Not being aware of 1MDB’s shenanigans is inexcusable

  • Business
  • Saturday, 24 Nov 2018

"I feel horrible about the fact that people who worked at Goldman Sachs, and it doesn't matter if it's a partner or it's an entry level employee, would go around our policies and break the law," Solomon said.

The system had raised red flags since 2009 and did not fail, as what former PM Najib contends

IT is increasingly difficult to describe Low Taek Jho, aka Jho Low, as a fugitive businessman because his business, as alleged by the US Department of Justice (DoJ), seems to be coming up with schemes to divert funds due to 1Malaysia Development Bhd (1MDB).

If it is not enough that the DoJ has filed charges against Jho Low for conspiring with two Goldman Sachs bankers to divert about US$2.7bil of funds due to 1MDB, even former Prime Minister Datuk Seri Najib Tun Razak has cast aspersions on him.

In an interview, Najib said that if indeed the allegations against Jho Low were true, then he (Jho Low) has cheated Malaysians.

Is it so simple to cheat the government of Malaysia of billions? How could a Malaysian Chinese with some investment banking experience who is in his early 40s be able to cheat the Malaysian government of billions?

How could have Jho Low attended an investor’s meeting in New York hosted by Najib?

How did Jho Low emerge as a key figure in 1MDB issuing its first debt paper of RM5bil in 2009 if he did not have some kind of backing from the very top brass of the government?

Apart from Jho Low, Najib also pointed fingers at the auditors, bankers and lawyers involved in 1MDB’s fund-raising exercise for failing to safeguard the interest of Malaysia.

In essence, he said that the system had failed.

In reality, the system did not fail.

All that has been disclosed so far points to red flags having been raised on the problems of 1MDB as far back as June 2009.

Official documents reveal that Jho Low had recommended the first bond issuance of RM5bil that was completed in May 2009 despite it not getting the approval of the Terengganu state government then.

(At that juncture, 1MDB was known as the Terengganu Investment Authority (TIA) and Jho Low was the adviser. The federal government took over TIA and it became 1MDB in September 2009.)

The bond was issued at the end of May 2009 and a week later, the unauthorised issuance of the RM5bil bond was discussed in the Cabinet. This was because the Sultan of Terengganu wanted a report on the unauthorised bond issuance.

At that time, Najib was already the Prime Minister. The unauthorised bond issuance and it becoming a matter that was discussed in the Cabinet was already a red flag.

The second red flag was when Tan Sri Mohd Bakke Salleh and Tan Sri Azlan Zainol resigned from the board of 1MDB just months after its formation because a large portion of the proceeds from the RM5bil was diverted out without proper due diligence and without following the process of board approvals.

On paper, a sum of US$1bil was to be given to PetroSaudi International (PSI). However, a large part of it – US$700mil – was diverted to Good Star Ltd, a company incorporated in Seychelles and owned by Jho Low.

Bakke resigned as chairman and board member on Oct 19, 2009 while Azlan left in January 2010.

The resignations of both directors should have raised the second red flag for Najib. But he either dismissed the resignations or did not see the significance.

The third and most damaging red flag was raised in 2013 when KPMG refused to sign off the accounts because it could not ascertain the value of the so-called 1MDB investments in a Cayman Islands outfit.

By June 2012, the money had gone from PSI to the Cayman Islands-registered fund. By then, the amount in question had swelled to US$2.318bil.

KPMG could not ascertain the value of the investments and refused to sign off the 1MDB accounts for the financial year ended March 2013.

Some advisers in the Prime Minister’s Office (PMO) then hurriedly brought in Deloitte Malaysia to sign off the accounts. Didn’t Najib see KPMG’s refusal to sign off the 2013 accounts as a red flag?

He should have because KPMG was the second auditor for 1MDB since its inception in 2009.

The first was Ernst & Young, which was appointed in 2009 but left even without signing off any accounts.

By November 2013, there were already reports of 1MDB’s money being parked in a Cayman Islands-registered fund and managed by a Hong Kong fund management firm.

Questions and articles were already being written as to why money raised in Malaysia was out in the Cayman Islands.

There were also several articles about Jho Low partying in New York, Las Vegas and other places with Najib’s stepson, Riza Aziz.

Shouldn’t this have raised the red flag for Najib? If he did not have the time, didn’t his advisers tell him about the reports?

Certainly, some in the PMO were concerned about the news of Jho Low partying and splurging on paintings and apartments.

However, what the PMO officials did was to call up editors of local newspapers to tell them to black out the stories of Jho Low partying.

Bankers primarily responsible for helping Jho Low to take out an estimated US$2.7bil out of the US$6.5bil raised by 1MDB are Goldman Sachs and they are already in the dock.

Towards this end, the lead banker for Goldman Sachs for 1MDB – Tim Leissner – has already pleaded guilty to charges of conspiring to scheme money out of 1MDB. Another Goldman Sachs banker, Roger Ng, is fighting extradition to the US where he faces charges with Jho Low.

The central theme of Leissner’s guilty plea is that he conspired with Jho Low to divert the money to private companies controlled by the latter. The money was apparently used to pay kickbacks to highly placed officials in Malaysia and Abu Dhabi and this information was kept away from employees in the compliance and legal departments.

The money was raised overseas through three bond issues amounting to US$6.5bil that was done between mid-2012 and March 2013. For a deal of this size, it should have raised many questions.

Didn’t the former prime minister even bother to find out how much of the money raised was going to 1MDB and the utilisation of the proceeds? Wasn’t he concerned why Goldman Sachs was getting almost 10% of the amount raised as its commission when the normal amount is less than 2%?

As Prime Minister, Najib may be busy with a lot of other matters, but he was also the chairman of the advisory board of 1MDB and the Finance Minister responsible for signing off the documents.

Shouldn’t he have been aware of 1MDB’s fund-raising issues, considering all the red flags that the system had raised since 2009?

Or, did Najib himself ignore the system?

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