KUALA LUMPUR (April 5): The board of directors in 1MDB was happy after given a “rosy picture” by former CEO Mohd Hazem Abdul Rahman that the company’s huge investment of US$2.3 billion in an unknown fund will be easily liquidated and returned, said former director Tan Sri Ismee Ismail.

The 1MDB board was told by Mohd Hazem that one-third of the money will be returned by September 2014, and that the remainder would be returned by March 2015, said Ismee, who is a prosecution witness at the 1MDB-Tanore trial of former Prime Minister Datuk Seri Najib Abdul Razak.

1MDB chief financial officer (CFO) Azmi Tahir also briefed about the money coming back, to the delight of the board members, Ismee said.

Ismee said this from the witness stand on Tuesday (April 5), as defence lawyer Tan Sri Shafee Abdullah walked him through the meeting minutes where Hazem had guaranteed that the money would be repatriated.

The fund in question was from US$1 billion meant to be an overseas investment in 2009 by 1MDB (using money originating from a RM5 billion Islamic bond issued by 1MDB’s predecessor Terengganu Investment Authority) in exchange for shares in a joint venture company with Petrosaudi Ltd.

1MDB then converted its US$1 billion stake in the JV company with Petro Saudi into a US$1.2 billion Islamic loan to the same company, and then gave out additional US$830 million in loans.

The loans were then converted into a 49% stake in PetroSaudi Oil Services Ltd (PSOSL). The stake was then sold for US$2.3 billion to an unknown fund, Bridge Partners International Investments Limited, by Brazen Sky Ltd, a special purpose vehicle of 1MDB.

Through this, Brazen Sky and effectively 1MDB, received US$2.318 billion in the form of six promissory notes, which turned out to be “worthless pieces of paper”.

The management of 1MDB had allegedly misled the board to say that they had invested the promissory notes in the Cayman Islands under a hedge fund called Bridge Global Absolute Return Fund SPC, with BSI Bank in Singapore acting as the “custodian bank” for the sham investment.

Ismee was testifying on the repatriation of these funds from Cayman Islands, where he said he did not know at the material time that the investment was a sham investment.

1MDB management told the board that loans totalling US$1.225 billion was repatriated money

In the 1MDB board meeting on Oct 20, 2014, then-CFO Azmi also told the board that a total of US$870 million had been redeemed as of mid-October 2014. Another US$300 million would have been redeemed within the next few days, the meeting minutes showed.

However, the repatriation of the funds turned out to be untrue. What was presented as the repatriated funds were actually from 1MDB Energy Holdings Ltd, which obtained two loans totalling US$1.225 billion from Deutsche Bank Singapore.

Deutsche Bank’s US$1.225 billion loan was made up of a US$250 million bridging loan and a facility loan of US$975 million.

In the proceeding, Shafee walked Ismee through how the loans were used to dupe the board that these were the repatriated sum.

Shafee showed how on numerous occasions, money from the US$975 million loan trickled to Bridge Global Absolute Return Fund SPC and then to Brazen Sky, which was in turn then transferred to 1MDB Global Investments Limited.

However, the board was not shown that money had gone from 1MDB Global to Aabar Investments PJS Limited (Seychelles) or what is now known as the fake Aabar.

Shafee referred to this as “the biggest fraud ever pulled” and asked Ismee to comment on this.

Shafee: Now that you know, what is your comment?

Ismee: Not nice to say during the Holy Month.

Shafee: Holy Month also you have to tell the truth.

Ismee: I’ve said it last November when I was here and I would still say the same thing. The board was misled.

In November, according to The Edge reports, Ismee said: “After going through all of this from the information in this trial and news reports, my assumption was that the board [in 1MDB] was being used to make the transactions seem legitimate, to the extent that misleading information was given to us and even concealing information from the board,” he said during his examination-in-chief conducted by prosecutor Datuk Seri Gopal Sri Ram.

He said had he known the full or complete picture of the financial misdeeds of the company, he would have turned down the appointment to be a board member from the get-go.

“How would I have acted differently if I would have known? I would’ve not taken up the appointment to be a board member,” he told Judge Datuk Collin Lawrence Sequerah.

Najib has pleaded not guilty to 25 charges linked to abuse of power and money laundering over hundreds of millions of dollars of funds received in his personal bank accounts.

The charges include four counts of abuse of power involving RM2.28 billion in 1MDB funds and 21 counts of money laundering, including nine counts of receiving illegal proceeds, five counts of using illegal proceeds, and seven counts of transferring the proceeds to other entities. He faces up to 20 years' imprisonment, if convicted.