Malaysia Asks $8.3 Billion Question on 1MDB. Here's What We Know

  • New gov­ern­ment dig­ging into invest­ments by state-owned company
  • Answers may be found in inves­ti­ga­tions around the world

Malaysia’s new gov­ern­ment has wast­ed no time train­ing its sights on 1MDB, the scan­dal-rid­den state invest­ment com­pa­ny that’s spurred crim­i­nal and reg­u­la­to­ry probes around the world.

Less than a day after tak­ing office, new Finance Minister Lim Guan Eng had oust­ed pre­mier Najib Razak in his cross-hairs as he spoke of a cov­er-up of 1MDB’s finances. In his lat­est sal­vo, Lim asked Najib to explain where $8.3 bil­lion raised and planned for cer­tain ven­tures had “gone to,” imply­ing funds may have been mis­used when the for­mer leader was chair­man of 1MDB’s advi­so­ry board.

But answers to Lim’s queries can be found in doc­u­men­ta­tion assem­bled by inves­ti­ga­tors from Switzerland to the U.S. and Singapore as they probe 1MDB’s links to cas­es of embez­zle­ment and mon­ey laun­der­ing. In map­ping a mon­ey trail that stretched from Kuala Lumpur to Hollywood, U.S. author­i­ties laid out how about $4.5 bil­lion of 1MDB funds may have been mis­ap­pro­pri­at­ed, while a Malaysian probe sep­a­rate­ly iden­ti­fied bil­lions of dol­lars more miss­ing in irreg­u­lar trans­ac­tions. Under Najib’s admin­is­tra­tion, 1MDB con­sis­tent­ly said all its funds were account­ed for.

How Malaysia’s 1MDB Scandal Shook the Financial World: QuickTake

Here are the three ques­tions Lim asked and this is what inves­ti­ga­tors say happened.

The Saudi Oil Venture

1. Where has the $1.83 bil­lion invest­ed with PetroSaudi International Limited between 2009 and 2011 gone to?

In September 2009, 1MDB agreed to invest $1 bil­lion in a joint ven­ture with a pri­vate oil explo­ration com­pa­ny, PetroSaudi. The agree­ment called for 1MDB to trans­fer the mon­ey to the joint venture’s bank account but inves­ti­ga­tions showed $700 mil­lion instead went to one con­trolled by Malaysian financier Low Taek Jho, who U.S. pros­e­cu­tors por­tray as the pup­pet mas­ter behind some of the schemes involv­ing miss­ing funds at 1MDB. (Low has denied wrong­do­ing.)Photographer: Dimitrios Kambouris/Getty Images for Gabrielle’s Angel Foundation

When 1MDB decid­ed to exit the ven­ture in June 2010, it received $1.2 bil­lion in Islamic debt notes issued by 1MDB-PetroSaudi, and in accor­dance with a financ­ing agree­ment, it pro­vid­ed the ven­ture with $830 mil­lion in loans over the next year. That brought 1MDB’s invest­ment to $1.83 bil­lion. Of the addi­tion­al bor­row­ings, a probe showed $330 mil­lion went to Low’s account.

After mul­ti­ple restruc­tur­ing agree­ments on 1MDB’s invest­ment in what the U.S. described as “a series of com­pli­cat­ed and com­mer­cial­ly unnec­es­sary trans­ac­tions,” it end­ed up with about $2.32 bil­lion of units in a Cayman-reg­is­tered fund which inves­ti­ga­tors said was a “fraud­u­lent val­u­a­tion.” Its audi­tor KPMG resigned in ear­ly 2014 amid con­cern of the nature of the under­ly­ing assets for the so-called fund units and how they were valued.

1MDB lat­er said it redeemed about $1.4 bil­lion of fund units, while the U.S. alleges some of it was mon­ey from a bank loan which was made to appear like a redemp­tion. On the remain­ing $940 mil­lion, a 1MDB direc­tor last week told Lim that the company’s man­age­ment failed to sup­ply proof of such hold­ings over the past two years, and called it a “scam.”

