Malaysia's image as a striving, modern nation that upholds the rule of law has been undermined by an epic corruption scandal at state investment fund 1MDB. Prime Minister Najib Razak, who set up the fund, is facing May 9 national elections that will test his legitimacy. Past Malaysian governments largely succeeded in lifting the country from poverty and attracting foreign investors, part of a long-term goal of reaching developed world income status. But last year, Malaysia sank to its worst-ever rating in the influential Corruption Perceptions Index compiled by Transparency International.
The fund, 1Malaysia Development Berhad, was set up in 2009 to promote economic development. Najib chaired its advisory board and as finance minister held veto power over its activities. Between 2009 and 2014, top executives and associates of Najib looted $4.5 billion from the fund, laundering it through the U.S., Singapore, Switzerland and other countries, according to a U.S. Justice Department civil case seeking to recover part of that money. About $700 million landed in Najib's bank account, though he denies any wrongdoing. 1MDB now staggers under enormous debt, has sold assets to Chinese interests and is slated to be shuttered.
Najib in 2015 sacked his attorney general and a deputy prime minister for demanding answers about 1MDB. A parliamentary inquiry found many irregularities but had no mandate to prosecute. Outraged by the scandal, former leader Mahathir Mohammad came out of political retirement and the opposition has united behind him in the national elections. The government recently passed a "fake news" law that could be used to further stifle reporting on the case within Malaysia.
The U.S. Justice Department alleges there were four phases to the conspiracy that all involved the use of layers of foreign bank accounts and shell companies to launder the money. It says initially a $1 billion investment was diverted and in subsequent phases money was siphoned from sales of 1MDB bonds. In some cases, the names of shell companies operating the bank accounts mimicked the names of the rightful beneficiaries.
When the banks questioned large money transfers, the conspirators used fake business documents to address their concerns, the department says. The U.S. says the money it is seeking to recover was gambled in Las Vegas, used to buy hotels, apartments, a luxury yacht, a jet, diamond jewelry and art works and to finance Hollywood films including the "Wolf of Wall Street" and "Dumb and Dumber To."
U.S. prosecutors allege that Malaysian Low Taek Jho, usually known as Jho Low, was a central figure who orchestrated the ransacking of 1MDB. A friend of Najib's stepson Riza Aziz, Low had no official role at 1MDB but had considerable influence over its dealings and was often in contact with Najib, according to the Justice Department. "Looks like we may have hit a goldmine" he said in an email to family members after organizing a 1MDB deal that would later allegedly become a money laundering vehicle. S
Singapore fined eight banks for failing to carry out proper anti-money laundering measures in relation to 1MDB and gave prison sentences to several bankers. It has seized 240 million Singapore dollars ($180 million) of property and cash and says about half of that belonged to Low and his immediate family. Earlier this year when U.S. authorities tried to seize a luxury yacht belonging to Low that was anchored off Bali, he accused them of judicial overreach, Malaysian media reported.
$700 MILLION QUESTION
The Justice Department's civil case filings say more than $700 million was transferred from bank accounts used in the money laundering to the bank account of "Malaysian Official 1." It didn't name the official, but corroborating details made it clear it was Najib. Some $20 million landed in Najib's account between February and June 2011, another $30 million between October and November 2012, and $681 million in March 2013.
A new attorney general attempted to clear Najib in 2016, saying the $681 million was a political donation from the Saudi royal family and that most of it was returned. The Justice Department says $620 million left Najib's account in August 2013, returning to the account controlled by an associate of Low where it originated. Separately, $238 million was allegedly transferred from an account controlled by Low to Najib's stepson Aziz, founder of Hollywood production company Red Granite Pictures, and used to finance films and buy luxury real estate.