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.)
The US$2.5 billion loss by BMF and the subsequent Carrian Group
bankruptcy were in fact Asia’s largest bank losses and largest
bankruptcy case at that time. Lorrain Esme Osman became a household name
in Malaysia and his intentions to takeover Bank Buruh was now left in
tatters.
During the trial of the murder of Jalil Ibrahim, Malaysian Mak Fook Than
was found guilty and sentenced to life in prison. Mak vehemently denies
the murder charge and told the court that he was merely acting on
instructions to dispose the body and that the murder was committed by an
unnamed Korean nationality who in turn was taking direct orders from a
man named George (no surname). It was later discovered that Jalil was
strangled with a white cotton bathrobe belt in his hotel room and his
body stuffed into a large suitcase. A porter at the Hong Kong Regent
Hotel remembered carting the heavy suitcase through the lobby into a
taxi trunk.
Prior to the murder and Carrian’s announcement of liquidity problems,
BNM (under Special BNM Investigator Lee Kong Lam) officially
investigated the BMF affairs and made a full report to the BNM Governor,
Tan Sri Aziz Taha. In the Bank Negara Inspection Report on BMF (as of
30 June 1982), it stated that BMF has over exposed themselves with a
total loan amount of HK$5.042 billion of which HK$3.246 billion was
offered to the Carrian Group and its subsidiaries, “the bulk of which
was granted on an unsecured basis.” The Inspection Report also pointed
out illegal payments of Director’s fees and Consultancy fees to the
directors of BMF and also to the Chairman of BBMB, Dr Nawawi Mat Awin.
Under normal circumstances, BNM would have immediately “moved in” to
clean up the mess without hesitation as with instances dealing with the
Oriental Bank, Perwira Habib Bank, D&C Bank and Bank Buruh among
others. However, these were extraordinary times concerning a Malaysian
Government owned bank (Permodalan Nasional Berhad owns 70% of BBMB) and a
bank chairman that has been tipped to become the next Minister of
Finance. After many sleepless nights (I’m sure) and six weeks after the
stinging Inspection Report has been finalized and submitted to the BNM
Governor only did Tan Sri Aziz Taha meet up with Dr Nawawi. Any other
banks would have been wrapped up, signed, sealed and delivered to BNM in
half that time!
On the 12 November 1982 meeting, Dr Nawawi personally assured Tan Sri
Aziz Taha that “everything in under control and that the internal audit
team of BBMB was at that moment carrying out its own audit on BMF.” Tan
Sri Aziz proceeded to brief TDM on 16 November 1982 and again on 5
January 1983 on the BBMB/BMF issue. On 2 April 1983, Tan Sri Aziz
officially wrote to TDM (10 paged letter on official BNM letterhead) to
“provide a clearer picture as to how BMF got itself into this
predicament.” (Classic case of ass covering but who can blame him?) He
ended the letter seeking yet another appointment with TDM to “discuss
the BMF affair and how to deal with the accounts of the Bank Bumiputera
Group taking into consideration requirements of the company law, banking
law, accounting practice, and possible repercussions from these problem
loans as far as the public is concerned.”
The time (delay) in which BNM failed to react and his seeking of the PM
to settle such issues shows the political clout UMNO has over BNM. The
provisions under Part VI of the Banking Act 1973 confer to Bank Negara
the absolute power to supervise and control banks doing business in
Malaysia. These powers include mandatory provisions to investigate the
books, accounts and transactions of each licensed bank and of any
branch, agency or office outside Malaysia opened by a licensed bank in
Malaysia. The provisions under Part VI of the Banking Act 1973
additionally empower Bank Negara to take appropriate measures to direct
the operations of the bank, including the power to assume full control
of the bank, in the event that the bank considers that it is likely to
become unable to meet its obligations or is about to suspend payment.
BNM failed miserably in this aspect of its responsibilities but it can
also be said that the BNM Governor was powerless to do anything after
UMNO’s intervention, and had to resort to writing a letter to TDM (five
months later) to remind him of the magnitude of the BMF problem.
Here comes the kicker – during this period of time when BNM was delaying
taking action against the BBMB senior management team, BMF and BBMB
released the US$76 million to the Carrian Group to purchase the very
same US Assets in which BMF had failed to secure on its loans to George
Tan.
