Special Report: Regulators in business - Profit, charity & conflict
IN Issue 1279 (Aug 12 to 19, 2019), we published a Cover Story headlined “Profit, Charity & Conflict”. It was about how foundations linked to state governments funded themselves.
Specifically, it was about Yayasan Wilayah Persekuatuan (YWP), which is tied to the Ministry of Federal Territories and Dewan Bandaraya Kuala Lumpur (DBKL).
Our attention was drawn to YWP because it was mired in a controversial plan to carve out 12 acres from a 25-acre public park called Taman Rimba Kiara, which is popular with residents of Taman Tun Dr Ismail, who deem it an important green lung.
Our interest, however, was to shine the spotlight on how YWP and DBKL entered into commercial deals by approving the sale of state land to developers and, subsequently, approving their projects. In the case of Taman Rimba, YWP and DBKL took 12 acres of a public park and used that as its contribution to a joint venture with Memang Perkasa Bhd, a subsidiary of Malton Bhd, for a guaranteed profit share of RM160 million.
In 2017, DBKL approved the development — which comprises eight blocks of high-rise apartments — over the objection of residents, who subsequently took YWP, Datuk Bandar KL and Memang Perkasa to court to challenge the validity of the development order.
Among other things, the residents argued that there was a conflict of interest on the part of YWP and Datuk Bandar KL in approving the development.
We interviewed the then Federal Territories Minister and the CEO of YWP and asked them about the conflict of interest. Both insisted there was none.
The residents went to court but lost after the High Court ruled against them. Last week, the Court of Appeal reversed the decision and ordered that the development order be annulled.
Among the reasons given by the Court of Appeal — which comprised Datuk Mary Lim Thiam Suan, Datuk Has Zanah Mehat and S Nantha Balan — was that there was a clear conflict of interest on the part of YWP.
The judges said:
“The fact that the application was made in the joint names of Yayasan and Memang Perkasa makes no difference to the conclusion that there is a conflict of interest between the applicant and the decision maker who granted the Development Order.
We must, however, state for the record that our conclusions here in no way mean there was personal interest on the part of the Datuk Bandar. We take the position that the commercial interests of Yayasan under the joint-venture agreement (JVA), where the Datuk Bandar is a member of the Board of Trustees of Yayasan, is sufficient to say that the test of conflict of interest has been met, hence tainting the Development Order granted by the Datuk Bandar.”
The judges went on to say:
”While we understand and appreciate that an ‘administrative impasse’ may result, that is no answer to the larger principle that there must be compliance to the procedural requirements of law, to the rule of law; that no one is above the law; that the law favours no one; that the rules of natural justice requires not only must justice be done but be seen to be done. These principles are of particular importance in public law where there is a substantial element of public trust reposed on public authorities such as the Datuk Bandar.
From the terms of the JVA, we agree with the submissions of the appellants that there are more than sufficient terms contained therein to fetter the discretion of the Datuk Bandar when it comes to considering the application for planning permission of the proposed development and in securing a Development Order ... clearly indicate that Yayasan’s interests, commercial and financial, were entirely dependent on the proposed development being approved. Without such approval, there would be no joint venture, nothing to develop and no financial gain. ”
In the following pages, we reproduce parts of our Cover Story to refresh readers on what had happened and on the sensitive issue of conflict of interest on the part of state authorities when they enter into deals in which they are both the approving body and beneficiary.
Stories by Khairie Hisyam Aliman and Vasantha Ganesan
The long-running dispute over the proposed development of Taman Rimba Kiara in Taman Tun Dr Ismail (TTDI), Kuala Lumpur, has put the spotlight on Yayasan Wilayah Persekutuan (YWP), the previously low-key state-controlled foundation that owns the land.
The standoff between the Federal Territories Ministry and Kuala Lumpur City Hall on one side, and TTDI residents opposed to the building of high-end condos on part of the public park on the other, has raised questions about how YWP raises funds for its stated purpose, which is to aid the poor and underprivileged in the federal territories of Kuala Lumpur, Putrajaya and Labuan.
Along with billboard and parking management, YWP has been deriving most of its income from land-related ventures, one of which is the Taman Rimba Kiara project.
