American authorities are trying to find out whether Goldman Sachs failed in its duty under the Bank Secrecy Act 1970 to send them a suspicious activity report about 1MDB, the Malaysian state fund that is embroiled in a scandal involving politically exposed persons.

In excess of US$1 billion has, according to investigators, passed into bank accounts under the control of Malaysia's embattled prime minister, Najib Razak, who denies everything, and a large part of it is reputed to have come from the fund. The fund began life in 2008 when Terengganu, one of the federation's states, set up a sovereign wealth fund which, unlike the world-famous Norwegian sovereign wealth fund, was opaque. In April 2009 Razak became premier and within two months his government had taken the fund over, with a board of directors, a board of advisors which Razak (re-elected in 2013) still chairs, and a team of senior managers. Almost from the outset it was plagued with debt problems and transactions involving billionaires. For example, in early March 2012 it bought Tanjong Energy Holdings for 8½ billion ringgit (just over US$2 billion) from T Ananda Krishnan. Forbes believes that 'AK,' as he is called, is worth US$7.9 billion which makes him Malaysia's second richest man and the world's 129th. By March 2013, according to 1MDB's report and accounts that it published a year later, its debt had ballooned to 36.3 billion ringgit (nearly US$9 billion). All publicity about the fund seemed to consist of fresh news of its profligacy. In February 2015 it settled a 2 billion ringgit ($559 million) loan that it owed local banks with the help of 'AK,' according to Reuters. It had already missed some payments. The next month the ministry of finance gave it 970 million ringgit (US$239 billion) in 'standby credit.'

A blizzard of probes

In early 2015, against a rising tide of disquiet, Razak opened the first of four probes into the financial accounts of 1MDB, asking his own auditor-general to verify their veracity 'independently.' In July Razak sacked Muhyiddin Yassin, the deputy prime minister, mere days after he had voiced criticism of the way in which 1MDB had been handled and wanted the public to know more about it. Abdul Gani Patail, the attorney-general, also had to leave for 'health reasons.'

In 2015 the authorities in Singapore seized bank accounts as part of a probe into allegations of money-laundering connected to the fund and it was reported that the Swiss had frozen accounts in the same way. Details were murky. Early this year, Switzerland's chief prosecutor said that a criminal investigation into 1MDB had revealed that about $4 billion appeared to have been misappropriated from Malaysian state companies. Around the same time, Malaysia's attorney general said that he had 'cleared' Najib (insasmuch as a prosecutor can 'clear' anyone) of any criminal offences or corruption, declaring that $681 million deposited into his personal bank account was a gift from Saudi Arabia's royal family and there was no further action to take.

Things have changed slightly since then. The entire board of 1MDB resigned in April as the result of a 97-page Malaysian parliamentary report on the fund's investment-making decisions. The Public Accounts Committee alleged that the fund lost US$12 billion between its inception and 2013 through a Byzantine series of international transactions. Switzerland has frozen several bank accounts and has widened its probe recently to two former Emirati officials in charge of Abu Dhabi sovereign funds who are under investigation for fraud (under article 146 Swiss Criminal Code), criminal mismanagement (art 158), misconduct in a public office (art 314), the forgery of a document (art 251), the bribery of foreign public officials (art 322) and money-laundering (art 305). The Swiss attorney-general's office has also sent two requests for mutual legal assistance to Luxembourg and Singapore, more of which below.

The Terminator

Around this time it became public knowledge that a Mr Yak Yew Chee, a S$83,000-a-year private banker at BSI Singapore, the local affiliate of the Swiss banking giant BSI, was embroiled in the widening scandal. The Straits Times described him as "a key link between the embattled state investor, [the] Swiss private bank and a Malaysian businessman connected to the troubled fund." The paper went on to report that Yak's affidavit, submitted to a court, said that he believed that his bank accounts had been seized "due to ongoing investigations into Low Taek Jho". Jho Low, as he is better known, is an eminent financier who was once an advisor to the fund in its early days. Yak handled BSI's 1MDB account and his affidavit says that he was so successful at it that his bonuses climbed steeply from S$649,294 in 2011 to S$10.44 million in 2014.

