In the wake of arrests and asset seizures relating to one of the world’s biggest corruption rackets, Malaysia is cracking down with new regulations to thwart future money-laundering activity.

 

Established a decade ago by then Prime Minister Najib Razak, 1 Malaysia Development Bhd (1MDB) was nothing more than a state fund aimed at promoting Malaysian development through foreign investment and partnerships. However, in the years that followed, the organisation would find itself at the heart of one of the world’s biggest ever embezzlement cases, while the initialism ‘1MDB’ has become shorthand for corruption in Malaysia and far beyond. 

 

The sheer scale of the money laundering, alongside the alleged involvement of a former PM and one of the world’s largest investment banks, has ensured the story has grabbed plenty of headline space. Indeed, from 2009–2015, around US$4.5bn vanished from 1MDB, funnelled through a labyrinth of shell companies and accounts spanning the Middle East, the Caribbean and the Seychelles, according to the US Department of Justice. Over six years, billions of dollars of development money were purportedly spirited away to finance luxury real estate in New York, wild parties, gemstones, art, private jets and a superyacht. In a deeply ironic turn of events, the ill-gotten gains were allegedly also used to help fund ‘The Wolf of Wall Street’ – a blockbuster Hollywood film about scamming. 

 

The lowest of Low

 

The alleged architect behind the crime is 38-year-old Malaysian financier Low Taek Jho (often called Jho Low), who denies any such wrongdoing and remains at large today, despite being sought by the authorities of Malaysia, Singapore and the US in connection with the 1MDB scandal.

 

However, over US$600m is said to have wound up in the personal bank accounts of former Prime Minister Najib Razak. Despite insisting the money was a gift from a Saudi prince, Malaysia’s former PM went on trial in late-August on the most serious of a set of charges being levelled against him – in total, he faces no less than 21 counts of money-laundering and four counts of abuse of power.

 

In tandem, Malaysia filed criminal charges against 17 current and former senior executives of Goldman Sachs subsidiaries in connection with the 1MDB embezzlement case. The investment bank’s involvement in the scandal can be traced to 2012–2013, when it underwrote a series of bonds that raised US$6.5bn for the 1MDB fund, much of which is suspected to have been stolen as part of Jho Low’s fraudulent scheme. The 17 executives stand accused of misleading 1MDB bond investors and could face up to a decade in jail and a minimum fine of RM1m (US$240,000) if found guilty. Goldman said it would vigorously challenge the “misdirected” charges.

 

No more money for nothing

 

The scandal does little for Malaysia from an image perspective, of course, while financially, the country could certainly do without the scandal too. A weak fiscal position has seen the South East Asian nation’s 2.8 per cent fiscal deficit of 2018 revised to 3.7 per cent in the latest budget (issued in November 2018). Now, with the government facing up to RM43.9bn (US$10.5bn) in debt repayments linked to 1MDB, there’s little wonder why Malaysia’s leadership is so focused on clawing back as much of the missing money as possible.

 

Having swept to power in May last year on its promise of clean governance and rooting out graft, Malaysia’s Pakatan Harapan (PH) government recently stepped up calls for Goldman Sachs to pay US$7.5bn in reparations for its alleged role in the scandal. Meanwhile, an on-going asset seizure in the US in relation to the case is said to be one of the largest ever by the Justice Department’s anti-corruption unit.

 

Now, Bank Negara Malaysia (BNM) – the country’s central bank – has said it plans to implement new regulations next year aimed at tightening control of money-laundering activity. On 29th August, BNM’s Assistant Governor Adnan Zaylani said the bank was drafting up regulations aimed at strengthening the country’s grip over money laundering – to be published in September 2019. While details of BNM’s newly proposed regulations have not yet been made available, the central bank will undoubtedly need to reassure large businesses that the new measures will not add significantly to existing trading costs. That said, a marked reduction in instances of corruption would clearly help to improve Malaysia’s business environment. More broadly, the announcement is seen as the latest development in the government’s ambitious five-year National Anti-Corruption Plan (NACP), launched earlier this year. Within the context of a nation gripped by one of the world’s largest financial scandals for years, the NACP marks a vitally important milestone for PM Mahathir Mohamad, as he looks to galvanise his reputation as ‘father of the nation’ and to restore integrity to Malaysia in the wake of the 1MDB debacle.