Tom Wright
Wall Street Journal
April 7, 2016

Board offers to resign; some allege an attempt to shield leader from damage in corruption scandal at fund he set up

By TOM WRIGHT

A Malaysian state development fund’s board of directors offered to resign after a report that found billions of dollars went missing from the fund but which made no mention of Prime Minister Najib Razak, prompting critics to accuse officials of shielding him.

The findings of the parliament’s Public Accounts Committee, released Thursday, mark the first time a Malaysian investigating body has leveled allegations of fraud connected to 1Malaysia Development Bhd., or 1MDB, which is the focus of corruption probes in Malaysia and at least six other nations.

Still, the report appeared to take pressure off Mr. Najib, who founded 1MDB in 2009, heads its separate board of advisers and has been the target of criticism over the scandal. Critics suggested the committee’s findings against 1MDB management, the absence of Mr. Najib’s name, and the directors’ offer to resign were orchestrated moves designed to protect the prime minister.

“It’s all planned that way; so we could attribute blame on [the board] but exonerate the prime minister. It means nothing,” said Zaid Ibrahim, a former cabinet minister and leader in an alliance opposed to Mr. Najib.

In response to the report, which recommended that senior management face a criminal investigation, 1MDB’s board of directors offered its collective resignation. “The board has successfully steered 1MDB through a uniquely challenging period and trusts that, with the release of the PAC report, a line has been drawn,” the board said in a statement. The fund has said previously that it has cooperated with authorities and would continue to do so. On Thursday, it again denied any wrongdoing.

The Wall Street Journal, citing Malaysian and global investigations, has reported how investigators have found over $1 billion was transferred to Mr. Najib’s personal bank accounts, the majority originating from 1MDB and moving via a web of intermediary entities.

Mr. Najib has denied wrongdoing or taking money for personal gain. On Thursday, Mr. Najib said in a statement that the parliamentary report “identified weaknesses in 1MDB’s capital structure and management. We will study and act on the report’s recommendations. We must ensure that lessons are learned, and action will be taken if any evidence of wrongdoing is found.”

Switzerland’s financial regulator has said evidence in the 1MDB investigation represented a clear case of corruption. “We are talking about cash flows amounting to several billion U.S. dollars, with individual transactions running into hundreds of millions,” Mark Branson, CEO of the Financial Market Supervisory Authority, said Thursday.

The head of the Malaysian parliamentary committee, Hasan Arifin, said in a statement that it “calls upon the authorities to study the report very carefully, and carry out the necessary investigations. The law must be exercised if any wrongdoing is found.”

The fund’s detractors have questioned why the committee didn’t focus more on Mr. Najib, who played a key role at 1MDB, including firing auditors and authorizing transfers of hundreds of millions of dollars, according to board minutes reviewed by the Journal.

“This is to be expected since the PAC cannot implicate the elephant in the room, Mr. Najib,” said James Chin, head of the Asia Institute at the University of Tasmania and a specialist in Malaysian politics. “The report still does not tell us where the money went so the allegations that it ended up in Mr. Najib’s account are still unresolved. On the surface, it looks like the previous management has been pushed under the bus.”

The report said there were constraints and weaknesses at 1MDB’s management and board of directors, and called for law-enforcement agencies to investigate the fund’s management and former Chief Executive Shahrol Azral Ibrahim Halmi.

Mr. Shahrol, who now works in the prime minister’s office, released a statement via state news agency Bernama saying there was no wrongdoing under his watch and pledging to cooperate with investigators. “I will continue to extend my full cooperation, confident in the knowledge that I have done no wrong and have nothing to hide,” he said.

According to the committee’s report, 1MDB’s debts now stand at approximately $12.8 billion. The report said the fund has reached agreements in recent months to sell off most of its assets, mainly land and power plants. Arul Kanda, the current chief executive, told Malaysian television Thursday that 1MDB will eventually become “a shell company…with no daily operations.’’

Tony Pua, a member of the committee and of the opposition Democratic Action Party, criticized the actions of 1MDB as investigations into its activities were pursued, accusing the fund of giving half-truths and withholding information.

The fund said the report didn’t specifically reference the recommendation of a criminal probe, though Mr. Pua and legal experts said any law-enforcement investigation would include probing potential criminal behavior.

In November, Malaysian reporters asked Mr. Hasan, head of the committee, why the body wasn’t calling Mr. Najib to give evidence. He replied: “I have to earn a living.” He later said the remarks were a joke.

Malaysia’s attorney general in January cleared Mr. Najib of wrongdoing, saying $681 million of the money that entered his accounts in 2013 was a legal donation from Saudi Arabia’s royal family, and that most of it was returned. The attorney general hasn’t commented on the other money that investigators believe entered Mr. Najib’s accounts.

—Celine Fernandez and Yantoultra Ngui in Kuala Lumpur contributed to this article.