Malaysia Central Bank Sought Criminal Proceeding Against 1MDB

by Tom Wright
Wall Stret Journal
Oct. 9, 2015

Malaysia’s central bank said it recommended the attorney general begin criminal proceedings against a troubled state investment fund for allegedly breaking foreign-exchange rules, but that the attorney general had declined to act on the matter.

Bank Negara Malaysia, in a statement Friday, said the fund, 1Malaysia Development Bhd., had breached central bank rules that govern the movement of cash overseas for investment.

The 1MDB fund had given “inaccurate” information in seeking permission to invest a total of $1.83 billion abroad in three separate transactions, the statement said.

Bank Negara said it had granted permission based on the allegedly inaccurate information, but later had issued a direction to 1MDB to repatriate that amount. The bank said it had asked the attorney general in August to initiate criminal proceedings.

The central bank didn’t specify which 1MDB transactions allegedly broke Malaysian foreign-exchange laws.

The 1MDB fund was set up by Prime Minister Najib Razak in 2009 to spur growth in the Southeast Asian country but has rolled up over $11 billion in debt and is the focus of a series of global investigations.

The 1MDB fund, in its own statement late Friday, said the $1.83 billion cited by the central bank referred to money that 1MDB had invested between 2009 and 2011 in a joint-venture deal with a Saudi oil company.

The fund said it had informed the central bank that it had either already spent those funds or had committed them to help reduce its large debt burden.

The 1MDB fund said it respected Bank Negara’s decision to ask for the money to be repatriated and is working with the central bank on a resolution to the matter.

The fund didn’t comment on the central bank’s claims it had given inaccurate information on the transfers.

The 1MDB fund’s statement pointed out that the attorney general’s office earlier this week said it had reviewed the central bank’s report into 1MDB but had concluded that it wouldn’t take action against the fund as it saw no evidence of wrongdoing by 1MDB officials.

The 1MDB affair has embroiled Mr. Najib in Malaysia’s biggest political controversy in years. He fired Malaysia’s deputy prime minister, who questioned his handling of the case, and suspended a newspaper—a suspension which a court later lifted. Tens of thousands of people took to the streets of Kuala Lumpur in August and demanded his ouster. Critics have been detained under security laws on allegations of trying to sabotage the country.

Malaysian government investigators earlier this year traced $700 million into Mr. Najib’s alleged bank accounts through agencies, banks and companies linked to 1MDB, The Wall Street Journal reported in July.

The government investigation hasn’t detailed what happened to the funds that went into the prime minister’s alleged personal accounts, most of which it determined were received ahead of national elections in 2013.

Mr. Najib has denied any wrongdoing, or taking money for personal gain.

The country’s anticorruption agency has said the money was a donation. But it didn’t specify the purpose of the contribution or identify the donor, who it said was based in the Middle East.

His government in July removed the previous attorney general, who was investigating the transfers, citing health reasons. Attempts to reach him haven’t been successful. The attorney general’s office, in a statement Thursday, said it was continuing to head a multiagency task force including the central bank, police and anticorruption agency that is investigating 1MDB.

This week, nine of the country’s sultans, who are titular heads of Malaysian states, waded into the issue, demanding a full investigation and blaming the scandal for hurting Malaysia’s international image.

Zeti Akhtar Aziz, the central bank governor, said recently the 1MDB issue was among reasons Malaysia’s ringgit currency is among the worst-performing in Asia this year, falling 17% since the start of 2015. Those comments led to a rebuke from 1MDB, which issued a statement saying other reasons, including a strong dollar and falling oil prices, are to blame for the weak currency.

Swiss authorities in August opened a criminal investigation into suspected money laundering allegedly involving 1MDB. Singapore has frozen two accounts that authorities there said were related to the transfers into Mr. Najib’s alleged accounts. The fund says it hasn’t been contacted by overseas investigators but stands ready to cooperate.

An Abu Dhabi sovereign-wealth fund that had a relationship with 1MDB is looking into over $2 billion in payments it was supposed to receive from the Malaysian fund, which had said it sent them, but which appear to be unaccounted for. The 1MDB fund has said it stands by its financial reports, which shows the money was sent to Abu Dhabi.

U.S. investigators including the Federal Bureau of Investigation and the U.S. Justice Department, meanwhile, have begun looking into Mr. Najib’s assets, The Wall Street Journal reported last month. Mr. Najib hasn’t commented on the investigations. Attempts to reach his office weren’t successful.

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