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Boleh Malaysia Finance Director’s fees and Consultancy fees to

the directors of BMF and also to the


(BMF) Part Two Chairman of BBMB, Dr Nawawi Mat Awin.
Posted by admin
Sunday, 23 August 2009 09:27 Under normal circumstances, BNM would
have immediately “moved in” to clean up
By Hakim Joe the mess without hesitation as with
instances dealing with the Oriental Bank,
Perwira Habib Bank, D&C Bank and Bank

T
largest
he US$2.5 billion loss by BMF and
the subsequent Carrian Group
bankruptcy were in fact Asia’s
bank losses and largest
bankruptcy case at that time. Lorrain
Buruh among others. However, these were
extraordinary
Malaysian
times
Government
concerning
owned
(Permodalan Nasional Berhad owns 70%
of BBMB) and a bank chairman that has
a
bank

Esme Osman became a household name been tipped to become the next Minister
in Malaysia and his intentions to takeover of Finance. After many sleepless nights
Bank Buruh was now left in tatters. (I’m sure) and six weeks after the
Continued from Part One stinging Inspection Report has been
finalized and submitted to the BNM
During the trial of the murder of Jalil Governor only did Tan Sri Aziz Taha meet
Ibrahim, Malaysian Mak Fook Than was up with Dr Nawawi. Any other banks
found guilty and sentenced to life in would have been wrapped up, signed,
prison. Mak vehemently denies the sealed and delivered to BNM in half that
murder charge and told the court that he time!
was merely acting on instructions to
dispose the body and that the murder was On the 12 November 1982 meeting, Dr
committed by an unnamed Korean Nawawi personally assured Tan Sri Aziz
nationality who in turn was taking direct Taha that “everything in under control and
orders from a man named George (no that the internal audit team of BBMB was
surname). It was later discovered that at that moment carrying out its own audit
Jalil was strangled with a white cotton on BMF.” Tan Sri Aziz proceeded to brief
bathrobe belt in his hotel room and his TDM on 16 November 1982 and again on
body stuffed into a large suitcase. A 5 January 1983 on the BBMB/BMF issue.
porter at the Hong Kong Regent Hotel On 2 April 1983, Tan Sri Aziz officially
remembered carting the heavy suitcase wrote to TDM (10 paged letter on official
through the lobby into a taxi trunk. BNM letterhead) to “provide a clearer
picture as to how BMF got itself into this
Prior to the murder and Carrian’s predicament.” (Classic case of ass
announcement of liquidity problems, BNM covering but who can blame him?) He
(under Special BNM Investigator Lee Kong ended the letter seeking yet another
Lam) officially investigated the BMF affairs appointment with TDM to “discuss the
and made a full report to the BNM BMF affair and how to deal with the
Governor, Tan Sri Aziz Taha. In the Bank accounts of the Bank Bumiputera Group
Negara Inspection Report on BMF (as of taking into consideration requirements of
30 June 1982), it stated that BMF has the company law, banking law, accounting
over exposed themselves with a total loan practice, and possible repercussions from
amount of HK$5.042 billion of which these problem loans as far as the public is
HK$3.246 billion was offered to the concerned.”
Carrian Group and its subsidiaries, “the
bulk of which was granted on an The time (delay) in which BNM failed to
unsecured basis.” The Inspection Report react and his seeking of the PM to settle
also pointed out illegal payments of such issues shows the political clout