Banks are not noted for their loyalty to their employees. Yak said in his affidavit that the bank was now trying distance itself from him by 'terminating' him and holding back some of the S$8.8 million of bonus that it had not yet paid him. According to Bloomberg, Singapore authorities froze Yak's accounts in September and questioned him then.

The Straits Times has also reported charges against Yeo Jiawei, 33, for attempting to pervert the course of justice, cheating his former employer, money-laundering, cheating the bank in 2013 by dishonest concealmeant (a separate charge), transferring funds which represented his benefit from cheating, perverting the course of justice and three other charges in connection with 1MDB. His role in the affair was said to be 'central.'

The Leissner probe

The Monetary Authority of Singapore then said that a former Goldman Sachs banker had become involved in the affair. Tim Leissner, a German was 'subpoenaed' about the affair in late February, according to three people briefed on the matter, just days after he had left Goldman Sachs. He was based in Singapore between 2002 and 2011 before moving to Hong Kong and was thought to be about to return to Singapore as the bank's South East Asia chairman but went to Los Angeles instead. He had apparently helped to arrange some bond sales for the Malaysian fund.

On the subject of the Goldman SAR, the Monetary Authority of Singapore has sent an email out saying: “no bank in Singapore received the US$3 billion wire transfer from Goldman Sachs in relation to the bond issuance for 1MDB.” The Wall Street Journal, quoting sources and leaked evidence of bank transfers, has alleged that half the proceeds from the sale, which Goldman Sachs transferred to a Swiss bank account controlled by 1MDB, disappeared and some ended up in Razak’s bank account.

Central bank suspicions

In March, the governor of Bank Negara, Malaysia's central bank, started to take punitive action against the fund, which he suspected of corruption. Dr Zeti Aktar Aziz, whose term has now ended, told reporters that he was doing this because 1MDB had failed to come up with documentary proof of a US$1.83 billion investment it had made overseas. The central bank had already cancelled the permit and ordered the repatriation of the fund because its disclosures had been inaccurate and incomplete. The fund, however, said that it had not received any official correspondence or confirmation from the central bank on the actions attributed to its governor. The fund had just completed the sale of its Edra energy assets to CGN Group and was boasting that Moody’s, the international credit rating agency, no longer thought it posed systemic risks to the Malaysian economy.

Also in March, the Wall Street Journal reported that Razak spent as much as $15 million on luxury items, including clothes, jewellery and a car. The data, it said, was gleaned from bank transfer information arising from an investigation in Malaysia itself.

The Luxembourg probe

Luxembourg's state prosecutor has also launched a judicial inquiry (in civil law countries, judges are inquisitorial) into allegations of money laundering against 1MDB, according to press reports but not according to 1MDB itself. Reuters has quoted the prosecutor as saying: "The investigation aims to trace the origin of four transfers in 2012 and one at the start of 2013 for a total of several hundreds of millions of dollars." 1MDB, however, told our sister-publication, WealthBriefingAsia, that it had "not been contacted by any foreign legal authorities on any matters related to the company," 1MDB being a company owned wholly by the Minister of Finance Incorporated.

Nothing to see here!

Asia would not be Asia without the obligatory government crackdown on the news. Mustapha Kamil resigned last month as the group editor at the New Straits Times, where he had spent more than a quarter of a century, indicating that the Malaysian Government had, under Razak's baleful influence, attempted to suppress reports about the corruption story and that his paper had capitulated. Lim Guan Eng, Penang's chief minister, praised him by saying: "In these dark times, where free speech is under attack, we are very uplifted by a journalist [who] refused to be part of the game of delusion, lies, deception and deceit which the New Straits Times practised. Plato said: 'We can easily forgive a child who is afraid of the dark; the real tragedy of life is when men are afraid of the light.'"