Missing billions, bogus donations and more political intrigue than a Shakespearean tragedy: the 1 Malaysia Development Berhad (1MDB) saga, currently plunging Malaysia into ever-deeper crisis, is shaping up to be the international heist of the century.
Hollywood’s finest scriptwriters would be hard pressed to rival the intricacies of the case that’s now gripping the world, even in the flamboyant realm of high fiction: revelations that US$ 2 billion is unaccounted for and almost $700 million was moved through banks, agencies and companies linked to 1MDB before being deposited in the private account of Prime Minister Najib Razak threaten to tear the government asunder, bring an undignified end to decades of one-party rule, and strip Malaysia of its financial standing.
It should be noted at this point, that both Mr Razak and the wider 1MDB have rigorously denied any wrongdoing, insisting:
a) that the funds paid into the prime minister’s personal account were a “donation” from a Saudi Royal sympathetic to his 2013 re-election campaign (he has already been cleared by Malaysian Attorney General Mohamed Apandi Ali, whom he appointed), and
b) that the fund’s assets are worth more than its debts.
It should also be noted that Mr Razak has been particularly robust in defending himself, decrying the claims in a Facebook post as “political sabotage” on the part of his predecessor and fiercest critic, Dr Mahathir Mohamad.
He went on to accuse Dr Mahathir of working “hand in glove” with foreigners in a campaign “to topple a democratically elected prime minister”, and said the attacks began when he refused to bow to the “personal demands” of the man who had once been his mentor (The New Straits Times had previously reported Mr Razik as saying it would be ‘illogical’ for him to embezzle money and then stash it in his own account)
Why should we care?
The 1MDB is currently under investigation by four sets of authorities: in the US, where both the Federal Bureau of Investigation (FBI) and a federal grand jury are probing allegations of money-laundering; in Switzerland, and in Hong Kong.
Should the allegations prove true – that the investment fund has systematically been used as a vehicle to steal vast sums of money – the global ramifications shouldn’t be underestimated.
As the Wall Street Journal, which has spearheaded international media coverage since breaking the story last year, has already cautioned: ‘Malaysia plays an important role in Asia as a moderate Muslim country with strong economic, diplomatic and cultural ties to the broader region and the Middle East.
‘When US President Barack Obama made a pitch early in his administration to “pivot” the US toward Asia, he focused on Malaysia as a counterbalance to China’s rise in the region.’
It gets worse
‘One risk is that the 1MDB scandal destabilises the Malaysian government, leading to a revival of the ethnic strife that plagued the country in its early years.’
‘Another is if the government fails to deal with the economic challenges facing the country, including low commodity prices, high debt levels and slowing economic growth.’
“Before, it was easy to convince foreign investors and companies to invest and form joint ventures in Malaysia, but lately they prefer to avoid dealings with government-linked companies or institutions,” Abas al-Jalil, chief executive at Amanah Capital Group in Kuala Lumpur, told the International Business Times.
“It is sad that investors shy away from Malaysia even when Ringgit is at the cheapest in nearly 20 years. Too many scandals have been exposed recently.”
The 1MDB scandal
Here’s what’s happened so far: Mr Razak set up the 1MDB development agency in 2009 to fuel information technology, renewable energy and high-value services. The end game: transforming the capital, Kuala Lumpur, into a financial powerhouse of global repute.
Instead, the fund racked up debts of $11 billion, investing in shady overseas ventures – including plans to develop oil fields and a mine in Mongolia – that conspicuously failed to materialise.
The alarm was first raised in early 2015, when the agency skipped out on repayments for the billions it still owes to banks and bondholders. Then the Wall Street Journal uncovered a paper trail leading from 1MDB coffers to the prime minister’s private bank account, having previously alleged that 1MDB funds had been misused to boost his re-election campaign in 2013. Mr Razak vowed to sue the Wall Street Journal, but has yet to follow through with his threat.
In Malaysia, where native media remains under the strict control of the state, covering the story falls to The Sarawak Report: a one-woman investigative outfit which has drawn praise from the BBC, among others, for its relentless scrutiny of the debacle, and has declared the existing evidence against 1MDB sufficient to ‘close the case’.
The 1MDB heist
How was this most audacious of heists pulled off? Over to London’s Financial Times: ‘The Swiss attorney-general’s office said it had identified four allegations of criminal conduct involving “a systematic course of action carried out by means of complex financial structures”.
1MDB’s modus operandi was unusual for a government investment fund: it received a relatively small amount of capital and state-owned assets at discounted prices, generating much of its money from billions of dollars of bond issues.’
As at the time of writing:
- Swiss authorities have launched criminal proceedings in connection with ‘suspected corruption of public foreign officials, dishonest management of public interests and money laundering’.
- Investigators in Singapore, through which the $700 million was allegedly transferred to Mr Razak, have seized a ‘large number’ of bank accounts connected with 1MDB on suspicion of multiple money laundering offences.
- The US justice department is reported by the FT to be focusing on ‘luxury property sales in New York’, and
- Police in Hong Kong have said they are investigating bank deposits allegedly linked to the prime minister.
And so the sentient world waits, watching, as the rules of law and governance in Malaysia undergo their greatest test to date.
- Malaysian PM Najib On Way Out, Report Says (Asia Sentinel)
- Singapore seizes bank accounts as part of 1MDB probe (Deal Street Asia)
- Malaysia: The 1MDB money trail (The Financial Times)
- 1MDB: The case that’s riveting Malaysia (BBC)