1MALAYSIA Development Bhd’s 2012 deal to convert US$2.23 billion (RM6.7 billion in the exchange rate at the time) in Murabaha notes via an equity purchase of a 49% stake in PetroSaudi Oil Services Ltd (PSOSL) was dubious, the high court heard today.

Former 1MDB CEO Shahrol Azral Ibrahim Halmi testified at the 1MDB trial today that the deal, which was to help repatriate money back from a joint venture deal with PetroSaudi International, had financial reporting holes. PSOL was a PSI subsidiary.

When cross-examined by lead defence counsel Muhammad Shafee Abdullah, Shahrol agreed with a report by accounting firm Deloitte that no documents proved that PSOSL became a 1MDB unit despite its 49% stake.

Shahrol testified that 1MDB’s board had also not seen any financial papers that showed PSOSL’s financial standing or that the then 1MDB general counsel Jasmine Loo had gone through the PSOSL’s audited accounts. Loo is currently a fugitive.

Shahrol added that he has never personally seen PSOSL’s oil exploration vessels Discoverer and Saturn.

Shahrol was then referred to a directors’ circular resolution which stated that despite its 49% stake, 1MDB was to keep 100% of the “economic benefits” of PSOSL.

The 49-year-old witness agreed it was an uncommon situation that PSI did not have a share in any of the supposed profits.

Shahrol added that he “took it on good faith” the talking points and claims made by 1MDB intermediary figure Low Taek Jho regarding the deal with PetroSaudi International.  

Shafee: While it may be reasonable to believe that Jho Low has a close relationship with the prime minister (Najib), you did not determine how close they were.

Shahrol: Not every time.

Shafee then accused Shahrol of conspiring with others in 1MDB’s management to defraud the sovereign wealth fund, which the witness denied.

Shafee: You know the fish rots starting from the head. If the head rots, the management rots. I am putting it to you you are a highly trained person.. .and because you are a highly trained person, your excuses are not acceptable because on too many occasions an intelligent man like you left matters unchecked so much so that it must be purposeful on your part.

The witness denied any wrongdoing.

He later said Low appeared to be close with Najib, saying the Penang-born businessman once asked him for his nasi goreng recipe to share with the former prime minister.

“I’m well known for making good nasi goreng. I gave some to Jho Low and he asked me whether he can take some to Datuk Seri Najib. That gave me comfort that he had this access to (Najib’s) Taman Duta house at any time… and then later he told me Najib said it was good.”

Shahrol earlier testified 1MDB had wanted to bring money back to invest in Bandar Malaysia and Tun Razak Exchange.

He denied that the repatriation of investment from the 1MDB-PetroSaudi International joint venture was due to loss of confidence.

In joint venture deals with PSI, 1MDB transferred a total of US$1.83 billion to entities later revealed to be sham companies.

The amount was transferred between September 2009 and October 2011 to firms controlled either by Low Taek Jho or his associate, PSI CEO Tarek Obaid.

The transactions included US$300 million to 1MDB-PetroSaudi Ltd and US$700 million to Good Star Ltd on September 30, 2009, purportedly capital for a 40% stake in the JV with PSI.

Investigators revealed that Good Star was controlled by Low, while the JV company was 100% controlled by PSI.

On September 14, 2010, 1MDB paid US$500 million to 1MDB-PetroSaudi Ltd under a Murabaha financing agreement.

Finally, between May 20 and October 25, 2011, four payments amounting to US$330 million were transferred from 1MDB to Good Star. The sum was for PSI under a Murabaha financing agreement.

Najib is on trial on four counts of abusing his power to enrich himself with RM2.3 billion from 1MDB and 21 counts of laundering the same amount. He faces up to 20 years’ imprisonment upon conviction. – May 21, 2020.