Malaysia’s prime minister fights for his political life

Michael Peel, Bangkok regional correspondent
Financial Times
October 9, 2015

Najib Razak, Malaysia’s embattled prime minister, is fighting for his political life after open warfare broke out within the country’s state institutions over a corruption scandal that has engulfed him.

The central bank on Friday said it had urged the country’s attorney-general to begin criminal proceedings against the debt laden 1Malaysia Development Berhad investment fund, intensifying pressure on Mr Najib who chairs its advisory board.

The central bank’s intervention comes hard on the heels of an attack by a group of the country’s traditional rulers on the handling of the 1MDB case. The twin assaults will torpedo government efforts to crack down on the prime minister’s accusers, in a scandal that had already spawned investigations from the US to Hong Kong.

Mr Najib has been under intense pressure since it emerged in July that almost $700m allegedly linked to 1MDB was paid from overseas into a bank account in his name.

Both Mr Najib and 1MDB deny wrongdoing in an affair that is damaging confidence in an economy already weighed down by high consumer debt and the falling oil price. Mr Najib says the money paid to him came from an unnamed Middle Eastern donor.

The central bank said on Friday it had pressed for criminal prosecution of 1MDB, only to be rebuffed by the attorney-general. The fund had broken foreign exchange laws and won approvals for offshore investments based on inaccurate or incomplete information, the bank claimed.

The bank said it had now scrapped permission for 1MDB to make $1.83bn of foreign investments and had ordered the fund to repatriate the money. The order came a day after the attorney-general said he had concluded 1MDB had not done anything wrong, despite the claims the central bank had outlined in a confidential report.

1MDB, which is trying to cut a debt pile of more than $11bn, said the $1.83bn under the bank order, together with a profit of more than $500m, had already been redeemed and the proceeds “substantially utilised”. The fund said it had “painstakingly provided multiple detailed written and verbal explanations of these facts” to the central bank.

The fund is under scrutiny over billions of dollars of dealings in locations ranging from the Gulf to the Cayman Islands.

Pressure on Mr Najib has soared this week after the sultans of nine of Malaysia’s states urged proper investigation of a scandal that was “adversely affecting the world’s view of Malaysia”. They echoed the central bank in blaming the 1MDB affair for the plunge in the value of the country’s currency, the ringgit, by more than a quarter in barely 12 months.

Police widened their crackdown on critics of the prime minister on Thursday, arresting Matthias Chang, a lawyer who has been touring the world lobbying foreign countries to launch probes into 1MDB. Mr Chang is a former adviser to Mahathir Mohamad, the influential former prime minister and one-time patron of Mr Najib, who is now campaigning for his successor to resign.

Mr Najib’s government has moved people investigating the 1MDB affair from their positions and slapped travel bans on opposition politicians and a prominent media owner. An administration spokesman did not immediately respond to a request for comment.

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