By Khairie Hisyam
In response to growing controversy Putrajaya has ordered the Auditor-General to look at 1Malaysia Development Bhd or 1MDB’s accounts. While a good step, is it enough?
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After years of criticism on dodgy dealings by controversial 1Malaysia Development Bhd (1MDB), a formal probe is now underway as Auditor-General Ambrin Buang began verifying the company’s accounts last week.
However there exists a glaring mismatch between the scope of the Auditor-General’s probe and the myriad concerns raised over the years on 1MDB, especially given more recent revelations that cast a starkly negative light on its dealings.
To recap, the probe was ordered by prime minister Najib Abdul Razak in a statement dated March 4, following revelations by a series of articles published by whistle-blower website Sarawak Report since mid-February.
The articles among others raised renewed questions on the transparency and propriety of 1MDB’s dealings dating back all the way to year 2009 when the company engaged in its first joint venture with International Limited.
This in turned added fuel to growing public interest and attention on issues concerning 1MDB, which had already been dogged by pressing questions on its dealings for years.
Sarawak Report revelations
According to documents acquired and published by Sarawak Report, the joint venture agreement was the culmination of a chain of events that spanned less than two weeks up to the point that 1MDB injected about US$1 billion into the joint venture.
The agreement was signed on Sept 29, 2009 and stipulated that 1MDB would inject the money into Petrosaudi International Limited’s wholly owned unit 1MDB Petrosaudi Limited in exchange for 40% equity.
However the subsidiary was only incorporated on Sept 18, 2009 – 11 days before the agreement was signed – and one week later on Sept 25 was saddled with debt following the execution of an agreement that stipulated 1MDB Petrosaudi owes its parent US$700 million.
After the joint venture agreement was executed on Sept 29, 1MDB Petrosaudi paid off the US$700 million debt obligation to Petrosaudi International in full on Sept 30. The joint venture in turn was terminated six months later, with the US$1 billion converted into Murabaha debt notes valued at US$1.2 billion.
In addition Sarawak Report also published alleged email exchanges between Petrosaudi representatives and businessman Jho Low, which shows him taking the lead on 1MDB’s behalf in negotiating its entry into the joint venture deal despite not having any managerial position at the company.
The website went as far as alleging that the US$700 million payment went into the Swiss account of a company controlled by Jho Low.
However Jho Low, in an interview with South China Morning Post last week, denied influence in 1MDB and claimed being a victim in Malaysian political crossfire.
“Business decisions by 1MDB are ultimately decided and approved in accordance to their corporate governance framework, which is the management, board and shareholders. So why politicise and try to blame it all on me when I have no decision-making authority?” he asked in the interview.
Sarawak Report further claimed that it has access to thousands of documents and emails concerning 1MDB’s dealings beyond the 2009 joint venture. Notably Petrosaudi lodged a police report with the Scotland Yard over the documents accusing the website of hacking.
“I had neither forged nor hacked to get this material, but I thank Petrosaudi for at least acknowledging the authenticity of the documents I have published,” said Clare Rewcastle Brown, the website’s editor and founder, in a response to Malaysiakini.
A narrow probe
Ambrin Buang
The revelations and the controversy arising frame an issue that far extends beyond 1MDB’s accounts, in turn posing the question of whether the Auditor-General’s audit will be able to clear 1MDB’s reputation.
And the answer, it seems, is no.
According to the statement issued by the Prime Minister’s Office, the instruction by the prime minister for the Auditor-General to probe 1MDB is limited to the company’s accounts. The Auditor-General’s report on the matter would then be passed to the Public Accounts Committee for transparent inspection.
“If any wrongdoing is proven, the law will be enforced without exception,” said prime minister Najib in the statement.
The statement further disclosed that both 1MDB officials and its auditor Deloitte was called before the Cabinet in response to recent media reports and that explanations from both were satisfactory, although the Auditor-General’s probe will proceed as the next step.
“Having received clarifications from 1MDB and Deloitte, the Cabinet expressed confidence that no wrongdoing has been committed within 1MDB, and their desire for the company to be allowed to implement the proposed outcomes of its strategic review,” said the statement.
To be clear, the probe is a positive step forward, especially given 1MDB’s pledge to give full cooperation to the Auditor-General. KiniBiz had previously looked at 1MDB’s latest annual audited accounts, which were for the financial year ended March 2014 (FY14), and reported several troubling facts.
Among others are that 1MDB’s investments of some RM13 billion in the Cayman Islands and other locations yielded only some 3.3% in returns in FY14, a heart-wrenching figure when compared to the company’s borrowing costs which range from 5% to as high as 18% in the same financial year.
Even more troubling is that 1MDB was only earning some 0.68% in annual income from its cash deposits of nearly RM4 billion with licensed banks that financial year. Overall 1MDB booked its first full-year loss in FY14 on higher borrowing costs and increased expenses, posting RM669.5 million in pre-tax losses in FY14 from RM4.26 billion in revenue compared to pre-tax profits of RM877.6 million in FY13 from RM2.59 billion revenue.
However, the FY14 accounts aside, the underlying implication of the prime minister’s directive is that the Auditor-General’s investigations will be strictly limited to what information is available in 1MDB’s FY14 accounts.
Elephants in the room
On the contrary, the more pressing issues raised by Sarawak Report revelations pertain to a number of financial years ago – during which 1MDB’s auditor was a different firm — and goes beyond what is captured by financial accounts alone.
For one, did Jho Low indeed take a more active role in 1MDB’s dealings than his often-repeated claims of merely offering advice to 1MDB as and when requested to do so?
Another question is why 1MDB engaged in a joint venture with Petrosaudi in the first place, especially given the breakneck speed of events that unfolded since the joint venture unit, 1MDB Petrosaudi, was incorporated and why the latter was immediately saddled with debt to its parent upon incorporation.
These and more relate back to long-standing questions over 1MDB’s sometimes mysterious business decisions which had been repeatedly raised in the past, including by KiniBiz.
In the next issue in this series, KiniBiz looks at Jho Low’s alleged role in the 2009 joint venture between 1MDB and Petrosaudi.
Tomorrow: Jho’s Low’s role
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