1MDB ex-CEO denies hiding info from board to protect salary, bonus; denies putting own interests above firm’s

KUALA LUMPUR, Aug 19 — A former CEO of 1Malaysia Development Berhad (1MDB) today denied that he had concealed information about financial decisions involving hundreds of millions of US dollars from the company’s board or that he had done so to protect his own salary and bonus.

Mohd Hazem Abd Rahman also denied that he had prioritised his own personal interests instead of the government-owned company 1MDB’s interests.

He said this while being cross-examined as the 10th prosecution witness in former prime minister Datuk Seri Najib Razak’s trial involving more than RM2 billion of 1MDB funds.

Today, Najib’s lawyer quizzed the former 1MDB CEO Hazem over two agreements that he had signed in April 2014 and May 2014, as well as an agreement signed by 1MDB chief financial officer Azmi Tahir in June 2014.

In the April 28, 2014 agreement, Hazem had signed on behalf of 1MDB subsidiary 1MDB Energy Holdings Limited an option buyback agreement with Aabar PJS Investments Limited (a company incorporated in British Virgin Islands and now revealed to be fake).

In the agreement, the 1MDB subsidiary committed to paying US$989 million to Aabar buy back the options in 1MDB-linked firms, and also committed to paying US$175 million of the US$989 million within 30 days of the date of the agreement, and to pay the remaining sum by 30 September 2014.

Hazem later signed another option buyback agreement on May 22, 2014 between the same entities, where the 1MDB subsidiary agreed to pay US$300 million in refundable deposit to Aabar before September 30, 2014 and to pay the remaining sum required to buy back the options after a public listing on Bursa Malaysia.

Hazem had during the trial this week said he believed the May 2014 agreement had revoked the April 2014 agreement, but Najib’s lawyers have been disputing this by saying that there was no clause in the May 2014 agreement to revoke the earlier version and by highlighting that the 1MDB subsidiary did pay out US$175 million on May 28, 2014 to the fake Aabar in compliance with the April 2014 agreement.

Hazem had previously agreed that there was no approval from the 1MDB board for the April agreement and had instead highlighted that there was a 1MDB board approval through a May 22, 2014 directors’ circular resolution for the May 2014 agreement which he insisted replaced the April agreement.

Najib’s lawyers have been arguing that the May 22, 2014 directors’ circular resolution was a fabricated and backdated document.

Najib’s lawyer Mardhiyah Mohamed Sirajkumar pointed out that such agreements were never disclosed by Hazem during 1MDB board meetings in June and July 2014.

After being shown the minutes of the 1MDB’s board meeting on June 10, 2014, Hazem agreed with Mardhiyah that he did not table the April and May 2014 option buyback agreements he had signed to the 1MDB board.

Hazem also agreed that he did not update the 1MDB board in this meeting that he had signed the April 2014 agreement and that he had purportedly revoked that agreement by signing on the May 2014 agreement.

Mardhiyah: This would have been the perfect opportunity for you to update the board that you have signed the April agreement, revoked the April agreement and signed the May agreement, and you did not do so.

Hazem: No, because the agreement of May technically cancelled the April agreement, so the approval is in regards to the May agreement.

Hazem also agreed there was no mention in the June 2014 minutes of the May 22, 2014 directors’ circular resolution that would have authorised him to sign the May 2014 agreement.

Agreeing with Mardhiyah that this was the first time the 1MDB board was meeting after signing the May 22, 2014 resolution and that it would have been a good opportunity to record this in the meeting minutes as practised usually by 1MDB, Hazem further agreed that the 1MDB June 2014 minutes did not record this resolution at all.

Based on the same board minutes in June 2014, Hazem agreed that there was no discussion recorded on 1MDB’s buying back of the Aabar options.

Hazem agreed that there was also no discussion recorded in the June minutes about the US$250 million loan that a 1MDB subsidiary took from Deutsche Bank in May 2014 for the options buyback, or about the US$175 million paid out on May 28, 2014 to the fake Aabar by the 1MDB subsidiary out of the US$250 million loan.

Shown the minutes of the next 1MDB board meeting on July 21, 2014, Hazem agreed with Mardhiyah that there were similarly no records of discussions about the Aabar options buyback, the US$250 million loan or the US$175 million that was paid out to Aabar.

Hazem agreed that it would have been prudent for both him and Azmi to update the 1MDB board in July 2014 of the three agreements that they had signed in the previous months, but disagreed that he was trying to hide these agreements.

Mardhiyah: I put it to you the reason why you did not disclose these to the board is because these two agreements were concealed from the board.

Hazem: Disagree. 

Mardhiyah: I put it to you that you did not mention the Aabar options and disbursement of loan is because the directors’ circular resolution dated May 22 did not exist at this juncture.

Hazem: Disagree.

Hazem also disagreed with Mardhiyah’s suggestion that he had not disclosed such facts to the 1MDB board as he did not have approval from the 1MDB board to buy back the options.

Hazem disagreed with Mardhiyah’s suggestion that he had failed to disclose signing the April and May 2014 agreements and the US$175 million payout to avoid being “reprimanded” by 1MDB board directors Tan Sri Lodin Wok Kamaruddin, Tan Sri Ismee Ismail, Ashvin Valiram for not making the disclosures or for not getting prior approval first from the board.

Mardhiyah: I put it to you that if the three directors were aware of your non-disclosure and signing without approval, it would have affected your performance rating, which would affect your salary and bonus.

Hazem: Disagree.

Mardhiyah: I put it to you, that you put your personal interest which was to obtain salary and bonus, above the interest of 1MDB and its subsidiaries.

Hazem: Disagree.

Hazem agreed with Mardhiyah that an August 2014 meeting was the first time that the 1MDB board was told that the US$175 million from the US$250 million loan had been paid out to buy back the Aabar options.

Hazem disagreed that the US$175 million payout had gone against the loan agreement where it stated the purpose of the US$250 million loan to be for “corporate purposes” and did not mention the Aabar options buyback, arguing that there was no set definition for “corporate purposes” and that it would include buying back the Aabar options.

Najib’s 1MDB trial before High Court judge Collin Lawrence Sequerah resumes next Monday, where Najib’s lawyers are expected to further cross-examine Hazem.

The Aabar options buyback is part of a wider series of events which the prosecution had claimed had led to money ending up with Najib.

On the first day of the trial, the prosecution had said it would prove some of the funds that were transferred by 1MDB subsidiary 1MDB Energy Holdings Limited to two fake Aabar entities had in 2014 allegedly made their way to Najib’s bank account, with the funds allegedly transferred to his account being two separate sums in pound sterling that were equivalent to RM4,093,500 and RM45,837,485.70.