Former Malaysian prime minister Najib Razak
Malaysia’s eye-watering 1Malaysia Development Berhad (1MDB) corruption scandal escalated on October 5 when Rosmah Mansor, wife of already charged former prime minister Najib Razak, was arrested on charges of money laundering.
With estimates of the amounts of money involved ranging as high as US$4.5 billion, the scandal is now in a league of its own. Few financial scandals have been seen on this scale in Southeast Asia.
At the centre of the scandal is the state-run 1MDB development company and its subsidiaries, originally set up in 2009 by Najib to turn the country’s capital Kuala Lumpur into a financial hub and to boost the Malaysian economy through strategic investments.
In early 2015, 1MDB began missing payments for some of the US$11 billion it owed to banks and bondholders. There were accusations of money laundering funds funneled into private bank accounts and used to acquire assets including personal property, yachts, artwork, jewellery — even stashes of high-end women’s handbags — as well as real estate.
Najib, 65, was Malaysia’s prime minister from 2009 to 2018, the country’s sixth since its 1957 independence from Great Britain. He was the leader of the United Malays National Organisation, the senior party in the Barisan Nasional coalition that had ruled the nation for 60 years until its defeat at this year’s general election.
In 2015, Najib was accused of pocketing US$681 million in funds meant for 1MBD from Saudi Arabia. He launched an investigation into the fund while in office and effectively cleared himself.
On July 4 this year, Najib was charged with three counts of criminal breach of trust and one count of abuse of power, each carrying a penalty of up to 20 years in prison. On August 18, he was charged with three counts of money laundering and, on September 19, he was arrested for a second time and charged with a further 22 counts of money laundering, each carry a maximum sentence of 15 years in prison.
Rosmah, 66, is Najib’s second wife. She is currently accused of laundering more than M$7 billion between 2013 and 2017. Like Najib, she has been widely reported as a key alleged conspirator in the scandal and prosecutors have also accused her of witness tampering. She has had her passport confiscated but was released on bail.
The idea for the fund was created by Low Taek Jho — known globally as Jho Low — a garment industry heir from the northern Malaysian state of Penang. Low sold the idea to Najib and managed the business behind the scenes. He is now in hiding, possibly in China, with whom Malaysia has no extradition treaty.
Hundreds of officials from Malaysia, Saudi Arabia and the United Arab Emirates have been accused of diverting funds from 1MDB into private accounts. In Australia, directors of asset management group Avestra were banned from holding company board positions by the Australian Securities and Investments Commission, after the company was liquidated in relation to the estimated US$2.3 billion dealings it had with 1MDB.
Apart from the string of investigations launched by Malaysia’s Anti-Corruption Commission, 1MDB and its fund managers are also under investigation in at least seven other countries. The US Department of Justice has launched an investigation into misappropriations of up to US$4.5 billion, and Swiss investigators have alleged up to US$7 billion passed through the company.
US federal agents who helped unravel the colossal Bernie Madoff Ponzi scheme have said the 1MDB affair will become the textbook case of financial fraud in the modern age.
In September, Wall Street Journal reporters Tom Wright and Bradley Hope, shortlisted for a 2016 Pulitzer Prize for their investigations into the fund, released Billion Dollar Whale, a book on the scandal.
As the scandal unfolded and gathered pace ahead of Malaysia’s May 2018 general election, Najib attempted to rig the polls with a spectacular display of gerrymandering.
Najib was already running close in preelection polling with his opponent, the wildly popular Mahathir Mohamad, 93 — a former prime minister from 1981 to 2003, who switched sides from the United Malays National Organisation in 2016. Najib’s 10% goods and services tax and the removal of subsidies on everyday items like petrol, rice and cooking oil, on top of the stench of corruption stemming from the 1MDB scandal, proved too much. Mahathir went on to win the election.
Australia’s (non) response
Throughout the entire affair, the fallout from which is likely to continue for years to come, the Australian government has been, as it so often is, silent. Yet former PM Malcolm Turnbull’s son Alex claims to have been sidelined by New York based investment bank Goldman Sachs for calling out his then employer about being involved.