'I'VE SPENT ALL THE MONEY, SO I CAN'T BRING IT BACK': 1MDB TRIES TO BE CHEEKY WITH ZETI BUT SHE CAN SUE THEM

In a stunning development yesterday, Bank Negara Malaysia (BNM) broke tradition to deliver a very public statement of its obvious disagreement and disenchantment with the attorney-general over the latter’s failure to proffer charges against those responsible for causing 1Malaysia Development Berhad (1MDB) to breach the provisions of the Exchange Control Act (ECA) 1953.

In a carefully, but strongly worded statement on its website, BNM states that it "is duty bound to conduct its investigations with the highest professional care and diligence", clearly implying that it has done everything expected of it in investigating 1MDB over various allegations of wrongdoings where such wrongdoings come within the purview and ambit of BNM’s functions, duties and powers.

In the same statement, BNM points out that "the decision to initiate criminal prosecution lies solely with the attorney-general", thus implying that the attorney-general should be solely responsible and answerable for his decision not to charge anybody in respect of these matters.

I had in my article "The administration of justice in Malaysia – a glaring misconception" explained how our administration of criminal justice works, or ought to work.

Basically, our criminal justice system consists "of four separate, but essential, machinations". They are the police or other investigative authorities, prosecution, defence and the courts. The police investigates. The prosecution decides whether or not to prosecute and if so, it proffers the charge and prosecute. The lawyers defend the accused. The courts  adjudicate.

In the 1MDB matters, BNM is the investigative authority. It has clearly completed its investigation. It then prepared an investigation paper and forwarded it to the attorney-general.

In this case, the attorney-general has chosen not to follow BNM’s recommendation for charges to be proffered against those responsible for the breaches of the ECA. BNM asked for a review of the attorney-general’s baffling and perplexing decision. The attorney-general stuck to his decision and declared that no offence has been committed.

That decision, in view of BNM’s findings, is indeed perplexing. It makes a mockery of the investigative authority’s good work. While it is arguable that the attorney-general does not have to explain the reason for his inaction, clearly his decision in this case, where the investigative authority has deemed it fit to even list out the breaches of the ECA publicly, demands scrutiny from the public and the Parliament. He must answer this mystery and explain himself.

Like any other servant of the nation, no matter how high the position is, no one is above the law or is unanswerable to the nation and the people. The duty to explain can’t be more defined when the investigating authority, after a full and thorough investigation, strongly recommends that charges be filed, not once, but twice and yet the attorney-general had found it fit to not follow such recommendations.

The refusal by the attorney-general to explain his action or inaction will only deepen the trust deficit that is currently suffered by the government.

This will further erode investors’ confidence in our system of governance resulting in capital flights, slide of the ringgit and further downgrading of our sovereign rating as well as international snigger by the international community whenever our country is mentioned, more particularly when our PM champions moderation and the infusion of various Islamic teachings in our governance as well as a "transformation" of this blessed nation.

The attorney-general must bear in mind that it is not immune from legal scrutiny. In the celebrated case of Rosli Dahlan v The Attorney General and 11 Others, justice Vazeer Alam bravely and correctly states:

"I am afraid that the notion of absolute immunity for a civil servant even when mala fide or abuse of power in the exercise of their prosecutorial power is alleged in the pleading is anathema to the modern day notions of accountability.

The attorney-general should be well reminded of the above High Court decision that has since been approved by the Court of Appeal. After all, the attorney-general was a Federal Court judge himself. He should also be reminded of his oath of office, lest the oath is just reduced into mere formality that is forgotten as soon as it has been uttered.

Meanwhile, BNM has taken a step further. It says, "on its part, the bank concluded that permissions required under the ECA for 1MDB’s investments abroad were obtained based on inaccurate or without complete disclosure of material information relevant to the bank’s assessment of 1MDB’s applications.

"Therefore, the bank has revoked three permissions granted to 1MDB under the ECA for investments abroad totalling US$1.83 billion and also issued a direction under the Financial Services Act 2013 to 1MDB to repatriate the amount of US$1.83 billion to Malaysia and submit a plan to the bank for this purpose."

"This is in keeping with developments in modern jurisprudence that absolute immunity for public servants has no place in a progressive democratic society" (emphasis added).

In its response, 1MDB apparently has "acknowledged and respected the authority of Bank Negara Malaysia (BNM) to revoke its permissions and to issue any direction it deems fit under the Financial Services Act 2013". However, 1MDB says that it has spent all the money and is not in a position to repatriate the money to Malaysia.

In other words, 1MDB has clearly stated its inability to comply with BNM’s direction. 1MDB has failed to state whether it is willing to look at ways of repatriating the money. The way I read 1MDB’s statement is that it is nonchalant about the whole matter.

"I have spent all the money and I don’t have the money anymore and so I can’t pay you." That is in effect what 1MDB is saying.

So, what can BNM do next?

Fear not. I am sure Tan Sri Zeti and the good team at BNM know their powers. And I am sure further actions will be taken by BNM to deliver the full force of BNM’s powers and the laws on 1MDB. Rosli Dahlan pointed out to me this very interesting thing today.

The answer lies in the Financial Services Act 2013. This is, among others what it says:

Section 239: Civil action by bank:

Where it appears to the bank that there is a reasonable likelihood that any person will contravene or has contravened or will breach or has breached or is likely to fail to comply with or has failed to comply with any

(a) provisions of this act;

(b) provisions of any regulations made pursuant to this act;

(c) order made or direction issued by the bank under this act including an order made under Section 94 or a direction issued under Section 116 or 156, Subsection 214(6) or Section 216;

(d) standards, condition, restriction, specification, requirement or code made or issued pursuant to any provision of this act; or

(e) action taken by the bank under Subsection 234(3),

the bank may institute civil proceedings in the court seeking any order specified under Subsection 240(1) against that person whether or not that person has been charged with an offence in respect of the contravention or breach or whether or not a contravention or breach has been proved in a prosecution.

