US Justice Department Probe of 1MDB in Danger?

US Justice Department Probe of 1MDB in Danger?

Critics in KL express concern that Trump administration may kill it

There is concern in Kuala Lumpur that the United States Justice Department’s investigation into the state-owned 1Malaysia Development Bhd., which is ensnared in one of the world’s biggest financial scandals, could be stymied in the wake of the March 10 firing by President Donald Trump of the country’s 46 US attorneys.

The Trump administration announced it had ordered all Obama administration prosecutors to tender their resignations immediately, including Preet Bharara, the most aggressive of the US prosecutors, who said he had met with Trump in November, telling reporters that both Trump and Jeff Sessions, now the Attorney General, had asked him about staying on, which Bharara said he would do, according to the New York Times.

“We fear (Prime Minister Najib Razak) has Trumped us,” said a member of the political opposition in Kuala Lumpur. “Bharara’s firing has discouraged all the reformers in KL. They think the 1MDB investigation will die.”

That may be too pessimistic. Nonetheless, the concerns over the departure of federal attorneys handling the 1MDB case were compounded by the fact that the case also involves an investigation into the activities of the investment bank Goldman Sachs and its role in underwriting and steering US$6.5 billion in bond sales for 1MDB. Gary Cohn, the current president and chief operating officer of Goldman, has been appointed the head of Trump’s Council of Economic Advisors.  Treasury Secretary Steve Mnuchin, Securities and Exchange Commission head Jay Clayton and Steve Bannon, Trump’s chief adviser, have all been connected to Goldman as well. 

In addition, Trump himself called Prime Minister Najib in the middle of the night in mid-November for an amicable conversation at the behest of businessman Syed Azman of Weststar Group, a sprawling Malaysia-based conglomerate with interests in cars, aviation, construction, defense and engineering. Azman’s 40 helicopters shuttle people and goods to offshore oil platforms.

Azman, according to sources in Kuala Lumpur, knows Trump relatively well and plays golf with the president, a real estate tycoon before his election. Some years ago Azman bought two of Trump’s ornate branded jets for use by his own businesses. During the presidential campaign, he re-loaned one of the jets back for use by Trump’s aides. It was repainted in the Trump livery and used during the campaign, a source in Kuala Lumpur told Asia Sentinel.

According to details of the conversation by Najib’s wife Rosmah Mansor, Trump, also asked Najib when the latter planned to visit the US, to which the prime minister replied, “Wait until you settle in and I will come. I would like to discuss a few things with you.”

The US Justice Department last July announced a sweeping investigation into the activities of 1MDB, with US Attorney General Loretta E. Lynch alleging “an international conspiracy to launder funds misappropriated from a Malaysian sovereign wealth fund.”

Although he is identified only as “Malaysian Public Official No. 1,” it was clear that Najib was the target of what Lynch called “the largest single action ever brought” under the US’s Kleptocracy Asset Recovery Initiative.

The US Justice Department investigation is a damning indictment of the entire structure surrounding 1MDB.  It found that from 2009 through 2015, more than US$3.5 billion in funds belonging to 1MDB were misappropriated from an entity ostensibly created by the Malaysian government to promote economic development in Malaysia through global partnerships and foreign direct investment, and intended to be used for improving the well-being of the Malaysian people.

Despite the allegations, Najib appears to be secure in his job as premier, which he assumed in 2009. In fact, he believed to be solid enough to call a snap election prior to the deadline required for national elections in April of 2018.

Goldman Sachs came into the picture in July last year with the allegations that billions of dollars were diverted from 1MDB for personal use by Public Official No. 1, his stepson and others.  It was Goldman that helped 1MDB raise US$6.5 billion in three bond sales   to invest in energy projects and real estate. Goldman earned nearly US$600 million to underwrite the sale of the bonds. The lawsuits alleged investors weren’t properly informed about the use and nature of the bonds and that the offering circulars for two of the bonds issued in 2012 allegedly contained “material misrepresentations and omissions” over what the proceeds of the bonds would be used for and the nature of the relationship between 1MDB and International Petroleum Investment Company (IPIC), an entity owned by the Abu Dhabi government.

Goldman has denied all wrongdoing, saying it had no visibility into whether some of the funds were subsequently diverted into things like the purchase of expensive art work and the funding of the blockbuster movie Wolf of Wall Street, produced by Najib’s stepson and others.

Nonetheless, Tim Leissner, once Goldman’s star banker in Southeast Asia, stepped down from his position last March, either voluntarily or because he was suspended, as investigations widened in Singapore, Switzerland, Hong Kong, Abu Dhabi, France and other countries in addition to the US.

There is no indication that the investigations into 1MDB and Goldman have been stopped.  Justice department officials in New York and Los Angeles are said to be continuing to search for additional assets connected to 1MDB and the Najib family to sequester under the kleptocracy statute.

In addition, all presidents have had the authority to dismiss regional US attorneys, who are political appointees and serve at the pleasure of the president. However, unlike ambassadors, for instance, the prosecutors are almost always professionals widely respected in their field. 

Bharara, who rules over Manhattan, was appointed in 2009 by President Obama. He has earned a reputation as an aggressive prosecutor who has taken on a wide range of white-collar crimes and won a flock of convictions.

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