Saturday, December 31, 1983

Malaysian BMF Scandal 1979 Part 1


BOLEH MALAYSIA FINANCE (BMF) PART ONEPDFPrint
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Saturday, 22 August 2009 11:34
By Hakim Joe
When a bank has too many deposits (excessive funds), what does the bank do? Why, they relax their loan requirements to offer more loans out in order to maximize their profits. What if the national loan requirements are already “very relaxed” due to favorable economic conditions in the country? Why, you loan the excessive liquidity overseas!
Bank Bumiputera Malaysia Berhad (BBMB), found itself in such an enviable situation in 1979/1980. This was partly due to the fact that Petronas was “instructed” to remit RM50 million a month into its BBMB banking account. The dilemma that BBMB was facing then was how it was going to lend these excessive cash out when other Malaysian banks were already in the picture. BBMB could of course lower their interest rates but the potential profits could not be maximized and the fact that the other competing banks could also do likewise was not lost on them. Allowing the money to be left in the bank’s coffers is not productive either as BBMB would have to pay interest on it.
So, in order to maximize their profits, the top hierarchy within BBMB decided to channel these funds out of the country and Bumiputera Malaysia Finance (BMF) based in Hong Kong, was selected as the vehicle targeting the foreign exchange and money market operations. George Tan Soon Gin of Carrian was more than willing to be the recipient. 
After the financial debacle, it was reported that BMF had lost RM2.5 billion and George Tan was charged and convicted. Not one cent was ever realized from these loans but the matter of fact was that BMF gave out loans in amounts that exceeded its capital. This can only happen if strict instructions from BBMB were given to officials in BMF.
An Inquiry (with limited powers and restricted terms of reference) was initiated instead of a Royal Commission (just like the MACC case these days). The Inquiry Committee comprising of Tan Sri Ahmad Nordin, Chooi Mun Shou and Ramli Ibrahim produced a 6,000 page (13 volumes) report after two years of intensive investigations. On paragraph 74.2(2) of the BMF Final Report, the committee reported that “apart from few members of the staff, the Committee did not receive the full co-operation and assistance from the Board and Management of Bank Bumiputera Malaysia Berhad (BBMB), which was the Appointing Authority.” 
The BMF Final Report started off by stating that “There might not have been Carrian without BMF.” The BMF Inquiry Committee also identified a “Concerted Plan” by various BMF top officials and George Tan “to make use of BBMB funds to make money in Hong Kong” during the property boom of 1979. This plan was divided into three phases where Phase One involve the takeover of a Hong Kong public-listed company (Mai Hon, which was later renamed Carrian Investment Limited), the purchase of Gammon House at US$200 million (to be resold later to Malaysian Government at US$250 million) and the setting up of Plessey Investment Limited (PIL) as the recipient vehicle for the BMF loans. 
Phase Two involve the purchase of Grand Marine Holdings Limited (GMH) at HK$800 million to be resold later to the Malaysian Government at HK$1 billion, and the necessary cash flow for the Carrian Group. 
Phase Three was never implemented as by now the Carrian Group was facing massive liquidity problems. The murder of BMF Assistant General Manager, Jalil Ibrahim, hastened the end of a sordid chapter involving fraud, CBT, criminal conspiracy and murder. Klang businessman Man Fook Than was eventually convicted of the murder and sentenced to life in prison, a crime he vehemently denies. 
In the later Bank Negara Malaysia forex debacle of 1992/1993, we had creative accounting practices to offset the massive losses. Here and now in 1984, no such actions were undertaken as none were deemed necessary. BBMB was going to take the “hit" and the subsequent bailout by the Federal Government means the bank “did not suffer any losses”. In fact all BBMB Chairman Tan Sri Kamarul Ariffin got was a rap on the wrist by TDM for receiving HK$3.3 million in consultancy fees. He was never held accountable for the RM2.5 billion loss even though part of these losses was made on his watch.  
First we come to the Gammon House deal. The Carrian Group was supposed to make a clean and quick US$50 million profit. According to the BMF Final Report, then BBMB Chairman Dr Nawawi Mat Awin met BNM Governor Tan Sri Abdul Aziz Taha (on 12 November 1982) and Dr Nawawi indicated to the BNM Governor that he was merely acting on instructions by the Minister of Finance (Tengku Razaleigh) to “purchase Gammon House as a centre to house the operations of various Malaysian agencies in Hong Kong”.
