LCS scandal: remedying corruption or simply ignoring it?

PRESS STATEMENT

LCS scandal: remedying corruption or simply ignoring it?

On 26 May, it was reported that Boustead Naval Shipyard Sdn Bhd (BNS), a subsidiary of Boustead Holding Berhad (BHB) signed a sixth supplemental contract for the procurement of the littoral combat ships (LCS), reducing the deliverables from six ships to five, but ballooning the total cost of the project from RM9.13 billion to RM 11.2 billion. It was also announced that the Ministry of Finance had established a special purpose vehicle (SPV) to take over BNS as a subsidiary, essentially giving MOF greater control over the project and also enacting more accountability measures to ensure the project’s completion.

The Center to Combat Corruption and Cronyism (C4 Center) acknowledges that this is a step in the right direction in order to ensure that the project does not encounter further obstacles and delays. However, C4 Center also questions why those responsible for the project’s catastrophic failures still have not been held accountable, and what the continuation of the project means for future anti-corruption efforts.

Defence Minister Datuk Seri Mohamad Hasan stated that the LCS project will be monitored by a newly-formed Project Monitoring Committee (PMC), jointly chaired by the Treasury secretary-general and the Defence Ministry secretary-general. Mohamad Hasan additionally stated that periodic progress reports to the Cabinet would be prepared in accordance with the conditions set by the Auditor-General, and periodic reporting to Parliament through the Public Account Committee (PAC) will be done at least once every three months as well.

While the increased oversight over the LCS project is a welcome development on paper, the administration of oversight itself must be practised and maintained to its fullest extent to ensure the project itself can meet its obligations, adhering to the timelines for delivery that have been set without failure or delays. If those reports are to be made to the Cabinet and to the PAC, they should also be made publicly available for the public – with the RM 6 billion that has already been sunk into this project, all of which came from people living in Malaysia but with not a single ship to show for it, the government has an obligation to uphold transparency, both in terms of fulfilling their mandate of public service and also for rebuilding trust in government institutions where it has been eroded after countless corruption and financial mismanagement controversies. The capacity of our navy to defend our shores, for which these ships were purchased in the first place, has already been severely limited by this misstep.

Many questions about the project remain unanswered, and the government’s response towards those outstanding issues remains wanting – why haven’t the investigations behind those responsible for the poor decision-making that led to the demise of this project been made public yet? In March 2023, Chief Commissioner of the Malaysian Anti-Corruption Commission (MACC) Azam Baki stated that statements from involved parties were still being taken – this follows a string of statements from the MACC since August 2022 that the investigations were already near completion and would be released to the public. BHB’s internal audit revealed inconsistencies and key figures serving in the Ministry of Defence at the time making questionable decisions; C4 Center’s own research from September 2022 uncovered strong connections between this scandal and the Scorpene submarine controversy, with the same individuals quite possibly orchestrating both these projects. Why has the government been slow to act on this?

Prime Minister Anwar Ibrahim’s comment that the government had “no choice” to continue with the project is unsettling in light of their inaction in holding the perpetrators of this scandal to account. If mega-projects that cost taxpayers billions of ringgit were allowed to continue despite clear mismanagement and the strong possibility of corruption based on the logic of ‘sunk cost’, this sets a dangerous precedent where the mismanagement of projects is retroactively disregarded in favour of ensuring delivery. The validity of the project becomes secondary to the need for completion, all while using up more public funds. The cost of the LCS project has inflated to RM11 billion by way of the supplementary contract – with RM6 billion already spent on this but no ships fully completed, the logic of sunk cost compels the government to spend another RM5 billion. That is not to say the project is a complete waste of money – defence spending is undeniably important for the nation. However, cost-benefit analysis and the return on investment for public procurement must be prioritised.

It is worth mentioning that while he was still the leader of the opposition in August 2022, Anwar stated that the next phase of the project must be halted, with the remainder of the budget funds redirected to people in need, especially veterans. As the Prime Minister, he later stated in March 2023 that investigations into the LCS project must continue and that previous prosecutions were not enough as they did not even involve the main culprits behind the project’s failure. Anwar’s current statements seem to contradict these previously-held sentiments.

This is where strong enforcement of anti-corruption laws and policies would play a crucial role. If enforcement bodies such as the MACC are not able to conduct investigations and bring charges against individuals liable for corruption-related offences in a timely manner, Malaysia risks losing billions of ringgit more to flawed projects and politicians abusing their office for self-enrichment. Without proper oversight and enforcement, the procurement system will just be used as a mechanism for further extraction of funds, and the corruption that led to it is simply treated and accepted as an aspect of ‘sunk cost’.

Hence, C4 Center strongly urges the following:

1. For the monitoring reports by the PMC and the PAC to be publicly released and kept in accordance with the set period as determined;

2. For the results of the MACC’s investigations so far to be released promptly, made available and accessible to the public, accompanied by periodic updates on the status of ongoing investigations;

3. For the Attorney General’s Chambers to initiate prosecutions against individuals found to be engaging in corruption-related offences at the point of contracting, and for those involved in the financial mismanagement of the project to be held publicly accountable;

4. For Parliament to enact the requisite institutional reforms such as the Procurement Act that would act as a preventative measure against massive wastage and poor delivery of infrastructure, and also reforms to the MACC that would ensure that public sector corruption can be dealt with more effectively.

END OF STATEMENT

Issued by:

Center to Combat Corruption & Cronyism (C4 Center)