The Inquiry Committee’s BMF Final Report also stated that at this
juncture of time, the BNM Governor (Tan Sri Aziz Taha) and the Finance
Minister (Tengku Razaleigh) have been effectively excluded from handling
the BMF affairs and that decisions were now made entirely by Dr Nawawi
and possibly Tun Ismail Ali (ex-BNM Governor and then current PNB
Chairman) in consultation with TDM.
How did this debacle be allowed to occur in Hong Kong where the banking
industry is super-duper ultra heavily regulated? Ah, loopholes! In Hong
Kong, all Deposit-Taking Companies (DTC) are governed by the Hong Kong
Deposit-Taking Companies Ordinance, Chapter 328, and comes under the
direct jurisdiction of the Commissioner of the Deposit-Taking Companies
(who is also the Commissioner of Banking). Section 22(1) specifically
prohibits a DTC from granting loans or credit facilities in excess of
25% of its paid-up capital and reserves (here comes the loophole) unless
they are covered by a form of guarantee acceptable to the Commissioner.
BMF was effectively exempted from this restriction when BBMB provided a
Letter of Comfort to the Hong Kong Commissioner to the effect that BBMB
would fully support the obligations of BMF.
However, in 1981 the Commissioner introduced certain changes to the
Ordinance whereby only Letters of Comfort officially approved by the
parent bank and supervisory authorities of the country of incorporation
of the parent bank (in BBMB’s case, the BNM) would be accepted. On 9
April 1981, BBMB issued another Letter of Comfort and this was followed
up by an authorization letter by BNM (on 30 April 1981) to the
Commissioner of Banking in Hong Kong. The BNM letter was signed by one
Mohd. Tawfik bin Abdullah, Pengurus Jabatan Pengawalan Bank, Bank Negara
Malaysia, stating that “BNM did not have any objections to BBMB’s
issuance of a Letter of Comfort.” From these two letters, BMF was
henceforth permitted to operate outside the normal fiduciary controls of
the Hong Kong regulatory authorities.
How was BNM able to issue such a letter? A check on BMF’s accounts and
commitments would have raised alarms as the Carrian Group’s loans alone
amounted to HK$1.063 billion which is 7,939 percent of BMF’s share
capital and reserves, and 129 percent of BBMB’s share capital and
reserves! If BNM refused to issue the letter, it would have stopped
BMF’s loans to the Carrian Group from ballooning to US$3.246 billion.
When the Inquiry Commission interviewed the Hong Kong Commissioner of
Banking with regards to the Letters of Comfort issued by BBMB, the
Commissioner told them that “the request for a guarantee with respect to
DTC under the Deposit-Taking Companies Ordinance to be supported by
specific approval of the Board of a parent Bank and with the knowledge
of the Central Bank was intended as an indirect hint to the Bank
concerned to exercise a greater degree of supervision on the lending
activities of its subsidiary DTC.” Basically the amendment to the
Ordinance in 1981 was also an indirect hint by the Commissioner of
Banking to Central Banks to carefully monitor their banks and their
international subsidiaries.
BMF’s auditors (Touche Ross) must also accept culpability as they have
failed to make pertinent comments on the disproportionately huge loan
portfolio to the Carrian Group in its Audit Report of 1980. Arthur Tse
of Touche Ross did however send an internal memorandum to Dato Mat Noor,
senior partner of Hanafiah Raslan and Mohammad (BBMB’s auditors)
informing that “…we have refrained from commenting on the unduly large
portion of loan portfolio to Carrian and associates. It is because we
were politely told that it was a management affair, not really an audit
matter. In view of the sensitiveness of the situation, we thought that
the best course was to keep you informed so as to let the parent bank
monitoring the situation…”
In the Audit Report of 1981, Touche Ross told BMF that they were unable
to issue an unqualified audit opinion as there remained a lot of
unanswered questions regarding the adequacy of collateral securities and
values, and that the lack of proper guarantee of borrowers’ obligations
forbid them from signing off on the Audit Report. On 15 March 1982, Dr
Rais, on behalf of BBMB signed a Letter of Guarantee “undertaking to
assume all the liabilities, obligations or commitments” of BMF. As a
result, Touche Ross issued the unqualified audit opinion for the BMF
accounts for the year ending 31st December, 1981. With this Letter of
Guarantee, the responsibility of ensuring whether adequate provisions
have been made in the BBMB accounts in relation to BMF was shifted to
Hanafiah Raslan and Mohammad as BBMB auditors. (Talk about shifting
blame…) Because of Touche Ross’s initial unwillingness to sign off on
the BMF’s audit, BBMB’s audit report was also “left hanging”. Two days
after Touche Ross signed the BMF’s audit report, Hanafiah Raslan and
Mohammad signed the BBMB audit report. There was however no mention of
the unsatisfactory security position of BMF in relation to the Carrian
loans in the BBMB Audit Report. BTW, Dr Rais’s Letter of Guarantee was
never formally ratified by the BBMB Board of Directors and was not
mentioned in BMF Audit Report by Touche Ross.
