ISSUES OF ABUSE OF POWER, ISSUES OF LOSSES DURING THE AUDIT OF

THE 2017 FINANCIAL STATEMENTS AND ISSUES OF GOVERNMENT

INTERFERENCE AND POLITICAL APPOINTMENTS IN LEMBAGA TABUNG HAJI

(TH)

1.0 INTRODUCTION

Institution Tabung Haji (TH) is one of the non-bank financial institutions in

Malaysia and was the first Islamic financial institution established in 1969.

However, since 2015, TH has been plagued by various issues that have

received public attention starting with the purchase of land owned by 1Malaysia

Development Berhad (1MDB) in May 2015 at a price 43 times more expensive than

1MDB buying the same land from the government (Astro Awani 2015) . Sequence

from those issues, various other issues began to arise. Among them are a warning

letter from Bank Negara Malaysia (BNM) regarding negative TH reserves (Sinar

Harian 2016), losses in Felda Global Venture (FGV) investments (The Star 2016),

severe capital losses due to acute financial problems by TH Heavy Engineering

Berhad (THHE) which is controlled by TH through a 30 per cent shareholding (The

Star 2016),

Institution Tabung Haji (TH) which is a pioneer in the world's best hajj

management has faced several governance issues following government

intervention. Starting with the announcement of the 2018 hibah declaration at 1.25

per cent which was the lowest since 1995 and the transfer of shares for 106 strategic

companies under TH, sparked debate among the community, especially depositors.
The Auditor -General and independent auditors were appointed to find that the losses

suffered by TH were due to equity investments worth up to RM10 billion in 2018.

Among the main reasons was due to government interference in the management of

TH. Incompetent political appointments resulted in several cases of failure now being

investigated. These include cases of corruption, malpractice, allegations and

misconduct leading to wrong decision making as well as unstable TH directives.

2.0 ISSUES OF GOVERNMENT INTERVENTION AND POLITICAL

APPOINTMENTS IN ADMINISTRATION OF TH

In another development, there are 3 influential people in the administration of

Lembaga Tabung Haji who are related to their 1MDB company are: Ismee Ismail,

Datuk Johan Abdullah and Abdul Samad Alias.

 Ismee Ismail is the Chief Executive Officer and Managing Director

of Lembaga Tabung Haji, he is also a Board Member of 1MDB.

 Datuk Johan Abdullah is the Chief Executive Officer and Managing

Director of Lembaga Tabung Haji, he is also the Chairman of a

1MDB subsidiary, Edra Global Energy Sdn Bhd. Edra acquired

power generation assets from Powertek (formerly known as

Tanjong Energy), Genting Sanyen and Jimah.

 Abdul Samad Alias is the investment panel of Tabung Haji, he is

also one of the Members of the 1MDB Advisory Board chaired by

the Prime Minister of Malaysia, Datuk Seri Najib Tun Razak.

2.1 AUDIT ISSUES TH FINANCIAL STATEMENTS FOR THE YEAR 2017

At 10 December 2018, we were shocked by the press

conference of the Minister in the Prime Minister's Department, Datuk

Seri Dr Mujahid Yusuf regarding the Financial Statements of Lembaga

Tabung Haji (which have been audited) for the Financial Year Ended 31

December 2017 which is said to have a deficit of RM 4.1 billion.

Minister it also asserted that Lembaga Tabung Haji (TH) has

been paying illegal dividends to its depositors since 2014 again. Where

since 2014, TH’s liabilities have exceeded the value of its assets. And

this makes TH ineligible to approve any dividends to depositors under

the Tabung Haji Act 1995.

Well -known auditing firm Price water house Coopers (PwC)

which audited TH's Financial Statements also suggested that the

Government embark on a comprehensive TH recovery measure.

Among the measures announced by the Minister is to place TH under

Bank Negara Malaysia (BNM) and set up a Special Purpose Vehicle

(SPV) to recover RM19.9 billion of TH's assets that are below the

required performance.

