1Malaysia Development Berhad scandal
The 1Malaysia Development Berhad scandal, often referred to as the 1MDB scandal or just 1MDB, is an ongoing corruption, bribery and money laundering conspiracy in which the Malaysian sovereign wealth fund 1Malaysia Development Berhad (1MDB) was systematically embezzled, with assets diverted globally by the perpetrators of the scheme.[1] Although it began 2009 in Malaysia, the scandal's global scope implicated institutions and individuals in politics, banking, and entertainment, and led to criminal investigations in a number of nations. The 1MDB scandal has been described as "one of the world's greatest financial scandals"[2][3] and declared by the United States Department of Justice as the "largest kleptocracy case to date" in 2016.[4]
For further background of the scandal, see Timeline of the 1Malaysia Development Berhad scandal.
A 2015 document leak reported in The Edge, Sarawak Report, and The Wall Street Journal showed that Malaysia's then-Prime Minister Najib Razak had channeled over RM 2.67 billion (about US$700 million) into his personal bank accounts from 1MDB, a government-run strategic development company.[5] The alleged mastermind of the scheme, Jho Low, was central in the movement of 1MDB funds internationally through shell companies and offshore bank accounts. As of 2018, the U.S. Department of Justice found that Low and other conspirators including officials from Malaysia, Saudi Arabia and the United Arab Emirates diverted more than US$4.5 billion was from 1MDB.[6] These were used to purchase luxury items and properties, including superyacht Equanimity, and finance the American film company Red Granite Pictures and the production of The Wolf of Wall Street and other films.[7] 1MDB funds supported lavish lifestyles for Low, Najib and his wife Rosmah Mansor, and established Najib's stepson Riza Aziz in Hollywood. Attempts were also made for embezzled funds to be put towards political donations and lobbying in the United States.[8]
The revelations became a major political scandal in Malaysia, triggering protests and backlash. After several Malaysian investigations were opened, Najib responded by dismissing several of his critics from government positions, including his deputy Muhyiddin Yassin and attorney-general Abdul Gani Patail. Charges against Najib were subsequently dismissed.[9] Among Najib's critics was former ally and Malaysia's fourth Prime Minister Mahathir Mohamad,[10] who chaired the Malaysian Citizens' Declaration, bringing together political figures and other organisations in calling for Najib Razak's resignation or removal. The Malaysian Conference of Rulers called for prompt investigation of the scandal, saying that it was causing a crisis of confidence in Malaysia.[11][12]
Outside of Malaysia, investigations into financial and criminal activity relating to 1MDB opened in at least six countries.[7] According to its publicly filed accounts, 1MDB had nearly RM 42 billion (US$11.73 billion) in debt by 2015.[13] Some of this debt resulted from a $3 billion state-guaranteed 2013 bond issue led by the American investment bank Goldman Sachs, which had been reported to have received fees of up to $300 million for the deal, although the bank disputes this figure.[14] Nevertheless, Goldman Sachs was charged under the Foreign Corrupt Practices Act and agreed to pay over $2.9 billion in a settlement with the U.S. Department of Justice (DOJ).[15] American rapper Pras, former Goldman Sachs chairman Tim Leissner and fundraiser Elliott Broidy were among those charged in the United States in connection with 1MDB.