On 21 February 1983, Finance Minister Tengku Razaleigh issued a report
stating that “there is nothing amiss in the BMF dealings” and that the
loan situation was nothing more than a normal business problem. In the
report, Tengku Razaleigh also indicated that the BBMB Board was
“responsible directly to the Prime Minister” and that Bank Negara
Malaysia had no jurisdiction over BMF in Hong Kong.
In the Audit Report of 1982, Touche Ross indicated on its Audit Report
(note number 8) that the provisions for bad and doubtful debts were
inadequate, especially the HK$4.325 billion to the Carrian Group. Touche
Ross was asked by BMF to drop Note 8 from its Audit Report and it was
agreed between them on 28 February 1983 that BMF would provide Touche
Ross with a Letter of Indemnity endorsed by the Malaysian Central Bank
(BNM) against any liability arising from the removal of Note 8 from its
BNF Audit Report of 1982.
On the next day, Dato Hashim informed Touche Ross that BBMB Group
Chairman, Dr Nawawi considered the bank to be unable to issue such a
Letter of Indemnity to them as the Malaysian Companies Act forbids it.
However, BBMB was prepared to issue a formal Letter of Undertaking
regarding the liabilities of BMF in return for Touche Ross dropping Note
8 from their Audit Report. On 17 March 1983, Dr Nawawi wrote to Touche
Ross giving them the BBMB Board of Directors’ guarantee undertaking to
assume all the debts and liabilities of BMF in connection with loans
given out to customers who become insolvent. Once again BMF’s report on
such liabilities was shifted to Hanafiah Raslan and Mohammad. In the
BBMB Audit Report of 1982, it was stated that, “…the Government of
Malaysia has given an undertaking that it would back the Bank fully in
case the Bank faces any difficulties in meeting its obligations…”
However, this time around, BBMB’s auditors were not as easily convinced
as in 1982 (maybe they were taking a cue from Touche Ross). The BBMB
Audit Report was only signed by Hanafiah Raslan and Mohammad on 13 June
1983 which caused BBMB to defer their AGM.
In the Report of the Auditor-General on the 1982 Federal Government
Accounts, there was a reference to this purported BBMB Guarantee which
states, “The notes to the account relating to these balances (BBMB 1982)
indicate that the Government had given an undertaking that it would
back the Bank fully should the Bank face any difficulties in meeting its
obligations. The Treasury has however informed me that it has not
issued a written statement of such undertaking other than the statement
to that effect given by the Minister of Finance in reply to questions in
Dewan Rakyat on 15 March 1983.”
Touche Ross was sacked by BBMB after signing off on the 1982 Audit
Report. In the same year, the Carrian Group filed for bankruptcy in Hong
Kong. SHKPIL, Kevin Hsu’s public listed company followed suit.
The Carrian Group was not the only recipient of BMF funds though it was
the biggest. Kevin Hsu and Eda Investment Limited were among others of
such recipients of BMF loans. However, the Inquiry Commission was unable
to investigate them as such due to the fact that they were excluded
from the terms of reference of the Inquiry Committee as BBMB as the
“Appointing Authority” only specified the Carrian Group. It was known
then that as of September 1982, the Kevin Hsu Group of Companies had
loans from BMF to the tune of HK$586 million and had close business
dealings with specifically four companies, namely Asiavest, Knife &
Dagger, Silver Present and Hi-Heated. Asiavest and Knife & Dagger
were owned by BMF General Manager Ibrahim Jaffar, Silver Present was
owned by BBMB Executive Director Datuk Mohamed Hashim Shamsuddin and
Hi-Heated was owned by BMF Alternate Director Dr Rais Saniman,
As with the Carrian Group’s loans, Kevin Hsu’s loans were also obtained
without the necessary and adequate loan securities. In fact Kevin Hsu
had to apply for a HK$120,000 loan on 15 November 1984 from BMF just to
pay off its auditor fees before they can hold an AGM, and we are talking
about a public listed company!
