BMF (Boleh Malaysia Finance) Part Two

8/14/2019 BMF (Boleh Malaysia Finance) Part Two

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Boleh Malaysia Finance

(BMF) Part TwoPosted by admin

Sunday, 23 August 2009 09:27

By Hakim Joe

he US$2.5 billion loss by BMF and

the subsequent Carrian Groupbankruptcy were in fact Asias

largest bank losses and largestbankruptcy case at that time. LorrainEsme Osman became a household namein Malaysia and his intentions to takeoverBank Buruh was now left in tatters.

T

Continued from Part One

During the trial of the murder of JalilIbrahim, Malaysian Mak Fook Than wasfound guilty and sentenced to life inprison. Mak vehemently denies themurder charge and told the court that hewas merely acting on instructions todispose the body and that the murder wascommitted by an unnamed Koreannationality who in turn was taking directorders from a man named George (nosurname). It was later discovered thatJalil was strangled with a white cottonbathrobe belt in his hotel room and hisbody stuffed into a large suitcase. Aporter at the Hong Kong Regent Hotelremembered carting the heavy suitcasethrough the lobby into a taxi trunk.

Prior to the murder and Carriansannouncement of liquidity problems, BNM(under Special BNM Investigator Lee Kong

Lam) officially investigated the BMF affairsand made a full report to the BNMGovernor, Tan Sri Aziz Taha. In the BankNegara Inspection Report on BMF (as of30 June 1982), it stated that BMF hasover exposed themselves with a total loanamount of HK$5.042 billion of whichHK$3.246 billion was offered to theCarrian Group and its subsidiaries, thebulk of which was granted on anunsecured basis. The Inspection Report

also pointed out illegal payments of

Directors fees and Consultancy fees tothe directors of BMF and also to theChairman of BBMB, Dr Nawawi Mat Awin.

Under normal circumstances, BNM wouldhave immediately moved in to clean up

the mess without hesitation as withinstances dealing with the Oriental Bank,Perwira Habib Bank, D&C Bank and BankBuruh among others. However, these wereextraordinary times concerning aMalaysian Government owned bank(Permodalan Nasional Berhad owns 70%of BBMB) and a bank chairman that hasbeen tipped to become the next Ministerof Finance. After many sleepless nights(Im sure) and six weeks after thestinging Inspection Report has beenfinalized and submitted to the BNMGovernor only did Tan Sri Aziz Taha meetup with Dr Nawawi. Any other bankswould have been wrapped up, signed,sealed and delivered to BNM in half thattime!

On the 12 November 1982 meeting, DrNawawi personally assured Tan Sri AzizTaha that everything in under control andthat the internal audit team of BBMB wasat that moment carrying out its own auditon BMF. Tan Sri Aziz proceeded to briefTDM on 16 November 1982 and again on5 January 1983 on the BBMB/BMF issue.On 2 April 1983, Tan Sri Aziz officiallywrote to TDM (10 paged letter on officialBNM letterhead) to provide a clearerpicture as to how BMF got itself into thispredicament. (Classic case of asscovering but who can blame him?) Heended the letter seeking yet another

appointment with TDM to discuss theBMF affair and how to deal with theaccounts of the Bank Bumiputera Grouptaking into consideration requirements ofthe company law, banking law, accountingpractice, and possible repercussions fromthese problem loans as far as the public isconcerned.

The time (delay) in which BNM failed toreact and his seeking of the PM to settle

such issues shows the political clout

Boleh Malaysia Finance (BMF) Part Two 1/7


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UMNO has over BNM. The provisionsunder Part VI of the Banking Act 1973confer to Bank Negara the absolute powerto supervise and control banks doingbusiness in Malaysia. These powersinclude mandatory provisions to

investigate the books, accounts andtransactions of each licensed bank and ofany branch, agency or office outsideMalaysia opened by a licensed bank inMalaysia. The provisions under Part VI ofthe Banking Act 1973 additionallyempower Bank Negara to take appropriatemeasures to direct the operations of thebank, including the power to assume fullcontrol of the bank, in the event that thebank considers that it is likely to becomeunable to meet its obligations or is aboutto suspend payment. BNM failedmiserably in this aspect of itsresponsibilities but it can also be said thatthe BNM Governor was powerless to doanything after UMNOs intervention, andhad to resort to writing a letter to TDM(five months later) to remind him of themagnitude of the BMF problem.