Critics have taken aim at the foundation over questions of conflict, particularly as its Memorandum and Articles of Association require the chairman of its board of trustees to be the sitting FT minister. Also on the board is Kuala Lumpur mayor Datuk Nor Hisham Ahmad Dahlan.
This raises the spectre of possible conflict when YWP’s interests overlap with the regulatory functions related to the FT minister or the powers of the mayor.
The core conflicts not only arise from the potential use of such powers for a profit-driven entity such as YWP — despite its charitable end-goals — but also in the larger context of the government double-hatting as both regulator of business and being in business itself.
In the case of Taman Rimba Kiara, YWP will get a share of the profit from the project that is being undertaken by Malton Bhd. Hence, TTDI residents and MP for Segambut Hannah Yeoh argue that public interest — to keep the park in its entirety — was sacrificed by KL City Hall and the FT Ministry for the benefit of YWP.
In the wider view, the conflict-of-interest question also extends to other state-run foundations that leverage on government connections for profit, potentially squeezing out legitimate entrepreneurs.
When posed the question in an interview, Federal Territories Minister Khalid Samad reiterates that there is no issue of conflict as long as there is better transparency and accountability.
“I will recuse myself [if needed]. In previous cases, I was informed that the mayor also recused himself [when discussing issues with potential conflict],” he tells The Edge.
Khalid also asserts that approvals relating to public land also do not involve the FT minister’s office. Regarding the Taman Rimba Kiara land, he says the Kuala Lumpur mayor also recused himself from the meeting discussing the development order.
In the original proposal by its partner Malton, YWP would have received RM160 million for its part as the landowner. However, that sum would be substantially reduced if the project is downscaled, according to Khalid.
While the Taman Rimba Kiara saga is ongoing, it is worth noting that the foundation has decided that it will cease all property-related business once the ongoing projects are completed, YWP CEO Zaizalnizam Zainun says in a separate interview.
When asked about the board of trustees and the potential conflict from their presence because of their other roles outside YWP, Zaizalnizam echoes Khalid’s assertion that no board member benefits from its business operations.
He says board members are only paid a sitting allowance of RM2,000 at most. As a company limited by guarantee (CLBG), YWP neither has shareholders nor does it pay out salaries, bonuses, dividends or other remuneration to its board members.
“Whatever decisions we make are not beneficial to any individual or minister,” says Zaizalnizam.
‘Unfairly targeted’
Khalid argues that YWP is not unique and has been unfairly targeted, given that other states also have state-run foundations led by sitting menteris besar or chief ministers.
He also asserts that the less fortunate in the federal territories are under-aided as the FT has no state government nor a state assembly and lacks resources that come from a state development corporation and a sitting menteri besar’s corporate vehicle, such as Selangor’s Menteri Besar Incorporated.
“I plan to retain this entity after going through many angles and comparing the charitable avenues that the federal territories get compared with the other states ... the needy in FT are getting the least assistance,” says Khalid.
He adds that politically, he does not benefit from the goodwill from YWP activities as he represents voters in Shah Alam, Selangor.
A survey of all state-run foundations in other states show that most of them derive income from business operations to fund their charitable activities.
A notable exception is the Penang Future Foundation established in 2015. Its website says it operates on the basis of donations.
All the foundations, except Yayasan Islam Negeri Kedah (YINK) and Yayasan Perak (YP), are chaired by the sitting menteri besar or chief minister.
Most of them predate YWP, which was set up in 1986 when Khalid’s brother Tan Sri Shahrir Samad was FT minister under the Barisan Nasional government. Only Yayasan Islam Perlis, established in 1987, is newer.
YINK is currently chaired by Datuk Phahrolrazi Mohd Zawawi, Alor Mengkudu state assemblyman and deputy chairman of the Kedah Parti Amanah Negara (Amanah). Meanwhile, YP is chaired by Asmuni Awi, the Manjoi state assemblyman and Perak Amanah chairman.
Publicly available information is scarce as some foundations do not publicly reveal their business activities and partnerships. However, most of those that do are involved, in varying degrees, in businesses that require government licences, concessions and, potentially, public land.
For example, Yayasan Pahang is involved in mining and property development, states its website. On the other hand, Yayasan Sabah’s businesses range from tourism to plantations, forestry, property, fisheries and oil and gas.
