1MDB must not be shut down - yet

A QUESTION OF BUSINESS | Recently there has been a strange, suspicious clamour - for the so-called strategic development company owned by the Minister of Finance Inc, 1MDB, to be shut down. What is puzzling about the insistent call is that it is not coming from the opposition or civil society groups but from those within government.

However, as we shall see, closing down 1MDB now is absolutely the wrong thing to do for it will make it impossible to find out some time in the future what exactly went wrong by examining all records and to ensure that as much money as possible is recovered.

As an example, look at the continuing saga of the yacht Equanimity costing US$250 million or RM1 billion which is being seized in Bali by the US Department of Justice (DOJ). The DOJ says the boat was built with money stolen from 1MDB. However, Malaysia officially denies 1MDB had lost money. 

This same group of people who want 1MDB shut down are the ones who have consistently maintained that 1MDB is doing well, everything is fine, that it has invested in good businesses, no money has been lost or stolen, and all its top management from day one have been great guys.

If so, why shut it down? Why not continue to improve it further, make it earn all the money necessary and repay tens of billions of ringgit in loans from those wonderful investments that it has made all over the place? And let it become a shining example of how government-linked companies should operate even after it blatantly ignored all guidelines issued for how GLCs should operate.

But they have thought about it, and here is the reason - weak in substance as it is. Deputy Foreign Minister Reezal Merican Naina Merican, a former member of the Public Accounts Committee (PAC), views the closure of the state investment firm 1MDB as a business decision.

He added decisions made by the 1MDB board of directors, including its closure, was made for the good of the country and people.

"However, 1MDB has been severely criticised to the extent of affecting its market potential. As such, we are forced to make this business decision,” he said. Although faced with numerous controversies, the rationalisation plan under 1MDB had brought success with the implementation of several colossal projects, he added. "However, 1MDB has been severely criticised to the extent of affecting its market potential. As such, we are forced to make this business decision.”

What a poor excuse of a reason - criticism, presumably unwarranted - can be so pervasive as to affect its market potential!

Earlier 1MDB chairperson Irwan Serigar Abdullah, who is also secretary-general of the Ministry of Finance which owns 1MDB, said that 1MDB will be shut down as soon as it repays its debts. "As soon as the debts are settled, there will be no reason for 1MDB to exist."

He is wrong. There is every reason for 1MDB to exist because it is then possible to trace all fund movements in and out of the company and to establish who did these things and to recover amounts owing to it - as much as that is possible.

Where are 1MDB’s 2015-16 accounts?

The last set of 1MDB accounts available is for 2014. Its accounts for 2015 and 2016 have still not been tabled and the government is still unable to give a date for the release of the accounts, telling Parliament in November that the auditor required records which were confiscated over two years ago by the police. It’s a mystery why the police have not returned the documents considering that they have cleared 1MDB of any wrongdoing.

There are two sides to a balance sheet - assets and liabilities. The liabilities include all sources of funds such as borrowings and shareholders’ contributions. The assets set out what these funds were used for, for example buying companies, extending loans to others etc.

According to press reports, the auditor-general, in his report on 1MDB found that US$7 billion in assets (about a huge RM28 billion) could not be accounted for. The DOJ maintains that US$4.5 billion (RM18 billion) was stolen from 1MDB and that it is in the process of recovering US$3.5 billion (RM14 billion) in assets bought with the stolen proceeds. The Equanimity is one of those assets.

Shutting down 1MDB prematurely may lead to a loss of all those records so vital to determine how money was transferred and to whom and where the assets lay, seriously hampering the effort to recover moneys and bring those responsible to account.

Those who call for 1MDB to be shut down soon do a disservice to the nation and its people for they are aiding in the possible destruction or at least unavailability of complete records to bring this sorry tale to a final conclusion.

In the meantime, the regulatory authorities must require 1MDB to submit the long overdue accounts and make all other filings mandated by law or risk becoming an accomplice to the largest case of theft, not only in Malaysia, but the world.

1MDB needs to be alive for a while yet for the tale to be fully told. 

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P GUNASEGARAM says 1MDB could not have happened without the collusion of many in key positions of power. E-mail: t.p.guna@gmail.com. -Mkini