The Finance Minister’s 1984 Budget would probably go down in Malaysian history as the Budget which commanded the shortest span of public attention. It is not even a nine-day wonder, for after one’s day’s publicity, the Malaysian public returned to the greater preoccupation about the $2,500 million loans scandal of Bumiputra Malaysia Finance in Hong Kong, the biggest banking and financial scandal in the history of Malaysia since Merdeka.
I believe I am not the only one to be very disappointed by the failure of the Finance Minister. Tengku Razaleigh, to take the opportunity of the 1984 Budget presentation to make disclosures, either through his orang presentation or by way of an appendix to the Treasury report 1983/84, about the BMF scandal in Hong Kong in view of the colossal sum of public funds involved.
The Finance Minister’s 1984 Budget presentation, therefore, has done nothing to restore both national and international confidence about the integrity and responsibility of the country’s banking and financial institutions, as well as in the political will and commitment of the Government to clean up the BMF mess and punish the culprits involved to ensure that there would be no recurrence in future.
The BMF scandal is the concern of all Malaysians for its parent company, Bank Bumiputra, was enstablished with public funds and from 1971 to 1980 Parliament allocated a total of $253.5 million to Bank Bumiputra, to, in the words of Tun Abdul Razak when he launched Bank Bumiputra on September 30, 1965, “remedy the lack of capital among the Bumiputras so as to enable them to improve their existing business and to encourage them to undertake new enterprises which are expected to accelerate development and increase the wealth of the country”.
It is also the concern of all Malaysians because as the flagship of Malaysian banks, Bank Bumiputra must set the example of exemplary leadership in banking and financial ethics and conduct for other banks and financial institutions to follow.
The BMF loans scandal, however, is of even more direct concern of the 1.3 million bumiputras who have invested in the Amanah Saham Nasional because ASN parent body, Permodalan Nasional Berhad (PNB) has just injected $600 million into Bank Bumiputra to stall off the BMF crisis, with long-term adverse consequences to the value of ASN
This is why the DAP had for last eight months called for full public disclosure on the BMF scandal, and let the chips fall where they should, regardless of however high-ranking whoever is involved in the BMF scandal, so that those who are responsible would be brought to book and be a lesson to others in future to demonstrate Malaysia’s seriousness in demanding high standards of responsibility and integrity among those entrusted with the financial future of the country.
In the debate on the Audit Amendment Bill in the Dewan Rakyat as far back as 14th March 1983, I called on the Government to invoke Article 106(2) of the Federal Constitution to order the Auditor-General to audit the Bank Bumiputra and in particular the Bumiputra Malaysia Finance loans scandal, but it fell on deaf ears. On June 28, 1983, the DAP called for a Government White Paper on the BMF loans scandal and on 21st July 1983, we called for a Royal Commission of Inquiry into the loans scandal following the cold-blooded murder of Encil Jalil Ibrahim, the Assistant General Manager of BMF, in Hong Kong.
Up to now, the Government has been conducting a sustained operation of stone-walling to escape accountability to the people on the BMF loan scandal. The Malaysian people are therefore entitled to demand to know why they should be asked to pay increased government taxes, rates and other government charges and levies when the Government allows Bank Bumiputra and Bumiputra Malaysia Finance to squander billion of dollars of public money with complete impunity.
I remember that in the 1979 UMNO General Assembly, the then Prime Minister, Datuk Hussein Onn, referring to the Bank Negara scandal involving some $150 million of malpractices, mismanagement and misuse of public funds, said that “a country will be destroyed if its leaders are dishonest, untrustworthy or corrupt” and expressed the hope that the Bank Rakyat “fiasco” would be a “bitter lesson to other government institutions and agencies including companies and subsidiaries set up by the Government”
Tun Hussein Onn’s 1979 hope had proved futile, for we have in the BMF loans scandal involving some $2,500 – $3,000 million, a scandal which is 20 times more serious that the Bank Rakyat fiasco – and not only was there no UMNO delegate at the recent UMNO General Assembly who showed any interest or concern in the BMF scandal, we now have a government which is not prepared to be as forthright and as accountable as the previous Administration which ordered a Price Waterhouse investigation into the Bank Rakyat fiasco as well as releasing the Price Waterhouse report and a Government White Paper on it.
Although the Prime Minister, Dr. Mahathir Mohamed, said over the weekend that the Government was considering the possibility of setting up a Royal commission of Inquiry into the BMF loan scandal, and he did not rule out possibility of a White Paper, I cannot find this satisfactory. I of course welcome signs that Dr. Mahathir Mohamed is responding to the nation-wide pressure for a full disclosure on the BMF scandal, but it is time that the Government make a full commitment to establish a Royal Commission of Inquiry into the BMF considering that the Government must have known about BMF and Bank Bumiputra mess for about two years.
For all this time, the Government had bee b evading its responsibility to Parliament and the people on the BMF and Bank Bumiputra scandal. When DAP MPs asked the Government in March and July meetings of Parliament about the BMF crisis, the Finance Minister, Tengku Razaleigh, invariably invoked the Central Bank of Malaysia Ordinance 1958 and the Banking Act 1973 to justify their legal inability to disclose any information relating to the affairs of any bank except by way of a High Court order.
But in actually fact, the Government does no regard such laws on non-disclosure on banking information as totally sacred and inviolable. This could be seen by the New Straits Times front-page report, highlighted further by being put in a box, dates Wednesday, October 12, 1983, under the heading ‘Maybank’s loan to carrian’. The report, datelined Kuala Lumpur, said:
“Kuala Lumpur, Tues. – Malayan Banking is a party to a syndicated loan, totally HK$540 million ($156 million) for the carrian group, an official of the bank said today.
“The bank’s share is ‘small … less than the average of the 23 banks involved in the syndication,’ … he added.
“The official said the loan, secured against a property called the Carrian Centre, was managed by Wardley Ltd. Of Hong Kong
“Wardley was one of Carrian’s advisers. It has since withdrawn from that role.”
