Malaysian Maverick: Mahathir Mohamad in Turbulent Times Page 18
With UMNO an active corporate player, the party at times was in competition or collaboration with state-owned agencies and private companies. Some valuable state assets passed into UMNO hands. The fusion — and often confusion — of party, state and private roles went far beyond the government-corporate cooperation implied in the Malaysia Inc. concept. Business and politics, ideally kept separate in the name of good governance, were inextricably mixed in what Lim Kit Siang, the opposition leader, called an "incestuous relationship".[1]
With UMNO membership an avenue to riches, ever larger amounts of money were poured into party and general elections to secure positions with access to tenders, licences and subsidies, while party leaders in turn channeled benefits back to their supporters to maintain their posts. Across the country, thousands of companies were set up by UMNO divisions, branches and members to collect shares and other forms of patronage allocated to bumiputra enterprises. Malays joined UMNO not so much to do community service anymore, but to make the contacts and get the contracts that would bring easy profits. The phenomenon was known as "money politics", and it dictated behaviour as much as, or more than, the official party rules and regulations that prohibited it. On more than one occasion Dr. Mahathir shed tears in public about vote-buying in UMNO party elections, but he failed to stop it. His presidency saw the final culmination of a transition from an UMNO of humble and self-sacrificing peasants and schoolteachers to a party of self-serving corporate chieftains and dealmakers.
Although the money-making opportunities through UMNO were known, the extent of the party's investments was not so obvious. As a political party registered under the Societies Act 1966, UMNO was not permitted to be in business. To conceal its assets, the party used the common practice of nominee companies or executives, or alternatively, trusted individuals, prominent businessmen who surreptitiously held stakes in various companies on UMNO's behalf. The trail could lead through a bewildering maze of transactions, involving shell companies capitalized at the legal minimum of RM2 and companies that were repeatedly reorganized and renamed. Another convenience for UMNO was that a private Malaysian concern whose shares were held by fewer than 20 individuals had "exempt private company" status, which meant it did not have to file financial statements with the Registrar of Companies. Documents filed by companies with government or political ties often were not available to the public for scrutiny at the registry, anyway.
After UMNO ventured directly into business under Dr. Mahathir and Daim and some of its trustees were publicly known, the party faced financial oblivion when it was declared illegal in 1988. Its assets were required to be placed with a government agent and sold off. But in a process that was never made clear, most of those assets ended up in the hands of many of the same people who were holding and managing them for UMNO before. The arrangement enabled Dr. Mahathir and Daim to maintain that the party, reconstituted as New UMNO, was no longer in business, which was only technically true.
While UMNO, as a political party, was required to submit its accounts each year to the Registrar of Societies, and it tabled a balance sheet at the party's annual General Assembly, the party did not disclose the real state of its financial affairs. Not even the party's Supreme Council, the highest policy-making body, could peek at the "UMNO Political Fund", whose very existence was never disclosed. The council entrusted the party's financial secrets to the top leadership: While he was supposed to keep Dr. Mahathir informed, Daim alone knew the details.[2] Two other official UMNO trustees, the party deputy president and secretary general, were not informed. So, along with the general public, UMNO's millions of members remained in the dark about the party's multi-million dollar enterprises, even though the assets theoretically belonged to them.
UMNO's strategic role in the distribution of patronage contributed to the severe factionalism that convulsed the party in Dr. Mahathir's time. In former finance minister Tengku Razaleigh Hamzah's challenge to Dr. Mahathir's leadership in 1987, the party dissidents directed much of their ire at Daim, who was accused of stripping UMNO for personal gain. Because of the way he mixed his private investments with state and party business, it would be a recurring theme for as long as Daim remained as party treasurer. After he quit in 2001, significant sections of UMNO were convinced he had pocketed billions that belonged to the party. Daim denied it, as did Dr. Mahathir, the only other person with access to the books, who then took over as treasurer for two years. When he stepped down in 2003, Dr. Mahathir handed his successor, Abdullah Badawi, the prime ministership and UMNO assets of RMl.4 billion, in property, shares and cash.[3]
Although the form differs, links between politics and business are widespread and growing in almost all East Asian countries.[4] In Japan, major corporations fund particular factions within the ruling Liberal Democratic Party.[5] Thaksin Shinawatra, who became prime minister of Thailand in 2001, brought with him representatives of some 15 major business groupings who were able to seize control of the state and contrive business-friendly policies.[6] Under Dr. Mahathir and Daim, Malaysia followed the example set by Chiang Kai-shek's Nationalist Party, which ruled Taiwan for 55 years until 2000 — and returned to power in 2008 — in taking direct or indirect control over a vast array of corporate assets.
