Tag Archives: 1MDB scandal

How To Improve Whistleblower Protection in Malaysia

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Malaysia’s poor reputation on corruption took a serious hit with the 2015 scandal concerning the 1Malaysia Development Board (1MDB), and things have not improved much since then. If the Malaysian government is serious about cleaning up the country, and improving its international reputation, it needs to do more than just hold accountable those responsible for 1MDB and other scandals. Looking forward, Malaysia must also improve its legal framework for the detection and prevention of corruption. In this regard, as leading anticorruption advocacy organizations have emphasized, stronger whistleblower protection is essential. Most forms of corruption are hard for outsiders to detect, and those with first-hand knowledge of possible wrongdoing will be reluctant to report what they know unless they have, at a bare minimum, sufficient protections against retaliation.

Malaysia does already have a dedicated whistleblower statute, the Whistleblower Protection Act 2010 (WPA2010). But while the existence of this law is a good first step, its provisions are not satisfactory. Even the government has acknowledged this: Noting the gaps and weakness of the current statute, the Minister for Parliament and Law recently placed the question of amending the WPA2010 on Parliament’s agenda. As Parliament takes up this vital question, the following improvements to the law should be high priorities:

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Walking Free on Stolen Time, Najib Sees 1MDB Appeal Prospects Improve

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When $681 million ended up in the personal bank account of then-Prime Minister of Malaysia Najib Razak, he thought it was a political donation from the King of Saudi Arabia. Sure, it’s strange that the King transferred such a large sum directly into Najib’s personal account as opposed to that of a government institution, and yes, such a personal donation to a foreign leader was an unprecedented move by the Saudi royals. But the late King had assured Najib that some sort of donation was coming his way, so why not over half a billion dollars? Perhaps Najib would’ve examined the transfer a little more closely if he wasn’t so accustomed to lavish gifts. Indeed, when the financial anomaly came to light and the police raided his properties, that’s what filled the nearly 300 boxes the police discovered: gifts! The 567 luxury handbags (including a $219,000 Birkin bag) stuffed with $30 million in cash, the 423 designer watches, the 234 pairs of sunglasses, 14 tiaras, and 12,000 pieces of jewelry—all gifts from friends and admirers. So of course Najib was shocked—shocked!—to discover that the $681 million that appeared in his bank account actually came not from the Saudi royals, but from 1MDB, a government-run strategic development company where he served as chairman. Poor Najib was simply the unwitting victim of a network of 1MDB officers who embezzled $4.5 billion from the fund, kept comparatively meager amounts for themselves, and then deviously planted the lion’s share of the loot in Najib’s accounts to implicate him as the mastermind behind their corruption.

Unconvinced? You’re in good company. Neither was the trial court that convicted Najib last July on seven criminal charges including money laundering, criminal breach of trust, and abuse of power for his role in the 1MDB scandal, the world’s largest kleptocracy scheme. Najib faces 12 years in prison and a $49 million fine if this verdict is upheld. (And this is only the first case—he faces another 35 criminal charges in related cases.)

But alas, there is a very real possibility that Najib’s conviction will be set aside on appeal. Not because his account of how the $681 million ended up in his account has gotten any more plausible (despite Najib’s new legal strategy), but because Najib and his party—which is now back in power—are drawing out the process as best they can in order to give themselves sufficient time to subvert the judicial process and manipulate public opinion.

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New Podcast, Featuring Tommy Thomas

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A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview Tommy Thomas, who served as the Attorney General of Malaysia in 2018-2020, and who in that capacity headed the investigation and prosecution of cases arising out of the so-called 1MDB corruption scandal. Our conversation covers both the 1MDB scandal and the broader political and economic circumstances that contributed to and facilitated this and similar sorts of corruption. We also discuss Malaysia’s anticorruption institutions, the factors that are most important to ensuring the independence and effectiveness of these institutions, and possibilities for reform. Toward the end of the interview, Mr. Thomas explains recent political developments, including those that led up to his resignation in early 2020, and also touches on the challenges of finding and recovering stolen assets. You can also find both this episode and an archive of prior episodes at the following locations: KickBack is a collaborative effort between GAB and the ICRN. If you like it, please subscribe/follow, and tell all your friends! And if you have suggestions for voices you’d like to hear on the podcast, just send me a message and let me know.      

How Ethno-Religious Divisions Stymie Anticorruption Reform in Malaysia–and What to Do About It

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In 2018, Malaysia surmounted the biggest test of its democracy since gaining independence from Britain in 1963—the first democratic transfer of power in the country’s history. That change in leadership occurred in the wake of the 1MDB scandal—one of the largest kleptocracy schemes ever uncovered—which implicated former Prime Minister Najib Razak. The repudiation of Najib and his party, UNMO, in the 2018 election was seen by many as a hopeful sign that the Malaysian people were no longer willing to tolerate the systemic corruption that had long been seen as business as usual. To be sure, the leader of the victorious coalition in the 2018 election—nonagenarian Mahathir Mohamed, who had previously served as Prime Minister from 1983 to 2001—was an unlikely champion of anticorruption and good governance reform. Yet in 2018, Mahathir’s victory was cause for hope that there would finally be genuine systemic reform.

