On August 14, 2009, the UK Government assumed day-to-day control of the Turks and Caicos Government by suspending parts of the Constitution. The ensuing effects read like the history of the Wild West: corruption, interrogations, arrests, and land seizures. With broken development deals at the center of the plot, and many high profile developments waiting to be restructured, transitioned, and repositioned, the hospitality world awaits the outcome once the dust finally settles.
The genesis for the suspension was a Final Report written by the Auld Commission of Inquiry, which cited evidence of “systemic corruption” in the former Turks and Caicos Government (the “TCIG”) led by former Premier, Michael Misick. The Misick Government resigned on March 23, 2009 and the Governor, Gordon Wetherell, assumed power.
On August 10, 2009, a Special Prosecutor was appointed to head a Special Investigation and Prosecution Team with a mandate to investigate specific corruption allegations in the Turks and Caicos. At the center of the investigation was alleged corruption surrounding Crown land transfers by the former TCIG to developers and bribes involved in the development process of several high profile resort projects, including the following:
Salt Cay. The original Salt Cay development plans called for a 75-villa resort, including an 18-hole golf course and marina, on 239 acres of land developed by Salt Cay Devco Ltd. and related entities. On April 23, 2010, the Attorney General filed a writ against the developer, seeking to terminate the Salt Cay development agreement and return the Crown land. The proceedings alleged that the developer engaged in a series of corrupt transactions, secret commissions, illicit rewards, inducements, and/or bribes with Misick, and specifically that Misick’s brother received a 50% share in the project’s golf club entity and that credit cards and loans were given to Misick and former Minister of Natural Resources McAllister Hanchell. On February 19, 2011, the developer and representatives from Six Senses Resort & Spas hosted an event on island to discuss ongoing plans for the project and their intent to continue development.
Joe Grant Cay. The development of Joe Grant Cay, bought by Dr. Cem Kinay and announced in mid-2008, was slated to be a low density resort, developed by Star Platinum Island Ltd. and related entities. On June 24, 2010, the interim government terminated the Development Agreement for the project and leases for the residential and golf course parcels. On June 28, 2010, the Attorney General issued civil proceedings against the developer entities and sought to reclaim additional Crown land. The Attorney General alleged that, through a series of corrupt transactions, fraud, and misrepresentations, the developers secured benefits and advantages in relation to the project, specifically, the promotion in Cabinet of papers in support of the development, the execution of the Development Agreement and Conditional Leases, the sale of Crown land, and the grant of concessions, benefits, and discounts. The suit alleges that a one-third interest in the project was given to a company held in trust for three nephews of Misick and mentions that a $500,000 payment was given to Misick by Turks Development LP, Dr. Kinay’s other development entity involved in the Dellis Cay project.
Third Turtle. The Third Turtle Club project began in 2004 under developer Oceanpoint Developments Limited, and its Chairman, Richard Padgett. The original plans called for a five-story multi-phase condo/hotel, spa, and marina. In March 2010, Padgett announced that he was placing the property on the market after infusing approximately $21mm into the project. On January 14, 2011, the Attorney General instituted civil proceedings, alleging that the developers paid more than $1.1mm to Misick and former Deputy Premier and Minister of Finance Floyd Hall to receive special treatment, which included allowing the developer to construct a five story building when the Planning Department restricted building height of the development to three stories.
Emerald Cay. On December 3, 2010, the Attorney General issued civil proceedings against Emerald Cay Limited, Worldwide Commercial Properties Limited, Timothy Blixseth (founder of Yellowstone Club of Montana), and Andrew Hawes, alleging that the foregoing avoided $1.7mm in stamp duty by falsifying the purchase price of a 30,000 square foot home on Emerald Cay bought by Blixseth in August 2006. The government alleged that the true consideration paid for the property was $28mm, while the purchase price recorded on the land transfer certificate was $10mm, allowing the purchasers to pay a stamp duty of $975k, rather than $2.73mm.