With over 6,000 pages of incriminating evidence, Malaysian
Attorney-General Tan Sri Abu Talib Othman “could not find” any
“substantial” evidence to prosecute and moreover his office was not
prepared to prosecute any Malaysians for alleged crimes committed
outside the country. Prime Minister Dato Seri Mahathir Mohammad (now
Tun) called the BMF scandal a “heinous crime” but made no mention of the
heinous criminals.
The Inquiry Commission finished their BMF Final Report in January 1986
consisting of 13 volumes. The BN machinery was up in arms when the full
implications of the report were revealed as nobody (not even the
Opposition) had expected such comprehensive, unbiased and detailed
findings, especially with such a narrow term of reference. A concerted
attempt to suppress it was initiated but to no avail after a public
outcry. However, only a limit of 2,000 copies was printed and each
priced at RM250 per set were offered to the public (Parliamentarians get
the copies free except without the 2-volume Special Brief One – Ha!
Ha!) and RM250 in 1986 is quite a sum to pay for a report. The
Government of Malaysia even attempted to renege on its promises to print
the 2,000 copies, quoting General Orders 17 which prohibits written or
oral statements that could undermine the Government, and finally agreed
to do so only after reclassifying the BMF Final Report as a
non-parliamentary paper and to be specifically published in English
only. Additionally, because the BMF Final Report is now not a
parliamentary paper, the Government of Malaysia need not recognize the
Inquiry Commission’s recommendations, let alone implement them.
The aftermath
Lorrain Esme Osman fled to London in 1983 to avoid being extradited to
Hong Kong to face corruption charges. On 6 December 1985, the British
police entered the uptown home of Lorrain Osman to arrest Datuk Hashim
who was there on a visit and Lorrain Osman. Less than a year later in
1986, waiving his rights to a Hearing on a Writ of Habeas Corpus in
order to avoid extradition to Hong Kong, Datuk Hashim Shamsuddin
admitted to assisting in the defrauding of Bumiputera Malaysia Finance
Ltd of about HK$1.05 billion. He also admitted that he had accepted
HK$15 million in bribes for his corrupt activities. He was initially
sentenced to a jail term of 4½ years in Stanley Prison, Hong Kong in
1987 but the Court of Appeal increased his jail term to 10 years after a
successful appeal by the prosecution team.
In that same year, George Tan Soon Gin and Bentley Ho, along with
Rogerio Lam and Stephen Lam, the Chairman and a Director of publicly
listed Bylamson and Associates (Enterprises) Limited respectively, David
Begg and Anthony Lo, both of the accounting firm of Price Waterhouse,
as the firm was then known, were all charged with conspiracy to defraud
between 1st January 1981 and 31st July 1982.
The charges against these 6 defendants were that they had conspired to
defraud shareholders, or potential shareholders, of Carrian Investments
Limited, and/or creditors, or potential creditors, of any other person
or company, who might have been induced to accept shares in Carrian
Investments Limited as collateral for loans to the 6 defendants or to
Carrian Investments Limited, Carrian Holding Limited, or any company in
which the 6 defendants had a legal or beneficial interest, by false and
misleading statements and by concealments as to the profits, liquidity
and financial integrity of Carrian Investments Limited.
The trial judge was a former Court of Appeals Justice, Mr. Justice
Barker QC, who after reading the 25,000 pages of the Crown’s case
against the 6 defendants was of the opinion that the defendants had no
case to answer. He was proven correct because in 1987 and after a
281-day trial, which cost Hong Kong taxpayers more than $HK40 million,
he stopped the trial and delivered his determination: “The defendants
had no case to answer.” This is despite a mountain of irrefutable
evidence and the fact that gathered evidence also revealed that loans
were given without proper collateral. In some instances, they were
secured only by post-dated cheques. Additionally, almost 70% of lending
by BMF was to the Carrian Group. The bibulous Barker's decision was
later trashed by a judicial review of his peers and he was asked to
resign from the bench, but there was no going back on his verdict on
George Tan. It was later revealed that Barker was good friends with
George Tan. Barker retired to Malta where he died.
