PETALING JAYA: The scandal involving Bank Bumiputra and its subsidiary Bumiputra Malaysia Finance (BMF) in the 1980s damaged the reputation of the Government under former prime minister Tun Dr Mahathir Mohamad (pic), according to documents declassified last week by the US Central Intelligence Agency (CIA).
The documents claimed that although "no direct links have been established between Mahathir and the corruption at BMF", the "hint of association" had damaged the administration of Dr Mahathir, who was elected in 1981 under a "clean government" mandate.
The CIA claimed that the most damaging aspect of the scandal was the "alleged connection of (now defunct Carrian group and former chief executive officer) George Tan to Umno officials".
Equally damaging was the Government's half-hearted response when news of the scandal broke, said the documents contained in a March 5, 1985 report entitled "The Bank Bumiputra Scandal: More Trouble Ahead for Malaysia's Mahathir?".
"The secrecy of the Government's investigation was defended as necessary under Malaysia's Banking Secrecy Laws and a year's delay after the problems surfaced in effecting any management changes at BMF made the government a suspect," it added.
The CIA report said many businessmen and bankers had believed that the Government had used "the accused BMF officials as scapegoats to avoid implicating senior government officials”.
The US$1bil (RM2.7bil at that time) scandal involved bad loans to three Hong Kong property speculators, including the Carrian Investment Group, during the then British colony's property boom between 1979 and 1983.
The scandal had a sinister twist when BMF auditor Jalil Ibrahim, who was sent to investigate the bad loans, was murdered in Hong Kong.
The CIA claimed that Dr Mahathir had admitted that BMF's "lending practices were imprudent and pledged action if management malpractices were uncovered".
It added that Dr Mahathir had also downplayed the bank's culpability and that the Government's strategy in addressing the issue was to "contain the problem while looking for the best way to bail out Bank Bumi".
Although he has repeatedly denied any involvement, the CIA report revealed that based on circumstantial evidence, the scandal had extended into Dr Mahathir's administration.
"As a government-owned bank, Bank Bumi is closely monitored by both the Finance Ministry and the central bank.
"No important decisions are made without their agreement or knowledge," it said.
The CIA report also claimed that it is unlikely that the Government was unaware of the bank's increased lending.
It said several BMF officials involved were close associates of Tengku Razaleigh Hamzah, who was then the Trade and Industry Minister after letting go the finance portfolio.
It added that Dr Mahathir also had close ties with Nawawi Mat Awin, who was the bank's chairman.
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