Dellis Cay. In 2005, Dr. Cem Kinay and Oguz Serim, through the entity Turks Ltd., purchased nearly all of the private land on Dellis Cay, consisting of approximately 209 acres. Construction on the project, which originally included a residential component and a Mandarin Oriental hotel, began in June 2008. The project was put into receivership by lender Trinidad and Tobago Unit Trust Corp. (“TTUTC”) in October 2009 with approximately 20% to 30% of the construction completed. A lawsuit was filed by buyers of villas in the project on January 28, 2011 in the U.S. District Court in Manhattan, N.Y., alleging that the developers of the project, TTUTC, and Mandarin Oriental Hotel Group conducted a fraudulent scheme to create the appearance that the project was financially sound. The suit specifically alleges that of the nearly $100mm collected from sales, less than a third was spent on construction and the balance was stolen by the developers, and less than 10% of the $62mm in loan proceeds was used for construction, with the remainder used to pay off the developer’s preexisting debts. In February 2011, the Turks and Caicos Supreme Court froze approximately $85mm in assets held by Kinay and Serim to satisfy preexisting TTUTC claims. The TCIG has stated that their intention is for the project to be sold and continued to be developed.
As of March 2011, more than $3.1mm in land and cash had been recovered by the TCIG. The civil action surrounding Joe Grant Cay is scheduled to go to trial in September 2011, followed by another trial date set for Salt Cay in November 2011. The cases involving Dellis Cay, Third Turtle, and Emerald Cay are slated to be resolved by 2012. In total, the Government is reviewing approximately 50 cases.
In addition to projects that are caught up in litigation with the Government, several other high profile resort projects have fallen victim to the recession. In November 2010, the Turks and Caicos Sporting Club on Ambergris Cay was placed into receivership by the British Caribbean Bank Ltd. The Sporting Club, a 1,100-acre mixed-use development, opened in 2008 and includes the Caribbean’s longest private airstrip. In addition, the Molasses Reef Resort on West Caicos was forced to stop construction in 2008 after the demise of Lehman Brothers. Original plans for the project included 125 suites, 75 private, Ritz-Carlton branded villas, three restaurants, and a spa. The project was approximately 75% complete at the time construction was halted.
While the Special Investigation and Prosecution Team is occupied with recouping land and money for the country, the UK Government and interim TCIG are focused on infusing additional financial support into the island and creating a plan to restore the country to self-governance. In March 2011, Governor Wetherell announced the details of a $260mm UK-backed financial support package designed to refinance TCIG’s high level of debt and monthly deficits. In addition, the UK Government announced that, as long as finances are stable and a string of reforms are in place, elections will be held on island in 2012.
There still remains significant uncertainty about the future of development in the Turks and Caicos. The UK Government has made it clear that it will implement stricter Crown land laws and it is evident that new projects will undergo a heightened level of scrutiny. As a result, it is critical for people engaged in existing and new business in the Turks and Caicos to exercise thorough due diligence, draft all documentation in compliance with applicable laws, paying particular attention to new regulations issued by the interim TCIG, and to protect against any subsequent government changes by obtaining proper approvals.
There is little doubt that the Turks and Caicos is one of the Caribbean’s most sought after destinations for tourism development. The islands possess some of the best beaches and hotels in the region, exceptional airlift and infrastructure, and proximity to the United States. It is still unclear what the landscape will look like after the Government is restored and projects begin to emerge from litigation, but most in the hospitality industry remain optimistic about development prospects in the Turks and Caicos. While many projects on island are on hold during this time of restructuring, tourist arrival statistics for the Turks and Caicos continue to rise and there is a common sentiment that the country will emerge as a safer and better place to do business and regain its place as one of the Caribbean’s leading tourism destinations.
For additional information on the Turks and Caicos, please contact Matt Norton at 843.727.2645 or mattnorton@parkerpoe.com.
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