As the nation's Central Bank, Bank Negara Malaysia is entrusted to promote the stability and integrity of the financial system and the sustainability of our economy. Widespread news reports and commentaries regarding 1MDB have raised questions on whether the Central Bank has continued to uphold the trust that has been placed on the Bank.
The purpose of this statement is to provide clarity on the role of the Central Bank with respect to any resident entity, including 1MDB, that makes investments abroad or obtains offshore borrowings under Section 214 of the Financial Services Act 2013 and under the Exchange Control Act 1953 that was in force prior to 2013. All investments that exceed RM50 million per calendar year and any offshore borrowings that exceed RM100 million by resident entities require the Central Bank's approval.
In relation to this, all submissions that were made by 1MDB have had to comply with the same approval criteria that is applied to submissions by other business entities. If the criteria is not met, the submission will be rejected. No leniency or special exceptions were accorded to 1MDB.
In accordance with the legislation administered by the Bank, the following developments will trigger formal investigations:
i) When monies for which approvals are given are not used for the purpose indicated in the submission;
ii) When incorrect or false information are provided in the submission; and
iii) Failure to comply with the conditions in the approval.
As part of an investigation process, the Bank will issue a legal directive requiring information pursuant to the relevant Acts that the Central Bank administers. This will require the Board and Management of the entity to provide the information within a specified time frame. Under the Financial Services Act 2013, the penalty for failure to meet this request can result in a fine of up to RM50 million or up to 10 years in prison or both.
In relation to cross border movements of funds, the Bank also relies on financial intelligence authorities in the foreign jurisdictions to bring to our attention irregular or suspicious transactions made in their jurisdiction. Such arrangements for information sharing must conform to international protocols.
The arrangements require that the information be kept confidential and any breach will lead to the termination of such arrangements. These arrangements also provide for the Bank to share the information with relevant domestic investigation authorities after securing the permission of the foreign authorities.
The scope provided under the Central Bank's legislation does not provide powers for the Central Bank to investigate in areas such as fraud, tax evasion, corruption, cheating and criminal breach of trust. These will need to be pursued by other law enforcement agencies.
With respect to 1MDB, a formal enquiry has commenced to examine any contravention of the Central Bank's rules and legislation. This has involved the issuance of a legal directive requiring information from the entity.
The Central Bank is also taking statements from individuals involved in the governance process and obtaining information from other relevant domestic and foreign parties. In addition, Bank Negara Malaysia has forwarded information received from foreign authorities to the relevant investigation agencies after obtaining the permission from the foreign authorities.
The Central Bank wishes to emphasise that further disclosure of details of the investigation may undermine the outcome of the investigation. The Central Bank is doing everything within the powers provided under its legislation, including collaborating with other agencies, to contribute towards a swift resolution of the matter.
Bank Negara Malaysia
03 June 2015
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