Up Periscope! Sub Scandal Resurfaces in Malaysia

French prosecutors investigate defense contractor Thales for kickbacks routed to UMNO

By: John Berthelsen

The announcement late last week that the French defense group Thales is under formal investigation in Paris as part of a long-running corruption probe tied to the 2002 sale of submarines to Malaysia is a reminder that before the 1Malaysia Development Bhd scandal, there was an equally ugly affair. It also involved the disgraced former Prime Minister Najib Razak and included allegations of blackmail, bribery, murder, kickbacks, influence peddling, misuse of corporate assets, and concealment.

Thales has denied the charges, which featured allegations of kickbacks amounting to €114.96 million (US$121.15 million) that were channeled by a subsidiary, DCN International, through a private company to the United Malays National Organization on the €$1 billion purchase of the Scorpene subs. Najib, the defense minister at the time, was the architect of the purchase. At least €36 million also flowed from the DCN subsidiary to Terasasi Hong Kong Ltd., whose principal officers were listed as a close Najib friend and his father. Terasasi only existed as a name on the wall of a Wanchai district accounting firm in Hong Kong.

Some of the misdeeds appeared to have taken place with the knowledge of top French government officials including then-foreign Minister Alain Juppe and with the consent of former Malaysian Prime Minister Mahathir Mohamad, according to documents made available to Asia Sentinel at the time which were presented to the French Prosecuting Magistrate at the Court de Grand Instance de Paris in May and June of 2011. The case, opened in Paris in 2010, is sensitive because of the possible involvement of top French government officials.

Asia Sentinel was awarded the top prize for excellence in investigative reporting in 2013 by the Society of Publishers in Asia, Asia’s equivalent of the Pulitzer Prize, for a series of articles on the scandal. The lead article can be found here. According to Reuters, the current charges involve contracts by Thales Asia and French state-controlled warship builder DCN. The French Financial Prosecutor's office said in an email to Reuters that Thales SA had been put under formal investigation for complicity in the active corruption of a foreign agent, as was DCNI.

Najib was convicted of all seven counts of criminal breach of trust, abuse of power, and money laundering for his role in the 1MDB scandal, in which the government-backed investment company was looted of billions of dollars and from which at least US$670 million appeared to have been routed into his own pockets. He was sentenced to 72 years in prison, to be served concurrently over 12 years. The appellate court, which upheld the judgment and sentence, called him “a national embarrassment.”

Najib has never been jailed, however, and remains free on appeal. Currently, there are intensive efforts on the part of UMNO leaders to keep him out of prison, including by attempting to discredit Court of Appeal judge Mohd Nazlan Mohd Ghazali, who was part of the court that refused to reverse Najib’s appeal. Najib remains a powerful kingmaker in Malaysian politics.

The Scorpene Story

 The Scorpene story in essence began when Najib was appointed defense minister in 1991 and embarked on a massive buildup of the country’s military, arranging for the purchase of tanks, Sukhoi jets, coastal patrol boats and submarines, which kicked off a stiff competition between French, German, Swedish, Russian and Dutch manufacturers, who in turn went looking for the most effective cronies of the Malaysian leadership to help them out. DCN found Abdul Razak Baginda, a close friend of Najib’s. Many of the other contracts were riddled with corruption.

According to documents made available to Asia Sentinel at the time, DCN routed the payments to UMNO through a private company called Perimekar Sdn Bhd, wholly owned by Razak Baginda and which investigators said had been established with the sole purpose of receiving the kickbacks. Razak Baginda was then the head of a Malaysian think tank called Malaysian Strategic Research.

At the time, Razak Baginda, who was married, was dating a beautiful Mongolian international party girl named Altantuya Shaariibuu on the side. According to a private investigator’s report in Kuala Lumpur, she had previously been involved in an affair with Najib as well. She was named a translator on the deal and accompanied Najib and Razak Baginda on a visit to France, where she visited the DCN headquarters with them, according to documents.

She and Razak Baginda toured Europe in his Ferrari. But the romance didn’t last. As Asia Sentinel reported at the time, after Razak Baginda ditched her, she showed up in Kuala Lumpur to demand US$500,000 from Razak Baginda in "blackmail" although she didn't say what the blackmail threat referred to – her threats against the family or possibly her knowledge of the Scorpene transaction.

Shortly after that, two of Najib’s elite bodyguards abducted Altantuya from in front of Razak Baginda’s house, where she was shouting threats, and took her to a patch of forest outside of nearby Shah Alam. She was shot twice in the head, and then her body, believed to be carrying an unborn child, was blown up with military explosives.

Razak Baginda was arrested along with the two bodyguards but was almost immediately freed and decamped for Europe, where he remained for several years before returning. The two killers, Corporal Sirul Azhar Umar and Chief Inspector Azilah Hadri, were convicted and sentenced to death. Both have since in separate sworn statements said Najib had ordered them to kill the 28-year-old woman.

The bodyguards remain in custody today. In 2021, former Attorney General Tommy Thomas bluntly accused Najib of being personally responsible for the murder. The evidence amassed by prosecutors, he wrote in his autobiography My Story: Justice in the Wilderness,” “implicated not only Najib Razak as the person who gave [one of the bodyguards] the order to kill, but also his aide-de-camp, Musa Safri, for assisting or abetting Najib” in setting the bodyguards after her. Najib has threatened a defamation suit. Thomas dismissed the threat and reserved the right to demand costs if the case were to go to trial.

In February of 2020, the Pakatan Harapan coalition that took power as a reform government in 2018 was ousted from power. Almost immediately, Thomas was replaced as attorney general and any hope of further investigation vanished in Malaysia. Najib remains in danger of losing his appeal with the Federal Court, the country’s top tribunal, over the 1MDB matter, and his wife, Rosmah Mansor, also faces charges in a lower court. It is uncertain when the top court will act on Najib’s appeal.

In the meantime, Malaysia has been embarrassed in courts in the United States where 1MDB officials and officers of Goldman Sachs have been on trial in what has been called one of the biggest financial scandals in history. The French court may now have its turn with the Scorpene scandal.