Friday, April 16, 2010

Malaysia's Submarine Scandal Surfaces in France


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Written by John Berthelsen   
Murky arms deal linked to international pattern of kickbacks

A potentially explosive scandal in Malaysia over the billion-dollar purchase of French submarines, a deal engineered by then-Defense Minister Najib Tun Razak, has broken out of the domestic arena with the filing of a request to investigate bribery and kickbacks from the deal in a Paris court.

Although the case has been contained for eight years in the cozy confines of Malaysia's courts and parliament, which are dominated by the ruling National Coalition, French lawyers William Bourdon, Renaud Semerdjian and Joseph Breham put an end to that when they filed it with Parisian prosecutors on behalf of the Malaysian human rights organization Suaram, which supports good-government causes. 

Judges in the Paris Prosecution Office have been probing a wide range of corruption charges involving similar submarine sales and the possibility of bribery and kickbacks to top officials in France, Pakistan and other countries. The Malaysian piece of the puzzle was added in two filings, on Dec. 4, 2009 and Feb. 23 this year.

For two years, Parisian prosecutors, led by investigating judges Francoise Besset and Jean-Christophe Hullin, have been gingerly investigating allegations involving senior French political figures and the sales of submarines and other weaponry to governments all over the world. French news reports have said the prosecutors have backed away from some of the most serious charges out of concern for the political fallout. 

The allegations relate to one of France's biggest defense conglomerates, the state-owned shipbuilder DCN, which merged with the French electronics company Thales in 2005 to become a dominant force in the European defense industry. DCN's subsidiary Armaris is the manufacturer of Scorpene-class diesel submarines sold to India, Pakistan and Malaysia among other countries. All of the contracts, according to the lawyers acting for Suaram, a Malaysian human rights NGO, are said to be suspect.

With Najib having moved on from the defense portfolio he held when the deal was put together in 2002 to become prime minister and head of the country's largest political party, the mess has the potential to become a major liability for the government and the United Malays National Organisation. Given the power of UMNO, it is unlikely the scandal would ever get any airing in a Malaysian court, which is presumably why Suaram reached out to French prosecutors. 

"The filings are very recent and have so far prompted a preliminary police inquiry on the financial aspects of the deal," said a Paris-based source familiar with France's defense establishment. "There isn't a formal investigation yet. The investigation will most likely use documents seized at DCN in the course of another investigation, focusing on bribes paid by DCN in Pakistan."

The source said police have confined their inquiry to bribery allegations so far and have not looked into the 2006 murder of a Mongolian woman in Malaysia who was a translator on the deal for Najib and his friend, Abdul Razak Baginda, during a visit to Paris.

There have been numerous deaths involving DCN defense sales in Taiwan and Pakistan. Prosecutors are suspicious that 11 French submarine engineers who were murdered in a 2002 bomb blast in Karachi – first thought to have been the work of Al Qaeda – were actually killed in retaliation for the fact that the French had reneged on millions of dollars in kickbacks to Pakistani military officers. 

The Malaysian allegations revolve around the payment of €114 million to a Malaysia-based company called Perimekar, for support services surrounding the sale of the submarines. Perimekar was wholly owned by another company, KS Ombak Laut Sdn Bhd, which in turn was controlled by Najib's best friend, Razak Baginda, whose wife Mazalinda, a lawyer and former magistrate, was the principal shareholder, according to the French lawyers. 

"Over the past years, serious cases have been investigated in France by judges involving DCN," lawyer Renaud Semerdjian told Asia Sentinel in a telephone interview. "This is not the first case of this kind that is being investigated. There are others in Pakistan and there are some issues about India. To a certain extent, every time weapons of any kind have been provided, suspicion of violation of the law may be very high."

As defense minister from 2000 to 2008, Najib commissioned a huge military buildup to upgrade Malaysia's armed forces, including two submarines from Armaris and the lease of a third, a retired French Navy Agosta-class boat. There were also Sukhoi supersonic fighter jets from Russia and millions of dollars spent on coastal patrol boats.All have come under suspicion by opposition leaders in Malaysia's parliament but UMNO has stifled any investigation. Asked personally about the cases, Najib has responded angrily and refused to reply. 

Despite efforts to bury it, the case achieved considerably notoriety after the murder of Altantuya Shaariibuu, a 28-year-old Mongolian translator and Razak Baginda's jilted lover, who participated in negotiations over the purchase of the submarines. By her own admission in a letter found after her death, she was attempting to blackmail Razak Baginda for US$500,000. 

