This article first appeared in The Edge Financial Daily, on April 11, 2016.

KUALA LUMPUR: The finance ministry (MoF) may wholly own 1Malaysia Development Bhd (1MDB) but it has virtually no control or oversight of the latter due to Article 117 of 1MDB’s memorandum and articles of association (M&A).

In short, 1MDB’s sole shareholder had no knowledge of any of the company’s transactions, the Public Accounts Committee (PAC) was told, according to the proceeding notes of the committee’s report.

Instead, all decisions and approvals regarding 1MDB went directly to the cabinet and/or the prime minister himself, completely bypassing the MoF, shows the Hansard of the PAC hearings on 1MDB.

Recall that Article 117 was cited by former chief executive officer Datuk Shahrol Azral Ibrahim Halmi as one of the reasons he was able to undertake certain actions without board approval, as unveiled by the PAC report last week.

The PAC report itself only generally states that Article 117 conferred ultimate authority to 1MDB’s shareholder.

However, MoF Treasury Secretary-General (KSP) Tan Sri Dr Mohd Irwan Serigar Abdullah made it clear in the PAC hearings that the MoF as the shareholder had no authority over 1MDB. Instead, Article 117 conferred all authority to the cabinet and Prime Minister Datuk Seri Najib Razak.

“And then there is item 117 in the M&A that clearly states all matters must receive approval from the prime minister. Whether to change board members, or to make an investment, it is clear in Article 117 everything had to go through [the] PM,” Irwan told the PAC on May 19, 2015.

The information was stated in Parliament’s Hansard on the minutes of the PAC proceedings in which several parties were called to testify. The minutes of the PAC proceedings are now available on the PAC’s official website.

At the same hearing, Datuk Dr Mohd Isa Hussain, the MoF’s undersecretary of the government investment companies division, told the PAC: “Business model, strategy and funding requirements. These issues were never referred to the MoF or Minister of Finance (Inc) (MoF [Inc]), due to Article 117. Subsequently, all corporate matters were never referred to [the] MoF or MoF (Inc) for shareholder consideration and approval.”

“Then, [the] MoF never received a single report [from 1MDB], as we would normally expect of any other MoF company. This includes notice of AGMs (annual general meetings), which we have never received from 1MDB,” Mohd Isa told the PAC.

It is important to note that the PAC did question the legality of this arrangement. Particularly, for an AGM to be conducted and signed off without the shareholders present. After all, this would contravene the Companies Act.

Mohd Isa argued that the prime minister wore “two or three hats at once”, since he is also the finance minister. But when pressed further, MoF officials were not able to provide a clear answer to the PAC on whether Najib had signed as the finance minister, the head of the MoF or the prime minister.

According to Irwan, the only other company to receive this special treatment is SRC International Sdn Bhd — a former subsidiary of 1MDB that is wholly owned by the MoF now. There have already been some calls for the PAC to conduct an investigation into SRC as well.

Note that Irwan only assumed the role of KSP in 2012, more than two years after 1MDB was first created in 2009. Then, known as Terengganu Investment Authority Bhd (TIA), Article 117 was justified because TIA was supposed to be held under Terengganu’s Menteri Besar Inc, which would not have required the MoF’s supervision.

Article 117 remained in the M&A even after TIA was renamed 1MDB and taken under MoF (Inc). Since Irwan was not responsible for it at the time, he could not explain to the PAC why the ministry did not push to amend Article 117 back in 2009.

Even so, the MoF could not have unilaterally amended Article 117 despite being the sole shareholder.

“You know, Article 117 jelas (is clear that) even amendments to this M&A must go through [the] PM,” Irwan told the PAC.

It was only in 2012 that the MoF attempted to rectify the issue, Mohd Isa told the PAC.

“On March 28, 2012, [the] MoF advised the chairman of 1MDB what needed to be done according to the rules, the corporate matters mentioned [earlier in the hearing]. So we spelt out all the required practices that all other MoF (Inc) companies comply with. We informed [him] officially. We have the hardcopy. But then, there was no compliance,” explained Mohd Isa.

In fact, the PAC was told that 1MDB chairman Tan Sri Che Lodin Wok Kamaruddin never responded to the letter.

The hearings also highlighted the fact that Irwan’s predecessor, Tan Sri Dr Wan Abdul Aziz Wan Abdullah, in 2010 attempted to conduct due diligence on 1MDB. However, 1MDB turned down the request for an audit by the auditor-general, since it had already appointed an international auditor, KPMG, which would do unqualified audits of 1MDB.

MoF officials told the PAC that the ministry was simply acting under instructions of the cabinet. All answers presented to Parliament were provided by 1MDB at the time, although the MoF was not able to verify said information.

“That said, the MoF cannot escape accountability. I mean, I understand, internally, that’s how it works. But [the] MoF must be responsible for answers presented in Parliament,” MoF officials were told during the hearing.