The Other Voices on Malaysian Politics and Social Issues
Thursday, 14 July 2016
FROM SARAWAK REPORT: Money Paid by 1MDB in 2014 to bogus Aabar Limited BVI Company and Circulated Back to Singapore Account Meant to Con Parliament and the Auditors
Special Purpose Con Job?
14 July 2016
Documents released by Sarawak Report led DAP Finance Spokesperson Tony Pua to state yesterday that he suspects that much of the money paid by 1MDB in 2014 to the bogus Aabar Limited BVI company was in fact circulated back through 1MDB’s Brazen Sky bank account in Singapore, in an attempt to con Parliament and the auditors that cash had been “redeemed” from the so-called Special Purpose Vehicle (SPV), which had allegedly invested US$2.3 billion in the Cayman Islands.
“it occurred to me that the 1MDB Financial Statements for the year ending 31 March 2014 were signed off by the auditors, Deloitte coincidentally on 4 November 2014, when 1MDB GIL also made a payment of US$222 million to Aabar (BVI).” says Pua.
“At that point in time, there was increasing concern over 1MDB’s US$2.318 billion investment in an obscure investment fund based in Cayman Islands. The Board of Directors minutes have shown that the Management were repeatedly instructed to redeem the investment and repatriate the proceeds back to Malaysia throughout 2014. The company was under immense pressure because the authenticity of the investment was being publicly questioned….The accounts were finally signed off by Deloitte when 1MDB was able to “show” the auditors that US$1.22 billion have been redeemed. The money was however, not repatriated to Malaysia.”
It is a shocking suggestion, because it would mean that two Swiss banks, BSI and UBS, would have been involved in helping shift these suspicious transactions through their Singapore branches – in some cases turning round hundreds of millions of dollars in one day, according to the figures.
This is because BSI managed the Brazen Sky account and UBS managed the bogus Aabar Limited account.
Chapter 2 Item 8 of the AG Report confirms suspicious nature of SPV transactions
The Auditor General’s own analysis of this alleged ‘redeeming’ and ‘repatriation’ of the SPV cash (see full excerpt beneath) and the figures in his report lend weight to Pua’s suspicions, even though the AG complains he cannot reach a solid conclusion on the matter, because of the incomplete and limited information provided to him by the company.
“JAN [Audit Dept] was unable to verify 1MDB GIL’s subsequent payments or how the funds redeemed from the (SPC portfolio) funds were used because important documents such as bank statements and payment vouchers were not handed by 1MDB for JAN’s verification despite five requests being made between May and October 2015. Documents such as bank statements should be readily available to bank clients.” [8.12]
Such criminal obstruction of its own ought to demand severe action against managers, whom the Public Accounts Committee have called for the police to investigate.
What emerges from Chapter 2 item 8 on the Cayman SPV and supposed repatriation of the cash is yet again a litany of appalling bad practice at 1MDB, changing stories and missing money.
The Auditor General officially confirms what critics have long suspected, which is that 1MDB serially lied to parliament and the public and utterly failed in its duty:
“The issues that were uncovered depict a company which had made unwise business decisions, took high risks and was not in line with 1MDB’s status as a Government-owned strategic development company to help develop the country.”[8.29] the Auditor General angrily concludes.
The figures from Chapter 2 item 8, make very interesting reading when compared to the bank transfer documents we publicised earlier in the week, which showed payments from 1MDB Energy and 1MDB Global to the Singapore UBS account of Aabar Limited during the relevant period in 2014.
The AG shows the transfers allegedly made from the Cayman Island SPV to 1MDB’s Brazen Sky account at BSI Bank Singapore from Sept-December 2014. These were claimed by 1MDB to be ‘cash’ allegedly ‘redeemed’ from selling off the various portfolios that had been managed in the Caymans through Bridge Partners.
First look at the money that the Auditor General records as having arrived into Brazen Sky’s account (bearing in mind he complains he was not given any of the bank statements of the company to prove the origin of the cash):
“Difficulties in obtaining important documents such as the Brazen Sky bank statements and 1MDB GIL statements resulted in JAN not being able to verify the transfer of funds or payment of Aabar’s termination of option and interest payments” [AG Rpt 8.26.g]
The money allegedly arriving in Brazen Sky from the SPV in the Caymans, according to figures provided to the Auditors Deloittes and later the Auditor General
Second, look at Sarawak Report’s table of money flows from 1MDB Energy and 1MDB Global into the UBS fake Aabar Limited account, published from bank transfer documents earlier this week.