Investments in Power Plants

2. Where has the $3.5 bil­lion raised in 2012 for the pur­pos­es of acquir­ing pow­er plants in Malaysia gone to?

Goldman Sachs Group Inc. advised 1MDB on its acqui­si­tion of Tanjong Energy Holdings from Malaysian bil­lion­aire Ananda Krishnan and domes­tic pow­er plants from Genting Bhd., a con­glom­er­ate. To help finance the pur­chas­es, Goldman arranged two sep­a­rate bond offer­ings in 2012.

The U.S. Department of Justice alleges Low and 1MDB offi­cials divert­ed more than 40 per­cent of the net amount raised, or $1.4 bil­lion, to a Swiss bank account belong­ing to a British Virgin Islands enti­ty known as Aabar Investments PJS Limited or Aabar BVI. The BVI enti­ty bore a sim­i­lar name to Aabar Investments PJS, a unit of an Abu Dhabi wealth fund IPIC which co-guar­an­teed the bonds.

Bond offer­ing cir­cu­lars didn’t state some of the pro­ceeds would be trans­ferred to Aabar. The U.S. said 1MDB — in its audit­ed accounts — booked the pay­ment to Aabar as a refund­able deposit that was col­lat­er­al for the guar­an­tee, while Low and 1MDB offi­cers told bank offi­cials they were non-refund­able pay­ments for IPIC’s back­ing of the debt.

Separately, a bipar­ti­san Malaysian par­lia­men­tary com­mit­tee said in 2016 it couldn’t ver­i­fy sep­a­rate pay­ments total­ing $2.1 bil­lion to Aabar BVI. 1MDB had said it could be a vic­tim of fraud if pay­ments of $3.5 bil­lion intend­ed for IPIC via its unit nev­er made it there.

Najib’s Personal Accounts

3. Where has the $3 bil­lion raised in 2013 for the pur­pos­es of invest­ing in TRX gone to?

In 2012, Najib inau­gu­rat­ed Tun Razak Exchange — a finan­cial cen­ter to be built on 70 acres of prime Kuala Lumpur real estate. Named after his father and the country’s sec­ond pre­mier, the devel­op­ment known as TRX had a pro­ject­ed sales val­ue of 40 bil­lion ringgit.

Construction site of Tun Razak Exchange (TRX) finan­cial dis­trict in Kuala Lumpur on May 19. Photographer: Sanjit Das/Bloomberg

1MDB issued $3 bil­lion in debt under­writ­ten by Goldman in March 2013 to raise cap­i­tal for “new strate­gic eco­nom­ic ini­tia­tives between Malaysia and Abu Dhabi” and said TRX could be the venture’s first invest­ment. U.S. inves­ti­ga­tors allege about $1.3 bil­lion from the offer­ing was divert­ed to accounts whose ben­e­fi­cial own­er was an asso­ciate of Low’s.

Accusations with more seri­ous impli­ca­tions for Malaysian pol­i­tics sur­faced. Probes showed that with­in days of the clo­sure of the bond offer­ing, $681 mil­lion of the divert­ed funds were trans­ferred to an account belong­ing to a Malaysian gov­ern­ment offi­cial whose descrip­tion matched Najib’s.

The for­mer pre­mier has acknowl­edged receipt of $681 mil­lion while deny­ing wrong­do­ing and say­ing it was a polit­i­cal dona­tion from a roy­al fam­i­ly in Saudi Arabia, a point backed by Saudi’s for­eign affairs min­is­ter. About $620 mil­lion was returned to the account belong­ing to Low’s asso­ciate in August 2013.

Investigators say some of the embez­zled funds were used to buy art­works which end­ed up with Low. The Malaysia-Abu Dhabi joint ven­ture, “which was the stat­ed basis for the 2013 bond sale, was ulti­mate­ly nev­er fund­ed,” the U.S. said. TRX is under devel­op­ment with its first office build­ing ear­li­er sched­uled to be ready by the end of 2018.

By Shamim Adam

Malaysia Asks $8.3 Billion Question on 1MDB. Here’s What We Know

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