This article first appeared in The Edge Financial Daily, on April 8, 2016.

KUALA LUMPUR: The Public Accounts Committee (PAC) wants the former chief executive officer (CEO) of 1Malaysia Development Bhd (1MDB) to be investigated over the affairs of the troubled strategic investment fund, which had piled up debts of RM50 billion as at January 2016.

In a damning report tabled in Parliament yesterday after several months of work, in which dozens of people were called to testify, PAC also laid blame on the board of directors for failing to carry out their responsibilities.

“PAC is of the opinion that former chief executive of 1MDB Datuk Shahrol Azral Ibrahim Halmi must take responsibility for the weaknesses,” the report said. “As such, we request enforcement agencies to investigate (Shahrol) and others in management.”

On the role of the board of directors, PAC said: “The board was found to have failed to carry out [its] responsibilities to protect the interests of the company and shareholders, and [it] also did not take the proper action or was not proactive in reviewing the activities of management and the future cash flow of the company.”

“More vigilant controls were needed from the board of directors, including questioning the prices paid to buy assets and the costs of debt financing, ” the report said.

1MDB is owned by the Minister of Finance (Inc) (MoF Inc) but, unlike other MoF Inc-owned companies, Article 117 of its memorandum of articles and association required it to report only to Prime Minister Datuk Seri Najib Razak, who chairs the 1MDB advisory board.

On this matter, PAC said: “The advisory board should be abolished together with Article 117. All references to the prime minister should be switched to the minister of finance, in line with other companies owned by MoF Inc.”

On 1MDB ‘s financials, PAC noted that from a debt of RM5 billion in 2009, it totalled RM50 billion as at January, 2016 against assets of RM53 billion.

1MDB, the report said, spent RM3.3 billion to service interest between April 1, 2014 and March 31, 2015.

“It is clear that the level of debt and interest payments were too high compared with the cash flow of the company,” PAC said. “ Hence, 1MDB relied on refinancing to pay maturing debts and took on new debts to pay interest on the earlier debts.”

In a shocking revelation, PAC said that the board of directors of 1MDB did not approve the payment of RM4.24 billion as security deposit to a company called Aabar Investments PJS Ltd back in May 2012.

It added that to date, 1MDB has also not provided any proof that Aabar Investments PJS Ltd, which is registered in the British Virgin Islands, is related to Aabar Investments PJS and International Petroleum Investment Corp (IPIC) which are owned by the government of Abu Dhabi.

IPIC had co-guaranteed two bonds totalling US$3.5 billion that were issued by 1MDB via Goldman Sachs to purchase power plants. Under the agreement, 1MDB was to give IPIC a security deposit.

However, there have been allegations that the RM4.24 billion was not paid to IPIC or its subsidiary Aabar Investments PJS, but instead paid to a company with a similar name, Aabar Investments PJS Ltd, which is said to be set up by two top IPIC executives who have since been sacked.

In a similar case, PAC said the 1MDB board also did not approve a US$700 million payment to Good Star Ltd (Seychelles) as part of the US$1 billion joint venture (JV) with Petro Saudi International Ltd in 2009.

The PAC report released in Parliament yesterday also gave several instances where the management had misled, hidden information and defied board decisions, with regards to the JV, which it said was also rushed through in a matter of days.

Among others, PAC said the management led by then CEO Shahrol, did not inform the board of a so-called US$700 million loan that was signed between Petro Saudi and the JV company that was the basis of the payment to Good Star.

It added that 1 MDB has, to date, not provided any evidence that there was indeed such a loan.