1MDB: What Can Singapore, Malaysia & the World Learn From This Scandal
Malaysia state-owned investment fund 1MDB has brought down some high profile personalities in ways very few people could ever have imagined. The biggest casualty is former Malaysian Prime Minister, Najib Razak, who is staring at the possibility of going to jail for a long time.
So what is the 1MDB scandal?
1Malaysia Development Berhad was a state-owned investment fund that was supposed to attract foreign investment before it spurred criminal and regulatory investigations around the world. The investment fund came into being in 2009 under the former Prime Minister Najib.
Operating as an investment company, the fund was used to purchase privately owned power plants and finance a new financial district in Kuala Lumpur. While it was thought of as a noble project at the start, things started going south when the fund accumulated $12 billion in debt without luring any large-scale investment or bringing a single project to fruition.
The fund hit the global spotlight after a report in the Wall Street Journal claimed that up to $700 million from the fund was being wired into the former Prime Minister’s personal account. The 1MDB scandal has since become a hot topic in Malaysia having already cost the former prime minister his job as well as that of the governor of the central bank.
Investigators are trying to piece together how money was transferred from the 1MDB account and illegally into personal accounts. The U.S Department of Justice has already indicated that as much as $4.5 billion could have been moved from the fund, through opaque transactions and fraudulent shell companies.
A businessman by the name Low Taek Jho (better known as Jho Low) is accused of diverting money from the investment fund into personal accounts including that of the former prime minister, in transactions disguised to look like legitimate transactions. A whopping $681 million allegedly found its way into Najib’s account according to U.S prosecutors.
At least 10 countries have opened Investigations into the scandal as authorities focus their attention on possible embezzlement and money laundering. Switzerland, the U.S, and Singapore, are some of the countries that have opened probes into people and entities believed to have been beneficiaries of illegal transfers from the fund.
The U.S Department of Justice is believed to be in the process of seizing $1.7 billion worth of assets bought in the country using funds from the 1MDB fund. Some of the assets targeted include real estate, art as well as a luxury yacht.
Singapore and Switzerland on their part have imposed stiff penalties on banks believed to have been used as channels for siphoning money from the fund.
IMDB’s Key Figures: Who are they?
Businessman Low Taek Jho is the central figure in the 1MDB scandal as he is said to have done consulting work for the investment fund. According to U.S. prosecutors, the businessman set up shell companies that he used to collect proceeds from the fund. Some of the funds were used to pay Malaysian government officials, and some of the cash was used for his own lavish spending.
Najib’s stepson, Riza Aziz, has also been heavily linked into the scandal, having emerged that he co-founded a movie production company that paid $60 million to settle a civil lawsuit that it financed the ‘The Wolf of Wall Street’ movie using 1MDB-linked funds, according to U.S Authorities.
U.S investment bank Goldman Sachs allegedly made $593 million on working on three bond sales that raised $6.5 billion for 1MDB in 2012 and 2013. In its defence, the bank said the fees and commissions it charged reflected the underwriting risks it had assumed.
Malaysia central bank head Muhammad Ibrahim was forced to step down after people started to question the role the monetary authority played in a land purchase deal from Najib’s government.
Switzerland’s financial regulator is in the process of reviewing JPMorgan Chase & Co.’s anti-money laundering controls given its role in the dealings involving 1MDB. Singapore on its part has banned at least eight financial professionals in connection with 1MDB.
Lessons To Be Learnt From The 1MDB Scandal
One key lesson learned from the IMDB scandal is that institutions tasked with the responsibility of providing checks and balances of the government need to be rock solid. Those institutions include the independent and unbiased media, whom people can turn to whenever the government is in bed with lawmakers and other investigative agencies. Before the Wall Street Journal report shed light on the 1MDB scandal, some people had contemplated becoming whistleblowers but could not do so on fearing for their lives.
Another valuable lesson from the scandal is the fact that a change of status quo, at times, is the only way out of a big mess. Malaysians took their anger to the ballot and voted out a party that had ruled the county for 61 years. The political metamorphosis is what has helped bring to an end a spree of impunity that had brought about distrust in political systems and other independent institutions.
Changing personalities at the top may well be the ultimate solution to some of the issues that have clobbered countries for decades – from corruption to inefficient institutions. Malaysia’s new Prime Minister Mahathir Mohamad has shown that political changes do sometimes work having achieved a lot over a short period of time in the fight against corruption.
The scandal has also brought to light financial institutions’ complacency as well as the deficiencies when it comes to clamping down on money laundering. The fact that Singapore has already sanctioned financial institutions over their role in allowing some people to channel funds from the 1MDB fund without sounding any alarms, raises serious questions.
Questions are already being asked as to whether financial institutions’ anti-money laundering controls actually work. Some banks have already been accused of breaching regulations in their dealings with 1MDB. Regulators around the globe may have to up their game given that a number of banks are believed to have been used as conduits for siphoning funds illegally from the 1MDB fund.