Blatant irregularities in the Malaysian state fund have left an incriminating international money trail. finews.ch answers the key questions about the 1MDB scandal, which is keeping investigators busy in seven countries.
1. What is 1MDB?
1Malaysia Development Berhad (1MDB) was founded in 2009 as a platform for foreign investment. Malaysian prime minister Najib Razak (pictured below) took over control of the fund the same year. Although 1MDB is officially a state fund, it has been used more for lending than for investment. Over time, the fund has piled up debts of some $12 billion.
1MDB attracted controversy from the beginning because of its closeness to the government. The fund is now at the center of an international corruption scandal.
2. What sparked the scandal?
In March 2015 1MDB was so heavily indebted that Malaysia’s credit rating was endangered. The transactions of the state fund were subsequently investigated for the first time. In the same month, Malaysian-British anti-corruption blog «Sarawak Report» reported that 1MDB money had flowed from funds in the Cayman Islands to accounts in an unnamed Swiss bank.
Shortly afterwards the Singapore financial supervisory authority (MAS) announced that it was helping Malaysia investigate suspicious flows of money in connection with the state fund. From then on, events moved quickly.
3. Who is suspected to be behind the wrong-doing?
In July 2015 the «Wall Street Journal» reported that $681 million from 1MDB had made it into a private account belonging to the Malaysian prime minister. Razak strongly denied this claim. The head of state claimed the money came from donors.
A further $700 million, earmarked for a joint venture with PetroSaudi International, was allegedly moved from 1MDB to offshore companies.
The U.S. Attorney General filed civil complaints seeking the recovery of more than $1 billion in assets associated with funds misappropriated from 1MDB, the U.S. Department of Justice announced Wednesday. According to the complaints, more than $3.5 billion of 1MDB assets were «allegedly misappropriated by high-level officials of 1MDB and their associates» between 2009 and 2015.
Suspicions of abuse of 1MDB money among Razak’s entourage continue to deepen. Razak’s stepson Riza Aziz turned up in the U.S. as a film producer and allegedly channelled 1MDB assets into property and the «Wolf of Wall Street» movie.
Another person who has played a prominent role in the scandal is Low Taek Jho, a flamboyant jet-setter (pictured below), art collector and family friend of the Razaks.
Known by the nickname Jho Low, the 34-year-old operates as an advisor of 1MDB and is suspected of having siphoned off several billion from the fund through bank accounts to shell companies in offshore centers, for which he also used the services of the Ticino private bank Banca della Svizzera Italiana, or BSI.
Also recently named by U.S. investigators was Khadem Al-Qubaisi. He operates as an official representative of Abu Dhabi, and is the former president of Zurich-based Falcon Private Bank, which belongs to the ruling family of the Emirates. Abu Dhabi was closely connected to the Malaysian state fund as a donor.
The main suspects are being investigated in Switzerland, Singapore and the U.S. More than $1 billion in assets have been frozen in the U.S. alone. These include luxury properties, a private jet and valuable paintings (see below). Some of these artworks were found and seized in the Geneva freeport.
4. Why does Switzerland play such a significant role?
The Swiss authorities can take credit for the fact that the investigations in the 1MDB case did not just run dry or end in a cover-up.
Back in August 2015, the Swiss Office of the Attorney General opened criminal proceedings against two key 1MDB players linked to suspected corruption and money laundering. Shortly afterwards the office froze «more than $10 million in assets» in Swiss bank accounts.
Last May, Swiss regulator Finma effectively put the Ticino bank BSI out of service due to serious breaches of money laundering regulations, as part of an investigation involving close cooperation with its counterpart, MAS of Singapore. It recently emerged that Finma has opened an enforcement procedure against the former head of BSI Asia Hanspeter Brunner, among others.
The Swiss authorities have filed requests for legal assistance with the U.S. Department of Justice which is investigating the financial scandal, it emerged Thursday. According to «Bloomberg», more Swiss banks have been named by U.S. prosecutors, who are also seeking legal assistance from the Swiss authorities.
5. Which Swiss banks have been named in the scandal?
The 1MDB scandal is also a blow to the reputation of Swiss banking, with a series of banks being named in connection to the case.
In the center of the affair is the heavily-sanctioned Ticino private bank BSI (pictured below). Many of the transactions being investigated flowed through BSI accounts. Zurich-based Falcon Private Bank is also on the radar of the authorities in connection with the proceeds of a 1MDB bond.
The dealings of the Abu Dhabi-owned bank are currently being closely checked by Singapore; it also features in a complaint by the U.S. authorities to Switzerland.
Switzerland’s largest bank, UBS, is also involved in the scandal. The Singapore regulator announced regulatory measures against UBS Thursday, as reported by finews.ch. However, unlike the situation in BSI, no serious misconduct by individual employees or weak control mechanisms were identified within UBS in Singapore.
According to media reports, payments of more than $2 billion were made from 1MDB to the shell company Aabar Investment at UBS in Singapore. UBS reported this to the authorities as a suspicious transaction, as finews.ch reported exclusively last week.
Also named in the scandal is Bank Coutts, as well as the Luxembourg subsidiary of the Geneva bank Banque Edmond de Rothschild.
6. Which authorities are investigating?
The 1MDB affair has had an international dimension from the beginning. Authorities in Switzerland, the United States, Malaysia, Hong Kong, Thailand, Australia and Luxembourg are all investigating suspected corruption and money-laundering.
The intervention of the U.S. has brought a new escalation; the FBI (pictured below) and various federal prosecutors have been investigating since 2015.
The U.S. has moved to freeze some $1 billion in assets linked to the main players, finews.ch also reported Wednesday. The U.S. authorities are also working in close cooperation with the Swiss authorities.
