PUTRAJAYA (April 22): Wong & Partners, the legal firm which had advised 1Malaysia Development Bhd (1MDB), did not play a role in the controversial transfer of the US$1 billion meant for a joint venture with PetroSaudi International Ltd (PSI), but which was then misappropriated, the court heard on Tuesday.
Testifying in the ongoing 1MDB-Tanore trial, Brian Chia, the law firm's former Head of Corporate and Commercial Securities Practice, said that 1MDB had managed the funds related to the JV.
"Wong & Partners did not have any role in respect of the payment. We did not handle any funds. All management of the funds, including dealings with the relevant banks, was undertaken by [then-CEO Datuk] Shahrol [Azral Ibrahim Halmi] and [then-1MDB business development director] Casey Tang.
"Additionally, all dealings with Bank Negara Malaysia (BNM) for exchange control approvals for the joint venture were handled by 1MDB," the 56-year-old testified.
The controversial transaction is in relation to the first phase of the multi-billion dollar scandal, known as the 'Good Star' phase.
In accordance with the JV agreement, 1MDB had undertaken an equity investment of US$1 billion, while PSI had injected US$1.5 billion worth of assets into the JV.
However, per the agreement, PSI said its US$1.5 billion asset injection into the JV company entailed a US$700 million advance for 1MDB, which meant 1MDB owed PSI.
In retrospect, there were several glaring red flags surrounding this transaction alone.
The US$1 billion was to be transferred to the JV company — named 1MDB PetroSaudi Limited — in its entirety. However, the remittance was split on 1MDB's instruction at the eleventh hour. Only US$300 million went to the outfit linked to the JV while the remaining US$700 million ended up in Good Star Ltd, which was linked to fugitive businessman Low Taek Jho (Jho Low).
At that material time, PSI had made representations that Good Star was an affiliate of PSI, which was not the case.
The split in the remittance and the transfer to an entity seemingly unrelated to the JV had triggered the resignation of two board members, who left in protest, namely, 1MDB’s then-chairman Tan Sri Mohd Bakke Salleh and then-board director Tan Sri Azlan Mohd Zainol. Bakke left on Oct 19, 2009, and Azlan about three months later on Jan 11, 2010.
Another red flag surrounding the JV was that it was signed not with the intended entity linked to Saudi Arabia but instead with an entity called PetroSaudi Holdings (Cayman) Limited.
On Tuesday, Chia said that on Sept 25, 2009, he attended a meeting in London on Shahrol's instruction. This meeting was with regards to setting up a JV with "PetroSaudi Group of Companies".
Chia said that he attended a meeting with White & Case, the law firm representing PSI.
"At the meeting, the broad principles and concept of the joint venture between 1MDB and PetroSaudi Holdings (Cayman) Limited (PSI) were discussed generally. The joint venture, as discussed, was to be a government-to-government (Malaysia and the Kingdom of Saudi Arabia) cooperation pertaining to an oil and gas joint venture.
"Our role was to assist in the preparation of the documentation for the JV agreement," he said.
It has been established through numerous testimonies and evidence in the trial that 1MDB did not sign the agreement with the correct entity. However, Chia's testimony on Tuesday is pertinent, as it shows that the entity for 1MDB to enter the JV with from the get-go was PSI (Cayman).
Firm advised 1MDB on risks
In the timeline established in the trial, the first draft of the agreement was prepared on Sept 25, 2009, and the agreement was signed three days later on Sept 28, 2009.
Chia testified that 1MDB had never instructed the firm to conduct any corporate search or legal due diligence on PetroSaudi Group and entities linked to it. But he was quick to add that the law firm had advised 1MDB to carry out a due diligence exercise.
Chia added on Tuesday that even if their clients had told them to proceed with this exercise, it would not have been possible, given the time crunch to execute the agreement in a matter of days.
"Even if 1MDB had instructed [the firm] to do so, it would not have been possible to complete such exercises, given 1MDB's objective of signing the JV agreement by Sept 28 [2009], which is three calendar days from receipt of the first draft of the JV agreement on Sept 25 (which was a Friday).
"For context, at the material time, even company searches at the corporate registry on a Cayman-incorporated entity would take approximately one week," Chia said.
Advised 1MDB on valuation of PSI's 'assets'
During his testimony on Tuesday, Chia also said that the firm had advised Shahrol and Tang on the risk elements involved in the JV agreement. Among others, Chia touched on the valuation of the PSI's "assets". He said that he had advised 1MDB that their investment was subject only to a valuation of the PSI assets, which was to be conducted by an expert. But Chia said he was told that the company would go ahead with the JV.
"The instructions given to me were that 1MDB had commercially elected to pursue the JV agreement nevertheless, as the JV agreement had been approached on the basis that the investment was, in principle, a government-to-government investment," he said.
He said that he had also advised that the JV agreement have a provision broad enough for a second valuation of the assets that 1MDB had to comply within the time frame set out. The time frame was 15 business days from Sept 30, 2009.
1MDB did embark on an evaluation exercise conducted by valuer Edward L Morse, who prepared his assessment within eight days and valued the assets between US$2.7 billion and US$4.5 billion.
The 1MDB board had voiced concern over the "speed and valuation" of these "assets" and asked the management to conduct a second evaluation which was not followed through. The evaluation was also a sham.
Chia also testified that he met with Jho Low upon arriving in London and was informed by Shahrol that Jho Low was an advisor of 1MDB.
It has to be noted that numerous testimonies have been tendered in the course of this seven-year trial that Jho Low never had any official role within the troubled strategic development firm.
Chia not missing, just never informed to testify
At the onset of the proceedings on Tuesday, Chia's lawyer Haijan Omar addressed recent news reports which stated that Chia could not be located.
The lawyer said that his client was not missing but rather had not been informed that he was to testify in the trial. Haijan added that Chia was abroad at that time but was happy to assist the court.
It has to be noted that media reports have merely reported what transpired in open court.
The trial continues on Wednesday.