Desi continues a series as PREFACED by my prior post to KEEP THE RAGE on 1MDB -- Malaysia's SCANDAL OF THE CENTURY, with at least 11 foreign jurisdictions investigating 1MDB-related offences, chiefly centred on MONEY-LAUNDERING. ~~ YL, Desi
From malaysianunplug.blogspot.my:~~~~~~
PART I: SARAWAK REPORT UNVEILS THE AUDITOR-GENERAL'S REPORT ON 1MDB KEPT SECRET UNDER OSA BY PM NAJIB ABDUL RAZAK.
The Shocking Truth About 1MDB - We Unlock The Officially Secret AG Report
Sarawak Report has now gained extensive access to the Auditor General’s
report into 1MDB, along with key accompanying documents from the
enquiry.
This report was originally commissioned to shed light on the
disappearance of billions of dollars, but was later declared an
‘Official Secret’ by Najib Razak.
In charge – Najib Razak
Our review has made it abundantly clear why Najib decided that the
findings could not be released, since he wishes to remain Prime Minister
– after all he is also the Finance Minister and sole shareholder
responsible for decision-making at 1MDB and the conclusions are damning.
What the Auditor General encountered, according to the documents, was
chaos and confusion in an organisation where senior executives were
unable to provide convincing or consistent explanations for vast
payments made to a bogus subsidiary of Abu Dhabi’s sovereign fund Aabar
and to a separate false subsidiary of an earlier venture partner,
PetroSaudi.
A grand total of US$7 billion is calculated as having gone missing and
conflicting and unbelievable explanations were given about why the
payments were made.
The AG lamented that the justifications provided for retrospective Board
ratifications of those payments (which had already been made months
earlier by management without prior permission) changed from one year to
the next: furthermore, multi-billion dollar payments were made for the
same advertised purpose two times over.
The AG even complained that management would provide one story to his
enquiry on one occasion and then completely re-write their own version
of events the next time they met.
There was never sufficient proof according to his data, to back up the
stories being told. In particular, bank statements were not provided to
substantiate many of the simply enormous sums that 1MDB management
alleged were being invested in various funds or in ‘refundable deposits’
or ‘terminations of options’ with the bogus Aabar Investments PJS
Limited, based in the British Virgin Islands.
Arul Kanda – last minute new versions of the truth!
On one case the AG was plainly so incensed by the variable and
inconsitent claims by 1MDB management (headed by CEO Arul Kanda), that
he described their final version of events as “suspicious” and
“unsubstantiated” and therefore refused to accept the documents 1MDB had
provided as reliable evidence.
This matter related to a purported US$1.392 billion, that had supposedly
been redeemed from 1MDB’s Cayman Island fund, and was originally
recorded as having been spent on the termination of options owed to
Aabar ($993 million), plus the repayment of loans.
That is what the Board was informed in December 2014 and what was
recorded in the Annual Report (even though the AG records there was
insufficient proof this was how the money was spent).
The AG – unimpressed
Then as late as February 2016, to the AG’s disbelief, he was presented
with a series of papers ratified by the Board on November 26th 2015
which a year on provided an entirely separate story for how the money
was used.
Based on an alleged agreement signed by management in October 6th 2014
(after most of the money had already been paid), the Board on November
26th 2015 retrospectively ratified a series of payments to Aabar Ltd
totalling US$1.15 billion saying they had been for the ‘extension of
guarantees’ for loans (see our previous story).
