1MALAYSIA Development Bhd (1MDB) must have had an “idiotic” management if it had paid millions of dollars to a fake entity, lawyers in Najib Razak’s graft trial over 1MDB funds said in court today.

Lawyer Muhammad Shafee Abdullah said this when cross-examining former 1MDB chief executive officer Shahrol Azral Ibrahim Halmi in the Kuala Lumpur High Court over 1MDB’s payment of US$577 million to Aabar Investments PJS Limited (Aabar BVI) as a security deposit. 

It later emerged that Aabar BVI was a shell company registered in the British Virgin Islands and controlled by fugitive financier Low Taek Jho, and not the actual subsidiary of International Petroleum Investment Company (IPIC), which should have received the funds.

Shafee said Shahrol and the 1MDB board must have “fallen into cobra pits” repeatedly for making such poor decisions.

“You agree, moving into yet another treacherous pit, another pit full of cobras, that (this) shows that 1MDB is run by a bunch of idiots?” Shafee asked Shahrol.

Shahrol replied he would reserve his comments.

Shahrol, 49, said Aabar BVI did not raise any red flags at first as the company had a “track record” and was recommended by Low, also known as Jho Low.

“Beyond the informal check, I did my own desktop research. I think some of my senior staff also did the same. We didn’t do formal due diligence. 

“At the time we had no reason to doubt and be curious about this. I agree in hindsight we should have been prudent,” Shahrol said.

Another reason Shahrol said he did not suspect Aabar BVI was because names like Khadem Al-Qubaisi (IPIC’s then managing director) and Mohamed Badawy al-Hussieny’s were in Aabar BVI’s management, and they were familiar to him as they had been involved in previous 1MDB deals.

“At the material time in 2012, there was no reason to doubt ‘little’ Aabar was not a subsidiary of ‘big’ Aabar. There wa representation from both Khadem and Badawy,” Shahrol said.

He was using the labels Shafee had given to the two Aabar companies, calling the British Virgin Islands entity “little Aabar” and the legitimate subsidiary of IPIC “big Aabar”.

Shahrol also blamed banker Goldman Sachs, which facilitated bond issues for 1MDB and the financing for its deals with IPIC and Aabar.

“Goldman Sachs was also running around with IPIC and Aabar and did not say anything,” he told the court. 

Shahrol said if anything, it was former Goldman Sachs director Tim Leissner who should have warned 1MDB of anything suspicious.

“If Goldman had alerted us that these were two different entities, this current state of affairs might not have happened.”

Najib is being tried for four counts of abuse of power to enrich himself and 21 counts of money-laundering involving RM2.3 billion of 1MDB funds.

Shahrol was being questioned on the purchase of energy assets for 1MDB, which involved the US$577 million payment to Aabar BVI as a supposed security deposit for the US$1.75 billion bonds that Goldman Sachs helped to issue for the assets purchase, with IPIC as guarantor.

The trial resumes tomorrow before high court judge Collin Lawrence Sequerah. – August 4, 2020.