Thursday 28 Mar 2024
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KUALA LUMPUR: An Abu Dhabi state investment fund has alleged that a US$1.4 billion (RM6.02 billion) payment from 1Malaysia Development Bhd (1MDB) to one of its subsidiaries is missing, The Wall Street Journal (WSJ) reported yesterday.

The disputed payment is related to the purchase of power plants around the world by 1MDB, a Finance Ministry-owned strategic investment fund, in 2012.

International Petroleum Investment Co (Ipic), a United Arab Emirates state investment vehicle, had guaranteed the US$3.5 billion in bonds that 1MDB issued to finance the purchase of power plants, according to bond offering documents.

In return, Ipic was to receive options to buy a 49% stake in the power plants as well as collateral for the bond.

1MDB’s financial statements showed that the Malaysian fund made a collateral payment of US$1.4 billion. According to the Auditor-General’s (AG) draft report on 1MDB, the payment went to Aabar Investments PJS, a subsidiary of Ipic, said the WSJ in its report highlighting the missing money.

Ipic’s consolidated financial statements, however, show no reference to the receipt of the payment.

Quoting sources, the WSJ said neither Ipic nor Aabar received the money and had no knowledge where the funds had gone.

“It isn’t clear what happened to the funds. 1MDB didn’t respond to requests for comment,” it added.

The allegation over the missing US$1.4 billion comes at a politically sensitive time as Prime Minister Datuk Seri Najib Razak, who is also finance minister and chairman of 1MDB's advisory board, is under scrutiny for accepting RM2.6 billion from an unnamed Middle Eastern donor.

The money was deposited into his private bank accounts ahead of the 13th general election in 2013. 1MDB is also under probe after amassing RM42 billion in debts since it began operations in 2009.

Aabar, the Ipic subsidiary, also helped 1MDB during a disputed audit, said the WSJ.

According to the AG’s draft report, 1MDB fired KPMG LLP as its auditor in late 2013 after the latter declined to sign off on 1MDB’s accounts unless it received more details about US$2.32 billion that 1MDB said was invested in a Cayman Islands account.

“Aabar stepped in and guaranteed the Cayman Islands funds, an official for Deloitte Touche Tohmatsu Ltd, which took over as 1MDB’s auditor, told a closed-door meeting of the parliamentary committee probing 1MDB, according to a transcript of the proceedings reviewed by the journal. 

“This guarantee was never made public. Deloitte later signed off on the fund’s accounts. KPMG and Deloitte declined to comment,” it added.

Abu Dhabi is now trying to sever ties with 1MDB, said the WSJ, and restructure Ipic, which had provided funds to the Malaysian state investor.

Meanwhile, in a statement rebutting the WSJ’s claim yesterday, 1MDB insisted that its audited financial statements have clearly described the amount and the purpose of the US$1.4 billion payment.

“We note that the WSJ does not name its source nor provide any proof of the unproven allegations it is making, thereby seriously discrediting its sensationalist story.”

1MDB said while it cannot speak on behalf of Aabar or Ipic, nor comment on the accounting arrangements of third parties, it can confirm that “1MDB’s audited financial statements clearly described the amount and purpose of the payment, which for the avoidance of doubt, is structured as a deposit (that is a financial asset belonging to 1MDB and not an expense to 1MDB)”.

1MBD noted that based on the payment, “Ipic did provide, and continues to provide guarantees for the principal and interest of two tranches of US$1.75 billion bonds issued by 1MDB, with a total principal and interest amount of approximately US$5.5 billion”.

The strategic investment fund also said its external auditor Deloitte had made specific and detailed enquiries on the payment prior to signing off on 1MDB’s audited accounts.

“Deloitte has strongly defended its methodology and audit process of 1MDB at the Public Accounts Committee (PAC) hearings, a bipartisan select committee of the Malaysian Parliament.

“Accordingly, the WSJ is wrong to state ‘it isn’t clear what happened to the funds’, at least not from a 1MDB perspective,” 1MDB charged.

1MDB also drew attention to the fact that the WSJ’s article is based on leaked confidential information, and suggested the PAC hearing on 1MDB as the possible source. The fund urged the Malaysian authorities to investigate the leak.

1MDB also noted that the Standing Orders of the Malaysian Parliament very clearly state that “the evidence taken before any Select Committee and any documents presented to such Committee shall not be published by any member of such Committee, or by any other person, before the Committee has presented its Report to the House”.

“The actions by the WSJ are a potential breach of Malaysian law by a supposedly respectable foreign publication.

“We are further concerned as to who involved in the PAC hearings may have leaked this transcript, which is clearly an attempt to prejudice the PAC investigations and deny 1MDB its right to due process as provided for by the laws of Malaysia.

“1MDB strongly urges the relevant authorities to investigate this matter thoroughly and take all requisite action to preserve the process integrity and Standing Orders of the Malaysian Parliament,” it added.

 

This article first appeared in digitaledge Daily, on September 10, 2015.

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