The AG complained that there had been no mention of this belated new
explanation when he had previously met with 1MDB in December, although
it had all been supposedly signed off the previous month:
a. Although this resolution was approved on Nov 26, 2015 it was only presented to the JAN [AG enquiry] on Feb 2016. This important information was not raised during (JAN’s) discussions with 1MDB’s management held on Dec 16, 2015. This raises doubts on the veracity of the information and documents which were presented.b. This also showed that the 1MDB management had made payments without prior knowledge or approval from the Board. The information is also in conflict with information that was given by the 1MDB management during the Board meeting on Dec 20, 2014 – that USD1.392 billion from the redeeming of SPC funds had been used to pay for Aabar’s Termination of Options amounting to USD993 million and the USD399 million used for interest payments for the USD Note(s). However, JAN was unable to verify both payments. [Addendum Document to AG’s Report]
It gets worse, thundered the AG in his addendum to his report,
explaining why he had rejected the belated material from his enquiry, on
the grounds that it was simply too suspicous:
Although the agreement was signed on Oct 6, 2014, the document was only presented to JAN on Feb 2016 and this important information was not acknowledged or raised during meetings with 1MDB’s management on Dec 16, 2015. This raises doubts on the veracity of the information and documents that were presented.4. Remittance Slip regarding payments to Aabar and Aabar LtdThere are 9 remittance slips regarding payments to Aabar (1) and to Aabar Limited (8) which were presented to JAN on Feb 2016. This important information was not acknowledged or raised during meetings with 1MDB’s management on Dec 16, 2015. The veracity of the format of documents was suspicious as it does not include written instructions to the bank nor bank statements as supporting documents.[Addendum Document to AG’s Report]
Double payment meant 1MDB bought out Aabar’s ‘options’ for more than its guaranteed power plants were even worth!
The AG continues by saying that according to the original data provided
by 1MDB the ‘options to Aabar’ were terminated twice over with near
identical payments totalling over US$1.8 billion – more than the total
value of the 49% of the company Aabar was supposed to be guaranteeing.
Indeed it seems clear that the decision to alter the reason given for
these payments was only taken after this outrageous double payment had
been spotted and reported upon in the press over a year later. The AG
wasn’t buying it:
5. Funds from the Duetsche Bank loan (USD250 mil and USD975 mil), a total of USD855 mil was used for Aabar’s termination of option from May to Sept 2014. According to the Board’s minutes on Dec 20, 2014, a total of USD993 mil was also paid between Sept and Dec 2014. This means that the total amount paid for the termination of option was USD1.848 billion. The total termination of options payment amounting to USD855 million was only changed to Top Up Collateral (Security Deposit) a year later through the Ratification of IPO Variation Payment Made to IPIC on Nov 26, 2015. This demonstrated that the original intention of 1MDB was to pay a total of USD1.848 billion to Aabar Ltd, in contrast with the total stated in the Agreement Relating to Option Agreement (Settlement Agreement) amounting to USD300 mil (refer to Chapter 5, para 7.3.3.4. Pg 189). [Addendum Document to AG’s Report]Apart from this, the USD1.848 billion amount exceeded the 49% equity value in 1MDB Energy Sdn Bhd (1MESB), which amounts to RM1.225 billion, and RM862.40 million in 1MDB Energy Langat Sdn Bhd (1MELSB) which amounts to RM2.09 billion in total (refer to Chap 5, para 7.3.2. Pg 182).
Slack?
That a government fund could be run in such a negligent fashion, with
such an apparent slip-shod attitude towards the dispensing of billions
of dollars of public money, would under normal circumstances defy
belief.
Ex-CEO Shahrol Halmi – protected by his dear friends Najib and Rosmah
Scanning through the AG’s forensic analysis, readers are consequently
led to one glaring conclusion, which is that no one, from 1MDB’s
management to the Board, considered it to be their job to worry about
the genuine custody and investment of all this cash.
In other words, the fund was plainly a front behind which money was
being siphoned out by the man in charge (the sole shareholder/Finance
Minister/Prime Minister).
No one could conclude otherwise from the narrative and criticism laid
out in the AG’s 300 page plus report and analysis, as we shall show over
coming articles.
No wonder the Prime Minister, who had a year before assured Malaysians
that their concerns would be put to rest about the loss-making fund
through this audit, has decided to make it a secret instead.
Changing Options
This was how the Auditor General in the main body of his report referred
to how the Board was informed about the supposed second payment of
options to Aabar, made from money lent by Deutsche Bank, based on a
promise that there was a collateral cash holding of a billion dollars in
BSI Bank Singapore (untrue).