This report is most remarkable, for not a single one of the creditors of Carrian apart from Malayan Banking appears to be ready to volunteer information of their Carrian dealings. Even Bank Bumiputra is not prepared up to now to give the full disclosure of its loans to Carrian and the total loans given out in Hong Kong, which I estimated to be in the region from $2,500 million to $3,000 million.
Is this New Straits Times scoop the result of unusual journalistic enterprise? A seasoned observer will know that the New Straits Time report is an official leak by the Government, which owns 50 per cent of the equity of Malayan Banking Berhad, 30 per cent being held directly and 20 per cent through Bank Bumiputra Malaysia.
I can only conclude that the official leak about the Malayan Banking’s loans to Carrian, either by Bank Bumiputra or the Government, is an attempt to ‘whitewash’, in the words of Dr. Mahathir Mohamed, the ‘heinous crimes’ of Bank Bumiputra and BMF. Is the government investigating who leaked the information and violated both the Central Bank Ordinance and Banking Act and initiate prosecution against him or them?
On 11th October 1983, the Prime Minister, Dr. Mahathir Mohamed, Made his first statement on the BMF scandal, which he described as a ‘betrayal of trust’ and ‘a heinous crime’. His statement, however, raised more questions than answering any.
Before I proceed further, I wish to register m protest at the contempt that Dr. Mahathir has shown Parliament in not giving in accounting to Parliament on the BMF, especially as on the previous day, 10th October 1983, I had sought to adjourn the House on a motion of urgent, definite public importance to discuss the need for a Royal Commission of Inquiry into the BMF loans scandal, and the application was rejected by the Speaker on the ground that that Government would be making a statement on it.
It is implicit in the Speaker’s ruling that the Government would make the BMF statement in Parliament. The Prime Minister not only made the statement on the BMF outside the House, but even told reporters that he did not answer questions in Parliament on the BMF because the funds involved are those of Bank Bumiputra and the BMF and not that of Treasury and that in Parliament the BMF issue would be ‘politicised’.
The Prime Minister has shown gross ignorance of the principles of accountability to Parliament in this case, which is shocking for one whose first hundred days as Prime Minister was associated with the beginning of a government which would honour the principle of accountability to the people, but he has also shown contempt to Parliament. I would ask the Prime Minister to apologise, if not to individual Members of Parliament, at least to the institution of Parliament for such slight and contempt, unless Prime Minister is finding Parliament insufferable and intolerable and should be reduced to a mere rubber-stamp for the cabinet.
Dr. Mahathir’s statement, which came about a year after the first news of the BMF loans scandal in Hong Kong had broken publicly, was clearly forced out of the Government because of the Hong Kong magistrate’s court revelation on 4th October 1983 that Carrian Investment owed Bumiputra Malaysia Finance at least HK$4.6 billion (about M$1.7 billion) and no one knows what has happened to almost half the money of about HK$2 billion (M$769 million) and the ensuing liquidation proceedings taken against the Carrian Group after the arrest of its mastermind, George Tan.
I have said that the Prime Minister’s October 11 statement and other subsequent statements raise more questions than answer any. I will deal with these questions one by one.
1. What is the extent of BMF Loans to Hong Kong?
Early in the year, Bank Bumiputra and Government officials allowed the people to believe that the BMF loans in Hong Kong were in the region of some $400 million. However, as a result of the revelations in the Hong Kong magistrate’s court about the Carrian Investment’s $1,700 million loan from BMF, the total figure appears to have shot up to $2,000 million. In fact, in my press statement on June 28 calling for a Government White Paper on the BMF loans, I had already estimated the BMF’s loans to the three Hong Kong creditors alone, namely Carrian Investments, Eda Holdings and Kevin Hsu, to be in the region of $2,000 million!
However, with the recent Hong Kong court revelations, this estimate may have to be revised upwards. One of the BMF’s famous trio of creditors, Kevin Hsu, had been reported in the international press as owing BMF $1,000 million. Together wit the debts of Eda Holdings, as well as loans given out by the BMF to other Hong Kong borrowers, the grand total of BMF loans in Hong Kong could easily be in the region of $2,500 million to $3,000 million considering the reckless and imprudent manner in which massive loans are given out by BMF.
I would call on the Government to give Parliament the grand total figure for the BMF loans in Hong Kong.
2. How much does BMF stand to lose?
The second question is how much Bumiputra Malaysia Finance and its parent company, Bank Bumiputra, which had “undertaken to assume the liabilities, obligations and commitments of BMF”, stand to lose? Dr. Mahathir had estimated that the BMF would be able to recover some 25-30 per cent of the BMF loans, while financial circles in Hong Kong regarded a 20% recovery as already ‘optimistic’.
Taking a 20% recovery on the basis of a lower grand total figure of $2,500 million loans in Hong Kong, this means that the BMF and the Bank Bumiputra stand to lose $2,000 million – which is a colossal sum of money, and as the DAP candidate for the forthcoming Seremban by-election, as well as DAP National Chairman, Dr. Chen Man Hin, had computed last Saturday, it could build 120,000 low-cost housing units or 150,000 classrooms!
3. Who in Bank Bumiputra was responsible for the BMF loans?
The next question is who in Bank Bumiputra was responsible for the BMF loans. Dr. Mahathir said that the Bank Bumiputra Board, apart from the then Chairman, Tan Sri Kamarul Ariffin, was apparently unaware of the extent of the loans to Carrian. This is a most unbelievable statement as on the Bank Bumiputra Board were two other directors, Lorraine Esme Osman and Datuk Mohamed Hasim Shamsuddin, who were also BMF directors directly involved in the BMF loans. Dr. Mahathir also said that the Bank Bumiputra’s auditors warned the bank’s chairman of the extend of the BMF’s loans to Carrian.