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UMNO has over BNM. The provisions the Hong Kong Deposit-Taking Companies
under Part VI of the Banking Act 1973 Ordinance, Chapter 328, and comes under
confer to Bank Negara the absolute power the direct jurisdiction of the Commissioner
to supervise and control banks doing of the Deposit-Taking Companies (who is
business in Malaysia. These powers also the Commissioner of Banking).
include mandatory provisions to Section 22(1) specifically prohibits a DTC
investigate the books, accounts and from granting loans or credit facilities in
transactions of each licensed bank and of excess of 25% of its paid-up capital and
any branch, agency or office outside reserves (here comes the loophole) unless
Malaysia opened by a licensed bank in they are covered by a form of guarantee
Malaysia. The provisions under Part VI of acceptable to the Commissioner. BMF was
the Banking Act 1973 additionally effectively exempted from this restriction
empower Bank Negara to take appropriate when BBMB provided a Letter of Comfort
measures to direct the operations of the to the Hong Kong Commissioner to the
bank, including the power to assume full effect that BBMB would fully support the
control of the bank, in the event that the obligations of BMF.
bank considers that it is likely to become
unable to meet its obligations or is about However, in 1981 the Commissioner
to suspend payment. BNM failed introduced certain changes to the
miserably in this aspect of its Ordinance whereby only Letters of
responsibilities but it can also be said that Comfort officially approved by the parent
the BNM Governor was powerless to do bank and supervisory authorities of the
anything after UMNO’s intervention, and country of incorporation of the parent
had to resort to writing a letter to TDM bank (in BBMB’s case, the BNM) would be
(five months later) to remind him of the accepted. On 9 April 1981, BBMB issued
magnitude of the BMF problem. another Letter of Comfort and this was
followed up by an authorization letter by
Here comes the kicker – during this period BNM (on 30 April 1981) to the
of time when BNM was delaying taking Commissioner of Banking in Hong Kong.
action against the BBMB senior The BNM letter was signed by one Mohd.
management team, BMF and BBMB Tawfik bin Abdullah, Pengurus Jabatan
released the US$76 million to the Carrian Pengawalan Bank, Bank Negara Malaysia,
Group to purchase the very same US stating that “BNM did not have any
Assets in which BMF had failed to secure objections to BBMB’s issuance of a Letter
on its loans to George Tan. of Comfort.” From these two letters, BMF
was henceforth permitted to operate
The Inquiry Committee’s BMF Final Report outside the normal fiduciary controls of
also stated that at this juncture of time, the Hong Kong regulatory authorities.
the BNM Governor (Tan Sri Aziz Taha) and
the Finance Minister (Tengku Razaleigh) How was BNM able to issue such a letter?
have been effectively excluded from A check on BMF’s accounts and
handling the BMF affairs and that commitments would have raised alarms as
decisions were now made entirely by Dr the Carrian Group’s loans alone amounted
Nawawi and possibly Tun Ismail Ali (ex- to HK$1.063 billion which is 7,939 percent
BNM Governor and then current PNB of BMF’s share capital and reserves, and
Chairman) in consultation with TDM. 129 percent of BBMB’s share capital and
reserves! If BNM refused to issue the
How did this debacle be allowed to occur letter, it would have stopped BMF’s loans
in Hong Kong where the banking industry to the Carrian Group from ballooning to
is super-duper ultra heavily regulated? US$3.246 billion.
Ah, loopholes! In Hong Kong, all Deposit-
Taking Companies (DTC) are governed by When the Inquiry Commission interviewed

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the Hong Kong Commissioner of Banking unqualified audit opinion for the BMF
with regards to the Letters of Comfort accounts for the year ending 31st
issued by BBMB, the Commissioner told December, 1981. With this Letter of
them that “the request for a guarantee Guarantee, the responsibility of ensuring
with respect to DTC under the Deposit- whether adequate provisions have been
Taking Companies Ordinance to be made in the BBMB accounts in relation to
supported by specific approval of the BMF was shifted to Hanafiah Raslan and
Board of a parent Bank and with the Mohammad as BBMB auditors. (Talk about
knowledge of the Central Bank was shifting blame…) Because of Touche Ross’s
intended as an indirect hint to the Bank initial unwillingness to sign off on the
concerned to exercise a greater degree of BMF’s audit, BBMB’s audit report was also
supervision on the lending activities of its “left hanging”. Two days after Touche Ross
subsidiary DTC.” Basically the amendment signed the BMF’s audit report, Hanafiah
to the Ordinance in 1981 was also an Raslan and Mohammad signed the BBMB
indirect hint by the Commissioner of audit report. There was however no
Banking to Central Banks to carefully mention of the unsatisfactory security
monitor their banks and their international position of BMF in relation to the Carrian
subsidiaries. loans in the BBMB Audit Report. BTW, Dr
Rais’s Letter of Guarantee was never
BMF’s auditors (Touche Ross) must also formally ratified by the BBMB Board of
accept culpability as they have failed to Directors and was not mentioned in BMF
make pertinent comments on the Audit Report by Touche Ross.
disproportionately huge loan portfolio to
the Carrian Group in its Audit Report of On 21 February 1983, Finance Minister
1980. Arthur Tse of Touche Ross did Tengku Razaleigh issued a report stating
however send an internal memorandum to that “there is nothing amiss in the BMF
Dato Mat Noor, senior partner of Hanafiah dealings” and that the loan situation was
Raslan and Mohammad (BBMB’s auditors) nothing more than a normal business
informing that “…we have refrained from problem. In the report, Tengku Razaleigh
commenting on the unduly large portion also indicated that the BBMB Board was
of loan portfolio to Carrian and associates. “responsible directly to the Prime
It is because we were politely told that it Minister” and that Bank Negara Malaysia
was a management affair, not really an had no jurisdiction over BMF in Hong
audit matter. In view of the sensitiveness Kong.
of the situation, we thought that the best
course was to keep you informed so as to In the Audit Report of 1982, Touche Ross
let the parent bank monitoring the indicated on its Audit Report (note
situation…” number 8) that the provisions for bad and
doubtful debts were inadequate,
In the Audit Report of 1981, Touche Ross especially the HK$4.325 billion to the
told BMF that they were unable to issue Carrian Group. Touche Ross was asked by
an unqualified audit opinion as there BMF to drop Note 8 from its Audit Report
remained a lot of unanswered questions and it was agreed between them on 28
regarding the adequacy of collateral February 1983 that BMF would provide
securities and values, and that the lack of Touche Ross with a Letter of Indemnity
proper guarantee of borrowers’ obligations endorsed by the Malaysian Central Bank
forbid them from signing off on the Audit (BNM) against any liability arising from
Report. On 15 March 1982, Dr Rais, on the removal of Note 8 from its BNF Audit
behalf of BBMB signed a Letter of Report of 1982.
Guarantee “undertaking to assume all the
liabilities, obligations or commitments” of On the next day, Dato Hashim informed
BMF. As a result, Touche Ross issued the Touche Ross that BBMB Group Chairman,

