1MDB saga: the call for anti-money laundering regulations

1Malaysia Development Berhad ("1MDB") is an investment fund set up by the Prime Minister of Malaysia, Najib Razak, in 2009, with the intention of bringing foreign investments into Malaysia. Some examples of 1MDB's initiatives include buying privately-owned power plants and building a new financial district in Kuala Lumpur. In 2015 and 2016, news broke of a large-scale global investigation into 1MDB amidst allegations of money laundering and embezzlement.

Investigation in Malaysia

Malaysia's Attorney General found that approximately USD 700 million of 1MDB funds were wired by entities linked to 1MDB to Razak's personal bank accounts. Razak did not dispute receipt of the money into his personal accounts, but claimed that he never used the funds for personal gain.
The central bank of Malaysia also investigated 1MDB, but closed its investigations after issuing a letter of administrative compound to 1MDB, for its failure to comply with the directions issued under the Financial Services Act of Malaysia. A fine was imposed and that appeared to be the end of the matter.

Subsequent acts by authorities

In July 2016, various news reports from Singapore suggested that 3 large international banks were involved in the 1MDB money laundering scandal. This was shortly followed by a civil suit by the U.S. Justice Department, seeking to seize more than USD 1 billion of 1MDB assets and properties amidst its own investigations. Various sources suggest that there are significant 1MDB funds that have been traced into Singapore, Hong Kong, Thailand, the U.S., Switzerland, Britain, Luxembourg and Australia. It is alleged by various authorities and investigators that officials of 1MDB and their associates or relatives laundered money through complex financial transactions and shell companies with bank accounts in other countries.

Authorities in several countries have already taken action, for example:

• In Hong Kong, the authorities have frozen several accounts which may be linked to 1MDB. 
• In the U.S., the FBI launched an investigation into money-laundering, and the Justice Department's anti-corruption unit seized more than USD 1 billion in assets held by various individuals connected with Razak in the U.S. 
• In Singapore, the investigation unit also seized bank accounts and curtailed dealings in properties of certain individuals, which amounted to a total of USD 176.82 million. Among which, close to 70% of the assets belonged to a friend of Razak's family, Low Taek Jho. 
• In Switzerland, investigators initiated a fraud probe against former Abu Dhabi finance official over an alleged international conspiracy to embezzle money from 1MDB.

Points of interest

According to various news agencies, it is alleged that various professional services firms, banks and other corporations around the world were involved or implicated in the 1MDB money laundering and fraud scandal, albeit some of them may have participated unknowingly. This serves as a sober reminder to corporations around the world of the importance of having adequate anti-money laundering and compliance procedures. In particular, gatekeepers such as professional services firms and banks must conduct proper due diligence and verify the source of funds to minimise their exposure to liability for money laundering and terrorist financing, failure of which may lead to both criminal and civil proceedings that could take years to resolve.