The Malaysian government, according to a source in Kuala Lumpur, has begun to officially dismantle 1Malaysia Development Bhd., the Ministry of Finance-backed development fund that was brought into being by Prime Minister Najib Razak in 2008 and which has morphed into what arguably is the biggest scandal in Malaysian history although it hasn't dented Najib's hold on power.

The implications for investors are unclear. What assets are not sold off are expected to be moved into the Ministry of Finance, with the board of advisers – headed by Najib – and the board of directors being dissolved. A well-connected businessman told Asia Sentinel last week that the government – and thus the taxpayers – will probably end up having to eat the losses.

However, the eight-year history of the fund is an astonishing tale of greed and chicanery, with billions of dollars apparently having been stolen or otherwise unaccounted for, diverted into accounts in the Cayman and British Virgin Islands. Investigators believe that as much as US$1 billion was routed into Najib’s own accounts in March of 2013 before being diverted out again in October of that year, to disappear into cyberspace.

The scandal has played a major part in fomenting distrust in the United Malays National Organization, the leading party in the national ruling coalition, with Najib firing his own party vice president and deputy prime minister, Muhyiddin Yassin, as well as Attorney General Abdul Ghani Patail, in an effort to contain the scandal. Other government officials have been sidelined or neutralized.

It has driven former Prime Minister Mahathir Mohamad to seek a deal with opposition figures including Lim Kit Siang, the head of the Democratic Action Party, whom he jailed in 1986, and others, in the vain attempt to bring down Najib. So far, propped up as head of UMNO and thus as Prime Minister by the votes of 196 district chiefs who are said to have been bought off with rent-seeking jobs and contracts as well as outright bribes, Najib has remained invulnerable, also by threatening opponents with jail, closing influential newspapers temporarily and shortstopping a reported investigation by the Malaysian Anti-Crime Commission that was on the edge of recommending his indictment. A similar request from Bank Negara, the central bank, for an investigation into the movement of funds was simply ignored.

The scandal has also ensnared Goldman Sachs’ former Southeast Asia head, Tim Leissner, who engineered a huge US$3 billion sale of 1MDB bonds that earned Goldman an estimated US$500 million. Leissner left the firm and moved to Los Angeles, where he has reportedly been meeting with FBI officials.

The fund is believed to be RM42 billion (US$11.6 million) in debt against an unknown amount of assets, and with the government in a protracted squabble with an Abu Dhabi entity, the International Petroleum Investment Corp. (IPIC) over as much as US$3.5 billion of funds that 1MDB officials thought they were transferring to an IPIC subsidiary, Aabar Investments PJS.

The money instead went into a BVI-registered company called Aabar BVI and has since disappeared. IPIC officials refused to make a payment of US$50 million to bondholders when it discovered that the money had been diverted, stirring fears of a cross-default that could imperil the country’s financial system.

Rafizi Ramli, the secretary general of the opposition Parti Keadilan Rakyat, in March reportedly displayed figures indicating that transfers from Tabung Haji, the fund that invests savings for Muslims to make the Haj to Mecca, were depleted to the point that the fund was endangered. Rafizi was charged with sedition and briefly jailed. Several other opposition figures including Tony Pua, spokesman for the DAP, have been threatened with sedition charges for questioning the 1MDB operations.

Officials of 1MDB and others associated with the sovereign investment company, with interests in power and property, are being pursued by investigators in five countries, most prominently the United States, whose US Attorney for the Southern District of New York Preet Bharara, has sent FBI investigators to Malaysia to seek clues to allegations of money laundering on the part of the Najib family for the purchase of expensive real estate in New York and California and for the funding of the blockbuster movie Wolf of Wall Street.

Other law enforcement agencies include the Attorney General of Switzerland, which has accused unnamed individuals of laundering as much as US$4 billion from 1MDB through Swiss bank outlets in Singapore. Singapore is said to have frozen the bank accounts of several individuals as well. Most recently, officials in Luxembourg opened an investigation into 1MDB’s affairs.

The fund got its start in 2008 when Jho Taek Low, then a 27-year-old Penang-born financier and friend of the Najib family, persuaded Najib to take over a budding investment fund that he had proposed to the Sultan of Terengganu, who backed away from it. The fund embarked on a torrid acquisition process, buying vastly overpriced independent power producers from companies and individuals closely connected with the UMNO ruling clique including the Genting gaming and plantation conglomerate and Ananda Khrishnan, one of the country’s richest men. With 1MDB facing huge debts from the purchases, the government pushed through no-bid contracts to hand 1MDB’s power units lucrative deals at the expense of competitive bidding.

It was given the gift of the obsolete Sungei Besi air force base, close to downtown Kuala Lumpur, which it sought to turn into a high-priced financial center called the Tun Razak Exchange, named for Najib’s father.

But hundreds of millions of dollars allegedly were diverted into Jho Low’s personal accounts. As Asia Sentinel reported in 2014, Jho Low – a private individual – attempted to use 1MDB guarantees in a vain attempt to buy three of London’s finest hotels, the Connaught, the Berkeley and Claridge’s. He acquired a 300-foot yacht and a flock of enormously expensive paintings that he has since begun to sell off.

Reuters reported in April that RM18 billion of 1MDB's debt linked to its power assets would go under Edra Energy, which is due to be sold off in nine months’ time. It is also expected to sell off two high-profile property projects, the Tun Razak Exchange and Bandar Malaysia, after splitting them into separate entities. Critics have charged that the land under the stalled projects has repeatedly been revalued upward to unrealistic levels in an attempt to cover the indebtedness. Once the assets are sold off, 1MDB is expected to be dissolved completely.