A REMARKABLE lack of oversight and a disregard of lending rules by the Retirement Fund Inc (KWAP) investment panel had allowed RM4 billion to make its way into an unproven entity, the Kuala Lumpur High Court heard last week.

The loans, which SRC International received in 2011 and 2012, had far less supporting documents than what is normally required of loan approvals – exemplified by a two-page application letter to KWAP from SRC International director Nik Faisal Ariff Kamil for a RM3.95 billion loan.

The June 3, 2011 letter included a short handwritten and signed endorsement by former prime minister Najib Razak, a witness from KWAP’s fixed income department testified last week. The amount was later reduced to RM2 billion – SRC International’s first loan.

The first transaction of RM2 billion, in four tranches of RM500 million, was carried out on August 29, 2011. The second transaction of RM2 billion was done on March 28, 2012.

The two senior officers responsible for approving the payment vouchers for the RM4 billion testified that they were the largest loan amounts they have encountered in their careers.

Najib’s criminal charges in this trial relate to the RM4 billion loan, of which he is accused of receiving RM42 million in his personal accounts in 2014 and 2015 when he was prime minister and finance minister.

The loans breached lending rules, KWAP fixed income department assistant vice-president Amirul Imran Ahmat told the court.

The first loan to SRC International violated paragraph 5 of the fund’s investment policy and guidelines, as the RM2 billion amount exceeded the equity of the shareholder, that is SRC International, which only had equity worth RM1 million, he testified.

He said there had also been violations under paragraph 2, whereby total KWAP investment in the form of loans is not allowed to exceed 10% of the allocation for domestic fixed income investments.

Witness Azlida Mazni Arshad, who is a vice-president of KWAP’s legal and secretarial department, meanwhile said that despite questions regarding the ability and qualifications of SRC International’s management in making profitable investments and despite the lack of urgency to give the RM2 billion loan in a lump sum, KWAP’s investment panel went ahead and voted to approve the loan.

Six panel members approved the loan using the “circular paper” method via reply forms. The six were KWAP chairman Wan Abdul Aziz Wan Abdullah, who was also the then Treasury chief secretary; investment panel chairman Mohammed Azlan Hashim; former minister in the Prime Minister’s Department Abdul Wahid Omar; Norizah Bahari; Cheah Tek Kuang; and, Che’ Zakiah Che’ Din.

A second loan of RM2 billion was tabled to the panel on March 20, 2012, chaired by Wan Abdul Aziz.

Amirul testified that a letter of guarantee, signed by Najib, was the sole “selling point” for the approval of the second loan of RM2 billion. By then, the ownership of SRC International was transferred from 1Malaysia Development Bhd to Ministry of Finance Inc.

The government guarantee letter was dated March 27, 2012 and was received by KWAP the following day, when the loan was transferred to SRC International. The RM4 billion loans were structured as shariah-compliant contracts.

Meanwhile, witnesses from Maybank also testified that RM170 million flowed from SRC International to Putra Perdana Construction in mid-2014. The company account served as a hub for more than a dozen transactions in the second half of 2014, including to Putra Perdana Development Bhd, Permai Binaraya Bhd, and a AmBank private account, named by one witness as belonging to Najib.

A witness testified that RM27 million was transferred from Permai Binaraya to the former prime minister’s AmBank account ending with “880” on July 8, 2014.

She said the same amount was transferred back to Permai Binaraya six months later, on December 29, 2014.

The largest transaction took place on December 12, 2014, when RM140 million was transferred from Putra Perdana Construction to SRC International.

The three firms named were previously reported to be subsidiaries of Putrajaya Perdana Sdn Bhd, a construction and property development company that was once controlled by wanted Penang businessman Low Taek Jho.

Neither Low nor Putrajaya Perdana were named in court. The company was reportedly sold in 2008 to UBG Bhd, linked to Sarawak Governor Abdul Taib Mahmud’s family.  

UBG was later acquired by Petrosaudi International Ltd (Seychelles), reportedly assisted by a loan from 1MDB in 2010. The company was later sold to Cendana Destini Sdn Bhd in 2012.

Finally, the court also heard that AmBank Group was fined by Bank Negara Malaysia (BNM) in November 2015 for not reporting suspicious transactions involving Najib’s bank accounts. The fine amount was not disclosed in court.

AmBank was reported to have been slapped with a RM53.7 million fine on November 23, 2015, for non-compliance with banking regulations.

The trial continues on Tuesday. – May 12, 2019.