Tan Sri Kamarul Arrifin has totally denied knowledge of the BMF loans to Carrian, and asserted that it was never brought up at the Bank’s Board meeting and that he also never asked about them. Up to now, he had not seen the external auditor’s reporting concerning the huge loans to Carrian. He said that while he was bank chairman until March 1982, his policy was that no loans were to be given for loans overseas and that he was not aware that any funds had been given to BMF by Bank Bumiputra.
Tan Sri Kamarul Ariffin went on further to imply that th BMF’s loans scandal in Hong Kong was largely the development after his stepping down as Chairman. Thus, he said that when he stepped down, the BMF statement of accounts did not show any extra-ordinary loans figures, and that he was himself shocked to read the BMF’s statement of accounts issued after his departure showing extraordinarily massive loans.
Tan Sri Kamarul Ariffin’s remarks are important, for the BMF’s 1982 annual report showed that the BMF’s outstanding loans at the end of 1982 soared 145% from HK$2,032 million at the end of 1981 to HK$4,972 million at the end of 1982; and that the new lending was funded entirely by Bank Bumiputra which pumped HK$2,282 million into BMF in 1982.
The question is whether this 145% increase of the BMF’s Hong Kong Loans in 1982 took place during Tan Sri Kamarul Ariffin’s tenure or after. If it took place after Tan Sri Kamarul Ariffin’s tenure, then the new Bank Bumiputra Chairman, Dr. Nawawi Mat Awin, should clarify this for he must bear responsibility for this 145% loan increase.
Unfortunately, Dr. Nawawi has so far been making meaningless statement like the one last week that “apart from the BMF, the bank and the rest of the group have done well and their operating results will be significantly better than the previous years”, because these other Group profits would be completely wiped out and put the Group in deep red as a result of the massive $2,000 million losses from the BMF.
However, Tan Sri Kamarul Ariffin’s statement that when he resigned as Bank Bumiputra Chairman he knew nothing about BMF loans because no Bank Bumiputra money was given to BMF is highly irresponsible and incredible. This is because from the 1981 BMF Director’s Report and Accounts, it is clearly shown that the BMF owed the parent company, Bank Bumiputra, HK$1,879 million at the end of 1981 as compared to HK$1,088 million at the end of 1980.
Furthermore, can Tan Sri Kamarul Ariffin really disclaim knowledge of BMF’s total outstanding loans of HK$1,258 million at the end of 1980 and an increase of 61.5% to HK$2,032 million at the end of 1981?
How could the Executive Chairman, and all the other Directors of the Bank, who have lent out billions of dollars to a subsidiary know nothing about it, or how could Bank Negara, as well as the Bank’s internal and external auditors, allow such imprudent transactions to continue?
There is also dispute as to whether Tan Sri Kamarul Ariffin was asked to step down as Executive Chairman of Bank Bumiputra because of his involvement in the BMF affair, as suggested by Dr. Mahathir and subsequently confirmed by a Bank Bumiputra source, but contested by Tan Sri Kamarul Ariffin himself, who said he resigned because he had ‘archieved what he had set out to do’ – namely the handing over of Bank Bumiputra shares to the bumiputras when PNB acquired majority shareholdings.
However, if it is true that Tan Sri Kamarul was asked to step down because of the BMF affair, then we can make the following assumptions:
Firstly, that by Tan Sri Kamarul Ariffin’s own admission, from August 1981 to the end of the year, he was confined to his home with hepatitis, the authorities concerned must have come to realize the need to replace him sometime in the latter part of 1981, probably as a result of his illness; this is because it must have taken some time before understanding the BMF maze of loans and the Bank Bumiputra’s financial crisis. It is unlikely that this happened at the spur of the moment in February or March 1982.
Secondly, that the 1982 BMF loans which exceeded the 1981 loans by 145% were made without the knowledge of Tan Sri Kamarul Ariffin.
However, if Tan Sri Kamarul Arrifin resigned on his own volition then the above two suppositions do not apply.
4. What is Bank Negara’s role in the BMF scandal?
We now come to the Bank Negara’s role in the BMF scandal. Tan Sri Kamarul Ariffin said that the Bank Bumiputra has special links with the government with certain specific features not found in other banks and that no important decisions were made without the knowledge and agreement of Bank Negara. The refusal of the Bank Negara Governor, Tan Sri Abdul Aziz Taha, to comment on Tan Sri Kamarul Ariffin’s statement however does not absolve Bank Negara’s responsibility in allowing the Bank Bumiputra to commit itself to the BMF loans.
Dr. Mahathir Mohamed said on October 11 that Bank Negara was ‘apparently unaware of the BMF affair’ earlier on but its investigations were still going.
This statement is shocking for two reasons:
Firstly, does Bank Negara want the people to believe that it does not read the published annual reports of Bumiputra Malaysia Finance that revealed that in 1980, it owed Bank Bumiputra HK$1,088 million and issued outstanding loans amounting to $HK1,250 million; while in 1981, it owed Bank Bumiputra HK$1,879 million and had outstanding loans amounting to HK$2,032 million, or it had read them without seeing danger signals? If Bank Negara was not aware of the BMF’s loans in 1980 and 1981 ‘made beyond banking prudence’ (in the words of Tan Sri Aziz Taha on the BMF affair), then Bank Negara had also been grossly negligent in its duties to promote a sound and modern banking structure and facilities effective supervision and control of banks and their financial institutions.
Secondly, that even up to now, after some two years since the Government authorities realized that the BMF is highly scandalous case requiring Tan Sri Kamarul Ariffin to be replaced, Bank Negara has still not completed its investigations. This again raised the question about the competence and efficiency of the Bank Negara!
Clearly, Parliament and the people are entitled to know what Bank Negara has done to try to prevent the BMF loans scandal; whether it had simple fallen on its job or whether it had been prevented by political interference from powerful circles from discharging its responsibility as the custodian of banking integrity in Malaysia.
5. Which Minister is in direct charge of Bank Bumiputra?
A most shocking revelation of the unfolding BMF scandal is the breakdown of authority where no Minister knows who is really in charge of Bank Bumiputra.
