Political shifts spell disaster for 1MDB
1Malaysia Development Berhad (1MDB) was originally started in 2009 as a state fund, focused on improving development in clean energy, infrastructure, tourism and agriculture industries throughout the country by way of foreign investment and partnerships. But the fund was the subject of scrutiny early in its establishment, as leaked documents began to reveal questionable transfers of large sums of money into the bank accounts of numerous prominent Malaysian figures, including financial consultant in charge of 1MDB, Jho Low and then Prime Minister Najib Razak. Following further releases of potentially incriminating financial documents, the Malaysian Anti-corruption Agency, MACC began an investigation into Najib, who pre-emptively fired and arrested numerous officials who had spoken about the potential corruption, including then Attorney General Abdul Gani, before a warrant for Najib’s arrest could be issued. Gani was replaced with a new attorney general who cleared Najib of all wrongdoing. After the upheaval, Mahathir Mohamad, a former prime minister ran and won a political campaign against Najib, and immediately reinvigorated the fraud investigation, arresting Najib multiple counts of breach of trust, illegal bribes, illegal use of proceeds, misallocation of government funds and corruption. His lawyer Shafee Abdullah was charged with laundering and tax evasion. Many of these charges were in relation to the 1MDB fund.
Goldman Sachs’ alleged involvement
Following the domestic investigation and arrest of Najib and others, the Malaysian government has turned its attention to the foreign investors who provided much of the misallocated funds through investment. Seventeen current and former Goldman Sachs directors have been criminally charged in the investigation. These directors have been under investigation for their role in writing and arranging bond offers of $6.5bn to the 1MDB fund, deals that were arranged between Goldman Sachs and Najib Razak. Former Goldman Sachs partner in Asia, Tim Leissner pleaded guilty in August to conspiracy to launder money and violate the Foreign Corrupt Practices Act. Goldman Sachs’ involvement with the 1MDB fund adds to the financial services’ current low public esteem and may represent a further reputational blow to the public perception of the company.
1MDB’s fraudulent energy investments
1MDB has been a member of numerous renewable energy co-operation agreements with energy producers like the State Grid Corporation of China and the Abu Dhabi Future Energy Company. These agreements promised to bring about the beginning of a Malaysian energy transition through projects like the Sarawak Corridor of Renewable Energy and discussions about building Malaysia’s first carbon-neutral city, plans which did not come to fruition. Despite early plans to invest in renewable energy sources, the fund embarked on joint ventures with PetroSaudi Holdings, an oil production company, and used promissory notes from PetroSaudi to invest over $2bn in the Segregated Portfolio Company in the Cayman Islands. Jho Low allegedly funnelled a portion of this money into a bank account controlled by him, though he denies these accusations. It has since been revealed that in 2014, $2.2bn in misappropriated 1MDB funds were used for the purchase of the American energy producer Coastal Energy. Jho Low had used money from the 1MDB fund to partner with Compañía Española de Petróleos SAU (Cepsa), a sub-unit of Abu Dhabi’s state investment firm International Petroleum Investment Company, in a joint venture to acquire Coastal Energy. With an initial investment of $50m from Low and $2.15bn from Cespa, Coastal Energy was acquired. Cespa then bought Low’s share for $350m, a 600 per cent return on his investment in the oil and gas industry. Proceeds from the purchase were later used to buy a lavish London flat in Mayfair, according to the US Department of Justice.
In 2015 1MDB sold its energy assets to China General Nuclear Power Group, the same year that investigations and public scrutiny of the fund’s business practices began.
Charges filed against Goldman Sachs execs in 1MDB scandal
Political shifts spell disaster for 1MDB