Their enterprise was light years removed from UMNO's early days, after its formation in 1946, when founding members used their own money to fund party activities. So tight was the budget in 1954 that Tunku Abdul Rahman, as president of UMNO and representing the Alliance, had to share a bed with a member of his delegation when they visited London to discuss pre-independence constitutional arrangements with the British.[7] The Tunku recalled that in those days he drove and cleaned his own car because he could not afford a driver. At one point he sold 14 shophouses — two- or three-storey buildings with businesses on the ground floor and residences above — and donated the proceeds to UMNO. After independence, he realized he had disposed of almost all his personal property to contribute to the party, and others had done the same.[8]
As the Tunku's successor, Razak Hussein was keen to end UMNO's financial dependence on non-Malay supporters — its coalition partner, the Malaysian Chinese Association, as well as Chinese businessmen and companies — for election campaign expenses, emergencies and, embarrassingly, even for routine activity. At times, an UMNO official at headquarters could not afford transport to keep an appointment — say, to talk to villagers. He would have to wait for the Malaysian Chinese Association to send over a cheque, which then had to be cashed, before summoning a taxi to get to the meeting.[9]
Razak was also under pressure from UMNO's youth wing to take control of the foreign-owned, Singapore-based media company that published Malaysia's main English-language daily, the Straits Times. To buy it would require funds, and UMNO's decision in 1971 to build an elaborate new headquarters for itself meant the party would need access to even more substantial resources.
Appointed party treasurer by Razak in 1972, Tengku Razaleigh Hamzah established the UMNO Political Fund to give the party a stable financial base, replacing the informal "special fund" Razak had been operating covertly since 1959, when he was deputy party president.[10] As the Political Fund was to be secret, the Supreme Council authorized the party's leadership, effectively the president, to operate it at his discretion. The arrangement was intended to bypass UMNO's trustees, who normally held assets for the party, as the Political Fund was not to be presented to the party's annual General Assembly.
It was agreed among Razak, his deputy, Ismail Abdul Rahman, who was a stickler for ethics and honesty, and Tengku Razaleigh that the fund should not be linked to major businessmen who dealt with the government; nor should it have anything to do with government contracts. They established an elaborate procedure to avoid any suspicion that donations could be siphoned off for personal use. Every cheque donated to the Political Fund had to be accepted by at least two of the three, photocopied and circulated to all three. A receipt would be issued immediately. The fund was audited annually
and the results reviewed by the three of them. While some of the money in the Political Fund was transferred to an administration fund to finance the party's daily operations, the contents of the Political Fund were never disclosed to the UMNO Supreme Council.[11]
With Razak's approval, Tengku Razaleigh began investing UMNO funds in the stock market. By the time of the 1974 general election, UMNO for the first time was able to not only meet its own electoral expenses but also help finance candidates for three of the main National Front components, the Malaysian Indian Congress and Gerakan Rakyat Malaysia, as well as the Malaysian Chinese Association.[12] The UMNO Political Fund built up a modest portfolio. "We bought shares on the open market purely as an investment," said Tengku Razaleigh. "We did not run any organization as a business or a going concern."[13]
At Razak's request, Tengku Razaleigh bought 80 per cent of Singapore's Straits Times Press's operations in Kuala Lumpur in late 1972 and repackaged them as the New Straits Times Press (Malaysia) Bhd. The shares were held by Fleet Holdings Sdn. Bhd., a company that Tengku Razaleigh established in 1972 for UMNO, but which did not have any formal links to the party. Fleet listed New Straits Times on the stock market in early 1973, retaining 51 per cent control and realizing an immediate profit of RM7 million on the sale of the shares it offered to the public.
