SINGAPORE (Feb 18): The trial of former Malaysian prime minister Najib Razak, which was due to have started on Feb 12, has been delayed indefinitely pending an appeal. Najib was to face seven of the 42 counts of corruption and embezzlement that have been brought against him. The trial was to have been centred on three charges of money laundering, three of criminal breach of trust and one of abuse of power, for the sum of RM42 million ($14 million) transferred from a 1Malaysia Development Bhd (1MDB) subsidiary, SRC International, into Najib’s personal bank accounts. On Feb 11, however, the Malaysian Court of Appeals allowed for a stay in proceedings, on a technicality pertaining to the transfer of his trial from the Sessions Court to the High Court.
The postponement may have come as a frustration to many. But the proceedings against Najib, who is accused of crimes in relation to his role in the 1MDB fund, is only one part of the scandal surrounding the fund.
The sum of RM42 million is only a fraction of the estimated RM2.6 billion believed to have been siphoned from the development fund and frittered away on luxury yachts, priceless paintings and exclusive real estate. Within four years of its inception, the fund amassed nearly US$12 billion ($16.3 billion) in borrowings. Doubts began to surface when the fund seemed to have little to show for it.
In July 2013, The Edge Malaysia ran a special report on 1MDB in its pages. The story detailed how the fund was already raising eyebrows in the industry for its huge debt burden that it looked to be unable to service. In subsequent stories, reporters continued to question 1MDB’s actions, particularly its purchase of a large plot of land in Ayer Hitam, Penang. The fund bought the land for a tidy sum of RM1.3 billion just two weeks before the general elections in Malaysia in 2013. The plot could not be developed, however, as it already had residential property — and others besides — already built on it.
Ho Kay Tat, group CEO and publisher of The Edge Media Group, had previously said the land purchase in Penang was the trigger for the paper to dig deeper into the fund’s activities. The Edge Malaysia’s dogged coverage of the fund and its activities sparked a series of actions against the media outlet and its owner. In March 2015, Ho was arrested and remanded overnight; and, in July, the Malaysian Home Ministry suspended the outlet’s publishing permit for three months. The suspension was lifted in September 2015 and, late last year, the group was awarded more than RM11.2 million in compensation.
The sheer scale of the scandal has drawn widespread international attention and eventually led to the ousting of Najib, and the Barisan Nasional administration, after the watershed election in May 2018. US investment bank Goldman Sachs, which collected US$600 million in fees from the three bond issuances it helped arrange, also faces severe consequences. The bank’s revenue from those deals works out to roughly 7.7% of the face value of the securities, which far exceeded the industry average of 1.3% on comparable deals in the same period. Goldman is said to have set aside up to US$1 billion in anticipation of penalties relating to its role in the 1MDB affair.
Malaysia has filed criminal charges against the bank as well as its former employees, Tim Leissner and Roger Ng, in relation to the bond sales. Singapore is also investigating whether any of the fees Goldman earned flowed to its local unit, as part of the larger probe into 1MDB-related fund flows. Other bankers are under investigation in Switzerland, where authorities have also sanctioned Coutts & Co and JPMorgan for their involvement in 1MDB deals. Coutts was fined CHF6.5 million ($8.8 million) for violating anti money-laundering regulations. JPMorgan was rebuked, but no fines were imposed.
Meanwhile, the search is still on for Low Taek Jho, Najib’s associate and purported mastermind of the 1MDB embezzlement. Earlier this month, the luxury yacht that Low allegedly bought with 1MDB monies went on auction in Hong Kong. The Malaysian government hopes to net at least US$250 million from the sale of the vessel.
Timeline of events
2009
July
Shortly after becoming Prime Minister of Malaysia, Najib launches the 1MDB sovereign fund to invest in energy and real estate, with the Tun Razak Exchange being one of the more high-profile investments it was purportedly to make.
September
1MDB invests US$1 billion in a joint-venture company, called 1MDB-PetroSaudi, with PetroSaudi Holdings, apparently linked to the Saudi government (which was untrue). The 1MDB issues a press release on Sept 30 touting the US$2.5 billion JV as a new era of economic cooperation between Malaysia and Saudi Arabia. US$700 million of the initial US$1 billion was immediately used to pay a “debt” that was put into the JV company. 1MDB remitted the US$700 million cash via Deutsche Bank Malaysia in two tranches of US$300 million and US$700 million for the JV.
October
Deutsche Bank Malaysia informs 1MDB it must reveal the beneficial owner of the account at RBS Coutts Zurich before the US$700 million is allowed to be credited. 1MDB CEO Shahrol Halmi replies that the beneficial owner is Good Star Ltd (Seychelles) — a company controlled by Low Taek Jho, better known as Jho Low.
