation, but then Trafigura described the $31 million as a commercial arrangement with CCOC, no doubt influenced by the investigations against them in Holland.

In all of this I am heartened by the statements from the JCC and PSOJ, as for the first in a very long time the private sector is not only showing a unified voice, but is actually making public comments in the interest of the country. This inspired by a newly elected, and more importantly, younger generation business leader, Mark Myers.

Public trust
This matter led to the resignation of the Information Minister, Colin Campbell, and the JLP is calling for more heads. The way the PNP handles this one can determine their foreseeable political future, and they should ensure that it is dealt with in Jamaica’s interest and not with the party as primary concern. I trust also that both parties will have campaign reform included in their manifestos for early implementation, although neither has shown any real commitment to campaign reform as yet.

Even if there is nothing illegal about the contribution, it is unethical to have accepted it, under the cover of darkness from a company the government has negotiated a commercial arrangement with. What would be government’s position if a government agency accepted a significant Christmas gift from a company it was in a contract negotiation with?

While serving on the board of the Betting, Gaming and Lotteries Commission, one principle the then Chairman insisted on was that no commissioner should accept any gift from a licensee, including lunch. The fact is, even if the donation was legal, on the face of it it appears to be wrong, and the reality of perception is very important for our persons publicly elected or appointed. It is very difficult for (1) Governments to rule without moral authority; and (2) for foreign and local investors to have confidence in an environment where trust is minimal. We are only two familiar with the effect confidence has had on our economy.

The 2006 Global Competitiveness report states that amongst the 1st Pillar needed in a country to provide a foundation for competitiveness and growth are the state of (i) Ethics and corruption [Diversion of public funds and Public trust of Politicians]; (ii) Undue influence [Judicial independence and favouritism in decisions of government officials]; (iii) Government inefficiency [Wastefulness of government spending and Burden of government regulation]; (iv) Corporate ethics [Ethical behaviour of firms]; and (v) Accountability [Efficacy of corporate boards, protection of minority shareholders’ interests and Strength of auditing and accounting standards].

This illustrates a need to maintain transparency, especially if we are serious about attracting foreign investments, which is a deliberate strategy of this administration. This also supports the argument against the breach of customer confidentiality. The banking sector has its foundation in the principle of confidentiality, as do lawyers, doctors and accountants. This alleged action by an FCIB employee, if true, would be a fundamental breach, and the passing of documents even more damning. The bank has realized this and has taken swift action, and must be commended, but must go further to ensure that preventative systems and controls are in place, rather than react, as must be done by all financial institutions.

From Trafigura’s point of view they are already mired in controversy. Formed in 1993, they are commodity traders and charges have been made of linkages to Marc Rich. Trafigura’s group equity stands at US$600 million (J$39.7 billion), and has 35 offices in 36 countries. The group manages its commercial activities through Trafigura Beheer BV (Parent company in Holland); Trafigura AG; Trafigura Pte Ltd (runs group petroleum trading in the Far East); Puma Group (operate group’s world-wide oil storage and distribution assets and investments); and Galena Asset Management (based in London and FSA registered. This is the subsidiary through which Trafigura established and operates fund management).

In May 2006, the US Department of Justice released a statement that Trafigura AG was convicted of falsely representing that more than 500,000 barrels of Iraqi oil was obtained in compliance with the Oil-For-Food Programme. The company, which Trafigura bought the oil from, Ibex, charged that the scheme “had been cooked up by Trafigura”. Trafigura was ordered by the United States to immediately pay a fine of US$8 million, and forfeit US$9.9 million, representing proceeds of the two implicated oil shipments.

In September 2006, Trafigura was accused of dumping toxic chemicals in Abidjan, Ivory Coast, that caused the death of seven persons and 40,000 to be treated in hospital for nausea, breathing problems and nosebleeds. Ten persons, including two French Trafigura executives, Claude Dauphin and Jean-Pierre Valentini, were charged in connection with this. It also led to the dissolution of the Ivory Coast government “to ensure that those who have a hand in what happened…take full responsibility and are removed…”

Interestingly, the BBC reported that Trafigura tried to dispose of the waste twice before Abidjan. First attempting to discharge the waste in the Dutch port of Amsterdam, but the company that was to do the disposal suddenly increased its charges by 40 times. Trafigura then tried to offload the waste in Nigeria, but failed to reach an agreement with two local firms. The question is, what did those companies become aware of?

Although charges of the second incident would have arisen after them meeting Colin Campbell in August 2006, surely any slight attempt at due diligence would have shown the conviction in May 2006. The responsibility of government must be to ensure that in all their dealings they are very transparent and careful to ensure that it stands up to public scrutiny and maintain public trust.

It is regretful, and distasteful, that certain government representatives have personally attacked the JCC president. This is not what I expect from the new politics brought by Patterson and promised to be continued by the current Prime Minister. Come on let’s all start thinking about Jamaica’s interest as it is only through unity that we can move forward.

At the heart of all of this are the possible effects on the moral credibility of our leaders and the business and economic climate. It is therefore of utmost importance that as a country we are seen to deal with this problem effectively, so that we send the right message to the international community. I am confident that the Prime Minister’s nature will result in the matter being addressed in Jamaica’s interest. The unity of criticism from the private sector, social groups and media underscores its importance.


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