1MDB ex-CEO thought he could decide US$700m transfer without consulting the board

KUALA LUMPUR, Oct 21 — Datuk Shahrol Azral Ibrahim Halmi today said he believed that he had the power to proceed with 1Malaysia Development Berhad’s (1MDB) US$700 million (RM2.9 billion) transfer out without consulting the 1MDB board about this September 2009 transaction that had come up on short notice.

Shahrol, who was 1MDB’s former CEO, agreed that the company could possibly have avoided the loss of the US$700 million — that was diverted to Good Star Limited, said to have no business dealings with 1MDB and was found to be a company controlled by businessman Low Taek Jho — if the 1MDB board was consulted about the transaction.

Shahrol confirmed today that he had only brought to the 1MDB board’s attention the matter of the US$700 million transaction in an October 3, 2009 meeting, which was after the US$700 million had already been paid out.

Shahrol was testifying as the ninth prosecution witness in Datuk Seri Najib Razak’s corruption trial over 1MDB money, where the prosecution had said it would prove US$20 million of the US$700 million eventually reached Najib.

Najib’s lawyer Tan Sri Muhammad Shafee Abdullah questioned Shahrol on why he had not raised the matter of the US$700 million

Shahrol replied: “Due to the time pressure that we had to complete the transaction, so it was not brought up to the board before transfer.”

Shahrol agreed with Shafee that US$700 million is a “staggering figure” and that the 1MDB board should have been the one that decides on such matters.

At that time, 1MDB was involved in a plan to inject US$1 billion (including the US$700 million) into a joint venture company to be formed with purported business partner PetroSaudi International (PSI) Limited, while PSI was expected to inject US$1.5 billion into the joint venture firm.

When asked if the 1MDB board should have been notified that the US$700 million was to be used to pay for a so-called debt that the joint venture company had allegedly incurred on September 25, 2009, Shahrol said: “At that time on 29th, 30th, when the transfer happened, I had found everything was in order and there was no need to pause and ask the board.

“So I guess the short answer is that I thought I had the authority to complete the transaction, and only on the 3rd, when we brought it up to the board, did the board tell me — as minuted — that I should not have done that,” Shahrol said, agreeing with Shafee that the board had told him off for proceeding with the US$700 million transfer.

“In hindsight, it would have been prudent to bring it up to the board,” Shahrol said.

Quizzed by Shafee, Shahrol agreed that there is a “possibility” that 1MDB could have saved the US$700 million or the whole US$1 billion as the transactions would have to be reviewed if the 1MDB board was notified first, and also agreed that it was possible that 1MDB would not have had to suffer the US$1 billion loss.

The sudden US$700m debt

Although the plan was for the joint venture to be signed by Najib and Saudi Arabia’s then ruler King Abdullah on behalf of 1MDB and PetroSaudi International (PSI) Limited, the joint venture agreement dated September 28, 2009 was in the end signed by 1MDB CEO Shahrol on behalf of 1MDB and PSI CEO Tarek Obaid on behalf of the similar-sounding firm PetroSaudi Holdings (Cayman) Limited.

Shahrol insisted that there was a need to rush matters relating to the joint venture deal with a deadline for it to be signed on September 28, 2009, and that he was only notified at around 27th or 28th itself that the heads of the Malaysian and Saudi governments would not be personally signing the agreement.

“There was hurry, but it turned out the reason for the hurrying didn’t happen,” Shahrol said, noting that he had at that time taken it in “good faith” that there were probably reasons why the purported signing ceremony between Najib and King Abdullah did not happen.

On September 30, 2009 which was when 1MDB had to pay US$1 billion into the joint venture company to secure its 40 per cent stake, Shahrol instead received an email from PSI’s law firm White & Case to transfer the US$1 billion in two batches of US$300 million to the joint venture company and US$700 million to an RBS Coutts account to pay off a September 25, 2009 loan by PetroSaudi Holdings (Cayman) Limited to the joint venture company 1MDB PetroSaudi Limited.

Shahrol said he, as 1MDB CEO, was not told of the purported US$700 million loan agreement that was entered into when it was signed on September 25, confirming that the 1MDB board similarly did not know of the alleged loan agreement and would have asked Shahrol to get additional information if the board had known.

Referred by Shafee to PSI’s September 29, 2009 letter of demand to 1MDB for the US$700 million to be paid, Shahrol agreed that this was a “big issue” to 1MDB but spoke of other factors at play then.

“But underlying all of this are the two major factors, which was we were led to believe that this was a government-to-government transaction and that the counter-party which are PSI and its subsidiaries are trustworthy, so my framing at that point in time was more towards executing the deal to ensure that we meet the deadline that was set to us, and for a lack of a better phrase, to keep our partners happy,” Shahrol said.

When pressed about 1MDB finding out about a US$700m debt on the second day of being a partner in the joint venture company, Shahrol said: “I think we need to be clear that the debt was magically created one day after the agreement was signed is not true, because the indebtedness — again this was explained to me by Jho — was created when the joint venture was created, when assets were pumped in.”

Shahrol was referring to Low’s explanation to him then that the US$700 million was due to the injection into the joint venture of PSI’s assets that were allegedly higher than the initial US$1.5 billion value.

While agreeing that 1MDB would have asked for more details if it was aware of the purported US$700 million loan, Shahrol said: “However we bulldozed this whole thing through and relied on the representation and trustworthiness of partners based again on representations from Jho as well as how this relationship started which was this whole G2G, personal relationship, based on friendship, as well as other political considerations.”

Shahrol said he had believed Najib to have delegated the micromanaging of 1MDB’s joint venture deal to Low (who held no position in 1MDB), and that Low’s message was that the Saudi government and that ‘boss’ or Najib wanted the deal to be done.

Shahrol agreed that he had not checked with Najib about the US$700 million loan, agreeing that 1MDB should have checked with its lawyers regarding the transaction but did not do so.

“Yeah, it would have been prudent but what had actually happened was that the time pressure that was put on us and then the belief — I really believed at that time that this was of personal importance to Datuk Seri Najib, that we did not want to delay any aspect of the transaction,” Shahrol said.

Saying that 1MDB officials operated in a system of silos then, Shahrol said: “So when Jho represented to me that this is something that must be done by a certain date and keeping the higher-ups happy is important, I took it on good faith that this is the role that myself and 1MDB was supposed to play.”

The trial will not be heard this afternoon as Shafee has to go for a follow-up checkup of his eyes after an eye operation over the weekend.

The trial before High Court judge Collin Lawrence Sequerah is only expected to resume on Thursday, as this Tuesday and Wednesday are scheduled for hearings of another corruption case that Najib is facing in relation to RM42 million of former 1MDB subsidiary SRC International Sdn Bhd.

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