Malaysia’s 1MDB Spawns Global Probes, Voter Backlash: QuickTake

Malaysia’s state-owned invest­ment fund, 1MDB, was sup­posed to attract for­eign invest­ment. Instead, it has spurred crim­i­nal and reg­u­la­to­ry inves­ti­ga­tions around the world that have cast an unflat­ter­ing spot­light on finan­cial deal-mak­ing, elec­tion spend­ing and polit­i­cal patron­age under Prime Minister Najib Razak. A Malaysian par­lia­men­tary com­mit­tee iden­ti­fied at least $4.2 bil­lion in irreg­u­lar trans­ac­tions. In the first gen­er­al elec­tion after the scan­dal unfold­ed, Najib was oust­ed from pow­er in May, end­ing his party’s 61 years of rule.

1. What is 1MDB?

It’s a gov­ern­ment invest­ment com­pa­ny — full name, 1Malaysia Development Berhad — that took shape in 2009 under Najib, who went on to lead its advi­so­ry board. Its ear­ly ini­tia­tives includ­ed buy­ing pri­vate­ly owned pow­er plants and plan­ning a new finan­cial dis­trict in Kuala Lumpur. The fund proved bet­ter at bor­row­ing — it accu­mu­lat­ed $12 bil­lion in debt — than at lur­ing large-scale investment.

2. What’s the issue?

Investigators have been try­ing to trace whether mon­ey flowed through and around 1MDB and ille­gal­ly into per­son­al accounts. Some of the mon­ey is alleged to have end­ed up with Najib and his fam­i­ly. That includes $681 mil­lion that land­ed in Najib’s per­son­al bank account, accord­ing to U.S. pros­e­cu­tors. Malaysia’s attor­ney gen­er­al, backed by Saudi author­i­ties, said the $681 mil­lion was a dona­tion from the Saudi Arabian roy­al fam­i­ly, much of which was returned. The U.S. Justice Department says the mon­ey instead came from, and was returned to, an off­shore enti­ty called Tanore Finance Corp. Another $700 mil­lion in 1MDB funds meant for a joint ven­ture with a com­pa­ny known as PetroSaudi International was found to have land­ed in an unre­lat­ed off­shore account. Najib denies wrongdoing.

3. Who is investigating?

There are probes relat­ed to 1MDB in at least 10 coun­tries, focused on pos­si­ble embez­zle­ment or mon­ey laun­der­ing. At home, inves­ti­ga­tions have been less point­ed. The U.S. Justice Department is seek­ing to seize about $1.7 bil­lion in assets that it says were ille­gal­ly acquired through mon­ey divert­ed from 1MDB, includ­ing real estate, art, a lux­u­ry yacht and pro­ceeds from the film “The Wolf of Wall Street.” (It has reached a $60 mil­lion set­tle­ment with the pro­duc­er of that movie.) Singapore and Switzerland have imposed finan­cial penal­ties on sev­er­al banks for laps­es in anti-mon­ey laun­der­ing con­trols relat­ed to funds alleged­ly from 1MDB. According to the Federal Bureau of Investigation, pos­si­ble wit­ness­es are too scared to talk to U.S. inves­ti­ga­tors because they fear retaliation.

4. Will Najib’s election defeat make any difference?

It’s too ear­ly to say. On the cam­paign trail, oppo­si­tion leader Mahathir Mohamad lam­bast­ed Najib as a “thief.” In the imme­di­ate after­math of his elec­tion win, Mahathir said he is not seek­ing revenge, but the rule of law will be ful­ly imple­ment­ed. “If the law says Najib has done some­thing wrong, then he will have to pay the con­se­quences,” Mahathir said. Najib’s broth­er, Nazir Razak, said 1MDB may have played a role in the way peo­ple vot­ed in the May 9 elec­tion. Nazir, chair­man of CIMB Group, said he hoped the whole issue would be dealt with in a trans­par­ent way.