After the 2018 election, the newly elected prime minister, Mahathir Mohamad, reopened Malaysian investigations into the scandal.[16] The Malaysian Immigration Department barred Najib[17] and 11 others[18] from leaving the country, while the police seized more than 500 handbags and 12,000 pieces of jewellery estimated to be worth US$270 million from property linked to Najib, the largest seizure of goods in Malaysian history.[19] Najib was later charged with criminal breach of trust, money laundering and abuse of power, while alleged mastermind Jho Low, by then an international fugitive, was charged with money laundering.[20] Najib was subsequently found guilty of seven charges connected to SRC International, a 1MDB subsidiary, and was sentenced to twelve years' imprisonment.[21]
In September 2020, the alleged amount stolen from 1MDB was estimated to be US$4.5 billion and a Malaysian government report listed 1MDB's outstanding debts to be at US$7.8 billion.[22] The government has assumed 1MDB's debts, which includes 30-year bonds due in 2039.[23] In August 2021, the United States had recovered and returned a total of US$1.2 billion of 1MDB funds misappropriated within its jurisdiction,[24] joining countries such as Singapore and several others which have also initiated recovery or that have already repatriated smaller recovered amounts.[25]
Malaysian investigations and actions[edit]
Change of auditors and transparency[edit]
The RM 425 million profit declared between 25 September 2009 and 31 March 2010 raised many criticisms and controversies about the lack of transparency in 1MDB's published accounts. Tony Pua, DAP Member of Parliament for Petaling Jaya Utara, questioned Najib, 1MDB's advisory board chairman, as to whether the figures were the result of an asset injection into 1MDB by the government such as the transfer of land rights to the company.[29][30]
During the October 2010 parliamentary session, 1MDB explained that its accounts had been fully audited and signed off by KPMG, and closed as of 31 March 2010. Deloitte was involved in the valuation and analysis of the portfolio, while Ernst & Young provided tax advice for 1MDB.
1MDB eventually rang alarm bells by asking for a six-month extension on the filing of its annual report with the Companies Commission of Malaysia (CCM) due by 30 September 2013. At the same time, the change of three auditors since its inception in 2009 was considered suspicious.[31][32] Responding to earlier criticism, CCM said that 1MDB had responded and lodged the necessary information, including registering an address, as required by law.[33]
The Sungai Besi airport land transfer took place in June 2011 as a precedent for the development known as Bandar Malaysia, a mixed integrated project of commercial, residential, and hi-tech green environment.[34] Prior to this, there had been questions in parliament by the opposition regarding the lack of progress on Bandar Malaysia even though 1MDB had already raised RM 3.5 billion in loans and Islamic bonds to fund the project and take ownership of the land.[35][36] In April 2013, 1MDB finally awarded a RM 2.1 billion contract to Perbadanan Perwira Harta Malaysia (PPHM), a subsidiary of Lembaga Tabung Angkatan Tentera (LTAT) to develop eight sites for the relocation of Pangkalan Udara Kuala Lumpur, the military base on the Sungai Besi land that was to be developed.[37] The construction of Bandar Malaysia was set to commence following the completion of this relocation. As part of its debt rationalisation plan, on 31 December 2015, 1MDB inked an agreement with a consortium comprising Iskandar Waterfront Holdings and China Railway Engineering Corporation to sell 60% of its stake in Bandar Malaysia Sdn Bhd.[38] However, this deal eventually fell through.[39]
On 7 September 2015, a member of the board of advisors to 1MDB, Abdul Samad Alias, resigned stating that he did so after many of his requests for information on 1MDB affairs were ignored.[40][41] 1MDB subsequently denied receiving repeated requests from Abdul Samad, stating that its president, Arul Kanda, had personally met Abdul Samad in January and March that year to "discuss the company's affairs".[42]
1MDB had not had a proper external accounts audit since 2013, partly as a result of Deloitte Malaysia, their auditors at the start of that period, issuing a statement in July 2016 saying that their audit reports of 1MDB financial statements, dated 28 March 2014 and 5 November 2014 covering financial years 2013 and 2014 respectively, should no longer be relied upon.[43][44] By early March 2015, with public discontent growing at the perceived lack of financial transparency at 1MDB, the Prime Minister, who was also the Chairman of 1MDB's Board of Advisors, ordered the Auditor General of Malaysia to carry out an audit of 1MDB.[45] However, on completion of the audit, the final report was classified as an Official Secret and only made available to the Public Accounts Committee (PAC) tasked to investigate improprieties at 1MDB.[46][47] Purported copies of the report however surfaced on the internet.[48][49][50] After Najib's ouster in the 2018 general election, the much-leaked audit report was declassified by the new government on 12 May 2018.[51]
