Shortcuts / 12 September 2019
Money, corruption, power, celebrity… we’re talking about 1MBD – the Malaysian state fund founded in 2009 by the prime minister of the day, Najib Razak. Now facing criminal charges, Najib and his former friends are in a lot of trouble. In this Squiz Shortcut, we explain where the money for this fund generated, where it was spent (allegedly) and how the whole thing has gone down.
What is 1MDB?
1Malaysia Development Berhad (Limited) – a state fund founded in 2009 by Malaysian PM at the time, Najib Razak. The fund, which was chaired by Najib, was established by the Malaysian government to drive development in the country in the areas of energy, real estate and tourism through foreign investment and forging partnerships.
While the fund was able to raise US$8 billion in bond sales through its ties to Middle Eastern investors, top investment firms including Goldman Sachs and Deutsche Bank, the fund managed to accumulate US$12 billion in debt through loans and interest payments.
Now, prosecutors allege the fund was a scam from the beginning, created to borrow billions of dollars through government bonds which were then embezzled or laundered into banks accounts in Switzerland, Singapore and the US to buy luxury goods and bribe government officials.
At least 10 countries, including Malaysia, Switzerland, Singapore, the US, are currently investigating the matter.
At the start of 2015, 1MDB missed a loan repayment of approximately US$550 million, forcing the Malaysian Government to investigate the issue. In July that year, the The Wall Street Journal and Sarawak Report received leaked documents which revealed more than US$700 million alleged to have come from 1MDB was transferred into Najib’s personal bank account. This money was alleged to have been used to bribe senior officials, pay off his credit card debt, and to buy luxury items for his wife, Rosmah Mansor.
In light of the revelations, the Malaysian Anti-Corruption Commission (MACC) started looking into the case. Just before the MACC was due to issue a warrant for Najib’s arrest, Najib effectively shut down the national investigation into 1MDB by sacking the attorney-general who was leading the Malaysian investigation and reshuffling his cabinet, in the process removing his key critics including his deputy Muhyiddin Yassin. The MACC offices were also raided and four officials were arrested.
The newly appointed attorney-general then cleared Najib of any wrongdoing, claiming the money in his bank account was a donation from a Saudi prince.
While Najib shut down the national investigation, the US Department of Justice began its own criminal investigation into the matter. In June 2017, it announced it believed more than US$4.5 billion was laundered from the 1MDB fund by senior officials and their associates between 2009 and 2014.
Former Malaysian PM Mahathir Mohamad, who initially helped Najib come to power but became outspoken against his former political ally as the 1MDB crisis deepened, decided to run against Najib during the general election in May 2018.
In a shock result, Najib lost the election to Mahathir amid growing public outrage over the 1MDB crisis and the rising cost of living. After the election, Mahathir re-opened the investigation into 1MDB, and just two days after the election, prohibited Najib and his wife were prohibited from leaving the country. The following month, police raided properties connected to Najib, seizing luxury goods and cash valued at US$275 million. The change of power has also led to charges being laid.
But Najib and his wife Rosmah are not the only ones believed to have used 1MDB to fund their lavish lifestyles. Businessman Low Taek Jho, better known as Jho Low, one of the consultants hired to oversee 1MDB and believed by the US Department of Justice to be the mastermind of the fraud, is also alleged to have siphoned money from the fund to pay for a number of extravagant purchases.
These include tens of millions of dollars worth of luxury properties in Manhattan and Beverly Hills, a private jet, gambling holidays in Las Vegas, a Picasso work gifted to Leonardo DiCaprio, his own 30th birthday celebration featuring a performance by Gangnam Style singer Psy, as well as Britney Spears jumping out of a cake (for which she was reportedly paid US$1 million), and millions of dollars worth of diamonds for Australian model Miranda Kerr, whom Low was dating at the time. Low, who is wanted by authorities in Malaysia, Singapore and the US in relation to the scandal and is currently believed to be on the run in China, has maintained his innocence and has made a number of unsuccessful attempts to strike an immunity deal with authorities.
And Najib’s stepson Riza Aziz, who ran a Hollywood production company, is also alleged to have received tens of millions of dollars from 1MDB to fund the making of the blockbuster film The Wolf Of Wall Street.
What happens now?
A lot of chasing down lost money. While current Malaysian PM Mahathir Mohamad hopes to recoup the $7 billion acquired through bond sales, it’s unlikely that more than a third of the total funds will be recovered.
The US Justice Department is also seeking to seize approximately $1.7 billion in assets believed to be illegally acquired through stolen 1MDB funds, including artworks, luxury goods and property. The Justice Department settled with the producers of The Wolf of Wall Street for $60 million.
And authorities are also pursuing criminal charges. All together, the charges laid against Najib come to prison time of more than 100 years. If convicted, Najib faces life imprisonment and fines of up to five times the amount that was allegedly stolen.
As the 1MDB itself, it became insolvent after the Malaysian government took over its debt and assets under new PM Mahathir Mohamad. Under the current government, a number of 1MBD projects are still going ahead, including development plans in the country’s capital, Kuala Lumpur.
Depending on the outcomes of the findings by various authorities in the US, Asia and Europe, the outcome of the investigation could potentially help to close loopholes in the international financial system that allow for corrupt practices.
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