5. What does Najib say?

Speaking weeks before the elec­tion, Najib said 1MDB had gov­er­nance issues but “you can­not just accuse some­body of being a thief or any­thing unless there is evi­dence. It’s been cleared, there’s been no wrong­do­ing — I stand by it.’’ He acknowl­edged “some rep­u­ta­tion­al dam­age’’ both to Malaysia and his own gov­ern­ment. “I would have prob­a­bly not had that kind of busi­ness mod­el, prob­a­bly I would make sure tighter super­vi­sion,” he said of 1MDB. “But we all learn from our mistakes.’’

6. Who else is involved?

Though not all have been accused of doing any­thing wrong, financiers and finan­cial com­pa­nies have found them­selves part of the 1MDB saga:

• Low Taek Jho, a bon vivant who did con­sult­ing work for 1MDB, is por­trayed by U.S. pros­e­cu­tors as a cen­tral fig­ure who set up shell com­pa­nies to col­lect pro­ceeds from the fund and arranged the with­draw­al of tens of mil­lions of dol­lars to pay Malaysian gov­ern­ment offi­cials and for his own lav­ish spend­ing. He is a “key per­son of inter­est” in Singapore inves­ti­ga­tions and the Wall Street Journal says U.S. author­i­ties could file crim­i­nal charges against him. Low said in July that attempts to link him to recent guilty pleas in 1MDB-relat­ed probes in Singapore are based on “unfound­ed assump­tions.” He had pre­vi­ous­ly denied wrongdoing.

• Riza Aziz, Najib’s step­son and a friend of Low Taek Jho, co-found­ed the movie pro­duc­tion com­pa­ny that paid $60 mil­lion to set­tle U.S. Justice Department claims it financed the “Wolf of Wall Street” with mon­ey siphoned from 1MDB.

• Falcon Private Bank Ltd., a Zurich-based bank linked to $3.8 bil­lion of 1MDB fund flows, was ordered to cease oper­a­tions in Singapore while Switzerland threat­ened to with­draw its license if there were any fur­ther breach­es of mon­ey-laun­der­ing regulations. 

• BSI SA, a 143-year-old Swiss bank that worked with 1MDB, lost its license to do busi­ness in Singapore for breach­es of mon­ey laun­der­ing rules. 

• Goldman Sachs made $593 mil­lion work­ing on three bond sales that raised $6.5 bil­lion for 1MDB in 2012 and 2013, dwarf­ing what banks typ­i­cal­ly make from gov­ern­ment deals. It said in 2015 that fees and com­mis­sions “reflect­ed the under­writ­ing risks” it had assumed. New York’s bank reg­u­la­tor has asked the firm for a sum­ma­ry of its 1MDB work. Singapore’s pros­e­cu­tors and police have inter­viewed cur­rent and for­mer Goldman Sachs exec­u­tives who worked on the bond offer­ings. They are also look­ing into the firm’s links with Low.

• Tim Leissner, the for­mer Southeast Asia chair­man for Goldman Sachs, wrote an unau­tho­rized ref­er­ence let­ter for Low on the bank’s let­ter­head. He resigned in February 2016. Singapore banned him from the secu­ri­ties indus­try for 10 years. The U.S. secu­ri­ties reg­u­la­tor barred him indefinitely.

• UBS Group AG, DBS Group Holdings Ltd., Credit Suisse Group AG, United Overseas Bank Ltd. and Standard Chartered Plc are among those who have also drawn penal­ties from the Singapore cen­tral bank for anti-mon­ey laun­der­ing laps­es. They said they will strength­en con­trols in their businesses.

• Switzerland’s finan­cial reg­u­la­tor will con­duct a detailed review of JPMorgan Chase & Co.’s anti-mon­ey laun­der­ing con­trols after find­ing the bank seri­ous­ly breached reg­u­la­tions in its deal­ings with 1MDB.

• In all, Singapore has banned eight finan­cial pro­fes­sion­als in con­nec­tion with 1MDB.

• Malaysia’s finance min­istry reached a $1.2 bil­lion set­tle­ment with Abu Dhabi’s sov­er­eign wealth fund over a debt dis­pute and was said to plan on mak­ing the final $603 mil­lion pay­ment by the end of 2017.

–With assis­tance from Yudith Ho .

By Shamim Adam and Laurence Arnold

Malaysia’s 1MDB Spawns Global Probes, Voter Backlash: QuickTake

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