Tuesday, September 25, 2007

Graft in Malaysia’s Defense Ministry

Najib Tun Razak, Malaysia’s defense minister, finds a fountain of cash in military purchases

"Mat Salleh"
24 September 2007
Asia Sentinel

Despite the fact that the country’s borders have been largely secure for 40 years, Malaysia’s Defence Ministry has for decades been available to provide a river of money to defense ministers, the ruling United Malays National Organisation and any of the Sandhurst-educated generals who could get their hands into the till.

But if three separate contracts over the past several years are any yardstick, Najib Tun Razak, who became defense minister in 1999 and kept the portfolio when he became deputy prime minister, appears to have mastered the game far beyond the expectations of any previous defense leaders. Opposition figures say the three contracts, one for Russian Sukhoi jet fighters, a second for French submarines and a third for navy patrol boats, appear to have produced at least US$300 million for UMNO cronies, Najib’s friends and others.

Describing “the mundane but important element of patronage,” Foreign Policy in Focus, a think tank supported by the Institute for Policy Studies in Washington, wrote in a 2005 article that “many foreign arms manufacturers generally used well-connected Malaysians as their lobbyists for contracts. The commission paid to such representatives is estimated to range from 10 to 20 percent.” Even prior to the 1997 Asian financial crisis, Southeast Asia, which hasn’t had an external war in decades but is rich enough to spend plenty on guns, was the world’s second-largest arms market after the Middle East, representing about 20 percent of the world’s purchases.

By the end of next year, Malaysia is expected to have 18 Sukhoi-20MKM jets intended to replace 14 US-made F-5Es, which have been in service for two decades. Two Sukhois were delivered this year, and the Malaysian Air Force also has 18 MiG-29N Fulcrums.

All three of the contracts, which were approved under Najib (left) and have been widely cited by the opposition, fit well into Foreign Policy in Focus’s patronage scale. Bringing the three together, and taking a new look at their associations, is instructive. They have been forced back into public attention by the continuing trial of Abdul Razak Baginda, one of Najib’s closest friends, who is on trial for his life in a suburban high court along with two of Najib’s bodyguards for the murder of Altantuya Shaariibuu, a Mongolian translator who was shot in the head on October 19, 2006, and then blown up with C4 explosives available only from Malaysia’s military.

According to testimony in the trial, Altantuya accompanied her then-lover Abdul Razak to Paris at a time when Malaysia’s defense ministry was negotiating through a Kuala Lumpur-based company, Perimekar Sdn Bhd, to buy two Scorpene submarines and a used Agosta submarine produced by the French government under a French-Spanish joint venture, Armaris. Perimekar at the time was owned by a company called Ombak Laut, which was wholly owned by Abdul Razak.

The contract was not competitive. The Malaysian ministry of defense paid 1 billion euros (RM 4.5 billion) to Amaris for the three submarines, for which Perimekar received a commission of 114 million euros (RM510 million). Deputy Defense Minister Zainal Abdidin Zin told the Dewan Rakyat, Malaysia’s parliament, that the money was paid for “coordination and support services” although the fee amounted to a whopping 11 percent of the sales price for the submarines. Altantuya, by her own admission in the last letter she wrote before her murder, said she had been blackmailing Abdul Razak, pressuring him for US$500,000. She did not say how she was blackmailing him, leaving open lots of questions.

Spending for defense accelerated across the board after Najib, called “the driving force” behind Malaysia’s military modernization program by Foreign Policy in Focus, became defense chief. The shopping list, the think tank reported, “includes battle tanks from Poland, Russian and British surface-to-air missiles and mobile military bridges, Austrian Steyr assault rifles and Pakistani anti-tank missiles. Kuala Lumpur is also negotiating to buy several F/A 18s, three submarines from France and an unspecified number of Russian Suhkoi Su-30 fighter aircraft.

It was the Sukhois that have become the second controversial purchase brokered by Najib. The deal, worth US$900 million (RM3.2 billion), was through a Russian state company, Federal State Unitary Enterprise 'Rosoboronexport' on May 19, 2003. IMT Defence Sdn. Bhd. was appointed the local agent for the Russian company and received 12 percent of the purchase price, US$108 million (RM380 million). The principal figure and chairman of IMT Defence is Mohamad Adib Adam, the former chief minister of Malacca, previous Land and Development Minister and a longtime UMNO stalwart.

The involvement of IMT Defence only became known because in March 2005, a former director of IMT, Mohamad Zainuri Mohamad Idrus, filed suit against several Adib-related companies, alleging that Adib and his sister, Askiah Adam, “wanted to prevent him from exposing the reality of the Sukhoi deal.” In 2006, Mohamad Zainuri lodged a police report alleging that Adib had stolen the US$108 million (RM 380 million) commission that was supposed to be channeled to the company.

According to Mohamad Zainuri’s report, Adib had secretly registered a new company in the federal island of Labuan, Malaysia’s offshore banking center, bearing a name similar to IMT Defence Sdn. Bhd., allegedly in order to channel the commission illegally to the new company. The report was then sent to the Commercial Crime Investigations Department Headquarters. No report, however, has ever been released to the public.

Then, over the last few weeks, a third military scandal surfaced. Malaysia’s Auditor General, in a report tabled in Parliament on September 7, alleged that a contract to build naval vessels given to PSC-Naval Dockyard, a subsidiary of Penang Shipbuilding & Construction Sdn Bhd, which is owned by another UMNO crony, Amin Shah Omar Shah, is near failure.

[Read the entire killer article here...]