The disclosure of the losses suffered by TH and the proposed

method of recovering them began to raise some big questions and

anxiety among depositors about the future of their investments and

TH’s new direction.

3.0 POLITICAL AND ADMINISTRATIVE ACTIONS TO ADDRESS TH ISSUES

3.1 POLICE REPORT AGAINST THE SUPREME OFFICER OF TH

On November 30, 2018, The new TH management has already

lodged two police reports against several former key office bearers in

TH, including former TH Chairman, Datuk Seri Abdul Azeez Abdul

Rahim, former TH Chief Executive Officer, Tan Sri Ismee Ismail and

several other senior TH management officers.

One a police report on allegations of abuse of Yayasan Tabung

Haji for politically motivated activities and another police report on

allegations of misrepresentation and withholding of material information

involving the sale of TH shares in 2012 of 95 per cent in PT TH Indo

Plantations held by 2 of its subsidiaries, namely TH Indopalms Sdn Bhd

(THI) and TH Indo Industries Sdn Bhd (THII) to PT Borneo Pacific (PT

Borneo) for US $ 910 million (RM3.7 billion).

4.0 MANAGEMENT AND OPERATIONAL IMPROVEMENT OF TH - PROPOSAL

4.1 PLACING TH UNDER BANK NEGARA MALAYSIA (BNM)

The Ministry of Finance informed that the regulation of Tabung

Haji (TH) under Bank Negara Malaysia (BNM) is a temporary solution

that will not change the original nature of the institution, especially in

relation to the management of pilgrims. the institution will continue to

 perform the functions of Lembaga Tabung Haji as stipulated in the

Tabung Haji Act 1995 (Act 535).

Apart from that, Hajj management matters still remain under the

responsibility of the Minister in the Prime Minister's Department

(Religious Affairs). From the point of view of TH, the Board of Directors

and its management body still have the main responsibility in

determining the direction of the institution as well as the management

and operation of the pilgrimage.

5.0 EFFECTS OF COOPERATION BETWEEN POLITICS AND ADMINISTRATION

ON LEMBAGA TABUNG HAJI (TH)

Results placing Tabung Haji (TH) under the regulation of Bank Negara

Malaysia (BNM) with the aim of improving the overall management and

operations of TH. This is to protect the interests of depositors and strengthen

TH's financial position in fulfilling its mandate in line with good governance

standards set by the United Nations Convention Against Corruption (UNCAC).

TH is also a financial institution that is considered systemic and closely

interconnected with the country's financial system due to its large scale of

operations (in terms of deposit and investment size) as follows:

Accordingly, to enhance the long -term sustainability of TH, the

proposed more formal regulatory arrangement under BNM will place TH as a

prescribed Islamic financial institution under Section 223 of the Islamic

Financial Services Act 2013 [Act 759] .

Monitoring and regulation by BNM is an important component in efforts

to empower TH as a more resilient Islamic institution in the country's financial

ecosystem and towards elevating TH's position as an excellent and

sustainable Government-Linked Investment Company globally. Regulation on

TH Focuses on Deposit Taking, Risk Management, Corporate Governance

and Transparency.

By which Thus, BNM's proposed regulatory framework on TH will be

tailored based on the characteristics and risks of its business model, namely

"fit-for-purpose regulation", not necessarily the same as other banking

institutions. Supervision by BNM is necessary to establish a check and

balance aspect in line with the ruling by the Cabinet Special Committee on

Anti -Corruption. In this regard, BNM will essentially focus its regulatory role

on, among others, deposit -taking activities, risk management, corporate

governance and transparency.

A similar check and balance approach has been implemented in capital

markets and other industries. For example, Permodalan Nasional Berhad

(PNB) which is regulated by the Securities Commission Malaysia (SC) does

not prevent or restrict PNB from carrying out its original mandate in the

national development agenda, especially to prosper the bumiputera economy.

Thus, the check and balance approach is not a new thing but has long been

practiced in the context of national development governance.