Less than one year after the trial in 1988, a former executive of
Barclays Asia Limited, the Hong Kong subsidiary of Barclays Bank PLC,
was tried for accepting bribes in relation to the Carrian Case. Stuart
Leslie Turner was convicted and sentenced to one year jail (1½ after
appeals by the prosecution team).
A leading German banker Dr. Uwe Rameken escaped to Latin America and is
still, in theory, wanted by Hong Kong authorities, while his local
deputy did 3 years for corruption.
Lorrain Esme Osman was held at Brixton Prison in UK for 90 months,
awaiting extradition to Hong Kong while his lawyers filed one writ of
Habeas Corpus after another to keep him out from Hong Kong. ICAC
submitted over 30,000 pages of evidence to the British High Court, the
Court of Appeals and finally to the House of Lords. This continued until
Lorrain exhausted all his legal avenues and was escorted by Scotland
Yard on a plane back to Hong Kong in 1992.
ICAC proffered 43 charges against Lorrain but despite the mountain of
evidence, they knew that this was not a cinch-pipe affair. Lorrain was
after all only the non-executive Chairman and was not directly involved
in the day-to-day operations of BMF. So they offered a deal. One ICAC
officer asked of Lorrain, “You have been fighting all this while for the
benefit of others. Isn’t it time to do something for your own benefit?”
So a deal was concluded. As Lorrain would not plead guilty to
corruption and certainly not to all the 43 charges, the Hong Kong
prosecutors suggested 1 single charge of financial negligence, which
Lorrain finally accepted.
George Tan was again charged with corruption and fraud in 1992 but his
team of top legal representatives kept him out of jail once again. In
1996, he finally pleaded guilty to 2 charges of conspiracy to defraud
and received three years in Stanley Prison. He walked out from prison in
1999 a free man.
Dr Rais Saniman fled to France to avoid being extradited to Hong Kong
and remained a fugitive from law but was arrested by French authorities
in Paris in 1987. As France did not have any anti-corruption laws, Rais
was released as the extradition order fell through. The Hong Kong
prosecution team had to amend the initial charges from “corruption” to
“conspiracy to defraud” before the gendarmerie rearrested him in 1990.
Although the French courts had ruled that the man should be extradited
back to Hong Kong for trial, the French government considered
extradition unnecessary and revoked the courts’ ruling. Only after
repeated extradition applications through French lawyers that the Hong
Kong Government was able to persuade the French Constitutional Court to
grant leave for them to challenge the French government's refusal. On
February 1994, Rais was finally extradited to Hong Kong to face charges
of corruption and pleaded guilty to 2 charges and was sentenced to 5
years imprisonment.
Ibrahim Jaffar was never convicted, even after he admitted to receiving
bribes, because he turned Crown witness in the Carrian Case and was
offered immunity from both criminal and civil prosecution (from the Hong
Kong authorities) and civil liability from BBMB. He was also permitted
to keep his job with BMF/BBMB and the bribes he admittedly had taken
while he was the GM of BMF were never asked for or returned.
Warwick Reid, the State Prosecutor who initiated the prosecution of
Lorrain Osman was himself sentenced to 8 years imprisonment in March
1990 for financial corruption.
Mak Fook Than’s lengthy 24-paged statement about his “ministerial
business” trip to Hong Kong went missing during the trial. During his
interrogation by the Hong Kong police, Mak has admitted that he was in
Hong Kong at the behest of a senior Malaysian Minister to collect “some
money” from a Malaysian nationality residing in Hong Kong. He denied
having said so after the disappearance of his 24-paged statement.
George Tan Soon Gin of the Carrian Group is not a Hong Kong resident but
a Singaporean civil engineer working in Hong Kong (he arrived in 1972)
as a project manager for a land development company before he started
his own pest-control company and prior to his establishing the Carrian
Group. Mr. George Tan continues to be involved in business in Hong Kong
and has a house in the New Territories, which he built at a cost of
about HK$200 million.
Gammon House is the current Bank of America Tower in Hong Kong’s CBD.
Lorrain has retired to London after formally serving 2 months in Stanley
prison. (He had in fact already served 6 months at the Lai Chi Kok
Detention Centre while awaiting trial, and another 4 months for
remission.)
