This article first appeared in Corporate, The Edge Malaysia Weekly, on April 18 - 24, 2016.

THE auditors for 1Malaysia Development Bhd (1MDB) told the Public Accounts Committee (PAC) that it had accepted the US$2.3 billion ascribed to the value of funds managed by a Cayman Island fund manager because it was guaranteed by Aabar Investments PJS (Aabar).

Executives from Deloitte told the PAC inquiry on June 10, 2015, that a valuer had also affirmed the valuation that was given by the fund manager Bridge Capital Partners, according to the notes of the proceedings released by Parliament.

1MDB had placed US$2.3 billion with the fund manager with money from investment with PetroSaudi International Ltd that was unwound in 2012.

The then auditor of 1MDB, KPMG, was sacked after it refused to sign off  on the accounts for the financial year ended March 31, 2013, unless 1MDB produced solid evidence that those assets were worth US$2.3 billion.

KPMG executives told a PAC meeting on June 17, 2015, that the documents they wanted to see were not forthcoming and they were not prepared to sign off on the audit. Instructions then came from the representative of 1MDB’s shareholder to sack KPMG, to be replaced by Deloitte.

KPMG partner Khaw Hock Hoe told PAC that there were six funds that 1MDB had invested in and they wanted to know details of the funds’ units but 1MDB could not provide them.

“What investments do these units represent? Without those details, one will not be able to also check whether the valuation basis is appropriate. So that was what we were asking,” said Khaw. “They (were) not happy that we didn’t want to sign off.”

Deloitte executives explained to PAC on June 10, 2015, why they were prepared to accept the valuation.

“We met the fund manager and the administrator (of the fund). We also met with the valuer that gave the input (on the valuation) to the administrator. This is a company called NRA Capital in Singapore,” Deloitte’s partner Ng Yee Hong told PAC.

Of the US$2.3 billion, 1MDB subsequently redeemed US$1.3 billion, and the money was used to pay debts. The remaining US$1.1 billion was then placed with private banker BSI Bank in Singapore.

This US$1.1 billion subsequently became a matter of contention because both the government and 1MDB president and group executive director Arul Kanda Kandasamy initially said that there was US$1.1 billion cash in the BSI account. They later corrected themselves to say it was not cash but “units”. Both the government and 1MDB have never explained what these units actually were but the notes of the PAC proceedings have shed some light.

“Our understanding of the (fund) is that Aabar had reorganised certain investments that they have and they have formed an investment club basically for governments to invest in the fund. Aabar is the party that have organised the acquisition of all these assets. Therefore they are the party that guarantees the governments that have put in the money to the fund,” Ng told PAC.

Aabar is a subsidiary of International Petroleum Investment Corp (IPIC), which is owned by the Abu Dhabi government. A fallout occurred between IPIC and 1MDB last week after the former said that it never received a payment of US$3.5 billion that 1MDB had said it paid to Aaabar Investments PJS Ltd (Aabar BVI).

IPIC said Aabar BVI was not part of the group but this was disputed by 1MDB.

Various media have reported that international investigators looking at various financial transactions of 1MDB suspect that Aaabar BVI was an imitation company created to channel money out of 1MDB for purposes other than intended.

Deloitte executives also told PAC that 1MDB had also placed US$1.57 billion with BSI Bank in Lugano, Switzerland. The money, which was part of a US$3.0 billion bond issued by 1MDB Global Investments Ltd in 2013 for the development of the Tun Razak Exchange, was invested in funds managed by the following fund managers:

1)    US$580 million with Devonshire Fund (DBS Hong Kong)

2)    US$272 million with Universal Ventures Fund (Amicorp Fund Services)

3)    US$130 million with Accession Multi Strategy Fund (Orangefield Fund Services)

4)    US$273 million with Progress Investment Ltd (Manulife Trust Ltd)

5)    US$311 million with Lambassa Global Opportunity (Amicorp Fund Services)

‘Shocked and angry’ over unauthorised US$700 million transfer

Former 1Malaysia Development Bhd chairman Tan Sri Bakke Salleh told the Public Accounts Committee (PAC) that he and his fellow directors were shocked and angry when they found out that US$700 million had been transferred to a company without the approval of the board.

He told a PAC inquiry on Feb 11, 2016, that the board had approved the payment of US$1.0 billion to the bank account of the joint-venture company 1MDB-PetroSaudi Ltd, but only US$300 million was sent to that account. The remaining US$700 million was transferred to another company — Good Star Ltd — without the knowledge of the board.

“When the board was informed about this, we were shocked and we were angry, that is how I would like to describe our reaction,” he said in describing to the PAC what had happened at the board meeting.

“At that point of time, straight away I said, ‘I’m not going to continue as a board member, I don’t want to be part of this set up, I would like to disassociate myself from management’, because I was very angry with the management,” Bakke said. ”I just told myself. ‘I’m not going to do it now, because I want to make sure the minutes (of the board meeting) recorded exactly what was discussed’.”

That board meeting was on Oct 3, 2009, and Bakke, who is now chief executive of conglomerate Sime Darby Bhd, resigned on Oct 19. His resignation was followed by that of another director, Tan Sri Azlan Zainol, in January 2010.

Jho Low was at 1MDB board meeting

Controversial businessman Low Taek Jho (Jho Low) was at the Sept 26, 2009, board meeting of 1 Malaysia Development Bhd (1MDB) which approved a US$1.0 billion investment in a joint-venture company with PetroSaudi International Ltd.

The then 1MDB chairman Tan Sri Bakke Salleh confirmed this to a Public Accounts Committee (PAC) inquiry on Feb 11, 2016. The notes of the proceedings have been released by parliament.

“We were told that Jho Low had knowledge about this investment because of his earlier involvement and role in the discussion with PetroSaudi,” Bakke said. “The management brought him along just to provide any further information should the need arise.”

This revelation contradicts Jho Low’s assertion that he was never involved with 1MDB after he stepped down as adviser to the Terengganu Investment Authority (the previous name of 1MDB) in May 2009.

Bakke also told PAC that the board was not comfortable with the speed and manner in which the joint venture had been pushed through as the board had been informed only on Sept 18, 2009, and told that the agreement had to be signed on Sept 28.

He added that the 1MDB management had also given the impression that PetroSaudi International was a company owned by King Abdullah and the government of Saudi Arabia. PAC has concluded that this was not true and that PetroSaudi International was a private company in which a son of the late king, Prince Turki, who was one of two shareholders.

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