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Dr Nawawi considered the bank to be The Carrian Group was not the only
unable to issue such a Letter of Indemnity recipient of BMF funds though it was the
to them as the Malaysian Companies Act biggest. Kevin Hsu and Eda Investment
forbids it. However, BBMB was prepared to Limited were among others of such
issue a formal Letter of Undertaking recipients of BMF loans. However, the
regarding the liabilities of BMF in return Inquiry Commission was unable to
for Touche Ross dropping Note 8 from investigate them as such due to the fact
their Audit Report. On 17 March 1983, Dr that they were excluded from the terms of
Nawawi wrote to Touche Ross giving them reference of the Inquiry Committee as
the BBMB Board of Directors’ guarantee BBMB as the “Appointing Authority” only
undertaking to assume all the debts and specified the Carrian Group. It was known
liabilities of BMF in connection with loans then that as of September 1982, the
given out to customers who become Kevin Hsu Group of Companies had loans
insolvent. Once again BMF’s report on from BMF to the tune of HK$586 million
such liabilities was shifted to Hanafiah and had close business dealings with
Raslan and Mohammad. In the BBMB specifically four companies, namely
Audit Report of 1982, it was stated that, Asiavest, Knife & Dagger, Silver Present
“…the Government of Malaysia has given and Hi-Heated. Asiavest and Knife &
an undertaking that it would back the Dagger were owned by BMF General
Bank fully in case the Bank faces any Manager Ibrahim Jaffar, Silver Present
difficulties in meeting its obligations…” was owned by BBMB Executive Director
However, this time around, BBMB’s Datuk Mohamed Hashim Shamsuddin and
auditors were not as easily convinced as Hi-Heated was owned by BMF Alternate
in 1982 (maybe they were taking a cue Director Dr Rais Saniman,
from Touche Ross). The BBMB Audit
Report was only signed by Hanafiah As with the Carrian Group’s loans, Kevin
Raslan and Mohammad on 13 June 1983 Hsu’s loans were also obtained without
which caused BBMB to defer their AGM. the necessary and adequate loan
securities. In fact Kevin Hsu had to apply
In the Report of the Auditor-General on for a HK$120,000 loan on 15 November
the 1982 Federal Government Accounts, 1984 from BMF just to pay off its auditor
there was a reference to this purported fees before they can hold an AGM, and we
BBMB Guarantee which states, “The notes are talking about a public listed company!
to the account relating to these balances
(BBMB 1982) indicate that the With over 6,000 pages of incriminating
Government had given an undertaking evidence, Malaysian Attorney-General Tan
that it would back the Bank fully should Sri Abu Talib Othman “could not find” any
the Bank face any difficulties in meeting “substantial” evidence to prosecute and
its obligations. The Treasury has however moreover his office was not prepared to
informed me that it has not issued a prosecute any Malaysians for alleged
written statement of such undertaking crimes committed outside the country.
other than the statement to that effect Prime Minister Dato Seri Mahathir
given by the Minister of Finance in reply Mohammad (now Tun) called the BMF
to questions in Dewan Rakyat on 15 scandal a “heinous crime” but made no
March 1983.” mention of the heinous criminals.