This was confirmed by Dr Rais Saniman (alternate BMF Director) on 7 August 1984 when he reported to the Inquiry Committee that he was informed by Datuk Mohamed Hashim Shamsuddin (BBMB Executive Director) that Tengku Razaleigh has decided to acquire Gammon House with George Tan acting as the agent for the Malaysian Government. Amongst those present at this meeting were Lorrain Esme Osman (BMF Non-Executive Chairman), Ibrahim Jaffar (BMF GM), George Tan (Carrain Chairman) and a few Carrian “chaps”.
When Dr Rais questioned this unorthodox transaction, since the Malaysian Government could have purchased this property outright, he obtained no answer from Datuk Hashim. BTW, the Gammon House deal fell through and George Tan became the beneficiary of Gammon House as the S&P was already signed. In fact BBMB approved a loan of US$292 million (146% financing) to Plessey Investment Limited for the purchase of Gammon House after it was made known to BMF and BBMB that the Malaysian Government was not interested in Gammon House.  
BBMB’s single US$292 million loan to Plessey Investment Limited, a HK$2 shell company, represented the largest ever loan ever given out by BBMB at that time. (They eclipsed it with another US$580 million loan later on.) Ever wondered why BBMB approved the loan? When PIL was asked by BNF loan officers just who their major shareholder was, the answer was BBMB. Carrian Investment Limited has by now grown from a nonentity in 1981 to become Hong Kong's sixth largest company by market capitalisation after merely one year in business. 
Tengku Razaleigh denied these accusations and said that the Gammon House was never even considered. The Malaysian Government later bought the Lap Heng Building instead. However this does not detract from the fact that George Tan telexed Datuk Hashim on 3 January 1980 that he has been offered US$250 million for the property and needed prompt advice. If the Carrian Group was merely in it for the profits, they could have easily sold Gammon House and pocketed the US$50 million as would have been the case if the property was sold to the Malaysian Government. Why it didn’t do so can only point the finger at “more powerful” people behind the scene with a different agenda. 
The implications that Tengku Razaleigh was involved was tabulated inside Special Brief One of the BMF Final Report (2 volumes). However, these two volumes were never distributed to Parliament. What the MPs got were 5 volumes of Special Brief Two and 3 volumes of Special Brief Three. Moreover, the Inquiry Committee strongly recommended that BBMB make a police report as the loan is tantamount to theft. BBMB never did lodge any police report. 
As with the Gammon House, Grand Marine Holdings Limited (GMH) was bought with the sole intention of being resold to the Malaysian Government at a profit. Once again BMF became the “sole provider” to the tune of US$580 million in six tranches of US$138 million, US$100 million, US$97 million, US$143.5 million, HK$643.7 million and SD$20 million.
This is beside the fact that BMF was over concentrating its loan portfolio on the Carrian Group as up to 65% of its total lending were made to them.
Once again George Tan was left standing alone on the line when the Malaysian Government declined the offer to purchase GMH. How in the world did George get the impression that the Malaysian Government had intentions of purchasing GMH, if not under instructions from the BMF management, specifically Dr Rais? 
When Ibrahim Jaffar was questioned by the Inquiry Committee, Datuk Musa Hitam’s name came up as the party within the Malaysian Government that was interested in the GMH deal. When Dr Rais was questioned, he denied knowing about the GMH deal. He however admitted much later that George offered to sell the controlling interest in GMH to the Malaysian Government and that he had asked him to act on his behalf to speak to the Malaysian Government, which he (Rais) spoke to the DPM.
Datuk Musa confirmed this but said that, “Ada satu kali di mana Dr Rais menyebut serta cuba menghuraikan hal-hal perusahaan/perniagaan personalnya di Hong Kong. Tetapi saya telah menahannya oleh sebab ini tidak ada kaitan langsung dengan tugas-tugas resmi kita. Saya tidak tahu menahu atas apa-apa yang lebih daripada itu.” 
