How Malaysia’s 1MDB scandal rocked the financial world

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Read more: Ex-Malaysian Prime Minister Najib Razak faces court in biggest 1MDB corruption case

Malaysia’s state-owned investment fund, 1MDB, was supposed to promote development. Instead, it has spurred investigations around the world into deal-making, election spending and political patronage under former prime minister Najib Razak. The numbers are staggering: Of the $8 billion 1MDB raised via bond sales, the US claims more than half was siphoned off. Angry voters ousted Najib in a 2018 election that ended the party’s 61 years of rule, and four years later he was jailed in the first of a series of trials. Goldman Group Inc. has agreed to pay more than $5 billion, including a record $2.3 billion fine in the United States, and agree to its first-ever plea for its role in the scandal.

It is a state investment company – full name, 1Malaysia Development Bhd – that took shape in 2009 under Najib, who headed its advisory board. Early initiatives included the purchase of privately owned power plants and the planning of a new financial district in Kuala Lumpur, Malaysia’s capital. The fund proved better at borrowing—it accumulated $12 billion in debt—than at attracting large foreign investment.

Much of the money collected was allegedly embezzled. The US Justice Department says about $2.7 billion of the $6.5 billion Goldman helped raise for 1MDB was stolen by people linked to Najib and diverted for bribes, a luxury yacht, art and even funding for Martin Scorsese film “The Wolf of Wall Street” .” According to a US indictment, a small group of Malaysians, led by businessman Low Taek Jho (known as Jho Low), funneled money from 1MDB into personal accounts disguised to appear legitimate businesses, throwing some of those funds back to officials. There was a question about a $681 million payment that ended up in Najib’s personal bank account (he has said most of the money was returned). Malaysia’s then-Attorney General cleared Najib of wrongdoing in 2016. But after losing office, Najib was charged with corruption, breach of trust and money laundering, the first trial involving $10 million deposited into his personal con two from a former 1MDB entity. Najib was found guilty in 2020 on all seven counts and sentenced to 12 years; an appeals court upheld the conviction in December 2021, as did the country’s highest court in August 2022, which ordered him to serve the prison term. He still faces several other legal cases in relation to 1MDB. Jho Low, a fugitive, has also denied any wrongdoing.

Spread, but coming in slowly. In a July 2020 settlement, Malaysia dropped all criminal charges against Goldman in exchange for a $2.5 billion cash payment and at least $1.4 billion from seized 1MDB assets being returned with the help of U.S. prosecutors and Goldman. (Goldman made $593 million from three bond sales that raised $6.5 billion for 1MDB in 2012 and 2013 — far more than banks typically make on such deals.) The bank’s October 2020 settlement with the U.S. Department of Justice included the largest penalty ever . for foreign bribery. Goldman entities also paid $350 million to Hong Kong’s financial regulator, $122 million to Singapore’s government and £96.6 million ($126 million at the time) to Britain’s Financial Conduct Authority.

• US prosecutors struck a deal in 2020 with Jho Low to recover assets worth nearly $700 million, including a Beverly Hills hotel and property in New York and London. That’s in addition to $260 million worth of assets, including a $126 million superyacht, seized earlier on Malaysia’s behalf.

• The US entered into a settlement of 60 million dollars with the producers of “The Wolf of Wall Street”. The production company was co-founded by Riza Aziz, Najib’s stepson and a friend of Jho Low.

• Malaysia moved to seize $340 million in PetroSaudi International’s London accounts.

• Singapore said it would return S$35 million ($25 million at the time) lost by former Goldman banker Roger Ng.

4. What has happened to the investigation?

The US Department of Justice has been at the forefront, focusing on bribery, theft and money laundering. A small Malaysian unit of Goldman pleaded guilty to a single charge of conspiracy. But the parent company avoided a criminal conviction under an agreement that allows the bank to defer any prosecution as long as it cooperates with ongoing US investigations and files compliance reports. (A conviction may have cost some institutional clients.) According to the Federal Bureau of Investigation, some potential witnesses were afraid to speak for fear of retaliation. Several other countries also conducted probes. Singapore and Switzerland have fined some banks for lapses in anti-money laundering controls. Malaysia has also said it is looking into allegations that China offered to help fend off probes into 1MDB in the US and elsewhere in exchange for stakes in infrastructure projects in Malaysia. A former Najib aide testified that the ex-prime minister offered projects to China in return for help in resolving 1MDB’s debt.