Touche Ross was sacked by BBMB after The Inquiry Commission finished their
signing off on the 1982 Audit Report. In BMF Final Report in January 1986
the same year, the Carrian Group filed for consisting of 13 volumes. The BN
bankruptcy in Hong Kong. SHKPIL, Kevin machinery was up in arms when the full
Hsu’s public listed company followed suit. implications of the report were revealed
as nobody (not even the Opposition) had

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expected such comprehensive, unbiased and Bentley Ho, along with Rogerio Lam
and detailed findings, especially with such and Stephen Lam, the Chairman and a
a narrow term of reference. A concerted Director of publicly listed Bylamson and
attempt to suppress it was initiated but to Associates (Enterprises) Limited
no avail after a public outcry. However, respectively, David Begg and Anthony Lo,
only a limit of 2,000 copies was printed both of the accounting firm of Price
and each priced at RM250 per set were Waterhouse, as the firm was then known,
offered to the public (Parliamentarians get were all charged with conspiracy to
the copies free except without the 2- defraud between 1st January 1981 and
volume Special Brief One – Ha! Ha!) and 31st July 1982.
RM250 in 1986 is quite a sum to pay for a
report. The Government of Malaysia even The charges against these 6 defendants
attempted to renege on its promises to were that they had conspired to defraud
print the 2,000 copies, quoting General shareholders, or potential shareholders, of
Orders 17 which prohibits written or oral Carrian Investments Limited, and/or
statements that could undermine the creditors, or potential creditors, of any
Government, and finally agreed to do so other person or company, who might have
only after reclassifying the BMF Final been induced to accept shares in Carrian
Report as a non-parliamentary paper and Investments Limited as collateral for loans
to be specifically published in English only. to the 6 defendants or to Carrian
Additionally, because the BMF Final Report Investments Limited, Carrian Holding
is now not a parliamentary paper, the Limited, or any company in which the 6
Government of Malaysia need not defendants had a legal or beneficial
recognize the Inquiry Commission’s interest, by false and misleading
recommendations, let alone implement statements and by concealments as to the
them. profits, liquidity and financial integrity of
Carrian Investments Limited.
The aftermath
The trial judge was a former Court of
Lorrain Esme Osman fled to London in Appeals Justice, Mr. Justice Barker QC,
1983 to avoid being extradited to Hong who after reading the 25,000 pages of the
Kong to face corruption charges. On 6 Crown’s case against the 6 defendants
December 1985, the British police entered
was of the opinion that the defendants
the uptown home of Lorrain Osman to had no case to answer. He was proven
arrest Datuk Hashim who was there on a correct because in 1987 and after a 281-
visit and Lorrain Osman. Less than a year
day trial, which cost Hong Kong taxpayers
later in 1986, waiving his rights to a more than $HK40 million, he stopped the
Hearing on a Writ of Habeas Corpus in trial and delivered his determination: “The
order to avoid extradition to Hong Kong,
defendants had no case to answer.” This is
Datuk Hashim Shamsuddin admitted to despite a mountain of irrefutable evidence
assisting in the defrauding of Bumiputera
and the fact that gathered evidence also
Malaysia Finance Ltd of about HK$1.05 revealed that loans were given without
billion. He also admitted that he had proper collateral. In some instances, they
accepted HK$15 million in bribes for his
were secured only by post-dated cheques.
corrupt activities. He was initially
Additionally, almost 70% of lending by
sentenced to a jail term of 4½ years inBMF was to the Carrian Group. The
Stanley Prison, Hong Kong in 1987 but bibulous Barker's decision was later
the Court of Appeal increased his jail term
trashed by a judicial review of his peers
to 10 years after a successful appeal by
and he was asked to resign from the
the prosecution team. bench, but there was no going back on his
verdict on George Tan. It was later
In that same year, George Tan Soon Gin revealed that Barker was good friends

