He has only gone through 7 of the 42 charges and may already fear an old day in prison. Najib Razak (67), who was Prime Minister of Malaysia until two years ago, was sentenced to twelve years in prison on Tuesday in one of the largest corruption scandals in the world. The process is a milestone for Malaysia as it shows that corruption can indeed be tackled. For the international high finance is it a warning: even customers in emerging economies are now accountable at home. Five questions about the 1MDB affair.
1 Who is Najib Razak?
Najib is a descendant of a prominent political family: his father was the second prime minister since the independence of the United Kingdom in 1957, his uncle the third prime minister. When he was in his early twenties, Najib became the youngest Member of Parliament in the country. From 2009 to 2018, he was Prime Minister himself, as the leader of UMNO, the main party of the Malay majority. State Investment Fund 1 Malaysia Development Berhad (1MDB) was established under his leadership and was designed to attract foreign investment.
Najib is married to Rosmah Mansor, who grew up as the daughter of two teachers and who as a child would have had the ambition to find a husband in the family of the Sultan of Brunei. Her handbags play a role in this history.
2 What has Najib been found guilty of?
The Kuala Lumpur judge finds Najib guilty of seven charges of “criminal breach of trust”, abuse of power and money laundering. This is because 42 million ringgit (over 8 million euros) of SRC International, a subsidiary of 1MDB, had ended up in his personal bank accounts. He was sentenced to twenty years in prison, the judge decided to twelve years.
Because Najib appeals, the outcome can be very different. He can wait for the appeal in freedom and does not have to give up his parliamentary seat. Najib has always maintained that he was tricked by Jho Low, a fugitive advisor who, according to prosecutors, is the mastermind behind the fraud. Jho Low is said to have sold Najib the lie that the millions were a present from the Saudi royal family. The judge finds this statement “far-fetched”.
3 What can be expected from those other 35 charges?
The 1MDB scandal is about much more than these 8 million. US prosecutors state that between 2009 and 2014, the equivalent of EUR 3.8 billion disappeared from the fund to many destinations.
One was Jho Low. He transferred $ 700 million ($ 597 million) in assets last year as a settlement with the US justice system. These included paintings by Van Gogh, Monet, Picasso and Basquiat. He also gave up his yacht with the name Equanimity.
Another destination was Najib’s stepson Riza Aziz, who is said to have used $ 250 million to produce the Hollywood movie The Wolf of Wall Street, starring Leonardo DiCaprio. He repaid part of it as a settlement with the Prosecutor’s Office in Malaysia.
At least 600 million euros would have ended up in the personal accounts of Prime Minister Najib. The fraud came to light in 2015 when the fund was unable to make certain payments. It led to Najib losing the election in 2018, making his UMNO party no longer in power for the first time since independence. The new government ordered a judicial investigation.
In the search that followed, 284 handbags were found in addition to jewelery, watches and cash, including some very expensive Birkin bags from Hermès. Converted, 220 million euros in luxury items was seized. Najib will have to answer for this in the coming four processes, with a total of 35 charges. Wife Rosmah Mansor, frequently compared to Filipino shoe collector Imelda Marcos, is on trial separately.
4 What does the conviction mean for Malaysia?
That depends on the outcome of the appeal. This is the first time that a Malaysian former prime minister has been convicted and the ruling is therefore seen as a sign that no one is above the law. But experts warn that the appeal may die on appeal, now that UMNO is back in power since this spring. For example, they point out that the case against Najib’s stepson was suddenly settled in May.
The current situation serves as a test for the new Prime Minister Muhyiddin Yassin: can he ensure that justice has its course and keep Najib’s supporters on board the coalition?
5 Why is this case a warning to financial institutions?
Countless international banks have played a role – big or small – in the transactions that pumped 1MDB assets around the world. The largest role was played by the American investment bank Goldman Sachs, who settled $ 3.9 billion with the public prosecutor’s office in Malaysia last week. The bank made $ 600 million in 2012 and 2013 from three bonds, raising $ 6.5 billion for 1MDB. That money was largely stolen, and Goldman would have ignored the signals.
In addition to Goldman, American legal documents also mention banks in Luxembourg, Switzerland, Singapore and the Netherlands. Many millions have been transferred to ING bank accounts in Amsterdam.
As Malaysia has been chasing Goldman Sachs, other financial institutions are also held accountable for lost government funds from emerging economies. For example, US prosecutors are investigating Credit Suisse for his role in the $ 2 billion disappearance in Mozambique.
In addition, the European Banking Authority will investigate the role that European banks have played in the fortunes of Isabel dos Santos, daughter of the former President of Angola.
The fact that a former head of government is now convicted in Malaysia makes it even less attractive for banks to turn a blind eye to government corruption.
Also read: Goldman Sachs settles for $ 3.9 billion in 1MDB case
A version of this article also appeared in nrc.next dated July 29, 2020