Saturday, October 10, 2015

1MDB has the assets to repatriate US$1.83 billion and must do so immediately to comply with BNM directive

Bank Negara has found 1MDB guilty of submitting false information in its applications to transfer funds overseas and issued a directive yesterday under the Financial Services Act 2013 instructing 1MDB to “repatriate US$1.83 billion to Malaysia and submit a plan to the Bank for this purpose”.

In 1MDB’s response yesterday evening, the company thumbed its nose at Bank Negara, essentially citing the excuse that the funds are already used, and hence no money can be repatriated.

1MDB said,
The overseas investments of US$1.83 billion relates to historic equity and murabaha loan investments in a joint venture with PetroSaudi in 2009 – 2011, that was eventually converted in September 2012 into fund units valued at US$2.318 billion. As previously explained by 1MDB to BNM, this sum of US$2.318 billion has been redeemed in 2014 and 2015, with proceeds being substantially utilised. The remaining US$940 million of fund units, are guaranteed by Aabar and have been ear-marked for a "debt for asset swap" with its “AA” rated parent, IPIC, as part of the 1MDB rationalisation plan.

First and most importantly, 1MDB appears not to understand the fact that Bank Negara has issued a “directive” for the repatriation of funds, and is not longer seeking an explanation from the company.  It means that 1MDB has to by all means necessary, including the disposal of 1MDB’s overseas assets or even terminating existing agreements to comply with the directive.

When the Police issues a warrant of arrest for you, you don’t give the excuse that you have already explained the alleged crime to the Police and therefore you don’t have to turn yourself in.  Similarly, when Bank Negara issues a directive for the repatriation, you don’t respond by telling the Bank, “sorry, I’ve used up the money”.

The 1MDB’s March 2014 Financial Statement, clearly states that the company has RM13.34 billion of “available for sale” investments  held overseas.  That represents US$3.6 billion of “available for sale” assets held overseas. That means that even if it is true that that 1MDB has actually used up all of the US$2.318 billion as claimed, there is still a balance of US$1.282 billion which can be repatriated.  Why isn’t 1MDB repatriating this money?  Is it because it is missing too?

Secondly, the claim that the US$2.318 billion has been “substantially utilised” must be challenged as the sum was never redeemed, contrary to 1MDB’s disclosure in the 2014 financial statements and its press statement in January this year.  As I have highlighted previously, and never disputed by 1MDB, the company has been involved in a round-tripping exercise to hide the fact that the US$2.318 billion of investment in Cayman Island was merely a cover for missing funds.

1MDB had even doctored its 2014 financial statements to its lending banks to claim that 1MDB has “substantially set aside” the above redemptions “for the purposes of debt interest payments, working capital and payments to Aabar”, when the Deloitte audited report stated that the funds have been “substantially utilised”.

Therefore, 1MDB should stop treating Bank Negara with contempt by giving unacceptable and irrelevant excuses and take all necessary steps to comply with the directive from the top financial services sector enforcement authority in the country.

1MDB must hence seek the first available opportunity to meet Bank Negara to present its plans on how part, if not all of the US$1.83 billion can be repatriated back to the country.  The refusal to comply means the Board of Directors and top executives of 1MDB are in breach of both the Exchange Controls Act 1953 and the Financial Services Act 2013. Bank Negara will have no option but to seek the prosecution of these officials based on this latest attempt to break the law.

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