Here comes the kicker during this periodof time when BNM was delaying takingaction against the BBMB seniormanagement team, BMF and BBMBreleased the US$76 million to the CarrianGroup to purchase the very same USAssets in which BMF had failed to secureon its loans to George Tan.

The Inquiry Committees BMF Final Reportalso stated that at this juncture of time,the BNM Governor (Tan Sri Aziz Taha) andthe Finance Minister (Tengku Razaleigh)

have been effectively excluded fromhandling the BMF affairs and thatdecisions were now made entirely by DrNawawi and possibly Tun Ismail Ali (ex-BNM Governor and then current PNBChairman) in consultation with TDM.

How did this debacle be allowed to occurin Hong Kong where the banking industryis super-duper ultra heavily regulated?Ah, loopholes! In Hong Kong, all Deposit-

Taking Companies (DTC) are governed by

the Hong Kong Deposit-Taking CompaniesOrdinance, Chapter 328, and comes underthe direct jurisdiction of the Commissionerof the Deposit-Taking Companies (who isalso the Commissioner of Banking).Section 22(1) specifically prohibits a DTC

from granting loans or credit facilities inexcess of 25% of its paid-up capital andreserves (here comes the loophole) unlessthey are covered by a form of guaranteeacceptable to the Commissioner. BMF waseffectively exempted from this restrictionwhen BBMB provided a Letter of Comfortto the Hong Kong Commissioner to theeffect that BBMB would fully support theobligations of BMF.

However, in 1981 the Commissionerintroduced certain changes to theOrdinance whereby only Letters ofComfort officially approved by the parentbank and supervisory authorities of thecountry of incorporation of the parentbank (in BBMBs case, the BNM) would beaccepted. On 9 April 1981, BBMB issuedanother Letter of Comfort and this wasfollowed up by an authorization letter byBNM (on 30 April 1981) to theCommissioner of Banking in Hong Kong.The BNM letter was signed by one Mohd.Tawfik bin Abdullah, Pengurus JabatanPengawalan Bank, Bank Negara Malaysia,stating that BNM did not have anyobjections to BBMBs issuance of a Letterof Comfort. From these two letters, BMFwas henceforth permitted to operateoutside the normal fiduciary controls ofthe Hong Kong regulatory authorities.

How was BNM able to issue such a letter?

A check on BMFs accounts andcommitments would have raised alarms asthe Carrian Groups loans alone amountedto HK$1.063 billion which is 7,939 percentof BMFs share capital and reserves, and129 percent of BBMBs share capital andreserves! If BNM refused to issue theletter, it would have stopped BMFs loansto the Carrian Group from ballooning toUS$3.246 billion.

When the Inquiry Commission interviewed



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the Hong Kong Commissioner of Bankingwith regards to the Letters of Comfortissued by BBMB, the Commissioner toldthem that the request for a guaranteewith respect to DTC under the Deposit-Taking Companies Ordinance to be

supported by specific approval of theBoard of a parent Bank and with theknowledge of the Central Bank wasintended as an indirect hint to the Bankconcerned to exercise a greater degree ofsupervision on the lending activities of itssubsidiary DTC. Basically the amendmentto the Ordinance in 1981 was also anindirect hint by the Commissioner ofBanking to Central Banks to carefullymonitor their banks and their internationalsubsidiaries.

BMFs auditors (Touche Ross) must alsoaccept culpability as they have failed tomake pertinent comments on thedisproportionately huge loan portfolio tothe Carrian Group in its Audit Report of1980. Arthur Tse of Touche Ross didhowever send an internal memorandum toDato Mat Noor, senior partner of HanafiahRaslan and Mohammad (BBMBs auditors)informing that we have refrained fromcommenting on the unduly large portionof loan portfolio to Carrian and associates.It is because we were politely told that itwas a management affair, not really anaudit matter. In view of the sensitivenessof the situation, we thought that the bestcourse was to keep you informed so as tolet the parent bank monitoring thesituation

In the Audit Report of 1981, Touche Ross

told BMF that they were unable to issuean unqualified audit opinion as thereremained a lot of unanswered questionsregarding the adequacy of collateralsecurities and values, and that the lack ofproper guarantee of borrowers obligationsforbid them from signing off on the AuditReport. On 15 March 1982, Dr Rais, onbehalf of BBMB signed a Letter ofGuarantee undertaking to assume all theliabilities, obligations or commitments of

BMF. As a result, Touche Ross issued the

unqualified audit opinion for the BMFaccounts for the year ending 31stDecember, 1981. With this Letter ofGuarantee, the responsibility of ensuringwhether adequate provisions have beenmade in the BBMB accounts in relation to