(1) The court may, on an application by the bank under section 239, make one or more of the following orders:

(a) an order requiring the person to pay an amount which shall not exceed three times:-

(i) the gross amount of pecuniary gain made or loss avoided by such person as a result of the contravention, breach or non-compliance; or

(ii) the amount of money which is the subject matter of the contravention, breach or non-compliance, as the case may be;

(b) an order requiring the person to pay a civil penalty in such amount as the court considers appropriate having regard to the severity or gravity of the contravention, breach or non-compliance, but in any event not exceeding RM25 million;

(c) an order:-

(i) restraining the person from engaging in any specific conduct; or

(ii) requiring the cessation of the contravention, breach or non-compliance;

(d) an order directing a person to do a certain act;

(e) an order directing the person, or any other person who appears to have been involved in the contravention, breach or non-compliance to take such steps as the court may direct to mitigate the effect of such contravention breach or non-compliance;

(f) an order directing the authorised person, operator of a designated payment system, registered person or market participant to remedy the contravention, breach or noncompliance including making restitution to any other person aggrieved by such contravention, breach or noncompliance;

(g) where a person has refused or failed to comply with any action taken by the bank under Subsection 234(3), an order directing the person to comply with such action that is taken by the bank; and

(h) any other order deemed appropriate by the court including any ancillary order deemed desirable in consequence of the making of an order under any provision in this subsection.

(2) The court may make an order under subsection (1) against a person:-

(a) who is the director, controller, officer or partner, or was purporting to act in any such capacity; or

(b) who is concerned in the management of the affairs, of a body corporate or unincorporate in the event where the contravention, breach or non-compliance has been committed by the body corporate or unincorporate unless that person proves that the contravention, breach or non-compliance was committed without his consent or connivance and that he exercised such diligence to prevent the commission of the contravention, breach or non-compliance as he ought to have exercised, having regard to the nature of his function in that capacity and to the circumstances.

(3) If a contravention, breach or non-compliance is committed by a person:-

(a) who is a director, controller, officer or partner of a body corporate or unincorporate, or was purporting to act in any such capacity; or

(b) who is concerned in the management of the affairs of a body corporate or unincorporate, an order under Subsection (1) can be made against the body corporate or unincorporate.

(4) Any sum ordered by the court under Subsection (1), shall be applied:-

(a) firstly, to reimburse the bank for all costs of the proceedings in respect of the contravention, breach or non-compliance; and

(b) secondly, to pay persons aggrieved by the contravention, breach or non-compliance in the case of an order under paragraph (1)(f); or

(c) thirdly, to pay into and form part of the Federal Consolidated Fund unless the court orders for such sums or part thereof to be used to compensate persons who have suffered loss as a result of the contravention, breach or non-compliance.

(5) If the authorised person, operator of a designated payment system, registered person or market participant considers that it is not practicable to provide a remedy to the persons referred to in paragraph (1)(f), in view of the amount of any potential distribution to each person or the difficulty of ascertaining or notifying the person whom it is appropriate to provide a remedy, the authorised person, operator of a designated payment system, registered person or market participant shall lodge such amount with the Registrar of Unclaimed Moneys in accordance with the provisions of the Unclaimed Moneys Act 1965.

(6) The court may revoke or vary an order made by it under this section or suspend the operation of such an order.

(7) The powers conferred on the court under this section are in addition to any of its other powers, and do not derogate from its other powers provided under any other written law.

(8) Applications under this section may be commenced at any time within six years from the date on which the Bank discovered the contravention, breach.

In a nutshell, BNM can sue, by way of a civil action, the persons who fail to comply with its direction to repatriate the money to Malaysia. In that civil suit, BMM may obtain orders for the persons to:

a) Pay an amount which is three times of any monetary gains made by those persons; or,

b) Pay an amount which is three times the amount involved in the matter;

c) Pay a civil penalty in any amount the court thinks appropriate considering the facts of the matter.

In addition, BNM may also ask for orders that the persons responsible should take step to comply with its direction or to mitigate the non-compliance. This kind of order will, in my opinion, take the form of a mandatory injunction. The failure to comply with a mandatory injunction will of course expose those persons to contempt proceedings which may be punishable by imprisonment or fines or both.

When the offender is a company (as in this case, 1MDB is a company), all the above actions may be taken against:
"who is concerned in the management of the affairs, of a body corporate or unincorporate in the event where the contravention, breach or non-compliance has been committed by the body corporate or unincorporate unless that person proves that the contravention, breach or non-compliance was committed without his consent or connivance and that he exercised such diligence to prevent the commission of the contravention, breach or non-compliance as he ought to have exercised, having regard to the nature of his function in that capacity and to the circumstances."

The above provision is very wide in its purview. It appears even if the person is not a director or officer of the company involved, he might still be held liable if he was one "who is concerned in the management of the affairs" of that company.

That person however can be excused if he "proves that the contravention, breach or non-compliance was committed without his consent or connivance and that he exercised such diligence to prevent the commission of the contravention, breach or non-compliance as he ought to have exercised, having regard to the nature of his function in that capacity and to the circumstances."

Let’s wait and see whether BNM will exercise these powers. Being a civil suit, BNM can bring the action on its own without the involvement of the attorney-general. I am sure the firm of Messrs Lee Hishamuddin Allen and Gledhill, of which Rosli Dahlan is a senior partner, would be glad to help BNM. That firm after all, is on the panel of BNM. – art-harun.blogspot.my