Bank Negara Malaysia (BNM) has started a “formal enquiry” on whether 1Malaysia Development Bhd (1MDB) and its officers had breached central bank rules and regulations.
In a statement yesterday, the central bank said the following developments will normally trigger a formal enquiry:
• When monies for which approvals are given are not used for the purpose indicated in the submission.
• When incorrect or false information is provided in the submission.
• Failure to comply with the conditions in the approval.
“With respect to 1MDB, a formal enquiry has commenced to examine any contravention of the central bank’s rules and legislation. This involves the issuance of a legal directive requiring information from the entity,” BNM said.
It is also taking statements from individuals involved in the governance process of 1MDB and obtaining information from other relevant domestic and foreign parties.
The legal directive requires information in accordance to the relevant Acts that the central bank administers.
This will require the board and management of 1MDB to provide the information within a specified time frame. Under the Financial Services Act 2013, failure to meet this request can result in a fine of up to RM50 million or up to 10 years in prison or both.
Since 2009, 1MDB has raised around US$7 billion (RM25 .76 billion) in foreign-denominated debts. It has also remitted billions overseas. These include:
• US$1.83 billion for an aborted joint venture with PetroSaudi International Ltd (PSI) and subscription to Islamic murabaha notes by PSI.
• Around RM4.25 billion deposited with Abu Dhabi’s Aabar Investments for co-guaranteeing a loan.
• Parking overseas most of the US$3 billion raised for the development of the Tun Razak Exchange.
BNM said it had also forwarded information received from foreign authorities to local investigation agencies, which are probing other possible breaches after obtaining the permission from the foreign authorities, as it has no power to investigate fraud, tax evasion, corruption, cheating and criminal breach of trust.
“The central bank wishes to emphasise that further disclosure of details of the investigation may undermine the outcome of the investigation. The central bank is doing everything within the powers provided under its legislation, including collaborating with other agencies, to contribute towards a swift resolution of the matter.”
BNM said it is entrusted to promote the stability and integrity of the financial system, and the sustainability of the economy. It said news reports and commentaries regarding 1MDB had raised questions on whether it was upholding the trust that had been placed on it.
Last week, Tun Dr Mahathir Mohamad warned BNM that any attempt to cover wrongdoing at the debt-laden 1MDB would be a criminal act.
BNM’s statement comes on the heels of criticism for refusing to disclose the details of a report from the authorities in Singapore regarding a 1MDB account in BSI Bank Ltd.
The statement said BNM needs to provide clarity on its role with respect to 1MDB, which had made investments abroad or obtained offshore borrowings under Section 214 of the Financial Services Act 2013 and under the Exchange Control Act 1953 that was in force prior to 2013.
All investments that exceed RM50 million per calendar year and any offshore borrowings that exceed RM100 million by resident entities require the central bank’s approval.
All submissions that were made by 1MDB have had to comply with the same approval criteria that are applied to submissions by other business entities. No leniency or special exceptions were accorded to 1MDB.
“In relation to cross-border movements of funds, the bank also relies on financial intelligence authorities in the foreign jurisdictions to bring to our attention irregular or suspicious transactions made in their jurisdictions,” said BNM. “Such arrangements for information sharing must conform to international protocols.”
This article first appeared in The Edge Financial Daily, on June 4, 2015.