Interestingly, Yayasan Sarawak offers credit services to civil servants on top of being a shareholder in various businesses, including timber. Its subsidiaries also offer land-clearing for plantations and preparatory works for infrastructure projects.
While the income may help towards achieving the social objectives of the respective foundations, the other side of the coin is that the government is essentially doing business itself.
That presents a clear conflict. The government is then both a regulator of business as well as a business owner and operator.
The larger risks also come from potential abuse and competing interests of having politicians taking key positions in managing them.
One level of risk is that the funds and resources at the foundations’ disposal may be mismanaged. Political interests may even affect politically-motivated decisions in dispensing aid.
As for entrepreneurs, they may face unfair competition in securing some types of business opportunities as the competitor in such spaces could essentially be the government itself.
Another level of risk is that the positions themselves could be offered as political reward, which means competency and qualifications could be secondary considerations — exacerbating the first risk.
A research report published by the Institute for Democracy and Economic Affairs (Ideas) last September shows that political appointments at state government-linked companies (GLCs) practised during Barisan Nasional’s administration has continued under the present Pakatan Harapan government.
In a statement, Ideas said after a survey of Selangor and Penang, a “large number” of senior political leaders from the respective ruling parties were given board roles in all strategic GLCs and their subsidiaries.
“A key factor contributing to corrupt practices within GLCs is the appointment of politicians to their boards of directors. The members of these boards are public trustees, but do not act as such,” said Ideas.
Opaque dealings
In a previous statement, Khalid’s office said YWP had budgeted RM7.6 million for education-related aid this year, of which RM1.1 million had been spent.
In addition, RM4.25 million had been allocated for entrepreneurship courses, social and religious aid, and technological training, and RM1.5 million for tahfiz and independent Chinese schools.
However, YWP did not get back to The Edge with clearer data on the exact number of B40 beneficiaries it has helped over the past five years and how the aid was dispensed.
When asked for a snapshot of its charity works, CEO Zaizalnizam says the scholarship commitments at present amount to RM7 million a year. The property segment’s contributions over the years had boosted its social impact, he adds.
He also reiterates that YWP’s board of trustees do not personally benefit from its operations. Rather, they are there to monitor and ensure that at least 80% of YWP’s funds go towards charitable causes, he adds.
“They are there to ensure that whatever we do [and earn], we give back to the rakyat,” Zaizalnizam says, echoing Khalid, who made a similar point in a separate interview.
While the sitting board of trustees at YWP and other state-run foundations may not benefit directly from the business activities, it should be noted that room for corruption outside of a foundation’s structure — and outside any boardroom meeting — remains.
When posed the question, Khalid again stresses that for YWP, increased transparency and better accountability is the way forward.
It is worth noting that the potential conflict of interest revolving around the FT minister’s post and land development around the city is not a new issue. Now, it has even been brought up before the court.
Last month, the Kuala Lumpur High Court was told that Datuk Seri Tengku Adnan Tengku Mansor received RM2 million in political donation from a property developer in 2016.
In a written statement, Aset Kayamas Sdn Bhd managing director Tan Sri Chai Kin Kong affirmed that the donation was given on Tengku Adnan’s request for upcoming by-elections involving Umno.
Another witness in the case, from Tengku Adnan’s Tadmansori Holdings Sdn Bhd, which received the donation, said the company did not make any payment to Umno after receiving the money.
Court proceedings on corruption charges against Tengku Adnan, who was FT minister between May 2013 and May 2018, are ongoing.
Note that Aset Kayamas has not done business with YWP, based on information available at press time. However, it has had multiple land-related dealings with Kuala Lumpur City Hall previously.
It is important to emphasise that political donation itself is not a crime. However, it does raise concern when such donations involve quid pro quo, entailing the use of public office powers at the expense of public interest.
It also adds to the potential conflicts of interest arising from the dual roles held by the government if the current set-up of state-run foundations do not change.
Even if there is no personal interest arising from the activities of such foundations, the profit-seeking nature of the setup means there may be losers among genuine profit-seeking entrepreneurs.
The ultimate question is, does one right in the name of charity make up for other potential wrongs, such as from conflict, unfair competition and political abuse?
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