The figures are mind-boggling: Of the $8 billion that 1MDB raised via bond sales, the US alleges more than half was siphoned off
Malaysia's state-owned investment fund, 1MDB, was supposed to promote development. Instead, it has spurred investigations around the world into deal-making, election spending and political patronage under former Prime Minister Najib Razak. The figures are mind-boggling: Of the $8 billion that 1MDB raised via bond sales, the US alleges more than half was siphoned off. Angry voters ousted Najib in a 2018 election that ended his party's 61 years of rule, and two years later he was convicted in the first of a series of trials. US prosecutors have implicated at least three senior bankers from Goldman Sachs Group Inc., one of whom admitted to bribery. Malaysia, which had filed its own charges, reached a $3.9 billion settlement with the bank.
1. What is 1MDB?
It's a government investment company -- full name, 1Malaysia Development Bhd -- that took shape in 2009 under Najib, who led its advisory board. Its early initiatives included buying privately owned power plants and planning a new financial district in Kuala Lumpur, Malaysia's capital. The fund proved better at borrowing -- it accumulated $12 billion in debt -- than at luring large-scale foreign investment.
2. What's the issue?
Much of the money raised was allegedly embezzled. The US Justice Department says more than $4.5 billion flowed from the fund through fraudulent shell companies to corrupt officials and their associates. According to the US indictment, a small coterie of Malaysians, led by businessman Low Taek Jho (known as Jho Low), diverted money from 1MDB into personal accounts disguised to look like legitimate businesses, and kicked back some of those funds to officials. There were questions about a $681 million payment that landed in Najib's personal bank account (he has said most of the money was returned). Malaysia's then-attorney general cleared Najib of wrongdoing in 2016. But after losing office, Najib was charged with 42 counts of corruption, breach of trust and money laundering. The first trial involved $10 million deposited in his personal accounts from a former 1MDB unit. He was found guilty July 28 on all seven of those counts; his lawyer promised to appeal. Jho Low, a fugitive, has also denied any wrongdoing.
3. Where's the money?
Scattered, but slowly coming in. Under the July 24 settlement, Malaysia will drop all criminal charges against Goldman in exchange for a $2.5 billion cash payment and at least $1.4 billion from seized 1MDB assets being returned with the help of US prosecutors and Goldman. (Goldman made $593 million working on three bond sales that raised $6.5 billion for 1MDB in 2012 and 2013 -- far more than what banks typically make from such deals.) An agreement to settle the US charges with a possible $2 billion penalty was said to be awaiting a Justice Department decision on whether Goldman would have to accept its first-ever guilty plea. In addition:
• US prosecutors struck a deal in October with Jho Low to recoup almost $700 million worth of assets, including a Beverly Hills hotel and real estate in New York and London. That's in addition to $260 million of assets, including a $126 million super yacht, seized earlier on Malaysia's behalf.
• The US reached a $60 million settlement with the producers of "The Wolf of Wall Street," a 2013 movie allegedly funded with siphoned money. The production company was co-founded by Riza Aziz, Najib's stepson and a friend of Jho Low.
• Malaysia is moving to seize $340 million in PetroSaudi International's accounts in London.
• Singapore is returning S$35 million ($25 million) forfeited by former Goldman banker Roger Ng.
4. Who's investigating?
The US Justice Department has been at the forefront of 1MDB investigations, focusing on bribery, theft and money laundering. According to the Federal Bureau of Investigation, some potential witnesses were scared to talk because they feared retaliation. Several other countries also conducted probes. Singapore and Switzerland have fined some banks for lapses in anti-money laundering controls. Malaysia also has said it is looking into allegations that China offered to help fend off probes into 1MDB in the US and elsewhere in exchange for stakes in infrastructure projects in Malaysia. A former Najib aide testified that the ex-premier offered projects to China in return for help resolving 1MDB's debt.
5. Who else is charged?
• Jho Low, a bon vivant who said he did consulting work for 1MDB, is portrayed by US prosecutors as the central figure who set up shell companies to collect proceeds from the fund and arranged withdrawals for payoffs and for his own lavish spending. He has been charged in absentia in Malaysia and the US with money laundering and other offenses. Malaysian police have bemoaned the lack of help from other jurisdictions in finding him, after saying they had located him and were in talks with a party they suspect of protecting him. Jho Low's settlement with the US didn't include an admission of guilt or release him from criminal charges.
• Goldman's former Southeast Asia Chairman Tim Leissner pleaded guilty to US charges including conspiracy to launder money and admitted to bribing officials in Malaysia and the United Arab Emirates to get bond deals for Goldman. He agreed to forfeit $43.7 million and was scheduled to be sentenced on Jan. 22, 2021.