2010
March
It is disclosed in 1MDB’s accounts that the PetroSaudi JV had been called off, and 1MDB’s 40% stake was sold for US$1.2 billion (original US$1 billion plus US$200 million gain) to its partner on March 31, 2009 — the last day to close its audited accounts.
July
In another shocker, 1MDB acts as a lender to bankroll PetroSaudi by subscribing to another US$800 million in murabaha notes. (A transaction is termed “murabaha” when a bank purchases an asset for a client, then resells it to the same client with clear indicators of the mark-up the bank charges. In this case, 1MDB acted as the “bank” to PetroSaudi, the “client”.)
September
1MDB remits US$500 million to 1MDB-PetroSaudi’s account (7619400) at JPMorgan Suisse in Switzerland. From the US$500 million, US$300 million was sent to the personal account of Tarek Obaid (co-owner of PetroSaudi Holdings), also at JPMorgan Suisse. Tarek transfers US$100 million each to two other companies he owns — PetroSaudi International (Cayman) and PetroSaudi Holdings (Cayman) — while the remaining US$40 million remains in his personal account.
2012
June
The money trail takes two further twists in 2012. On June 1, the US$2 billion loan is revalued at US$2.223 billion — another nice paper gain. But, yet again, 1MDB does not take back its cash. Instead, it enters into an agreement to swap the US$2.223 billion loan into a 49% stake in PetroSaudi Oil Services.
September
Assets are sold and money placed with Cayman SPC — 1MDB sells the PetroSaudi Oil Services stake to an unnamed “external party” for US$2.3 billion.
2014
November/December
Under intense scrutiny about the money in the Caymans, 1MDB announces that it has redeemed the US$2.3 billion it placed in the Caymans.
2015
January
1MDB misses a loan payment of US$550 million, due in December 2014.
March
The Edge Malaysia publishes a series of front-page reports, continuing on from its first report in July 2013. Around this time, The Sarawak Report also reveals thousands of documents obtained from former PetroSaudi employee Xavier Justo that chronicle the abuse and mismanagement of funds from 1MDB. It soon gains international attention. Malaysia forms a special task force — including officials from its central bank, police, Malaysian Anti-Corruption Commission (MACC) and the attorney general’s (AG) chambers — to look into 1MDB.
July
The Wall Street Journal reports that nearly US$700 million of 1MDB money went into Najib’s personal bank account. Later, MACC, which is parked under the Prime Minister’s Department, announces that the money was a “donation”, and not from 1MDB.
Najib sacks his Deputy Prime Minister, Muhyiddin Yassin, and another senior politician in his party. He announces that AG Abdul Gani Patail has “resigned” for “health reasons”. Later, Sarawak Report publishes in full the charge sheet against Najib for corruption, which Gani was supposed to have initiated after investigations by the task force. Mohamad Apandi Ali is appointed in Gani’s place.
August
Swiss authorities begin criminal proceedings linked to 1MDB, saying the case involves suspected corruption of public foreign officials, dishonest management of public interests and money laundering.
2016
January
AG Mohamad Apandi clears Najib of any wrongdoing, saying US$681 million in Najib’s account was a donation from a member of the Saudi royal family and that he had returned US$620 million in a few months.
July
The US Department of Justice (DOJ) files civil lawsuits seeking to seize assets bought with money allegedly stolen from 1MDB. It alleges that more than US$3.5 billion was stolen from the fund. Singapore announces that it has been investigating 1MDB-related fund flows since March 2015. BSI’s Singapore branch is shut down for serious money-laundering breaches.
2017
May
The Monetary Authority of Singapore announces the conclusion of 1MDB-related investigations of the local financial system. Eight banks are fined a total of $29.1 million, two of which are shut down too. Five individuals are convicted and several others receive prohibition orders.
August
The US DOJ announces that it is conducting a criminal probe into 1MDB; it asks for a stay on its civil lawsuits to seize the assets bought with 1MDB money.
December
The US attorney general describes the 1MDB scandal as “kleptocracy at its worst”.
2018
May
Malaysians vote out the Barisan Nasional government in a historic and stunning defeat. Mahathir Mohamad, former Prime Minister, replaces Najib. He immediately puts 1MDB at the top of his to-do list. Najib and his wife, Rosmah Mansor, are barred from leaving the country. His property is raided and 12,000 pieces of jewellery, more than 500 designer handbags, more than 400 watches, 14 tiaras and nearly US$30 million in cash are seized. More than 400 accounts linked to 1MDB are frozen.
December
Najib is arrested.
