REPEATED warnings that leveraged foreign exchange trading carried out by Bank Negara Malaysia (BNM) 25 years ago did not comply with rules and regulations were ignored, said a former senior auditor.

P. Kanason Pothinker, 78, who was director/assistant auditor general for all federal and state statutory bodies, said his team found that the central bank’s traders were “heavily engaged in the trading of currencies” amounting up to RM50 million per day.

“It was decided that the assistance of the Attorney-General’s Chambers would be sought. A request, either by phone or letter, was made to discuss the matter with the head of the Advisory Services (Ainum Mohamed Saaid) in the legal chambers.

“The advice was given verbally across the table by Ainum that BNM’s forex trading was not in order, or not in compliance with the requirements of the Central Bank Malaysia Act of 1958, and that a written reply would be given in due course.

“This development was reported to the auditor general. Days passed without the expected written advice, and I thought I should enquire.”

Kanason said he contacted Ainum regarding the losses.

“I rang up Ainum, and to the best of my memory, she said, ‘Orang atasan cakap jangan campur tangan’ (The higher-ups said don’t interfere), and I was promised a reply, and the written advice from the attorney-general’s office was that the issue should be resolved between the auditor general and the BNM governor.

“That reply or advice was sent to the auditor general and I think copied to the governor.

“The auditor general (Ishak Tadin) blew his top – for want of better words to describe his anger – and I was the main beneficiary. I was asked what I wanted to do next.”

Kanason said he sent a letter a few days later “after much thought” to then BNM governor Jaafar Hussein, “stating in very clear terms” the views of the auditor general’s office with regard to the ongoing forex transaction and quoting Section 31 of the Central Bank of Malaysia Act 1958, with a request that the contents of the letter be brought to the attention of the board.

“The governor replied in due course that the board had met and that the letter had been brought to the attention of the board of directors.

“It was also decided that the audit committee should be briefed about this matter, and a request was made for the committee to meet.

“It was also agreed to by BNM, and at the commencement of the meeting, when I began to mention the issue of forex trading, the chairman (Tunku Ahmad Tunku Yahya) said, ‘Enough, you have sent the letter to the board to note, so what else?’.

“The other members of the committee said nothing, and as recorded earlier, the deputy governor (Lin See Yan) was present at the meeting. The meeting ended quickly after that.

“In early 1993, I got a call from the auditor general, and after some pleasant remarks regarding family welfare, he told me that BNM had lost a great deal of money, and when I asked him how much, he told me he could not tell me because I am not his officer.

“What I do remember was asking him, ‘What now, Tan Sri?’, and he told me that the letter sent by me to the governor and board of director was with him.

“I did not ask Ainum who was the ‘orang atasan’ she was referring to, and neither did she mention (who the person was).”

Based on his audit, Kanason said, he was not aware of forex trading losses by BNM prior to 1991.

However, he noted that the central bank was making “huge profits and declaring large dividends, with cheque presentations to the Finance Ministry, and this was happily reported in our newspapers”.

“But, the reports in international and local media at that point in time, of BNM being engaged in large forex transactions contrary to the practices of other central banks, were becoming a matter of continuing concern to the auditors.”

With the approval of the auditor general, Kanason said, he visited the Singapore auditor general’s office to enquire, and learnt of its audit programme in the auditing of the Singapore Monetary Authority.

“The Singapore auditors were fully aware of BNM’s extensive forex transactions, and I was told of the risks we were facing in the event things go wrong,” he said, adding that after his visit, he briefed BNM adviser Lee Siew Kuan on the exposure and practice being followed in Malaysia.

Nothing came of it.

Former central bank assistant governor Abdul Murad Khalid alleged that BNM had suffered forex losses of up to US$10 billion 25 years ago.

Lawyers representing former prime minister Dr Mahathir Mohamad and former deputy prime minister Anwar Ibrahim point to the lack of documentation and conflicting accounts to back up the claim.

Both men are leaders of opposition coalition Pakatan Harapan. Opposition lawmakers have said the Royal Commission of Inquiry into the forex losses is politically motivated.

Dr Mahathir has maintained that losses amounted to about RM10 billion, as BNM stated in its annual report in 1994, and that the losses were caused by Jaafar and former assistant governor Nor Mohamed Yakcop.

Jaafar died in 1998, while Nor Mohamed went on to serve as second finance minister under Abdullah Ahmad Badawi’s administration.

Nor Mohamed has been named by Murad multiple times in his statement for encouraging trading that amounted to hundreds of millions daily. – August 29, 2017.