The board of directors of a troubled Malaysian state investment company offered to resign after a parliamentary committee probe found poor oversight of the fund and suggested that a separate advisory group headed by Prime Minister Najib Razak be dismantled.
1Malaysia Development Bhd’s directors failed to take appropriate actions and weren’t proactive in monitoring the company’s management, the Public Accounts Committee said in a 106-page report on Thursday. The investigation also found lapses by former Shahrol Halmi, chief executive officer from inception in 2009 to early 2013, and called on him and other managers to be investigated. Shahrol said there was “no wrongdoing or illegal activity” under his watch. Authorities around the world – including in the US, Switzerland and Singapore – are trying to piece together evidence to determine if some of the billions of dollars that 1MDB raised since 2009 were siphoned out of its coffers and into the personal accounts of politically-connected individuals.
Rolling scandals have hit Malaysia for nine months surrounding allegations that Najib received money from a company linked to 1MDB as well as a $681mn personal donation from the Saudi royal family in 2013.
Najib and 1MDB have consistently denied any wrongdoing, and the government has called the accusations politically motivated.
The prime minister has been criticised by his opponents for 1MDB’s ballooning debt levels and allegations of financial mismanagement, prompting former premier and political rival Mahathir Mohamad to call for his resignation.
“The report has identified weaknesses in 1MDB’s capital structure and management,” Najib said in a statement on Thursday.
“We will study and act on the report’s recommendations. We must ensure that lessons are learned, and action will be taken if any evidence of wrongdoing is found.” Set up by the government to build infrastructure with borrowed money, 1MDB amassed more than 50bn ringgit ($12.8bn) of debt in just over six years, in part to purchase assets in the energy sector. Its borrowings clouded the sovereign credit rating, weighing on the government’s contingent liabilities.
“1MDB’s business model depended on debt which placed a heavy burden on the company and wasn’t sustainable as it didn’t have enough income to pay for its borrowings and cost of operations,” the parliamentary committee said. There were incidences where 1MDB’s management disregarded decisions and instructions from the board, or acted before getting approval, it said.
1MDB has three tiers of governance comprising a senior leadership team, a board of directors, and a board of advisers.
Other than Najib, 1MDB’s advisers include a former prime minister of Qatar, the chairman of China’s biggest conglomerate Citic, and the top bureaucrat at Malaysia’s finance ministry.
The board of directors said it “collectively” decided to offer its resignation on Thursday morning to the finance ministry, which is the sole shareholder of 1MDB.
“This has been a difficult decision to take but we believe is the right thing to do, given the circumstances, in order to facilitate any follow-up investigations as recommended by the PAC,” it said.
Shahrol, who remained at 1MDB as a director after his tenure as CEO, said he’s “done no wrong” and has “nothing to hide” and will continue cooperate with authorities.
One irregularity that the PAC highlighted was $700mn that was transferred to an account at RBS Coutts Bank belonging to a company which had nothing to do with a joint venture project between 1MDB and PetroSaudi International. Another was 4.24bn ringgit paid to a company known as Aabar Investments PJS as a security deposit in 2012 without the approval of 1MDB’s board, the report said.
JPMorgan Chase & Co, Deutsche Bank and Wells Fargo & Co have been asked by US authorities to retain and turn over records that may be related to improper transfers from 1MDB, according to people familiar with the matter. Goldman Sachs Group, which underwrote $6.5bn in bond deals for 1MDB, is cooperating with Justice Department efforts to gather information, people familiar with the matter have said. There has been no indication that the banks are accused by authorities of wrongdoing.
As the PAC report brings one of the key domestic probes into 1MDB to a close, both Najib and the company indicated they are eager for allegations of misconduct to end. The PAC probe showed Mahathir’s accusations against 1MDB are false and motivated by “a desire to unseat the government,” Najib said.
The 1MDB board “trusts that, with the release of the PAC Report, a line has been drawn,” it said.