Grenada’s Bank on the Brink

ST. GEORGE'S, Grenada —  Just three years after he declared bankruptcy in Oregon, Gilbert A. Ziegler arrived in this eastern Caribbean island in 1997 on a passport from the Dominion of Melchizedek, an “ecclesiastical state” that apparently exists only on the Internet.

By his own account, Ziegler paid the government to become a Grenadian under its economic citizenship program, changed his name to Van A. Brink--”for private, spiritual reasons, not to hide”--and laid the foundation stone for what he would later claim was a $62-billion offshore banking empire.

That stone was a ruby. Brink used a photograph and appraisal of the gem to help capitalize First International Bank of Grenada Ltd., which offered interest rates of 100% or more.

Within a year, the bank reported assets of $14 billion.

But last month, First International Bank of Grenada came unglued, threatening thousands of depositors--mostly Americans--with the loss of tens of millions of dollars.

The Grenadian government, which was warned about the bank’s practices as early as March 1999, took over what’s left of it Aug. 1 and has been struggling ever since to untangle a web of sub-banks and affiliated companies. And in late August, local police charged two Canadian businessmen associated with the bank with fraud.

David Marchant, who as publisher of the Miami-based newsletter Offshore Alert has led an 18-month crusade against First Bank, asserts that the bank used new depositors’ money to pay impossibly high interest rates to older depositors until all the money was gone.

Brink, who is now reported to be living in Uganda in one of former dictator Idi Amin’s residences, has denied that allegation numerous times. He asserted in a series of recent e-mails to depositors and Grenada’s special bank investigator that he is “a target of false allegations, character smears, insinuations and innuendo” that he blames on Marchant. He has not been charged with any wrongdoing.

But with First Bank now teetering, the case offers lessons not only to future offshore depositors but also to a Caribbean region increasingly dependent on the hefty license fees that it earns from its offshore sector.

Offshore institutions such as First Bank often offer higher-than-average yields to foreign depositors, along with the ability to shelter income and assets from taxation or liability in their home countries. Most of the region’s established banks operate legitimately.

But policing the industry against fraud and money laundering has largely stymied U.S. and European law enforcement agencies, which have sharply criticized offshore secrecy laws that protect the depositors’ and investors’ confidentiality.

Millions of Dollars Transferred to Uganda

The blond and balding Brink resigned his positions at First Bank nearly a year ago and has served as a consultant to its board since June. He moved to Uganda earlier this year, announcing an ambitious plan to use $40 million from First Bank to help rebuild neighboring Congo.

Grenada’s special examiner, Garvey Louison, stated in an Aug. 22 letter to First Bank’s directors, consultants and former directors that “many millions of dollars have been transferred [from the bank] to Uganda and assets acquired there. I am also aware that other properties, including land, have been acquired with the use of monies belonging to the bank or its subsidiaries.”

Millions more, Louison stated, were transferred from the bank either directly or indirectly to Brink and other directors. “This clearly is a breach of your fiduciary duties at best and at worst a fraudulent misrepresentation,” Louison concluded.

Brink’s e-mailed response, while pledging his “full cooperation” with Louison’s probe, said the letter “seems to be a matter of skulduggery under color of law rather than a forthright attempt to examine anything as relates to the bank’s finance.” And he asserted that “ample value does exist to meet the obligations to depositors.”

The tone and length of his most recent missive were consistent with the 49-year-old banker’s earlier public statements. His paid advertisements and pronouncements since he left behind his failed mortgage brokerage in Oregon have been heavily laced with religion and advocacy for the common man, casting First Bank as a rare vehicle to help enrich America’s middle class.

Grenadian Finance Minister Anthony Boatswain insisted in an interview late last month that his government, which was warned by a Grenadian auditor that First Bank was in “complete violation” of offshore laws here, had had no proof of wrongdoing by the bank. It was only after a long-delayed audit by a British accountant, he said, that he learned that “the bank was in serious difficulties. Based on that, we had to send someone in to protect whatever is left of the bank.”

“It looks bad,” added Keith Friday, senior counsel of the government’s offshore regulatory agency. “First Bank is a learning experience for us, there’s no doubt about that.”

Perhaps not surprisingly, First Bank’s depositors have been notably silent; much of their investment here, industry analysts say, was meant to avoid U.S. and Canadian taxation, a move few wish to advertise.

