Thursday, February 20, 2014

1MDB NAJIB'S WATERLOO? Sudden shock resignation of external auditors triggers alarm bells

Written by Tony Pua

As of yesterday, 19th February 2014, when I checked with the Companies Commission of Malaysia, 1Malaysia Development Bhd (1MDB) has yet to file its accounts for its financial year ending March 2013.

 The last available accounts was dated 31 March 2012. It is both shocking and suspicious that an multi-billion ringgit entity 100% owned by the Ministry of Finance has failed to produce its audited financial statements after nearly a year.

The directors of 1MDB have clearly run afoul of the Companies Act 1965 by failing to hold the company’s Annual General Meetings, file its Annual Returns to the Registrar of Companies together with their Audited Financial Report within the specified time period.

Clause 169(1) of the Companies Act says that “the directors of every company shall… once at least in every calendar year at intervals of not more than fifteen months, lay before the company at its annual general meeting a profit and loss account for the period since the preceding account (or in the case of the first account, since the incorporation of the company) made up to a date not more than six months before the date of the meeting.

Under Clause 171(1), the Act dictates imprisonment for 5 years or RM30,000 “if any director of a company fails to comply or to take all reasonable steps to secure compliance by the company with the foregoing provisions of this Division or has by his own wilful act been the cause of any default by the company thereunder, he shall be guilty of an offence against this Act.”

Even auditors run off

What rings the loudest alarm bells however is the sudden resignation of the company’s external auditors, KPMG, who has audited the company since its inception. Instead, Deloitte Malaysia has been appointed its new auditors.

It was KPMG, who in 1MDB’s first financial statement in 2010 raised an “emphasis of matter” over the US$1 billion (RM3.29b) investment in a mysterious joint-venture (JV) with PetroSaudi International Ltd, which was subsequently converted into a US$1.2 billion (RM3.95b) loan within a period of less than 6 months.

While the “emphasis of matter” was removed in subsequent financial accounts as the JV was servicing the loan with interest payments, it was also highlight that 1MDB extended an additional US$700 million (RM2.3b) in loans to the JV, despite receiving less than US$200 million in interest between 2011 and 2012.

Through a series of complicated financial engineering in the latter part of 2012, the loan was prematurely terminated and redeemed. However, the repayment of US$2.32 billion (RM7.93b) was made in a perplexing manner in a “seggregated investment portolio” based in Cayman Islands.
To date no one has been able to verify with any certainty who the investment portfolio manager is, the fund’s performance or for that matter, if the money actually exist.

The “investment” in Cayman Islands raises highly suspicious questions as 1MDB is desperately trying to raise funds through new bond issuance in Malaysia to funds its aggressive acquisitions of independent power producers as well as its mega-projects in Bandar Malaysia and Tun Razak Exchange. In fact, 1MDB is already laden with an estimated more than RM40 billion in debt, and hence such investments is a luxury that 1MDB does not have.


RM40 BILLION DEBT!
As a matter of public accountability, in line with Dato’ Seri Najib’s Razak’s call for transparency and government transformation, 1MDB must provide detailed and immediately clarification for the above matters. Most urgently, 1MDB must remove any doubts that the resignation of an internationally reputable auditor is due to an unverifiable US$2.32 billion parked at an anonymous “seggregated porfolio fund” in the highly secretive Cayman Islands, which is better known as a tax haven for global money launderers.

If 1MDB fails to provide satisfactory answers to the above scandal, then Malaysians are likely to be witnessing the seeds of the single largest financial scandal in the country, which makes the RM12.5 billion Port Klang Free Zone catastrophe look like child’s play.




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