It was not the first time UMNO had acquired a newspaper. In 1961, Prime Minister Tunku Abdul Rahman had taken over Utusan Melayu Press Bhd., publisher of the leading Malay-language paper, provoking a bitter strike by staff, who objected to the loss of independence. As the voice of the Malays, the paper was an important propaganda weapon for UMNO and the government, and was never considered a business proposition. With the shares held by individuals, who had no written arrangements with UMNO, the company was not part of the party's investments controlled by the treasurer. Razak took over most of the shares from the Tunku and put an aide, Abdullah Ahmad, on the board, starting what became almost a tradition for the prime minister to hold a majority of the shares in Utusan Melayu Press.[14]
In the case of the New Straits Times Press, although it came directly under Tengku Razaleigh's charge, he left it in the hands of professional management. An accountant, Junus Sudin, was recruited from a British multinational to run Fleet as chairman. The company expanded steadily under Junus, who was content to allow Fleet to be sustained by the dividends it received. Profit was reinvested primarily in three sectors: newspapers and publishing, banking, finance and insurance, and telecommunications.
UMNO acquired Bian Chiang, a small bank in Sarawak state, almost by accident. Tengku Razaleigh bought 80 per cent of the bank's equity for just under RM5 million to help a friend, the late Wee Hood Teck, urgently settle a gambling debt. When Razak learned of the purchase, he worried that Tengku Razaleigh would leave his fulltime job at state-owned Bank Bumiputra, where he was chief executive, to run his own bank. Razak insisted that Tengku Razaleigh stay in his post and sell his Bian Chiang Bank shares to UMNO, at the same price for which they had been acquired. The entire bank — Wee's stepbrother also decided to sell his 20 per cent stake — was transferred in 1974 to Fleet Holdings, which was able to pay cash for it.[15] Bian Chiang was renamed Bank of Commerce. It ended up part of CIMB Group — headed by Razak's youngest son, Nazir Razak — whose state-controlled, listed holding company, Bumiputra-Commerce Holdings Bhd., had a market value of RM36 billion at the end of 2007.[16]
Apart from the New Straits Times Press, its subsidiaries and the Bank of Commerce, the only known significant purchase made by Fleet under Junus Sudin and Tengku Razaleigh was in insurance. In 1980, Fleet Group entered into a joint venture with United States-based AFIA Worldwide Insurance to form American Malaysian Insurance.[17]
Fleet Holdings all but disappeared from public view in 1974, when it qualified as an "exempt private company" and no longer had to file financial statements with the government. Fleet Group Sdn. Bhd. was formed in 1976 as a wholly owned subsidiary and operating arm. Public records show that its profit grew strongly, from RM327,443 in 1977 to RM15.7 million in 1982.[18]
Daim Zainuddin, with a penchant for secrecy and distaste for convention, took over Fleet that year, displacing Junus Sudin. Although he would not become UMNO treasurer formally until 1984, Daim effectively exercised some of that authority immediately — "de facto treasurer", as he called himself[19] — since he controlled Fleet and its associated companies. As prime minister, Dr. Mahathir was keen to reduce the political influence of the ambitious Tengku Razaleigh, who twice challenged Musa Hitam for the deputy premier's slot. Although almost unknown to the Malaysian public then, Daim was a close friend of Dr. Mahathir and one of Malaysia's most successful bumiputra businessmen. He would be primarily responsible for integrating politics and business in Malaysia,[20] though philosophically the connection was made by Dr. Mahathir, who was consumed by the ambition to transform Malaysia into a modern industrialized society.[21]
The youngest of 13 children of a Kedah government clerk, Daim had made it big in property development after studying law in Britain and returning home to work both as a government magistrate and prosecutor, and as a private lawyer. Abandoning in 1969 the law firm he opened only the year before, Daim failed in his early business ventures, in plastics and salt making. He got his break in 1973 when he used his political connections to obtain a large tract of land in Kuala Lumpur — then in Selangor state, but soon to become federal territory — which he and two partners turned into a residential community named Taman Maluri. While forced to sell the first houses at cost, they cashed in when property prices soared in 1976. Declared Daim's friendly biographers, "With the housing boom, Daim made his fortune. He owned one square mile [2.6 square kilometres] of the federal territory...he also had land in other places...Daim's dream of becoming a millionaire had come true".[22]
The accumulation of so much wealth so quickly was a source of wonder that marked Daim as an audacious and deft operator in the new, pro-bumiputra business environment. He declared he was the first Malay to donate RM100,000 to UMNO.[23] By 1977, still not 40, Daim had made enough money to "retire", taking himself off to Berkeley in the United States for two years to study urban planning at the University of California.
