This article first appeared in The Edge Malaysia Weekly on September 21, 2020 - September 27, 2020

PROCEEDS amounting to US$4 billion from two loans in 2013 and 2014 that were raised on an urgent basis and meant for 1Malaysia Development Bhd (1MDB) projects were diverted for other purposes including election pork-barrelling, a prosecution witness told the court last week, another example of monies being brazenly siphoned out of the strategic investment company.

Former 1MDB CEO Mohd Hazem Abd Rahman testified last week that proceeds from the two loans that he had signed off on had been illegally diverted.

Part of the proceeds from a US$3 billion bond issuance by 1MDB’s special purpose vehicle, 1MDB Global Investment Ltd (1MDB GIL), for the development of Tun Razak Exchange (TRX) in a joint venture with Abu Dhabi, was instead used to finance the acquisition of a plot of land in Ayer Itam, Penang.

This was an initiative of Umno when campaigning during the 13th general election in 2013 and to solidify the position of Datuk Seri Najib Razak as prime minister, Hazem, who was also a director of 1MDB GIL, told the High Court.

As the US$3 billion had been raised in March 2013 on an urgent basis, 1MDB GIL had received only US$2.721 billion because it paid a steep 9.3% of the funds raised to the bond’s underwriter Goldman Sachs, as fees.

Hazem said RM1 billion went towards the purchase of the land, and another RM2 billion to pay off a debt that 1MDB owed Standard Chartered even though there had never been any board discussions on such utilisation of the funds that were earmarked for the development of TRX.

Hazem said 1MDB GIL — a company established in the British Virgin Islands on March 8, 2013 — had opened a bank account in BSI Bank in Lugano, Switzerland and that he had signed the papers three days later on March 11.

1MDB’s legal counsel Jasmine Loo said 1MDB GIL’s funds would be invested in three funds: Devonshire Capital Growth Fund, Enterprise and Cistenique, to be managed by fund manager BSI Bank Singapore.

Through Najib, the government also issued a letter of support to back the bonds, effectively agreeing to repay the loan should 1MDB default on its obligations.

After taking out Goldman’s fee, the bond proceeds of US$2.721 billion was banked into the BSI bank account in Switzerland.

Hazem testified that he asked Low Taek Jho (Jho Low) several times for the funds to be brought back, but was always met with derision. He then approached 1MDB chairman Tan Sri Lodin Wok Kamaruddin in 2014 to question Najib.

“Lodin went to see Najib, and Najib told him that he did not want the funds to come back to Malaysia. Lodin was unhappy with Najib’s answer [because] 1MDB did not have any money as all of it was tied up in overseas accounts.”

A year later, Najib gave written approval for 1MDB to borrow US$975 million from Deutsche Bank — even before the board of directors were informed of the plan to take on more debt.

The loan was purportedly to repay 1MDB’s earlier loan of US$250 million from the same bank for the purpose of a back-door listing on Bursa Malaysia for 1MDB’s energy unit, 1MDB Energy Holdings Ltd.

Again, US$681 million of the US$975 million was siphoned out to a Seychelles-incorporated company known as Aabar Investments PJS Ltd, although the transfer was purportedly made out to Aabar Investments PJS, a subsidiary of United Arab Emirates’ International Petroleum and Investment Company, as a security deposit or inducement for its US$3 billion investment in TRX as a 50:50 JV partner.

Low had manoeuvred to get Najib to give approval on behalf of 1MDB shareholder Minister of Finance Incorporated for 1MDB to borrow the US$975 million from Deutsche Bank.

As Najib, as 1MDB’s sole shareholder, had already signed shareholder documents — a shareholder’s resolution and minutes — Low instructed Hazem to tell the board of directors that Najib had already approved the loan. The directors were to sign a resolution agreeing to the loan.

On Sept 1, 1MDB Energy Holdings signed the loan agreement with Deutsche Bank.

Of the US$681 million that was siphoned off to the fake Seychelles-based Aabar, prosecutors contend that RM45.8 million of it ended up in Najib’s personal accounts.

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