The 1MBD Scandal Moves Apace

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Martin Kenney
Managing Partner of Martin Kenney & Co., Solicitors

“The name of the game — moving the money from your client’s pocket to your pocket,” said actor Matthew McConaughey, playing fraudster Mark Hannah in the Hollywood blockbuster The Wolf of Wall Street.

The irony of this quote is not lost on the people of Malaysia. In March this year, the company behind the film agreed to pay the U.S. government $60 million to settle a civil lawsuit that sought to seize assets allegedly bought with money stolen from the Malaysian state fund, 1Malaysia Development Berhad (otherwise known as 1MDB).

The Wolf of Wall Street’s producer, Red Granite Pictures, was co-founded by the former Malaysian prime minister's stepson. The former prime minister himself, Najib Razak, has just been charged with three counts of money laundering, connected to a gigantic fraud directly linked to 1MDB.

1MDB is a grand form of public corruption by anybody’s definition. Former Malaysian Prime Minister, Najib Razak, sits at the hub of the scandal. The U.S. Department of Justice (DOJ) has alleged in lawsuits that more than $4.5 billion from 1MDB was laundered through a complex web of transactions and shell companies, of which $681 million ended in Razak’s bank account.

Razak denies any wrongdoing, but the evidence to suggest otherwise continues to build against him. He launched the fund in question in 2009 shortly after becoming Prime Minister. From the outset, 1MDB was dressed up to be a sovereign fund, with a wide-ranging portfolio including energy assets spread across the globe, and bricks and mortar in Malaysia. The enormity of the losses by corruption cannot be underestimated, running into a reported $4 billion+.

The scandal appears to have come to light, in part, on the back of whistleblower information, some of which named shady Malaysian financier and alleged mastermind money launderer, Jho Low, who is now in hiding. Low assisted Razak in setting up 1MBD and has subsequently been targeted by U.S. law enforcement agencies on the basis that he acquired various trust assets as discretionary payments in lieu of his efforts. It is suspected that these payments had their origins in the 1MBD sovereign fund.

The former PM set about expunging any critics of the fund from his government, allegedly obstructing any internal investigations, but matters came to a head in 2015 when the Wall Street Journal alleged that Razak had received in excess of $650 million from the sovereign fund into his personal bank accounts. In turn, the U.S. DOJ has seized more than $1 billion in assets that were allegedly paid for with money stolen from the 1MBD fund.

Almost inevitably, Razak lost the Malaysian election earlier this year; the election defeat was quickly followed by his arrest and a seizure of $270 million in cash and other assets linked to Razak. His successor, Mahathir Mohamad, is promising to investigate the scandal and seek to recover the money lost to 1MBD that has found its way overseas.

I have witnessed a similar situation unfold in India, where willful defaulters have taken the banks for billions of dollars. These individuals have secreted away significant sums of money, via multi-layered offshore accounts and assets. Historically, Indian creditors believed that once loan capital had left the Indian jurisdiction, that it is effectively out of reach. Nothing could be further from the truth.

The Malaysian government appears to be initiating an investigative process that will hopefully see the 1MDB culprits brought to book, and the stolen assets repatriated to those who lost them. It is imperative that it continues to apply pressure not only in the pursuit of a criminal conviction, but also toward meaningful asset recovery.

This will require more than reliance purely on a government-to-government mutual legal assistance model of asset recovery. This can be effective in spots but often also lumbers on for decades, as I have witnessed in cases involving MLAT requests to repatriate stolen assets to Brazil from Switzerland.

The new Malaysian PM and his government should be commended for their tenacity in seeking to right the wrongs perpetrated, but the criminal investigation must be conducted in tandem with a multifaceted, multi-jurisdictional, multidisciplinary civil asset recovery investigation. The two go hand-in-hand.

The Malaysian anti-corruption agency has now charged the former prime minister with three counts of money laundering. Each count could earned him 15 years imprisonment and a fine amounting to five times the value of any illegal transfers. He is likely to face trial in February of next year. The investigation is ongoing and further indictments may follow.

Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice based in the BVI, focused on multi-jurisdictional fraud and grand corruption cases www.martinkenney.com|@MKSolicitors. In 2014, he was the recipient of the ACFE’s highest honor: the Cressey Award for lifetime achievement in the detection and deterrence of fraud. He was selected as one of the Top Thought Leaders of the Legal Profession in 2018 by Who's Who Legal International and as the number-one offshore lawyer for asset recovery in 2017.