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with George Tan. Barker retired to Malta of jail once again. In 1996, he finally
where he died. pleaded guilty to 2 charges of conspiracy
to defraud and received three years in
Less than one year after the trial in 1988, Stanley Prison. He walked out from prison
a former executive of Barclays Asia in 1999 a free man.
Limited, the Hong Kong subsidiary of
Barclays Bank PLC, was tried for accepting Dr Rais Saniman fled to France to avoid
bribes in relation to the Carrian Case. being extradited to Hong Kong and
Stuart Leslie Turner was convicted and remained a fugitive from law but was
sentenced to one year jail (1½ after arrested by French authorities in Paris in
appeals by the prosecution team). 1987. As France did not have any anti-
corruption laws, Rais was released as the
A leading German banker Dr. Uwe extradition order fell through. The Hong
Rameken escaped to Latin America and is Kong prosecution team had to amend the
still, in theory, wanted by Hong Kong initial charges from “corruption” to
authorities, while his local deputy did 3 “conspiracy to defraud” before the
years for corruption. gendarmerie rearrested him in 1990.
Although the French courts had ruled that
Lorrain Esme Osman was held at Brixton the man should be extradited back to
Prison in UK for 90 months, awaiting Hong Kong for trial, the French
extradition to Hong Kong while his lawyers government considered extradition
filed one writ of Habeas Corpus after unnecessary and revoked the courts’
another to keep him out from Hong Kong. ruling. Only after repeated extradition
ICAC submitted over 30,000 pages of applications through French lawyers that
evidence to the British High Court, the the Hong Kong Government was able to
Court of Appeals and finally to the House persuade the French Constitutional Court
of Lords. This continued until Lorrain to grant leave for them to challenge the
exhausted all his legal avenues and was French government's refusal. On February
escorted by Scotland Yard on a plane back 1994, Rais was finally extradited to Hong
to Hong Kong in 1992. Kong to face charges of corruption and
pleaded guilty to 2 charges and was
ICAC proffered 43 charges against Lorrain sentenced to 5 years imprisonment.
but despite the mountain of evidence,
they knew that this was not a cinch-pipe Ibrahim Jaffar was never convicted, even
affair. Lorrain was after all only the non- after he admitted to receiving bribes,
executive Chairman and was not directly because he turned Crown witness in the
involved in the day-to-day operations of Carrian Case and was offered immunity
BMF. So they offered a deal. One ICAC from both criminal and civil prosecution
officer asked of Lorrain, “You have been (from the Hong Kong authorities) and civil
fighting all this while for the benefit of liability from BBMB. He was also permitted
others. Isn’t it time to do something for to keep his job with BMF/BBMB and the
your own benefit?” So a deal was bribes he admittedly had taken while he
concluded. As Lorrain would not plead was the GM of BMF were never asked for
guilty to corruption and certainly not to all or returned.
the 43 charges, the Hong Kong
prosecutors suggested 1 single charge of Warwick Reid, the State Prosecutor who
financial negligence, which Lorrain finally initiated the prosecution of Lorrain Osman
accepted. was himself sentenced to 8 years
imprisonment in March 1990 for financial
George Tan was again charged with corruption.
corruption and fraud in 1992 but his team
of top legal representatives kept him out Mak Fook Than’s lengthy 24-paged

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statement about his “ministerial business” Gammon House is the current Bank of
trip to Hong Kong went missing during the America Tower in Hong Kong’s CBD.
trial. During his interrogation by the Hong
Kong police, Mak has admitted that he Lorrain has retired to London after
was in Hong Kong at the behest of a formally serving 2 months in Stanley
senior Malaysian Minister to collect “some prison. (He had in fact already served 6
money” from a Malaysian nationality months at the Lai Chi Kok Detention
residing in Hong Kong. He denied having Centre while awaiting trial, and another 4
said so after the disappearance of his 24- months for remission.)
paged statement.
The Carrian Case is the longest criminal
George Tan Soon Gin of the Carrian Group case in Hong Kong judiciary history
is not a Hong Kong resident but a spanning over 17 years at a cost of
Singaporean civil engineer working in HK$210 million and with over 4 million
Hong Kong (he arrived in 1972) as a pages of exhibit.
project manager for a land development
company before he started his own pest- Rais Saniman is currently an active UMNO
control company and prior to his member and pro-NEP activist.
establishing the Carrian Group. Mr.
George Tan continues to be involved in Originally published at -
business in Hong Kong and has a house in http://mt.m2day.org/2008/content/view/25982/84/
the New Territories, which he built at a
cost of about HK$200 million.

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