Turmoil has gripped Malaysia ever since the U.S. Department of Justice announced on July 20 that the senior-most political leadership in Kuala Lumpur was under suspicion for money laundering and >multi-billion dollar theft from 1Malaysia Development Berhad (1MDB), a corporation tasked expressly with financing Malaysia’s development. The revelation that this former sovereign wealth fund had been pillaged to the tune of at least $3 billion has ignited Malaysian pro-democracy groups, and led to calls for the resignation of Prime Minister Najib Razak, who until recently chaired the advisory council of 1MDB. Although Mr. Razak has not been officially named in the U.S. investigation, there are allegations that “Malaysian Official 1” mentioned in the lawsuits may indeed be him. The shadow of 1MDB has fallen upon some well-known entities and persons in the arenas of global finance and entertainment, including investment bank Goldman Sachs, which raised $1.4 billion that was then “misappropriated and fraudulently diverted to a Swiss offshore company.” It was also ironic that the American DOJ dragnet pulled in some among those who financed the production of Hollywood blockbuster The Wolf of Wall Street . From a global perspective, the ongoing fallout of 1MDB yet again highlights lack of regulation of dark pools of finance held by the ultra-wealthy and uber-connected. Despite the shockwaves of this year’s Panama Papers scandal, clearly much remains to be done in terms of tightening the laws around how this money gets moved in and out of offshore tax havens, particularly disclosure requirements and information-sharing agreements between authorities across disparate jurisdictions.
The implications of this scandal for Malaysia are far-reaching and fundamental. Along with Indonesia, the Philippines, and Thailand, the country is known as a “tiger cub economy” for following in the growth-model footsteps of the tiger economies of Hong Kong, Singapore, South Korea and Taiwan. A critical element of the economic strategy promoted by former Prime Minister Mahathir Mohamad in the early 1990s and successive leaders in Kuala Lumpur was the development of the export sector as an engine of growth. In Malaysia’s case, oil wealth and its evolution as a major centre for Islamic finance added an edge that came from closer ties to West Asian powers, particularly Saudi Arabia. Somewhere along the journey, a sense of elite impunity crept in and transformed these inherent advantages into rapacious tools for self-enrichment. It is the common person of Malaysia who will now be left to pick up the pieces of a crumbling governance model, set aside ethnic rivalries and demand transparent and accountable institutions.
