Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on October 3 - 9, 2016.

 

WHILE the government-owned media and supporters of the incumbent administration have downplayed the numerous problems at 1Malaysia Development Bhd (1MDB) and said they have not adversely impacted the country, the results of the biennial Corporate Governance (CG) Watch 2016 paint a different picture.

Malaysia would have done “much better” had there been no 1MDB, Asian Corporate Governance Association (ACGA) secretary-general Jamie Allen tells The Edge Financial Daily in a phone interview.

“1MDB has affected capital markets’ perception of Malaysia. People are concerned about what’s going on. When public governance standards drop, over the medium-to-long term, it does have an impact on [investment] decisions,” he says.

To recap, Malaysia scored 56 points, falling two notches from 2014 to sixth out of 11 Asia Pacific countries, based on data from investment banking outfit CLSA and the ACGA in Hong Kong.

Malaysia was behind Singapore, which scored 67 points, Hong Kong (65 points), Japan (63 points), Taiwan (60 points) and Thailand (58 points).

In a report, CLSA says, “Frankly, it has been a shame to see the fallout from the 1MDB crisis in Malaysia. There has been a stark difference in findings and approach between international and domestic investigations into the organisation, with many leadership changes at the organisations responsible for domestic investigations.”

As a result of these events, Malaysia’s score for the Political/Regulatory Category dropped from 59% in 2014 to 48% in 2016.

CLSA also touched on how the 1MDB saga carries negative implications for the integrity of some key government institutions.

International investigations into 1MDB are continuing in several countries, including the US, Switzerland, Singapore and Luxembourg, while the US Department of Justice (DoJ) has announced that it is pursuing civil forfeiture to recover US$1 billion in relation to the case.

The DoJ alleges that 1MDB money supposedly invested for the benefit of the people of Malaysia “has been diverted into a variety of assets, including artwork, a private jet, luxury real estate and — in an ironic twist — funding the Hollywood blockbuster, The Wolf of Wall Street,” CLSA says.

Meanwhile, US authorities have also started an investigation into Goldman Sachs for its role in promoting an international bond for the fund, and the Monetary Authority of Singapore (MAS) announced in March that due to its role in the case, BSI Bank would lose its status as a merchant bank. This is the first time since 1984 that MAS has withdrawn a merchant banking licence. MAS also found breaches of anti-money laundering controls at DBS, Standard Chartered and UBS, and is slated to take action against them.

In stark contrast, in Malaysia, the Attorney-General’s Chambers investigated 1MDB until the attorney-general was changed. The Malaysian Anti-Corruption Commission (MACC), which does not have the power to prosecute, continued its own investigations into 1MDB after the new attorney-general closed the case.

“Subsequently, the chief commissioner of MACC resigned with effect from Aug 1, 2016, more than two years before his contract was due to expire,” CLSA says.

Bank Negara Malaysia continued investigations into 1MDB under its long-standing governor, Tan Sri Zeti Akhtar Aziz, but her term came to an end after 16 years in end-April 2016.

The appointment of the new governor, Datuk Muhammad Ibrahim, was only announced three days before he took over the post. The Bank Negara investigation is now also closed.

Apart from that, the 1MDB case has also led to concerns about a reduction in press freedom in Malaysia with The Edge and The Edge Financial Daily suspended, the report says.

“Scores fell in the following 

areas: the lack of a clear, consistent and credible government policy on CG; a perception of reduced effectiveness on the part of the central bank in exercising its powers; the depth of media skill and freedom in reporting on CG; the independence of the anti-corruption commission; and whether the government was making progress on improving standards of public governance,” CLSA says.

It was not all doom and gloom in CLSA’s report — the Securities Commission and its Audit Oversight Board both received praise. The SC had a market manipulation case offender sentenced to a five-year custodial sentence, while the AOB, for the first time, revoked the registration of an audit firm. 

But the issues at 1MDB continued to adversely impact perception.

CLSA says, “In 2014, we noted that Malaysia was unique in consistently improving in score across each of our four CG watch surveys since 2007. Unfortunately, this trend has now come to an end. While we upgrade Malaysia this year for enforcement of capital-market offences and several favourable regulatory and policy changes, the fallout from the 1MDB crisis has had an adverse effect on the political and regulatory environment for public and corporate governance.” 

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