HCU violated rules, was in breach of CU rules

A report prepared in June 2007 by an inspection team from the Commissioner of Cooperatives found evidence that the Hindu Credit Union violated most of its written policies. It said the organization breached the rules and replaced its core business of granting with the acquisition of properties.

The report said the practice adopted by the credit union created major problems. It found that the acquisition of properties placed the HCU in an adverse cash flow position.

It said although the organization had a "written, detailed and comprehensive loans manual" it violated its own policies.

One example cited by the investigators was that people became members by buying a membership for $25 and getting an unsecured loan approved for more than $100,000 the same day.

It said there was evidence of interference in the granting of these loans. It pointed out that an examination of members' files revealed that while some members did not qualify for loans, the loan officers handling the cases were instructed to violate the rules.

In one instance the team found that the HCU had granted loans of $269,000 to a non-member described as a "Costa Rican employed at the Costa Rican Embassy" between March 2002 and June 2003.

That loans were not repaid and they had accumulated interest of $234,556.10 by Sept. 15, 2006.

The report noted that the person was granted membership after he received the funds for the first loan.

It also noted that:

• Officers with delinquent loans continue to serve on the board of directors of the HCU in contravention of the by-laws
• Loans were not granted in accordance with relevant legislation in the Co-operative Societies Act
• There were cases where officers had more than one mortgage loan, in violation of legislation
• Huge loans of over $500,000 were granted with members holding only $30 in shares
• Delinquent loans were refinanced in contravention of loans policy
• There were incomplete loan application forms but persons received the funds anyway

The inspection team found that one HCU director had $19,380.29 in shares with a total loan balance of $1.6 million to purchase property.

That loan was classified as an "ordinary loan" and the interest rate charged was 0.5 per cent.

In another example, the report showed that another member working for a subsdiary company had $25.33 in shares and a delinquent loan of $150,651, with outstanding interest was $58,754.

On February 6, 2005, the report noted, the member sold a 1.5 tonne Isuzu truck to the credit union for $152,242.73.

Here is what the report said of that transaction:

"This sum was used to clear off the loan principal. On August 18, 2005, interest in the sum of $58,754 was waived. No valuation for this vehicle was carried out. Member is a relative of (an official of HCU), as such a proper valuation of the vehicle should have been done in order to ensure transparency and accountability with respect to this transaction."

On the issue of the land and buildings owned by the HCU, the inspection team found in some cases:

• There were no valuation reports for some properties
• Proper and thorough searches were not conducted thus resulting in the loss of investment
• Valuation and searches were completed in some cases after the transaction
• Deeds of conveyance were not seen for some properties purchased
• Deeds were not registered
• Properties were sometimes purchased for amounts in excess of their stated in the valuation report

The team found that the HCU Convention Centre was valued at $1 million in November 2001. The property was purchased by an HCU member in March 2002 for $710,000 and sold seven months later to HCU for $2.5 million.

Another example was the purchase of the twin towers on Mulchan Seuchan Road in Chaguanas for $16.9 million in June 2003. In January 2005, the HCU was still owing $7 on the property, which was bought from a director of the credit union.

In January 2005, the director signed a Memorandum of Understanding for the formation of a limited liability company (World Select Gem Ltd) with a share capital of $16.9 million, making both persons who signed the agreement equal owners.

The report noted that while the HCU had $621.9 million its "members were unable to cash in their fixed deposits upon maturity."