photo credit: Financetwitter.com
A murky and embarrassing case is closed, hiding top government officials’ involvement
Sometime over the next few days, a court in Kuala Lumpur will put the
finishing touches to an agreement that allows Tajudin Ramli, the former
head of Malaysian Airline System, not only to walk away from charges
that he had allegedly looted the airline of tens of millions of US
dollars but with an RM580 million (US$293.2 million) out-of-court
settlement from the government.
It appears to be a settlement that the government would rather keep to
itself. At the heart of the agreement with Tajudin is a convoluted
story that began as long ago as the 1980s when Malaysia’s central bank,
Bank Negara Malaysia, at the urging of then-Prime Minister Mahathir
Mohamad, began speculating aggressively in global foreign exchange
markets, at one time running up exposure rumored to be in the region of
RM270 billion -- three times the country’s gross domestic product and
more than five times its foreign reserves at the time.
Eventually, playing with the big boys came home to roost. In 1992 and
1993, Mahathir became convinced he could make billions of ringgit by
taking advantage of a British recession, rising unemployment and a
decision by the British government to float the pound sterling free of
the European Exchange Rate Mechanism.
Mahathir ordered Bank Negara to buy vast amounts of pounds sterling on
the theory that the British currency would appreciate once it floated.
However, in what has been described
as the greatest currency trade ever made,
the financier and currency wizard George Soros’s Quantum hedge fund
established short positions borrowing in pounds and investing in
Deutschemark-denominated assets as well as using options and futures
positions.
In all, Soros’s positions alone ac counted for a gargantuan US$10
billion. Many other investors, sensing Quantum was in for the kill, soon
followed, putting strenuous downward pressure on the pound. The
collapse was inevitable. Quantum walked away with US$1 billion in a
single day, earning Mahathir’s eternal enmity and earning Soros the
title “the man who broke the Bank of England.”
Mahathir and Bank Negara, on the other hand, walked away with a US$4
billion loss, followed by another US$2.2 billion loss in 1993, the total
equivalent of RM15.5 billion. Although the disastrous trades destroyed
the entire capital base of Bank Negara, after first denying it had
taken place, the then-Finance Minister Anwar Ibrahim repeatedly
reassured parliament that the losses were only “paper losses” and, now
that he is Opposition Leader and head of the Pakatan Rakyat opposition
coalition, has managed to skate free of the controversy.
Eventually, the Finance Ministry had to recapitalize the central bank,
almost unheard of for any government anywhere. It is reliably estimated
that Bank Negara lost as much as US$30 billion in this and other
disastrous currency trades, costing the head of the central bank and his
currency trader deputy their jobs.
It was at one with Mahathir’s unfortunate penchant for believing he
could beat the global financial system in other ways. In the early
1980s, at his behest the Malaysian government attempted to corner the
tin market through Maminco Sdn Bhd, a dummy company set up to buy tin
futures and physical tin to push up prices on the London Tin Market.
Malaysia at that point was producing 31 percent of the world’s tin.
However, the rising prices as a result of Malaysia’s action caused
miners to increase production in the other 69 percent of the tin world.
At the same time the US government released its tin stockpile. The
price collapsed, costing Malaysia RM1.6 billon with the subsequent low
prices wrecking Malaysia’s tin industry. Mahathir has repeatedly railed
against western governments for rigging the rules against him.
The attempt to corner the tin market and the subsequent loss established
an interesting precedent in terms of what would take place with the
speculation in the pound sterling. Rather than acknowledge the losses in
the tin speculation, the government set up another dummy company called
Makuwasa Sdn Bhd, creating new shares supposedly reserved for ethnic
Malays which were allocated to the Employee Provident Fund, the
country’s retirement fund for private and public workers. The plan was
to sell these cheaply acquired shares at market price for a profit to
cover Maminco’s losses. Finally, in 1986, Mahathir was forced to admit
that Makuwasa was created to recoup the government’s losses from the
Maminco debacle and to repay loans to Bank Bumiputra.
Fast forward to today and the out-of-court settlement between several
government-linked companies and Tajudin Ramli, in which the government
quietly cancelled Tajudin’s debt of RM840 million. It is believed to be
the biggest such sum awarded in Malaysian history.
