Fraud in financial institution

Bribery and fraud involving financial institutions is worrisome not least because of the millions in funds involved. The Development Financial Institution of Malaysia (Bank Pembangunan Malaysia Berhad) is suing its former MD, Datuk Mohd Zafer Hashim, and other defendants, for loss and damages of more than RM560 million (USD127 million at current exchange rate of RM4.4 to USD1).

The Bank claims that the defendants engaged in calculated acts to enrich themselves from specific loan transactions. The defendants are accused of conspiring to defraud the Bank and concealing such fraud.

Much of a RM400 million loan (circa USD 100 million at current exchange rate), ostensibly for a fibre optic network project in Peninsular Malaysia, was syphoned to various named entities. Initially, the loan was approved on the basis of Huawei China being the approved turnkey contractor to build, operate and maintain the network.

Huawei China was subsequently replaced by Paneagle Holdings. Aries Telecoms, which is 9% owned by Paneagle Holdings, received the RM400 million loan in 2 tranches of RM200 million each.

The former MD of the Bank had waived certain loan conditions to enable the transfers/ disbursements/ remittances to proceed in 2012. To ensure the successful disbursement of the loan, an RM8 million bribe was allegedly paid in 2012 to the former MD of the Bank, by the MD of Aries Telecoms at the time, through an intermediary.

Some interesting highlights of this shenanigan:

1. The misrepresentation in Aries' financial statements,
2. The waiver of the conditions precedent prior to the disbursements of the loan,
3. The manipulation of the appointment process and appointment of Silver Ridge Sdn Bhd (a wholly owned unit of public-listed Silver Ridge Holdings Bhd) as the Independent Checking Engineer (ICE) of the project,
4. The questionable verification process by Silver Ridge Sdn Bhd as the ICE of the project,
5. The syphoning of funds from Aries to other parties,- the novation and transfer of assets from Aries to Orient Telecoms and
6. Unjustified payments from Aries to other parties.

In my ongoing sessions on AML/CFT (anti-money laundering) and ABC (anti-bribery and corruption) to financial and non-financial institutions, I elaborate on compliance failures in Deutsche Bank, Goldman Sachs, JP Morgan, Danske Bank, Credit Suisse, Westpac.
There's more fodder now.

Date : 20 June 2022

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