In February this year, after the famous Sri Gading speech of Deputy Prime Minister, Datuk Musa Hitam, on the deviations of Bank Bumiputra, the Finance Minister, Tengku Razaleigh, said in Kuala Lumpur that the Bank Bumiputra was under the charge of the Prime Minister and that the Bank Bumiputra Board was responsible directly to the Prime Minister.
But the Prime Minister said in his October 11 statement that Bank Bumiputra was under the Finance Ministry during the whole period of the BMF scandal and still is now.
When I asked the Finance Minister the next day on 12th October during question time who was in real charge of Bank Bumiputra, Tengku Razaleigh replied that if the Prime Minister said he was in charge, then he was in charge. What type of an answer is this?
This dispute as to which Minister is in charge of Bank Bumiputra is even more disturbing than the BMF loans scandal, for it shows a failure and even collapse of government leadership when the Cabinet is confused as to the allocation of the various Ministerial responsibilities.
Parliament must demand a full explanation from both the Prime Minister and Finance Minister as to how this confusion, leading to no-one in charge, could arise.
6. A ‘heinous crime’ without criminals?
What Malaysians find unacceptable is that although Dr. Mahathir describes the BMF loans scandal as a ‘heinous crime’, there appears to be no criminals, Dr. Mahathir said that Tan Sri Kamarul Ariffin as well as four other senior officers of the bank’s Hong Kong subsidiary, BMF, accepted ‘consultancy fees’ amounting to HK$3.3 million from BMF between 1979 and 1981. Dr. Mahathir said that these were ‘moral wrongdoing’ although what they had done was within the law and they would not be taken to court.
Dr. Mahathir gives the Malaysian public two impressions here: Firstly, he seems to be double-quick in absolving everyone of legal liability by merely attaching them with moral wrongdoing. Dr. Mahathir’s absolutions of these legal liability appears to be over-hasty and ill-advised. However, taking his words at face value, that the government has no legal case against them as they were guilty only of ‘moral wrongdoing’, then it is the Government taking action to strip these persons of their Tan Sri-ship and Datuk-ship as they bring dishonor and disrepute to these titles by their ‘moral turpitude’?
The second impression is that Dr. Mahathir is spending an inordinate amount of time on HK$3.3 million of ‘consultancy fees’ when what is at stake is some $2,500 million!
Malaysians are going to find it hard to believe that in a BMF scandal involve $2,400 million, ‘heinous crimes’ have been committed without criminals. The public suspicion of ‘cover-up’ would be impossible to dismiss
Tan Sri Kamarul Ariffin’s denial that he has received ‘consultancy fees’ from BMF and the inability of the Prime Minister to substantiate his allegation has weakened even further the government’s entire credibility in the BMF affair.
7. The Anti-Corruption Agency’s Role
Another sorry chapter in the unfolding BMF scandal is the role of the Anti-Corruption Agency. Last Thursday, it was reported that the Anti-Corruption Agency had no plans to probe the BMF affair as nobody had asked the ACA to investigate any aspect of the matter. It is now the typical characteristic of the ACA to be blind and deaf to major scandals and corrupt practices and alive only to ‘small fishes’ as even conceded by the Deputy Finance Minister, Dr. Ling Lion Sik.
Surely, the ACA must be aware of the Asian Wall Street Journal of March 18-19, 1983, which named names and their detailed transactions which if true are clearly fully within the jurisdiction of the ACA.
Thus, the Asian Wall Street Journal reported that Bank Bumiputra director as well as BMF director, Hashim Shamsuddin, became a director of a tiny Hong Kong company, called Silver Present LTD. On September 5, 1981. His wife, Margaret Rose Pinder, owned half the company.
Three days later, Silver Present received a HK3.6 million cheque from the account of property speculator Chung Chin-Man’s wife. Two days after the cheque was issued, BMF lent Mr. Chung’s Eda Group US$40 million. The only collateral was 115 million Eda shares which are now virtually of no value as Eda went into liquidation with HK$2 billion in debts.
The same Asian Wall Street Journal report also stated that on the same day that Silver Present got the HK$3.6 million cheque, another private Hong Kong company, Knife & Dagger Ltd., received a cheque for the same amount from the account of Mr. Chung’s wife. The Journal reported that the Hong Kong government records indicated that Knife and Dagger’s only shareholders were Carrian Chairman, George Tan, and his secretary, Carrie Woo. Knife & Dagger Ltd. was incorporated in November 1979. In January 1980 the company deposited HK$372,000 with Wing Lung Bank Ltd. to guarantee a banking facility for Ibrahim Jaffar, BMF’s general manager. The Journal reported that at about the same time, Ibrahim also received a Hong Kong $1 million facility guaranteed by Carrian Holdings Ltd.
To my knowledge, neither of the two persons named by the Asian Wall Street Journal had taken legal action to sue the journal for libel. Surely, these two gentlemen should be subjects fit for the ACA to conduct investigations.
The ACA prides itself as being independent and impartial, not subject to the dictates of powers of the day. Last weekend, I tried to make an appointment with the top ACA officers to discuss about the BMF scandal, ut the ACA officials were so ‘independent’ that they dare not even return the calls by my secretary, Madhavan Nair. I have no doubt that if the Prime Minister wanted to see them, the ACA would break into a run. This is the independence and impartiality of the ACA!
8. The Role of Permodalan Nasional Bhd
As the PNB has become the 80% majority shareholder of the Bank Bumiputra with the recent injection of $621 million into the Bank’s shareholders’ fund raising it from $644 million (share capital $476 million and reserves $168 million) to $1,265 million, the PNB owes in particular the 1.3 million bumiputra investors in the Amanah Saham Nasional a full explanation whether their interest have been prejudiced by the PNB’s majority stake in the Bank Bumiputra.
As a result, the scandal of the BMF and Bank Bumiputra has also become he scandal of PNB and ASN.
