Submission from Mr Michael Hardy, Bermuda
First let me introduce myself. My name is Michael
Hardy, I am a FCA (ICEAW) and have been active as an auditor,
accountant and manager of Insurance and Reinsurance companies
in Bermuda for 25 years up to 2003. I am a past director of the
Bermuda International Business Association, past President of
the Bermuda Insurance Managers Association and past member of
the Insurance Advisory Committee to the Bermuda Government.
I would like to bring to your attention to,
what in my opinion, is a long standing weakness in the in the
enforcement of criminal law as it applies to financial crime,
particularly with regard to entities regulated by the Bermuda
Monetary Authority (BMA).It has been my long standing contention
that insufficient emphasis has been placed by regulators for the
last 25 years on the investigation of licensed companies, managers
and executives under Bermuda Law with regard to suspicious activities.
This is born out by the remarks to me by Munroe Sutherland a past
director of the BMA (paraphrasing his remarks "It's not a
major priority for the BMA") and their Objects set out on
the BMA website—http://www.bma.bm/Home/BMA_Objects
BMA OBJECTS
1. To issue and redeem notes and coins.
2. To supervise, regulate and inspect any
financial institution which operates in and from within Bermuda.
3. To promote the financial stability and
soundness of financial institutions.
4. To supervise, regulate or approve the
issue of financial instruments by financial institutions or by
residents.
5. To assist with the detection and prevention
of financial crime.
6. To foster close relations between financial
institutions themselves and between the financial institutions
and the Government.
7. To manage exchange control and regulate
transactions in foreign currency or gold on behalf of the Government.
8. To advise and assist the Government and
public bodies on banking and other financial and monetary matters.
9. To perform such functions as may be necessary
to fulfill the said objects.
The BMA has not made, as far as I can gather,
any significant "official" Criminal Complaint (or Suspicious
Activity Report) to the Police Fraud Unit in that time period.
This is according to police officials. I am told an "official"
complaint from the BMA is required by the police fraud unit before
an investigation can take place.
Whilst Bermuda companies and executives have
been investigated overseas for fraudulent activities in cross
border transactions etc, there have been no such transparent investigations
and indictments in Bermuda. Bermuda entities having involved in
transactions with foreign companies accused of nefarious activities,
have not been reported as investigated for such activities in
Bermuda, such as:
— First Virginia Re—part of a
fraudulent scheme to siphon off insurance premiums from a US Insurance
Company—http://www.valawyersweekly.com/anlir16.cfm
— Michael Bott & Associates—quoted
by a judge in a civil case as being involved in fraudulent transactions
(Bott v SCRAP in 80s and Kansa International v Herald in 90s).
— AIG and its overseas subsidiaries
managed out of Bermuda—Mike Murphy indicted (later dropped)
for shredding documents. Also brought to light by Spitzer, Bermuda
being office for Carribean companies involved in suspicious activities
and having Bermuda officers http://www.assinews.it:8080/rassegna/articoli/arc/nyt050405ai.html
— Bermuda Commercial Bank and in particular
John Deuss. Media exposure of possible nefarious oil deals, before
he was accepted as a beneficial owner, director and officer of
Bermuda companies including the Bermuda Commercial Bank. Now the
scandal regarding its 30% holding company, First Curacao International
Bank, was being investigated for money laundering by regulators
in the Netherlands and on the Dutch Caribbean island of Curacao.
— Bermuda Hedge Funds managed and or
recommended by MDL Capital Management
"A second element of the growing Ohio scandal
involves cruel irony. the loss of at least $215 million of Bureau
funds invested by a Bermuda-based hedge fund run by MDL CapitalManagement"
http://www.larouchepub.com/eiw/public/2005/2005_20-29/2005-26/pdf/34-39—26_ohio.pdf
and many other published articles
"USA (Bloomberg), WASHINGTON: Renaissance
Re Holdings, a Bermuda-based reinsurer, will pay $15 million to
settle accusations it created an accounting `cookie jar' to help
smooth earnings in bad years, the US Securities and Exchange Commission
has said".
Please note that I do recognize that Bermuda
is no different to any other major business centre in that it
will and has attracted some unsavory characters. Since Spitzer,
Enron, Tyco and many others, there has not only been an insistence
that companies and executives clean up their acts, but that regulators
investigate and punish wrong doing. Also, the goal posts have
been moved regarding what transactions are acceptable and those
that are not. Many were originally agreed to by external consultants,
lawyers and auditors. Their roles being found to have an ominous
lack of independence or professional judgment and more a view
of commercial expediency.
To an outside observer, it appears that the
BMA, whilst dealing with unsavoury situations by cooperating with
overseas regulators and providing them with significant help where
required to put criminals in jail in foreign jurisdictions, does
not proactively investigate suspicious circumstances themselves,
passing evidence of criminal wrong doing to the police:
1. Are the Bermuda parties involved breaking
any laws in Bermuda?
2. Are the companies in Bermuda facilitating
illegal activities abroad?
3. Are Bermuda service providers (lawyers,
accountants and managers) being diligent enough to spot any suspicious
activites?
4. Was proper due diligence done by these
service providers and the Registrar of companies to ascertain
whether the Bermuda entities were to be used for any criminal
activity in Bermuda or more likely overseas?
I therefore urge you to look into this perceived
lack of enforcement of Bermuda laws by the BMA and commitment
towards helping the police identify criminals operating under
the guise of Bermuda regulated companies, by placing sufficient
emphasis on investigation, sanctions and ultimately official criminal
complaints to the appropriate police unit.
— An Object of the BMA should be to
proactively investigate suspicious activities.
— There should clearly be a separate
investigative branch of the BMA, which works closely with the
police on suspicious activities.
— Business plans for insurance companies
should include a letter from a tax consultant in the owners' home
country to ensure there is no tax evasion or illegal avoidance
of tax involved in the proposed transactions to be undertaken
by the new Bermuda company.
— The public should be informed of
penalties etc meted out to Bermuda entities and their officers,
including sanctions against doing business in Bermuda.
18 September 2007
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