Economist
Apr 27th 2017

A mammoth financial scandal is being brushed under the carpet

FOR the past year 1MDB — a Malaysian state investment firm at the heart of one of the world’s biggest financial scandals — has been locked in dispute with IPIC, a sovereign-wealth fund from the oil-rich emirate of Abu Dhabi, with which it was once chummy.

Terse statements released on April 24th suggest the pair are finally making up.

1MDB has agreed to pay IPIC $1.2bn, reportedly to settle a complaint that it reneged on the terms of a bail-out IPIC provided in 2015. The two companies have also agreed to enter into “good-faith discussions” about other disputed payments, which may total as much as $3.5bn.

Past dealings between 1MDB and IPIC are a focus for investigators hunting huge sums that have gone missing from the Malaysian state-owned company since its founding in 2009. In 2012 IPIC offered to guarantee loans that 1MDB needed to acquire two power firms. But IPIC said last year that it had never received collateral and other monies supposedly due to it under this deal. Instead 1MDB appears to have wired payments to an account held by an unrelated shell company registered in the British Virgin Islands, which had adopted a name similar to that of one of IPIC’s subsidiaries.

Last July investigators at America’s Justice Department said they thought that this ruse had allowed conspirators to liberate more than $1.3bn from 1MDB’s coffers (opposition politicians in Malaysia maintain that the sum lost is in fact far greater). America alleges that former officials from both IPIC and 1MDB benefited from the swindle. They also claim that more than $200m of the missing money went to an account controlled by Riza Aziz — the stepson of Najib Razak, Malaysia’s prime minister — and that $30m went to Mr Najib himself. (Both deny wrongdoing.)

That 1MDB and IPIC are beginning to bury the hatchet is probably a relief for bigwigs implicated in the affair, even if many humbler Malaysians are wondering how the billion-or-so dollars immediately due to IPIC will be found. Although investigations are continuing in America, Switzerland and Singapore, the authorities in Malaysia itself have charged no one in connection with any of 1MDB’s dubious dealings. Mr Najib fired an attorney-general looking into the scandal; the successor Mr Najib appointed concluded that $681m paid to Mr Najib in 2013 was a donation from foreign royalty, not in any way related to 1MDB.

Many voters in rural seats either do not understand the affair or do not care about it. It is rumoured that the prime minister will call a general election later this year, in the hope of benefiting from the opposition’s interminable squabbling. As things stand, he will probably clean up.