Leaked Saturnia report reveals high level corruption
Ousted Saturnia Trustees have finally leaked a damning report that led to their unceremonious removal
There have been various reports on Saturnia Regna Pension Trust Fund (SRPTF) following two recent court actions one of which was brought by the Service Providers (African Life Financial Services, the Fund Manager) and a second separate but related action brought by Mr. Muna Hantuba et al soon afterwards. It is noteworthy that Mr. Hantuba is in fact a major shareholder in African Life Financial Services as well as being a shareholder in Benefits Consulting Limited, the Fund Administrators.
In both cases, the High Court dismissed the lawsuits with costs hence this was cost neutral to the Pensioners. It is noteworthy that the Service Provider pursued the lawsuits in direct defiance of a specific instruction by the Pension Insurance Authority to the Service Providers and to Mr. Hantuba personally to discontinue the court cases. Despite this, we have not aware of any sanctions by the PIA for these unsafe actions which created a governance vacuum that could only suit the service providers. The court case also prematurely put into the public domain sensitive issues and documents that were previously the preserve of the main stakeholders that were working on resolving these issues. Background Trustees believe the key issue at the Fund stems from the misplaced assumption by the Service Provider that they own the Fund, that they are settlers of the Fund and that as a result they have a sacrosanct relationship that guarantees them inseparable co-existence with the Fund. The service providers have credited themselves with creating the Fund and ‘inviting’ others to join the Fund. They have claimed that their ‘special’ position in the Fund is protected by law, by the Trust Deed and by other constitutive documents. These assumptions appear to have given way to contentious governance and operational structures in the Fund and it is these contentious matters that have raised concerns with Trustees. High Court Rulings
The rulings by the Zambian High Court in both cases disagree with the Service Provider’s position. The High Court re-affirmed the Trustee’s position that the Fund belongs to the members and not to the Service Providers. The High Court also affirmed the Trustee’s position that the Service Provider relationship with the Fund is a contractual relationship and that this contract can be varied and even be terminated. Thus the assumption by the Service Provider of an inseparable relationship with the Fund is not supported by the Law Courts. Trustees Motivations - Pensions and Governance Controls Trustees have been concerned by the absence of basic governance controls and have sought to rectify this. Trustees believe that most major scandals of pension funds arise primarily due to the absence of the right controls and governance structure and failure to adhere and uphold these without exception. The Mirror Group & Robert Maxwell, British Home Stores & Phillip Green are two wellknown examples where individuals believed they, and not the Pensioners, owned the Funds. Robert Maxwell famously declared that he owned the Pension Fund. These people were allowed to exercise excessive, unfettered control over the operations of the pension funds to the funds ultimate detriment. As well both these the inadequate examples, controls, the regulators in identify were and too respond slow to to the correctly risks, and, even in slower fact the to regulators rectify matters were until The it was Service too late. providers resistance against these basic governance controls has been evidenced not only by the two recent court cases which sought to damage the credibility and standing of Trustees, but has also been manifested in day to day dealings as Service Providers have repeatedly failed to provide Trustees with critical information requested for decision making. On some occasions, the Service Providers have deliberately misled Trustees and Regulators on factual matters by providing false information as was the case on Zambia Home Loans case, and sometimes they’ve claimed lack of access to archive documents as was the case in relation to PIA inspection report matters. Below follows a summary of some of the concerns from the Trustees. 1.Saturnia Pension Trust Limited Trustees recently become aware that assets of the Fund were transferred to a private limited company and further that liabilities of a private company were being transferred to the Fund.
A private company curiously named Saturnia Pension Trust Limited, with a similar name and postal address as Saturnia Pension Trust Fund, but called Limited not Fund, was created by named individuals who happen to have ownership stakes in the Service Provider Companies. Trustees requested the Service Providers for the board resolutions and PIA approval for the creation of this limited company and for the transfer of assets. To date this request remains unfulfilled. Misappropriated Fund Assets - Trustees, through media reports become aware that flagship properties of the Fund were illegally transferred from the Fund to this private limited company. Trustees instructed the Service Providers to ensure the immediate return of any and all Fund Assets thus transferred and the closure of this Limited Company. Trustees’ efforts for next course of action were thwarted by the two successive court actions by the Service Providers and named individuals that ensured that Trustees were thoroughly injuncted and unable to perform their duties. Trustees are very concerned that the Service Providers actions may be an exercise in time honored methods of obfuscation and bureaucracy and that the AGM is a hopeful means of removing or eliminating the current noisy Trustees. Third Party Legal Liabilities - Secondly, Trustees noted that the draft financial statements prepared by Benco which were to be proposed for adoption at the failed March 2017 AGM had legal fees provisions amounting to K632,000. This relates to a case brought by a former tenant (Nkwazi Chambers - Appeal no 48/2014) against African Life Financial Services and Saturnia Regna Pension Trust Limited. Trustees are concerned that (i) the Fund was not a party to the lawsuit as court documents show that it was the private limited company that was sued as the landlord and (i i) the fees were accruals and not the full amounts and so are fearful that the bill could even be higher.
