PAC report: 1MDB got special treatment from Putrajaya

1MDB received privileges and dispensation not accorded other state companies under the Minister of Finance Incorporated (MOF Inc), the Public Accounts Committee (PAC) said. — File pic
1MDB received privileges and dispensation not accorded other state companies under the Minister of Finance Incorporated (MOF Inc), the Public Accounts Committee (PAC) said. — File pic

KUALA LUMPUR, April 7 — 1Malaysia Development Berhad (1MDB) received privileges and dispensation not accorded to other state companies under the Minister of Finance Incorporated (MOF Inc), the Public Accounts Committee (PAC) said.

In its report on the state investment firm under MOF Inc, the PAC noted that there were no shareholders in 1MDB’s board of directors and that 1MDB was exempted from corporate tax on all income from the company and its subsidiaries for 10 years starting November 23, 2010.

The parliamentary panel also noted that several government rules were exempted in the management of procurement, remuneration and bonus payments to 1MDB’s board of directors and management.

1MDB’s privileges also included obtaining several government guarantees and support letters, as well as standby credit to finance the company’s operations, such as a 30-year guarantee for the issuance of Islamic Medium Term Notes (IMTN) with a nominal value of RM5 billion.

“Therefore, the handling of the company’s operations and investments was actually not controlled by MOF Inc,” said the PAC report tabled in Parliament today, referring to the Finance Ministry’s investment arm.

According to the PAC, the National Audit Department found that as a whole, 1MDB’s corporate management and internal controls were less than satisfactory.

“It was found that part of 1MDB management’s actions and decisions by 1MDB’s board of directors was not in line with best practices in corporate management,” said the PAC.

According to the parliamentary committee, the National Audit Department found that the Putrajaya Committee on High Performance GLC’s guidelines in the “Green Book: Enhancing Board Effectiveness” recommended a board of directors to meet an average of six to eight times a year, depending on the company’s business needs.

However, 1MDB’s board of directors met eight to 16 times a year from 2009 to August 2015 and approved 425 written resolutions in the same period, said the PAC.

Federal auditors also found that even though the board of directors had meetings, a “large part” of important decisions related to investments was only approved via written resolutions from the board, such as making a new investment, ending an investment, or extending the tenure of investments valued between US$1 billion and US$2.22 billion.

“This shows that constructive discussion in the board and detailed evaluation of a certain investment was not done before an important decision was made. However, the chairman of 1MDB’s board of directors informed the Public Accounts Committee’s meeting on January 19, 2016, that there were discussions on a certain investment before approval was given via a resolution,” said the PAC, referring to Tan Sri Lodin Wok Kamaruddin.

The PAC said the absence of an investment committee had contributed to investment decisions being made without proper due diligence, noting that a former 1MDB CEO, which it did not name, and several members of 1MDB’s board of directors had said they saw no need for such a committee because the number of members in the board was small.

The PAC pointed out that in four years since 1MDB was set up in 2009, the company’s investments using funds from the issuance of Islamic Medium Term Notes (IMTN) worth RM5 billion had changed shape four times, from equity investments in a joint venture with PetroSaudi Holdings (Cayman) Ltd, which is a subsidiary of Saudi Arabian oil company PetroSaudi International Ltd, to a fund portfolio in the Cayman Islands.

“The changes in investment decisions in a short period involving a huge sum of funds shows that investment decisions were not made based on good management practice,” said the PAC.

1MDB is currently under probe by the authorities in several countries, with Luxembourg the latest to investigate the state investment firm for alleged money laundering.

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