On his return home, Daim accepted a position as the non-salaried chairman of Peremba Bhd., a subsidiary of the government's bureaucratic and poorly run Urban Development Authority, an agency to promote bumiputra investment in the property market. At Peremba, formed at his suggestion to group commercial real-estate holdings, he gathered around him a coterie of bright young Malay executives, many trained in accountancy and engineering, who would become household names as major corporate and UMNO players. Known as Daim's protégés, or the Peremba boys, most of them maintained close ties with him across the deals and years.
Daim's rapid ascendancy coincided with Dr. Mahathir's assumption of the prime ministership in 1981. Although he held no official position, behind the scenes Daim acted as a troubleshooter for Dr. Mahathir, travelling to the United States to lobby for a change in tin reserves policy and discussing bilateral problems with the British in London. While Daim was 13 years younger than Dr. Mahathir and they did not get to know each other until adulthood, they were from the same poor neighbourhood in Alor Star, and hit if off. Daim seemed to embody the new breed of dynamic bumiputra that Dr. Mahathir was trying to create. As Daim told local reporters, "I went into business to prove one thing: that a Malay can also succeed in business. Before now, Malays have only been company directors, mainly figureheads on display."[24]
Operating mostly below the radar screen, Daim in 1982 won control of a bank, the established path to serious wealth in Malaysia. His successful bid again raised eyebrows because he prevailed over several bumiputra-controlled companies, some of them government affiliated, which were at least as well qualified. Also, in approving his 51 per cent stake, Bank Negara, the central bank, ignored its usual insistence that majority control of a commercial bank be held by a corporate entity rather than an i
ndividual, especially one with little experience in banking and finance. The decisive factor: Dr. Mahathir gave the transaction his blessing.[25]
Neither Daim's move to Fleet to manage UMNO's finances, nor the simultaneous restructuring of the French-owned Banque de L'Indochine & de Suez that gave him control of its replacement, locally incorporated Malaysian French Bank Bhd., were publicly announced at the time. The sensitivity of Daim's close association with Dr. Mahathir and his undercover role at Fleet was reflected in undeclared sanctions against the Hong Kong-based Asian Wall Street Journal, which reported both developments. After the paper carried an article on Daim's expected acquisition of Indosuez, the government — on Dr. Mahathir's orders — began systematically to delay distribution of the daily to subscribers in Malaysia. The government also blocked for a month a subsequent edition of the paper that described Daim's appointment to head Fleet.[26]
When Dr. Mahathir appointed Daim, 46, to his Cabinet in 1984, it capped a three-year rise from near obscurity to one of Malaysia's most powerful figures, during which he assembled a private empire that included major stakes in a number of publicly listed companies. His preferred style was to make extensive use of the stock market, with rights issues and share swaps, often pledging the shares he was buying to secure loans for the transaction. Along the way he forged close links with some of the best-connected Malaysian Chinese businessmen, and shrewdly exploited the cozy, often loosely regulated business environment. Having been persuaded by Dr. Mahathir to contest a parliamentary seat two years earlier, Daim replaced Tengku Razaleigh Hamzah as finance minister as well as treasurer of UMNO.
The state of UMNO's finances, when Dr. Mahathir came to power and Daim took control of the purse strings, is strongly disputed. As UMNO split a few years later and polarized around factions led by Dr. Mahathir and Tengku Razaleigh, the matter was bitterly debated. It was the genesis of gossip and speculation in UMNO circles about the party eventually being looted of RM5 billion or RM6 billion. Dr. Mahathir and Daim insisted that Tengku Razaleigh left UMNO's finances thoroughly depleted. Dr. Mahathir directed his criticism not just at Fleet's bottom line, but at the system by which various people held the shares in trust for UMNO. He said the departing Tengku Razaleigh: