On July 28, sixteen months after the beginning of the trial, of what is believed to be one of the biggest financial scandals in history, former Malaysian Prime Minister Najib Razak was sentenced to 12 years in prison and a fine of RM210m £39m.
“After considering all evidence in this trial, I find that the prosecution has successfully proven its case beyond a reasonable doubt.” stated the Kuala Lumpur High Court judge Mohamad Nazlan Mohamad Ghazali.
What is 1MDB?
Malaysia’s state-owned investment fund, 1MDB, was created in 2009 aimed to boost development in Malaysia and uplift the impoverished sections. The advisory board was led by Najib Razak, the Prime Minister at the time to kick-start initial plans like purchasing privately-owned power plants and devising a financial district in the capital, Kuala Lumpur. The fund heavily leveraged $12 billion in debt, more than attracting large-scale foreign investments.
Behind the scandal
Instead of funding projects for Malaysia’s poorest, the money was spent on luxury assets in the US and elsewhere, including London, and used to pay gambling expenses at Las Vegas casinos. The fund stimulated investigations into embezzlement including deal-making, election spending, political patronage. The U.S. Justice Department accused that more than $4.5 billion was directed through fraudulent shell companies to corrupt officials and their associates. According to the U.S. indictment, a syndicate led by businessman Low Taek Jho (known as Jho Low) diverted money from 1MDB into personal accounts veiled as businesses and transferred funds to officials. Suspicions were raised about a $681 million payment to Najib’s bank account. Malaysia’s then-attorney general cleared Najib of wrongdoing in 2016 saying the $681m was a donation from a prince in Saudi Arabia and the former $620m was returned.
After losing office in a 2018 election that ended his party’s 61 years of rule, Najib was charged with corruption, money laundering and breach of trust. The first trial involved $10 million deposited in his personal accounts linked to a 1MDB unit. On July 28, he was declared guilty on all seven counts. The lawyer has promised to appeal while Jho Low continues to deny any malpractices.
U.S. prosecutors have also implicated at least three senior bankers from Goldman Sachs Group Inc. one of whom admitted to bribery. Charges filed against the bank by the state of Malaysia have settled for a $3.9 billion settlement.
Where’s the money?
Under a recent settlement agreed on July 24, Malaysia shall drop all criminal charges against Goldman Sachs for consideration of $2.5 billion, and a minimum of $1.4 billion from seized 1MDB assets being returned with the cooperation of U.S. prosecutors and Goldman.
(Goldman earned $593 million in connection with three bond sales that raised $6.5 billion for 1MDB between 2012 to 2013, noticeably more than banks involved in such deals). An agreement to settle the U.S. charges with a possible $2 billion penalty was said to be awaiting a Justice Department decision on whether Goldman would have to accept its first-ever guilty plea.
• U.S. prosecutors struck a deal in October with Jho Low to recover almost $700 million worth of assets, including a Beverly Hills hotel and real estate in New York and London along with $260 million worth of assets, which includes a $126 million super yacht.
• The U.S. reached a $60 million settlement with the producers of “The Wolf of Wall Street,” ironically, a 2013 movie on investment fraud, allegedly funded with fraudulent money from the scandal. The production company, Red Granite Pictures was co-founded by Riza Aziz, Najib Razak’s stepson and a friend of Jho Low.
• Malaysia is looking to seize $340 million in PetroSaudi International’s accounts in London.
• Singapore is returning S$35 million ($25 million) forfeited by former Goldman banker Roger Ng.
Who else is charged?
• Jho Low, a Malaysian financier and consultant for 1MDB, is regarded as the central figure who set up shell companies to act as a vehicle for money laundering and other offences for his self-interest. He has not admitted guilt or been released of charges, though he entered into a settlement with the U.S.
• Goldman’s former Southeast Asia chairman, Tim Leissner pleaded guilty to U.S. charges including money laundering and bribery in Malaysia and the United Arab Emirates to conduct bond sales for 1MDB. He agreed to a penalty of $43.7 million and shall be sentenced on Jan. 22, 2021. Ex-Goldman Sach banker, Rober Ng was extradited from Malaysia to the U.S. to face charges. His trial start date has been postponed until January 2021 due to the COVID-19 outbreak. Both have been banned from the financial industry by the US Federal Reserve.
• Malaysia pressed charges of securities law violations against Leissner, Roger Ng, Jho Low and 1MDB’s former general counsel, Jasmine Loo Ai Swan.
• The directors of PetroSaudi International, Tarek Obaid and Patrick Mahony were charged in absentia by Malaysia in 2020 for allegations of receiving $300 million from 1MDB through unlawful practices. In 2018, Swiss federal prosecutors initiated an investigation on two officials of the Saudi oil producer, without confirming their identities.
• Ex-1MDB President Arul Kanda was charged alongside Najib with allegations of tampering with the state audit report into the fund. He has denied wrongdoing.
• Najib’s wife, Rosmah Mansor has been charged with money laundering and tax evasion. About 1.1 billion ringgit ($259 million) worth luxury items and cash seized from properties have been linked to the couple. According to U.S. prosecutors, Jho Low in 2013 allegedly diverted $27.3 million that were looted from 1MDB to a jeweller in New York for her.
What’s still in process?
The U.S. investigation is still ongoing. Whether it will persuade Goldman to take a guilty plea, is one of the biggest issues remaining. Prosecutors claim that some employees, beyond those charged, had knowledge of the scheme and hid it from compliance and legal departments at Goldman. Singapore was said to have expanded a criminal probe to include Goldman; two Abu Dhabi funds have filed a civil suit against Goldman in New York seeking damages for alleged fraud connected to 1MDB. An American Justice Department employee has pleaded guilty to funneling money into the U.S. to pay for a lobbying effort, with the filing identifying the fund’s source as Jho Low. The U.S. is also said to be investigating Deutsche Bank AG over an ex-Goldman executive who joined the German bank.
Why is this significant?
With authorities in more than six countries in Asia and Europe, and the United States are investigating into the money trail from the 1MDB scandal, as well as legal approaches toward Goldman and asset recovery. The findings could potentially identify and resolve loopholes in the global financial system that is largely affected by corruption and embezzlement.