It has been a decade since the 1MDB fund was established. In this time, billions of dollars were lost to greed and deceit. The ongoing trial of former Malaysian prime minister Najib Razak has hogged headlines for the past year. Will Malaysia find eventual closure?
SINGAPORE (DEC 27): On April 3, former Malaysian prime minister Najib Razak walked into the halls of the High Court in Kuala Lumpur, his head held high and smiling for the gathered media. He was confident, wearing a navy blue suit and a boldly patterned purple tie for his day in court. Najib, who also had been the finance minister, was to face seven counts of abuse of power, criminal breach of trust, and money-laundering of RM42 million ($13.7 million) from SRC International, a subsidiary of 1Malaysia Deve lopment Bhd (1MDB).
A little over seven months later, after many shocking revelations in court, Najib has been called to enter his defence for the charges related to SRC International. On Nov 11, the High Court had determined that the prosecution had proved a prima facie case, and while Najib and his lawyer, Shafee Abdullah, had expressed their “shock” and “dismay” at the decision, the heat is on for Najib in what is believed to be the biggest and most wide-ranging graft scandal in recent years.
Najib is also on trial for four charges of abuse of power and 21 counts of money laundering of a staggering RM2.28 billion from 1MDB, and the trial, which began on Aug 28, is still ongoing. Najib will face the music for his involvement in the siphoning of an alleged RM2.6 billion from 1MDB coffers for his personal gain. And, as they say, “when it rains, it pours”; Najib, along with former 1MDB CEO Arul Kanda, is also to face trial for tampering with the audit report of 1MDB in his time as premier. He had earlier this month failed to get a postponement of the trial for audit tampering, making it three for three.
Najib in the dock
So far, the three concurrent trials have been explosive — literally so in one instance, as a bomb threat was discovered in July — as witnesses reveal the alleged subterfuge and manipulation that went on behind the scenes, as well as the lavish lifestyles of both Najib and his wife, Rosmah Mansor, including RM3.3 million worth of jewellery as gifts to Saudi royalty. Former Pensioners Trust Fund (KWAP) CEO Azian Mohd Noh said Najib was her “ultimate boss”, thus she could not say he had no influence over KWAP’s decision to approve loans to SRC.
Former SRC chairman Ismee Ismail also said every SRC-related decision required the advice of the adviser emeritus — Najib — and it was former SRC CEO and 1MDB chief investment officer Nik Faisal Ariff Kamil who brought any issues that arose to Najib’s attention. Former SRC director Ismee Ismail also testified that amendments were made to the company’s articles and memorandum of association, which gave Najib total control over the administration of the company. Loans for SRC were also guaranteed by the Finance Ministry, the High Court heard, in meetings where it was declared that Najib would “smoothen” things for SRC.
In addition, according to former SRC director Suboh Md Yassin, the prosecution’s 42nd witness, Nik Faisal could even forge signatures with the backing of someone “higher up”. Nik Faisal is still on the run and wanted by the authorities. As for the charges relating to 1MDB, witnesses have revealed the inner workings of the sovereign wealth fund, including the subterfuge wheeling and dealing that the disgraced premier had conducted with China, all in order to “save” the sinking 1MDB.
Najib’s former special officer, Amhari Efendi Nazaruddin, told the court on Sept 4 that he was sent to persuade Chinese officials to help pay 1MDB’s debts — a task only Najib and businessman Low Taek Jho, or Jho Low, the alleged mastermind behind the 1MDB fund flows, knew about. The projects, purportedly to help save 1MDB, included the East Coast Rail Link (ECRL), the Trans-Sabah Gas Pipeline, the Multi-Product Pipeline and the development of federal territory Labuan into an offshore banking and tourism hub. The ECRL, in particular, was a project fraught with delays and cost overruns, and has been postponed indefinitely by the current Pakatan Harapan administration.
More shockingly, according to another witness, former 1MDB CEO Shahrol Azral Ibrahim Halmi, the central bank, Bank Negara, was not informed of the diversion of some US$700 million to Jho Low-linked Good Star (Seychelles). Shahrol, who helmed the company from 2009 to 2013, also admitted that the 1MDB-PetroSaudi joint venture, through which much of the funds from 1MDB were channelled, was a failure.
Money from 1MDB was also funnelled into the personal accounts of PetroSaudi International CEO Tarek Obaid. PSI is the company with which 1MDB had entered into a JV. Obaid had instructed that US$83 million be transferred into his personal account after PSI received US$500 million from 1MDB in 2010.
