Rebuilding institutional confidence

OF late, there have been a series of exposés in terms of financial scandals in our country plaguing some major government-linked investment corporations (GLICs) and institutions.

Following the colossal 1Malaysia Development Bhd or 1MDB scandal that tarnished Malaysia’s reputation on the global stage, it would appear that there are many more skeletons in the closet which have only unravelled recently.

The question to ask whenever such scandals come to light is whether anyone is held responsible and whether there has been a breach of fiduciary duty to the public, considering the institutions involved in these shenanigans deal with hard-earned taxpayers’ money.

We have read news reports where petty theft of milk powder by poverty-stricken families has resulted in criminal prosecution and jail terms. Yet, rarely do we see those accused of greater crimes being put behind bars.

We have also seen offences involving money laundering, Ponzi schemes and fraudulent scams being let off with a slap on the wrist through compound payments for settlement with the authorities, while victims are made to bear the consequences in silence with a great injustice done to them. It is no wonder then that the perception given to society is that there is an alleged unequal standing before the enforcement of the law.

Those from privileged backgrounds appear to get off scot-free, while those who have lesser means have to receive whatever comes their way.

Fiduciary duty is not an option

In the case of Lembaga Tabung Haji (LTH), there is an estimated loss of RM13bil across 14 flagged investments made prior to 2018, of which there were seven specific investments that were completely written-off by 100%, destroying RM2.58bil in value, as stated by Finance Minister II Datuk Seri Amir Hamzah Azizan.

This led to the government embarking on a bailout of RM10.2bil via asset transfers to Urusharta Jamaah Sdn Bhd. Between 2018 and 2025, LTH absorbed other losses to the tune of RM2.6bil through institutional impairments and net losses.

The government’s revenue is broken down into direct and indirect taxes. The bulk of the government revenue is made up of direct taxes, which are targeted at income tax and corporate earnings.

Indirect taxes come from consumption-based taxes such as the sales and service tax, excise duties and others.

A country’s government does not generate income on its own, as the income must come from a source. The source happens to be the people and companies, which essentially means the people’s hard-earned money is used as part of the funding pool for GLICs and institutions.

GLICs and institutions are in effect acting as custodians of the people’s money, and hence, are bound by the fiduciary duty to act in the best interest of the people.

Unfortunately, we have seen a blatant disregard for the interest of the people. While in part it may be due to negligence, on a deeper level, there is a clear breach of fiduciary duties by decision-makers.

Crisis of confidence is real

The government has stated the Royal Commission of Inquiry report on LTH’s performance was not published earlier due to fears of massive withdrawals due to a crisis of confidence.

As such, rescue measures were put into place before the report could be tabled and shared with the public.

Yet, we are seeing today that the crisis in confidence is real and unavoidable if left unaddressed. Scandal after scandal is being unravelled where basic procedural processes had been breached at every level, not only at the working level but at the highest investment committee or panel.

If remedial measures are not put into place urgently and efforts to recuperate losses are not expedited, the one that foots the bill for the foolishness and transgressions of some would be, once again, the people.

As such, who in their right mind would entrust their savings to the very institutions meant to safeguard their deposits? The last thing we want is an erosion of confidence in other better-performing institutions such as the Employees Provident Fund or Permodalan Nasional Bhd (PNB) as collateral damage from all this negative news flow.

Weak enforcement of regulatory framework

Contrary to popular belief, there is no lack of good frameworks in place for our institutions. We have an abundance of laws and regulations to ensure compliance by the GLICs and institutions.

Processes are often robust, with checks and balances in place. Whenever something blows up, there will be loud calls for reform or the need for stricter laws to plug the gap.

The issue, in my humble view, is not the framework or the law. It is, in fact, weak enforcement. When enforcement is weak, the deterrent effect is not up to par.

If the consequence of breaching the regulations is light compared with the potential windfall (illicit or not), then the end justifies the means, doesn’t it?

Examples ought to be made of those who are responsible for the dereliction of duties by those appointed to act as custodians for the people in the first place. If someone at the top were to be held responsible for their oversight, then such major mistakes would likely reduce in occurrence in the future.

Sad to say, many instances have shown that the risk-to-reward ratio appears skewed in favour of those who cross the line instead of those who are upright.

Restoring trust is paramount

Those who are tasked with managing taxpayers’ money have to be held to the highest standards due to the trust placed in them by the public.

Furthermore, appointments to these key roles have to be based on merit and capability rather than political connections or affiliations.

Technocrats owing no allegiance to any political master should be given the chance to run the GLICs and institutions professionally. That is the only way forward for our GLICs and institutions to restore trust from the public.

By putting the right people whose priority is to serve the nation rather than to enrich themselves, I believe it will benefit the country and economy in the long run.

Malaysia has an abundance of resources and natural advantages that make our regional peers green with envy. Sadly, the leakages in the system are too rampant. The systemic failures across organisations and institutions are too prevalent to be eradicated overnight.

But that does not mean we should not start turning it around. Instead of introducing new taxes and removing subsidies that burden the people to increase government revenue, start plugging leakages at key GLICs and institutions.

Once the people see the improvement, they would be more receptive and willing to play their part in contributing taxes to the country, provided they are being put to good use. Trust and taxes go hand in hand.