IT’S a story so lavish, so audacious, and so reckless it would make Roman emperors blush.
It’s been dubbed one of the biggest financial heists in history and its cast of players include Hollywood superstars, leading politicians, supermodels, global financial conglomerates, and one plucky 27-year-old upstart – going by the name of Jho Low – who managed to dupe them all.
This is, of course, the 1 Malaysia Development Berhad (1MDB) scandal that plagued the final years of former-Malaysian prime minister Najib Razak’s premiership and was credited with playing a part in his shocking election loss in May.
It thrust Malaysia into the global spotlight when it first came to light back in 2014. But it remains very much at the forefront of the national psyche after police unceremoniously raided Najib’s home and people watched as he and his wife Rosmah Mansor were charged in connection with the case.
A new book, Billion Dollar Whale by the Wall Street Journal reporters who helped break the story, has also captured the nation’s imagination – or more accurately, indignation – with its tales of flagrant excess and spending by lead character Jho Low.
The sovereign wealth fund – chaired by Najib – was set up in 2009 to finance green energy and tourism projects in Malaysia. Instead, over the course of the next five years, a reported US$4.5 billion was allegedly funnelled out of the fund into the private bank accounts of Najib and his associates.
When we ask how this could have happened in Malaysia, the obvious answer is corruption. But Malaysia does not have a monopoly on corruption. For this brazen level of larceny, there must have been other contributing factors that made Malaysia vulnerable.
But what are they? How did Malaysia fall victim to the biggest financial heist in history?
It was a combination of conditions that came together to make Malaysia a target, Billion Dollar Whale co-author and journalist, Tom Wright told Asian Correspondent. The initial catalyst being Malaysia’s oil reserves and the wealth that comes with them.
“When he [Jho Low] initially wanted to launch a fund, he did so in the state of Terengganu, and he was able to convince the Sultan to launch this fund against oil wealth,” Wright said.
In its initial conception, 1MDB started out as the Terengganu Investment Authority (TIA), which got its money from the royalty income of oil reserves off the coast of the north-easterly state. Its objective was to aid sustainable development in Terengganu but was later expanded to a national scale under a newly elected Najib. Its name was changed to 1MDB.
Malaysia’s natural reserves, combined with it being a middle-income country “intertwined with the global economy,” made it a tempting prospect for global investors, said Wright.
Given the country’s reliance on trade, there are very few restrictions when it comes to the transfer of capital, so money can be moved across borders with relative ease, Bala told Asian Correspondent.
While restrictions were strictly imposed during the 1998 Asian financial crisis, these were steadily relaxed to aid with recovery, Bala said.
“We had to allow money to come in because we rely on foreign investment. So money should be able to come into the country easily and, if you want to encourage foreign investors, you also have to allow them to take their money out easily as well.”
While this has been hugely beneficial to the development of Malaysia, people like Jho Low found ways to take advantage of this.
This is not only restricted to Malaysia. The connected international economy has facilitated corruption on a global scale. Other countries have fallen victim to similar problems – tax evasion, money laundering, offshore accounts – all highlighted in the Panama Papers in 2016. But none on the scale of 1MDB.
While the lack of enforcement of financial regulations certainly facilitated Jho Low’s embezzlement, it isn’t the reason he got away with it for as long as he did.
Wright believes the financial climate teamed with “poor governance standards,” and “no checks and balances” made the perfect storm in which Jho Low could thrive.
Bala also believes the governance of Malaysia lends itself to covering tracks and avoiding accountability.
“Malaysia, like many developing countries, is more people-based rather than system-based,” the international economics and business expert told us. “It is one person who decides; a signature, a handwritten note on a proposal giving their support – that carries a lot of weight.
“The bureaucracy puts a lot of importance on whether it receives the support of an important person, like the prime minister.”
If all you need is the approval of one person, any restrictions that are in place can be easily bypassed. In somewhere like Malaysia where the prime minister, and the ministers below him, still have a lot of authority, this can be easily done.
Bala holds it in contrast to system-based governments in the UK and the US where parliamentary or congressional committees scrutinise large proposals to make sure the agreed objectives are being met.
“When you set up a 1MDB, to what extent does it go through a parliamentary committee or checks and balances about the process that will be taking place? If the PM thinks it’s a good idea, then everyone pretty much says yes,” he said.
“In the system-based approach, it doesn’t matter who you are, rules are rules, laws are laws, nobody is above the law. But in the case of developing countries, certain individuals, whether in the government or influential people, they are above the law, so they can easily facilitate the movement of money in and out of the country, beyond the regulation.”
This is compounded by the lack of change in governing party. Najib’s party United Malays National Organisation (UMNO) governed Malaysia for over 60 years. Without a change in ruling party, eventually the entire governmental system and the people who work for it become political.
They could be safe in the knowledge there would be no repercussions to poor or suspect decisions if they had the approval from those in charge. There would never be anyone to check up on the system and the deals being approved. Or so they thought.
Najib’s party was ousted in a historic May election defeat that few saw coming. Through sheer people power alone, the populace of Malaysia made it clear they had had enough of the ruling Barisan Nasional coalition under Najib and voted them out in convincing numbers.
This shakeup, Bala says, will have made those at all levels of government realise that in the next five years there could be a different party moving in. This will force them to become apolitical, focusing on their role and responsibilities rather than the party line.
In the case of 1MDB, the bureaucracy “basically toed the line,” Bala said. “If we have a professional bureaucracy, that is apolitical then this will help with the governance process.”
Free press – or lack thereof
Without effective systems in place in government, the role of providing checks and balances falls to the media. For this to work, the press has to be free and independent – something Malaysia was lacking under the Najib government.
The majority of the country’s mainstream media, both print and broadcast, are controlled by political parties, including UMNO. These outlets took their cues from the politicians, covering only pro-government or anti-opposition content.
In the weeks leading up to the election, Najib hastily passed the controversial Anti-Fake News Act, muzzling the press and drastically curtailing what could and could not be covered. Those in violation of the new law faced up to six years in prison and fines of up to US$130,000.
In this restricted climate, it would take years for the 1MDB scandal to break, and those news outlets that did run the story were quickly shut down.
“Journalism has its role in uncovering malpractice by anyone,” Bala said. “In places where this happens, it often comes down to how free the media is and how professional the media is. That’s so important for democracy.”
This, of course, will not solve the problem completely. Countries such as India have a free press and yet corruption is still rampant, Bala points out. But, while indiscretions still happen, they are usually highlighted before the problem gets too bad – before it gets to the scale of 1MDB.
“With 1MDB it was the independent media that uncovered it,” Bala stresses. “Once we have this, these problems can be controlled.”
Could it happen again?
While the freedom of the press looks set to improve under the new government – the Anti-Fake News Act has been repealed and Prime Minister Dr Mahathir Mohamad has vowed to cut political party stakes in media companies – there are other contributing factors that won’t change.
The opening of markets and free movement of money is a global phenomenon that shows no signs of going anywhere. To be one of the few countries to restrict this could ruin Malaysia’s appeal as an investment opportunity and potentially cripple trade.
Installing effective checks and balances in government and recalibrating the culture of power throughout the bureaucracy will also take time. If the people-based system remains, Bala has a stark warning for Malaysia, regardless of who the prime minister is.
“It doesn’t matter if we have a new government in place, if it is still going to be people-based, then we will continue to see this kind of issue,” he said.
When asked if this could ever happen again, his answer was simply – “Definitely. Definitely.”