Within two years, that hope had all but vanished. Prime Minister Mahathir was forced to resign in the middle of his first term in office and was replaced by UMNO politician Muhyiddin Yassin, who had served as Deputy Prime Minister under Najib. What went wrong? In an earlier post, I explored how a free press and multi-party government may have contributed to the failure of Mahathir’s coalition. But that is not the whole story. Those democratic institutions were susceptible to manipulation because of the deeply embedded ethnic and religious divisions that have been a defining feature of Malaysian politics since independence. By exacerbating racial and religious tensions, UMNO managed to convince key voting blocs that the biggest threat they faced was not corrupt politicians, but rather their neighbors who look and pray differently. In short, the reformist coalition ultimately failed because the Malaysian populace lost sight of their common enemy: the corrupt system of governance robbing them all.

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A Lesson in Democracy? The Bitter Irony of Malaysia’s Failed Anticorruption Coalition

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The tools of democracy may combat tyranny, but they do not always combat corruption. That’s not to suggest that democratic values run counter to anticorruption efforts. Indeed, a free press and a competitive multi-party system remain powerful tools in ensuring corruption does not take root. However, once corruption has snaked its way throughout a government, democratic values and institutions may be too easily manipulated to fight corruption effectively. Perhaps no world leader illustrates this seeming paradox better than Malaysia’s Mahathir Mohamad, who served as Prime Minister twice. His long first tenure, from 1981 to 2003, earned him notoriety as a near-dictator whose autocratic regime contributed to a deeply-rooted culture of corruption and cronyism. During his short-lived second tenure from 2018 to 2020, Mahathir was heralded as a champion of democracy—but the liberal democratic pillars that he had suppressed during his first tenure, most notably genuine political competition and a free press, contributed to the failure of his anticorruption efforts and ultimately to the fall of his government. The bitter irony is that the suppression of both political competition and press freedom helped to create Malaysia’s entrenched corruption during Mahathir’s first tenure, while the flourishing of political competition and the free press contributed to the failure of Malaysia’s attempts to root out this entrenched corruption during his second tenure.

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The Goldman Sachs 1MDB Settlement Was Just and Appropriate

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In late October, the United States Department of Justice announced a major settlement with the global investment bank Goldman Sachs for its involvement in the 1MDB scandal, an international bribery scheme in which high-level Malaysian officials embezzled an estimated $4.5 billion from a fund designed to finance infrastructure and other economic development projects. Between 2012 and 2013, Goldman Sachs helped raise $6.5 billion for 1MDB in three bond sales, and at least two Goldman bankers aided Jho Low, an advisor to the fund, in embezzling much of the capital. As part of the settlement with DOJ, Goldman agreed to pay over $2.9 billion to authorities in the US, Hong Kong, UK, and Singapore. Of the nearly $3 billion in fines, approximately $1.85 billion will go to the United States, over $600 million to Malaysia (on top of a $3.9 billion settlement the Malaysian branch of Goldman reached with the country in July), and $440 million to financial regulators in other nations.

Despite these eye-popping numbers—including what appears to be the largest fine to date levied under the U.S. Foreign Corrupt Practices Act—some experts have characterized the $2.9 billion penalty as “surprisingly small” or even “virtually meaningless” for a company that made $3.6 billion this last quarter alone. And, in what has become a common refrain among critics of these sorts of settlements with big firms, many complain that no senior Goldman Sachs executives were held personally, criminally liable for the bank’s role in the 1MDB fiasco.

Yet an assessment of the punishment must also include the penalties that extend beyond these government-imposed fines. Indeed, while some regard Goldman Sachs’ settlement as a slap on the wrist for a global corporation that’s a glutton for punishment, the implications of the settlement reveal a more just outcome than appears at first blush.

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2018: Five Great Reads on Corruption

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Twenty eighteen produced many fine analyses of corruption and how to fight it. The five books pictured above, four by journalists and one by a former Nigerian Finance Minister, are among the best.  Combing in-depth reporting with thoughtful analyses, all merit a place on corruption fighters’ book shelf. Continue reading →

Malaysia’s Anti-Fake News Bill Breaks Dangerous New Ground

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Since at least 2016, complaints about “fake news” have become increasingly common all over the world. But “fake news” refers to two separate phenomena. In some cases, “fake news” means stories that are actually untrue (not just distorted, but fabricated, and deliberately disguised to make it appear that they come from a legitimate media outlet rather than a propagandist or troll). Shanil posted about the dangers that this sort of fake news poses to anticorruption efforts last December. But politicians, notably President Trump, have appropriated the “fake news” label and applied it to any coverage that they deem unfavorable or unfair, even when the news comes from a legitimate media outlet and there is no credible argument that the story is a deliberate fabrication.

