The directors of a heavily indebted Malaysian state fund at the centre of a corruption scandal offered to step down on Thursday after a parliamentary inquiry found extensive mismanagement and called for its former head to be investigated.
The Public Accounts Committee said it found the financial performance of the 1Malaysia Development Berhad (1MDB) “unsatisfactory”, with debts ballooning from $1.3bn in 2009 to $12.8bn this January.
The report, however, did not mention Prime Minister Najib Razak, who was behind the creation of the fund in 2009 and has been battling allegations that hundreds of millions of dollars were channelled from 1MDB into his personal bank accounts.
Malaysia’s attorney general cleared Najib of wrongdoing in January, saying $681m deposited in the prime minister’s accounts was a donation from Saudi Arabia’s royal family, an explanation that was met with widespread scepticism. He said most of the money had been returned by Najib.
The committee said, however, the fund’s former CEO and current board member, Shahrol Azral Ibrahim Halmi, should be held accountable and urged law enforcement agencies to investigate him and other managers further.
Shahrol is also an official in the prime minister’s department.
The 106-page report said 1MDB’s business model depended heavily on debt, mainly bank loans and bonds, part of which are guaranteed by the government. Such heavy reliance on debts for working capital should never have been allowed, the report said.
It also said that the government could face losses of around $5.2bn if 1MDB fails to pay off its debts. The fund’s only shareholder is the Ministry of Finance.
The committee added that the board of directors failed in its responsibility to keep tight control over the fund’s finances. It said there were “restrictions and weaknesses” by the fund’s management and board of directors.
Opposition politician Tony Pua said the report “confirms gross mismanagement and wanton neglect of all principles of good governance and accountability”.
In a statement, 1MDB said its debts will be resolved by an ongoing rationalisation plan that includes asset sales.
It said the board believes the mass resignation was the right thing to do to facilitate any follow-up investigations.