June 4, 2018 / 8:50 AM / 21 days ago

Breakingviews - 1MDB scandal could yet bring some critical closure

MUMBAI (Reuters Breakingviews) - The 1MDB scandal could use some closure. As much as $6 billion was allegedly siphoned from the Malaysian sovereign fund, in a trail of corruption extending from Kuala Lumpur to Hollywood. As newly elected Prime Minister Mahathir Mohamad reexamines the case, it raises the tantalizing prospect that the ringleaders will be held to account.

A man holds up a poster as pro-democracy group Bersih stages a 1MDB protest, calling for Malaysian Prime Minister Najib Abdul Razak to resign, in Kuala Lumpur, Malaysia November 19, 2016. REUTERS/Edgar Su

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A colourful cast of characters play leading roles in the disreputable tale that U.S. Attorney General Jeff Sessions has called “kleptocracy at its worst”. Global banks, led by Goldman Sachs, helped the fund raise and move money, pocketing big fees and missing red flags. The U.S. Justice Department says some of the cash ended up financing Leonardo DiCaprio’s “The Wolf of Wall Street.”

Other sovereign funds were burnt, too. Prominent Abu Dhabi state fund International Petroleum Investment Company got caught up in 1MDB’s questionable dealings and was later folded into a larger, better-run rival. Both wayward outfits were unorthodox by design, overly ambitious, and concentrated too much power in the hands of a few individuals.

Following the surprise election defeat of Najib Razak, the primary architect of the fund, there is fresh scrutiny of the whole affair. He already is being questioned at home over the allegations and the DOJ says it will keep investigating. Reuters Breakingviews was sceptical about facets of 1MDB early on. When the fund tried to list power assets back in 2014, a column noted that while buying coal and gas-fired plants, the then-six-year-old parent had “acquired a poor reputation along the way.”

1MDB played a big part in Malaysians turning their back on the man who has denied wrongdoing and used his political power to repress inquiries into the graft accusations. All too often large financial crimes or misdeeds go unpunished. Najib’s defeat suggests this case could be different, with a network of anti-corruption fighters around the world working together with re-energised local agencies to seize assets, recover money and pursue criminal charges.

A probe that successfully pins blame on those involved would sharpen the 1MDB lessons for banks, money managers and politicians.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

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