BMF was shifted to Hanafiah Raslan andMohammad as BBMB auditors. (Talk aboutshifting blame) Because of Touche Rosssinitial unwillingness to sign off on theBMFs audit, BBMBs audit report was alsoleft hanging. Two days after Touche Rosssigned the BMFs audit report, HanafiahRaslan and Mohammad signed the BBMBaudit report. There was however nomention of the unsatisfactory securityposition of BMF in relation to the Carrianloans in the BBMB Audit Report. BTW, DrRaiss Letter of Guarantee was neverformally ratified by the BBMB Board ofDirectors and was not mentioned in BMFAudit Report by Touche Ross.

On 21 February 1983, Finance MinisterTengku Razaleigh issued a report statingthat there is nothing amiss in the BMFdealings and that the loan situation wasnothing more than a normal businessproblem. In the report, Tengku Razaleighalso indicated that the BBMB Board was responsible directly to the PrimeMinister and that Bank Negara Malaysiahad no jurisdiction over BMF in HongKong.

In the Audit Report of 1982, Touche Rossindicated on its Audit Report (notenumber 8) that the provisions for bad anddoubtful debts were inadequate,especially the HK$4.325 billion to the

Carrian Group. Touche Ross was asked byBMF to drop Note 8 from its Audit Reportand it was agreed between them on 28February 1983 that BMF would provideTouche Ross with a Letter of Indemnityendorsed by the Malaysian Central Bank(BNM) against any liability arising fromthe removal of Note 8 from its BNF AuditReport of 1982.

On the next day, Dato Hashim informed

Touche Ross that BBMB Group Chairman,



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Dr Nawawi considered the bank to beunable to issue such a Letter of Indemnityto them as the Malaysian Companies Actforbids it. However, BBMB was prepared toissue a formal Letter of Undertakingregarding the liabilities of BMF in return

for Touche Ross dropping Note 8 fromtheir Audit Report. On 17 March 1983, DrNawawi wrote to Touche Ross giving themthe BBMB Board of Directors guaranteeundertaking to assume all the debts andliabilities of BMF in connection with loansgiven out to customers who becomeinsolvent. Once again BMFs report onsuch liabilities was shifted to HanafiahRaslan and Mohammad. In the BBMBAudit Report of 1982, it was stated that,the Government of Malaysia has givenan undertaking that it would back theBank fully in case the Bank faces anydifficulties in meeting its obligationsHowever, this time around, BBMBsauditors were not as easily convinced asin 1982 (maybe they were taking a cuefrom Touche Ross). The BBMB AuditReport was only signed by HanafiahRaslan and Mohammad on 13 June 1983which caused BBMB to defer their AGM.

In the Report of the Auditor-General onthe 1982 Federal Government Accounts,there was a reference to this purportedBBMB Guarantee which states, The notesto the account relating to these balances(BBMB 1982) indicate that theGovernment had given an undertakingthat it would back the Bank fully shouldthe Bank face any difficulties in meetingits obligations. The Treasury has howeverinformed me that it has not issued a

written statement of such undertakingother than the statement to that effectgiven by the Minister of Finance in replyto questions in Dewan Rakyat on 15March 1983.

Touche Ross was sacked by BBMB aftersigning off on the 1982 Audit Report. Inthe same year, the Carrian Group filed forbankruptcy in Hong Kong. SHKPIL, KevinHsus public listed company followed suit.

The Carrian Group was not the onlyrecipient of BMF funds though it was thebiggest. Kevin Hsu and Eda InvestmentLimited were among others of suchrecipients of BMF loans. However, theInquiry Commission was unable to

investigate them as such due to the factthat they were excluded from the terms ofreference of the Inquiry Committee asBBMB as the Appointing Authority onlyspecified the Carrian Group. It was knownthen that as of September 1982, theKevin Hsu Group of Companies had loansfrom BMF to the tune of HK$586 millionand had close business dealings withspecifically four companies, namelyAsiavest, Knife & Dagger, Silver Presentand Hi-Heated. Asiavest and Knife &Dagger were owned by BMF GeneralManager Ibrahim Jaffar, Silver Presentwas owned by BBMB Executive DirectorDatuk Mohamed Hashim Shamsuddin andHi-Heated was owned by BMF AlternateDirector Dr Rais Saniman,

As with the Carrian Groups loans, KevinHsus loans were also obtained withoutthe necessary and adequate loansecurities. In fact Kevin Hsu had to applyfor a HK$120,000 loan on 15 November1984 from BMF just to pay off its auditorfees before they can hold an AGM, and weare talking about a public listed company!