Sarawak Report’s summary of the information provided by the 9 transfer documents submitted to the auditor
Finally, combine the two tables to see how virtually identical over-all sums were sent to the fake Aabar by 1MDB Energy and later 1MDB Global to those which arrived back just a few days later in the Brazen Sky Singapore account – and were then forwarded straight on/back to 1MDB Global.
On two occasions the same multi-million sums left 1MDB Global to fake Aabar and then arrived back there (via Brazen Sky) on the very same day:
US$255,500,000 on October 23rd and then US$222,222,000 on November 4th. Tony Pua would seem to have a point!
As Pua points out it was on November 4th, after the key figure of US$1.22 billion was flushed through Brazen Sky, that the auditors Deloittes finally agreed to sign off the belated accounts for that year on the basis that this money had been ‘redeemed’ from the Cayman Islands.
Except, the AG points out that instead of being repatriated to Malaysia to pay 1MDB’s pressing debts, as had been demanded again and again of management by the Board, this money was sent on to 1MDB Global’s BSI bank account in Lugano instead.
Or should we say it was SENT BACK to 1MDB Global’s BSI bank account in Lugano from where it had come in the first place?
The PetroSaudi black hole
In fact, all the evidence already forces the conclusion that there was never any money in the Caymans to be sent back in the first place, so this was nothing more than a desperate cover-up and an audit con-job that went to extraordinary lengths.
Indeed, once the money had been ‘redeemed’ to Lugano 1MDB management made sure to write it off straight away, claiming the money had been immediately spent on terminating options and paying off loans.
As everyone who has followed 1MDB knows, the original US$1.83 billion PetroSaudi investment (which was to go through no less than four different ‘investment strategies’ in as many years, to the Auditor General’s major disapproval) was actually stolen right from the start.
Jho Low’s Good Star Limited snaffled US$700 million on Day One, then a further US$330 million later in 2011. US$260 million was siphoned into the buy out of UBG in 2010 and the remainder went to PetroSaudi itself in return for its services in “acting as a front”.
The formerly two-bit company bought itself a drill ship and purchased a lucrative drilling concession in Venezuela on the proceeds of its “joint venture”.
So, when 1MDB claimed in 2012 that it had ‘cashed in’ its share of the PetroSaudi venture for a fancy profit of US$2.3 billion they were defying the laws of mathematics and common sense. Who would have paid such money for an empty shell?
Hence began the series of twisted and turning shadowy tales about the supposed Special Purpose Vehicles, conveniently hidden in the Caymans with off-shore bank accounts, allegedly ‘investing’ in ‘portfolios’ that it was claimed could be translated back into solid cash.
No one believed Shahrol Halmi at the time and they will believe him even less now that they have seen how the money circulated round 1MDB in late 2014, with the help of the friendly off-shore fake Aabar and compliant Swiss bankers in Singapore.
The Auditor General was outrageously denied the full information he was owed to explain exactly what happened here, but what all the evidence suggests is that 1MDB started pumping money it had borrowed for its Energy and Global subsidiaries through the fake Aabar, so that it could then be sent on to Brazen Sky posing as cashed in profits from the separate Cayman Island portfolios.
No wonder that during this very November 2014 the management had started drafting resolutions to explain why 1MDB Global might need to pay money to Aabar – the remaining US$1.5 billion from their 2013 Tun Razak Exchange loan was about the only significant remaining ready cash available in the group.
Hence the agreement to ‘extend the Aabar guarantee’ to this loan as well, in order to find an excuse to pay for the privilege. Aabar’s parent company IPIC have confirmed they knew nothing of the deal – the money went to the fake Aabar of course.
So, while the AG was not given the statements to prove this is what happened, his remarks could not have delivered a clearer official verdict of utter condemnation that nothing that was done was done correctly or honestly by 1MDB (see below). No wonder the Public Accounts Committee notified the police.
