10 priorities for new task force on 1MDB

“The time is always right to do what is right.”

- Martin Luther King, Jr.

A QUESTION OF BUSINESS | When it comes to dealing with and putting things right at 1MDB, time is of the essence when it comes to certain things. The committee which has been formed by the so-called Council of Elders to make recommendations has to work pretty fast.

Here are some things which need to be done soonest:

1. Secure all documents, including electronic and Internet trails. This is absolutely essential for investigators to piece together what has happened.

The search for and securing of all records is of paramount importance and should include all electronic records as well, such as emails and others. If some of them are missing then it is imperative that other sources are relied upon to obtain them.

2. Appoint a new 1MDB CEO and board immediately. This really can’t wait because presumably the current board and CEO continue in office until they are replaced. If they are complicit, they can do a lot to hide and destroy important information to make it difficult for investigators to proceed.

The CEO must be a very respectable and capable person with substantial experience in the corporate sector while the board composition must comprise people with impeccable credentials. Right now, 1MDB seems to be in a leadership limbo.

3. New board must immediately commission a major forensic audit. No committee is going to be able to sit down and determine what happened without expert professional help because of the scale and complexity of transactions.

The firm to undertake this audit must be one of the big four accounting giants and preferably one of those who declined to be auditors of 1MDB because they could not verify certain things. This will include EY and KPMG.

Periodic forensic reports should be required to be made and 1MDB should make the necessary police reports progressively to facilitate investigation and bring those involved to account.

4. Reactivated multi-agency task force needs to get cracking. Before it was disbanded, the previous government had a multi-agency task force set up in 2015 to investigate 1MDB. This comprised members from the Attorney-General’s Chambers, police, MACC and Bank Negara Malaysia while the auditor-general made a special report on 1MDB which has since been declassified. A version of this task force has been reactivated.

Since they have had a head start, they may be in a position to press charges soon. They should work with the forensic auditors to identify those accountable and bring them to book, as well as with foreign investigators and international organisations such as Interpol to track and detain those who are involved in the alleged theft.

5. Identify and secure assets. Previous CEO Arul Kanda Kandasamy had been rather cagey about revealing assets. There are over RM30 billion in long-term bonds/loans but the assets are not easily and clearly identified. There is a pressing need to identify and secure the assets.

Now that theft can be readily admitted, arrangements should be made with other countries for the return of billions of ringgits of assets with which bond repayments can be made.

6. Focus on money stolen first. There is now a lot of information, mostly unearthed by the US Department of Justice (DOJ) which have clearly identified fund flows from the proceeds of bonds taken by 1MDB. These already account for some US$4.5 billion which the DOJ says were stolen from 1MDB with the mastermind being known Najib Razak associate Jho Low. Much of the investigation has already been done.

The auditor-general’s report, now declassified, says some US$7 billion cannot be verified and accounted for. These will be priority because more assets and losses are likely to turn up on fuller investigation. Our law enforcement authorities and particularly the task force to be set up should work closely with US, Singapore and Swiss authorities amongst others who have already offered to work with us. 

7. Investigate bond mispricing. There are other ways in which money was siphoned off which includes bond mispricing. Simply put, this means selling bonds to selected investors at too low prices.

Subsequently on resale on the secondary market, these investors can make huge returns as much as 20% of the bond price in a matter of days, according to our calculations. Investigations should be conducted to see who received these cheap bonds and why, and recover these ill-gotten gains.

8. Look into excessive payments to Goldman Sachs. Since much of the bonds were arranged by Goldman Sachs, and excessive fee payments were made to them, this should be thoroughly investigated.

There may be a case for suing Goldman Sachs for negligence or complicity which resulted in losses to 1MDB and hence to the government which owns 1MDB through Minister of Finance Incorporated (MOF Inc). 

9. Look into overpayment for assets. There is evidence to indicate that the power assets that 1MDB bought from Malaysian companies may have been substantially overpaid to the tune of as much as RM3 billion or more.

Investigators should determine if that was the case and find out whether there was any back-to-back arrangement for these where others benefited from these overpayments.

10. Investigate other things such as ridiculous prices for options. Among other things that 1MDB did was to extinguish options given to Aabar of Abu Dhabi for the purchase of a 49% stake in 1MDB’s power assets.

Reports indicate these may be as high as RM4 billion! No doubt, other things will arise as the forensic audit progresses.

If the 1MDB committee needs some background on 1MDB, here is the link to the reportthat I substantially wrote for the Center to Combat Corruption and Cronyism, whose founder (Cynthia Gabriel) is on the Council of Elders’ 1MDB committee. This gives a quick overview of some of the long-standing problems with 1MDB.

One hopes that the committee will act quickly and before it makes its final recommendations, at least the first five of our priorities are immediately implemented. Otherwise, we may lose more money needlessly.

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P GUNASEGARAM can now finally see the end of the 1MDB scandal, the biggest kleptocracy the world has ever known. Email: t.p.guna@gmail.com.- Mkini