Ex-CEO Hazem: Something felt amiss about 1MDB's overseas funds status, but I did not report out of fear

1MDB former CEO Mohd Hazem Abd Rahman is pictured at the Kuala Lumpur Court Complex on September 14, 2020. — Picture by Hari Anggara
1MDB former CEO Mohd Hazem Abd Rahman is pictured at the Kuala Lumpur Court Complex on September 14, 2020. — Picture by Hari Anggara

KUALA LUMPUR, Sept 14 — 1Malaysia Development Berhad (1MDB) CEO Mohd Hazem Abd Rahman today told the court that he had felt something was wrong with how the company’s purported funds located overseas were handled, but said he did not report this to the authorities due to various concerns and fears.

Mohd Hazem said this while testifying as the 10th prosecution witness in former finance minister Datuk Seri Najib Razak’s power abuse and money-laundering trial over more than RM2 billion of 1MDB funds.

Mohd Hazem, who was 1MDB’s CEO from March 2013 to 2015, said he felt pressure to make decisions over the company’s investments and loans, noting 1MDBs problematic finances as it had taken on too many domestic and foreign debts based on Low Taek Jho’s plans that he felt could never be repaid.

Besides worrying about the unclear status of 1MDB’s investments, Mohd Hazem said he had as CEO also worried over the company’s operations as it had run out of funds within Malaysia while its funds purported to be abroad could not be brought back to pay for the company’s debts and projects here.

Even as the 1MDB CEO, Mohd Hazem said he had “no control and no knowledge at all” of the status of the company’s overseas funds, and said he had worried over whether such funds could be brought back when the company needs to pay for its operations.

Mohd Hazem said that Low Taek Jho — who he described as Najib’s trusted right-hand man and proxy for 1MDB affairs — had instructed for matters relating to overseas fund-raising and investments to be handled by Low’s alleged own proxies in 1MDB — Jasmine Loo and Terence Geh.

“What I was afraid was that the funds abroad have been used without the knowledge of the 1MDB management and board of directors. If the funds were used for other purposes apart from approval given by the board of directors and Datuk Seri Najib, it is against the law and will affect 1MDB,” he said, adding that he had however raised his concern several times to Najib’s then principal private secretary Datuk Azlin Alias.

Former prime minister, Datuk Seri Najib Razak is pictured at Kuala Lumpur High Court on September 14, 2020. — Picture by Hari Anggara
Former prime minister, Datuk Seri Najib Razak is pictured at Kuala Lumpur High Court on September 14, 2020. — Picture by Hari Anggara

Mohd Hazem said he had also asked 1MDB board of directors’ then chairman Tan Sri Lodin Wok Kamaruddin to bring the matter to Najib’s attention, but was told in 2014 that Najib had informed Lodin that the overseas funds could not be brought back even as 1MDB faced constraints in repaying a RM2.5 billion debt to Maybank then.

Mohd Hazem said that this was contrary to business ethics where a company that needs funds should prioritise using existing funds held in the company’s accounts, instead of selling off assets or raising funds by taking on more debts.

“I felt that there was something that was not right regarding the management of 1MDB’s funds abroad, but I did not have the power to know about the status of such funds as the power and orders are direct from Datuk Seri Najib.

“I have never reported this matter to the authorities to be investigated as I respect and fear Datuk Seri Najib as the prime minister of Malaysia who is the sole shareholder and holder of the absolute power in 1MDB, and I was also afraid that my career will be affected, although at the same time I raised worries regarding MOF Inc that was the guarantor for 1MDB’s loans,” he said.

Mohd Hazem explained that the Finance Ministry-owned MOF Inc’s role as guarantor meant that the Malaysian government will have to bear 1MDB’s debts if the company fails to pay them, which he said would in turn affect the country’s economy and the public.

The court has previously heard testimony that showed that much of 1MDB’s funds that were alleged to be overseas at that time were actually raised through the company borrowing money and taking on debts, and that a substantial part of such funds were diverted to fake companies and eventually went missing.

On the first day of trial, the prosecution had said it would show that billions of ringgit were diverted away from 1MDB, and that some of the funds allegedly made their way to Najib’s accounts.

Among other things, Mohd Hazem noted that 1MDB had wanted to raise funds by issuing a US$3 billion bond in 2013 for a purported joint venture with Abu Dhabi, but could not take on such debts with the backing of government guarantees as the Malaysian government had issued too many government guarantees for government firms including 1MDB and as 1MDB was under pressure by the federal opposition’s remarks over such backing.

It was 1MDB financing adviser Goldman Sachs which had suggested the company obtain a support letter from the Malaysian government for the US$3 billion bond instead of a government guarantee, Mohd Hazem said.

But he noted that the effect was ultimately similar: “Government guarantee and letter of support do not have clear differences as through both methods, the government will be forced to interfere to pay such debts if 1MDB is unable to pay the debts.” 

Throughout his testimony today, Mohd Hazem repeatedly spoke about his concerns regarding possible political considerations and political influence over his work in 1MDB, owing to Najib’s position as prime minister and with Low having claimed that 1MDB activities were for Umno’s interests.

Mohd Hazem said that he had misgivings about joining 1MDB when he was first introduced to Low in July 2012 due to the potential politically-linked decisions that he may have to comply with, but said he was left with no choice but to accept the post as Najib as the prime minister had signed and approved his appointment as 1MDB chief operating officer and executive director.

Mohd Hazem said he decided that he should not reject the job offer as 1MDB COO as he was told by the company’s Tan Sri Ismee Ismail that the prime minister had already made a final decision and agreed with his appointment, also noting that his career may be affected if he turned down the offer as he was then working in government-linked firm Sime Darby which is also owned by the government and under the prime minister’s supervision.

After having taken up the post as 1MDB COO in August 2012 before becoming 1MDB CEO just months later, Mohd Hazem said he and his CEO predecessor Datuk Shahrol Azral Ibrahim Halmi and chief financial officer Azmi Tahir had no choice but to comply with Low’s instructions from behind the scenes as he was allegedly reporting directly to Najib.

“We had no choice and were forced to obey as it is instructions from the PM who is also the most powerful person in making any decision. If not compliant with these instructions, I worry that it would affect my career, and can be sacked as the prime minister has the absolute power to drop me from this company.

“Besides that, I also worried if I am considered as opposing the prime minister’s instructions where it can affect my career where I may not be able to work in the public sector and corporate sector,” said Mohd Hazem, who had been working in the banking and corporate sector since 1996 before he joined 1MDB in 2012.

Among other things, Mohd Hazem cited Article 117 in 1MDB’s Memorandum and Articles of Association or the company’s constitution as having troubled him, worrying that it gave Najib as the prime minister the absolute power to interfere and make decisions to proceed with plans that are not beneficial to 1MDB or even if the board decides against such plans.

“This would cause difficulties for the company’s management to continue to generate profits and expand the company, and can possibly affect the company’s performance,” he said.

Even in the months just after 1MDB appointed him as the new CEO to replace Shahrol Azral, Mohd Hazem had in an email confided in Azmi of his intentions to quit the company over his concerns with the unrealistic goals set by Low and the way 1MDB was managed, even describing 1MDB as having fallen into the “biggest trap” in corporate history.

Najib’s trial before High Court judge Collin Lawrence Sequerah resumes tomorrow, with Mohd Hazem expected to continue testifying.

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