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News analysis

PAC findings may give Najib's critics more ammo

Report blames ex-1MDB chief, not PM, for financial woes but firm's dubious decisions not explained

Prime Minister Najib Razak remains safe from any criminal probe, and secure in office, after the Public Accounts Committee (PAC) blamed the financial troubles of 1Malaysia Development Berhad (1MDB) on its former chief executive Shahrol Halmi.

But the bipartisan panel's report tabled in Parliament on Thursday found that the management had invoked the Prime Minister's authority, which is required for all major decisions, to circumvent instructions from the board of directors.

This requirement for the PM's consent may yet mire Datuk Seri Najib in a slew of foreign investigations trying to find out whether millions of dollars had been siphoned from 1MDB.

With dubious decisions taken by the Finance Ministry-owned firm not fully explained by the PAC findings, it only gives those who have been calling for Mr Najib's resignation more ammunition with which to attack him over the RM50 billion (S$17.2 billion) in debt 1MDB had racked up as of January.

While Mr Najib, who is also Finance Minister and 1MDB's advisory chief, has resisted calls to resign for more than a year, he has to face an election by 2018, and recent opinion polls show that unhappiness with his government is at a record high.

  • Questions the report did not answer

  • PetroSaudi, Good Star

    1MDB was to pump US$1 billion (S$1.35 billion) into its first venture in 2009, a tie-up with Saudi energy firm PetroSaudi to develop a purported oilfield that did not materialise. Instead, US$700 million was paid to another company, Good Star. Then chief executive Shahrol Halmi claimed Good Star was a subsidiary of PetroSaudi, to which the joint venture owed the amount. But neither the loan nor its purpose could be verified, or who Good Star's owner was. It was claimed that PetroSaudi belonged to the Saudi government and the late King Abdullah, but this could not be verified.



    Role of Jho Low

    Businessman Low Taek Jho (above), better known as Jho Low, has been reported to be the actual owner of Good Star. He has denied any wrongdoing or having influence over 1MDB. But the Terengganu Investment Authority (TIA), 1MDB's predecessor, expedited the sale of a RM5 billion (S$1.72 billion) bond at his request in his capacity as TIA's adviser, despite the board of directors' instruction to stop the issuance. Mr Low was not interviewed by the Public Accounts Committee (PAC).


    'Aabar Ltd' mystery

    1MDB raised US$3.5 billion in bonds in 2012, which were jointly guaranteed with Abu Dhabi's state firm International Petroleum Investment Company (IPIC). 1MDB was to lodge US$1.367 billion as a security deposit with IPIC's subsidiary, Aabar Investment, along with share options valued at US$300 million. However, 1MDB paid US$993 million to redeem the options and a further US$855 million and US$295 million as "security top-ups". More befuddling than the payments is the fact that they were deposited with Aabar Ltd, a company that cannot be verified as belonging to Aabar Investment or IPIC.


    Does US$2.318b exist?

    1MDB claims to have gleaned US$2.318 billion in investment fund units from a final sum of US$1.83 billion invested in the joint venture with PetroSaudi. But the PAC did not investigate claims that the amount does not exist. 1MDB has said US$1.22 billion was used to pay Aabar, leading to a situation wherein unverified money was paid to an unverified company. The remainder was originally said to be held in cash in the Singapore branch of Swiss bank BSI, but later it was clarified to still be held in units. This was also eventually handed over to Aabar in a debt-equity swap.



    How involved was Najib?

    Datuk Shahrol (above, left) cites Prime Minister Najib Razak (above, right) indirectly on two occasions - as the ultimate shareholder or the advisory board chairman - when he defied instructions from the board of directors. The PM's written consent is also required under Article 117 of 1MDB's memorandum of articles and association for any change to the board, management team, company structure and major financial decisions including investments.

    This means that all deals would have to be approved by him, but there is no mention of any direct action by him in the PAC report. He was also not summoned to give testimony.

Already the opposition has zeroed in on missing documents from the inquiry that leave overseas payments of up to US$5.5 billion (S$7.4 billion) unverified.

"Given that the allegations of impropriety by the Prime Minister, especially over the US$681 million 'donation' scandal, are all transacted overseas, there was no way... to clear the Prime Minister of these allegations," opposition PAC member Tony Pua said yesterday, referring to money found in Mr Najib's personal accounts that critics allege came from 1MDB.

Mr Najib has said the money was a political donation given by the Saudi royal family ahead of the 2013 General Election. Mr Najib and his allies in the ruling Barisan Nasional coalition have come out strongly to assert that the PAC report has exonerated him of any culpability.

But the PAC found that Datuk Shahrol had twice defied the board of directors by referring to Mr Najib's instructions. The PAC also recommended that an internal regulation which requires the Prime Minister's written approval for any major decision be removed, along with the advisory board he chairs.

Policy think-tank Ideas chief Wan Saiful Wan Jan told The Straits Times that all investigative bodies need to look at the PAC report, as there are grave issues concerning the corporate governance of 1MDB.

"If the whole board offered to resign, then the shadow directorship, or the ultimate shareholder, should take responsibility as well. The question not answered is the role of the PM in the debacle," he said.

In one instance, Mr Shahrol referred to instructions from Mr Najib, as advisory board chief, in refusing to obtain a second opinion in evaluating the assets of a joint venture with PetroSaudi. The abortive deal is largely considered to be the start of 1MDB's problems. Though the joint venture did not undertake any actual business activity, US$2.318 billion was shifted through various offshore accounts and used to pay firms that the PAC could not verify as being legitimate business partners.

But Mr Wan Saiful noted that the entire 1MDB saga is mired in convoluted financial dealings, which can be difficult for the layman to digest.

Said Rajaratnam School of International Studies senior fellow Oh Ei Sun: "It depends on whose narrative is better. It offers more bullets for the opposition heading into the election but whether they fire them accurately is another question."

1MDB is also the subject of several foreign probes. Though details are scarce, the probe could be regarding international transactions, for which 1MDB failed to produce certifiable documentation to the PAC. US Justice Department officials were reported to have visited Kuala Lumpur while the Swiss Financial Market Supervisory Authority's chief executive Mark Branson said on Thursday that "evidence points to clear cases of corruption" in 1MDB.

These investigations, together with the doubts raised in the PAC report, may yet train the spotlight also on local enforcers such as the police, the anti-corruption agency and central bank - and have repercussions down the road for the Prime Minister. 

A version of this article appeared in the print edition of The Straits Times on April 09, 2016, with the headline 'PAC findings may give Najib's critics more ammo'. Print Edition | Subscribe