Malaysia: 1MDB Board Offers to Resign in Wake of Parliamentary Report

Updated at 4:27 p.m. on 2016-04-07

The board of cash-strapped Malaysian state fund 1MDB offered to resign Thursday after a parliamentary inquiry committee recommended criminal investigations into its senior management.

1Malaysia Development Berhad has been in the middle of corruption allegations swirling around Prime Minister Najib Razak, the chairman of the firm’s advisory board, since July. However, the 106-page report released by the Parliamentary Accounts Committee (PAC) on Thursday did not mention his name, according to media reports.

PAC called for probes into unapproved payments by 1MDB totaling close to U.S. $3 billion, among other discrepancies, according to a copy of the Malay-language report seen by BenarNews.

PAC also found that the debt of the state-run investment firm, whose mission is to spur development projects in Malaysia, grew five-fold since 1MDB’s establishment in 2009, and stood at 50 billion ringgit (U.S. $12.6 billion) in January 2016.

The committee called on former CEO Shahrol Azral Ibrahim Halmi and other top managers of the firm to take full responsibility for its “constraints and shortcomings,” according to the report.

Shahrol Azral and the five other directors of 1MDB offered their resignations after the committee handed its report to parliament, said a statement posted on the firm’s website.

“There was no wrongdoing or illegal activity at the company under my watch,” local media quoted Shahrol Azral as saying.

“I will continue to extend my full cooperation, confident in the knowledge that I have done no wrong and have nothing to hide,” said Shahrol Asral, who served as the company’s chief executive from its founding in 2009 to 2103.

The stunning offer of resignation by the six 1MDB directors followed months of controversy about alleged financial mismanagement at the firm. 1MDB officials had consistently rejected media reports linking the firm to hundreds of millions of dollars deposited into the prime minister’s private bank accounts.

Poor oversight of funds

Authorities from at least seven countries spanning three continents are investigating allegations of financial wrongdoing linked with international banking transactions that involved 1MDB.

Najib, whom Malaysia’s attorney general has cleared of potential corruption charges in investigations linked to 1MDB, has maintained he never took any of this money for personal gain. Najib is also the finance minister, and 1MDB was set up seven years ago as a wholly-owned subsidiary of his ministry.

In its report, PAC also proposed that 1MDB’s advisory board be abolished for better management of the firm.

The report accused the board of directors of failing to safeguard the interests of the company and shareholders by not proactively scrutinizing the management and tracking of cash-flow activities at 1MDB.

“The board of directors should closely monitor the company’s activities by questioning the prices of asset purchases and cost of debts,” the committee said.

Unapproved payments

Among payments by 1MDB that were not approved by the board, the parliamentary committee said it found that 1MDB had paid 4.24 billion ringgit (U.S. $ 1.07 billion) to Aabar Investments PJS Ltd (Aabar Ltd.), a firm registered in the British Virgin Islandsl.

Other unapproved payments mentioned in the report included one of U.S. $700 million to an unnamed company, following a loan by 1MDB Petro Saudi Ltd, a joint-venture company, the report said.

After PAC submitted its report to parliament, 1MDB announced in a news release that the members of its board collectively decided to offer their resignations, given the committee’s findings.

“This has been a difficult decision to take but we believe is the right thing to do, given the circumstances, in order to facilitate any follow-up investigations as recommended by the PAC,” said the statement from 1MDB.

Prime Minister Najib also came out with a statement responding to the PAC’s findings. In it, he acknowledged that the report had identified weaknesses in 1MDB’s capital and management structure.

He vowed to follow through by acting on the committee’s recommendations “if any evidence of wrongdoing is found.”

An earlier version incorrectly reported that the 1MDB board had resigned.