• Jho Low, a bon vivant who said he did consulting work for 1MDB, is portrayed by US prosecutors as the central figure who set up shell companies to collect income from the fund and arranged withdrawals for payouts and for his own lavish spending. He has been charged in absentia in Malaysia and the US with money laundering and other offences. Malaysian police have lamented the lack of help from other jurisdictions to find him, after saying they had located him and were in talks with a party they suspect of protecting him. Jho Low’s settlement with the United States did not include an admission of guilt or release him from criminal charges.

• Goldman’s former Southeast Asia chairman, Tim Leissner, pleaded guilty to US charges including conspiracy to launder money and admitted to bribing officials in Malaysia and the United Arab Emirates to get bond deals for Goldman. He agreed to forfeit $43.7 million.

• Ng was extradited from Malaysia to the United States to face similar charges. He was found guilty in April 2022 for his role in the looting of the Malaysian fund, with Leissner as the prosecution’s star witness. Leissner’s bail conditions were changed, allowing him to move to Texas for a new job, and his sentencing has been delayed until 2023. (The U.S. Federal Reserve has barred both men from the financial industry.)

• Malaysia brought charges of securities law violations against Leissner, Ng, Jho Low and 1MDB’s former general counsel, Jasmine Loo Ai Swan.

• PetroSaudi International directors Tarek Obaid and Patrick Mahony were charged by Malaysia in absentia in 2020 for allegedly receiving $300 million from 1MDB through illegal activity.

• Ex-1MDB president Arul Kanda was charged with Najib for allegedly tampering with a government audit report into the fund. Both men have pleaded not guilty.

• Rosmah Mansor, Najib’s wife, was charged with money laundering and tax evasion. Luxury items and cash seized from properties linked to the former first couple were valued at around 1.1 billion ringgit ($259 million). According to US prosecutors, in 2013 Jho Low funneled $27.3 million looted from 1MDB to a jeweler in New York who designed a pink diamond necklace for her.

• A Justice Department employee pleaded guilty to funneling money into the United States to pay for a lobbying effort to influence the 1MDB probe, with the filing identifying the fund’s source as Jho Low.

6. Exactly how much money is involved?

In all, 1MDB raised more than $8 billion in bond sales and accumulated billions more in debt through loans and interest payments. Swiss investigators say about $7 billion of 1MDB funds entered the global financial system from 2009 to 2015. Some 1MDB projects are moving forward under the new government, including plans for a new financial district and a $34 billion real estate and transportation hub . As for 1MDB, it has been reduced to a shell after the Ministry of Finance took over its assets and liabilities.

Authorities in Asia, the US and Europe have been working to coordinate their investigations into the 1MDB money trail, as well as legal approaches to Goldman and asset recovery. Their findings could potentially identify and help close loopholes in the global financial system that open the way for corruption.

• The Fed banned ex-Goldman banker Andrea Vella from the financial industry for life, saying the former co-head of investment banking in Asia engaged in “unsafe and unsound practices” by failing to ensure all of Goldman’s internal committees were aware that 1MDB bond deals involved Jho Low.

• Swiss bank BSI, caught up in the scandal, lost its license to do business in Singapore for breaching money laundering rules.

• Malaysia’s central bank governor Muhammad Ibrahim resigned in 2018 amid questions about the role the monetary authority played in a land purchase deal linked to 1MDB. The monetary authority established a review of the agreement.

• UBS Group, DBS Group, Credit Suisse, United Overseas Bank and Standard Chartered are among those who have been fined by Singapore’s central bank for money laundering lapses. They said they will strengthen controls in their businesses.

• Singapore has banned at least eight financial professionals in connection with 1MDB.

More stories like this are available at bloomberg.com

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