THE Royal Commission of Inquiry into Bank Negara Malaysia’s (BNM) foreign exchange losses in the early 1990s continues with its third day of the hearing at the Palace of Justice in Putrajaya.

At its last sitting on August 24, the panel heard that leveraged forex trades reached as high as US$800 million in a day, which was allowed by former BNM assistant governor Nor Mohamed Yakcop. Former BNM auditor Wong Yew San had also contradicted claims by former assistant governor Abdul Murad Khalid that nobody had looked into the forex losses at that time. Wong said the External Reserve Committee (ERC) had been formed to monitor and regulate forex dealings.

During the commission’s first sitting, Murad had said the then central bank governor, the late Jaafar Hussein, had no clue to the “magnitude” of the forex losses. Murad himself said that he only found out how bad it was “privately”, and blamed Nor Mohamed for failing his duties.

The sitting on August 21 also heard from former central bank staff about the amount of losses at RM31.516 billion from 1991 to 1994 and about lax supervision over BNM’s foreign exchange department.

Abdul Aziz Abdul Manaf that BNM lost RM31.516 billion from 1991 to 1994, but it was unclear how the losses were tabulated. This amount was far greater than the RM9.3 billion in losses the bank disclosed in its 1994 annual report.

Former BNM auditor Ahmad Hizzad Baharuddin had also testified that the bank had “no system of checks and balances” and “supervision over the Foreign Exchange Department was found to be lax”.

The RCI, chaired by Petronas chairman Mohd Sidek Hassan, was set up to determine the validity of allegations of losses due to foreign exchange speculation, whether BNM’s activities in forex trading had contravened the Central Bank Ordinance 1958 or any other law, and whether there was an attempt to cover up the losses.

Other panel members are High Court Judge Kamaludin Said, Bursa Malaysia CEO Tajuddin Atan, Special Task Force to Facilitate Business co-chairman Saw Choo Boon, Malaysian Institute of Accountants member K Pushpanathan and Finance Ministry strategic investment division director Yusof Ismail.

The Malaysian Insight brings you live updates of the proceedings.

9am: Dr Mahathir Mohamad’s lawyer Mohamed Haniff Khatri Abdulla requests that RCI chairman Mohd Sidek Hassan retracts and withdraws statement from first RCI sitting which heard that the amount of losses incurred by BNM forex department from 1991 to 1994 was RM31.516 billion.

“We have on behalf of Tun M registered our protest that such a decision by the commission is wrong and premature since the overall proceedings have not entirely been concluded.”

9.15am: First witness P. Kanason Pothinker, former auditor with the Auditor-General’s Office, is called to the stand.

9.30am: Kanason, who led a team of officers to conduct a financial audit on BNM from 1985 to January 1992, says he found that there was no information in BNM’s library on why the central bank had decided to go into “large-scale” forex trading from 1985 onwards.

“The finding was that BNM had not undertaken any forex transactions, to the extent that it was now involved in, in prior years before 1985,” he says.

10am: “The auditor in charge of the audit section of BNM had brought to the meeting the printout of one day’s of forex transactions amounting to over RM50 million,” says Kanason.

He told conducting officer Suhaimi Ibrahim that his team sought legal advice from then-head of advisory services in the the Attorney-General’s Chambers, Ainum Mohd Said, on whether BNM’s forex trading contravened the law.

“I can see things. No other central banks were doing it. And what is the purpose? Our objective is clear? If they want to manage the currency by trading, why are they not doing it now?”

“God told me something went wrong. I got children and grandchildren. I got a duty to say what I think. What I’m saying is, the law is there. If the people who know law say it’s okay, then I’m okay. But they didn’t tell me (anything).”

10.30am: Kanason tells panel member Wira Kamaludin Md Said that when he pressed Ainum on the legality of BNM’s forex trading, he was told “those in power instruct, don’t interfere”.

“When the written reply promised to us didn’t come, I rang up and asked can we get the reply and that’s when she said that. I got the shock of my life and I said, please, you must give me something. 

“She told me to wait for her letter. The letter didn’t come out the way it should,” said Kanason.

10.45am: Break.

11.15am: Hearing resumes.

Second witness Saleha Lajim, who was the account manager at the accounts department in BNM, is called to the stand.

“When I was manager, I was informed that forex trading was done but not sure if it was to stabilise the currency or just a speculation,” she told the panel.