She was shot in October 2006 and her body was blown up with military explosives by two bodyguards attached to Najib's office after Razak Baginda went to Najib's chief of staff, Musa Safri, for help in keeping her away from him. Not long after being acquitted in November 2008 under questionable circumstances of participating in her murder, Razak Baginda left the country for England. The bodyguards were convicted but no motive was ever established for their actions despite a confession by one which was not allowed in court, but which said they would be paid a large sum of money to get rid of her. 

The submarine deal was never brought up in court during a months-long murder trial that was marked by prosecutors, defense attorneys and the judge working studiously to keep Najib's name out of the proceedings. A private detective hired by Razak Baginda to protect him from the furious Altantuya filed a statutory declaration after the trial indicating that Najib had actually been the victim's lover and had passed her on to Razak Baginda. 

The detective, P. Balasubramaniam, said later that he was unceremoniously run out of Kuala Lumpur. He eventually emerged from hiding in India to say he had been offered RM5 million (US$1.57 million) by a businessman close to Najib's wife to shut up and get out of town. He also said he had met Nazim Razak, Najib's younger brother, and was told to recant his testimony.

In the current complaint in Paris, the issue revolves around what, if anything, Razak Baginda's Perimekar company did to deserve €114 million. Zainal Abidin, the deputy defense minister at the time of the sale, told parliament that Perimekar had received the amount – 11 percent of the sale price of the submarines – for "coordination and support services." The Paris filing alleges that there were neither support nor services. 

Perimekar was registered in 2001, a few months before the signing of the contracts for the sale, the Paris complaint states. The company, it said flatly, "did not have the financial resources to complete the contract." A review of the accounts in 2001 and 2002, the complaint said, "makes it an obvious fact that this corporation had absolutely no capacity, or legal means or financial ability and/or expertise to support such a contract." 

"None of the directors and shareholders of Perimekar have the slightest experience in the construction, maintenance or submarine logistics," the complaint adds. "Under the terms of the contract, €114 million were related to the different stages of construction of the submarines." The apparent consideration, supposedly on the part of Perimekar, "would be per diem and Malaysian crews and accommodation costs during their training. There is therefore no link between billing steps and stages of completion of the consideration."

As Asia Sentinel reported on April 1, services for the subs are being performed by a well-connected firm called Boustead DCNS, a joint venture between BHIC Defence Technologies Sdn Bhd, a subsidiary of publicly-listed Boustead Heavy Industries Corp Bhd, and DCNS SA, a subsidiary of DCN. Boustead's Heavy Industries Division now includes Perimekar as an "associate of the Group. PSB is involved in the marketing, upgrading, maintenance and related services for the Malaysian maritime defence industry," according to Boustead's annual report.

Originally Boustead told the Malaysian Stock Exchange that the service contract was for RM600 million (US$184.1 million) for six years, or US$30.68 million annually. However, the contract later ballooned to RM270 million per year. Boustead Holdings is partly owned by the government and has close connections with UMNO.

"There are good grounds to believe that [Perimekar] was created with a single objective: arrange payment of the commission and allocate the amount between different beneficiaries including Malaysian public officials and or Malaysian or foreign intermediaries," the complaint states.

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Drawing from the Umno ‘fixed deposit’