Secret recordings
As for the audit tampering trial, which began on Nov 18, damning evidence surfaced as the High Court was told how 1MDB executives and figures linked to Najib conspired to change the final copy of the 1MDB audit report and to have all versions of it, apart from their own, destroyed in 2016.
National Audit Department officer Nor Salwani Muhammadin had secretly recorded the proceedings of a meeting held on Feb 24, 2016, during which the decision was apparently made to modify and remove several issues from the department’s 1MDB audit report. She also kept a copy of the original 1MDB audit report, while the other copies were shredded on instructions by Najib and Arul at the height of the scandal. Furthermore, there were conflicting financial statements from 1MDB, as well as a lack of proper documentation submitted to the NAD for their report.
The trials continue amid growing pressure for Pakatan Harapan to bring to book those responsible for the 1MDB scandal. As Najib enters his defence, claiming his innocence and that he had been duped by Jho Low, Malaysians and, indeed, the world, waits to see whether the alleged perpetrators will be brought to justice.
How it began
The 1MDB created waves across not only Malaysia, but also the world. The trail of corruption spread across continents, taking shocking twists and turns and travelling perhaps farther than former prime minister Najib Razak ever could, even in his (taxpayerfunded) private jet. These luxury trips became a thing of the past when the disgraced former premier was booted out of office by angry voters in 2018.
Some RM2.6 billion ($866 million) is believed to have been siphoned from the development fund and frittered away on luxury yachts, priceless paintings and exclusive real estate. Within four years of its inception, the fund had amassed nearly US$12 billion in borrowings, but doubts began to surface when it seemed to have little to show for all its debt. Several news organisations — including The Edge Malaysia — began to run stories saying that things were going sour within 1MDB, sparking a years-long investigation that culminated in Najib’s being charged and the alleged mastermind behind it all — his associate and businessman — Low Taek Jho’s being on the run.
Meanwhile, the search is still on for Jho Low. In addition, severe consequences await US investment bank Goldman Sachs, which collected US$600 million in fees for its role in arranging bonds for 1MDB, in addition to criminal charges filed against the bank and its former employees — Tim Leissner and Roger Ng — in relation to the bond sales. Other bankers are under investigation in Switzerland, where authorities have also sanctioned Coutts & Co and JPMorgan for their involvement in 1MDB deals.
Several Singapore-based financial institutions, such as BSI Bank and Falcon Bank, were involved in facilitating the fund flows. Jho Low, for one, held big sway at BSI. He was described as “Big Boss” by private bankers such as his relationship manager Yak Yew Chee. So far, five individuals, including Yak, have been convicted by Singapore courts for their roles in the 1MDB scandal.
Timeline of events
2009
JULY
Shortly after becoming Prime Minister of Malaysia, Najib launches the 1MDB sovereign fund to invest in energy and real estate, with the Tun Razak Exchange being one of the more high-profile investments it was purportedly to make.
SEPTEMBER
1MDB invests US$1 billion in a joint-venture company with Petro Saudi Holdings, called 1MDB Petrosaudi, apparently linked to the Saudi government, but it was not. 1MDB issues a press release on Sept 30 touting the US$2.5 billion JV as a new era of economic cooperation between Malaysia and Saudi Arabia. US$700 million of the initial US$1 billion was immediately used to pay a ‘debt’ that was put into the JV company. 1MDB remits the US$700 million cash via Deutsche Bank Malaysia as part of two tranches of US$300 million and US$700 million for the JV.
OCTOBER
Deutsche Bank Malaysia informs 1MDB that it must disclose the identity of the beneficial owner of the account at RBS Coutts Zurich before the US$700 million can be credited. 1MDB CEO Shahrol Azral Ibrahim Halmi replies that the beneficial owner is Good Star (Seychelles), a company controlled by Low Taek Jho, or Jho Low.
2010
MARCH
It is disclosed in 1MDB’s accounts that the PetroSaudi JV has been called off, and that 1MDB’s 40% stake was sold for US$1.2 billion (original US$1 billion plus US$200 million gain) to its partner on March 31, 2009 — the last day to close its audited accounts
JULY
In another shocker, 1MDB acts as a lender to bankroll PetroSaudi by subscribing to another US$800 million in murabaha notes. (A loan is termed as murabaha when a bank purchases an asset for a client, then resells it to the same client with clear indicators of the mark-up the bank charges. In this case, 1MDB acted as the ‘bank’ to Petro Saudi, the ‘client’.)
