FORMER prime minister Dr Mahathir Mohamad was not informed of the billions of losses suffered by the central bank’s foreign exchange trading arm, said former Bank Negera Malaysia (BNM) deputy governor Lin See Yan.

“At any point of time, I was not asked to discuss the forex losses incurred by Bank Negara with the prime minister,” Lin told a Royal Commission of Inquiry (RCI) tasked with probing the losses suffered 25 years ago.

“I was not aware if anyone else did inform the prime minister about the forex losses incurred by Bank Negara Malaysia.”

He added that he was called in by former deputy prime minister Anwar Ibrahim, who was also finance minister, when he learnt of the losses in 1994.

“Datuk Seri Anwar Ibrahim was most unhappy (about) the losses incurred, and agreed with me that whatever open positions still existed should be closed as soon as possible.” 

Lin, 77, said he received an internal audit report called “Audit report on Foreign Exchange Operation Division of Banking Department and Processing Section of Accounts Department” dated January 21, 1994.

He said the findings of the report was discussed in the central bank’s Board Audit Committee meeting on March 9, 1994. The committee agreed that it should be sent “unamended” to each of member of the bank’s board of directors to be discussed at the next meeting. 

Lin said the report was discussed on March 10 that year, after which the meeting with Anwar occurred. 

“If my memory serves me right, I was called by Datuk Seri Anwar Ibrahim after I have spoken with Tan Sri Jaafar Hussein (Bank Negara governor) and after he informed me that he had discussed the losses with the Minister of Finance (Anwar).

“I can’t remember the exact date I discussed (the matter) with the Minister (Anwar),” Lin said. 

Lin obtained his masters and PhD in economics from Harvard University in 1976. He was appointed as deputy governor of the central bank in 1980, and retired in July 1994. 

Lin said he first learnt of the “big losses” suffered by the central bank from former internal auditor Lee Siew Kuan “in the early 1990s”.

“Subsequently, from my friends abroad, especially a very senior officer working with the International Monetary Fund (IMF).

“My friends from IMF told me that Bank Negara Malaysia had big open forward foreign exchange transactions, in multiple currencies, especially in New York and London, and Bank Negara Malaysia had suffered huge losses.

“No amounts were mentioned but they indicated the losses suffered by Bank Negara were large.”

Lin said he then informed Jaafar of the losses and the latter confirmed the losses.

“I did not ask Tan Sri Jaafar how big were the losses, and he told me he was not sure.”

Lin told the RCI thar Nor Mohamed Yakcop, who went on to become second finance minister, was “the person responsible” for forex trading as the manager/adviser of the Banking Department, and he reported directly to Jaafar.

Lin said Nor Mohamed active in this role from 1990 to 1994.

He said Abdul Murad Khalid was appointed as manager of the Banking Department in February 1992, but all forex transactions were “directly controlled” by Nor Mohamed, adding that Murad “was not involved with the forex trading”.

“Tan Sri Jaafar told me that Tan Sri Nor Mohamed Yakcop has been chief dealer,” Lin said, adding that Jaafar agreed with Lee and Murad’s preliminary investigation into the forex losses.

Later, Lin said the investigation by both men revealed that the central bank still had open positions in multiple currencies “far forward in time”.

“This simply means the bank could be subject to further losses when the time comes for settlement with counterparties,” Lin said.

Lin said Jaafar later agreed to close all open forward positions.

“I told the governor (Jaafar) that Tan Sri Nor Mohamed Yakcop should not be allowed to deal anymore,” adding that all future commitments, with regard to forex trading, should be ceased “with immediate effect”.

“Tan Sri Jaafar’s parting words to me were ‘I got the bank into this mess and I will fix it’,” Lin said.

Lin denied having any active role in the forex transactions carried out by the Banking Department, but recalled that Jaafar “changed” the central bank’s role in forex operations sometime in the mid-1980s.

Prior to that, the main responsibility of currency reserve management was to preserve the value of the reserves, the main considerations being safety and liquidity, Lin said. 

“Subsequently Tan Sri Jaafar Hussein added two new dimensions; profit maximisation and market expertise.”

As a result, Bank Negara’s overseas income from active trading rose from 20% in 1987 to 40% the following year. 

Taking responsibility for the losses, Jaafar resigned in April 1994. He passed away four years later. – August 30, 2017.