Malaysian MPs and the financial community may have forgotten the Sept 4, 2003 incident in parliament in which PAS MP Husam Musa raised the issue of the qualification of Commercial IBT Pty Ltd (CIBT) for an offshore investment banking licence.
MP Husam challenged Bank Negara to inspect CIBT's office in Melbourne as he claimed that it was only a serviced office where a clerk answered the telephone and took messages on behalf of CIBT. Husam also claimed that CIBT does not have an investment banking licence in Australia.
In response, the Finance Ministry parliamentary secretary, speaking on behalf of then finance minister, Dr Mahathir Mohamad, stated that the Labuan Offshore Financial Service Authority (Lofsa) had investigated the company before issuing the licence.
In this incident, Mahathir seems to have abused his prerogative power as finance minister by issuing an offshore merchant banking licence to a questionable Australian company called CIBT Pty Ltd which subsequently changed its name to Commercial IBT Bank Pty Ltd. (Bank Licence No: 030085C) in 2002.
Lofsa violated the guidelines for investment banking business as defined under the Offshore Banking Act 1990. Article IV clearly spells out that applications for pre-qualification must be from:
a) An investment bank or group engaging in investment banking activities licenced by the regulatory authority in the country of origin,
b) A licenced bank or an established financial institution or financial service provider supervised by a competent regulatory authority,
c) Any licenced institutions under Bafia with prior approval of Bank Negara Malaysia, and
d) Any person(s) with necessary expertise and experience in the investment banking industry.
There are many questionable irregularities in Lofsa's swift approval of an investment banking licence to Commercial IBT Pty Ltd. For example, Lofsa failed:
a) To exercise prudent practice in checking the authenticity of the company that operates from a business service centre at Level 28, 303 Collins Street, Melbourne and that filed an annual company returns of only two pages.
b) To recognise that it is also very abnormal to have a company with A$1.76 billion share capital, A$452.3 million in preference shares and A$273.9 million in redeemable preference shares not even have a separate office of its own.
c) To counter check the credentials of the company directors.
d) To verify the status of the company with Australian Securities and Investment Commission, the authority that governs the banking, financial institutions and companies in Australia.
e) To verify the residential addresses of the Commercial IBT directors.
There are also doubts as to whether the Rating Agency Malaysia (RAM) carried out their due diligence professionally in granting Commercial IBT an AA1/P1 rating which qualified them for the banking licence application.
It is unacceptable that RAM could have made such a mistake as it is a specialist in conducting corporate rating and the investment fraternity depend on the credibility of their reports in order to invest.
RAM must provide a very professional explanation as to why and how the AA1/P1 rating report was granted. It also owes Malaysian investors an open explanation as to how RAM could accept the two-page report from CIBT's auditor, Michael Schulman of Stannards, Melbourne, as the basis of this rating.
It is also timely for the Malaysian Securities Commission to begin to scrutinise the rating reports presented by RAM for public fund-raising activities by the Malaysian corporate community.
Some doubtful cases include the rating of the Malakoff Intisna bond (AA1/P1 by RAM) above that of Tenaga Nasional Bhd (BBB by Moody) for its Tanjung Bin Power plant projects.
There are also many interesting facts about Commercial IBT's business activities. Commercial IBT claimed:
We provide innovative financial solutions, support and auxiliary services only to wholesale clients, sophisticated investors, substantial corporations and institutions globally.
In order to prevent the spread of scandals that would ruin the credibility of Labuan as an offshore financial centre, Malaysian citizens and their investment community should demand that Prime Minister Abdullah Ahmad Badawi's administration launch an immediate investigation into the following:
a) Why did Lofsa approve the Commercial IBT investment banking licence without verifying Commercial IBT's claims with the Australian Security and Investment Commission?
b) Why did Lofsa and Bank Negara so easily grant an investment banking licence to a non- existent Australian bank with a series of dubious addresses?
c) Why and how did RAM rate the company AA1/P1 on the basis of a two-page annual return?
d) Why do mystery billionaires with A$2.486 billion (RM6.713 billion) operate from only a serviced office and do not even have their own separate office?
e) How could rational 'wholesale clients, sophisticated investors, substantial corporations and institutions' entrust their multi-billion investment to such a mysterious company that filed only a two-page annual return?
f) Are they possibilities of financial irregularities and money laundering activities in Labuan and are they the work of powerful Malaysian politicians or international criminal organisations?
