1MDB Audit Report Tampering Trial: How to stymie a 1MDB audit, CEO-style

This article first appeared in The Edge Malaysia Weekly, on January 20, 2020 - January 26, 2020.

Shahrol was said to have obstructed the 2010 audit of 1MDB. Photo by Pictures by Mohd Shahrin Yahya/The Edge

Arul Kanda made empty promises, according to Saadatul. Photo by Pictures by Mohd Shahrin Yahya/The Edge

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The charges
Najib is charged with abusing his power as a public officer, where as prime minister and finance minister, he directed changes to the 1MDB audit report before it was finalised and tabled to the Public Accounts Committee, so as to avoid any civil action or criminal prosecution against him.
He is alleged to have committed the offence at the Prime Minister's Department Complex between Feb 22 and Feb 26, 2016.

He is charged under Section 23 (1) of the Malaysian Anti-Corruption Act 2009, which is punishable under Section 24 (1) of the same Act.
If convicted, he can be be fined a minimum RM10,000 or five times the gratification and jailed up to 20 years.

Arul Kanda is charged with abetting Najib under Section 28 (1) of the MACC Act 2009 and faces the same punishment under Section 24 (1).


THE 1Malaysia Development Bhd (1MDB) audit tampering trial kicked off for the year with a witness testifying that the two former CEOs of the state investment company had been uncooperative with auditors and grudging in the provision of information even as the Public Accounts Committee (PAC) queried delays in the completion of the audit.

However, Tan Sri Muhammad Shafee Abdullah, the lead counsel for Datuk Seri Najib Razak, attempted to paint Datuk Shahrol Azral Ibrahim Halmi — 1MDB’s first CEO — as the greater villain, given that his successor, Arul Kanda Kandasamy, was only a few months into the position when the PAC directed the National Audit Department (NAD) to conduct an audit of 1MDB.

Najib was charged with abusing his power under Section 23 of the Malaysian Anti-Corruption Commission Act 2009 by ordering the audit report to be altered to avoid action being taken against him. Arul Kanda, who is jointly tried with Najib, faces a charge of abetting the former prime minister.

Former NAD audit director Saadatul Nafisah Bashir Ahmad, the seventh prosecution witness, testified last week that although Arul Kanda’s demeanour was pleasant and he was approachable, he had not complied with multiple requests for information, made personally and via email. In short, he made many empty promises as he never delivered on them.

Cross-examining Saadatul, Shafee pointed out that as Arul Kanda had only taken over the CEO’s post on Jan 5, 2015, he was quite new at the role and doing the best he could to oblige her.

Unconvinced, Saadatul replied that although Arul Kanda was an “intelligent man”, he had, nonetheless, “made empty promises to our requests in the span of three months when we needed the information”.

In her estimation, Arul Kanda had furnished her with only 60% of the information sought by the NAD. And even then, “it took a long time”.


Shahrol’s ‘tamper tantrum’

During his cross-examination, Shafee attempted to downplay Arul Kanda’s obfuscation by pinning the blame on Shahrol for the rocky relationship between 1MDB and the NAD. He pointed out that Shahrol had deliberately obstructed a separate NAD audit of 1MDB in 2010, as required by government regulations, following the morphing of Terengganu Investment Authority (TIA) into 1MDB.

“Shahrol objected every step of the way [to the audit]. You have documents (reports) and know about this. I can show you correspondence of how obstructive he was to your investigation,” Shafee told Saadatul.

Shahrol had testified during the 1MDB-Tanore trial that he was acting on the instruction of fugitive financier Low Taek Jho, better known as Jho Low, to restrict certain documents from being accessed by the NAD for the purposes of the 2010 audit.

Had the NAD proceeded with the audit of 1MDB, it would have discovered the large-scale misappropriation of funds from the issuance of RM5 billion Islamic medium-term notes (IMTNs) raised by TIA.

When TIA was acquired by Minister of Finance Inc, Shahrol — with the assistance of Najib as prime minister and finance minister — successfully quashed the audit after he wrote to the NAD that Najib did not consider it necessary and that Ernst & Young would be appointed as external auditors.

The letter entailed the updates and approvals for 1MDB, copied to Auditor-General Tan Sri Ambrin Buang, Treasury secretary-general Tan Sri Dr Wan Abdul Aziz Wan Abdullah and TIA chairman Tan Sri Che Lodin Wok Kamaruddin.

In the letter, TIA had referred to the decision and approval of 1MDB’s board of advisers, which had agreed on the process of taking over TIA on an “as is, where is” basis, and, therefore, there was no need for an audit and due diligence by the NAD.

Shahrol signed the letter but contended that its contents were prepared by Jho Low.

Shahrol, who had pinned the blame squarely on Jho Low, testified that Jho Low had admitted that the NAD’s audit of 1MDB would pose a political risk to Najib as the opposition was already playing up the RM5 billion IMTN issue at the time.

“Jho Low had asked me to write the letter to Datuk Seri Najib, with the reason being that it was Datuk Seri Najib’s request, to ensure that there was no need to audit 1MDB. I was not involved in the initial discussions regarding this matter, but I believe that the contents of the letter [were] discussed by Jho Low and Datuk Seri Najib,” Shahrol had said, based on a talking points document that was emailed to him by the fugitive businessman.

On Oct 5, 2010, the NAD requested 1MDB’s audit reports, along with the supporting documents, although 1MDB said no supporting document was needed, as agreed by Najib.

In the end, nothing came of that audit.


Contrasting styles of management

Last week, Saadatul agreed that Arul Kanda was more forthcoming with the auditors and that the team that handled the 2010 audit had had a number of run-ins with Shahrol, who was recalcitrant and ignored the NAD’s requests for documents.

She said their contrasting styles notwithstanding — Shahrol openly obstructive and Arul Kanda charming and suave — they had a common goal: to make life difficult for the auditors and to deny them documents that would uncover the truth behind the massive misappropriation of funds belonging to 1MDB.

The dates for the continuation of the trial are yet to be determined as High Court judge Mohamed Zaini Mazlan has to meet 1MDB-Tanore presiding judge Collin Lawrence Sequerah to discuss potential dates. Najib faces criminal charges in both cases and his attendance is required in court.


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