In May 2018, after the formation of the new Cabinet following Pakatan Harapan's victory in the General Elections, Finance Minister Lim Guan Eng ordered the appointment of PricewaterhouseCoopers (PwC) to conduct a special position audit and review of 1MDB.[52]
Debts and rating downgrade[edit]
It was reported that by early 2015, 1MDB has accumulated debts of nearly RM 42 billion.[53] Further alleged financial challenges caused 1MDB bonds to trade at a record low.[13][54] Additionally, the Malaysian cabinet rejected a requested RM 3 billion cash injection by 1MDB, narrowing its options to pay off its debts on time.[55][56][57]
Investigations by foreign law enforcement agencies[edit]
Australia[edit]
The Australian fund management company Avestra Asset Management, which managed up to RM 2.32 billion in 1MDB funds, is being liquidated, and is under investigation by the Australian Securities and Investments Commission for reported breaches of the law and potential losses to its members.[174][175][176] The Australian High Court has ordered five investment schemes run by Avestra to close down after discovering undisclosed related-party transactions, with 13 potential breaches of corporate law and failure to invest according to the fund's individual mandates.[177][178]
Hong Kong[edit]
Hong Kong police have begun investigations regarding $250 million in Credit Suisse branch deposits in Hong Kong linked to Najib Razak and 1MDB.[179][180]
Indonesia[edit]
Indonesia seized the superyacht Equanimity on 28 February 2018 on the island of Bali at the request of the U.S. Department of Justice, as part of a corruption investigation linked to the 1MDB scandal.[181] The Indonesian government returned the yacht to Malaysia in August 2018, following the activation of the Mutual Legal Assistance Treaties between Indonesia, the United States and Malaysia.[182][183]
Luxembourg[edit]
State prosecutors in Luxembourg have also started money laundering investigations concerning 1MDB as it involved transfers of several hundred million dollars to an offshore company involving a bank account from Luxembourg.[184][185][186][187] The bank in question is a private bank of the Edmond de Rothschild Group that manages money on behalf of wealthy clients.[188][189][190]
Seychelles[edit]
The Seychelles's Financial Intelligence Unit is helping an international investigation into the troubled state fund 1MDB, by providing detailed information relating to offshore entities registered in Seychelles that are related to the international investigation.[191][192][193]
1MDB has not contested, and appears unlikely to contest, any lawsuit which has arisen from the investigations of foreign investigating authorities.[194]
Singapore[edit]
In Singapore, the Monetary Authority of Singapore (MAS) and the Commercial Affairs Department have seized a number of bank accounts in Singapore for possible money-laundering offences related to investigations into alleged financial mismanagement at 1MDB.[195][196][197] One of the bank accounts frozen belonged to Yak Yew Chee, who was the relationship manager for 1MDB Global Investments Ltd, Aabar Investment PJS Limited and SRC International and Low Taek Jho.[198][199][200] Singaporean Yeo Jiawei, an ex-BSI banker, has been charged with money laundering and cheating offences as part of the Singapore probe into 1MDB, and Yeo's dealings with firms linked to 1MDB, Brazen Sky Ltd. and Bridge Partners Investment Management.[201][202] A second individual, Kelvin Ang Wee Keng, was charged with corruption in connection with the Singaporean investigation into 1MDB.[203][204]
According to a joint statement from the Attorney General's Chambers and the Monetary Authority of Singapore, assets totalling S$240 million have been seized during their investigations into 1MDB.[205][206] Of the bank accounts and properties seized were S$120 million belonging to Jho Low and his family.[207][208][209]
In March 2017, MAS issued a 10-year prohibition order against former Goldman Sachs banker Tim Leissner for making false statements on behalf of his bank without its knowledge.[210] The prohibition order, which prevents him from performing any regulated activity under the Securities and Futures Act and from managing any capital market services firm in Singapore, was extended in December 2018 from 10 years to lifetime after he admitted to charges related to an investigation into the 1MDB scandal.[211][212]
In September 2018, the Singapore State Courts granted the return of 1MDB monies with a total value of S$15.3 million to Malaysia while solicitors for the Malaysian government stated that efforts to recover other unlawfully misappropriated assets were ongoing.[213][214]