THURSDAY, 15 APRIL 2010 11:31
(Translation from Malay by CPI)
When Umno suffered an acute loss of voter confidence in the 1999 general election (GE), many political analysts predicted that the party would be buried by the next GE. The majority of Malay voters were seen to have shifted their allegiance and beginning to favour Parti Islam SeMalaysia (PAS) and Parti KeADILan Nasional. It was rationalized that if the Malays themselves had rejected Umno, then the party was no longer relevant and would soon become obsolete.
Such was the general perception in the heat of the election aftermath. Many from the opposition, especially those in PAS and KeADILan at that time were already dreaming of sitting in Putrajaya by the following GE. Nonetheless, when the 2004 election came around, not only did Umno survive, it rose to greater heights and made a clean sweep of 90 percent of the seats it contested. Here was a reverse scenario where PAS and Parti Keadilan Rakyat (PKR) were the ones facing a genuine possibility of being obliterated.
The general election of Mac 2008 again saw the Umno dominance of the political landscape coming under threat. Barisan Nasional, of which Umno is the backbone, tumbled in five states and failed to obtain a two-third majority in parliament. Once more, Umno’s continued lifespan was questioned and the opposition alliance began entertaining the hope that the federal government was now within its grasp.
But the truth is, Umno is not a mosquito party. Umno has been in the political arena since the 1950s. Hence, if there are among supporters of the opposition coalition entertaining the thought that Umno might so easily collapse in the coming GE, they should be more circumspect in making their predictions. What can come to pass is another big win for BN and Umno as occurred in 2004.
The most evident strength of Umno is the huge number of loyal supporters that it has. And Malays loyal to Umno no matter what are those who are older (aged 50 and above) and those in the civil service.
‘Why fix it if it ain’t broke’?
For many senior voters, Umno is the only ruling party – “dulu, kini dan selamanya” (its slogan: “past, present and for all eternity”). It is not imaginable that other political parties are capable of ruling the country. For these people, Umno is the fount of everything – land, housing, water, electricity and all else is made available because of Umno. If not for Umno, all the luxuries and good things in life would not be there for the taking.
Umno is also seen as generous, and why not? Every time come election season, donations and free services are given. Batik and kain pelikat (men’s sarung) are distributed free, roads are tarred, surau and mosques refurbished, carrots dangled, and all requests and grievances of the rakyat are entertained with the utmost concern and diligence.
In the civil service, many are ensconced in the comfort zone and at ease with the Umno and Barisan Nasional authorities. Their salaries, perks and allowances enjoyed are quite adequate. The relationship between the civil service and Umno leaders is intimate, and the latter are seen as accessible. Many official visits are conducted and banquets held to facilitate common interaction in the course of work.
So even though there are blots in the copybook and weaknesses in governance, all these are taken as part and parcel of life. Therefore, the thinking remains among the civil service that as long as the government is able to deliver the comforts, why is there any need for this government to be changed?
If Pakatan Rakyat truly wants to wrest control of Putrajaya, meticulous planning is required to win increased support from the Malay electorate. Among urban Malays, and the young and professional classes, Pakatan Rakyat has an encouraging level of support. Nonetheless, this is not enough to fell Umno and Barisan Nasional.
Concern of government servants
There is not much that Pakatan Rakyat can do to win over the Malay senior voters. Their heart and soul is with Umno. Say what you will about bad Umno leaders, it is like water off a duck’s back. Marking the ballot means crossing the ‘dacing’ (BN’s logo of the weighing scale). It is the only equation that they know, and a lifelong habit.
In any election gambit, emphasis must be placed on the Malaysian civil service. A great number of those employed in the public sector will be worried if Umno and Barisan Nasional were to lose power; especially those who have – all this while either directly or indirectly – financially benefited from the largesse obtained through leaks and seepages in the system.
When Abdul Khalid Ibrahim made his maiden tour of Selangor’s government departments as the new Menteri Besar immediately after the March 2008 general election, the government servants were clearly glum and there was an air of despondency in the offices. Many were wondering what would be the action plan of the freshly installed state government and chief minister. Would he unearth all the state documents and pursue those who had been allied to the previous Menteri Besar? Or would there be a major overhaul involving transfers and job termination?
Presently, after two years of Pakatan Rakyat rule in four states of the peninsula, the civil service is ‘protected’ (will not be charged for offences) even though there have been efforts to expose the defects of the earlier Barisan Nasional state governments. However, there will surely be those who think that the officers colluding with the previous leadership should be exposed and taken to court.
Although certain quarters appear eager to dig up the dirt and punish all those complicit, one should nonetheless exercise caution and not go overboard. It must be carefully weighed whether such as step will ultimately be detrimental or rewarding. In realpolitik, a smart strategy requires pragmatic consideration from all angles and perspectives.
After apartheid was dismantled in South Africa in 1994, an independent commission (the Truth and Reconciliation Commission) was established to collect evidence from the victims and wrongdoers in criminal cases arising from the country’s policy of racial discrimination. The commission was entrusted with the mandate to pardon and grant immunity to those found guilty should they be willing to come forward and provide information.
Perhaps this method is more appropriate to be adopted in Malaysia if Pakatan Rakyat wishes to successfully take over the federal government in the next GE. A conciliatory and less radical approach can reassure the civil service that there will be no widespread witch hunt. It should be borne in mind that many of them are involved in the scandals affecting public institutions only because they were following orders.
Strategy at state level
Aside from the above, Pakatan Rakyat is currently ruling four states and this allows it an opportunity to show its appreciation for the contributions rendered by the civil service. Don’t only point out the weaknesses and failures. Instead commend those who are dedicated and capable in their work as a note of thanks on the part of the state government for their meritorious service.
What can be done perhaps is to award excellent service medals as is the practice with the federal government. These special awards from the state governments can go a long way in showing that Pakatan Rakyat values the role of the civil service as partners in the mutual quest to develop the state and bureaucracy. Thus, the civil service would not feel that they are unduly regarded as an opponent to be wary of and whose motivations and actions are under constant scrutiny.
As for the police and armed forces, commemorate them on Police Day and Warriors Day. Even though the Pakatan Rakyat are often targetted, they should nonetheless realise that not all members of the police and armed forces swear a blind fealty to the Umno dan Barisan Nasional leadership. If there is a need to criticize the police and armed forces, direct the criticism at specific individuals who are responsible. Don’t generalize that all are bad apples and biased in carrying out their duties.
In Malaysia, there are all in all more than one million civil servants. Of this total, almost 90 percent are Malays. These individuals are enfranchised voters. Their personal voting choice will surely exert an influence over a large number of their family members. Therefore, the side which can secure their support will definitely have a big edge in the bid to carry the general election.
It is the civil service that is really Umno and Barisan Nasional’sfixed deposit. They are the main barrier to be breached to pave the road to Putrajaya for Pakatan Rakyat.
This article by CPI columnist Zaki Samsudin was originally published on March 25, 2010 under the title Menembusi ‘simpanan tetap’ Umno.