The Carrian Case is the longest criminal case in Hong Kong judiciary
history spanning over 17 years at a cost of HK$210 million and with over
4 million pages of exhibit.
Rais Saniman is currently an active UMNO member and pro-NEP activist.
| Lorrain breaks his silence |
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The former chairman of Bumiputera Malaysia Finance (BMF) Lorrain Esme Osman
speaks for the first time in more than two decades about the country’s biggest
bank scandal and his trials and tribulations. R. Nadeswaran and
Terence Fernandez have the exclusive.
FOR 23 years, he remained silent. Having served almost seven years at the
Pentoville Prison and later at Brixton in the United Kingdom and at Stanley
Prison in Hongkong, earning the dubious honour of Britain’s longest-serving
remand prisoner, he never uttered a word. Having been brought from London, he
appeared before a Hongkong court in a flak jacket. He nodded his plea and said
no more. His lips were not exactly sealed. If people were expecting him to spill
the beans, they were utterly disappointed. If there were those who expected him
to exact vengeance on those who did him in, he perhaps embraced the adage: "love
thy enemy and drive him crazy".
In a London pub, Lorrain Esme Osman, the former chairman of the now defunct,
Hongkong-based Bumiputera Malaysia Finance (BMF) broke his silence on Malaysia’s
biggest financial scandal of which he was faulted for – the RM2.5 billion
collapse of BMF which preceded the murder of the bank’s assistant general
manager, Jalil Ibrahim, who was conducting an audit in Hongkong.
Lorrain spoke about the trials and tribulations; the heartache and the
heartbreaks; the friends who suddenly disappeared and his dogged determination
to fight for justice and fend off the allegations against him. Incarcerated for
almost seven years, the 76-year-old lawyer-turned banker (part-time
non-executive chairman) is not bitter about the events that changed his life and
perhaps shaped the political landscape in Malaysia.
Despite his low-profile existence in a house in an upmarket residential area in
London, and in the company of a few friends, he has not been left alone. As much
as he wants to stay out of the limelight leading a life with a coterie of close
friends, Lorrain, for no apparent reason found himself in the news yet again
early this year, on yet another false assumption and bad detective work by the
journalistic fraternity.
Four months ago, websites linked him to the disgraced former Irish Prime
Minister Bertie Ahern who was forced to resign over a land scandal. And when he
spoke, there was no venom against such self-appointed guardians of morality and
justice, but disappointment that his name has been unnecessarily been brought
into a mud-slinging exercise.
"I don’t even know the man and somehow, I got linked to him. Many years ago even
before he became PM, a few friends and I had wanted to acquire a parcel of land
which was classified as heritage. Ahern was not even the PM and our offer was
not proceeded with and we dropped out of the picture many years ago. We did not
pursue it further," Lorrain stressed during the two-hour interview.
When Ahern resigned, the skeletons of BMF were dug up from the grave and Lorrain
was erroneously linked to the deal. He laughs about the link, but perhaps
understands that two and two do not always make four.
Lorrain fought a long, costly and arduous battle to remain in Britain against
the Independent Commission Against Corruption (ICAC) in Hongkong which wanted
his head on a platter. It fought tooth and nail to have him extradited and in
support of the request, the Hongkong government submitted more than 30,000 pages
of evidence.
Five-and-a-half years of legal battles in the High Court, the Court of Appeal
and the House of Lords, it was the same conclusion: Lorrain Osman alone is
responsible for the position he finds himself in, and that anytime he wants, all
he has to do is give up his fight for freedom and allow himself to be extradited
to Hongkong. He refused and the fight continued until he exhausted all avenues
for justice and fair play.
After the long-drawn battle, Lorrain was put on a plane, escorted by Scotland
Yard officers and flown to Hongkong.
Lorrain laughs and says: "They knew the verdict before it was read out in the
House of Lords. They had already booked the plane tickets earlier and I was
whizzed off."
The ICAC had 43 charges against him, or that’s what was said at all the court
hearings. But the ICAC’s joy had little to go on. And losing the war after all
the costly battles does not exactly appear good in law journals.
"I was prepared to do battle all the way ... they gave me a strong deal. But I
did not jump at it. Having come so far, why should I make any deal?" he asked.