9. Are BMF troubles the result of the collapse of the Hong Kong property market or more deep-seated in being involved in one of history’ greatest corporate frauds?
From Dr. Mahathir;s October 11 statement, we are being made to believe that the BMF troubles and crisis were created by the ‘hamfisted’ handling of the China-Hong Kong relationship by the British resulting in the collapse of the British colony’s property market.
While it is true that the collapse of the property and shares market at the end of 1982 created an economic crisis in Hong Kong, this must not blind us to the fact that the BMF’s loans scandal was something more deep-seated: involvement in probably one of history’s greatest corporate frauds.
The George Tan and Carrian phenomenon was very much the creation of BMF. The trial of George Tan in Hong Kong would probably reveal not only the frauds of George Tan but also the BMF’s role.
Is this the reason why the BMF officials were involved in helping to raise the $15 million bail which the Hong Kong courts demanded for his release? Why should the BMF officials be so solicitous about the welfare of a man who may have caused the BMF and the people of Malaysia the loss of some $1,700 million? Is this to get George Tan’s goodwill to co-operate to keep under wraps the BMF’s role in the George Tan and Carrian phenomenon? Did the Bank Bumiputra Board of Directors and the BMF authorize the BMF officials to help in raising funds for the bail for George Tan?
10. A Royal Commission of Inquiry
A Royal Commission of Inquiry into the BMF scandal is imperative not only to get to the bottom of the Bank Bumiputra and BMF loans scandal, but also to restore national and international confidence in the banking and financial institutions in Malaysia as well as to re-establish the credibility and authority of the political leadership in the country.
Such a Royal Commission of Inquiry is necessary especially as it has been rumoured for some considerable time that prominent political personalities, reaching up to Cabinet or former Cabinet level, had been involved in the BMF loans scandal. This is all the more credible as very few Malaysians would believe that a handful of BMF directors and officials would dare on their own authority to commit Malaysia to the tune of some $2,500 million.
A Hong Kong source has also attributed to a high official of the British Colony indications that the Carrian investigations and trials would eventually implicate high officials of a neighbouring country, up to even Cabinet level.
We cannot wait for the series of George Tan court trials for the various BMF time-bombs to go off. We must have the character and political will to conduct our own investigations into the BMF affair.
The dark hints by Tan Sri Kamarul Arriffin that Malaysia could face several more Carrian-like problems, especially involving the PNB, should make such a Royal Commission of Inquiry unchallengeable, or otherwise, it would give rise to an impression that the Government had been cowed by Tan Sri Kamarul Ariffin’s threat that more Carrian-like scandals would be exposed to sweep everything under the carpet.
I would also want the Finance Minister, Tengku Razaleigh, to confirm or deny as to whether Hashim Shamsuddin was the Treasurer of the UMNO Building Fund committee, for such connections would give rise to more interference which only a Royal commission of Inquiry could clear.
The Prime Minister should make an early decision to establish a Royal Commission of Inquiry. The Commission should comprise Malaysians of undoubted integrity who can command respect and confidence from all sections of the Malaysian Society. Dr. Mahathir should not make the same mistake committed by President Marcos when appointing a commission of inquiry into the assassination of Filipino Opposition Leader, Beningo Aquino, who now has to replace them with a new commission as the members did not have public respect.
A Royal Commission of Inquiry into the BMF should be conducted in public with full powers to investigate all aspects of the BMF loan scandal, including the roles played by Bank Bumiputra, the internal and external auditors as well as Bank Negara.
11. DAP calls on Attorney-General to prosecute Bank Bumiputra Directors for non-compliance of Section 169 of the Companies Act 1965 which is punishable with two years’ jail or $5,000 fine
I now come to the massive operation of the Bank Negara Directors, and in particular the Chairman, Dr. Nawawi Mat Awin, to mislead the public about the true state of the accounts of the Bank and its subsidiaries.
I have shown the 1982 Directors’ Report and Accounts of the Bank Bumiputra Malaysia Bhd to company law authorities, and I have been advised that based solely on the Bank Bumiputra’s 1982 Directors’ Report and Accounts, the Executive Chairman and the Directors of Bank Bumiputra have failed on several counts to complay with the requirements provided for in Section 169 of the Companies Act 1965 which make them liable to prosecution under Section 171 for offence punishable with two years jail or $5,000 fine each.
I want to ask the Finance Minister whether action has been initiated to prosecute the Bank Bumiputra directors for failing to comply with the Companies Act to make salutary example of them so that the directors of all banks and companies would adhere scrupulously to the requirements of Section 169 of the Companies Act designed to protect the interests of shareholders and the public.
Thus, Section 169(5) of the Companies Act 1965 provided that the directors of a company shall cause to be attached to every balance sheet in the Director’s annual report and accounts a report signed by or on behalf of the directors with respect to the state of the company’s affairs and “if the company is a holding company with respect to the state of affairs of the holding company and all of its subsidiaries.”
Section 169(6) in its various sub-sections provides that the report shall state with appropriate details –
(a) Whether or not the results of the operations of the company and of its subsidiaries in the period covered by the profit and loss account have in the opinion of the directors been materially affected by items of an abnormal character;
(c) Whether or not any circumstances have arisen which render adherence to the existing method of valuation of assets or liabilities of the company misleading or inappropriate;
(d) Whether any contingent liabilities which have not been discharged have been undertaken by the company or by any of its subsidiaries in the period covered by the profit and loss account and, if so, the amount thereof and whether or not any such contingent liability has become enforceable or is likely to become enforceable within the succeeding period of twelve months which will materially affect the company in its ability to meet its obligations as and when they fall due.
Non-compliance of these provision under Section 169(6), which appeared to be the case with regard to the Bank Bumiputra’s Directors’ Report for 1982, make them liable to conviction under Section 171 which provides for a penalty of two years’ jail or $5,000 fine.