In 1994, according to affidavits that Tajudin filed in court he bought
32 percent of the shares of the government-controlled Malaysian Airline
System at a price of RM8.00 at Mahathir’s behest – while the shares were
trading at RM3.30 – and became executive chairman using funds from
government-linked companies. According his allegations, the idea was to
use the “profit” off the share sale to cover as much as possible of the
forex losses by Bank Negara from Mahathir’s currency speculation.
When Tajudin took control of MAS in 1994 through his company, Naluri
Bhd, MAS had a cash reserve in excess of RM600 million. Seven years
later, in 2001, when the government bought back MAS for RM8 a share, the
state-owned airline had accumulated losses in excess of RM8 billion.
The government bought back an almost bankrupt airline for the same price
that it sold to Tajudin.
In the welter of lawsuits and countersuits that eventually followed,
including a RM13.46 billion statement of claim that Tajudini brought
against a government-linked company involved in the mess, he alleged in
his affidavit that it was Mahathir who had instructed him to acquire the
stake to bail out Bank Negara.
Like Mahathir, the then 49-year-old Tajudin was a native of Alor Setar
in Kedah state. He was regarded as a shining example of the bumi
businessman that Mahathir wanted to foster to run the country and take
the commanding heights of the economy back from the ethnic Chinese.
Unfortunately, according to a long list of whistle-blowers within the
airline, he was also involved in looting it of tens of millions of
dollars and very nearly putting it into bankruptcy before the government
buyback. When officials not connected to the United Malays National
Organization recommended prosecution, they came under fire that nearly
ruined their careers and almost put them in jail.
According to allegations
in documents made public
in August of 2010, Tajudin colluded with three other MAS officers and
directors through two nominee companies, one in Singapore and the other
in Hong Kong, to establish a company called Advanced Cargo Logistics
GmbH Germany, at Hahn Airport in Frankfurt, Germany, to provide
ground-handling services for MAS.
According to a report filed in March 2007 to then-Prime Minister
Abdullah Ahmad Badawi by Ramli Yusuff, the director of Malaysia's
Commercial Crime Investigation Department and an official who seems to
have been singularly incorruptible, "Tan Sri Tajudin Ramli was in
control of MAS from 1994 to 2001. When he left MAS in 2001, MAS had
accumulated losses in excess of RM8 billion (US$2.54 billion). Many
projects were made under very suspicious circumstances."
Ramli Yusuff’s report indicated a wide range of abuses that indicated
Tajudin’s family was deeply involved in setting up shell companies to
siphon off money from MAS ancillary operations. But instead of
preferring charges against Tajudin, the Malaysian Anti-Corruption
Commission (MACC) went after the inspecting officer, Ramli Yusuff
instead for allegedly not declaring his assets, for misusing a police
airplane, and abusing his power as a police officer, all of which were
convincingly refuted.
Ramli, however, wasn't the only one to go before the courts. His lawyer,
Rosli Dahlan, who was also the lawyer for the airline itself, prepared
Ramli's defense against the criminal charges only to be arrested on
charges of collaborating with Ramli. At one point, on a pretext that
Rosli had mishandled a letter from the MACC, police officers invaded
Rosli's office, arrested and handcuffed him, then kept him in a cell
overnight, refusing him medical treatment for injuries to his wrists
from the handcuffs. They also refused his request to file a report
against the arresting officers.
Rosli went to a court especially created to handle MACC cases, only to
have the case fizzle out when a prosecutor announced that neither Rosli
nor Ramli had been charged for corruption, having been summarily
acquitted without having to put on a defense.
For his part, Rosli has charged that the MACC, Bank Negara, the
government of Malaysia and the three major newspapers owned by the
political parties had conspired with those in power to damage him for
his attempts to defend Ramli.
And for his part, Tan Sri Tajudin Ramli remains uninvestigated and
uncharged, and a continuing example of bumiputera power at the top of
Malaysia's political and social structure, apparently RM580 million
richer.
It also brings into question Prime Minister Najib Tun Razak’s March 30,
2010, statement that the government "can no longer tolerate practices
that support the behavior of rent-seeking and patronage, which have long
tarnished the altruistic aims of the New Economic Policy.
Inclusiveness, where all Malaysians contribute and benefit from economic
growth - must be a fundamental element of any new economic approach."
According to Kwong Wah Jit Poh, motorcyclist Lim Hup Hwang was riding without a helmet about 5.50pm when he arrived at the roadblock.
The witness claimed that the police personnel had stood and watched the whole incident without offering any help to Lim.