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Update: Malaysia's 1MDB board offers resignations after parliament report
[KUALA LUMPUR] Malaysian state fund 1Malaysia Development Berhad (1MDB) said on Thursday its board of directors have collectively offered their resignations to the finance ministry following a parliamentary inquiry into the fund.
The bipartisan Public Accounts Committee (PAC), which tabled the report in parliament on Thursday morning, said it found the financing and performance of 1MDB "unsatisfactory" and called for a probe into the fund's former chief executive.
"This has been a difficult decision to take but we believe it is the right thing to do, given the circumstances, in order to facilitate any follow-up investigations as recommended by the PAC," 1MDB said in a media statement.
"The Board has successfully steered 1MDB through a uniquely challenging period and trusts that, with the release of the PAC Report, a line has been drawn."
1MDB added that its funds have been fully accounted for and it did not transfer 2.6 billion ringgit (S$897.48 million) into the personal accounts of Prime Minister Najib Razak.
1MDB’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.
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.
Mr Shahrol said there was “no wrongdoing or illegal activity” under his watch.
“The report has identified weaknesses in 1MDB’s capital structure and management,” Mr Najib said in a statement 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 50 billion ringgit 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 advisors. Other than Mr Najib, 1MDB’s advisors include a former prime minister of Qatar, the chairman of China’s biggest conglomerate Citic Ltd, and the top bureaucrat at Malaysia’s finance ministry.
Mr 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 US$700 million that was transferred to an account at RBS Coutts Bank Ltd belonging to a company which had nothing to do with a joint venture project between 1MDB and PetroSaudi International Ltd.
Another was 4.24 billion ringgit paid to a company known as Aabar Investments PJS Ltd as a security deposit in 2012 without the approval of 1MDB’s board, the report said.
JPMorgan Chase & Co, Deutsche Bank AG 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 Inc, which underwrote US$6.5 billion 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 Mr 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,” Mr Najib said.
The 1MDB board “trusts that, with the release of the PAC Report, a line has been drawn,” it said