By P Prem Kumar
KUALA LUMPUR
Malaysia's central bank has commenced a formal inquest into debt-ridden 1Malaysia Development Bhd (1MDB), a state-owned investment firm formed by Prime Minister Najib Razak in 2009,
The inquiry concerns if 1MDB -- which has chalked up debt of 42 billion Ringgit ($11 billion) -- contravened the central bank’s rules and legislation in its foreign investments and offshore borrowings.
1MDB President Arul Kanda confirmed the inquest Thursday.
"We confirm that Bank Negara Malaysia has commenced an enquiry on 1MDB, requiring information and statements from individuals involved in the company’s governance process," he said in a statement
The central bank said in a statement that it had issued a legal directive to 1MDB to provide it with information regarding its governance process, and would also be seeking information from other relevant domestic and foreign parties.
Further investigation would be triggered if monies for which approvals have been given were not used for the purpose indicated in the submission; when incorrect or false information was provided in the submission; or failure to comply with the conditions in the approval.
The central bank underlined that all investments that exceed RM50 million per calendar year and any offshore borrowings that exceed RM100 million by resident entities require the central bank’s approval.
1MDB has missed interest payments to local banks as its debts have mounted through investment in a multitude of projects that have given little financial return.
If 1MDB is unable to recover, it could default on its loans, which could cause serious economic impact to the country.
As part of its investigation, the regulator said it will issue a legal directive requiring information pursuant to the relevant Acts that the central bank administers.
"This will require the Board and Management of the entity to provide the information within a specified time frame," it said.
"Under the Financial Services Act 2013, the penalty for failure to meet this request can result in a fine of up to 50 million Ringgit or up to 10 years in prison or both."
1MDB is also currently subject to an investigation by the Auditor General’s Department and a separate inquiry by the parliament-bound Public Accounts Committee (PAC).
