The Global Hunt for Malaysia’s Stolen Billions

International investigations of money laundering involving the state-backed 1Malaysia Development Bhd (1MDB) investment fund will probably create shock waves through the parts of the global financial order that were complicit in its looting, and there were plenty, stretching from Singapore to Switzerland and beyond.

They are likely to result in the punishment of international banks and bankers and pressure various jurisdictions around the world to strengthen their anti-money laundering controls and laws. The US Department of Justice (DOJ) alleges US$4.5 billion was stolen from this Malaysian state fund, much of it laundered in jurisdictions like the US, UK, Luxembourg, Switzerland and Singapore.

The domestic probe of 1MDB by the newly-energized Malaysian Anti-Corruption Commission (MACC) is nearly complete, and the MACC will shift its focus outside Malaysia, MACC Chief Commissioner Mohd Shukri Abdull told reporters on July 7.

International collaboration on investigations of 1MDB has accelerated in recent days.

On July 10, the Swiss Attorney General Michael Lauber met the Malaysian Attorney General Tommy Thomas in Kuala Lumpur, said the Swiss Office of the Attorney General. The two officials discussed coordination on investigations of 1MDB. In contrast, when Najib Razak was Malaysian Prime Minister till his shock defeat in the Malaysian election on May 9, he forestalled cooperation on investigating 1MDB with the authorities of Switzerland and other countries.

Reuters reported on July 10 that Malaysian investigators of 1MDB plan to visit the Washington to meet US officials including those from the DOJ. The visit may happen before the end of July, the news agency said.

Tim Leissner, the former Southeast Asia head of Goldman Sachs, is negotiating with US prosecutors to potentially plead guilty to criminal charges related to 1MDB, the Wall Street Journal reported on July 9. Leissner is seeking an agreement with US prosecutors that would involve his cooperation with the US DOJ’s investigation into 1MDB and Goldman, the newspaper quoted unnamed sources saying.

Goldman raised US$6.5 billion in three sales of 1MDB bonds from 2012 to 2013. More than US$2.5 billion raised from these bonds was misappropriated by 1MDB officials, their relatives and associates, according to Justice Department documents. The US bank has repeatedly maintained it is innocent, merely managing the bond sales with no involvement in what happened after that.

Part of the funds raised from these bonds flowed into bank accounts of “Malaysian Official 1,”, widely assumed to be Najib, according to documents made public by the DOJ’s kleptocracy unit. Najib, who was chairman of 1MDB until May 2016, is scheduled to stand trial in Malaysia on four charges related to 1MDB within several months.

There is a high probability that the authorities of the US, Switzerland and other countries will punish some banks and bankers. So far there has been no major enforcement action by the US authorities in the 1MDB case. It is unrealistic to assume this will remain the case, because US prosecutors like to prove success by the conviction of suspects. In its July 10 press release, the Swiss Office of the Attorney General said it is investigating and conducting criminal proceedings against six people, namely two former 1MDB officials, two former officials of the United Arab Emirates and two executives of PetroSaudi International, a Saudi oil exploration and services company.

The Monetary Authority of Singapore (MAS) is scrutinizing new information emerging from Malaysia and elsewhere on the 1MDB scandal, MAS managing director Ravi Menon told Singapore media on July 4.

“And now after the (Malaysia) general election, with the Malaysians authorities stepping up their investigations, we’ve been in close contact,” said Menon. “We are still looking at certain individuals and there are others we are looking forward to interview. If there is any new evidence, we will relook at the banks again. So far, (that) hasn’t been the case.”

A staggering RMB100 billion (US$24.8 billion) of funds linked to Najib and his wife, Rosmah Mansor, are stashed in bank accounts outside Malaysia, alleged an unnamed source quoted by Sarawak Report. Much of that money is in Hong Kong bank accounts and travelled through German and Swiss banks, alleged Sarawak Report, a London whistleblower website. Asia Sentinel was unable to verify Sarawak Report’s claims.

It is not known if any of this money is linked to 1MDB. However, if investigators from Malaysia and other countries uncover billions of dollars in Hong Kong bank accounts linked to Najib or Rosmah, it will worsen the perception of Hong Kong as a money laundering hub.

The last thing Hong Kong needs is to be tainted with dirty Malaysian money, since the Asian financial hub may possibly receive a visit from the Financial Action Task Force (FATF) around July or August. This is part of the mutual evaluation of Hong Kong by the FATF, an intergovernmental body which sets policies to combat money laundering. A bad rating of a jurisdiction by FATF will result in reputational damage and higher compliance costs for financial institutions operating in that jurisdiction.

The UK is scheduled to hold discussions with the FATF in October. The FATF mutual evaluation of Luxembourg is scheduled for 2020. If the FATF finds the UK, Luxembourg and Hong Kong did not do enough to prevent laundering of 1MDB funds, these jurisdictions will be under pressure to strengthen their anti-money laundering laws and policies.

Although the FATF has completed its latest mutual evaluations of the US and Switzerland in 2016, it cannot be ruled out that these two countries may beef up their anti-money laundering regulations if ugly new revelations related to 1MDB are found to implicate their financial systems.

Thanks to the 1MDB scandal, the Singapore authorities have jailed several bankers, fined some banks including DBS, UOB and UBS, and closed the local branches of Falcon Private Bank and BSI Bank. If new revelations related to 1MDB emerge, the Singapore government may possibly implement further anti-money laundering controls. The world financial order will never be the same again after the 1MDB scandal.

Toh Han Shih is a Singaporean writer based in Hong Kong