/>iThis month, former Malaysian Prime Minister Najib Razak, who served from 2009 to 2018 as Malaysia’s sixth Prime Minister, plead not guilty to three new money-laundering charges related to the alleged multibillion-dollar looting of 1Malaysia Development Berhad (“1MDB”), a Kuala Lumpur-based strategic development company that is wholly owned by the Malaysian Ministry of Finance. The scandal and related public furor led to two significant outcomes. First, a historic defeat for Razak’s Barisan Nasional coalition of right-wing and central parties in the 14th Malaysian general election on May 9, 2018. Second, Razak’s arrest by the Malaysian Anticorruption Commission on July 3, 2018.
1MDB
1MDB was formerly Terengganu Investment Authority (“TIA”), a sovereign wealth fund with an initial fund of 11 billion Malaysian ringgit (“RM,” the equivalent of USD 2.7 billion) aimed at ensuring the economic development of Terengganu, a sultanate and constitutive state of federal Malaysia. The Malaysian Ministry of Finance acquired TIA and amended its name to 1MDB on May 27, 2009, four months after Razak assumed the office of Prime Minister. Razak announced that the acquisition and expansion of TIA into a federal entity was purportedly to benefit a broader spectrum of Malaysians than just the residents of Terengganu.
Accusations of Mismanagement and Corruption
Between 2009 and 2013, 1MDB changed its auditors three times, perhaps signaling that everything was not smooth seas and plain sailing. Indeed, 1MDB was drowning in debt totaling RM 42 billion (~USD 12 billion) by 2014, leading ratings agencies such as Standard & Poor’s and Fitch Ratings to downgrade 1MBD funds to junk status. A recently declassified government report concluded that the company’s debts at that time had actually reached a high water mark of RM 74.6 billion (~USD 18.2 billion) i.e., almost twice the figure contemporaneously reported. In 2015, the Malaysian Cabinet rejected a proposed RM 3 billion (~USD 730 million) cash injection, and a Malaysian Public Accounts Committee inquiry in 2016 revealed that the management of the fund acted without the board’s approval and misled auditors several times, while the board of directors chaired by Razak failed to properly oversee the fund’s finances. Allegations then surfaced that Razak and his associates misappropriated billions of ringgit (hundreds of millions of dollars) into their personal accounts. One such associate was Malaysian financier Low Taek Jho, known as Jho Low, who acted as a quasi-unofficial consultant to 1MDB.
US Investigations of Money Laundering and Corruption
In February 2016, the US Federal Bureau of Investigation (“FBI”) and Department of Justice (“DOJ”) began probing 1MDB for money laundering and corruption. The FBI and DOJ investigated property purchases in the US by Razak’s stepson, Riza Aziz, the financing of a filmmaking company founded and chaired by Aziz and its 2013 production of The Wolf of Wall Street. The agencies also looked into potential complicity of certain US investment banks in money laundering and corruption. Ultimately, the US authorities claimed that some USD 4.5 billion had been diverted illegally from 1MDB and laundered through a complex web of shell companies and bank accounts located in the US and elsewhere, including offshore. Between July 2016 and June 2017, US authorities announced civil forfeiture complaints seeking the recovery of approximately USD 1.7 billion in assets.
Kleptocracy Asset Recovery Initiative
In the announcement, then-acting Assistant Attorney General Kenneth A. Blanco said, “[t]he Criminal Division is steadfast in our efforts to protect the security, safety, and integrity of the American financial system from all manner of abuse, including by kleptocrats seeking to hide their ill-gotten or stolen wealth.” Further, “[w]e are unwavering in our commitment to ensure the United States is not a safe haven for corrupt individuals and kleptocrats to hide their ill-gotten wealth or money, and that recovered assets be returned to the victims from which they were taken.”
This case represents the largest action brought under the Kleptocracy Asset Recovery Initiative. The Initiative is led by a team of dedicated prosecutors in the DOJ Criminal Division’s Money Laundering and Asset Recovery Section (“MLARS”), in partnership with federal law enforcement agencies and often with US Attorney’s Offices, to forfeit the proceeds of foreign official corruption and, where appropriate, to use those recovered asset to benefit the people harmed by these acts of corruption and abuse of office.
The Symbolic Superyacht
This week, Equanimity, a USD 250 million 300-ft luxury superyacht owned by Low and impounded by Indonesian authorities, arrived back at Port Klang’s Boustead Cruise Centre in Malaysia, flanked by a Malaysian Navy guided missile frigate. The superyacht has become an indelible symbol for the 1MDB embezzlement, with Low the villainous sidekick and Razak the chief protagonist in defrauding his own country’s public of multiple billions of dollars.
Indonesian police first seized the Cayman Islands-flagged yacht off the coast of Bali in February 2018 at the request of the US authorities. In April 2018, a Jakarta court ruled that the seizure of the yacht was illegal and ordered its return to Low but, three months later, it was re-seized after a request for mutual legal assistance from the US. According to the statement of Malaysian Attorney General Tommy Thomas, Indonesian authorities ultimately handed over the yacht to Malaysia after Indonesia, Malaysia, and the US entered into Mutual Legal Assistance Treaties.
Malaysian Finance Minister Lim Guan Eng has suggested that the Malaysian government might sell Equanimity to recover monies stolen from 1MDB, while a Los Angeles court decision has confirmed that the DOJ can move the yacht to the US where it can be taken into US government custody and sold. Low has denied wrongdoing, expressing “disappoint[ment] that, rather than reflecting on the deeply flawed and politically motivated allegations, the DOJ is continuing with its pattern of global overreach.” Court filings indicate that Low is attempting to prevent the US government from gaining control of the yacht.
Other Considerations
Aside from Equanimity, the global hunt for assets linked to 1MDB has seen the seizure of high-end properties in Beverly Hills, Los Angeles, Manhattan, New York City and London, as well as fine artwork, a private jet, and royalties from The Wolf of Wall Street and its production company. In addition, Australian model and actress Miranda Kerr handed over millions of dollars’ worth of jewelry that US authorities say was given to her by former acquaintance Low, including a jewelry set gifted to her during a 2014 excursion aboard Equanimity. Actor Leonardo DiCaprio also returned an Oscar once owned by actor Marlon Brando.
Low is currently an international fugitive. Interpol published a red notice in 2016 at Singapore’s request to help locate him, while he also remains on the run from Malaysian authorities.
