Billion Ringgit Question For Boustead And UMNO’s Defence Ministers

“What first attracted you to your multi-millionaire husband?” Chat show host Mrs Merton famously purred to a young trophy wife.

After this week’s arrests by the MACC of two of the most senior staff linked to the disastrous Boustead naval defence frigate contract, one assumes officials will be making a similar enquiry over the middleman procurement joint venture between Boustead and a German company Rheinmetall AG that appears to have been pivotal to the haemorrhaging of much of the cash that is now missing.

Why was the sub-contracting for procurement thought necessary and why was Rheinmetall the chosen partner would seem obvious questions as investigators purportedly home in on three Singapore companies where it appears some of the money has been traced to?

The bald facts that have emerged over the past decade, during which this appallingly ‘mismanaged’ RM10 billion contract has unravelled, is that shortly after former PM Najib took office (himself the former Defence Minister and mired in scandals over corrupt kickbacks over the Scorpene Submarine contracts) these frigates were ordered on an original budget of RM9 billion of which at least one billion has now gone missing.

The actual construction of the actual boats has drifted into abeyance marking a new low in the history of plundered Malaysian arms contracts.

The newly appointed Defence Minister who kicked off the project was apparently Zahid Hamidi. Both Najib and Hamidi are of course playing starring roles in their individual separate corruption cases now proceeding at a snails pace through the courts. According to latest information it was however the present Defence Minister Hishamuddin Hussein (Najib’s cousin) who signed off on the contracts in 2014.

Zahid and his team had decided upon a model of ship that was not the one requested by naval commanders who were desperate to boost Malaysia’s capabilities in its coastal waters, where there is such a shortage of ships that young naval recruits are spending far too long at sea on inadequate craft.

Instead of an up-to-date Dutch vessel that fitted required naval specifications, the Defence Ministry plumped to commission a joint venture between the Malaysian shipyard Boustead and Najib’s old friends from DCNS, the French defence contractor which had been mired in the Scorpene scandal paying kickbacks worth over a hundred million to Najib (along with other notable bribery scandals elsewhere).

The French boat has been criticised for already being out of date at the time it was commission by disgruntled naval commanders, but as everyone knows the story only got worse. All six of the so called Littoral Combat Ships (LCS) ought to have been delivered by 2019 but in fact so far none have been.

Much fanfare was made of the first in line, which sort of looked as if it might be almost finished and was therefore ‘launched’ to make good pre-election PR for the then UMNO government. In fact it was nothing of the sort.

“It was just a phantom ship, a Potemkin ship” sniffs one former public accounts committee member from the PH government, which subsequently reviewed the disastrous miring of the project. The committee also found that much of the sensitive (and eye-wateringly expensive) electronic equipment and armoury that has been waiting now for years to be attached to the only fractionally built vessels has been rotting in the warehouse and the whole shebang is now hopelessly out of date in military terms.

But worst of all, it became clear to the PAC, having asked the Auditor General to review the project, that one billion ringgit of the RM6 billion that had already been spent (without the production of one single boat) had completely disappeared. It could not be accounted for. There was no record.

At the point that this uncomfortable situation became apparent to the new PH Defence Minister, Matt Sabu, he suspended the project. However, things have moved on since then. The PH government was unceremoniously removed and has been replaced by the same parties that were voted out at GE14. The new Defence Minister was none other than Ismail Sabri, who has now graduated to become PM and he then re-appointed Hishamuddin Hussien as Defence Minister.

Ismail and Hishamuddin have re-commissioned the project, having injected another billion into it to supposedly get Boustead out of the crippling debts that had made it impossible for Malaysia’s only naval contractor to get anyone to supply anything to enable construction to proceed. The Boustead financial mess is a separate saga, although it is hard not to surmise that the same problem that UMNO has with disappearing money might lie somewhere at the bottom of the government owned business’s many problems.

Many might suggest the returning crew simply threw more good public money after bad and indeed there has been little sign of progress since. Hishamuddin has recently chosen to cover his own backside by announcing that no one should expect the first ship before 2025 now…. by which time he presumably hopes his own ambitions will have moved him out of the Defence slot

So, what of the dramatic arrests this week by an “Anti-Corruption’ authority that most Malaysians have long since lost confidence in thanks to its own tainted associations?

Sarawak Report has been intrigued to observe that the key target of these moves (who remains languishing in remand clad in an orange jumpsuit) has been a youthful woman who was appointed to be the CEO of the subsidiary procurement intermediary that Boustead and the Ministry of Defence had decided in their wisdom to appoint to manage purchases for the project.

Why? Certainly, for any Malaysian a ‘middleman purchase contract’, like a ‘turnkey management contract’, found associated with any government project has become a well known red flag, providing as it does an ideal way to ‘loose’ cash. The trusty officers of the MACC are doubtless looking at the matter, just as they are doubtless looking for government instructions on what their findings are going to be.

During the PAC enquiries it emerged that a young lady in her 30’s had been put in charge of a quite massive job as CEO of the company Contraves Advanced Devices Sdn Bhd (CAD) which was appointed as this sub-contractor for procurement. It turned out to be jointly owned by Boustead itself (the 51% owner) and a German defence contractor Rheinmetall AG, quoted on the German Stockmarket (owning 49%).

German management of pivotal company at the heart of the Boustead naval ship scandal
German management of pivotal company at the heart of the Boustead naval ship scandal

Sarawak Report has learned that the Public Accounts Committee ascertained from the investigation by the Auditor General (which so far has been kept secret) that a full RM1 billion of the RM2 billion that was pushed through this questionable subsidiary mechanism for procurement can simply not be accounted for at all. Hence the missing billion that the MACC has been chasing after.

Clearly, this is not all that went wrong with this useless project, which one might conclude was devised by the then government with more of the ‘siphoning off’ potential in mind than the ‘defence of the realm’ in mind. However, when questioned by the PAC the CEO perhaps not surprisingly gave a fairly limp series of explanations as to what might have gone wrong on the project, projecting a strong sense of inexperience and inadequacy that might be expected for her young age.

At which point Sarawak Report suggests that it would be sensible for investigators to turn to the JV partner in this matter, Rheinmetall AG, to see what answers the German company might separately provide, given its own duties of due diligence as a major global defence contractor and stockmarket company with a serious asset to manage and plain responsibilities for ensuring due processes.

However, a glance at the company’s record will show that, like DCNS, Rheinmetall has had its own full share of recent scandals in the field of ‘lack of oversight’ and ‘failures in due diligence’ relating to defence contracts. For example, back in 2014 around the time the JV was set up it appears the company was fined $46 million for bribery in one case.

In a later scandal over in India in 2018 it emerged Reinmettal stands accused of entering into a commission contract with a well-known arms dealer to sell air defence guns in India in violation of rules that bar middlemen. There is an air of familiarity perhaps over the emergence of questions over middlemen, which is exactly the role that Contraves Advanced Devices seems to have been playing in the Malaysian case.

UMNO was thrown out of office by angry electors over its corruption record, having covered up over 1MDB for years. There is little real hope that with UMNO inserted back into office via a series of orchestrated political coups answers will be found any time soon in Malaysia as to what has been going on with this parallel Najib project.

However, there are clearly questions as to why this particular European company was selected by the managers of this now notorious project to join Boustead as the ‘middle man procurement sub-contractor’ for all the equipment that may politely be described as having been over-paid in this project.

The motives are suspect and this company’s record is troubling. Sarawak Report believes its questions are fair and the entire matter should not only be investigated by the MACC but by the German authorities as well.

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