Brunei's Costly Hangover

Prince Jefri Bolkiah's extravagant lifestyle might have dented his country's cash reserves. But the foot-dragging over the claims of his legion of creditors is damaging the sultanate's credibility

By Lorien Holland/KUALA LUMPUR

Issue cover-dated November 01, 2001

REMEMBER PRINCE Jefri Bolkiah of Brunei? That high-spending prince who made significant dents in his country's financial reserves? Peter Burke certainly does, because three years after the collapse of the prince's business empire in Brunei, he still hasn't been paid for the bulk of the work his architecture firm did on high-profile projects there. And he won't be seeing the $2 million he is owed any time soon unless the oil-rich sultanate takes a grip and halts the tangle of litigation surrounding its losses.

That's because Burke and another 300-or-so creditors--with claims of around B$1 billion ($555 million)--have been pushed firmly to the bottom of the pile as Brunei is consumed by a complex and lengthy battle over who is accountable for billions of dollars discovered missing from state coffers after the government pulled the plug on Jefri's businesses.

"We've tried to do the right thing all along. But after three years, nothing is sorted out," says Burke, who is the director of McKerrell Lynch, the Australian architects for Brunei's Empire Hotel. That hotel, dubbed six-star because of its opulent fittings and palatial scale, was once the flagship of Jefri's empire, and is now managed by a government agency. "All we want is to be paid our dues so both parties can get on with the future. We are speaking out now and being more dogged because it seems that nobody wants to settle this," Burke says.

And he's right. Although Western law firms and accountants have been picking through the pieces of Amedeo Development Corporation and its affiliated companies since 1998, resolution of its debts now seems further away than ever, especially as a court case involving ADC's largest potential creditor, Tanah Mas, could drag on for years.

With carcasses of unfinished ADC construction projects still littering Brunei's horizon, a fresh slew of litigation is also making its way through courts in Brunei, New York and London. And these new court cases--involving the government, the liquidators, creditors and former associates of Jefri--are starting to raise questions which strike at the heart of the sultanate. Most pertinent is whether Jefri, who was finance minister at the time, illegally diverted billions of dollars of government funds, or whether his elder brother, Sultan Hassanal Bolkiah, who is head of state and prime minister, authorized the transfers.

"Brunei is a small place, so it seems unlikely that the sultan didn't know anything," says a diplomat who follows events in Brunei closely. "But how much he knew or authorized is another matter." According to court documents, the government of Brunei is claiming losses of at least B$43 billion--B$23 billion from Jefri (in an action that was settled out of court in May 2000) and a further B$20 billion that it says is unaccounted for.

With such astronomical sums involved, the B$5 billion used by ADC--mainly for construction projects ranging from state guest houses to royal palaces to a power station and a school--pales into insignificance. The B$1 billion that ADC owes to its creditors is even smaller fry.

"Considering the oil revenue that Brunei is earning, the funds to pay should be there, and I think anyone interested in settling could do so in a month," says a source involved in the winding-up of ADC. " In fact, if they [the government] just paid out B$600 million, I think the creditors would accept. But there isn't a will to resolve the issue."

Instead, litigation is multiplying, and the fees paid by the government to British law firm Freshfields and consultants Arthur Andersen--who have played a large role in the winding-up of ADC--already total several hundred million Brunei dollars, according to the local press. "Everybody is suing everybody else and it's becoming a never-ending process, just like a dog chasing its own tail," says a prominent Brunei businessman who spoke on condition of anonymity.

The crux of many of the current actions is the terms of the out-of-court settlement made between Jefri and the Brunei government in May 2000. The terms remain secret, but the deal included many of the hotels that Jefri owned overseas and his infamous yacht, Tits. Also apparently included were a number of properties that ADC built, like the $B1.07 billion Berakas power station. The creditors contend that the power station was not a personal asset of Jefri, so it should be sold to raise funds to pay off ADC's debts. But the Brunei government thinks otherwise.

It also asserts that it did not commission ADC's many projects in Brunei, though a recent exchange on Bruneidirect.com, an on-line newspaper in the sultanate, throws some doubt on that. The Web site quoted T.C. Chan, a former aide to another of Jefri's brothers, as saying that three ADC projects costing some B$47 million had been authorized and paid for by the government. "I know personally that these projects were approved by the then minister of development after he obtained approval from the government of Brunei. I applied for the funds for these projects on behalf of Prince Mohamed. There is documentary proof of that," Chan said, according to Bruneidirect.com. There has also been a reference, in an appeals case in Brunei on May 4, 2000, to $8 billion which passed through a Citibank account and "had gone to the benefit" of the sultan.

But all this leaves ADC's creditors no happier. To date, the Brunei government, has only made one offer to settle the debts, which would have involved payment of around 17 cents in the dollar. That offer has since been withdrawn, after several creditors dismissed it as "offensive." In addition, many creditors have seen their claims rejected by government-appointed liquidators, forcing them to hire legal teams to prove their claims in court.

"This situation now has to be of concern to any foreign business contemplating doing business in Brunei," says Robert Gonda, partner of Sydney-based Art Incorporate, which provided artworks for ADC and is owed $157,000 for four bronze panels it supplied to the Empire Hotel.

Like most of ADC's creditors forced to prove their claims, Art Incorporate won its appeal on July 17. But the court also ordered that Art Incorporate pay all legal costs--including those of the liquidators who had rejected the claim in the first place. "Given the small dividend last offered by the liquidators, creditors who are forced to court can have their likely return on the debt totally eaten up by legal costs," says Gonda.

Even a highly publicized auction of ADC assets in August--including gold-plated lavatory brushes and a flight simulator--is unlikely to improve the situation. It raised a paltry $8 million, which will largely go towards administrative costs of the liquidators. Jefri complained that it had taken "over three years to get round to selling the property," which had deteriorated in poor storage conditions and reduced the value for creditors.

POWER STRUGGLE

Throughout the imbroglio, Jefri has largely kept quiet. But shortly after the government took over his companies and removed him from all official positions, he warned of a family feud in France's Le Monde newspaper. "The reality of events in Brunei is of a power struggle between various factions, ranging from an open modern and pro-Western attitude which I represent, to those who want a conservative, religious regime," he said in a letter.

That's a view that many in Brunei would agree with. For all of Jefri's faults--and there were many--he did have a vision of a modern Brunei. Apart from lavish palaces and wildly extravagant tastes, he did build significant infrastructure for the country, set up a cellphone network and even beamed in London's Capital Gold radio station by satellite.

Since Jefri's fall from grace, Mohamad has been on the ascendant, as has an increasing Islamicization of the country. The sultan has made no attempt to repeat anything on the scale of the $17 million party thrown for his 50th birthday and now spends more time visiting schools and mosques.

Quite why his government is pursuing such lengthy legal battles and dragging out settlement with ADC's creditors is far from clear. "I don't know if the sultan realizes the potential escalation of trouble if he continues on this path," says one palace insider. "Prince Jefri may be forced to testify in court in some of the cases pending and his only defence can be that the sultan authorized, or at the very least, knew of his actions."