The Malaysian Parliament’s Public Accounts Committee, in a 106-page report today (April 7), found what it said were “significant restrictions and weaknesses” in the scandal-ridden 1Malaysia Development Bhd. fund, recommending that the government open an investigation into the activities of the fund’s former chief, Shahrol Azral Ibahim Halmi and other officials.
That looks like it will make Shahrol the scapegoat in a probe that arguably involves many other people up to Prime Minister Najib Razak. While finding plenty of fault, the report itself shies away from much more serious charges of misappropriation of up to US$4 billion and spectacular allegations of money-laundering that are pending in five countries and involve rumors of wrongdoing on the part of JhoTaek Low, the youthful wunderkind who persuaded Najib to take over a Terengganu state investment fund in 2009 and turn it into 1MDB, which is backed by the Malaysian Ministry of Finance.
Instead, the committee declared a statement by former Prime Minister Mahathir Mohamad that RM42 billion was missing from the fund to be false, allowing Najib the chance to issue a rejoinder accusing Mahathir of being “motivated by personal interest, not national interest, and a desire to unseat the government.”
A much stronger report, said to have been produced by the country’s auditor general, remains under wraps and subject to Malaysia’s Official Secrets Act, making anyone who reports on its contents liable for prosecution. The auditor general’s report is said to not only recommend the board of directors for prosecution but names Najib himself.
Although inspector-general of police Khalid Abu Bakar said the police would “conduct a detailed and in-depth examination of the auditor’s report to check if there are any elements warranting investigation and further action,” so far police investigations into matters surrounding 1MDB appear to have been curtailed by political interference.
In particular, a report by the Malaysian Anti-Corruption Commission, said to be ready to recommend prosecution of the prime minister himself for diverting state funds into his own pockets, was derailed and the attorney general, Abdul Gani Patail, was retired “for health reasons.” One of the lead prosecutors for the MACC, Kevin Morais, was kidnapped and later found in an oil drum full of cement that had been rolled into a river. His burned car was found in another state.
A statement from the troubled fund itself said the report "dispelled numerous allegations" about it, saying the board “has successfully steered 1MDB through a uniquely challenging period and trusts that, with the release of the PAC Report, a line has been drawn.”
There were concerns in early 2015 that the government-backed fund might default, threatening the country’s entire financial system. In May of last year, the fund began selling off assets, including US$2.3 billion to the subsidiary of a Chinese state-owned enterprise, raising concerns on the part of critics over Chinese government ownership of Malaysian power assets.
While the report seemingly delivers a harsh verdict on 1MDB’s conduct of business, in fact it mostly confirms stories that have been in the press for months. Many were carried by The Edge Media Group owned by Tan Kooi Ong and publisher Ho Kay Tat. After detailed stories appeared on misdoings in the fund, the substance of many of them repeated in the committee’s report the government suspended the publication and its sister publications for three months. A court reversed the order after two months, but The Edge has never really recovered its previous financial and journalistic standing. The government has also blocked more than30 websites, many of which have reported critically on the scandal, including Sarawak Report and Asia Sentinel.
As widely reported by a variety of publications, particularly Sarawak Report, 1MDB’s troubles began when it formed a joint venture with a mysterious Middle Eastern oil exploration firm called PetroSaudi that seemed to have been brought into existence for the purpose of the joint venture. The management did so without telling the board of directors. As much as US$1 billion disappeared from PetroSaudi, with a significant portion of it believed to have been routed into entities backed by Jho Taek Low, a pudgy Penang-born financier who subsequently exploded into New York’s café society, buying magnums of champagne for a coterie of blondes.
“The 1MDB board of directors was not briefed clearly regarding the project partner and its relation between three companies – PetroSaudi International Ltd (Saudi), PetroSaudi Holdings (Cayman) Ltd and PetroSaudi International (Cayman),” it said. “The board of directors gave conditional approval to the management of 1MDB to carry out the effort with PetroSaudi International Ltd, but the actual deal was signed with PetroSaudi Holdings (Cayman) Ltd without the informing the 1MDB board regarding the change of the project partner,” it said.
1MDB PetroSaudi Ltd, which was later made into a joint venture company, was registered much earlier by PetroSaudi Holdings (Cayman) Ltd on Sept 18, 2009, eight days before the approval of the board of directors on Sept 26.
The board was also not informed that 1MDB PetroSaudi Ltd had been established on the day that the first proposal was brought to the board. “This shows that the management of 1MDB had decided to work with PetroSaudi International Ltd earlier without informing the board of directors,” the report said.
It said that the board was also not informed that there was a clause in the joint venture agreement stating that 1MDB PetroSaudi Ltd had to pay a US$700 million (RM2.73 billion) loan from its parent company PetroSaudi Holdings (Cayman) Ltd on or before Sept 30, two days before the agreement was signed. Approval was also not given by the board to pay the US$700 million loan from the US$1billion in investments that had been channeled into accounts owned by other companies, presumably those controlled by Jho Low, as he is universally known.
In sum, while the report on the surface paints a picture of an incompetent management that made a long series of mistakes that ran the fund into the ground, that all has been reported for more than a year by international media and a handful of independent websites – one of which, Malaysia Insider, was blocked and eventually forced to close – it is yet another investigation that does little more than hang a fig leaf on the prime minister.