Shamim Adam and Laurence Arnold
Bloomberg
July 20, 2016
Malaysia’s state-owned investment fund, 1MDB, was supposed to attract foreign investment. Instead, it has spurred criminal and regulatory investigations around the world that have cast an unflattering spotlight on financial deal-making, election spending and political patronage under Prime Minister Najib Razak. A Malaysian parliamentary committee identified at least $4.2 billion in irregular transactions.
1. What is 1MDB?
It’s a government investment company — full name, 1Malaysia Development Berhad — that took shape in 2009 under Najib, who went on to lead its advisory board. 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.
2. What’s the issue?
Investigators have been trying to trace whether money might have flowed through and around 1MDB and illegally into personal accounts. Some of the money is alleged to have ended up with Najib and his family. That includes $681 million that landed in the prime minister’s personal bank account, according to the Wall Street Journal. Najib has denied wrongdoing, and Malaysia’s attorney general said the $681 million was a donation from the Saudi Arabian royal family, much of which was returned. Another $700 million in 1MDB funds meant for a joint venture with a company known as PetroSaudi International was found to have landed in an unrelated offshore account.
3. Who is investigating?
There are probes related to 1MDB in at least 10 countries, focused on possible embezzlement or money laundering. At home, investigations have been less pointed. Malaysia’s attorney general rejected central bank requests for a criminal probe, and a parliamentary committee absolved Najib and blamed financial and reporting lapses on 1MDB’s former CEO, Shahrol Halmi, who says he did nothing wrong. 1MDB officials have also denied wrongdoing.
4. Who is involved?
Though not all have been accused of doing anything wrong, financiers and financial companies have found themselves part of the 1MDB saga:
Goldman Sachs made $593 million working on three bond sales that raised $6.5 billion for 1MDB in 2012 and 2013, dwarfing what banks typically make from government deals. It said last year that fees and commissions “reflected the underwriting risks” it had assumed. New York’s bank regulator has asked the firm for a summary of its 1MDB work.
BSI SA, a 143-year-old Swiss bank that worked with 1MDB, lost its license to do business in Singapore for breaches of money laundering rules. BSI said it will cooperate with authorities.
Riza Aziz, Najib’s stepson, allegedly used money from 1MDB to buy homes in London, New York and Los Angeles and to finance production of “The Wolf of Wall Street,” according to the Journal. The production company he co-owns said it believes none of its funding was “irregular or illegitimate.”
Low Taek Jho, a friend of Riza’s and a high-profile art collector who said he did consulting work for 1MDB’s predecessor, alerted Najib’s bank that “681 American pies” would be arriving just days before the $681 million was transferred, according to the Journal. Efforts to reach him have been unsuccessful.
Tim Leissner, Goldman Sachs’ Southeast Asia chairman, wrote an unauthorized reference letter for Low on the bank’s letterhead. He resigned in February and hasn’t been accused of wrongdoing.
The Reference Shelf
A Bloomberg article on how Goldman Sachs has seen Malaysian business evaporate.
A chart showing how foreign funds have been pulling money from Malaysian stocks.
A graphic showing the worldwide scale of the 1MDB probe.
A QuickTake explainer on the costs of corruption.