1MDB trial reveals flagrant lack of checks and balances at Malaysian state fund

People walking past a 1MDB billboard in Kuala Lumpur, Malaysia, on March 1, 2015.
People walking past a 1MDB billboard in Kuala Lumpur, Malaysia, on March 1, 2015.PHOTO: REUTERS

KUALA LUMPUR - Witness testimony in the ongoing corruption trial against former Malaysian prime minister Najib Razak has revealed a severe lack of checks and balances at defunct state fund 1Malaysia Development Berhad (1MDB).

The fund's former chief executive officer Shahrol Azral Ibrahim Halmi told the court on Thursday (Nov 7) that 1MDB had transferred billions of ringgit into overseas accounts without first conducting due diligence to check if the money was being wired to its intended beneficiaries.

One of the company's chief mistakes was to wire a total of US$1.3 billion (S$1.8 billion) over 2009 and 2010 to Good Star Limited, a company controlled by fugitive financier Low Taek Jho, better known as Jho Low.

The funds were supposed to have been transferred to a joint venture firm formed by 1MDB and Petrosaudi International, a private oil and gas company from Saudi Arabia.

"1MDB had made this mistake, at least twice now?" said Najib's defence lawyer Muhammad Shafee Abdullah during the proceedings.

In response, Datuk Shahrol said: "At the time there was no reason for me to be suspicious, it was just an account number given to us by a trusted partner."

When pressed by Mr Shafee, Mr Shahrol denied that there was negligence on his part for not determining who the account belonged to before transferring the funds.

Former prime minister Najib is in the dock for money laundering and corruption in relation to RM2.28 billion of 1MDB funds that was received by him. He faces 21 money laundering charges and four charges of abuse of power. This is the second of five criminal cases he faces involving the state fund.

US prosecutors have claimed that at least US$4.5 billion (S$6.1 billion) was misappropriated from 1MDB and the funds used to purchase assets including luxury properties and expensive paintings worldwide.

 
 
 
 

Mr Shahrol, during his testimony, admitted to having skipped checks with 1MDB's board and also with Najib when it came to wiring money internationally, relying instead on his communications with Low - who remains on the run from the Malaysian authorities.

"At that time, I considered Jho to be a reliable channel of contact between me and Najib," said Mr Shahrol.

Earlier this week, it was revealed through documents presented in court that Petrosaudi CEO Tarek Obaid had in 2010 instructed that 82 million swiss francs (S$112 million) be transferred from the 1MDB-Petro Saudi joint venture account into his personal account. The money, which came from US$500 million that had been wired from 1MDB earlier, was meant to be used for the purpose of investing in shares of French oil and gas firm GDF Suez.

Mr Obaid subsequently transferred the 82 million swiss francs to Low's company Good Star.

Najib's defence team have grilled Mr Shahrol for 15 days, in a bid to show that mismanagement at 1MDB occurred due to collusion between Low and others at the state fund, without the knowledge of Najib, who was the former chairman of its board.

The trial continues on Monday.