On Friday, Malaysian authorities arrested Khairuddin Abu Hassan.
According to WSJ,
the charges were“attempting to undermine
democracy.”
What Khairuddin - a former member of Malaysia’s ruling party -
was actually “attempting” to do, was travel to New York and urge US
authorities to investigate 1MDB, the infamous Goldman-backed
development bank turned slush fund that’s become the subject of
intense scrutiny after allegations that some $700 million was
diverted to Prime Minister Najib Razak’s personal account surfaced
earlier this year. Those allegations, along with the perception
that Najib’s government has sought to stimy attempts to investigate
the bank, have led to calls for the premier’s ouster and were the
catalyst for street protests that swept through Kuala Lumpur last
month.
For those who need a refresher on the backstory, here’s how we
explained it last month:
1MDB was set up by Najib six years ago and has been the subject
of intense scrutiny for borrowing $11 billion to fund questionable
acquisitions. $6.5 billion of that debt came from three bond deals
underwritten by Goldman, whose Southeast Asia chairman Tim Leissner
is married to hip hop mogul Russell Simmons’ ex-wife Kimora Lee
who, in turn, is good friends with Najib’s controversial wife
Rosmah Manso.
You really cannot make this stuff up.
What Goldman did, apparently, is arrange for three private
placements, one for $3 billion and two for $1.75 billion each back
in 2013 and 2012, respectively. Goldman bought the bonds for its
own book at 90 cents on the dollar with plans to sell them later at
a profit (more here from FT). Somewhere in all of this, $700
million allegedly landed in Najib’s bank account and the going
theory is that 1MDB is simply a slush fund.
The plot only thickens from there, and as we detailed in "
Abu Dhabi Can't Find $1.4 Billion It Supposedly
Received From Malaysia PM's Slush Fund," when UAE went looking
for a $1.4 billion payment Abu Dhabi's International Petroleum
Investment Co. supposedly received in exchange for
guaranteeing some $3.5 billion in 1MDB bonds, the money was nowhere
to be found, casting considerable doubt on IPIC's manager who
was fired earlier this year. Incidentally, IPIC was also involved
in a rather nefarious looking deal in which one of its subsidiaries
guaranteed $2.3 billion in 1MDB mystery money that may or may not
be parked in the Cayman Islands in order to secure a sign-off from
Deloitte after KPMG was dismissed as 1MDB's auditor for asking too
many questions.
Since then, another $993 million has
turned up missingat IPIC and it's certainly
starting to look like the rabbit hole goes pretty deep on this one.
Ultimately, the future of Najib's political career will likely
depend on how it all shakes out.
Unfortunately for the Prime Minister, it looks as though
arresting
Khairuddin Abu
Hassan on his way to New York was too little too late because now,
WSJ is reporting that the FBI has opened an investigation into the
development fund. Here's
more:
The FBI has opened an investigation into allegations of
money-laundering related to a Malaysian state investment fund, a
person familiar with the matter said.
The scope of the investigation wasn’t known. It is the latest
in a series of international investigations related to the fund
that have been revealed in the past several weeks.
The international investigations center on entities related to
1Malaysia Development Bhd., which was set up by Prime Minister
Najib Razak in 2009 to help drive the economy.
The fund is having difficulty repaying more than $11
billion of debt and is at the center of investigations that are
destabilizing the government.
Late Friday, a former member of Malaysia’s ruling party who had
raised questions about money transfers to the Malaysian prime
minister was arrested on charges of attempting to undermine
democracy, his lawyer Matthias Chang said.
The arrest of Khairuddin Abu Hassan, who remained in custody on
Saturday, prevented him from traveling to New York where he planned
to urge U.S. authorities to investigate the transfers, Mr. Chang
said.
A spokeswoman for the FBI’s New York office said that no agent
in the office had arranged to speak with Mr. Khairuddin or had any
previous contact with him.
Two of the transfers were made through the Singapore branch of
a Swiss private bank and routed via Wells Fargo & Co. Wells
Fargo declined to comment.
We'll close with our assessment from earlier this month as it's
still the best way to sum up the situation as it stands
today: The more information the public gets about corruption
at 1MDB, the louder will be the calls for Najib's head
(figuratively speaking we hope), and the larger will be the street
protests.
Throw in the fact that the loudest calls for Najib's exit
come from former Prime Minister Mahathir Mohamad and it seems like
a very good bet that the political (not to mention social) upheaval
in Malaysia is just getting started and that is precisely what the
country does not need as it desperately tries to hang on to its
stash of hard fought FX reserves in the face of a plunging currency
and looming financial crisis.