Lim Kit Siang

Malaysia Fund 1MDB’s Missing Money Problem Grows

By BRADLEY HOPE And TOM WRIGHT
The Wall Street Journal
Sept. 17, 2015

Questions around a troubled Malaysian state investment fund and missing money in the Middle East have widened to include as much as $1 billion more.

The Wall Street Journal reported last week that officials in Abu Dhabi were trying to understand why a $1.4 billion transfer that the fund, 1Malaysia Development Bhd., said it made to a counterparty in the Middle Eastern emirate wasn’t received. Now, those officials are questioning a further $993 million that 1MDB reported it paid to the Abu Dhabi fund, the International Petroleum Investment Co., but which also appears to be largely missing, people familiar with the matter said.

Officials from 1MDB and IPIC didn’t respond to requests for comment.

The questions deepen the mystery around 1MDB, which was set up by Malaysian Prime Minister Najib Razak in 2009 to invest in Malaysia’s economy. The fund is now struggling to repay more than $11 billion in debt and is at the center of a corruption scandal that is destabilizing Mr. Najib’s government.

Earlier this year, a Malaysian government investigation found almost $700 million entered the prime minister’s private accounts through entities linked to 1MDB ahead of a close election in 2013. The source of the money is unclear, and the government investigation hasn’t detailed what happened to the funds that went into Mr. Najib’s personal accounts. Malaysia’s anticorruption body in August said the funds were a donation from the Middle East. The donor wasn’t specified.

Attempts to reach Mr. Najib weren’t successful. He has denied any wrongdoing or taking money for personal gain.

The link to the Abu Dhabi fund came in 2012, when it agreed to guarantee $3.5 billion in bonds issued by 1MDB to fund the purchase of some power plants. In return, IPIC was given options to buy a stake in those power assets. But last year, both sides agreed to end that deal with 1MDB agreeing to buy back the options for an undisclosed price.

1MDB said it made a transfer of nearly $1 billion to an IPIC subsidiary in November as partial payment for the options, according to copy of a draft report by Malaysia’s auditor general that was reviewed by The Wall Street Journal.

Neither the financial records of IPIC, nor its wholly-owned subsidiary Aabar Investments PJSC, for 2014 mention of the receipt of the money. They say only in a footnote that as of the end of 2014, 1MDB owed IPIC $481.3 million in outstanding payments for the options. No substantial amount of money was received by IPIC, the people familiar with the matter said. It isn’t clear how IPIC arrived at the $481.3 million figure and how it relates to the nearly $1 billion transfer 1MDB says it made to IPIC.

The missing $1 billion is the second payment that 1MDB reported it made and IPIC said it didn’t receive. Financial statements from 1MDB and a report by the Malaysian auditor general, which is one of a number agencies investigating 1MDB, show that the fund made a separate payment of $1.4 billion to IPIC. That payment was described as collateral for the loan guarantees that Abu Dhabi provided on the bonds issued by 1MDB. Last week, the Journal reported that payment also was missing and that Abu Dhabi officials were looking into it, according to people familiar with the matter.

The 1MDB fund said last week that it stood by its audited financial accounts and that its auditor, Deloitte Touche Tohmatsu Ltd., had made “specific and detailed” inquiries into the collateral transfer before signing off on the accounts. Deloitte declined to comment.

On Aug. 14, the Swiss attorney general’s office opened criminal proceedings against two unidentified executives of 1MDB and against what it called persons unknown for suspected corruption and money laundering. It also has frozen tens of millions of dollars in Swiss bank accounts. Swiss authorities on Tuesday said Malaysia has agreed to allow its prosecutors to question witnesses.

Authorities in Singapore also have frozen accounts linked to 1MDB and are continuing to probe the fund. The Malaysian fund said it was ready to assist any investigations subject to advice from the appropriate Malaysian authorities.