KUALA LUMPUR, Malaysia (AP) — U.S. authorities have charged a fugitive Malaysian financier and two former Goldman Sachs GS bankers in a money laundering and bribery scheme that allegedly pilfered billions from Malaysian state investment fund 1MDB. The corruption scandal involving the fund had already upended politics in the country. Prime Minister Najib Razak, who set up the fund, was ousted in a May election and now faces criminal charges in Malaysia. Last year, the country sank to its worst-ever rating in the influential Corruption Perceptions Index compiled by Transparency International. Here’s a look at the fund and how the scandal has played out:
The fund, 1Malaysia Development Berhad, was set up in 2009 to promote economic development. Najib chaired its advisory board and as finance minister held veto power over its activities. Between 2009 and 2014, top executives and associates of Najib looted $4.5 billion from the fund, laundering it through the U.S., Singapore, Switzerland and other countries, according to the U.S. Justice Department. U.S. Attorney General Jeff Sessions has called the scandal “kleptocracy at its worst.” About $700 million landed in Najib’s bank account, though he denies any wrongdoing. 1MDB now staggers under enormous debt.
Najib in 2015 sacked his attorney general and a deputy prime minister for demanding answers about 1MDB. A parliamentary inquiry found many irregularities but had no mandate to prosecute. Outraged by the scandal, former leader Mahathir Mohammad came out of political retirement, and the opposition united behind him in the national elections. The 93-year-old is now prime minister and has reopened the probe into the 1MDB fund. Police have also seized hundreds of luxury handbags, jewelry and cash — worth more than $266 million — during raids on apartments linked to Najib’s family. Najib and his wife have separately been charged with multiple counts of corruption and money laundering. They both pleaded not guilty and will face trial next year. Najib accuses the new administration of seeking political vengeance and has vowed to clear his name.
The U.S. Justice Department alleges there were four phases to the conspiracy that all involved the use of layers of foreign bank accounts and shell companies to launder the money. It says initially a $1 billion investment was diverted and in subsequent phases money was siphoned from sales of 1MDB bonds. In some cases, the names of shell companies operating the bank accounts mimicked the names of the rightful beneficiaries. When the banks questioned large money transfers, the conspirators used fake business documents to address their concerns, the department says. The U.S. says the money it is seeking to recover was gambled in Las Vegas, used to buy hotels, apartments, a luxury yacht, a jet, diamond jewelry and art works and to finance Hollywood films including the “Wolf of Wall Street” and “Dumb and Dumber To.”
U.S. prosecutors allege that Malaysian Low Taek Jho, usually known as Jho Low, was a central figure who orchestrated the ransacking of 1MDB. A friend of Najib’s stepson Riza Aziz, Low had no official role at 1MDB but had considerable influence over its dealings and was often in contact with Najib, according to the Justice Department. “Looks like we may have hit a goldmine” he said in an email to family members after organizing a 1MDB deal that would later allegedly become a money laundering vehicle. Singapore fined eight banks for failing to carry out proper anti-money laundering measures in relation to 1MDB and gave prison sentences to several bankers. It has seized 240 million Singapore dollars ($180 million) of property and cash and says about half of that belonged to Low and his immediate family. Working with the FBI, Indonesian authorities seized Low’s $250 million luxury yacht Equanimity off Bali in February and Malaysia’s government is now auctioning it off. Low has slammed the handover of the yacht to Malaysia as illegal through statements issued by his U.S. lawyers, but he didn’t claim ownership of the vessel in the Malaysian court.
WHAT NEXT FOR 1MDB?
Najib’s administration in February said 1MDB will be closed once its debts are cleared. The fund still exists for now but has been declared insolvent. The new government has said it will honor 1MDB’s debt obligations. But it recently challenged a settlement reached in a London court last year for the fund to pay $5.8 billion to Abu Dhabi’s state-run International Petroleum Investment Company over five years. Malaysia is also seeking to recover $1.46 billion it has paid so far. Mahathir has said the government will impose new taxes and may sell off assets to help clear national debts. He has also canceled some big infrastructure projects to contain costs and the government has said it could take up to three years to resolve its fiscal woes.