The conflation of these two kinds of “fake news” is dangerous, not least because concerns about the former may provide politicians with a pretext for suppressing the latter. Case in point: in April, Malaysia enacted a new law—the Anti-Fake News Bill—that purports to criminalize fake news. The purpose of the new law, which gives the government has the power to prosecute those who create or spread “fake news” with jail terms of up to six years and fines up to about $123,000, seems to be giving the government more authority and discretion to stamp out unflattering news. Other Southeast Asian countries such as Singapore and the Philippines are considering similar measures.

While the anticorruption community should fight against corrupt actors using fake news to spread false stories, it should also resist efforts of governments to misuse the “fake news” label as a pretext for more extensive regulation of legitimate media and free speech. Censorship laws like Malaysia’s reduce transparency and scrutiny, and ultimately hurt anticorruption efforts by entrenching corrupt, illiberal governments.

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Rooting Out Malaysia’s Deep-Seated Corruption Requires Fundamental Political Reform

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In a previous post, I wrote that to rebuild credibility and clean house in the wake of the 1MDB scandal, Malaysia needs to give the Malaysian Anti-Corruption Commission independent prosecutorial power. Even that much-needed reform, however, would leave Malaysia with a long way to go in its anticorruption efforts. The biggest obstacle to real improvement in Malaysia’s fight against corruption is not technical, but political: the chokehold that a single party—the National Front (Barisan Nasional or “BN”)—has on Malaysian politics.

The BN is a coalition party dominated by the United Malays National Organization (UMNO), and it has been in power since the 1970s. In a country with deep ethnic divisions, the party has managed to cling to power by perpetuating a far-reaching system of preferential treatment for the ethnic Malay majority. As a result, UMNO has a lock on the Malay vote – and therefore on general elections. Furthermore, Malay-owned firms get first priority for the award of government contracts, which perpetuates a culture of cronyism. UMNO leadership has a symbiotic relationship with an elite class of Malay businesspeople. On top of all this, districts in Malaysia are gerrymandered to give more weight to rural Malay areas. In the most recent general election, in 2013, the opposition party won the popular vote but did not win enough parliamentary seats to take power.

A party with a near-guaranteed place at the top has little incentive to clean up corruption. As visibly corrupt as UMNO may be, Malay voters are forced to weigh punishing UNMO corruption against preserving their privileges in every sector of life, from education to home-buying to business. Until there are significant changes in Malaysia’s political structure, anticorruption efforts are likely to be piecemeal and ultimately insignificant. A more structural change is required if there is to be any hope for rooting out corruption in Malaysia.

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Fixing Everything But What’s Broken: Malaysia after the 1MDB Scandal

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The Malaysian 1MDB scandal sparked the largest investigation in the history of the U.S. Department of Justice Kleptocracy Asset Recovery Initiative and has revealed serious problems with Malaysia’s anticorruption infrastructure. The DOJ has filed civil forfeiture claims for $1.7 billion in assets obtained with funds diverted from 1MDB, a sovereign wealth fund ostensibly intended to promote economic development in Malaysia. The money ended up in a stunning variety of locations around the globe. Nearly $700 million found its way into the Malaysian Prime Minister’s personal bank accounts. His stepson’s production company suddenly had the funds needed to back the Hollywood movie The Wolf of Wall Street. A financier with close ties to the government bought an Australian model jewels worth $8.1 million.

Meanwhile, the Malaysian government insists there is nothing to see here. The newly-installed Malaysian Attorney General cleared Prime Minister Najib Razak of all wrongdoing and put a stop to the investigation by the independent Malaysian Anti-Corruption Commission (MACC). As an earlier post explained, the previous Attorney General, who headed an inter-agency task force investigating the 1MDB scandal, resigned under suspicious circumstances, and Najib appointed his replacement. Najib also replaced several cabinet members who had called for investigations into 1MDB. The breakdown of justice in the 1MDB scandal may seem all the more surprising to outside observers, since Malaysia had appeared to be making strides in addressing its corruption problem, and the MACC—which was founded in 2009 and modeled on Hong Kong’s Independent Commission Against Corruption—had received fairly good reviews (see here, here, and here).

In the wake of the 1MDB scandal, there have been a variety of proposals for improving Malaysia’s anticorruption efforts. Most of these proposals, especially those emanating from the government, involve a flurry of activity and the creation of new anticorruption institutions. For example, the government has recently proposed creating a new National Integrity and Good Governance Department. The Malaysian Bar has called for the establishment of an Independent Anti-Corruption Commission (IACC) to provide oversight for MACC. The MACC itself, despite its inaction on 1MDB, is ramping up other anticorruption campaigns. This all fits an unfortunate pattern in Malaysia: creating lots of new agencies or new structures, or undertaking other actions that make the government “look busy,” but that don’t actually get to the heart of the main problem: the lack of a politically independent anticorruption prosecutor.  Continue reading →