24 March, 2008
Malaysia may need to move forward but with ageing politician Tengku Razaleigh Hamzah again seeking the leadership of the United Malays National Organisation, it is worth recalling some of the Kelantan prince’s past contributions, positive and negative, to Malaysia — among them, allegations of his involvement in what at the time was the biggest banking scandal in world history.
Until this latest attempt to climb back to center stage, Razaleigh, often known as Ku Li, was best identified as the man who in 1987 challenged former Prime Minister Mahathir Mohamad for the leadership of the party and lost by a very small margin. Out of pique, he quit UMNO and founded the splinter party Semangat 46 before returning to the UMNO fold a decade later, but he was never able to act as much more than a figure on the fringe.
But can he now, at age 70, fulfill the promise he displayed three decades ago when he was the fastest rising star in UMNO? At that point he seemed headed for the prime minister’s job and had he been a little older when Hussein Onn stepped down in 1981 he might have edged out Mahathir. As it was, he was to lose two crucial power battles, firstly to Musa Hitam for deputy prime minister then to Mahathir in the 1987 showdown.
This was the man who, when he was not yet 40, was already being dubbed the “father of the Malaysian economy.” But to many he was also the “father of money politics.” He was regarded as the political wunderkind who masterminded the near elimination of the fundamentalist opposition Parti Islam se-Malaysia, or PAS, in the 1978 general election. More particularly, when the New Economic Policy, aided by the oil and commodity price booms of the 1970s, put huge powers of patronage into the hands of well-placed officials, none was better placed than Ku Li. He was the driving force behind Permodalan Nasional (Pernas), the most prominent of the state-funded enterprises created to acquire assets on behalf of bumiputeras.
Razaleigh was in the thick of what became known as the Haw Par imbroglio of the mid-1970s, working with the Singapore-based Haw Par Brothers International Ltd, then an offshoot of the empire of British wheeler-dealer Jim Slater, to acquire control of London Tin, the British-controlled tin conglomerate, and the Sime Darby plantations conglomerate. This was to be achieved through a complex series of transactions by which Pernas would end up as the largest shareholder of both. It failed when Singapore accused Haw Par of financial irregularities and later jailed a senior executive and the head, Donald Watson, fled to Ireland.
But it proved a short-lived setback for Ku Li. Within two years, a share and proxy battle orchestrated by merchant bank Rothschild – which was also a part owner of Bumiputera Merchant Bankers – brought Sime under Malaysian control and its headquarters shifted to Kuala Lumpur. Control of London Tin was acquired the same year. In another coup in 1979, Malaysian money made a “dawn raid” on British plantation giant, Kumpulan Guthrie Bhd, which wrenched the company from British control; most of the other British owned plantations soon followed.
So as head of Pernas and then Finance Minister, Ku Li could also claim credit for bringing resource ownership back to Malaysia. He successfully pursued a nationalist but constructive agenda when in charge of oil giant Petronas, negotiating hard with foreign companies even in the difficult aftermath of the Vitenam War. Malaysia saw its oil developed without giving away too much of the profit in the process.
So far, mostly so good. But Ku Li was also the first chairman of Bank Bumiputra and remained in that position until he became Finance Minister in 1976. Bank Bumi was to become a source of abusive lending to well-connected persons and groups and had to be bailed out repeatedly.
The most notorious of these was the involvement of Bank Bumi’s investment banking subsidiary in Hong Kong, Bumiputra Malaysia Finance, with a giant Hong Kong scam, the Carrian group. Carrian was started and run by George Tan, a Singapore/Malaysian businessman who somehow moved from bankruptcy to running what appeared to be the most dynamic new group in Hong Kong in the space of three years, rising from nothing to among the top 10 companies in the territory before crashing to earth in 1983.
The money came from several banks and financial institutions, but in on the ground floor and top of the list was Bank Bumi through its Hong Kong subsidiary, BMF. Other bankers – most notably HSBC – rushed to lend partly because they assumed that Carrian had the full weight of a Malaysian state-controlled bank behind it.
