Two years ago, The Guardian called 1MDB ‘a scandal meriting the world’s attention’. Today the world is certainly paying attention – but keeping up with the daily, sometimes hourly, information related to it is a challenge not for those faint of heart.
Take the week that opened October. On the Monday we discovered that the whistle-blower who broke the 1MDB scandal is writing a book to expose ‘the ignominy of these criminals’ at the heart of the alleged corruption. On Tuesday, that the former Malaysian PM Najib Razak was, along with his wife, being questioned at separate locations by Malaysian police. On the Wednesday, that Malaysia’s new prime minister was accusing the Gulf states of sheltering individuals wanted in connection with the scandal.
By the Thursday Razak’s wife Rosmah Mansor had been arrested on 17 charges, including money laundering (she had already been dubbed the ‘Malaysian Imelda Marcos’), pleading not guilty. And on the Friday, we discover that the $250 million yacht Equanimity, thought to have been bought with proceeds taken from 1MDB, and seized at the request of the US Justice Department, is to be sold off at auction.
Added to this cocktail of alleged bribery and corruption are an unbeatable cast of characters: Razak and Mansor, both vehemently denying wrongdoing, have been pugnacious and unpleasant in the face of criticism; Yeo Jiawei, a former wealth manager at BSI bank, who claimed in a Singapore court that he was ‘just taking instructions’ in setting up shell companies to shelter millions, received a 54-month sentence; and Yvonne Seah Yew Foong, a private banker, jailed after a failure to report suspicious transactions following millions being moved in and out of various accounts.
Those accounts were linked to the best character of all, Jho Low, the playboy billionaire at 1MDB’s shadowy heart, known for his friendship with Hollywood celebs including Paris Hilton and Leonardo DiCaprio (Britney Spears jumped out of Low’s birthday cake on his 31st birthday). Like any good thriller, our protagonist Mr Low is on the run. In a delicious ironic twist, it was Low’s friend Riza Aziz whose production company made The Wolf of Wall Street (Aziz is Razak’s stepson – do keep up!). Indeed, the Justice Department reached a civil lawsuit settlement with the company behind the film, Red Granite Pictures, after alleging the money used to produce it was stolen from 1MDB.
Low and DiCaprio were chums (and for all I know, still are) though the Justice Department may have caused a rift to develop between the pair when it requested the actor hand back Picasso’s Nature morte au crâne de taureau, which Low had given to DiCaprio as a birthday present, on the charge that it was obtained with 1MDB money. The Justice Department also had supermodel Miranda Kerr, Low’s ex-girlfriend, hand in a $1.8 million necklace amongst other sparkly things totalling $8 million – again, given to her by Low.
It may come as some surprise to you that Low denies any wrongdoing.
No doubt the Great 1MDB Unravelling will be further along its inevitable course by the time you read this, with investigations ongoing in the United States, Switzerland, Malaysia, Singapore, Australia, Hong Kong and the United Kingdom in connection with the wealth fund. Before they do so, let us briefly recap what happened at 1MDB, because as a case it is hugely instructive to anybody working in the financial services industry.
1 Malaysia Development Berhad (1MDB) is a sovereign wealth fund, initially for Malaysia’s Terengganu state. Led by the PM Najib Razak, in 2009 it was rebranded and immediately drew criticism for its lack of transparency. It entered into a joint venture with PetroSaudi International, which, it is alleged, was acting as a front company for Low’s company Good Star, based in Switzerland (with the Justice Department claiming $1 billion was siphoned off by Low). What followed was, frankly, a mess. By 2014 1MDB was $11 billion in debt. The Wall Street Journal reported in 2015 that Razak had received $700 million directly from 1MDB into his personal bank accounts. In 2016 BSI Bank in Singapore was closed following the Monetary Authority of Singapore’s (MAS) brutal assessment of ‘widespread control failures’, ‘poor and ineffective oversight by the senior management’ and an ‘unacceptable risk culture, with blatant disregard for compliance and control requirements’ – all in relation to 1MDB.
Such was the brazen nature of the alleged criminality that has occurred that Malaysians have questioned why something wasn’t done about it earlier, leading to soul searching by the Malaysian media as to their passive complicity in the saga. Much of what we do know was diligently and brilliantly unpacked by the investigative journalist Clare Rewcastle Brown on her website Sarawak Report.
The current flurry of activity surrounding the case is due to the cupboard-cleaning being conducted by the new government in Malaysia since it entered power in May, and coincides with a new book, Billion Dollar Whale, discussing Low and 1MDB. Depressingly no UK publisher would touch it as UK libel laws remain notoriously robust (this, combined with a letter from Low’s representatives) so UK readers looking for a copy will be disappointed. Those outside the UK should be able to get a copy. The Guardian has an in-depth article on 1MDB here, albeit from the summer of 2016, but it covers all of the eye-opening background events in detail.
Meanwhile, based on what we know so far, there’s important lessons to learn for those working in financial services and compliance.
Najib Razak’s bank account with AmIslamic Bank was set up in January 2011. It is alleged that $680 million went into this account, registered as AmPrivate Banking-MR because the bank ‘wanted to avoid any leakage of information’. Relationship manager Joanna Yu, already managing the 1MDB account, spoke to the AmBank managing director Cheah Tek Kuang who went to meet Razak. Razak had previously asked Malaysia’s central bank governor whether it was OK to receive a $100 million donation from Saudi Arabia into his personal account. Allegedly, he was told it was.
The MAS noted that there were major lapses at BSI bank with regards to the processing of a number of unusual transactions. Indeed, the MAS revealed that the approval of these unusual transactions was ‘based purely on [the] faith of client representations despite deficient documentation and concerns raised by the bank’s compliance officers’.
BSI Bank, whose license was withdrawn by the MAS in 2016 in connection to 1MDB, had a litany of failures connected to its name, including weak AML controls, misconduct by staff and control failures. Most noticeably though was MAS’s description of senior management at the bank as having ‘poor and ineffective oversight’ and having displayed a ‘gross dereliction of duty’. Six senior management were subsequently reported to the public prosecutor.
N.B. Jho Low, Najib Razak and Rosmah Mansor all deny wrongdoing in connection with their alleged misappropriation of funds from 1MDB.
Are you interested in studying for an ICA course but would like to see for yourself what it's like studying with us before you make a decision?
Get access to our exclusive demo page for the ICA Certificate in Anti Money Laundering using the link below.
Access an ICA course demo ►