1MALAYSIA Development Bhd was not informed of a decision to split into two a US$1 billion investment into a joint venture company that was set up with PetroSaudi International, the high court heard today.

Former 1MDB CEO Shahrol Azral Ibrahim Halmi told the Kuala Lumpur High Court that five days after the joint venture deal was signed on September 25, 2009, US$300 million was paid to PetroSaudi Holdings (Cayman) Ltd and another US$700 million to Good Star Ltd without the board’s approval.

Both entities were not legitimate joint venture companies, investigations later revealed.   

The joint venture agreement was amended to change the joint venture account from BSI Bank to JPMorgan, Shahrol testified during the trial of former Prime Minister Najib Razak.

The witness said that at a board meeting on September 26, his focus was to complete the deal due to pressure by then 1MDB executive director Casey Tang.

“My frame of mind was that this is something that needs to be done and everything should be in order because experienced people were looking at it and ultimately Casey advised me that this was all right and that the board be informed later of the circumstances,” he said.

When cross-examined by lead defence counsel Muhammad Shafee Abdullah, Shahrol said the board’s consent was not obtained.

Shafee: What was the difficulty in asking the members of the board?

Shahrol: The time constraints and the need to just get it done.

Shafee: How long would it take to just make a phone call to the board of directors?

Shahrol: Not long at all. At that time, the thinking was we move on with this… decision to split it (the JV investment), but we can tell the board later on.

The joint venture agreement between 1MDB and PetroSaudi International to invest in the energy sector in South America and other areas, was signed on September 25, 2009.

Shahrol signed on behalf of 1MDB while Tarek Obaid did so for PetroSaudi. The agreement was rushed through supposedly in anticipation of a state visit by the Saudi crown prince, who was to witness the signing ceremony. 

But no such visit materialised.

Of the US$1 billion 1MDB was supposed to inject into the joint venture company, US$300 million was wired to JP Morgan (Suisse) SA, which held a joint bank account 1MDB opened with PetroSaudi Holdings (Cayman) Ltd under the name of JVCo.

The remaining US$700 million was remitted to an account owned by Good Star Ltd, which was represented as a PetroSaudi International subsidiary but was later revealed to be a company controlled by Low Taek Jho, commonly known as Jho Low, who prosecutors accused of conspiring with then prime minister Najib Razak to defraud 1MDB.

Shafee accused the witness of knowing beforehand of the diversion, which Shahrol denied.

Shahrol: Casey’s point was that this is just how the payment was made, and in good faith, I accepted that, based on what I knew and believed at that time.

Shafee: So now with the benefit of hindsight, do you agree that doing these things without the board consent was a reckless decision? It can’t be anything else.

Shahrol: It was a considered decision based on what I knew at that time.

Shafee: I put it to you that that consideration was reckless.

Shahrol: I disagree.

The witness was shown documents that in January 2010, 1MDB entered into an agreement to loan Good Star US$700 million.

Shahrol said the board never saw such documents, calling them fraudulent.

Shafee: This agreement, is in fact the vehicle of fraud, so that 1MDB can pay to Good Star without the bank raising an eyebrow. And this was facilitated by a senior management staff namely Casey Tang of 1MDB itself and you yourself was taken for a ride in all this.

As I suggested to you before, if the CEO of 1MDB was a professional, but could be misled, do you agree with me there was every possibility that Jho Low could have misled Najib?

Shahrol: That is a possibility.

Najib, 66, is on trial for four counts of power abuse to enrich himself with RM2.3 billion from 1MDB and 21 counts of laundering the same amount.

Prosecutors have accused him of conspiring with the Penang-born Low to defraud the state investor.

Najib is represented by a dozen lawyers led by Shafee.

Former Federal Court judge Gopal Sri Ram leads the prosecution before judge Collin Lawrence Sequerah. – October 29, 2019.