Apart from the obvious questions re’ why Bencon in these draft Financial Statements would seek to transfer the liability to the pensioners from the private limited company, the earlier question of where the Fund properties and other assets are sitting resurfaces here as this private limited company appears to have been sued as the owner
These properties belong to the Pension Trust but have been variously registered in other institutions
of the property. Third Party Tax Liabilities Thirdly, during the recent audit review of the above referenced draft financial statements prepared by Bencon for the aborted March 2017 AGM at which Trustees were injuncted, it was noted that ZRA had issued demand notice no. 2386100 for Two million Kwacha against this private limited company, Saturnia Regna Pension Trust Limited, TPIN 1001720633. In the said draft financial statements that were going to be proposed for adoption, Becon had decided to book this tax liability as a Pension Fund liability for the pensioners to pay, effectively transferring the cost from the limited company to the Fund. The Trustees are concerned that firstly the demand notice was against the private company and not for the Fund. Secondly the Trustees are also concerned that any fines or fees due to administration delays and failures should be borne by the administrator rather being passed on to the Fund as this arises from matters under the administrators control. Lastly, the larger concern is whether this mindset of moving costs to the Fund is pervasive and the Service Provider is potentially moving other non-fund costs re’ investment fees, transaction fees etc unfairly on to the Fund when in fact these should legally and morally be borne by the Service Providers. Property related expenses are a potentially high risk area in this regard. A request has been made for the administrator to avail the TPIN number for the Fund as opposed to the private limited company but to date the response is not forth coming. Trustees are concerned that the Administrator may have in fact neglected to register the Fund for a TPIN opting instead to conduct Fund related activities such as Tax transactions using this private limited company which is a different, separate legal entity altogether from the Fund. Trustees are concerned that this may border on an illegality and must be corrected as matter of the highest priority. 2.Administration Fees and Fund Management Fees Trustees have been concerned by the comparatively high fees charged on the Fund by both the Administrator and Fund Manager compared to the market rates and considering the market size of the Fund and the expected economies of scale.
Trustees have also raised concern that the Fund Managers and Administrators had potentially abused the power of attorney re the bank mandate by being paying themselves these fees monthly or quarterly without any Trustee review or approval of any invoices. Administration Fees – PIA published data and the Market research actually done by the administrator on behalf of the Trustees showed that on average, Fund Administration in the industry right now fees range between 1% and 1.5% of the cash contributions. Bencon however are currently charging 4.5% as an administration fee (3.5% on Lumwana employees) which is 4 times the prevailing rate. Trustees have been concerned that these high rates appear to completely disregard the rather large size of the Fund and the economies of scale that the service provider enjoys by serving the Fund but does not pass these on to the Fund.
Trustees have on several occasions directed Bencon to revise down their administration rate in line with obtaining market rates or show cause why. However, the board minutes compiled by Bencon, who ironically serve as Secretary to the Board of Trustees, have left this item out of the board resolutions section and / or ‘managed’ the issue and the Trustees by saying for example that ‘Trustees have requested for a market comparison exercise to be done’ when in fact Trustees have fee reduction directed that be an implemented. immediate This among remains the Trustees. a source of concern
Trustees Fund Management have also been Fees concerned – on the Fund management fees in two main areas relating to namely the treatment and make up of property related fees and expenses and the impact of non-cash related items or adjustments in particular property re-valuations and foreign exchange gains.
Expenses - Trustees are concerned by the lack of granularity and transparency on the makeup of the property related expenses and fees as well as related party transactions and whether the proper tendering process is followed to ensure arms-length transactions that are beneficial to the pensioners. Trustees’ requests for proper understanding and review of the portfolio expenses and governance structures have been frustrated by a lack of information. Trustees remain concerned on the issues related to potential layering of fees in general.
