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CASE STUDY 4: 1MDB FUND SCANDAL, STATEMENT OF PROBLEM - Coggle Diagram
CASE STUDY 4: 1MDB FUND SCANDAL
Rushdan wants to comment about the case from the corporate governance perspective
1MDB GOVERNANCE STRUCTURE - 3 layer system (the advisory board, board of director, and management team) - advisory board (additional board)
DECISION CRITERIA
Embezzlement involving suspicious borrowing from PetroSaudi amounting USD700 millions on 25 September 2009 even though there was no reason for the loan. The loan was then must be paid fully 5 days later. In addition, USD700 million were transferred to Good Star (a company owned by Jho Low) bank account without the authorization by the BOD -
The BOD failed to establish and implement Code of Ethics as required by the MCCG 2017
Management failed to communicate their actions with BOD and left the BOD in the dark regarding some important decisions such as the appointment of the valuer, and the transfer of USD700 million to an account not owned by the JV company -
MCCG 2017 outlined that it is the duty of BOD to oversee the management. 1MDB BOD had failed to oversee the management as some important decisions were made by the management without the consent of the BOD
1MDB's Board of Directors are not given enough information before signing the joint venture agreement with PetroSaudi Holdings (Cayman) -
BOD must discharge fiduciary duties and leadership functions for the long-term success of a company (MCCG 2017). BOD of 1MDB failed to discharge due diligence before signing the joint venture agreement with PetroSaudi
RECOMMENDATIONS
Make MCCG as an act
Appoint new management team
The lack of accountability in the corporation itself
The loan from PetroSaudi to the joint venture company was signed even before the Joint Venture Agreement commenced. The huge amount of loan amounted to USD700 million was also decided within less than a week, too.
Lacking segregation of duty and having dual capacity in the organization
Prime Minister, Datuk Seri Najib, who was also the Minister of Finance for Malaysia. 1MDB was also wholly owned by the Ministry of Finance which Datuk Seri Najib has control over the company. : :
Bribery within the officials of 1MDB
the Malaysian Government to allow Goldman Sachs to arrange and underwrite bond issues for a quite high fee.
1MDB was also offered a bribe where in turn to manage their accounts to facilitate the embezzlement, and also to key figures in the bank in which the embezzled money was deposited or through which it was transferred in order to ignore its illicit nature.
Scandal was covered up by the Malaysian Government
Removal from office of key officials including the Deputy Prime Minister, four other ministers, the Attorney-General and some lower level officials, who were otherwise prepared to unveil evidence of corruption or support an open-ended inquiry
CAUSES OF PROBLEM
ALTERNATIVE SOLUTIONS
Legislate a Malaysian Corporate and Public Governance Act
- The current MCCG is not compulsory for all companies. Therefore, by having an act which must be complied by all companies may avoid corporate governance issues
State-owned enterprises (SOE) to stop appointing public officials as part of its board of directors
- they will not be able to do monitor, regulate, and legislate without bias if their emoluments still depend on the performance of the companies that they are expected to monitor and regulate
Focus on complying with the MCCG principles
- The principles lay out the responsible held by the BOD and the management. If they comply with it, corporate governance in the company can be improved
Appoint a new management team
- Since the management team often ignored the BOD's instructions, the Board may show its power by appointing a new management team that genuinely understand and implement good corporate governance in their jobs.
STATEMENT OF PROBLEM