Business

Saturday October 6, 2012

A thorough, swift probe of Genneva Malaysia should end the debate

OPTIMISTICALLY CAUTIOUS
By ERROL OH
errol@thestar.com.my


IT'S agonisingly hard to be a regulator at times. When there's enforcement action, complaints of heavy-handedness and unfairness are almost inevitable. However, if things go wrong and people suffer losses because somebody hasn't played by the rules, there will be this automatic question: “Why didn't the authorities prevent this?”

The Genneva Malaysia case is an unusual example of a regulator's dilemma because a business being investigated by several government bodies has many stakeholders who would be a lot happier had there been no such intervention.

Maybe dilemma isn't the right word. There was no sign of ambivalence when the police, Bank Negara, the Domestic Trade, Cooperatives and Consumerism Ministry and the Companies Commission of Malaysia carried out joint raids on Monday on several premises of Genneva Malaysia Sdn Bhd and on the homes of its directors.

A multi-agency strike like this is both rare and impressive. It's impossible to miss the point that the Government is putting in a lot of resources in acting on the suspicion that Genneva Malaysia has broken the law.

That strategy has since widened in scope. Yesterday, the police, Bank Negara and the Ministry of Domestic Trade, Cooperatives and Consumerism conducted joint raids on three other companies Pageantry Gold Bhd, Caesar Gold Sdn Bhd and Worldwide Far East Bhd.

Like Genneva Malaysia, the trio are classified as gold investment companies on Bank Negara's Financial Consumer Alert list, which identifies companies and websites that are “neither authorised nor approved under the relevant laws and regulations administered by Bank Negara”.

On its website, Genneva Malaysia describes itself as “the leading gold bullion trader in Malaysia” and claims to have more than 50,000 customers and 6,000 consultants in the country.

These customers and consultants are a frustrated and worried lot since the raids on Monday. They are convinced that the company isn't doing anything illegal. They would have been far less upset if Genneva Malaysia's operations had not been halted.

It didn't help that the authorities were initially unspecific about the reasons for the raids. In a press statement on Monday, Bank Negara said these were for “suspected offences under the laws administered by the respective enforcement agencies”.

It was only four days later that the central bank offered more details of the suspected offences. These include illegal deposit taking, money laundering, tax evasion and avoidance, false description (including misrepresentations), appointment of agents without licence and failure to lodge statutory documents.

“Relevant assets and documents of the companies seized from the raid will be preserved for the purpose of facilitating the investigations. The relevant enforcement agencies have mobilised the necessary resources to expedite the investigations,” added the central bank in a statement on Friday.

This addresses the customers' concerns that their gold and money held by Genneva Malaysia will be frozen for an unduly long time while the investigations are pending.

But there's still the perception among the customers and consultants that the authorities were wrong to suspect Genneva Malaysia in the first place, and that the raids may have ruined a good business and the healthy returns the customers had been enjoying.

Supporters of Genneva Malaysia praise the company's business model and deny that it's a Ponzi scheme or a get-rich-quick scheme. Some go as far as to say the company deserves recognition for its innovativeness and for its ability to expand abroad.

There are also suggestions that the probe is the result of other financial industry players feeling threatened by the success of Genneva Malaysia.

The letters-to-the-editor page of The Star yesterday carried several examples of such thinking. Says a customer who goes by the name Kim Meng: “Genneva Malaysia's business is the new age business model. And what started as a Buatan Malaysia five years ago has since grown into one of the leading gold bullion traders across Asia with businesses in Singapore, the Philippines, Hong Kong and China (where Genneva has a 30-year operating licence in Beijing).

“Anything new takes time to understand and lots of resistance to change, especially when there are incumbents whose business will be affected by such change and new models.”

Another person known as Flower Rose, in response to a previously published letter that welcomed the raids, wrote: “Please get your facts right before saying anything. You have upset many customers that see Genneva Malaysia as a platform that is holistic and sincere in providing the rakyat with a legal and steady cash flow that even helps to boost the country's economy with the extra disposable income.”

The schism over Genneva Malaysia is strange because the enforcement agencies, according to Bank Negara, have acted to protect the interest of investors and the public. Can the regulators and the very people they want to help, be so far apart in what they believe?

It's a situation that demands patience and calm. The most important thing now is that the investigations are thorough yet speedy.

The Genneva Malaysia consultants and customers should have no problem understanding this. After all, if they're right about the superiority and legitimacy of the company's business model, all will not be lost. There will be no charges brought against the company and it will be allowed to resume operations.

Best of all, it should be able to bounce back with a fantastic (but unintentional) endorsement from the authorities. What can be a stronger certificate of deemed approval than having cleared high-profile investigations by several agencies? Let's wait and see.

Executive editor Errol Oh is still trying to figure out how Genneva Malaysia generates the profits that it shares with its customers. He needs to know more than what's on the company's website: “Experienced and dynamic management team with more than 100 years of combined experience in gold trading, gold mining and marketing.”

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