1MDB accused of laundering $3.5bn by the US Justice Department

Image: Jorge Láscar/CC BY 2.0 with changes.

By Dimitra Stefanidou

1MDB was laundering misappropriated assets for a more than 4 years, starting immediately after it was set up in 2009  say American authorities in civil lawsuits just filed.

The US Department of Justice wants to seize over $1bn of assets that belong to the Malaysian’s investment trust fund, part of the total $3.5bn it says was transferred into a network of shell companies and bank accounts in Luxembourg, Singapore, Switzerland and the US. Included in this toxic web are international banks such as Goldman Sachs Group Inc., Standard Chartered Plc, Deutsche Bank AG and JPMorgan Chase & Co.

The Prime Minister Najib Razak is not openly and directly mentioned in the lawsuits and no charges were personally brought against him. Instead the lawsuits mention the name “Malaysian Official 1” who is described as “a high-ranking official in the Malaysian government who also held a position of authority with 1MDB”.

However, based on the fact that more than $681m was found in his personal bank account, the Department assumes that he is intricately linked with the scandal. The previous report on the money transfer was published by the Wall Street Journal about a year ago. The PM denied every allegation and blamed his political enemies for sabotaging him.

Jho Low, Khadem al-Qubaisi and Mohamed Ahmed Badawy Al-Husseiny, Abu Dhabi government officials are also mentioned in the lawsuits.

The US investigation

The investigations were initiated by the US Department for Justice because an enormous amount of the money concerned has been spent in the United States. This went on expensive hotels and properties, gambling in Las Vegas casinos, private jets, yacht trips and trips for gambling and to the partial financing of the famous movie “The Wolf Of Wall Street,” say the reports. More than $200m went on expensive pieces of art including Van Gogh and Monet artwork, the Department says.

General Loretta Lynch, US Attorney-General, said that the fund was used by the officials as a “personal bank account” and  the investigations were part of America’s fight against global corruption. The US will not be “safe haven to those who illegally use public funds for private gain,” she said. Andrew McCabe, Deputy Director of the FBI mentioned that “The Malaysian people were defrauded on an enormous scale”

In Singapore

Meanwhile in Singapore the national monetary authority (MAS), announced that it conducted a preliminary investigation on several financial institutions involved with 1MDB-related money flows. It said, “its supervisory examinations of financial institutions… have revealed a complex international web of transactions involving multiple entities and individuals operating in several jurisdictions”.

The investigations revealed that were “lapses and weaknesses” on the anti-money laundering controls of The Development Bank of Singapore Limited (DBS), the UBS and Standard Chartered Bank. The MAS is about to take firm regulatory actions against those banks, the same report says.

The three financial institutions deny any wrongdoing and claim that they reported the suspicious transactions as soon as they were detected. They also say that they have improved their anti-money laundering control systems and that they will continue to cooperate to any lawful investigations.

The report additionally notes that “no pervasive control weakness or stuff misconduct was found during the investigations, unlike the case of BSI Bank”. In May 2016 Swiss financial regulators opened a case against that institution over links to corruption allegations against the fund. This brought the closure of the bank. 

How will the US-Malaysia evolve?

The current situation complicates the relationship between US and Malaysia, who have historically been partners in diplomacy and important allies in the fight against terrorism. The US has tried to leverage this warmth to develop better connections with the Muslim countries of the Middle East and trade in goods and services between the two countries reached an annual value of $42bn in 2012. According to a report by the Office of the U.S Trade Representative, Malaysia was the 20th-largest goods trading partner of the U.S. in 2014.

James Keith, US ambassador to Malaysia from 2007 to 2010 reports that “It definitely is already threatening the relationship. You can tell from any number of angles” and that “Already, there’s a bit of symbolic distance between the president and Najib, which is likely to persist.”

He said, she said

In reply to the US allegations, the fund claims that there was no illicit activity on its behalf regarding the money transfers mentioned in the lawsuits and that the PM never got any money from it. The claims, they say, have no substance. The same thing was repeated by the PM and other Malaysian Government representatives, all of whom were ready and open to “fully co-operate with any lawful investigation”.