SINGAPORE – Synonymous with one of the world’s greatest financial heists, Malaysia’s now-defunct state fund 1Malaysia Development Bhd (1MDB) is ramping up its pursuit of stolen assets with new legal action against foreign financial institutions and individuals like former premier Najib Razak and fugitive businessman Low Taek Jho.
1MDB and its former subsidiary SRC International Sdn Bhd filed 22 civil suits seeking over US$23 billion at courts in Kuala Lumpur earlier this month, marking a new phase of efforts by Malaysia to recover funds lost to the globe-spanning embezzlement scandal.
An unnamed source told The Edge business daily, which on May 10 initially reported the filing of the suits, the moves were a sign that Prime Minister Muhyiddin Yassin and his ruling Perikatan Nasional (PN) are serious about pursuing wrongdoers linked to the scheme amid public restlessness with the slow pace of various 1MDB-linked criminal cases.
The litigation will also act to deepen an already wide rift within Muhyiddin’s governing coalition, which derives crucial support from graft-ensnared allies of Najib, who is increasingly at risk of losing his political rights to stand as a candidate in future elections pending court decisions.
Observers say preparations for the civil suits were long in the making and aim at piling pressure on those implicated to concede to hefty settlements. But some are skeptical that the legal action will deliver quick results and see the civil suits against former 1MDB office bearers as inadvertently aiding the defense of financial institutions also being sued.
The state fund is reportedly claiming $1.11 billion from a Deutsche Bank unit, $800 million from a JP Morgan unit, and $1.03 billion from a Swiss-based Coutts unit, as well as interest payments. According to court documents, the claims are premised on “negligence, breach of contract, conspiracy to defraud/injure, and/or dishonest assistance.”
1MDB is also claiming $1.83 billion from Saudi energy group PetroSaudi International and its Cayman Islands unit, which was linked to an energy joint venture with the Malaysian fund from 2009 to 2012. The company’s co-founder Tarek Obaid and director Patrick Mohany, who are also facing criminal charges in Malaysia, have been named as defendants.
Others named in the civil suits include former 1MDB chief executive officers Shahrol Azral Ibrahim Halmi, Arul Kanda Kandasamy and Mohd Hazem Abdul Rahman, as well as Najib’s film producer stepson Riza Aziz, who was controversially granted a discharge not equal to an acquittal last May over five counts of 1MDB-linked money-laundering.
The father and sister of fugitive businessman Low, better known as Jho Low, as well as his close associate Eric Tan Kim Loong, are among 25 individuals named in the suits. Widely regarded as the 1MDB scandal’s mastermind, Low has evaded global authorities seeking his arrest since 2016. Malaysian police have claimed he is hiding in the Chinese enclave of Macau.
“The government will not rest until all those involved are made fully accountable for the wrongdoings caused to the country through their involvement in 1MDB and/or SRC,” said Finance Minister Tengku Zafrul Abdul Aziz in a statement confirming that legal representatives for 1MDB and SRC had filed the civil suits on May 7.
The Ministry of Finance (MoF) has said that all proceeds from 1MDB asset recovery efforts have been deposited into an Asset Recovery Trust Account under the custody of Malaysia’s Accountant-General, and that claims for losses caused to 1MDB and SRC will continue to be pursued through both the criminal and civil justice systems.
Opposition lawmaker Tony Pua told Asia Times that preparation for some of the civil suits had started during the short-lived Pakatan Harapan (PH) administration, led by former prime minister Mahathir Mohamad, as part of a strategy to “make sure that the country recovers as much as we possibly can from those who were involved.”
“At the same time, justice could be meted out to those who are perhaps less likely to be indicted criminally,” Pua added. “[But] we don’t have the exact basis for the claims or even some of the individuals included,” he said, given that members of the former PH government are now in the opposition.
Malaysia has spent three years trying to recover assets related to 1MDB from global financial institutions and individuals, some of which were seized by the US Department of Justice (DoJ). It has so far recouped $3.89 billion following settlements with US investment bank Goldman Sachs, audit firm Deloitte, and Malaysian banking group AmBank.
But Malaysian authorities have said at least $4.3 billion more is unaccounted for, while the state fund reportedly owes an estimated $7.8 billion in outstanding debt. The MoF has said it plans to use recovered funds to repay those liabilities and that funds held in its trust account are sufficient to service 1MDB’s debt obligations for 2021 and 2022.
“Above all, the government is short of funds, not only from paying off the 1MDB debt obligations, but also due to the series of stimulus packages necessitated by the pandemic lockdowns,” said Oh Ei Sun, senior fellow from the Singapore Institute of International Affairs. “The government has had to be creative and go all out to bring in more revenues.”
In April, Muhyiddin conceded that the country was less well off in the wake of spending on various Covid-related stimulus packages and national budgets exceeding 600 billion ringgit ($144.8 billion) since last year. “What I am trying to say here is, we don’t have much money left,” the prime minister said candidly during a public event, according to local media reports.