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Chinese poor and lower class in M’sia: How well off are they?

CPI Writings
FRIDAY, 16 APRIL 2010 12:40
“What Chinese poor?”
Soon after I returned to Malaysia in late 2005, I met with a former president of the country’s major Chinese party in his office. During the discussion which covered a range of issues, I expressed my concern at the failure of the Chinese political leadership to deal effectively with the socio-economic problems and challenges that the community was facing.
I had known the leader since the 1970s but especially in the late 80s and early 1990s when I was a panellist in the 150-member National Economic Consultative Council (NECC) which had been set up by the then Prime Minister, Dr Mahathir Mohamad, to come up with a post-1990 economic policy to replace the New Economic Policy (NEP).
The response of the former president to my concern shocked me. Besides defending his party and his leadership, he declared that the Chinese were very lucky to be able to live in Malaysia. “Where else in the world can you find a simple char koay teow seller become so rich and drive a Mercedes!” was his rejoinder.
This view that the Chinese have done very well for themselves – and by extension, do not require assistance from the Government – is not uncommon. However, it is a gross generalization and erroneous on several counts. Taken to its logical end and juxtaposed with the fact that many of the country’s richest individuals are Chinese, such a simplistic view has provided the underpinnings for the racially biased public policies pursued in a wide range of sectors and over such a long period of time in the country.
Off the public radar
Let us consider some of these facts and figures of the Chinese poor, disadvantaged and marginalized.
Firstly, many of these Chinese individuals and households do not appear on the government’s listing of poor Malaysians because the Government has used an unrealistically low poverty line income to decide who comprise the poor. Should there be a readjustment of the poverty line to a more realistic figure, it is likely that several hundred thousand Chinese households (as well as a larger number of Bumiputera and Indian households) will fall into the ‘poverty’ category.
Secondly, income distribution within the Chinese community is worsening. In fact the gap between the Chinese poor and well-to-do has increased in the last two decades, for which data is available. According to the Gini coefficient of income inequality, income inequality within the Chinese community has increased from .423 in 1990 to .434 in 1999 and .446 in 2004. Incidentally, this is the same for all the communities, including the Malays.
The worsening income inequality points to an entrenched and worsening poverty problem within the Chinese community that is not discernible if we simply rely on the conventional statistical indicators used by Government.
Excluded from NEP
Why is Chinese poverty so entrenched and intractable? The answer is that, for the most part, the Chinese poor and lower classes have not benefitted from the NEP and other national policies in the way that the Chinese elites or even upper middle class have. Consider the following
1. They have not been targeted by any of the government’s anti-poverty programmes.
2. They have been disadvantaged by lack of mastery of English and Malay.
3. They have educated their children in Chinese schools which have been the victims of unequal treatment. More than a quarter of Chinese school kids drop out before the age of 17 with many coming from the poorer achieving and less endowed Chinese medium schools which we seldom hear or read about.
4. A large number of them live in New Villages or in geographically remote rural areas which have been cut off from the enclave of affluence located in the main cities and in the Klang Valley area.
5. Many come from the agricultural sector and are vegetable gardeners, fruit farmers or fishermen or engage in agricultural services. Unlike their Malay counterpart rural poor, they have had limited access to Felda, Felcra, IADPs and other federal and state schemes that have reduced landlessness and indebtedness and provided access to housing, infrastructure, utilities as well as enhanced incomes substantially. Even worse, they have been denied their legitimate land rights so that many remain squatters or operate on TOLs or short-term leases.
The recent report that the new MCA president, Chua Soi Lek, intends to meet with the Perak Menteri Besar, Dr Zambry Abdul Kadir to discuss matters pertaining to squatters, land premiums and discounts to new villagers and the issue of limited allocations shows how ‘lucky’ the Perak Chinese are to be able to live in the state and the ‘tremendous’ advances they have made after 50 years of Barisan rule.