But their angst is reflected in a private e-mail group set up on the Internet on July 1 and shut down last week. In that time, the depositors exchanged more than 1,400 messages, ranging from prayers of hope to profound bitterness to resignation--much of that grounded in information in documents that first surfaced more than a year ago.

Those documents, which are on file in Grenada’s high court, confirm that Grenadian Prime Minister Keith Mitchell was told that First Bank--in fact, the nation’s entire offshore sector--was in precarious shape a full 17 months before the Finance Ministry stepped in.

The documents were filed as exhibits by Grenadian accountant Lauriston Wilson, a retired senior civil servant in the Finance Ministry who was hired by First Bank to do its first independent audit in December 1998.

In a recent interview, the graying, soft-spoken Wilson recalled that he became alarmed soon after he began the audit. “We saw a lot of expenditures but not any real income,” he said. “The deposits from depositors were classified as income--not liabilities.”

On March 26 last year, he sent Mitchell--who was also serving as finance minister at the time--a three-page letter stating that the bank lacked proper internal controls and accounting systems, that it failed to provide the names and addresses of the financial institutions that could verify its assets and that there were “general interference with and obstruction of the course of the audit by the Chief Executive Officer,” namely Brink.

Assets Reportedly Grew to $14 Billion in a Year

Wilson further warned that “the assets of the bank are bogus and fictitious.” He noted dubiously that the bank claimed to have increased its assets from $110,000 to $14 billion in one year. And he recommended that Mitchell remove his handpicked chief of the offshore sector, Michael Creft, and appoint a committee to revamp the entire industry.

Mitchell announced that he was calling in the FBI to investigate--the agency declined to confirm or deny that--but he has continued to stand by Creft, who has since written sworn court affidavits and a letter to the Ugandan parliament vouching for First Bank as a healthy financial institution.

Creft conceded in an interview this week that he and his government had made mistakes in the First Bank case, which he blamed on inexperience and understaffing. He added that he now regrets having stood up for the bank in writing: “In retrospect, I was wrong. That I would readily admit.

“I’m not going to sit here and say mistakes were not made,” he said. “I would be the first to say there were. But there were only two of us at the time. . . . We didn’t have the staff to oversee and supervise the bank, and I think, in retrospect, we should have acted much faster.”

But Creft, who said he has an economics degree from Canada’s University of Manitoba but never worked in banking or finance before becoming head of Grenada’s offshore sector, denied that the government took no action despite Wilson’s allegations: “We consulted with the FBI on a quiet basis. . . . We had several meetings with the FBI special agents. We sent information to them.”

And what was First Bank’s response to Wilson’s allegations? The bank won a court order for the return of its records, which Wilson said he had kept as evidence for what he assumed would be a government investigation last year.

In April 1999, Brink ran a single-spaced, two-page ad in the weekly newspaper the Grenadian Voice in which he defended himself, denying the auditor’s findings and Marchant’s allegations.

Brink asserted in the ad that he had repaid half the $1.1 million in debts from his 1994 Oregon bankruptcy and that the “precious stone” that helped capitalize the bank was worth $20 million. He conceded that he first entered Grenada on a passport from the Dominion of Melchizedek as “ambassador at large” but asserted that the entity has a government and “sovereign claim to an above-sea-level landmass.”

The ad was an apparent response not only to a series of stories in Offshore Alert but also to articles by another weekly here, Grenada Today.

Most recently, the weekly published excerpts from a July 4 letter to depositors from a new bank chairman, Richard Downes, who warned of a severe cash-flow problem.

“The current situation is we have withdrawal demands exceeding the present available cash. Again, no smoke and mirrors. Just facts,” he wrote. In the letter, Downes, who could not be located for comment, praised Brink, who “for all his faults and failings” did resign his positions partly to clear the bank’s name.

“We are apologizing,” the letter added, “and asking for your forgiveness.”

Meanwhile, for Marchant, who insists that the bank’s misdeeds--and not his crusade--are the cause of its collapse, the lesson from First Bank is a basic one: “There are so many . . . people out there who think they can sit at their television set, eating bowls of ice cream, watching ‘The Young and the Restless’ and, in 15 months, a fat check will show up from their offshore bank.

“Unfortunately, life is not like that.”