Fees -Trustees have called for a review of the Fund Management fee calculation to ensure it based on a sustainable formula. Trustees are concerned that non-cash adjustments such as unrealized foreign exchange movements and unrealized property re-valuations a significant impact on the actual cash / fees paid to the Fund Manager. Whereas these movements are in fact non-cash or unrealized the fund Manager, however, receives cash payments as Fees on these movements which raises concern on Fund sustainability. Trustees request for the Fund manager to revise the fee structure in light of these concerns have not materialized. Property management fees charged by the Fund Manager based on property valuations and revaluations instead of rental and investment income are also a concern. Trustees have engaged an Investment Consultant to assist to look at this particular issue among others but the Fund Manager appears to be working to frustrate these efforts based on initial feedback from the Investment Consultant. 3.PIA Inspection Findings Responses
The PIA undertook an inspection of the Fund and requested feedback on their report findings and recommendations. Trustees requested certain information from the administrators and fund managers relating specially to the apparent untruth on a related party transaction (Zambia Home Loans), the transfer of property assets out of the Fund and the absence of a Ministerial approval for the offshore investments. The trustees have not received the requested information to date.
Trustees were still pursing these matters when an ex-parte injunction was filed stopping them from performing their duties as Trustees. Suffice to say these matters remain unresolved. 4.Conflicts of Interest and Related Parties The situation where the Fund Administrator (Bencon) and the Fund Manager (African Life) are controlled by the same entity and individuals poses particular risk to the fund as the necessary checks and balances are non-existent. Trustees believe the current arrangement has failed the independence test and cannot be relied upon going forwards in the same format. Trustees have also been very concerned about the nexus of undeclared related party transactions. The procurement and tender processes relating to some of these parties does not provide the Trustees sufficient comfort that the Fund and thus the pensioners are deriving optimal value by ensuring that the Fund is paying a fair, arm’s length market price for the goods and services supplied by these related parties. Trustees are also concerned that officers of the Service Providers have taken advantage of their relationship with the Fund and used this to solicit for membership to the boards of certain related parties. This has created an undeclared conflict of interest when making objective economic decisions. The Service Provider has on occasions appeared to make investment decisions that favour their personal interests at the expense of the Fund’s long term viability as appeared to be case for Lafarge Cement. Trustees had long implored the Fund Manager to critically review and consider divesting the Fund’s equity interest in the same company but there were unconvincing rebuttals presented every time that appeared to related to the fact that the Lafarge chairmanship position was held by the then CEO of African Life financial Service. A review of the current draft set of financial statements shows that over
K70m of pensioners money has been lost on this single equity holding most likely due to the Fund Managers undeclared conflict of interest. This is the biggest loss bar none in the reported in the draft financial statements of the Fund. 5. Property Portfolio Mandate Earlier last year the Trustees took an action subjecting the property fund to a competitive tender and awarded the contract to the best bidder. Despite the Trustees having terminated the Aflife contract and a ruling by the Courts in favour of the Trustees, Aflife has defiantly continued to illegally manage the asset. 6. Administrator’s Unsafe Actions to Usurp Elected Trustees Trustees are concerned that the Administrators, Bencon Limited have been working to undermine the Trustees as detailed below.
In an attempt to resist the governance controls that were being proposed by the Trustees, Bencon were found to have started to write directly to members without the approval and authorisation of the elected Trustees and without copying in Trustees. Benco even proceeded to hold meetings unbeknown to the Trustees, where they discussed the so called ‘emerging’ and ‘contentious’ Fund Governance issues with members claiming that Trustees were acting irresponsibly and that Bencon owed fiduciary duties by going behind the elected Trustees to try and influence members to oppose the Trustee actions. This is an unsafe act that undermines the Trust structure entirely and the Trustees wrote to the PIA to complain
about This this. is aside from the already stated fact that Benco has either lied or employed time-honored obfuscation methods and withheld critical Fund records such as minutes and service contracts demanded by the Trustees for decision making, claiming these records were in archives and would take a long time to retrieve. Trustees are concerned that the mistaken assumption that the Fund and the Service Provider are inseparable and have a sacrosanct bond has led to a situation akin to institutional capture. The Administrator, whose role is to serve the Trustees, have instead appeared to extend their concern outside their mandate and appear to take possession and responsibility of the Fund beyond their legal mandate. They appear to not only want to keep the institutional memory of the Fund as if it is the same as that of the Administrator, but they also appear to want to control and limit access to this and to the future direction of the Fund, resulting in institutional capture that is averse and intolerant of effective decision making by Independently minded Trustees on behalf of the pensioners. This is partly demonstrated by the court actions of the controlling owner of the Service Provider and withholding of Fund records and information.