This article first appeared in The Edge Malaysia Weekly on November 11, 2019 - November 17, 2019

EVEN though 1Malaysia Development Bhd (1MDB) was unable to squeeze any information on its maiden US$1 billion investment in 2009 in 1MDB PetroSaudi, Malaysia’s strategic development company continued to entrust more money to its partner, PetroSaudi International (PSI). And by 2015, it had shelled out US$2.2 billion, but had yet to see any real returns from the joint venture.

The High Court heard last week that despite near-zero cooperation from PSI co-founder Tarek Obaid and executive director Patrick Mahony, 1MDB was “comfortable” about disbursing a further US$830 million by way of a loan — this particularly after a board meeting in London in May 2011 when the 1MDB board was briefed by Obaid and Mahony, and former prime minister Datuk Seri Najib Razak was presented with a luxury watch.

Even so, during the cross-examination of 1MDB’s former CEO Datuk Shahrol Azral Ibrahim Halmi, lead defence counsel Tan Sri Muhammad Shafee Abdullah flagged a number of incidents that ought to have aroused suspicion of PSI’s intent.

His observations came on the heels of Shahrol’s testimony that Obaid and Mahony had refused to provide the requisite information on the US$1 billion invested in the joint-venture company (JVCo), which was needed for Ernst & Young’s FY2010 audit of 1MDB.

Moreover, Shahrol — the prosecution’s ninth witness — also confirmed that no board meetings had been convened by the JVCo.

To mollify the Malaysians, on March 31, 2010, PSI agreed to convert 1MDB’s US$1 billion cash investment into the equivalent of US$1.2 billion murabahah notes.

But at the same time, PSI managed to persuade 1MDB to give it a call option on another US$1.5 billion under a murabahah financing agreement. Both Islamic debt instruments carried a coupon rate of more than 8% per annum, prompting Shafee to ask whether 1MDB was allowed to engage in money-lending activities.

He said despite having zero governance in the JVCo, the management, led by Shahrol, persisted in presenting further investment proposals to 1MDB’s board of directors.

“Having got zero governance, to use a very mild word, and now you want to go back to the same hell,” Shafee said of PSI’s subsequent proposal for 1MDB to invest in a French company called GDF Suez.

“That is not true,” Shahrol said. “The proposal [to partner PSI again] was based on the underlying fact that PSI was strategic to the country and we needed to maintain that relationship. So, we think that it must be given a fair hearing, given the strategic relationship, while I still sought the advice of chairman of the board of advisers (Najib).”

While the GDF Suez investment did not materialise, PSI exercised its call option on a total of US$1.25 billion in 2010 and 2011.

As it was short of funds, 1MDB could only oblige with US$830 million — money from a RM2.5 billion syndicated term loan it took from AmBank and Standard Chartered Bank.

In September 2010, it agreed to transfer US$500 million to the JVCo (then already wholly owned by PSI). The amount was to be remitted to the JVCo’s JP Morgan account.

In May 2011 — following the London briefing — it agreed to send another US$330 million to PSI, although the bank account given was actually the RBS Coutts account of Good Star Ltd.

Shafee highlighted the London trip organised for 1MDB’s board of directors and Najib to meet Obaid and Mahony, and where a directors’ circular resolution (DCR) to disburse the US$330 million to Good Star was prepared ahead of time.

The DCR was signed on May 16, 2011, which was the same day 1MDB board members convened for the meeting at Hilton Park Lane Hotel.

Shahrol had previously testified under examination that Obaid had presented Najib with a gift when the Malaysian delegation arrived in London. “It was a watch. I was not familiar with the brand, but it looked expensive.”

Last week, Shahrol indicated that the board appeared more at ease after the visit to the PSI office.

“I wouldn’t say they were very happy ... the board was happy and comfortable with PSI, and was satisfied with the explanation given by Obaid and Mahony to our chairman of the board of advisers, Najib,” he told the court.

According to Shahrol, the DCR was discussed during the May 2011 meeting as well as at an earlier meeting on April 4. He said all board members signed the paper after the London meeting in May.

Shafee asked why a DCR was needed when the board had already convened a meeting. “You know, DCR got no discussion. How DCR works is when you cannot convene a meeting, you issue a DCR. But here, the directors were at the meeting, [at] the same table ... it was a full turn-up. Why was this subject matter not discussed? I am putting to you that it was purposefully not put before the board, for the board to have a full discussion on the DCR.”

“Absolutely disagree,” Shahrol said.

Based on available banking documents, Shafee also touched on occasions where bankers had queried 1MDB on the actual beneficiaries of the funds as although they were meant for the JVCo, PSI’s payment instructions were for them to be remitted to Good Star.

Shahrol maintained that management had no reason to be suspicious as it merely copied and pasted payment instructions from PSI, “a trusted partner in a government-to-government relationship”. Moreover, management did not know it was Good Star’s bank account number because it had not memorised the number, he said.

“Datuk, you are sending a lot of money belonging to 1MDB ... not a small amount. We are now no longer in the bracket of millions, but billions. Not determining who is Good Star is negligence,” said Shafee.

“I disagree,” Shahrol replied.

Given how the red flags were ignored, Shafee again put it to Shahrol that he conspired with businessman Low Taek Jho to mislead Najib into granting approval for the investments.

However, the prosecution contends that Najib was in cahoots with Low — now a fugitive — to misappropriate billions of ringgit belonging to 1MDB.

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