Malaysia’s 1MDB ‘Wasn’t Sustainable,’ Top Government Official Says

Razlan Rashid
Kuala Lumpur
160404-MY-1mdb-620.jpg 1Malaysia Development Berhad (1MDB) President and Group Executive Director Arul Kanda addresses journalists in Kuala Lumpur, Oct. 31, 2015.

Amid the expansion of international criminal probes on three continents into the indebted 1Malaysia Development Berhad state fund, Malaysia’s top economic planner said Monday that 1MDB was unsustainable from the start.

Prime Minister Najib Razak, who chairs 1MDB’s advisory board and is the finance minister, has faced calls to resign since last year over financial scandals linked to the state fund, particularly a deposit of nearly U.S. $700 million into his private bank accounts.

“The model that they took was low capitalization and huge borrowings, and I think as they found out, it wasn’t a sustainable model. With that came debt realization, where the board has now embarked on a rationalization plan,” Abdul Wahid Omar, a minister in the Prime Minister’s Office who oversees the Economic Planning portfolio, said in an interview on CNBC’s “The Rundown.”

The design of 1MDB, which was established in 2009 to promote economic development projects in Malaysia, “was an exception, not the norm,” compared with other government-linked firms, and rather than being publically listed, the firm was setup as wholly owned by the Ministry of Finance, Abdul Wahid said.

A so-called rationalization program was launched in May 2015 to reduce 1MDB’s debt burden, which had grown to 42 billion ringgit (U.S. $11 billion) by selling off assets, CNBC reported.

On Monday, the Finance Ministry announced in a written reply to a question from an MP that the firm no longer had any outstanding debts and it had never failed to repay its debts, including interest on loans.

Probes widen across the globe

Abdul Wahid’s TV interview came as authorities in at least three countries stepped up or opened investigations during the past few days into allegations of financial wrongdoing linked with 1MDB.

In the United States, the FBI is looking into Red Granite Pictures, a film production company owned by Najib’s stepson, Riza Aziz. According to a report published in the Wall Street Journal (WSJ) on Friday, Riza’s company allegedly received U.S. $155 million from 1MDB to fund “The Wolf of Wall Street,” a Hollywood movie.

“Investigators in two countries believe that $155 million originating with 1MDB moved into Red Granite in 2012 through a circuitous route involving offshore shell companies,” WSJ reported, quoting people familiar with the probes.

The FBI has also served subpoenas to several current and former employees of Red Granite and to a bank and an accounting firm used by the company, WSJ reported.

A spokesman for Red Granite Pictures told WSJ the company was fully cooperating with inquiries from the FBI, adding the company had no reason to believe that the source of its financing was irregular.

On Sunday, 1MDB rejected the latest WSJ report, which has been covering the story in-depth since it broke the story about the deposit of U.S. $681 million of 1MDB-linked money into Najib’s accounts.

In a statement, 1MDB officials denied financing the movie that stars Leonardo DiCaprio or transferring any funds for the film, whether directly or through intermediaries.

Najib has maintained that he never used any of the $681 million for personal gain. In January, Malaysia’s attorney general cleared Najib of potential charges of financial wrongdoing in Malaysian investigations into that and other scandals associated with 1MDB.

Elsewhere in the U.S., Department of Justice officials have asked two major financial and banking firms, Deutsche Bank and J.P Morgan, for details into their dealings with 1MDB, but the two banks were targets of investigations linked to the fund, Reuters reported on Friday. American officials had traveled to Kuala Lumpur to interview people with close ties to 1MDB, Reuters said.

In the United Arab Emirates, authorities have imposed travel bans and frozen assets of two former executives of Abu Dhabi-based sovereign wealth fund International Petroleum Investment Co. (IPIC), who had extensive dealings with 1MDB, WSJ also reported last week.

UAE citizen Khadem Al Qubaisi, was the managing director of the investment fund, valued at U.S. $80 billion, while U.S. citizen Mohammed Badawy Al Husseiny was the chief executive of Aabar Investments PJS, which is owned by IPIC, WSJ reported.

Authorities in the emirates are focusing on whether Al Qubaisi and Al Husseiny had used British Virgin Islands-based Aabar to funnel money from the Malaysian investment arm into various accounts and companies throughout the world, according to WSJ.

Luxembourg joins fray

On Thursday, Luxembourg opened a money-laundering probe into a lawsuit over financial transactions involving money linked to 1MDB, according to reports.

“The suit concerns money laundering of funds likely to have come from the embezzlement of public monies,” the Luxembourg prosecutor’s office said, adding it had launched an investigation “following revelations about the alleged diversion of funds from 1MDB,” Agence France-Presse reported.

The announcement by the Luxembourg prosecutor came after authorities in Switzerland earlier this year announced that up to $4 billion in 1MDB money may have been embezzled from the Malaysian fund.

And in Singapore last week, authorities said they were working with Swiss investigators in investigating possible money-laundering and other offenses linked with 1MDB money, The Australian reported, saying Singaporean officials had questioned about 40 banks in their investigations, including two of Australia’s biggest banks, ANZ and NAB.

On Friday, the Monetary Authority of Singapore – the central bank there – issued a statement in response to the report in The Australian.

The authority said it had been “conducting a thorough review of various transactions as well as fund flows through our banking system. MAS has requested a number of financial institutions to furnish information relating to the review.”

In February, the Singaporean central bank announced that it had seized a large number of bank accounts over possible money-laundering and other offences linked to 1MDB.

Apart from probes in the United States, United Arab Emirates, Luxembourg, Switzerland and Singapore, investigations into international transactions involving funds tied to the Malaysian fund have been launched in Britain and Hong Kong.


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