Malaysia's Second Chance at Probing 1MDB on Its Own: QuickTake

(Bloomberg) -- Investigators in at least 10 countries had been looking at the Malaysian state investment fund known as 1MDB since 2015 and whether it was used for embezzlement or money laundering. The U.S. said more than $4.5 billion flowed from the fund, through a complex web of opaque transactions and fraudulent shell companies, to finance spending sprees by corrupt officials and their associates. U.S. Attorney General Jeff Sessions called it “kleptocracy at its worst.” Yet at home, Malaysia’s government joined 1MDB in insisting all funds were accounted for. That’s changing, with a new administration in power.

1. What’s changing?

The company -- full name, 1Malaysia Development Berhad -- took shape in 2009 under former premier Najib Razak and 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.

Mahathir Mohamad, fresh off his shocking victory in early May that ousted Najib, wasted no time in reopening a probe of 1MDB. That includes whether any of its money ended up with Najib, who once chaired its advisory board. Mahathir immediately barred Najib from leaving the country and declared more wrongdoing occurred at 1MDB than was publicly known. Police searched Najib’s house and seized some personal items. Mahathir pledged his government will cooperate with investigations by other nations.

2. What happened to Malaysia’s inquiries until now?

Investigators at home tried to trace whether money flowed through and around 1MDB and illegally into personal accounts amid allegations some of the funds ended up with Najib and his family. Attorney-General Apandi Ali in January 2016 ended a probe into $681 million which appeared in Najib’s bank accounts before the 2013 polls, saying investigations showed it was a donation from Saudi Arabia and he later returned $620 million that was not utilized. Malaysia’s central bank in 2015 requested criminal proceedings at least twice against 1MDB for allegedly breaching the nation’s currency control law; the requests were dismissed by the attorney general’s office. In April 2016, a parliamentary committee identified at least $4.2 billion in irregular transactions and recommended authorities probe former 1MDB CEO Shahrol Halmi and other managers, but police have given little information or updates on its investigation, including whether it’s still open.

3. What could Malaysia’s new attitude mean for global probes?

A cooperative Malaysia could help investigators around the world piece together how billions may have been embezzled and laundered through major financial centers in the U.S., Europe and Asia. The U.S. Federal Bureau of Investigation revealed in 2017 that possible witnesses to the alleged looting were too scared to talk to U.S. investigators because they feared retaliation; with Najib out of power, that could change. Already, at least one former Malaysian anti-graft official is said by The Star newspaper to have lodged police reports against Najib.

4. Who is under scrutiny other than Najib?

Another key figure who may have answers is Malaysian financier Low Taek Jho. The U.S. says he set up shell companies to collect proceeds from 1MDB and arranged the withdrawal of tens of millions of dollars to pay government officials and for his own spending. Low said last year attempts to link him to recent guilty pleas in 1MDB-related probes in Singapore are based on “unfounded assumptions.” A trove of information could also come from 1MDB President Arul Kanda, a former investment banker brought in in January 2015 when the fund was teetering on the edge of default. He worked on restructuring the company’s debt burden while heading off accusations that he wasn’t being entirely forthcoming on the alleged wrongdoing and embezzlement at 1MDB. Arul has said 1MDB became "much more open, transparent and accessible" since he took over and "full assistance and cooperation" had been provided to local investigators.

5. Is there a chance they will cooperate with investigators?

That remains to be seen. Najib, according to his lawyer, is "prepared and willing to extend his fullest cooperation to the relevant authorities." Low’s whereabouts aren’t publicly known; an adviser to Mahathir’s government urged Low to return to Malaysia and assist in the probe.

6. What have global prosecutors said and done?

The U.S. alleges a small coterie of Malaysians diverted money from 1MDB into personal accounts disguised to look like legitimate businesses, and kicked back some of those funds to officials. Most of the civil forfeiture cases it’s chasing in relation to 1MDB have been put on hold while the Justice Department pursues a criminal investigation. Swiss Attorney General Michael Lauber was publicly critical of the lack of cooperation his team of prosecutors got from Najib’s government. Singapore has punished banks over lapses related to 1MDB, seized hundreds of millions in assets and jailed bankers over the scandal.

7. What happened to those who called for action?

Since 2015, when the scandal broke, several officials who attempted to investigate 1MDB and Najib’s role were fired, sidelined or sued. Former Attorney-General Abdul Gani Patail who was part of a task force investigating the money trail was suddenly replaced by Najib’s government for health reasons with Apandi taking the helm. Abdul Gani is now back as co-chair of a new task force focused on reviving probes into 1MDB. Deputy Prime Minister Muhyiddin Yassin was removed after he publicly questioned Najib over the finances and investment decisions of 1MDB. He is now minister of home affairs in the new administration.

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