by Stephanie Bodoni/Shamim Adam
Bloomberg
March 31, 2016

Authorities in Luxembourg and Singapore are investigating transactions involving 1Malaysia Development Bhd. as the Malaysian state fund faces expanding probes into allegations of embezzlement and money laundering.

Prosecutors in Luxembourg said they started an investigation of 1MDB, as the fund is known, after finding “concrete clues” of embezzlement from companies owned by the fund via accounts in Singapore, Switzerland and Luxembourg. In response to questions about 1MDB, the Singapore central bank said it is conducting a “thorough review of various transactions as well as fund flows” through its banking system.

“The alleged facts concern in particular the amounts paid during the issuance of two bonds in May and October 2012,” Luxembourgish prosecutors said in an e-mailed statement. They will seek to “retrace the origin of four transfers during 2012 and one transfer in early 2013 for a total of several hundred million dollars, to an offshore company with an account in a bank in” Luxembourg.

Global Investigations

From Malaysia to Switzerland to the U.S., investigators have been trying to trace whether money might have flowed out of 1MDB and illegally into personal accounts. The government called the accusations politically motivated even as authorities outside Malaysia press ahead with inquiries.

1MDB, whose advisory board is headed by Prime Minister Najib Razak, has denied wrongdoing. 1MDB said Thursday that it has not been contacted by any foreign legal authorities on any matters related to the company, repeating comments made a day earlier by its president, Arul Kanda.

“We remain committed to fully cooperating with any lawful authority and investigation,” 1MDB said in the statement.

1MDB issued two dollar bonds totaling $3.5 billion in May and October 2012 to fund the acquisition of Malaysian power assets. Both were solely arranged by Goldman Sachs Group Inc.
Critics have questioned Goldman’s earnings from arranging bond sales for 1MDB in 2012 and 2013. Goldman made about $593 million from three bond sales that raised $6.5 billion, according to a person with knowledge of the matter, dwarfing what banks typically make from government deals.

Tim Leissner, then Goldman’s Southeast Asia chairman, was an adviser to 1MDB from early on, according to a former colleague familiar with the bond sales. U.S. authorities are now turning to Leissner for information. He was issued a subpoena in late February, according to three people briefed on the matter, just days after Goldman confirmed he had left the firm.
The bank said last year that fees and commissions “reflected the underwriting risks assumed by Goldman Sachs.”

Singapore Review

In Singapore, the MAS asked several financial institutions for information related to its review of fund flows, according to an e-mailed statement. The central bank said it was working with authorities in other financial centers.

“Besides any enforcement actions by the relevant authorities in Singapore for possible violations of our laws, MAS will not hesitate to take regulatory actions against financial institutions should they be found to have breached our banking rules,” it said in the statement. “MAS will provide more details when we have completed our review.’’

Set up by the government in 2009 to build infrastructure with borrowed money, 1MDB amassed about 42 billion ringgit ($10.8 billion) of debt in less than five years, largely from assets in the energy sector. Its borrowings clouded the sovereign credit rating, weighing on the government’s contingent liabilities. The government said on Thursday that 1MDB’s finances won’t affect its fiscal policy.