Day 2 RCI on BNM Forex Scandal

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Contradictions and a startling revelation.

The first witness to testify, BNM’s former Internal Audit Department Manager Wong Yew Sen said the bank then had a policy on forex trading but it didn’t seem comprehensive.

He did not know why the external reserves committee (ERC), which was established to oversee forex activities, did not come out with a comprehensive policy to monitor forex trading.

This contradicted claims by former BNM assistant governor Abdul Murad Khalid on Monday that no one looked into the forex losses.

“There were checks and balances in BNM in relation to forex trading but the management team (in charge of it) was not mentioned,” Wong said.

He said that dealers were limited to trading US$125 million, collectively, and as a group they could decide if they wanted to engage in trading or not.

Wong’s claim of the US$125 million dealer limit was contradicted later by the third witness, Fizaman Noor Mohammad Nasir, who said limits by dealers were set at US$30 million.

“However, there was one occasion I conducted transactions amounting to US$800 million (RM2 billion) at the instruction of Nor Mohamed,” Fizaman said.

ERC secretary Essah Yusoff, the second witness of the day, was chided for failing to carry out extensive probes into the forex losses.

Highlights of Monday’s hearing

Former BNM staff Abdul Aziz Abdul Manaf said that BNM lost RM31.516 billion from 1991 to 1994 – a much higher figure than the RM9.3 billion in losses the bank disclosed in its 1994 annual report.

“The figure was hidden somewhere from Bank Negara’s report. We have to find out who was responsible for asking for it to be hidden,” RCI chairman Mohd Sidek Hassan said.

Former BNM auditor Ahmad Hizzad Baharuddin testified that the bank had “no system of checks and balances”, and “supervision over the Foreign Exchange Department was found to be lax”.

A key witness, former assistant governor Abdul Murad Khalid, said the then governor, the late Jaafar Hussein, had no idea of the “magnitude” of the losses.

Murad said that during his visit to Chemical Bank in New York, the bank staff had told him that BNM’s forex dealings with Chemical Bank incurred losses of approximately US$170 million at the time.

He said he briefed Jaafar on the matter.

“The governor (Jaafar) did not believe me, scolded me and told me to discuss it with (Banking Department manager and advisor) Tan Sri Nor Mohamed Yakcop,” Murad said.

In 1994, Murad said he was instructed by Jaafar to explain to Anwar the alleged forex losses.

“Anwar had asked me to join him on his flight to Hawaii to explain the forex losses. I did so and he said he understood the problem and also said he would discuss the matter with Jaafar.

“After my explanation, Anwar also made a remark that if indeed the actual losses of the BNM forex (issue) were made public he, as finance minister, would have to step down,” Murad said.

During an interview with the media on Jan 27, Murad had said BNM could not be involved in transactions that were speculative in accordance with the Central Bank of Malaysia Ordinance 1958.

“However, the foreign exchange dealings carried out in the 1980s and in 1990 until 1993 were speculative and were not based on assets, but more of gambling,” Murad said.

He said that the foreign exchange losses incurred by BNM then was the biggest scandal in the world’s banking history.

“Hence, a cover-up had to be done to protect the image of BNM and the Malaysian government,” Murad said.

According to Murad, BNM did not conduct any internal investigation and neither was there a probe by any law enforcement agency.

Murad said that if not for the forex losses, Malaysia would have had RM100 billion more in its foreign reserves.

He revealed that BNM had reserves of about US$20 billion but its exposure was to the tune of US$130 billion.

“This is more than six or seven times its reserves. This is a form of gambling,” Murad added.