“8.9 The Board of Directors [of 1MDB] were informed on Dec 20, 2014 that Deutsche Bank AG, Singapore had agreed that the USD993 million be used to pay for Aabar’s termination of options from redeeming the SPC funds amounting to USD1.392 billion. Tthe balance of USD399 million were to be used to pay interest off loans in USD Notes.8.10 However, details about the payment of USD993 million to Aabar for the termination of options and the interest payments on the USD Notes amounting to USD399 could not be verified by JAN. The Board of Directors had also sought details on the payments on Dec 20, 2014, but checks by JAN have established that the matter was not raised again during subsequent Board of Directors meetings. During their meeting on Feb 23, 2015, the Board of Directors had raised the issue of payments for Aabar’s termination of options, and that they were informed only after the payment was made. This showed that the payment for Aabar’s termination of options was made without the Board of Director’s approval.”
In other words, neither the Auditor nor the Board of Directors were ever
able to get any proof out of 1MDB management that the money had existed
in the first place or had been utilised in the manner being claimed!
A pattern of activity, whereby the Board failed to be consulted by
management and was just expected to sign off vast payments
retrospectively, is confirmed time and again in this report.
Bogus Guarantees
The AG also deals with the whole frustrating story of the supposed
‘security deposits for guarantees’, which we now also know were in fact
never part of the formal agreements with Aabar/IPIC when the Abu Dhabi
fund agreed to guarantee the US$3.5 billion raised in two ‘power
purchase’ loans in May and October 2012.
He confirms that nevertheless a total of US$1.367 billion was paid in
the name of such guarantees to the bogus Aabar Limited in BVI:
Chap 5 – Energy Sector.Item 7 “Funding for 1MDB Group’s Energy Sector”7.3.2.2. Collaboration Agreement for Credit Enhancement7.3.2.2. (f) Checks by JAN [AG Department] found that the security deposit amounting to USD1.367 billion (RM4.468 billion) was paid by 1MEL (1MDB Energy Ltd) and 1MELL (1MDB Energy [Langat] Ltd) to Aabar Ltd and was recorded as a security deposit in the financial statements of 1MEHL (1MDB Energy Holdings Ltd) for the year ending May 31 2013 and 2014. However, the security deposit payments were made without the approval of the Board of Directors. The responsibility of payment for the security deposit for the issuance of the first USD Notes was transferred to 1MEHL because 1MEHL had acquired 1MEL from 1MDB. This is based on the Assumption for Obligations Agreement dated Nov 1, 2012 between 1MEHL and 1MEL. Details are as follows:Table 5.27 – Security Deposit Payments to Aabar Ltd [pg 184]
Date Payee Total USD mil Total RM mil 22/05/2012 1MEL 576.94 1,885.73 19/10/2012 1MELL 790.35 2,583.63 TOTAL 1,367.29 4,468.99 Source: Agreement and Deloitte papers
Note: BNM exchange rates = May 2012 (RM3.18) and Oct 2012 (RM3.06)
Total of US$7 billion missing!
The above dodgy payment, it should be noted, joins a number of others
which the AG said 1MDB failed to substantiate with any concrete evidence
such as bank statements.
Accompanying the report is a chart produced by the AG’s department
detailing the unsatisfactory and unproven payments identified by his
enquiry, with total up to the US$7 billion, which the AG concludes has
effectively gone missing from 1MDB:
INVESTMENTS WHICH COULD NOT BE VERIFIED[GRAND TOTAL $6.87 bn]
The culpability and deliberate deceit behind all this mismanagement is
summed up by the Auditor in his addendum document about the bogus
‘Top-Up Security Deposit’.
His final paragraph states that the then CEO and present Board Member
Shahrol Halmi, knew perfectly well there were no payments owing to Aabar
for its guarantees on the loan.
This was because the AG had a copy of the original agreement signed between Halmi and IPIC/Aabar in May 2012.