SEPTEMBER
1MDB remits US$500 million to 1MDB Petro Saudi’s account (7619400) at JPMorgan Suisse in Switzerland. Of the US$500 million, US$300 million is sent to the personal JP Morgan Suisse account of Tarek Obaid, co-owner of Petro Saudi Holdings. Tarek also transfers US$100 million each to two other companies he owns — PetroSaudi International (Cayman) and PetroSaudi Holdings (Cayman).
2012
JUNE
The money trail takes two further twists in 2012. On June 1, a US$2 billion loan, taken as a part of a bigger loan from various lenders for a refinancing of power assets, is revalued at US$2.223 billion — another nice paper gain. But, yet again, 1MDB does not take back its cash. Instead, it enters into an agreement to swap the US$2.223 billion loan into a 49% stake in PetroSaudi Oil Services.
SEPTEMBER
Assets are sold and money placed with Cayman SPC. 1MDB sells the PetroSaudi Oil Services stake to an unnamed ‘external party’ for US$2.3 billion 2014
NOVEMBER/DECEMBER
Under intense scrutiny about the money in the Caymans, 1MDB announces that it had redeemed the US$2.3 billion (RM7.71 billion) it had placed in the Caymans in November and December 2015
JANUARY
1MDB misses a loan payment of US$550 million, due in December 2014
MARCH
The Edge Malaysia publishes a series of front-page reports, continuing on from its first report in July 2013. Around this time, The Sarawak Report also reveals thousands of documents from a former PetroSaudi employee, Xavier Justo, that chronicle the abuse and mismanagement of funds from 1MDB. It soon gains international attention. Malaysia forms a special task force — including officials from the central bank, police, Malaysian Anti-Corruption Commission (MACC) and attorney general’s chambers — to look into 1MDB.
JULY
The Wall Street Journal reports that nearly US$700 million of 1MDB money went into Najib’s personal bank account. Later, MACC, which is parked under the Prime Minister’s Department, announces that the money was a ‘donation’, and not from 1MDB. Najib sacks his deputy prime minister Muhyiddin Yassin and another senior politician in his party. He announces that attorney general Abdul Gani Patail has ‘resigned’ for ‘health reasons’. Later, The Sarawak Report publishes in full the charge sheet against Najib for corruption, which Gani was supposed to have initiated after investigations by the task force. Mohamad Apandi Ali is appointed in Gani’s place.
AUGUST
Swiss authorities begin criminal proceedings linked to 1MDB, saying the case involves suspected corruption of public foreign officials, dishonest management of public interests and money laundering
2016
JANUARY
Attorney general Mohamad Apandi clears Najib of any wrongdoing, saying a sum of US$681 million in Najib’s account was a donation from a member of the Saudi royal family and that Najib had returned US$620 million in a few months
JULY
The US Department of Justice files civil lawsuits seeking to seize assets bought with money allegedly stolen from 1MDB. It alleges that more than US$3.5 billion was stolen from the fund. Singapore announces it has been investigating 1MDB-related fund flows since March 2015. BSI’s Singapore branch is shut down for serious money-laundering breaches.
2017
MAY
The Monetary Authority of Singapore announces the conclusion of 1MDB-related investigations of the financial system in the city state. Eight banks are fined a total of $29.1 million, two of which are shut down too. Five individuals are convicted and several others receive prohibition orders.
AUGUST
The US DOJ announces that it is conducting a criminal probe into 1MDB, asks or a stay on its civil lawsuits to seize the assets bought with 1MDB money
DECEMBER
The US attorney general describes the 1MDB scandal as ‘kleptocracy at its worst’
2018
MAY
Malaysians vote out the Barisan Nasional government in a historic and stunning defeat. Dr Mahathir Mohamad, former Prime Minister, replaces Najib. He immediately puts 1MDB at the top of his to-do list. Najib and his wife, Rosmah Mansor, are barred from leaving the country. His property is raided and 12,000 pieces of jewellery, more than 500 designer handbags, more than 400 watches, 14 tiaras and nearly US$30 million in cash are seized. More than 400 accounts linked to 1MDB are frozen.
DECEMBER
Najib is arrested
See also: Najib found guilty of all charges in first of five 1MDB-related trials and Najib to serve 12 years in jail for 1MDB crimes