6. In the discussions on the country’s brain drain and loss of talent, much has been made about the out-migration of Chinese educated and professionals. In fact, if the proper surveys are ever carried out on out-migration from the country (according to the Deputy Foreign Minister in Parliament recently, 304,358 Malaysians migrated to other countries from March 2008 till August 2009 compared with a out-migration figure of 139,696 in 2007), I will not be surprised if just as many less educated poor and lower middle-class Chinese are found to have left the country because of poverty and lack of opportunities for themselves and their children.
Chinese SMEs and other towkays
Much has also been made of the prosperity of the Chinese that comes from their domination of the small and medium enterprises (SMEs) in the country. However, not all SMEs are prosperous or can provide the secure and sustainable livelihood and incomes that others who are ignorant of the real conditions of these enterprises seem to imagine is the case with every SME.
Most Chinese SMEs are family-run businesses that are barely able to scrape a decent living through heavy self-exploitation of family member and extended family labour. Often working in dangerous and appalling conditions, they are ill-equipped to compete in an increasingly competitive and globalized environment.
The reality is that besides continuous harassment from government officials and politicians bent on extracting coffee money and beating them down for non-compliance with various local council rules and regulations, many SMEs are trapped in low productivity operations and lack access to technological know-how, larger markets and R&D capacity.
In the near term as regional and international competition heats up, many SMEs face a bleak future and are likely to go bust.
These small fry towkays’ of micro-SMEs (over 90% of the SMEs in the country belong to this group) and their poorly paid employees, eking out a modest living in the country’s workshops and squatter areas, however, have never been on the government’s radar screen, except perhaps for taxation purposes.
How much (or rather little) budgetary support and other assistance has actually reached the SMEs – directly and not through proxies or parasitic agencies – in the last few Malaysia Plans would be an important question for the government to respond to.
Members of the National Economic Advisory Council (NEAC)will find that there is a whole generation of bad policy planning and implementation that needs to be undone with regard to the SMEs if they are serious about the objective of revitalizing this sector in the 10th Malaysia Plan and the New Economic Model.
No social safety net
There is one more important consideration that is seldom discussed when the issue of Chinese socio-economic well-being is raised. This is that arising from their self employment or work as employees in SMEs and the informal sector, only a small proportion of Chinese households are covered by the social safety net for health, insurance and old age that comes with employment either in the public sector or with formal private sector employment.
This absence of participation in a social safety net will increasingly make itself felt on the future well being of the Chinese as the community ages rapidly and with the loss of traditional safety nets provided by the extended and large nuclear family.
The trend of Chinese vulnerable elderly who are either abandoned in old folk homes or live in miserable conditions on their own is already gaining speed. This trend is unstoppable without major changes taking place within the community and at the macro level where the state is the key player.
Malaysia’s presentfuture and past
Will the ‘1Malaysia’ concept and New Economic Model remove the blinkers that stand in the way of assistance and resources being provided to the Chinese disadvantaged?
Will the Prime Minister’s promise of raising income levels of all disadvantaged and marginalized groups be kept? Will we see merit-based, transparent and needs-based policies targeting the bottom 40% of the country’s income strata, irrespective of race and region, implemented?
We will have the opportunity to assess if this new vision of development for the country is more political rhetoric or a genuine path-breaking initiative soon.
As for me personally, I am not so sanguine. I was a member of the five- person team that finalized the NECC report which was presented to the government after more than two years of acrimonious debate. The major recommendations of the NECC to dismantle the NEP were never implemented. The NEP remained in force for another 20 years after it was supposed to have ended in 1990.
Will history now repeat itself again?
This is an amended version of an article which first appeared in the Chinese daily Red Tomato.

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