FOREX RCI | A former auditor with the Auditor-General's Office revealed today that he questioned the legality of Bank Negara's foreign exchange (forex) activities in the early 1990s.

P Kanason, who conducted an audit of the central bank, told the Royal Commission of Inquiry (RCI) that the activities conducted by Bank Negara at the time did not comply with provisions of the Central Bank Malaysia Act.

Citing the audit point of view, the former auditor said buying and selling of foreign currencies daily in millions of ringgit is trading.

"And Bank Negara was very heavily engaged in the trading of currencies. But auditors do not decide on matters of law or its interpretation," he added.

Kanason, 78, claimed this was then discussed with several Bank Negara officers but there was no response.

It was then decided that the assistance of the Attorney-General's Chambers (AGC) be sought and a request was made to discuss the matter with the then head of the AGC's advisory division Ainum Mohd Saaid.

Kanason said legal advice was sought on whether trading in forex by Bank Negara was in compliance with the law.

He claimed Ainum gave verbal advice that Bank Negara's forex trading was not in order or not in compliance with the requirements of the Central Bank Malaysia Act, and that a written reply would be given soon.

"Days passed without the expected advice and I thought I should enquire so I rang up Ainum and I was told by her that 'orang atasan cakap jangan campur tangan' (the higher-ups said not to interfere).

"I got the shock of my life," he said.

Promised a reply, Kanason said the subsequent written advice from the AGC was that the issue should be resolved between the auditor-general and the Bank Negara governor.

"That advice was sent to the auditor-general and I think, copied to the governor. The auditor-general blew his top, for want of better words to describe his anger, and I was the main beneficiary.

"I was asked what I wanted to do next," Kanason said.

Meanwhile, the next witness, Saleha Lajim, who was an account manager at Bank Negara's accounts department, cited the weekly meetings held in 1993.

"From what I can remember, most of the forex activities then incurred losses and then deputy governor Lin See Yan knew about it."

Saleha also confirmed that the accounts department had prepared the yearly financial statements and all forex activities were stated in Bank Negara's financial statements.

"(But) for the 1993 statement, it was not stated in the yearly financial statement and was instead categorised under deferred expenditure."

Claiming that she did not know the reasons behind the losses incurred by Bank Negara through the forex activities, Saleha said the higher-ups knew about the losses based on the weekly reports.

"During (one of the) meetings, the deputy governor gave me verbal instruction to change the financial statement.

"Based on that verbal instruction, I instructed accounts department staff to make the necessary changes," she said.

The RCI has been tasked with determining the veracity of allegations surrounding the forex losses incurred by Bank Negara and its implications on the national economy, among others.

It is expected to complete its probe within three months from the date of its setting up on July 15 and thereafter, submit its report to the Yang di-Pertuan Agong.