 In the context of shariah, BNM has a BNM Shariah Advisory Council

which is composed of shariah scholars and individuals who are

knowledgeable and experienced as well as internationally recognized. The

Government Will Continue to Guarantee and Protect the Savings of Tabung

Haji Depositors. Although TH is proposed as a prescribed Islamic financial

institution, the Government will continue to guarantee the savings of

depositors. In other words, TH depositors continue to enjoy the current

Government guarantee (status quo) as provided under the Tabung Haji Act

1995 [Act 535]. This approach is similar to BNM -regulated BSN where

depositors' savings are still fully guaranteed by the Government. Every TH

investment activity must be shariah compliant and investment evaluation must

be carried out through a thorough and transparent process as is the practice

of other fund institutions with the establishment of an Investment Panel

composed of individuals with background and expertise in finance and

investment. This measure aims to ensure that the investments made are

orderly and guided by TH's risk appetite, as well as to ensure the payment of

hibah is made in accordance with the stipulations under the provisions of

Section 22 (3) of Act 535. MOF will work closely with the Honorable Minister in

the Prime Minister's Department (Affairs Religion) to ensure that the absolute

rights and interests of TH depositors will not be eroded, but will be improved.
6.0 CONCLUSION

Key positions in the GLC cannot be turned into political gifts! And the

Chairman's job is not to be a monitor but a catalyst for the GLC's performance. To

be a positive catalyst, the people selected need to have credibility, experience,

qualifications, trustworthiness and an excellent track record in related fields. Being

an MP does not mean they have the professional qualifications to lead a GLC or

government agency. Here we would like to state that political leaders should not be

appointed to chair business entities such as GLCs.

Politicians are better off holding political positions and leaving corporate positions

to professionals and technocrats. The main principles of politics and business do

not mix are well known and become the SOP in any mature democracy. History

has shown that when politics and business are mixed, business rushes towards

ruin.

The management history of GLCs and statutory bodies in Malaysia is now good.

Technocrats and professionals of caliber are invited to lead the companies. We

remember Tan Sri Abdul Aziz Rahman's excellent record in leading MAS to

become one of the leading Airlines in the region. Similarly, the story of PETRONAS

led by Tan Sri Azizan and Tan Sri Hasan Merican was driven to become a Fortune

500 company. Other examples are such as FELDA, Sime Darby, CIMB, Maybank

and etc.
The purpose of GLCs and statutory bodies established is to:

1. Focus the business scope of the company under the leadership of

professional and competent independent management;

2. Bring the company to be not only a champion domestically but

regionally and even globally;

3. Contribute to the country's economic growth and provide high quality

employment opportunities to Malaysians;

4. Provide world quality services in their respective fields;

5. To be a positive catalyst for bumiputera participation in business and

industry.

During the previous rule, many APs were appointed as GLC Chairmen such as

FGV, Tabung Haji, FELCRA, MARA and others. As a result, these GLCs suffered

huge losses and had to be bailed out by the government. Worse, some of the

appointed chairmen among these politicians are facing charges of breach of trust

and malpractice in court.

The government needs to learn from past experiences when leaders fail to hold

trust, the people lose confidence and change direction. Therefore, GLCs need to

return to the role of trust bodies for Malays and Malaysians.

We need to be aware that many appointed politicians lack basic qualifications and

do not follow the rules of corporate governance and transparency. They don't even

understand the basic difference between executive and non -executive positions.

Investigations have uncovered abuse of power and mega corruption that nearly

paralyzed the companies.

At the same time, we emphasize that appointed professionals and technocrats

must demonstrate high integrity and understand that the agency's function is to

provide services and contributions to the people rather than to management alone.

The appointed GLC leaders and chairmen must not only be competent but must be

able to play a role in national development through the role of GLCs in strategic

and future sectors. They not only ensure profits on a beautiful "balance sheet" but

are able to develop local industries and supply chains, especially the participation

of Bumiputera SMEs. In short, they must be competent and nation -minded.

We call on all GLC reform initiatives towards better and dynamic governance to

continue to be implemented for the future of the country and future generations.