Malaysia central bank says to act against 1MDB over $1.8 billion foreign funds

Signage for 1Malaysia Development Bhd. (1MDB) is displayed at the site of the Tun Razak Exchange (TRX) project in Kuala Lumpur, Malaysia.
Goh Seng Chong | Bloomberg | Getty Images

Malaysia's central bank said on Wednesday it would pursue administrative action against 1Malaysia Development Bhd. (1MDB), after the troubled state fund missed a deadline to submit documents on its finances abroad.

1MDB, whose advisory board is chaired by Malaysian Prime Minister Najib Razak, has been the subject of investigations over the last year by authorities in Malaysia, Switzerland and the United States following accusations of financial mismanagement and graft. 1MDB has denied the allegations.

Bank Negara Malaysia (BNM) governor Zeti Akhtar Aziz said the central bank had requested documents from 1MDB after it failed to comply with a directive, issued in August 2015, to repatriate a total of $1.8 billion from its accounts overseas.

But 1MDB informed the central bank in October that the finances had been earmarked for a restructuring program and to repay its foreign debts, and that they could not be repatriated, Zeti said.

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The governor was speaking to reporters at a briefing for the release of the central bank's annual report.

She said the central bank had been willing to accept 1MDB's response if supporting documents could be furnished, but no such proof had been received so far.

1MDB did not provide reasons why they had not submitted the documents, Zeti said.

"As it is being assessed that they (1MDB) have not fully complied with the bank's direction, the bank is pursuing appropriate administrative action as allowed by the laws under which the bank operates," Zeti told reporters.

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In a statement, 1MDB said it had "not yet received any official correspondence or confirmation from BNM" on the central bank's push for administrative action, adding that the firm had in fact provided documentary evidence "where available."

"1MDB is committed to continue cooperation with BNM and will provide any further information that may be required by BNM to the extent that 1MDB has in its possession or is possible under the law," the company said.

Zeti said recommendations for action were being prepared and would be submitted to the Attorney-General's office before her tenure as central bank governor ends in April.

If the recommendations were accepted, 1MDB could face a fine or any other penalty available under Malaysia's financial regulations, Zeti said.

"The main reason why we want to do this, is we want to uphold the integrity and functions of our financial system. All companies, regardless of who the shareholders are, have to comply with these regulations," she said.

The central bank said in October it had issued the directive and revoked three of 1MDB's overseas investment permissions, citing breaches of the Exchange Control Act 1953.

Malaysian Prime Minister Najib Razak on April 3, 2014 in Perth, Australia
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The central bank had also recommended criminal prosecution to be initiated under the act.

Attorney-general Mohamed Apandi Ali, however, said he had reviewed the report of the central bank's probe and decided no offence had been committed.

Earlier on Wednesday, former Malaysian premier Mahathir Mohamad filed a suit against Prime Minister Najib, alleging corruption and abuse of power.

Najib has been buffeted by allegations of graft and mismanagement at 1MDB and the revelation that nearly $700 million was deposited in his bank account.

Najib has denied any wrongdoing, maintains that he did not use the funds for personal gain and was cleared this year of any criminal offence.

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