What the 1MDB investigation means for Malaysia

By Zofia Reych

1Malaysia Development Bhd. was mired in controversy since its earliest days as Terengganu Investment Authority. In 2012, TIA, already rebranded as 1MDB, showed

7.8 billion ringgit of debt. Two years later the debt grew to 36.3 billion, leading to Prime Minister Nahib Razak losing the support of Mahathir Mohamad, who feared that the country was on its way to an economic disaster.

As borrowing continued and the wealth fund missed two repayment deadlines, attention of the public focused on 1MDB. In June last year, the Malaysian Central Bank started an official investigation and although the initial report claimed no wrongdoing, it became clear that certain transfers were highly suspicious.

The rest, as they say, is history.

The plot thickens

As if the huge sums at stake weren’t enough, the financial scandal got a lot sexier when it emerged that the young Malaysian magnate Jho Low became an apparent connection between 1MDB and Hollywood. Funds diverted from 1MDB were allegedly used to finance the Leonardo DiCaprio blockbuster, The Wolf of Wallstreet.

That’s when the US officials got interested. A lawsuit filed recently at the California Federal Court by the Department of Justice claims that 1MDB misappropriated 3.5 billion US dollars. The DoJ accuses 1MDB of money laundering and seeks to seize back more than 1 billion US in assets.

The US, Singapore and Switzerland are involved in the international investigation. On Wednesday last week, Swiss authorities intercepted two works of art in connection with the recent lawsuit. The BBC identified them as a sketch by Vincent Van Gogh, and two works by Claude Monet.

Many more assets are likely to follow. Meanwhile, Najib Razak continually denies any wrongdoing.

Nothing changes?

Although the name of Najib Razak is not mentioned in the lawsuit, the document lists a certain “Malaysian Official One” described as a senior government figure, as well as Najib’s stepson Riza Aziz, and family friend Jho Low.

Widely criticised for cronyism even before the 1MDB scandal, Najib Razak seems unphased. In fact, some say that his position is stronger than ever.

“Najib’s security is because the opposition and UMNO dissidents are not able to come together to present a coherent message and credible alternative,” commented Ibrahim Suffian of the Merdeka Centre for the Straits Times.

Apart from leading UMNO, the prime minister also constitutionally leads the Malaysian judiciary and security bodies.

While Najib’s domestic position might remain unchanged, his international situation is somewhat threatened. Since 2014, Malaysia has been strengthening its ties with the US and Barack Obama was the first American president to visit the country in over half a century.

Close cooperation between Malaysia and the US is seen as key in preventing the spread of Islamic extremism in the ASEAN region. The two countries recently joined in the Trans Pacific Partnership, a trade agreement aimed at preventing China’s economic hegemony in Southeast Asia. They also share a stance against Beijing in the ongoing South China Sea dispute.

However, the recent developments might put a strain on the Washington-Kuala Lumpur line. Speaking of the recent lawsuit, Najib told reporters that “It doesn’t relate to the overall position with respect to policies between our two countries,” but if he’s wrong, it is possible that recent developments might add to strengthening China’s position in the region.

“The latest twist in the 1MDB affair does play to China’s advantage,” said an unnamed foreign diplomat in Kuala Lumpur.

Meanwhile, former prime minister and Najib’s arch enemy Mahathir Mohamad is pushing for Najib’s resignation over the apparent ties with misapropriated assets.

“I suggest the people push for a referendum on the prime minister’s leadership,” said Mahathir. But Najib Razak can feel secure and he continues to trivialise the international investigation into 1MDB. “It needs to be clear that this is a civil, not criminal procedure,” he said.

Malaysia’s Attorney-General Mohamed Apandi already backed the prime minister in an official statement claiming that there’s no evidence of actual wrongdoing in relation to the 1MDB issue.

Even Mahathir believes that the Malaysians will always support UMNO, and the prime minister holds the party in a strong grip. But as the 1MDB case was now picked up from across the ocean, the Malaysian public is increasingly distrustful. “Certainly, there is pressure [on the government],” commented Mr Suffian.

But this pressure is not likely to be enough to threaten UMNO and Najib’s dominance. The Malay majority will continue to support the party that guarantees them rights. Ultimately, it’s race and religion that make the Malays vote UMNO, and make Najib Razak untouchable.

As the DoJ lawsuit unfolds, time will show if for Riza Aziz, Jho Low and others being in Najib’s circles is enough to remain beyond the reach of justice.