The ICAC officer, Lorrain said, had asked him a soul-searching question: "You
have been fighting all this while for the benefit of others. Isn’t it time to do
something for your own benefit?"
He didn’t want to give them an immediate answer and wanted the offer to be
repeated. "I wanted them to come around a second time. I wanted some time. At
the end of the day, even the decision to plead guilty was made after a lot of
soul searching as it affected me in the sense I had fought for seven years ...
Then I thought my reputation is already muddied, so one little bit more is not
going to make any difference, and if I get a decent deal, I’d take it!"
But why cave in after all the effort?
"Even if people are sympathetic towards me, I knew I did not have a great
future, I was already over 60. (He was 53 when he was arrested) So, what’s the
point?" he reasoned.
So, when they came back again to make a deal, Lorrain told them: "I will plead
guilty to one single charge and it will not be a corruption charge."
They agreed and the deal was done – financial negligence. A year’s penance so to
speak in jail but he had already spent almost seven. After two months in
Hongkong’s Stanley Prison, he flew to London a free man.
The BBMB story
IN 1980, Bank Bumiputera Malaysia Bhd (BBMB) was receiving RM50 million a month
from Petronas as part of an agreement to increase the coffers of the bank which
was set up specifically for the benefit of bumiputras.
Bumiputera Malaysia Finance (BMF) was set up in Hongkong as a vehicle to channel
parts of this money. A series of loans totalling about RM2.5 billion were given
to Carrian Group’s investment into the territory’s booming property market.
However in 1983, Carrian went bust after the property bubble burst and the loans
could not be recovered.
BBMB assistant general manager Jalil Ibrahim was sent to the then British colony
to conduct an audit. According to court transcripts, on July 17, 1983, he told
his staff that he was leaving to meet a "Datuk". The next day, his body was
found in a banana plantation outside Hongkong. The connection between Jalil’s
death and BMF, and the unseen hands behind the collapse were never established.
Klang businessman Mak Fook Than was convicted of the murder and sentenced to
life.
At his trial, Mak had claimed that he merely disposed of Jalil’s body – the
murder committed by a Korean working for a man named "George".
Mak had also retracted an earlier statement that he was working for the Finance
Ministry and was sent to Hongkong to collect money for a high-ranking public
official.
Lorrain, however, feels there were no links between Jalil’s murder and his
investigations into BMF’s finances, believing that Jalil was a victim of a
blackmail that went wrong.
"From what we had gathered then, Jalil had late night visitors at his hotel room
where he was staying. On the day of his murder, Jalil had taken HK$20,000
purportedly for ‘Ibrahim’, but he was not in Hongkong then. That money was to
pay off someone. Something went wrong and excessive force was used.
"We the directors of BMF welcomed Jalil’s audit for it showed that we were on
the right path to recover the loans. There were no secret accounts or that Jalil
was going to expose more wrongdoings. Jalil’s report in fact, helped the board
by showing that we had done them (the loan transactions) properly. Jalil was
doing us a favour."
Investigations revealed that irregular and even fraudulent lending practices led
to the loss of billions – losses which were eventually absorbed by BBMB.
Lorrain who was BMF chairman then,alternate director Dr Rais Saniman,
Carrian Group chairman George Tan and BBMB executive director Datuk Mohamed
Hashim Shamsuddin were implicated in the collapse and given jail sentences in
Hongkong.
In 1986, a Commission of Inquiry headed by former auditor-general Tan Sri
Noordin Ahmad established that what was going on in BMF was just "the tip of the
iceberg", implying that bigger hands were at play. The commission report was not
tabled in Parliament and had limited public release – 2,000 copies at RM250
each. Noordin was ostracised by the Mahathir administration for his findings,
where he was even accused of colluding with the Opposition.
The cause celebre
WHILE Lorrain was fighting his legal battles from prison, human rights
campaigners were taking their fight everywhere. Petitions, public meetings and
numerous appeals were sent. They claimed that the telephones of his wife and
legal team were tapped.
His house was raided by armed policemen while he was behind bars. Campaigners
claimed it was an act of blatant intimidation. Scotland Yard claimed it had
received a tip-off that one of his wife’s bodyguards was armed.
Interestingly enough, the original complaint went missing!
They also charged that Lorrain had been the scapegoat and the victim of dirty
politics in three countries – Hongkong, Malaysia and the United Kingdom, and
that the governments of Hongkong and the UK were suppressing some 150 documents
which could clear his name.