Switzerland[edit]
Swiss authorities under the direction of the Office of the Attorney General of Switzerland began to freeze bank accounts amounting to several million US dollars linked to 1MDB.[215][216][217] The Swiss attorney general's office said its investigation revealed indications that funds estimated to be US$4 billion may have been misappropriated and said it was looking into four cases of potential criminal conduct.[218][219] The Swiss prosecutor has said that money had been deposited into Swiss bank accounts of former Malaysian public officials and current and former officials of United Arab Emirates.[220][221][222] Swiss Financial Market Supervisory Authority (Finma) has begun investigations into several Swiss banks as part of the money laundering probe involving 1MDB.[223][224][225]
On 15 March 2018, the Swiss parliament rejected a motion to return seized monies from their investigations into 1MDB to the Malaysian people, as had been lobbied for by Swiss politicians and non-governmental bodies.[226] However, on 10 July 2018, Swiss Attorney General Michael Lauber indicated that Switzerland would not enrich itself by keeping illicit or stolen assets and be able to have the monies returned by legal obligations.[227]
United Arab Emirates[edit]
The United Arab Emirates has issued travel bans and frozen bank accounts of former Abu Dhabi sovereign-wealth fund International Petroleum Investment Company's employees Khadem al-Qubaisi and Mohammed Badawy Al Husseiny who had close connections to 1MDB, and may have used the British Virgin Islands-based Aabar Investments PJS to funnel money from 1MDB into various accounts and companies around the world.[228][229]
United Kingdom[edit]
In September 2020, the U.S. Department of Justice initiated civil forfeiture proceedings against funds held by law firm Clyde & Co in London, United Kingdom. The US$330 million were misappropriated 1MDB money, apparently intended for an oil project in Venezuela that later failed.[230][231]
Recovery of 1MDB assets[edit]
As of May 2019, Malaysia had recovered US$322 million (RM1.3 billion) worth of 1MDB assets since its renewed investigations into the 1MDB scandal after the 14th General Election in May 2018.[293]
Steps have been taken to preserve the value of the assets caught up in the case, including the sale of the Park Lane Hotel in New York in November 2018, a step endorsed by the U.S. DOJ, in accordance with the rule of law and on the basis of no admission of wrongdoing or liability.[294] In August 2018, Malaysian authorities seized a yacht allegedly purchased by Low, selling it some eight months later to minimize the costs associated with maintaining it. A spokesperson for Low described the seizure as "illegal".[295][296] Leonardo DiCaprio returned gifts received from Low to US authorities in 2017, including an Oscar received by Marlon Brando and paintings by Picasso and Jean-Michel Basquiat.[28]
The recovered funds include the sum of US$126 million from the Equanimity judicially sold to the Genting Group, US$139 million to be returned by the United States after sale of Jho Low's interest in Park Lane Hotel in Manhattan, and US$57 million from a forfeiture settlement of Red Granite Pictures, which has been repatriated to Malaysia after deducting the costs incurred for investigations, seizures and litigation.[293]
Apart from the above, another sum of S$50 million (RM152 million) related to 1MDB has been ordered by the Singapore Courts to be repatriated.[293]
Malaysia has been working with at least six countries to recover about US$4.5 billion worth of assets allegedly stolen from 1MDB,[297] in which US$1.7 billion (RM7 billion) worth of assets have been sought by the DOJ to forfeit.[293]
On 15 April 2020, it was reported that the DOJ had returned US$300 million in funds stolen during the 1MDB scandal to Malaysia.[298]
On 24 July 2020, it was announced that the Malaysian government would receive US$2.5 billion in cash from Goldman Sachs, and a guarantee from the bank they would also return US$1.4 billion in assets linked to 1MDB bonds.[299] Put together this was substantially less than the US$7.5 billion that had been previously demanded by the Malaysian finance minister. At the same time, the Malaysian government agreed to drop all criminal charges against the bank and that it would cease legal proceedings against 17 current and former Goldman directors. Some commentators argued that Goldman had got away with a very good deal.[300]
In January 2022, the Malaysian government received RM 333 million ($111 million) as a fine from the local affiliate of KPMG in settlement of the lawsuit filed against it.[301]
Reports by Offshore Alert indicate that actions to recover further misappropriated assets are ongoing in various jurisdictions.[302]