National sovereign wealth fund 1Malaysia Development Bhd (1MDB)'s failure to file its audited accounts for the financial year ending March 2013 with regulators has raised questions over transparency.

Petaling Jaya Utara MP Tony Pua (right) said this is even so when coupled with 1MDB's decision to replace of auditors KPMG — its auditors since its inception—with firm Delloite.

Pua said the change of auditors “rings the loudest alarm” as there are many unanswered questions over 1MDB's US$2.32 billion fund in the Cayman Islands.

“As a matter of public accountability, in line with (Prime Minister) Najib Abdul Razak’s call for transparency and government transformation, 1MDB must provide detailed and immediately clarification for the above matters.

“Most urgently, 1MDB must remove any doubts that the resignation of an internationally reputable auditor is due to an unverifiable US$2.32 billion parked at an anonymous ‘seggregated porfolio fund’ in the highly secretive Cayman Islands, which is better known as a tax haven for global money launderers,” he said.

'Perplexing' loans cause for concern

In 2010, KPMG in its audit raised an “emphasis on matter” over a 1MDB US$1 billion (RM3.29 billion) investment in a joint-venture with obscure company PetroSaudi International Ltd.

The joint-venture was within six months converted into a loan to PetroSaudi.

The servicing of the loan, with interests, led to the “emphasis on matter” to be removed from the accounts.

An “emphasis on matter” indicates a matter of uncertainty which is duly disclosed in the financial statement, which the auditor feels is significant enough to warrant mention.

Despite only receiving less than US$200 million in interest payments between 2011 and 2012, 1MDB extended PetroSaudi an additional US$700 million (RM3.2 billion) in loans.

Pua said that the loan was “prematurely terminated and redeemed” through a series of “complicated financial engineering” but not without further questions raised.

He claimed the loan was repaid through a “perplexing” manner, via a “segregated investment portfolio” based in Cayman Islands.

“To date no one has been able to verify with any certainty who the investment portfolio manager is, the fund’s performance or for that matter, if the money actually exist.

“The ‘investment’ in Cayman Islands raises highly suspicious questions as 1MDB is desperately trying to raise funds through new bond issuance in Malaysia to funds its aggressive acquisitions of independent power producers as well as its mega-projects in Bandar Malaysia and Tun Razak Exchange.

“In fact, 1MDB is already laden with an estimated more than RM40 billion in debt, and hence such investments is a luxury that 1MDB does not have,” he said.

'1MDB directors can go to jail'

He said that this why the failure by the fully-owned Finance Ministry’s multi-billion company to file its audited accounts to the Registrar of Companies (ROC)close to a year since its 2013 financial year ended is “both shocking and suspicious”.

As it is, he said, 1MDB directors are contravening  the Companies Act 1965 over the filing of audited accounts.

Clause 171(1) of the Act states that willfully failing to comply could be punished with up to five years or RM30,000.

“If 1MDB fails to provide satisfactory answers to the above scandal, then Malaysians are likely to be witnessing the seeds of the single largest financial scandal in the country, which makes the RM12.5 billion Port Klang Free Zone catastrophe look like child’s play,” Pua said.

On 1MDB's board of directors are Lembaga Tabung Angkatan Tentera (LTAT) chief executive Lodin Wok Kamaruddin (left), 1MDB chief executive officer Mohd Hazem Abdul Rahman, 1MDB's former CEO Shahrol Azral Ibrahim Halmi, Tabung Haji managing director Ismee Ismail, Valiram Group director Ashvin J Valiram and Southern Pipe Industry director Ong Gim Huat.

The Public Accounts Committee (PAC), which includes Pua, had in 2012 investigated 1MDB and found that things it had a “healthy balance sheet”.

Malaysiakini has contacted 1MDB and is awaiting a reply.