Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on August 30, 2017

PUTRAJAYA: Bank Negara Malaysia (BNM) began to engage in large volumes of foreign exchange (forex) trading only after 1985, with amounts of up to RM50 million a day, a former assistant auditor-general testified yesterday.

“The finding of the audit review study by the BNM Audit Committee found that BNM had not undertaken any forex transactions to the extent it was now involved in prior years to year 1985,” said Kanason Pothinker.

“As to why Bank Negara decided to go into large-scale forex trading from 1985 was enquired into by reference to statements, speeches of the governor and of other senior officers of BNM, but no information was available in the bank’s library,” Kanason added.

“Auditors cannot explain why BNM had started on forex trading in the years after 1985,” he told the Royal Commission of Inquiry (RCI) into BNM’s forex losses in the early 1990s, at the Palace of Justice.

Kanason said the audit committee was established around 1987 on the Auditor-General’s Office’s recommendation. “It was sometime during 1985 till January 1992 [that] I read in our local newspapers that BNM’s forex business was something which central banks elsewhere were not normally engaged in.

“This point was picked up for audit review and mentioned to the [then] auditor-general, Tan Sri Ishak Tadin, for his information [and] his instructions were that the financial audit was important and we should not lose sight of it.”

Kanason testified that from an audit perspective, the buying and selling of foreign currencies on a daily basis constituted the act of trading, which BNM was heavily involved in, with amounts of up to RM50 million a day, but that it was not up to auditors to decide on the interpretation of the law.

Kanason then decided it was necessary to seek the Attorney General’s Chambers’ (AGC) assistance on whether BNM’s forex trading was lawful under Section 31 (a) of the Central Bank of Malaysia Act 1958, which states the central bank is not allowed to “engage in trade or otherwise have a direct interest in any commercial, agricultural, industrial or any other undertaking”.

Kanason consulted AGC head of advisory services Tan Sri Ainum Mohd Saaid. “The advice given verbally across the table by Tan Sri Ainum was, BNM’s forex trading was not in order, or not in compliance with the requirements of the Central Bank of Malaysia Act 1958, and that a written reply would be given in due course,” he said, adding that this conclusion was communicated to Ishak.

After several days without the written response, Kanason said he contacted Ainum to inquire on the matter. Her reply: “Orang atasan cakap jangan campur tangan (the higher-ups said do not interfere).” Kanason said he was not aware of who the “orang atasan” were and neither did Ainum mention who they were.

He said the AGC’s written reply was, the issue should be resolved between the Auditor-General and BNM governor, which he then passed on to the AG.

“A few days later, after much thought, a letter was sent by me to the BNM governor stating in very clear terms the Auditor-General’s Office’s views with regard to the ongoing forex transactions and quoting Section 31 of the Central Bank of Malaysia Act 1958, and with a request that the contents of that letter be brought to the board’s attention,” Kanason said. The governor replied and that letter was in fact brought to the board of directors’ attention, he added.

The BNM Audit Committee was also briefed on the forex trading issue and present at the briefing was then BNM deputy governor Tan Sri Lin See Yan. However, Kanason testified that based on his audit, he was not aware of any BNM’s forex trading losses before 1991. “In my opinion, based on my audit report, there was no misrepresentation of the true state of the accounts pertaining to BNM’s forex transactions for the years 1985 to 1990.”

From 1985 to January 1992, Kanason was the most senior officer of the Auditor General’s Office responsible for the audit of and reporting on all federal and state statutory bodies, including BNM.

A former accounts manager at BNM’s accounts department, Saleha Lajim, also testifying yesterday, said she received oral instructions from Lin to make changes to the bank’s annual financial statement. She then instructed the department’s staff to make the changes.

“I believe my superiors had discussed and thought of the best way to address the losses incurred. My superiors then had known about the status of profit and losses from forex trading based on the weekly report given at the meeting,” Saleha said. She added that if the draft version of the board paper was approved, it would be verified by the governor and submitted to the accounts department to make the changes.

Meanwhile, former prime minister Tun Dr Mahathir Mohamad’s lawyer Mohamed Haniff Khatri Abdulla said the RCI must make a decision on his call for a retraction of RCI chairman Tan Sri Mohd Sidek Hassan’s conclusion on Aug 21 that BNM’s forex losses in the 1990s amounted to RM31.5 billion.

“We have asked the honourable chairman to retract and withdraw that statement and for the panel to make a ruling on this matter,” he told reporters outside the courtroom.

Haniff said the conclusion is wrong and premature since it cannot be announced or made public until the final recommendation is made to the Yang Di-Pertuan Agong in three months, at the conclusion of the panel’s findings.

Mohd Sidek had made the conclusion on the first day of hearing based on the testimony of a BNM’s former employee responsible for preparing the bank’s annual reports at the relevant time, who said that he knew of the losses but did not know how it was tabulated.

The RCI’s other members are High Court Judge Datuk Kamaludin Md Said, Bursa Malaysia Bhd chief executive officer Datuk Seri Tajuddin Atan, Special Task Force to Facilitate Business (Pemudah) co-chairman Tan Sri Saw Choo Boon and Malaysian Institute of Accountants member K Puspanathan. The panel, given five terms of reference, is required to submit its findings to the Yang di-Pertuan Agong by Oct 13, three months after the inquiry’s commencement.

      Print
      Text Size
      Share