In the months after Muhyiddin came to power last March, many feared his government would soft-pedal on anti-corruption measures and 1MDB-related prosecutions given that his PN coalition is reliant on support from the United Malays National Organization (UMNO), whose top leaders, including Najib, are on trial facing various criminal charges.
But Malaysian courts have pressed ahead with legal proceedings. Najib was sentenced to 12 years in prison last July on charges of corruption and money laundering. The historic ruling drove a wedge between Muhyiddin and UMNO, which in recent months has threatened to topple the PN coalition by withdrawing its support for the premier.
UMNO hasn’t pulled the trigger yet, despite strident criticism of Muhyiddin’s rule from the party’s leadership. Unrepentant over his alleged role in a scandal that toppled his government in 2018, Najib maintains the new civil suit is proof he is a victim of persecution by a vengeful government intent on crippling his ambitions of staging a political comeback.
“Najib isn’t just trying to save his political life, he’s trying to save his life, facing multiple crippling financial and criminal suits,” said parliamentarian Pua. “He is now being sued for bankruptcy by Inland Revenue Board (IRB) and has been found guilty criminally pending appeal. He stands to lose all his money and go to jail for a long time.”
Indeed, the 67-year-old former premier could spend the rest of his life behind bars if found guilty of only a few of the 42 criminal charges he faces, which include money laundering, criminal breach of trust and abuse of power. Najib, who is out on bail, has always maintained his innocence and claims that he committed no crime.
Najib’s lawyer has similarly cast a bankruptcy notice for more than $400 million in unpaid taxes served in April, two days after UMNO’s general assembly announced its intentions to withdraw from the government and contest against it at the next election, as a political conspiracy to disqualify him from standing in upcoming party elections.
“The coincidental timing of the suits would suggest it could at least partially be an attempt to detract from Najib’s increasingly frequent and vociferous criticism of the powers that be,” said Oh, though some analysts argue that statutes of limitation on 1MDB-related claims explain why authorities chose to initiate legal proceedings when they did.
Since losing power, Najib has deftly used social media to rebrand himself as a populist disruptor whose resurgent popularity has defied expectations. “He thinks that he can make a big comeback, and in fact, if you look at the past 12 months, he has proven to be correct,” said James Chin, director of the University of Tasmania’s Asia Institute.
“Najib’s strategy is actually very simple. His strategy is that if UMNO takes over government, all the cases against him will not be dropped, but he’ll get a discharge not amounting to an acquittal without a full trial. He and [UMNO president Ahmad] Zahid [Hamidi] still control the party’s largest faction,” the academic added.
Chin said Najib and Zahid, who faces 47 charges involving criminal breach of trust, receiving bribes and money-laundering unrelated to 1MDB, are powerfully positioned to negotiate a deal with Muhyiddin. “Their problem now is that Muhyiddin thinks that he can get rid of them because all he needs is just a guilty verdict in any one of those cases,” he said.
Appeal hearings for Najib’s conviction on the misappropriation of 42 million ringgit ($10.1 million) from SRC International adjourned earlier this month. The court has yet to fix a date for its decision. The former premier faces four other corruption trials and is planning to file an application to stay his bankruptcy proceedings.
Clare Rewcastle-Brown, editor of Sarawak Report, the whistle-blower website widely recognized for its role in uncovering the byzantine money trail and political machinations behind the 1MDB scandal, told Asia Times that including civil action against Najib for the same matters he has already been found guilty of criminally was “farcical.”
“[That has given Najib] a legitimate complaint that he is being persecuted,” she said.
Rewcastle-Brown opined that the main weakness of the legal strategy being pursued by 1MDB-SRC is that the fund’s former top brass are being sued as part of the action, “essentially admitting to the key defense of the institutions” that are being pressured into negotiated settlements, which claim they were deceived by errant officer-bearers at the state fund.
Financial institutions who were “boldly lied to by top 1MDB officials may be guilty of gullibility or yielding to powerful politically exposed persons, and most have already been sanctioned by their own regulators,” she said. “But to be expected to surrender huge mounds of cash to the very entities who admit they defrauded them is pretty cheeky.”
In response to Malaysia’s demands for compensation, JP Morgan and Coutts declined to comment, while Deutsche Bank said it was “not aware of any basis for a legitimate claim” over the matter. By coincidence, the US DoJ announced it had dropped a three-year 1MDB probe against the German bank on the same day Malaysia announced its civil suit.
Citing sources in Kuala Lumpur, the Sarawak Report editor said there was widespread skepticism of the new litigation among legal circles. “Large international institutions have made clear they are sticking their ground, so across the board legal action looks bound to get bogged down and produce little money for 1MDB,” said Rewcastle-Brown.