Explained | Najib Razak and the 1MDB scandal

The story so far: On August 23, Malaysia’s top court upheld the conviction and 12-year prison sentence awarded to former Prime Minister Najib Razak in the multi-billion-dollar graft scandal linked to the looting of funds from 1Malaysia Development Berhad (1MDB). Najib lost his final appeal in the case and had to immediately begin serving the sentence. Najib Razak served as the Prime Minister of Malaysia from 2009 to 2018. 

What is 1MDB?

Now insolvent, 1MDB was a state-owned company co-founded by Najib in 2009 purported to promote development. During its initial years, 1MDB signed ventures with companies like PetroSaudi and was also funded by investment company Goldman Sachs in deals worth billions of dollars. In 2015, The Wall Street Journal reported that millions of dollars from 1MDB accounts were transferred to Najib’s personal accounts, bringing global attention to money laundering through the state-owned 1MDB fund. Investigations related to the allegations were launched internationally, in countries like the U.S., Singapore, Hong Kong, Switzerland and Abu Dhabi. Najib denied all allegations of wrongdoing.

How was the scam unearthed?

Xavier Justo, a former employee of Petro Saudi, became the unlikely whistleblower of the 1MDB scandal when he handed around 2,27,000 company emails in the beginning of 2015 to Malaysian publication The Edge and investigative journalist Clare Rewcastle Brown.

In February 2015, The Edge reported that 1MDB was over RM30 billion (more than $10 billion) in debt, which was unusual for a five-year-old state fund. Following the allegations, Malaysia formed a special task force that included officials from central bank, police, anti-grant agency and the attorney general’s chambers. It was after this that the Wall Street Journal made its revelations, following which , international investigations related to the scandal were launched.

In an attempt to stifle dissent against the corruption allegations, Najib reshuffled the Malaysian cabinet, sacked his deputy, and replaced the attorney general. In January 2016, the new attorney general cleared him of all charges, saying that the almost-$700 million that he received in his personal account were a donation from the Saudi royal family. His relief, however, was short lived. An investigation by Swiss authorities into the indebted Malaysian state investment fund indicated that $4 billion may have been misappropriated from state-owned companies of Malaysia. In July 2016, the U.S. Department of Justice filed a civil suit to recover “more than $1 billion in assets associated with an international conspiracy to launder funds misappropriated from a Malaysian sovereign wealth fund”. The investigation also brought Leonardo DiCaprio-starrer The Wolf of Wall Street under the radar, which was produced by Najib’s stepson Riza Aziz. Investigators alleged that Mr. Riza used money laundered through the 1MDB scam towards making the movie. Mr. DiCaprio won the Golden Globe Award for the movie and thanked Riza and Jho Low for “not only being collaborators but (also) taking a risk on this movie”. Mr. Low was a friend of Mr. Riza and was accused of siphoning billions of dollars from the 1MDB fund. In July 2022, he offered the government RM1.5 billion to settle the charges against him. His offer was denied by the government, Free Malaysia Today reported.

A part of the document released by the U.S. Department of Justice says that the conspirators used “complex transactions and fraudulent shell companies” through bank accounts in Singapore, Switzerland, Luxembourg and the U.S. to invest in assets in the country. These transactions purposefully hid the details of origin and ownership of the funds. The U.S. authorities also said that apart from financing the Hollywood movie, the funds laundered into the U.S. were also used to buy real estate in New York and Los Angeles, a $35 million jet, and artwork by Van Gogh and Claude Monet.

How was the conviction reached?

Following months of public unrest caused by the scam, 92-year-old Mahathir Mohamad secured a historic victory in Malaysia’s general elections against Najib in May 2018. He reopened the investigation into the 1MDB fund. A few days later, the Malaysian Police raided the former Prime Minister’s house and recovered jewellery and luxury goods worth millions of dollars

Najib was then charged with multiple counts of criminal breach of trust and one count of using his position for gratification as part of a probe into missing money from state fund 1MDB in July 2018, and was arrested. He then went on trial in 2019 and pleaded not guilty to all charges against him.

In 2020, the former Prime Minister was found guilty of abuse of power, criminal breach of trust and money laundering, for illegally receiving $9.4 million from SRC International, a former unit of 1MDB. He was sentenced to serve up to 12 years in prison by a high court. The investigators alleged that at least $4.5 billion was stolen from the fund and laundered by Najib’s associates.

Meanwhile, Goldman Sachs agreed to pay around $3 billion to end a probe of its role in the scam in October 2020. The banking company also admitted in a court in the U.S. that it had paid over a billion dollars in bribes to raise money for the 1MDB fund, the BBC reported.

In April 2021, Malaysia’s Court of Appeal began hearing a bid by Najib to set aside his conviction on corruption charges. On December 8, 2021, the Court of Appeal upheld his conviction. The latest ruling in the case was delivered by Malaysia’s Federal Court, the country’s top court. Chief Justice Tengku Maimun Tuan Mat chaired a Federal Court panel of five judges that delivered the verdict.

Can he escape jail time?

Najib can still apply for a review of the decision by the top court which will be looked at by a new panel of judges. However, it is very rare for review applications of convictions and sentences to be successful, a lawyer told Free Malaysia Today. He can also apply for a royal pardon, which is mentioned in the country’s Federal Constitution under Article 42(1). As per the Constitution, the King of Malaysia, can grant pardons for all offences committed in Kuala Lumpur and Labuan. Royal pardons are, however, only granted for criminal cases, while Najib also faces bankruptcy cases, Reuters said.