Remaining US$993 million
There was of course the alleged remainder of the SPV/Cayman money that the Board had called on 1MDB to return no less than 9 times for over a year:
The AG listed the occasions the Board had asked for the PetroSaudi/Cayman Islands money to be returned without success
The remaining money was US$993 and 1MDB had explained to the Board it would need to be used to pay off yet more options to the fake Aabar, for which purpose it was allegedly also paid to the Brazen Sky account.
Except, there turned out to be no money here either as the AG details in painful stages. First 1MDB had claimed they had sold the remaining SPV to fake Aabar again, because it was “as good as cash” although the market apparently was not keen on buying the SPV notes at that particular time.
Then the deal was reversed into an alleged cash sale, which turned out to be merely notes. The Auditor established that there was no cash in the BSI account, which was plainly why 1MDB had had to borrow real cash from Deutsche Bank to pay its mounting obligations, based on the supposed collateral which turned out to be notes not cash.
When the truth became known in April 2015, Deutsche Bank pulled its loan and 1MDB had to pull its favours with the corrupt Aabar officials, who dragged IPIC into a bail out.
The Auditor provides a useful further insight into the terms of that secretive ‘Term Sheet’ with IPIC, which finally expired on June 30th with 1MDB having failed to fulfil its obligations to the Abu Dhabi fund, sparking legal action and a demand of US$6.5 billion, now facing the Malaysian taxpayer.
Many had asked what assets 1MDB had promised Aabar in return for its loan, as referred to in that binding term sheet. The answer, found the auditor, was that no one at 1MDB or Aabar actually seemed to know – even a year later.
Because 1MDB had yet to demonstrate what were genuine assets and what were fake.
Read the Chapter 2 item 8 Translation
Board Meeting Number
Date of Meeting
Prepare plan and schedule of for redeeming of funds in stages
Prepare plan and schedule of for redeeming of funds in stages
Liquidate investments in stages and return funds to Malaysia
Opportune moment to redeem investments in view of high value of USD
Management to take immediate action in redeeming funds and returning it to Malaysia
Redeem funds as soon as possible although there are no needs for cash in the near term. Funds could be used in local institutions.
Redeem at least 1/3 of the portfolio investments on Sept 30, 2014 or all on March 31, 2015.
Redeem 1/3 of the portfolio investment on Sept 30, 2014 and all March 31, 2015. Management is instructed to redeem funds on those dates
Redeem everything before or on Dec 31, 2014.
Brazen Sky shall ensure that the Brazen Sky net worth will not at any time be less than USD1,500,000,000.
With effect from the date which is six momths from the utilisation date, the borrower and Brazen Sky shall ensure that, at all times thereafter, the amount standing to the credit of Brazen Sky Account is at least equal to the Brazen Sky Required Balance.Note:Brazen Sky Account – Bank Account in Hong KongBrazen Sky Required Balance – a cash amount of USD600 mil up to a maximum of USD1,170 mil; USD500 mil plus aggregate of each Accordion Increase Amount x 1.2 [?]
Mr Arul updated the Board that the balance of USD939,874,085 had been redeemed and had been held as cash since Dec 31, 2014.
Special Board Meeting
Mr Arul: “The cash is in our accounts and in US dollars. I can assure you (about that) … I have seen the statements”.
The Business Times, Singapore, Feb 7, 2015.
Mr Arul informed the Board that, per the terms of the Deutsche Bank loan taken out in Sept 2014, there is a need for the USD975 million loan to be cash-collateralised at USD1.20 for every USD1.00 of the loan, by March 2, 2015. He therefore recommended, and that Board agreed, that the loan be repaid from the remaining USD939 million cash proceeds from the redemption of the investment portfolios held by Brazen Sky Limited, and the balance from the proposed Government of Malaysia loan.
Board meeting No 1/2015
Mr Arul updated the Board that further to the Board decision on Feb 23, 2015 he had instructed the CFO to utilise the proceeds of Brazen Sky Limited redemption to repay in full the USD975 million Deutsche Bank loan on March 2, 2015. However, the CFO informed him today that BSI apparently declined to apply the proceeds in that manner until they received a suitably worded indemnity from Deutsche Bank to release BSI from any liability in relation to application of the funds in that manner.