The Inquiry Committee is of the view that there is insufficient evidence to come to a conclusion that the Malaysian Government is involved in the GMH affair. What is evident is that BMF provided the entire financing for the purchase of GMH, releasing its funds to 7 borrower companies for the purpose of “investment”. That BMF was unable show documented evidence that the bank has done an evaluation into these companies before disbursing the first tranche of the loan of US$138 million is not the matter here. What was terribly wrong then was that all of these 7 borrower companies were HK$2 companies and that 4 of these companies were only incorporated after the loan has been approved. Get it? “After” the loan has been approved. 
That BMF tried to recover the loans of US$138 million and US$100 million from these 7 companies was another “mystery” of its own. 7 writs were filed against George Tan but no attempts were ever made to serve these writs on George. When this issue was brought up to BBMB’s attention (after BMF finally served the 7 writs on George’s lawyers), the BBMB hierarchy “over-ruled” this action and instructed BMF to “recover” these writs immediately. 
On 26 October 1982, Carrian announced that the company was not in a position to meet current payments and was facing temporary liquidity problems. What is beguiling is that BMF continued to disburse funds to the Carrian Group after such an announcement.
Three days after the announcement was made, the BMF Board approved another US$30.2 million loan to Carrian although Carrian Holdings Limited (CHL) only applied for a US$30 million loan (for their US-based Oakland Project). Why the additional “unasked-for” US$200,000?
Another thing is that BMF did not ask nor obtained the Oakland project as security against its loan, in fact no security was ever requested. What is even more questionable is that the money is released to a company called Paris Ride and not CHL (the loan applicant). 
CHL and CIL were both undergoing restructuring at this time (after the announcement) and the Wardley/Hambro scheme required both companies to lodge HK$250 million (US$40 million) in an escrow account to be used as working capital for both companies. Now, how were CHL and CIL capable of this requirement?
All I can say is that within 30 days after releasing the US$30.2 million loan to CHL, BMF released an additional US$40 million into the escrow account at the Bank of Communications. This newest loan is secured by the personal guarantee of one Mr George Tan Soon Gin. 
Another US$3 million was released on 9 April 1983 to yet another George’s companies (Fitarget) and again on the 10 June 1983 (US$4.5 million). Both loans are once again secured by the personal guarantee of George Tan.
Part of Carrian’s US Assets were meant to be the security for the group’s loans from BMF but since these same assets were initially procured using the same loans offered by BMF, this would defeat the purpose of securitizing it.
As only part of it were pledged as security (due to the fact that they were all not fully paid for) and to complete the paperwork allowing all Carrian’s US assets to be pledged to BMF, BMF in fact had to fork out another US$76 million, and do it through a third party (Mr Yap Lim Sen from Ipoh Garden), to complete this undertaking.
This is on top of yet another US$7.6 million “loan” made payable to the city of Oakland for the purchase of an Oakland property by the Carrian Group. BTW, Mr Yap paid for a trip to US to check out these properties and reported to BBMB that they are merely slums that nobody wanted. 
On 20 May 1983, the BBMB Board approved the proposal to acquire Carrian’s US Assets through a third party. The two nominee companies were Dragon Base and Darton and the agreement allowed for a rescission period of 4 weeks whereby the agreement can be rescinded “in the event of any adverse disclosures about the property.”
Jalil Ibrahim personally flew to the US on 7 June 1983 and engaged a renowned property valuer (Levanthol) to value Carrian’s US assets and was told that the properties were nowhere near the US$76 million S&P figure.
Another valuer, Perini, valued those properties at US$56 million only. (That’s 36% over-valued at US$76 million.) Jalil promptly informed BMF of his findings and tried to get BMF to rescind on this deal.
On 9 June 1983, Jalil wrote to his wife detailing his frustrations about this deal but the letter was never completed or posted. Jalil was also against the release of another US$4 million loan to the Carrian Group for the purchases of China Underwriters Life & General Insurance Co. Ltd (CUL) and the Union Bank Hong Kong Limited (UB).
As the deputy GM of BMF, he personally blocked the US$4 million loan. On 18 June 1983, Jalil Ibrahim was found murdered and his body dumped in a banana plantation outside Hong Kong.
On the same day, the loan was released to Fitarget. Coincidence? Maybe…(Lorrain Osman broke his silence after 23 years and in 2008 he ventured that Jalil had late night visitors at his hotel room where he was staying, and on the day of his murder, had taken HK$20,000 purportedly for ‘Ibrahim’ to payoff someone.) 
To be continued…(phew!)

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