Malaysia’s 1MDB woes deepen with US lawsuit – Nikkei Asian Review

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http://asia.nikkei.com/magazine/20160728-GENERATION-CHANGE/Politics-Economy/Malaysia-s-1MBD-woes-deepen-with-US-lawsuit

Malaysia Prime Minister Najib Razak and wife Rosmah Mansor awaiting ASEAN heads of government at the ASEAN and related summits in Kuala Lumpur on Nov. 22 2015 (Photo: Simon Roughneen)

Malaysia Prime Minister Najib Razak and wife Rosmah Mansor awaiting ASEAN heads of government at the ASEAN and related summits in Kuala Lumpur on Nov. 22 2015 (Photo: Simon Roughneen)

 JAKARTA — A bad penny keeps turning up, as the old saying goes. And so it goes for Malaysia’s Prime Minister Najib Razak, who has spent more than a year trying to fend off allegations that around $700 million was stolen from troubled state development fund 1Malaysia Development Berhad and diverted into his bank account.

The prime minister first said he did not take money “for personal gain,” then said he received a $681 million donation from Saudi Arabia — the latter claim eventually backed in April by the Saudi foreign minister.

Malaysian law enforcement agencies ruled that Najib has nothing to answer for, but foreign counterparts are hunting for billions of dollars of 1MDB money allegedly laundered through jurisdictions such as Singapore, Switzerland and the U.S.

Those efforts have not yet forced Najib into a climbdown or jeopardized his premiership, but a civil lawsuit announced by the U.S. Department of Justice on July 20 describes an “international conspiracy” to launder $3.5 billion misappropriated from 1MDB and seeks to recover around $1 billion worth of assets allegedly procured with stolen money.

Naming Naijb’s stepson, the U.S. lawsuit mentions how money allegedly embezzled and laundered into the U.S. helped finance the making of “The Wolf of Wall Street” — ironically, a movie about large-scale financial corruption — and was used to buy properties in New York, Los Angeles and London, paintings by Monet and Van Gogh, a $35 million jet, and to cover gambling debts in Las Vegas.

But what happened in Vegas didn’t stay in Vegas. The lawsuit also lists a “Malaysian Official 1” as having received, via various front and offshore companies and intermediaries, $681 million into a personal bank account, but does not mention any donation from Saudi Arabia, a key U.S. ally.

The money in the account owned by “Malaysian Official 1” was, according to the lawsuit, taken from over $3 billion in bond issues raised by U.S. investment bank Goldman Sachs for 1MDB — money meant for the fund to invest on behalf of the Malaysian state. Goldman Sachs was not accused of wrongdoing in the U.S. lawsuit.

BENT ON AN OUSTER But because the lawsuit contradicts Najib’s oft-repeated account of the money trail, Mahathir Mohamad — who as Malaysia’s longest-serving prime minister was often critical of the U.S. — seized on the development to call again for public demonstrations against Najib, who set up 1MDB in 2009 shortly after he became prime minister. Mahathir, who for decades was the power in Najib’s ruling United Malays National Organization, has repeatedly urged Najib to resign.

Although Malaysia’s parliamentary opposition has been too divided to capitalize on Najib’s travails, Mahathir is establishing a new party to challenge the prime minister, and now has the backing of a former foe, the jailed opposition leader Anwar Ibrahim, who was previously imprisoned in 1998 for leading protests against Mahathir’s rule.

Najib has dug in, ousting officials and party colleagues who have criticized him over 1MDB, before his ruling coalition allies won easily in recent by-elections and regional elections. The view among analysts inside Malaysia is that the prime minister remains unassailable while the majority of the ruling coalition supports him.

But analysts outside the country, such as Ooi Kee Beng, deputy director of the ISEAS-Yusof Ishak Institute in Singapore, believe that “the ripples emanating from 1MBD across the world look poised to turn into a big wave, if not a tsunami.”

If this rising wave of controversy does not topple Najib, it could further worsen Malaysia’s fraught ethnic, or “racial” relations. While Najib remains untouchable in the eyes of the law, key Chinese-Malaysian opposition lawmaker Lim Guan Eng is facing two corruption charges, adding fuel to the racial fire.

Protests in August 2015 saw tens of thousands of mostly Chinese-Malaysians occupy a landmark plaza in Kuala Lumpur. Although they barely dented Najib’s authority, the demonstrations added to the perception that Malaysia’s ethnic divides are becoming more pronounced. Unlike rallies in 2011 and 2012 that sought reform of the electoral system, the more recent protests did not see opposition-supporting Malays turn out in big numbers.

This time Najib’s supporters are likely to protest as well — if Mahathir organizes an anti-Najib protest — with Jamal Yunos, a regional chief in Najib’s UMNO party, claiming he will bring 300,000 government supporters onto the streets of Kuala Lumpur.

Yunos compared demands for Najib to resign to the recent coup attempt in Turkey, echoing the information ministry, which said “1MDB has been the subject of unprecedented politically motivated attacks, the objectives of which were to unseat a democratically elected head of government.”

Malaysian Attorney General Mohamed Apandi Ali said that while the U.S. lawsuit — which contradicts his own investigation into 1MDB — did not name Najib, he nonetheless has “strong concerns at insinuations and allegations” against the prime minister.

Malaysia’s foreign ministry was more circumspect, saying in a July 21 statement that the country “highly values” its bilateral relations with the U.S. and urging Washington to recognize the government’s “various steps” to address the 1MDB issue.

Long before the U.S. suit was announced in mid-July, scandals over the fund were discussed by President Barack Obama during a visit to Malaysia for an international summit in November 2015. In contrast to the bonhomie of Najib’s Christmas visit to Hawaii the year before, when the two leaders were pictured playing golf together, Obama appeared aloof to the point of disinterest while sitting next to Najib in Kuala Lumpur.

The fallout over the U.S. investigation into 1MDB is unlikely to undermine bilateral relations. Malaysia is one of 12 countries that signed the U.S.-led Trans-Pacific Partnership agreement, a free-trade deal that, if implemented, would take in around 40% of world trade. U.S. officials, including Obama, have repeatedly praised Malaysia’s “moderate” practice of Islam and efforts to counter terrorist groups such as Islamic State, which has several hundred Malaysian members and which recently carried out a grenade attack in Malaysia.

“I don’t think these actions will inflict long-term damage to the bilateral relationships between Malaysia and the U.S. or Malaysia and Singapore,” said Wan Saiful Wan Jan, chief executive officer of the Institute for Democracy and Economic Affairs. “The relationships between us and these countries go back many decades. They are certainly bigger than any one person, regardless of who he or she may be.”

Nikkei staff writer CK Tan in Kuala Lumpur contributed to this article

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