by Shamim Adam
Bloomberg
April 12, 2016

Transcripts from a Malaysian parliamentary hearing into a troubled state fund highlight Prime Minister Najib Razak’s involvement in decisions on questionable transactions that bypassed the board of directors and finance ministry.

The documents from the committee’s probe of 1Malaysia Development Bhd. are a blow to Najib’s efforts to halt months of political attacks and to draw a line under allegations of irregularities surrounding the fund.

Released by the Public Accounts Committee, the transcripts showed 1MDB and government officials when quizzed made multiple references to Article 117 of 1MDB’s constitution which states all matters need authorization from the premier. That’s even as the probe blamed financial and reporting lapses on a former chief executive.
The scandal has heightened political tensions and sparked worldwide graft probes, although Najib has retained the support of the bulk of senior officials in the ruling coalition.

The bipartisan committee in its separate 106-page report identified at least $4.2 billion of unauthorized or unverified transactions and recommended former CEO Shahrol Halmi and other managers be investigated. Shahrol, who said last week he hadn’t done anything wrong, told lawmakers in November that Najib had signed documents related to a joint venture with PetroSaudi International Ltd. that has been under a cloud, according to the transcripts.

‘Shadow Director’

“The powers and influence of the prime minister in his capacity as chairman of the board of advisers must be examined to ascertain if he has acted in any way as a shadow director,” said Wan Saiful Wan Jan, head of the Institute for Democracy and Economic Affairs. “Otherwise the investigation will be incomplete.”

Officials from the finance ministry, the sole shareholder of 1MDB, told the PAC they weren’t consulted on the fund’s investment decisions or finances, and there were contradictory statements on whether the fund’s advisory board headed by Najib ever met, the transcripts showed. The PAC recommended the board be dismantled.

The 500-plus pages of transcripts were made available on the parliamentary website following the release of the PAC report on Thursday. Najib and 1MDB have repeatedly denied wrongdoing. His office did not reply to an e-mail seeking comment on 1MDB’s transactions.

Amassed Debt

Attorney General Mohamed Apandi Ali, who was appointed by Najib in July, has dismissed requests at least twice by the central bank for criminal proceedings against 1MDB, concluding there was no misconduct. The fund amassed more than 50 billion ringgit ($12.8 billion) of debt over six years, using some of it to buy energy assets, including joint ventures with companies in Saudi Arabia and Abu Dhabi.

Those transactions were among the irregularities identified in the parliamentary report. It said that as part of 1MDB’s joint venture with PetroSaudi, $700 million was transferred to an account at RBS Coutts Bank Ltd. held by a company that had nothing to do with the project. A $2.1 billion payment to Aabar Investments PJS Ltd. in Abu Dhabi hasn’t been verified, while another $1.37 billion was sent to the Gulf company without the approval of 1MDB’s board, the report said.

IPIC Denial

Abu Dhabi sovereign wealth fund International Petroleum Investment Co. on Monday denied ownership of Aabar Investments PJS Ltd. and said it hadn’t received any payments from the entity which has an similar name to its unit. 1MDB responded to say it negotiated “various legal agreements” with the previous heads of IPIC and its unit and called it a “surprising claim” that neither of the Gulf companies knew of payments it made to Aabar Investments PJS Ltd.

Royal Bank of Scotland Group Plc, which owns Coutts, declined to comment. PetroSaudi did not reply to an e-mail seeking comment.

“The PAC findings and report has been a step in the right direction but more questions have been raised which demand further probing and investigation especially as to how the funds were ultimately used,” said Akhbar Satar, president of Transparency International Malaysia. “Mismanagement is one thing, but the scale of this financial debacle suggests that this may not be all there is to it.”

Authorities from the U.S. to Switzerland are seeking to determine if some of the billions of dollars the state company raised were siphoned out of its coffers and into the personal accounts of politically-connected individuals.

Saudi Donation

Najib has separately faced allegations he received money from a company linked to 1MDB as well as criticism over a $681 million personal donation from the Saudi royal family in 2013. The attorney general cleared him of graft in January, a decision the anti-graft agency said it had been advised to review.

Some ministers in Najib’s government noted the PAC report exonerated the premier. Minister in the Prime Minister’s Office Azalina Othman said the allegations were proven “baseless, politically motivated and done with the intention to topple the prime minister in an undemocratic way.”

Still, opposition lawmaker Tony Pua, a PAC member, said there are unanswered questions about 1MDB. Former premier Mahathir Mohamad, who has led a public campaign to remove Najib, said nothing at the fund could have been done without Najib’s approval, the Malay Mail Online reported.

The PAC report may have attempted to “close the files on Najib legally but he’s much damaged politically,” said Fui K. Soong, a director at the Centre for Strategic Engagement in Kuala Lumpur. “This will continue to haunt the rest of the Najib administration for so long as he is in office.”