Published July 21, 2016
The U.S. says more than $1 billion has been stolen from a Malaysian fund by people close to Prime Minister Najib Razak, who has struggled to explain the scandal since it erupted more than a year ago. Here are some questions and answers about the fund:
Q: WHAT IS 1MDB?
A: 1MDB stands for 1Malaysia Development Bhd. (Ltd.). Najib created the state fund shortly after taking office in 2009, and renamed it from an entity called the Terengganu Investment Authority, which was set up to invest oil royalties from the Malaysian state of Terrangganu into development projects in the Southeast Asian nation. Najib headed the fund's advisory board.
Q: WHY THE SCANDAL?
A: In early 2015, 1MDB was found to have accumulated $11.6 billion in debt. The fund nearly defaulted on a loan payment, and its huge debt raised fears a possible bailout could leave the government bankrupt. Najib said that 1MDB's assets are worth more than its debts and that it needed more time to become financially stable.
A private audit has cleared 1MDB, but a parliamentary inquiry in April this year found massive unexplained payments in 1MDB and called for a police investigation of the fund's former head. The finding, which was based partly on the auditor-general's report, warned that the government could face losses of around $4.9 billion if 1MDB fails to pay its debts.
Q: WAS NAJIB PERSONALLY INVOLVED?
A: The Wall Street Journal and Malaysia's Sarawak Report online news reported in July 2015 that nearly $700 million in Najib's personal bank accounts have been traced to entities linked to 1MDB. The Wall Street Journal report said five deposits were made into Najib's accounts and that the two largest transactions, worth $620 million and $61 million, were made in March 2013 ahead of general elections.
Attorney General Abdul Gani Patail confirmed receiving documents from investigators that linked Najib to the 1MDB fund. However, the government abruptly terminated Gani's services, three months short of his scheduled retirement. Najib also axed his own deputy Muhyiddin Yassin, a vocal critic, and four other ministers. He also replaced anti-corruption officials involved with the investigation.
The Malaysian Anti-Corruption Commission cleared Najib of any criminal wrongdoing, saying $681 million was "contributions from donors, and not funds from 1MDB."
Malaysia's new attorney general in January also cleared Najib, saying the money was a donation from the Saudi royal family and that most of it was returned. The Saudi foreign minister later said he was aware of the donation but gave no details.
Q: WHAT OTHER ACTION HAS MALAYSIA TAKEN?
A: The attorney general rejected a request by the central bank for a criminal investigation.
The government also cracked down on media reporting on the scandal.
Malaysia's The Edge media group last year reported that businessman Low Taek Jho — a family friend of Najib — and PetroSaudi International had cheated Malaysia of $1.83 billion through an aborted joint venture with 1MDB in 2009. The media group's publishing permits were suspended for three months.
The government also blocked the U.K.-based website Sarawak Report.
Q: WHAT ARE THE POLITICAL IMPLICATIONS FOR NAJIB?
A: Najib has strengthened his grip on power in the face of his biggest challenge since taking power in 2009 as head of a coalition that has ruled Malaysia since independence from Britain in 1957.
In August last year, tens of thousands of Malaysians took to the streets to demand Najib's resignation. Najib accused them of tarnishing the country's image.
Thousands of Najib's supporters, mostly ethnic Malays, rallied behind the prime minister.
Backing for Najib's National Front has eroded in the last two general elections. It won in 2013, but lost the popular vote for the first time to an opposition alliance.
Q: WHAT DID THE U.S. SAY?
A: Acting on a complaint filed in Los Angeles, U.S. Attorney Eileen Decker said the government is seeking to recover more than $1 billion it says was stolen from 1MDB by people close to Najib.
The diverted funds paid for luxury properties in New York and California, a $35 million jet, art by Vincent Van Gogh and Claude Monet and financing for the Hollywood film "The Wolf of Wall Street," according to federal government complaints that demand the recovery and forfeiture of the assets.