• Ng was extradited from Malaysia to the US to face similar charges. His trial start date was postponed until January 2021 by the coronavirus outbreak. (The US Federal Reserve has banned both men from the financial industry.)
• Malaysia leveled charges of securities law violations against Leissner, Ng, Jho Low and 1MDB's former general counsel, Jasmine Loo Ai Swan.
• PetroSaudi International directors Tarek Obaid and Patrick Mahony were charged by Malaysia in absentia in 2020 for allegedly receiving $300 million from 1MDB through unlawful activity. In 2018, Swiss federal prosecutors opened proceedings to investigate two officials of the Saudi oil producer, without confirming their identities.
• Ex-1MDB President Arul Kanda was charged along with Najib for allegedly tampering with a state audit report into the fund. Both men have denied wrongdoing.
• Rosmah Mansor, Najib's wife, was charged with money laundering and tax evasion. Luxury items and cash seized from properties linked to the former first couple were valued at about 1.1 billion ringgit ($259 million). According to US prosecutors, Jho Low in 2013 allegedly funneled $27.3 million that was looted from 1MDB to a New York jeweler who designed a pink diamond necklace for her.
6. What's still brewing?
The US investigation, and whether it will force Goldman to take a guilty plea, is one of the biggest issues remaining. Prosecutors assert that beyond Leissner, some employees at Goldman knew about a bribery scheme but worked to hide it from the firm's compliance and legal departments. Singapore was said to have expanded a criminal probe to include Goldman; two Abu Dhabi funds have filed a civil suit against Goldman in New York seeking damages for alleged fraud in connection with embezzlement at 1MDB; and a Justice Department employee has pleaded guilty to funneling money into the US to pay for a lobbying effort to influence the 1MDB probe, with the filing identifying the fund's source as Jho Low. In another twist, the US was said to be investigating Deutsche Bank AG over a former Goldman executive who joined the German bank.
7. Exactly how much money is involved?
In all, 1MDB raised more than $8 billion in bond sales and accumulated billions more in debt through loans and interest payments. Swiss investigators say about $7 billion of 1MDB funds passed into the global financial system from 2009 to 2015. They're still assessing how much was misappropriated; the US estimates more than half. Some 1MDB projects are going ahead under the new government, including the plan for a new financial district and a $34 billion property and transport hub. As for 1MDB, it has been reduced to a shell after the finance ministry took over its assets and debt.
8. Why does it matter?
Authorities in Asia, the US and Europe have been working to coordinate their investigations into the money trail from 1MDB, as well as legal approaches toward Goldman and asset recovery. Their findings could potentially identify, and help close, loopholes in the global financial system that open the way for corruption.
9. Who else is involved?
• The Fed banned ex-Goldman banker Andrea Vella from the financial industry for life, saying the former co-head of investment banking in Asia engaged in "unsafe and unsound practices" by failing to ensure all of Goldman's internal committees were aware that the 1MDB bond deals involved Jho Low.
• Switzerland's Office of the Attorney-General continues to investigate six people on suspicion of criminal mismanagement, bribery and money laundering related to the case. The top Swiss prosecutors have also opened criminal proceedings against two Swiss banks, Falcon Private Bank Ltd. and BSI SA, for "organizational deficiencies that may have permitted the commission of offenses currently being investigated."
• Zurich-based Falcon, linked to $3.8 billion of 1MDB fund flows, was ordered to cease operations in Singapore, and Switzerland has threatened to withdraw its license if there were any further breaches of money-laundering regulations.
• Switzerland's financial regulator said it would review JPMorgan Chase & Co.'s anti-money laundering controls after finding the bank seriously breached regulations in its dealings with 1MDB.
• BSI lost its license to do business in Singapore for breaches of money laundering rules.
• Malaysia central bank governor Muhammad Ibrahim resigned in 2018 amid questions over the role the monetary authority played in a land-purchase deal linked to 1MDB. The monetary authority set up a review of the deal.
• UBS Group, DBS Group, Credit Suisse, United Overseas Bank and Standard Chartered are among those that have drawn penalties from the Singapore central bank for anti-money laundering lapses. They said they will strengthen controls in their businesses.
• Singapore has banned at least eight financial professionals in connection with 1MDB.
• Singapore authorities have interviewed Tan Boon-Kee, Deutsche Bank's former Asia Pacific head of financial institutions group, about the extent of her involvement with the 1MDB account. She hasn't been accused of wrongdoing.
Disclaimer: This article first appeared on bloomberg.com, and is published by special syndication arrangement.