IPIC was happy to rely on the promise of a Malaysian Ministry of Finance obligation to 1MDB (ie the taxpayer was liable).
IPIC and 1MDB had signed another agreement known as Interguarantor Agreement on May 21, 2012. This agreement was signed by Shahrol Azral on behalf of 1MDB and Khadem Al-Qubaisy for IPIC. Checks by JAN showed that the agreement did not state a need for 1MDB or its subsidiaries to issue USD Notes to implement the “option and credit enhancement” to Aabar Ltd in return for a guarantee from IPIC. (emphasis theirs).According to the main condition of this agreement, 1MDB must continue to be wholly owned by MKD (Finance Ministry Inc). 1MDB also needs to receive sufficient support and funds from MKD to repay IPIC, should 1MDB fail to repay all the cost, expenditure and all obligations regarding this note [USD Notes?]. Although a guarantee was given by IPIC, 1MDB still bears all the risks should there be any failure to pay for all the cost regarding the servicing of the USD Note.
Following the AG’s report and parallel Public Accounts Committee report
the Inspector General of Police publicly notified that he would be
investigating this former CEO and Board Member of 1MDB over suspected
criminal behaviour.
Secret no longer.
However, a month later and no such moves have been made, although
numerous critics of 1MDB (all vindicated) have been harassed, persecuted
and charged on apparently trumped up charges.
Halmi, on the other hand, has let it be known that he considers himself
protected by the power of the Prime Minister/Finance Minister and the
kind and gracious support which he is receiving from his wife, Rosmah
Mansor.
SR wishes readers a Happy Eid with hopes for better things to come.
More on the details of the AG report later this week.
.
Sarawak Report reveals details of 'auditor-general’s report on 1MDB'
Friday, 8 July 2016
PART II:SARAWAK REPORT UNVEILS THE AUDITOR-GENERAL'S REPORT ON 1MDB KEPT SECRET UNDER OSA BY PM NAJIB ABDUL RAZAK.
7 July 2016
We continue our examination of Malaysia's secret Audit Report into 1MDB.....
Bank Of Malaysia's Damning Letter To The Parliamentary Accounts Committee
Signed by the Deputy of the Bank Negara
Appended to the Auditor General’s report and pivotal to his findings is a
damning letter from the Bank Negara (BNM) sent to the PAC, which
explains in detail the disgraceful circumstances surrounding the removal
of US$1.83 billion from 1MDB under the guise of a joint venture with
the firm PetroSaudi between 2009 and 2011.
Written by the Deputy Governor of the Bank BNM on 23rd March, the letter
outlines why the bank had issued its demand to 1MDB to return the
entire amount.
We attach the English translation below.
It has to be read in the light of a second letter from the Bank sent
on 6th April, which has already been reported, confirming that the sole
beneficial owner of Good Star Limited was indeed Jho Taek Low, who was
acting as Prime Minister Najib Razak’s official advisor to 1MDB. A huge
chunk of the ‘public investment’ was therefore siphoned into Low’s
private company, as has long been argued by Sarawak Report.
False and inadequate information was provided to BNM
Of key note in this crucial letter from the bank are the points that
1MDB failed in its duty to provide full and accurate information to the
Bank to explain the purpose for its removal of these public funds
abroad.
The letter says that there were three separate applications to export cash “(Sept 29, 2009 (first permission), Sept 6, 2010 (second permission) and May 20, 2011 (third permission)”
and it alleges that 1MDB essentially lied to the bank or withheld
information in order to get that permission to send the money abroad:
“BNM can conclude that 1MDB had
received permissions … amounting to USD1.83 billion, without providing
complete material information, or through misrepresentation of relevant
information, for the purpose of [influencing] BNM’s evaluation of 1MDB’s
application.”
This is a damning indictment of 1MDB’s deceitful and criminal tactics, which is dealt with in full by the letter below.
However, it also raises questions about the controls within the Bank
itself and why it accepted half-baked and unsubstantiated excuses of
this nature?