With over 6,000 pages of incriminatingevidence, Malaysian Attorney-General TanSri Abu Talib Othman could not find anysubstantial evidence to prosecute andmoreover his office was not prepared toprosecute any Malaysians for alleged

crimes committed outside the country.Prime Minister Dato Seri MahathirMohammad (now Tun) called the BMFscandal a heinous crime but made nomention of the heinous criminals.

The Inquiry Commission finished theirBMF Final Report in January 1986consisting of 13 volumes. The BNmachinery was up in arms when the fullimplications of the report were revealed

as nobody (not even the Opposition) had



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expected such comprehensive, unbiasedand detailed findings, especially with sucha narrow term of reference. A concertedattempt to suppress it was initiated but tono avail after a public outcry. However,only a limit of 2,000 copies was printed

and each priced at RM250 per set wereoffered to the public (Parliamentarians getthe copies free except without the 2-volume Special Brief One Ha! Ha!) andRM250 in 1986 is quite a sum to pay for areport. The Government of Malaysia evenattempted to renege on its promises toprint the 2,000 copies, quoting GeneralOrders 17 which prohibits written or oralstatements that could undermine theGovernment, and finally agreed to do soonly after reclassifying the BMF FinalReport as a non-parliamentary paper andto be specifically published in English only.Additionally, because the BMF Final Reportis now not a parliamentary paper, theGovernment of Malaysia need notrecognize the Inquiry Commissionsrecommendations, let alone implementthem.

The aftermath

Lorrain Esme Osman fled to London in1983 to avoid being extradited to HongKong to face corruption charges. On 6December 1985, the British police enteredthe uptown home of Lorrain Osman toarrest Datuk Hashim who was there on avisit and Lorrain Osman. Less than a yearlater in 1986, waiving his rights to aHearing on a Writ of Habeas Corpus inorder to avoid extradition to Hong Kong,Datuk Hashim Shamsuddin admitted to

assisting in the defrauding of BumiputeraMalaysia Finance Ltd of about HK$1.05billion. He also admitted that he hadaccepted HK$15 million in bribes for hiscorrupt activities. He was initiallysentenced to a jail term of 4 years inStanley Prison, Hong Kong in 1987 butthe Court of Appeal increased his jail termto 10 years after a successful appeal bythe prosecution team.

In that same year, George Tan Soon Gin

and Bentley Ho, along with Rogerio Lamand Stephen Lam, the Chairman and aDirector of publicly listed Bylamson andAssociates (Enterprises) Limitedrespectively, David Begg and Anthony Lo,both of the accounting firm of Price

Waterhouse, as the firm was then known,were all charged with conspiracy todefraud between 1st January 1981 and31st July 1982.

The charges against these 6 defendantswere that they had conspired to defraudshareholders, or potential shareholders, ofCarrian Investments Limited, and/orcreditors, or potential creditors, of anyother person or company, who might havebeen induced to accept shares in CarrianInvestments Limited as collateral for loansto the 6 defendants or to CarrianInvestments Limited, Carrian HoldingLimited, or any company in which the 6defendants had a legal or beneficialinterest, by false and misleadingstatements and by concealments as to theprofits, liquidity and financial integrity ofCarrian Investments Limited.

The trial judge was a former Court ofAppeals Justice, Mr. Justice Barker QC,who after reading the 25,000 pages of theCrowns case against the 6 defendantswas of the opinion that the defendantshad no case to answer. He was provencorrect because in 1987 and after a 281-day trial, which cost Hong Kong taxpayersmore than $HK40 million, he stopped thetrial and delivered his determination: Thedefendants had no case to answer. This isdespite a mountain of irrefutable evidence

and the fact that gathered evidence alsorevealed that loans were given withoutproper collateral. In some instances, theywere secured only by post-dated cheques.Additionally, almost 70% of lending byBMF was to the Carrian Group. Thebibulous Barker's decision was latertrashed by a judicial review of his peersand he was asked to resign from thebench, but there was no going back on hisverdict on George Tan. It was later

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with George Tan. Barker retired to Maltawhere he died.

Less than one year after the trial in 1988,a former executive of Barclays AsiaLimited, the Hong Kong subsidiary of

Barclays Bank PLC, was tried for acceptingbribes in relation to the Carrian Case.Stuart Leslie Turner was convicted andsentenced to one year jail (1 afterappeals by the prosecution team).