“Bank departments did forex trading and I know there were dealers but I don’t know how many of them, and I don’t know their limit for trading,” she said, adding that in the weekly meetings, reports were presented stating the losses incurred by the bank.

“I don’t know the cause of the losses faced from forex trading.”

11.50am: Panel member Kamaludin Md Said asked Saleha if she was aware of how the reported losses of RM5.7 billion came about.

“I don’t know the details but from the total amount of losses, we subtract certain amount from foreign exchange rate fluctuations server account, and the remaining is the deferred expenditure,” she said.

12.04pm: Saleha steps down from the witness stand. 

12.10pm: Third witness, Ishak Ismail who was manager at the account department at BNM, is called to the stand.

Ishak confirmed that there was segregation between trading accounts and reserve management accounts, but said he did not have jurisdiction to decide the classification of a particular transaction.

1pm: Hearing breaks for lunch and will resume at 2.15pm.

2.15pm: Proceedings resume with third witness Ishak Ismail continuing his testimony.

3.24pm: Ishak tells the panel that the central bank has to find ways and means to absorb losses and cannot show that it is in a negative position.

“(Because) that would impact the ringgit. We don’t detail the movements. It is not disclosed because that is the policy, the central bank can’t be showing what it has.”

Asked by the panel on the amount of the bank’s reserves in 1994, Ishak said it was RM42 million.

Conducting officer Suhaimi Ibrahim looked surprise and asked if that amount of reserves was normal, noting that it was very small.

Ishak said, “There is no such thing as ‘normal’, if the ringgit were to weaken then this reserve will increase”. 

3.25pm: The fourth witness, Khaw Lay Kuan, who was a manager in the central bank’s Finance Department from 1988 to 2012, takes the stand. 

She said she did not conduct any audit on the losses suffered by BNM, but that former BNM governor Zeti Akhtar Aziz had instructed her and another former staff, account manager Abdul Aziz Abdul Manaf, to prepare a compilation on information about losses from active reserve management.

“The accounting treatment of losses arising from active reserve management from 1988-1994, dated April 18, 2017, was not an audit but a compilation of past events or transactions that occurred from 1988 to 1994 based on board papers, fortnightly statements on assets and liabilities, and minutes of the board audit committee,” Khaw said.

Khaw said she was not told the purpose of the compilation and believed Aziz would be able to explain it because only he attended a meeting where Zeti had spoken to him about the matter.

4pm: Khaw said she was unable to say why the forex transactions conducted from 1988 to 1994 were not treated as trades and why they were not recorded in the profit and loss account. They were, however, recorded in other reserves and as such, she did not think there was a cover up of the losses.

“The treatment of losses arising from forex transactions from the years 1988 to 1994 was done not to cover up crucial losses suffered by BNM in the years from 1991 to 1993, because it was reported and reflected in the exchange rate fluctuation, a reserve account in the balance sheet.”

4.11pm: Khaw said based on the compilation, all the losses suffered by BNM in forex transactions for 1991, 1992, 1993 and 1994 were reported and fully accounted for in the bank’s reporting. 

She added that the way the forex losses from 1988 to 1994 were treated was in accordance with “standard and consistent accounting practice adopted by BNM since 1988”.

“There was no change in accounting treatments and it was not a new accounting practice developed to address the forex losses.”

4.20pm: Panel member Tajuddin Atan asks Khaw to reconfirm her statement that the losses suffered by BNM from 1991 to 1994 due to forex trading were accounted for in the bank’s reporting.

“You can confirm that?” he asked. Khaw replied: “Yes.”

Tajuddin asked her why her statement had said treatments for the forex losses incurred from 1988 to 1994 had been in accordance with standard and consistent accounting practices adopted by the bank, and yet, her compilation report had a lot of changes.

Khaw said the changes were on dealings with other markets and were not regarding the forex losses.

Panel member Saw Choo Boon asked Khaw if a supervising committee that was set up in March 1993 had the replaced External Reserve Committee (ERC). Khaw said it was a separate committee.

On whether the Reserve Management Committee in 1994 took over other committees, including ERC, Khaw said she was not sure.

The ERC was set up to regulate and monitor foreign exchange dealings by BNM.

Former BNM assistant governor Abdul Murad Khalid had said in an interview with the New Straits Times earlier that no one looked into the bank’s forex losses.

However, on the second day of the hearing on August 24, former central bank auditor Wong Yew San said the ERC was formed for that purpose.

4.26pm: Day 3 of the hearing ends. Proceedings continue tomorrow. – August 29, 2017.