Were the supposedly independent guardians of the nation’s wealth
themselves overly influenced and swayed by the political clout of the
man managing the fund – ie Najib himself?
YB Dato,Information Regarding Cancellation of Permission to 1MDB Under Exchange Controls Act 1953We refer to your letter dated March 18, 2016 regarding the above mentioned matter.
- Applications for permission under the Exchange Controls Act 1953 (AKPW) (which has been abolished and replaced with the Financial Services Act 2013 [APK]) requires the applicant to present the application to BNM alongside information, supporting documents, detailed explanations regarding the transaction and purpose of transaction. All considerations on applications under AKPW or APK requires BNM to always demand for information and comprehensive information from the applicant.
- For applications for foreign investments, the applicant is not only required to complete the relevant documentations (Form 6b, 9A and 9C) online, but the applicant is also required to provide relevant documents and information regarding the proposed investment. Normally, BNM will contact and deal directly with the applicant to obtain the details and purpose of the investment either before or after the application is made. This ensures that BNM has a complete understanding of the proposed investment before a permission can be granted. It also allows BNM to exercise its mandate to protect Malaysia’s balance of payment and value of our currency.
- On your question, raised in the letter dated March 18, 2016, […] based on information received from 1MDB following the issuance of instructions under APK and information voluntarily supplied by foreign institutions and authorities, BNM can conclude that 1MDB had received permissions on Sept 29, 2009 (first permission), Sept 6, 2010 (second permission) and May 20, 2011 (third permission) for the purpose of investments abroad, amounting to USD1.83 billion, without providing complete material information, or through misrepresentation of relevant information, for the purpose of [influencing] BNM’s evaluation of 1MDB’s application.
- Details of the 3 permissions to 1MDB and information received by BNM can be summarised as follows:
- The First Permission was granted to 1MDB to invest, using foreign currency, to acquire a 40% stake in 1MDB PetroSaudi Limited, British Virgin Island (JV Co), amounting to USD1 billion, for the purpose of investments in the energy, agriculture, real estate and tourism sector. BNM had given this permission based on information provided by 1MDB that the funds will be used by the JV Co for the purpose of investments in those sectors and that the investment will bring Malaysia economic benefits.
1MDB had declared to BNM that the USD1 billion was used to acquire a 40% stake in JV Co which would be remitted by 1MDB to the JV Co’s account, maintained with Banca dela Svizzrera Italiana SA, Geneva and that the USD1 billion was a portion of a working capital of USD2.5 billion which will be invested by the JV Co in the abovementioned sectors. On Sept 30, 2009, 1MDB informed BNM in writing that the funds will be remitted to the JV Co’s account maintained in another bank – JP Morgan (Suisse) SA and RBS Coutts Bank Ltd. BNM acknowledged the change in a letter on the same day. However, BNM was informed by Duetsche Bank Malaysia Bhd on the change in recipient of funds to PetroSaudi, BNM stressed that the change must not go against the original purpose of the investments which have been given permission.BNM realised that USD700 million from the USD1 billion funds that was given permission was remitted by 1MDB to an account owned by Good Star Limited (GSL) at RBS Coutts Bank Ltd and not the account belonging to the JV Co in Switzerland or PetroSaudi’s account. The transfer of funds to GSL was made by 1MDB on behalf of the JV Co to repay the JV Co’s debt of USD700 million which was advanced to the JV Co by 1MDB’s JV partner which is PetroSaudi Holdings (Cayman) Ltd. This material information was not communicated by 1MDB to BNM during the application for the First Permission although 1MDB had prior knowledge and was informed of the JV Co’s debt and had an intention of using a large portion of the funds to repay the debt before the application for the permission was made through BNM.Apart from the change of recipient of the remittance (from the JV Co) to GSL, 1MDB has hitherto failed to provide any documentary evidence or source documents to demonstrate that the JV Co has invested in the energy, agriculture, real estate and tourism sector, which was the purpose of the First Permission by BNM. During the material time, BNM was persuaded by 1MDB to believe that the funds will be used for the purpose of investments in the energy, agriculture, real estate and tourism sector through the JV Co and will benefit the JV Co.Based on information voluntarily provided by foreign authorities, the ultimate beneficial owner of GSL is an individual who has no relations to PetroSaudi International Ltd, which is the shareholder of PetroSaudi Holdings (Cayman) Ltd. On May 28, 2015 the Malaysian Anti-Corruption Commission (MACC) and BNM had written to the Attorney-General’s Chambers to seek Mutual Legal Assistance from Switzerland for the purpose of obtaining evidence.