A leading German banker Dr. UweRameken escaped to Latin America and isstill, in theory, wanted by Hong Kongauthorities, while his local deputy did 3years for corruption.

Lorrain Esme Osman was held at BrixtonPrison in UK for 90 months, awaitingextradition to Hong Kong while his lawyersfiled one writ of Habeas Corpus afteranother to keep him out from Hong Kong.ICAC submitted over 30,000 pages ofevidence to the British High Court, theCourt of Appeals and finally to the Houseof Lords. This continued until Lorrainexhausted all his legal avenues and wasescorted by Scotland Yard on a plane backto Hong Kong in 1992.

ICAC proffered 43 charges against Lorrainbut despite the mountain of evidence,they knew that this was not a cinch-pipeaffair. Lorrain was after all only the non-executive Chairman and was not directlyinvolved in the day-to-day operations ofBMF. So they offered a deal. One ICACofficer asked of Lorrain, You have beenfighting all this while for the benefit of

others. Isnt it time to do something foryour own benefit? So a deal wasconcluded. As Lorrain would not pleadguilty to corruption and certainly not to allthe 43 charges, the Hong Kongprosecutors suggested 1 single charge offinancial negligence, which Lorrain finallyaccepted.

George Tan was again charged withcorruption and fraud in 1992 but his team

of top legal representatives kept him out

of jail once again. In 1996, he finallypleaded guilty to 2 charges of conspiracyto defraud and received three years inStanley Prison. He walked out from prisonin 1999 a free man.

Dr Rais Saniman fled to France to avoidbeing extradited to Hong Kong andremained a fugitive from law but wasarrested by French authorities in Paris in1987. As France did not have any anti-corruption laws, Rais was released as theextradition order fell through. The HongKong prosecution team had to amend theinitial charges from corruption to conspiracy to defraud before thegendarmerie rearrested him in 1990.Although the French courts had ruled thatthe man should be extradited back toHong Kong for trial, the Frenchgovernment considered extraditionunnecessary and revoked the courtsruling. Only after repeated extraditionapplications through French lawyers thatthe Hong Kong Government was able topersuade the French Constitutional Courtto grant leave for them to challenge theFrench government's refusal. On February1994, Rais was finally extradited to HongKong to face charges of corruption andpleaded guilty to 2 charges and wassentenced to 5 years imprisonment.

Ibrahim Jaffar was never convicted, evenafter he admitted to receiving bribes,because he turned Crown witness in theCarrian Case and was offered immunityfrom both criminal and civil prosecution(from the Hong Kong authorities) and civilliability from BBMB. He was also permitted

to keep his job with BMF/BBMB and thebribes he admittedly had taken while hewas the GM of BMF were never asked foror returned.

Warwick Reid, the State Prosecutor whoinitiated the prosecution of Lorrain Osmanwas himself sentenced to 8 yearsimprisonment in March 1990 for financialcorruption.

Mak Fook Thans lengthy 24-paged



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statement about his ministerial businesstrip to Hong Kong went missing during thetrial. During his interrogation by the HongKong police, Mak has admitted that hewas in Hong Kong at the behest of asenior Malaysian Minister to collect some

money from a Malaysian nationalityresiding in Hong Kong. He denied havingsaid so after the disappearance of his 24-paged statement.

George Tan Soon Gin of the Carrian Groupis not a Hong Kong resident but aSingaporean civil engineer working inHong Kong (he arrived in 1972) as aproject manager for a land developmentcompany before he started his own pest-control company and prior to hisestablishing the Carrian Group. Mr.George Tan continues to be involved inbusiness in Hong Kong and has a house inthe New Territories, which he built at acost of about HK$200 million.

Gammon House is the current Bank ofAmerica Tower in Hong Kongs CBD.

Lorrain has retired to London afterformally serving 2 months in Stanleyprison. (He had in fact already served 6

months at the Lai Chi Kok DetentionCentre while awaiting trial, and another 4months for remission.)

The Carrian Case is the longest criminalcase in Hong Kong judiciary historyspanning over 17 years at a cost ofHK$210 million and with over 4 millionpages of exhibit.

Rais Saniman is currently an active UMNOmember and pro-NEP activist.

Originally published at -http://mt.m2day.org/2008/content/view/25982/84/


BMF (Boleh Malaysia Finance) Part Two

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