At the end of last year, 1MDB completed a US$1.2 billion payment to Abu Dhabi-based International Petroleum Investment Company (IPIC) as part of a settlement, despite both unable to agree on the status of a separate US$3.5 billion 1MDB claimed it paid to a subsidiary of IPIC.

IPIC had denied that British Virgin Islands-registered Aabar Investments PJS Limited (Aabar BVI), which 1MDB paid the US$3.5 billion to, was its subsidiary. Aabar BVI carried a similar name to Aabar Investments PJS (Aabar), which was a legitimate subsidiary of IPIC.

1MDB chief executive officer Arul Kanda Kandasamy, in a statement dated April 26, 2016, said the company could be a “victim of fraud".

Two years after 1MDB conceded to this, Malaysiakini asked Arul Kanda if the company has established if there were indeed grounds for such a claim.

Arul Kanda, however, took pains to stress that the onus lies with investigators, not 1MDB.

"I don't know if there is fraud in the first place. I think your question is fundamentally flawed because the statement of fraud came from the Swiss or the Singaporeans.

"Until today, the Swiss and Singapore authorities have not issued a warrant of arrest on anyone linked to 1MDB.

"I am not even sure the basis of your question. It is not for me to establish, they made the claims - in particular, the case is Swiss. It is for them to prove, not for me to verify or not. I didn't make the claim," he said.

Arul Kanda was referring to the Attorney General of Switzerland (OAG) statement on April 12, 2016 that it was investigating two United Arab Emirates officials for fraud in relation to the 1MDB matter.

The Emirati officials were believed to have been former IPIC managing director Abdullah Khadem al-Qubaisi and Aabar chief executive officer Mohamed Badawy Al-Husseiny. They were dismissed from their positions in 2015.

The same individuals were involved in the setting up of offshore companies bearing a similar name to Aabar but were unrelated to IPIC, which 1MDB paid billions to.

A parallel investigation by the US Department of Justice (DOJ) claimed the duo did this in collusion with Malaysian businessperson Low Taek Jho, a number of top 1MDB officials and their associates.

Deal fell apart without Emirati duo

In the months before the duo's dismissal, they had been in discussion with 1MDB for a debt-for-asset swap deal which culminated in the binding term sheet inked in May 2015.

Under the agreement, IPIC extended a US$1 billion advance to 1MDB to repay its US$975 million Deutsche Bank loan, which had its own separate controversy.

IPIC would also assume responsibility for the repayment of two 1MDB energy bonds in exchange for 1MDB's assets that included "fund units" which the DOJ claimed were "relatively worthless".

While 1MDB did receive the US$1 billion advance, the swap fell apart in the absence of the Aabar duo.

"As to the logic of entering into the transaction in the first place, I have to reserve my comment because I was not there at the time,” Arul Kanda told Malaysiakini in an interview.

“I think people have said about all these things, so I wouldn't really talk about that. But in terms of the genesis of the asset swap idea, it happened, but then stopped after they (Abdullah Khadem and Mohamed Badawy) were relieved of their duties."

Following the dismissals, an international dispute ensued with IPIC demanding that 1MDB repay US$1.2 billion, which included the US$1 billion advance and other interest payments.

1MDB eventually relented and repaid the sum in a settlement. This was despite its disputed US$3.5 billion payment to Aabar BVI, which the company insisted was a subsidiary of IPIC, remained unresolved.

The US$3.5 billion included a refundable deposit for IPIC to guarantee two of 1MDB's energy bonds, the termination of Aabar's options in 1MDB's energy assets and top-up deposits.

Asked if it was lopsided for 1MDB to fork out US$1.2 billion to repay IPIC's advance and interest payments when 1MDB's US$3.5 billion to Aabar BVI was still in limbo, Arul Kanda said the decision to settle was made at the "sovereign level".

"Again, let's be clear - both countries ultimately at the sovereign level decided that this dispute should be resolved, so this is a decision made at the highest level," he said.

IPIC, now merged with another Abu Dhabi fund, Mubadala, in the settlement agreement, had refused to acknowledge that it received any of the US$3.5 billion payment from 1MDB.

In an announcement to the London Stock Exchange, the Abu Dhabi fund merely said that both parties had agreed to enter into good-faith discussions in relation to payments made by 1MDB Group to "certain entities".

Arul Kanda said those "good faith" discussions commenced in January this year and is still ongoing.

'1MDB still has time'

According to the DOJ, Aabar BVI, together with another similar offshore company registered in Seychelles (Aabar Seychelles), were intended to give an impression that they were subsidiaries of IPIC even though they were not.

This was to justify to banks for 1MDB to release billions to the bogus entities which then diverted the funds through a web of complex entities for the benefit of 1MDB and Aabar officials, Malaysian Official 1 (MO1), Low and their families and associates.

However, Arul Kanda stressed that the DOJ filings were unproven claims and no conclusion should be drawn until the courts decide.

The first of the US$3.5 billion payment was made in 2012 and six years on, it is not clear what happened to the money. The 1MDB transfers to Aabar BVI came from the bonds which the company issued.

Asked about 1MDB's apparent lack of urgency to recover the money despite needing cash to pare down its debt, Arul Kanda said the money will be eventually needed to repay 1MDB's energy bonds but they were not due until 2022.

"There are two bonds totalling US$3.5 billion... and that's due in 2022 - May 2022 and October 2022.

"That is equal to the amount paid to Aabar BVI. So we do have a window - a timeframe in order to meet those obligations," he said.

This interview was jointly conducted by Andrew Ong, Kow Gah Chie, Nigel Aw and Steven Gan.

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