How can the Bank Bumiputra’s Directors’ Report for 1982 report that the results of the Bank and the Group for the year ended 31st December 1982 ‘have not been materially affected by items of an abnormal character’ when the bottom had gone out of the Hong Kong shares and property market by the last quarter of 1982, and before the end of 1982, BMF’s three major borrowers, Carrian Investment, Eda Group and Kevin Hsu, were unable to repay their debts.
It was clear by the end of 1982 that the BMF would be able to recover only a small fraction of its HK$4,972 million loans. This is why BMF’s auditors, Touche Ross & Co, Chartered Account/Certified Public Accountants. Touche Ross & Co. Only certified the Accounts of 1982 after the qualification that “the parent company (Bank Bumiputra) has given an undertaking to assume the liabilities, obligation and commitments of the company should the borrowers of the company become insolvent.”
The insolvency of Carrian, Eda and Kevin Hsu had thus become a very real possibility by the end of 1982, but this ‘item of an abnormal character’ involving some HK$4,972 million for which Bank Bumiputra had to assume ‘full liabilities, obligations and commitments’ and which could totally wipe out Bank Bumiputra’s shareholders’ fund was not mentioned at all. This is clearly in non-compliance with Section 169 of the Companies Act.
Again, how could the Bank Bumiputra Director’s certify that no circumstances had arisen which would render adherence to the existing method of valuation of assets and liabilities of the Bank and of the Group ‘misleading or inappropriate’ when the Directors have not made adequate provision for the BMF bad loans and doubtful loans, for which it had stood guarantee?
Again, how could the Bank Bumiputra Directors in their Report dated 13th June 1983 declare that ‘no contingent liabilities have become enforceable or are likely to become enforceable within the succeeding period of twelve months which will materially affect the Bank or the Group in their ability to meet their obligations as an when they fall due’ when it was very clear by June 1983 that the rescue operation of Carrian, for instance, may not succeed, and Bank Bumiputra may have to immediately meet its obligations. As events proved, despite the declaration that no contingent liabilities “are likely to become enforceable within the succeeding period of twelve months”, i.e till June 1984, within three months of the Directors’ Report, the Carrian empire had collapsed!
I have been advised that solely on the Directors’ Report for 1982, without taking into account the extraneous statements and developments which could only fortify the cases, the Bank Bumiputra Directors had failed to comply with the Companies Act requirements in section 169 on disclosures in their Annual Report, and had committed offences under Section 171.
Section 169(16) provided that ‘the form and content of the reports of the directors and the annual balance-sheet and profit and loss account shall apply to a banking corporation with such modifications and exceptions as are determined either generally or in any particular case by the Bank Negara, Malaysia’, but this sub-section could not be taken to a mean to exempt Bank Directors to disclose material particulars, or to empower Bank Negara to defeat the whole purpose of Section 169 on disclosure and to commit unlawful acts.
I call on the Attorney-General to prosecute the Bank Bumiputra Directors for offences under the Companies Act for their misleading Directors’ report for 1982 in relation to the BMF loans scandal. The famous Tarling’s Case in Singapore, which had received the imprimatur of the Privy Council, has clarified the Directors’ duties and liabilities in this regard.
It is ironic that just for the sake of pretending that its Groups pretax profits were impressive, namely $84.7 million (an increase of $9.5 million or 12.7%), Bank Bumiputra Group had to provide for $40 million in taxes which it would not need to do if it had made adequate provision for the doubtful BMF loans in Hong Kong. Probably the PNB and ASN investors should demand that the Bank Bumiputra Directors should be responsible for this unnecessary tax of $40 million!
According to the Bank Bumiputra Directors’ Report for 1982, the Directors for the year ended 1982 were:
• Dr. Nawawi Mat Awin (Executive Chairman as from 1.4.1982)
• Datuk Mohd. Hashim Shamsuddin (Executive Director)
• Lorrian Esme Osman
• Datuk Haji K. Mushir Ariff
• Tan Sri. S.O.K. Ubaidulla
• John K.D. Eu
• Tan sri Kamarul Ariffin (Resigned on 9.2.1983)
• Senator Datuk Saleiman Ninam Shah (resigned on 13.3.83)
The Attorney General should prosecute all the above eight Directors as they are collectively and individually responsible for the misleading information of the 1982 Bank Bumiputra Directors’ Report in contravention of the Company Act 1965
12. The role of the Auditors
This brings me to the Auditors of Bank Bumiputra Malaysia Bhd., Hanafiah Raslan & Mohamed, Chartered Accountants/Certified Public Accountants, who issued a clean certificate to the 1982 Bank Bumiputra Accounts without any qualifications or reservations whatsoever, declaring that the accounts and report gave “a true and fair view” of the Bank and the Group’s Affairs as at 31st December 1982.
This reminds me of the Government White Paper to the Bank Rakyat fiasco in 1979 which attributed the Bank Rakyat malpractices to the Managing Director and certain officers of the Bank, but said that if the Chairman, the Board of Directors, the Registrar-General of Co-operative Societies and the external auditor “had properly discharged the functions and responsibilities imposed on them, they could have prevented the management from perpetuating the malpractices and thereby could have reduced the losses to be borne by members of the Bank”
The White Paper stated that the auditors of Bank Rakyat, Kassim, chan & Co. Failed to comment on a number of important issues in the 1973 and 1974 accounts placed before the members of the Bank at their 19th Annual General Meeting on 6th September 1975. It went on to state that the Price Waterhouse investigations revealed that the auditors did not sufficiently comments on:
(a) The maintenance of proper accounting records;
(b) The provision of doubtful loans;
(c) The valuation of investments in stocks and shares when the market price was substantially below cost.
Section 174 of the Companies Act requires every auditor to state whether, in his opinion, the balance sheet and profit and loss account give a ‘true and fair view of the state of the company’s affair’ and also whether the Directors’ Report had complied with the requirements of the Act.
If the Bank Bumiputra Directors in their 1982 Report had failed to provide the information required by the Companies Act, then the Auditors had also committed a grave act of professional negligence by giving a clean, unqualified report.
Auditors are liable for the losses incurred by their clients because of negligent or fraudulent auditing, but in the case of Kassim, Chan & Co., I am not aware that Bank Rakyat took any action against the auditors to recover the $150 million losses incurred. All that I have read is a three-month suspension as auditors, which is a very lenient treatment indeed.
I call on the authorities also to look into the role of the Auditors in the BMF and Bank Bumiputra loan scandal.
Why did the Malaysian Government protest to Hong Kong authorities against the use of certain BMF documents in George Tan’s case?
Finally, I am most disturbed by a report in a local press today that the Malaysian Government has officially complained to the Hong Kong authorities against the use of certain BMF documents in the case involving the Carrian Boss, George Tan.
According to the report, the Malaysian Government was of the view that the Hong Kong police were ‘unethical’ in using BMF documents seized in connection with the murder of Jalil Ibrahim for the George Tan trial.
According to the report, the Hong Kong police took away hundreds of documents from the BMF and more than 150 crates of documents from Carrian headquarters on September 9 and 10 but the only aspect the police investigated was connected with the BMF loans.
The impression that has been created and reinforced by previous developments, as in the involvement of BMF officials in raising bail of $15 million for George Tan, is that the Malaysian Government has become the defender, protector and guardian of the Carrian boss, George Tan.
Furthermore, that the Malaysian authorities have a lot of things to hide in the BMF affair from public view as well as an accounting to the Malaysian taxpayers.
This makes a Royal Commission of Inquiry even more compelling for Malaysians must be convinced that the rot of the BMF and Bank Bumiputra loans scandal had not reached to the highest political leadership levels.
I hope that the Prime Minister and the Finance Minister can answer some of the points I raised here, while the rest could be fully dealt with by the Royal commission of Inquiry into the $2,500 million BMF loans scandal in Hong Kong.
REVIEW OIL POLICY
As my other Parliamentary colleagues would be speaking on the various aspects of the 1984 budget, I would confine myself to a few salient features of next year’s budget.
Firstly, for the first time in budget history, MPs have not been supplied with a copy of the Detailed Estimates of Revenue for 1984, which makes it difficult for MPs to study the revenues proposed to be raised from the various sources next year.
As part of the government restraints on expenditures mainly due to the Balance of Payments constraints because of low commodity prices and stagnant markets, the total development expenditures which amounted to about $12.7 billion this year would be reduced to about $10.2 billion. This would help to reduce the Federal Government’s overall deficit to about $9.8 billion, as compared to $11.2 billion in 1982
For 1984, a total appropriation of $27.69 billion is being sought comprising $19.01 billion or 69% of operating expenditures and $8.67 billion or 31% of development expenditures, with a budgeted deficit of $7,671 million for 1984.
In actually fact, the deficit of $9.8 billion for 1983 and the targeted deficit of $7,671 million for 1984 would both have been greater if the Government had not abandoned the National Oil Depletion Policy designed to strike a balance between raising revenue from crude oil and the need to conserve this resource for future development for future generations.
For instance, for 1983, the Treasury Report 1982/83 released at the same time as the Budget speech last October set the target of production of crude oil at 300,000 barrels per day.
However, to solve the government’s problem of declining revenues and incomes, the political masters took a policy decision to turn on the taps and to slog the oil wells in utter disregard of the National Oil Depletion Policy which set the maximum level for crude oil petroleum output at the end of the Fourth Malaysia Plan in 1985 at 2,362,900 barrels per day.
As a result, the petroleum production in 1983 now stands at 381,600 barrels a day. This 1983 figure is reached by slogging the oil wells to produce 400,000 barrels per day from October to December this year.
The petroleum income tax for 1983 was estimated by last year’s budget to increase marginally by 2% when compared to 1982, but in actually fact, it is now expected to generate about $1,987 million in 1983 as compared with $2,075 million in 1982 or a decline of 4.2%. This decline is all the more serious when it is borne in mind that crude petroleum production had increased some 26% in 1983 when compared to 1982.
Thus, in oil production, we have reached a position where the more we produce, the less revenue we get. In fact, if not for the 26% increase in oil production in 1983, Malaysia will have a further deficit of another $526 million, made up of $424 million petroleum income tax and @102 million in petroleum cash payment.
The latest Government decision to go all out to slog the oil wells next year to make up for the general shortfall in revenue is even more disturbing. It was only in September this year that the Minister in the Prime Minister’s Department, Datuk James Ongkili, announced that Malaysian crude petroleum output in June had reached 365,000 barrels per day and that it could climb to the 400,000 barrels per day level next year.
Apparently, hardly one month after Datuk James Ongkili’s statement, the Government has adopted another policy decision to increase the daily crude petroleum production from October to December 1983 to 400,000 barrels per day, and to raise the production figures for 1984 from estimated 400,000 barrels per day to 440,000.
Despite the further increase of petroleum production, the petroleum income tax is expected to decline further from $1,987 million in 1983 to $1,896 million in 1984 due to low petroleum price. Because of increase in petroleum production, the petroleum cash payments will increase by 8% to reach $517 million from $478 million in 1983.
If we had kept to the National Oil Depletion Policy, which fixed the maximum production level at 362,900 barrels per day by 1985, then we should be producing say 340,000 barrels per day in 1984 and not 440,000 barrels per day.
But this would mean further reduction of some $548 million in government revenue, comprising $431 million in petroleum income tax and $117 million in petroleum cash payments.
But the reckless rate at which we are slogging the oil wells to produce the incomes to resolve the Government’s cash-flow problems must raise the pressing questions whether we are not mortgaging away the future of the new generation of Malaysians yet unborn.
There is an urgent need for the Government to review its oil production policy as to whether this is a wise and sensible decision, in view of the low petroleum price in the world market and the short span of life of crude oil production as Malaysia’s current recoverable reserves of crude oil would last for another 12 years until 1995 or even earlier if there is accelerated increase in oil production, if no additional reserve are discovered. In contrast, It was reported recently that Saudi Arabia’s known petroleum reserve could last for another 150 years at the current rate of production.
The Government should furnish the Malaysian public all the relevant data, policy alternatives and the government’s policy decisions so that there could be an intelligent national discussion and debate on our oil resources. The crude petroleum resources of Malaysia is not the sole property of the Government Ministers or Petronas, but the birthright of all Malaysians and the future generations, and the people must have the right to participate in the decision-making on the national oil policy.
At present, the Government is acting as if crude petroleum belongs to the Minister privately, for Datuk James Ongkili had refused recently to reveal the top ceiling on crude petroleum production set by the National Oil Depletion Policy, for it had been fully breached. I call on the Prime Minister to open up the national oil policy making to public discussion and participation.
CURB PUBLIC DEBT
Another matter of grave concern in the 1984 budget is the relentless increase in the public debt. In the last five years from 1979 to 1983, the Public Debt had increased 150 times from $20,719 million in 1979 to the expected $50,365 million at the end of 1983.
The foreign debt component in the public debt has increased most rapidly by some 300% from $4,542 million in 1979 to $17,779 million the end of 1983.
As a result of the sharp rise in public debt, debt service payments has also increased by leaps and bounds to $3,930 million in 1983, which is over 20 per cent of the estimated revenue for 1984 of $19,145 million. This means that for every dollar the government raises, over 20 cents goes towards repaying the debts.
The continuous increase in the public debt at the annual rate of 25 to 30 per cent must be a matter of grave concern, and the Government must learn from the lessons of Mexico and other countries to ensure that Malaysia never becomes a second Mexico.
The Government must exercise greater economy in areas where extravagant expenditures are not only unjustifiable, but are a bad example for the country. This applied to the $20 million Prime Minister’s residence, which is indeed leadership by bad example.
The award of the $313 million contract for the Third Phase of the Dayabumi Complex when the next bid was some $70 million lower in price is another eye-catching example of the discrepancy between the government’s call to cut costs and its action which ignored costs. In this case the transfer of technology to Malaysians is most dubious, and the cost of another $70 million to have the Phase Three of Dayabumi Complex completed one year earlier is not justifiable by any standards.
In fact, the Dayabumi Complex Third Phase and the various Look East consequences where large-scale construction projects running into hundreds of millions of dollars had been monopolised by Japanese and Korean syndicates shutting out local consultants and contractors is clearly not in the long-term interest of Malaysia.
In his Budget speech, the Finance Minister said that one of the reasons for Malaysia’s traditional invisibles deficit worsening years from $4,300 million in 1979 soaring to $5,600 million in 1982 and expected to increase further to $6,800 million, is because of the very high expenditures for the services of foreign consultants and contractors.
The DAP calls on the Finance Minister to give the total expenditure which had been spent on the services of foreign consultants and contractors during the last decade, and to take severe action to slash down the high expenditures on foreign consultants and contractors, not only to reduce Malaysia’s invisibles deficit, but even more important, to allow Malaysian consultants and contractors to develop in their own home country
Other causes of the invisible deficit of Malaysia are: substantial payments abroad for freight and insurance; outflows in the form of profits and of late, interest, remain too high; and expenditure for education and leisure travel abroad.
All through the 1970s, the DAP had called on the Government to conduct a liberal policy on higher education and to ensure that Malaysian students can pursue higher studies in their own country instead of having to go overseas, costing the country’s foreign currency some $1,000 million a year. I am glad that after listening to the DAP for about a decade, the Government has woken up to the fact that what the DAP has been saying is true.
However, the establishment of a Sixth University in the Prime Minister’s constituency in Kedah by itself would not do much to solve this problem, for by itself, the Sixth University is ‘too little, too late.’
The Government should aim to establish up to ten Universities in Malaysia, which can be partly supported by the enormous amounts of money which Malaysian students have to spend overseas. However, the government should make a clear-cut policy pronouncement welcoming the establishment of private universities, as is the case in Japan where some 75% of the 400 universities are privately –funded.
This will go a long way to cut down the invisible deficit of Malaysia as well as to ensure that Malaysian students could be educated locally in tertiary levels in conditions more suitable to Malaysia’s manpower and national needs.
Finally, this House must not continue to be like an ostrich putting its head in the sand when everyone knows that we are in the midst of the gravest constitutional crisis in the country, as a result of the Government’s attempt to push ahead with its Constitutional Amendment Bill 1983, which was passed by both Houses of Parliament in July and August.
I have spoken my mind on the 1983 Constitution Amendment Bill during its debate during the Second Reading and I do not propose to repeat myself, except to draw attention to the grave constitutional consequences if the constitutional crisis and stalemate is not quickly resolved.
The Rulers have objected to the Constitution Amendment Bill on the ground that it undermines their prerogative and position, and as a result, not only the Constitution Amendment Bill had not been given the Royal Assent, all the other seven Bills passed in July and August had also not been assented.
This is serious, for if this constitutional deadlock is not resolved, then the Government would ground to a complete halt on 1.1.1984 without a single cent to spend if there is also no Royal Assent to the 1984 Supply Bill which we are now debating.
I would seriously suggest that the Prime Minister withdraw the Constitution Amendment Bill 1983 and resubmit to Parliament the proposed constitutional amendments minus the proposed amendment to Article 66(5) and Article 150 to resolve the Constitutional stalemate. I have said in Parliament in July that in the DAP view, our constitutional system provides the Royal Assent shall not be withheld – and this is a constitutional tradition and understanding which could be spelt out clearly, but in consultation with the Conference of Rulers.
The prolongation of the constitutional crisis is most unhealthy for the political development of the country, for we see the Government using its powers to clamp down on freedom of expression and speech, which is only conducive to a more authoritarian and intolerant political climate.
(Speech by Parliament Opposition Leader, DAP Secretary-General and MP for Kota Melaka, Lim Kit Siang in Dewan Rakyat on the 1984 Budget on October 24, 1983)