Jun 6, 2015

Malaysia - Malaysian central bank launches formal enquiry into state fund 1MDB

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Malaysia's central bank said on Wednesday it has launched a formal enquiry into loss-making state investment fund 1MDB, and issued a legal directive for information, to examine whether there had been any violation of its rules.

1MDB, which owns property and energy assets and whose advisory board is chaired by Malaysian Prime Minister Najib Razak, has been dogged with controversy over nearly 42 billion ringgit ($11.5 billion) in debt and alleged financial mismanagement.

Its financial problems have been a burden on state finances and have weighed on the ringgit currency and Malaysia's credit rating.

Najib ordered an audit of 1MDB's accounts by the country's Auditor General earlier this year.

"With respect to 1MDB, a formal enquiry has commenced to examine any contravention of the central bank's rules and legislation," Bank Negara Malaysia said in a statement.

"This has involved the issuance of a legal directive requiring information from the entity," it said.

The central bank said it has also taken statements from individuals involved in the governance of 1MDB, but did not elaborate.

Malaysia's finance ministry said it was within the central bank's jurisdiction to request the information on 1MDB's transactions.

"If it involves banks overseas, based on international protocols, they (central bank) can ask for information," deputy finance minister Ahmad Husni Mohamad Hanadzlah said in a televised interview late on Wednesday. "We are open enough."

The central bank's move comes just weeks after the Monetary Authority of Singapore (MAS) said it was in touch with Malaysia's regulators over an investigation into the fund.

Bank Negara said it had forwarded information from foreign authorities to the relevant investigation agencies.

Failure to meet its request for information from the board and the management could result in a fine of up to 50 million ringgit or up to 10 years in prison or both, it said.

The bank said it launches a formal investigation when money approved by the bank was not used for the purpose indicated or when false information is provided, or if there was a failure to comply with the conditions of approval.

1MDB President and Group Executive Director, Arul Kanda, said the fund would fully cooperate with Bank Negara.

"1MDB will extend its full cooperation to Bank Negara Malaysia and we look forward to this matter reaching a swift conclusion," Arul said in a statement.

Earlier on Wednesday, 1MDB released details of its 42 billion ringgit debt, to counter allegations that some of the funds were missing.

In a statement breaking out the expenditure, 1MDB said that about 18 billion ringgit was spent on the purchase of independent power plants (IPP) and about 15.4 billion ringgit went into investment funds. It spent about 1.7 billion ringgit to purchase land assets and 5.8 billion ringgit was listed as financial expenditure.

The company said it holds about 900 million ringgit in surplus cash.

1MDB completed a strategic review of its operations earlier this year and said it planned to sell assets and development rights in prime property projects to cut debt. It is said to be planning an initial public offering for its energy unit.

By Praveen Menon and Anuradha Raghu

Reporting by Anuradha Raghu and Praveen Menon; Editing by Susan Fenton

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