In leaflets, the group said: "The only thing that is relevant is that Lorrain
Osman has now served the equivalent of a 10-year sentence with remission and a
15-year sentence with parole, and he is still, in law, not guilty."
‘I should have left Bank Bumi’
DESPITE his trials and tribulations, Lorrain Esme Osman remains philosophical.
"If I allow myself to feel bitter, then I’ll never have peace of mind because
regret is fodder for a completely distorted life.
Lorrain who is recovering from minor surgery indulges Fernandez and Nadeswaran.
"But one thing I kick myself for is for not taking immediate control of Bank
Buruh. I was on the verge of acquiring the bank and I had not done the transfer
yet as it was pending, but I kick myself for not leaving Bank Bumiputera (in the
impending period)."
Just before news of the bank’s exposure in Hongkong became public, Lorrain was
already in the final stages of taking over Bank Buruh.
"I should have left and then run my own bank then I won’t be involved in this
bull****," he says.
Emphasising that he was not being too big-headed among the four directors;
Lorrain says he was the most knowledgeable and the most strong-headed because he
used to insist on a lot of things. After all, Bank Bumiputera, he had then held,
was set up to help bumiputras, not to make money for the government.
"So three years into its setting up, during the AGM, a director mentioned
something about ‘it’s time for our dividends’. I stepped in very strongly and
said the purpose is not to give the government any profits but for the profits
to go back to the people, the bumiputras, many of whom did not have the same
access to banking facilities at that time. That made me very unpopular, but the
question was never raised again."
So if that was the conservative approach and thinking, then why go off-shore to
Hongkong and set up BMF?
"By that time, notwithstanding the principal purpose was to help bumiputras, the
fact remained that Bank Bumi was a commercial undertaking and if we wanted to be
successful, we needed to provide a full range of services.
"The rationale was for BMF to be part of the international scene. We first
opened in a middle-eastern country and subsequently in London, New York, Tokyo,
Hongkong, so that we have branches circling the globe.
"Also we were awash with money from Petronas. Now if you have that money on
deposit, you pay interest, and if it ended up in Hongkong at the time of the
property boom, it would be used to generate income."
But the loans that were given to George Tan and Carrian Group went awry after
the property market collapsed with then British Prime Minister Margaret Thatcher
announcing the date of the official hand-over of the colony to the Chinese
government. Lorrain opined and still maintains that Thatcher forced Beijing to
retake Hongkong.
"If she had said nothing, I’m sure the Chinese government would have been happy
to leave Hongkong alone."
His reasoning is that Hongkong is a potential nuisance as it has rights other
parts of China do not.
"Any dissident will try to escape to Hongkong and when you talk about the
western imperialists, all they need to do is point at Hongkong. But Thatcher
said a treaty is a treaty! If she had just shut up, the British will still be
there."
Was he the fall guy?
"One has to accept the fact that if you are put there as chairman, you have to
accept responsibility. At the end of the day, the fact that there was
prosecution, I myself believe it was a means to attack the Malaysian government
by certain British civil servants who were very anti-Malaysia and anti-Mahathir.
I have no evidence to support this but there was no other purpose in it."
From what initially appeared to be a domestic problem, Malaysia played into the
hands of the British, and he faults the late Tan Sri Bashir Ahmad, who by then
had become chairman of Bank Bumiputera.
"Bashir fell into the trap and lodged a report in Hongkong by claiming that the
(Malaysian) Attorney-General had said that Malaysia has no jurisdiction for
offences in Hongkong, which is not true. If they wanted to prosecute me in
Malaysia, they could have. The Anti-Corruption Act provides for that," he says.
"That is why I say, if I had left (Bank Bumi) once gaining control of Bank Buruh,
I’d still be in Malaysia making money," he half-joked.
Was he used as a pawn in the protracted political battle between then prime
minister Tun Dr Mahathir Mohamad and Tengku Razaleigh Hamzah in the Eighties?
"I have no evidence of Mahathir’s involvement.
"I know for a fact that the executive directors of the bank who were overseeing
the running of BMF were doing things that I knew nothing about. I didn’t know
what they were doing, but I believe they were up to something. Only after my
release did I realise this," said Lorrain, without elaborating.
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