But Carrian got into difficulties in late 1982 and crashed a few months later when BMF funding stopped following the murder of Jalil Ibrahim, an auditor sent to Hong Kong to investigate BMF. Jalil had objected to providing more funds for Carrian related-companies – funds which would have staved off liquidation and was murdered for his pains.
Subsequently a small-time Malaysian businessman named Mak Foon Than was convicted of the murder. Mak admitted being involved in disposing of the body but claimed that a Korean acting on instructions from a man named “George” had actually carried out the deed. Mak claimed in a statement which he later retracted at his trial that he had been working for the Ministry of Finance in Malaysia and had come to Hong Kong to collect money on behalf of the minister, Tengku Razaleigh
Razaleigh claimed that Mak’s statement was a conspiracy to “defame and destroy him”. Among other curious facts to emerge during the investigations was that BMF chairman Lorrain Osman, a longtime Ku Li associate, happened to be “holidaying” in Hong Kong at the time of the murder.
Although no specific link was found between Razaleigh and the Carrian crimes, he was familiar with BMF directors including Osman and a classmate from university days in Belfast, Hashim Shamsuddin, who was given 10 years in jail in Hong Kong. Osman was held on remand for seven years in the UK fighting extradition – though as a result of his long stay in prison in the UK he was released after only a few months. (He now lives in Ireland).
In 1981 control of Bank Bumi had been shifted from the Ministry of Finance to Pernas but there was no doubt that the Finance Ministry knew something of what was going on with BMF lending, which was largely financed by Bank Bumi itself. In late 1982, after Carrian’s difficulties were known, Razaleigh’s deputy at the Finance Ministry, Sabaruddin Cik said that the government was happy with BMF which was not over-exposed – though four months later Bank Negara governor Tan Sri Aziz Taha said it had exceeded the “bounds of normal banking prudence”.
Meanwhile auditors for BMF failed to qualify its accounts because the parent had given a letter of guarantee to the Hong Kong authorities. According to report into the affair, conducted by the highly respected auditor-general Tan Sri Ahmed Noordin, the Bank Bumi auditor in Kuala Lumpur claimed that he had been told that the Malaysian government itself was guaranteeing the bank’s losses so there was no need to make write-offs or qualify its accounts.
The Noordin report was notable for its author’s vigorous attempts to uncover facts – and the lack of cooperation he received from many quarters as a result of weak investigative powers given to him for an inquiry which was addressed to the Bank Bumi board, not the government itself. What did emerge, however, was a pattern of payoffs and poorly secured loans that involved various UMNO figures. The report provided evidence used in the corruption prosecutions in Hong Kong.
It also contained a memorably bitter letter written by Jalil shortly before his murder about the scale of the problems facing BMF. “If those directors had thought of the interests of bank, race and country first they wouldn’t have made all those blunders”.
The chairman of Bank Bumi when the Carrian lending began, Kamarul Ariffin, said that Bank Bumi “was not an ordinary bank.” Because of its “ties with the government it has characteristics other banks do not possess. No important decisions are taken without the agreement or knowledge of the government”. His successor as chairman, Nawawi Mat Amin, who was in charge during the last year of BMF’s lending spree, was a member of the UMNO Supreme Council.
Though Ku Li himself was not directly implicated in Malaysia in the affair, his proximity to it as finance minister helped erode his reputation even before the Noordin report was published. In 1984, in the wake of another defeat by Musa in UMNO elections, he was shifted to the trade ministry and replaced at Finance by close Mahathir associate Daim Zainuddin.
In 1987, when former BMF director Hashim Shamsuddin was charged in Hong Kong, further embarrassment for Ku Li surfaced. According to a statement of facts agreed by both prosecution and defense some of the proceeds from corrupt payments had been passed to Razaleigh.
In a statement of mitigation, counsel for Hashim said the most important figure in the affair was Lorrain Osman. Many irregularities had occurred as a result of political pressure in which Hashim said he had acquiesced but not initiated. Hashim alleged that after Musa beat Razaleigh to become deputy, Hashim was told he could keep his job provided he did not oppose loans proposed by another director, Rais Saniman, said to be a friend of Musa’s.
It was also alleged that Petronas, the government-owned petroleum company, had been made to appear to make a big loss on currency dealings to provide a donation to “a high political authority which I am not permitted to name."
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