- The Second Permission was for 1MDB to provide loans in foreign currency to the JV Co through the subscription of Murabaha Note that was issued by the JV Co amounting to USD500 million (equivalent of RM1.6 billion). The bank had given this permission based on information provided by 1MDB in which the funds amounting to USD500 million will be used by the JV Co to finance a portion of the cost of acquiring a 4% equity stake in a public listed company in France (French Company) which is involved in the generation and distribution of energy. In their application, 1MDB informed BNM that the investment was in line with the strategic mandate given by the Government of Malaysia to 1MDB for the development of the nation’s energy sector.
However, 1MDB has since confirmed that the USD500 million was not used by the JV Co to finance a portion of the cost of acquiring a 4% equity stake in the French Company, as stated by 1MDB to BNM during the application for the Second Permission. In a letter dated May 29, 2015, 1MDB had told BNM that the JV Co had an absolute right to use all funds received from 1MDB. This is a material information that was not revealed by 1MDB to BNM during its application for the Second Permission.
- The Third Permission was for 1MDB to provide an additional loan in foreign currency to the JV Co through the subscription of Murabaha Notes that were issued by the JV Co amounting to USD330 million. BNM had provided permission based on information supplied by 1MDB to the Bank, that the USD330 million will be used by the JV Co to finance its oil and gas projects.
However, the funds amounting to USD330 million was transferred to GSL and not the JV Co as previously stated by 1MDB to BNM. 1MDB did not inform the bank of this material information although 1MDB had prior knowledge that the funds will be channeled to GSL and not the JV Co, which is before the application was made to BNM. 1MDB has hitherto not provided any documents and source documents to demonstrate that the JV Co has invested in the oil and gas sectors with the funds agreed by BNM.The above explanation is our feedback regarding the questions raised by you. We are always ready to provide further explanations regarding the above matters if needed.Thank you.Sincerely,Nor Shamsiah Yunus
Deputy Governor
Did BNM succumb to overwhelming pressure?
Zeti – Did the Governor of the independent Bank Negara have insufficient powers to hold 1MDB accountable?
This frank and detailed account raises questions about the robustness of
BNM’s own internal checks, when faced with what was clearly an
overwhelming political pressure from the Minister of Finance himself.
Clearly, on a number of accounts the bank proceeded owning to deliberate
misinformation by 1MDB, including the understanding there would be an
injection of a further US$1.5 billion from PetroSaudi into the joint
venture as well.
Neither was the “material information” that US$700 million had been
tagged as a loan by PetroSaudi onto the subsidiary which it then
injected into the joint venture (with a provision for an immediate
repayment) communicated to the bank or to the Board of 1MDB. Again, at
the time the second permission was granted, BNM was informed that 1MDB
was investing in a French power generation company, which was false.
However, there is no indication that papers were supplied to support the
bogus claim by 1MDB nor that once this problem was discovered the
matter was actively pursued by the bank until the scandal broke in the
media and investigations were launched last year.
Likewise, with regard to the loan for US$330 million, which went
straight to Jho Low’s Good Star Limited, supposedly to purchase oil and
gas projects, which again never materialised.
Bank Negara documents do show that efforts were made by its regulators to pursue 1MDB for updates on these projects.
However, their communications were arrogantly ignored or sidelined for
many months by the powerfully protected management, who under the secret
Section 117 of the company considered themselves to be working solely
and directly to the Minister of Finance, Najib Razak.
The letter below:
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