Malaysia 2020

Malaysia ranks relatively well internationally in terms of corruption perceptions, indicating that it is not seen as a high-risk environment for corruption in general. In recent years its score on Transparency International’s Corruption Perceptions Index has improved and it ranked 51 / 198 on the 2019 Index.¹ It ranks though in the middle of the Basel Anti-Money Laundering Index, indicating a moderate risk of money laundering.² Malaysia is ranked at 32 / 133 on the Tax Justice Network’s Financial Secrecy Index, indicating high levels of secrecy across several indicators.³ It does not feature on the Corporate Tax Haven Index of the most important tax havens for multinational corporations.

In recent years press freedom has increased in Malaysia, with journalists more able to conduct their work without fear of being harassed and without as much need to self-censor. Media plurality has increased and while some laws that curtailed media freedom have been repealed, others remain on the books with the potential to limit media freedom.⁴

For several years, the Barisan Nasional (National Front) Coalition dominated politics in the country, with allegations of excessive power of the executive over other branches of government, as well as allegations of gerrymandering and unfair electoral practices,⁵ representing major accountability challenges in Malaysia. The 2018 elections however heralded change in Malaysia’s government, with the opposition Pakatan Harapan (Alliance for Hope) winning for the first time since Malaysian independence and with the 1MDB (1 Malaysia Development Berhad) scandal and the rule of law in general being major election issues.⁶ This resulted in improving scores on indices of transformation⁷ and democracy.⁸

In March 2020 however, the government collapsed and Barisan National was brought back to power after the defection of part of the governing coalition. It remains to be seen whether this shift in power will lead to a roll-back on some of the key indicators for addressing grand corruption in Malaysia.⁹

The biggest case currently in Malaysia is the 1MDB scandal. 1MDB, a wholly-owned sovereign fund set up by the Government of Malaysia,¹⁰ was established in 2009 by the former Prime Minister Najib Tun Razak. In 2015 it missed a loan payment of USD 550 million, triggering an investigation in Malaysia. This escalated in June 2015 when the Wall Street Journal broke a story which alleged US $681 million of 1MDB money had been deposited in Najib’s personal bank account.¹¹ Malaysian investigations cleared Najib, identifying the money as a gift from Saudi Arabia,¹² but investigations began in the US and Switzerland, with the US bringing a civil lawsuit under the Foreign Corrupt Practices Act for USD 4.5 billion alleged to have been stolen from 1MDB both in the US and elsewhere by high-level fund officials and their associates, including Najib. A criminal investigation was also opened in 2018.¹³ Following the 2018 elections, the case was reopened in Malaysia and Najib was arrested.¹⁴

The first charges were brought in Malaysia against Najib in July 2018 and were followed by criminal charges against Goldman Sachs in December 2018 for their involvement in the case. Throughout 2019 Najib then stood at a series of trials,¹⁵ before being convicted and handed a 12 year jail sentence in July 2020.¹⁶

Recovered assets

• In July 2020, Goldman Sachs settled with Malaysia for USD3.9 billion. This settlement stems from charges brought by Malaysian prosecutors that Goldman Sachs had misled investors in its role in helping to raise USD6.5 billion for 1MDB, money which prosecutors alleged had been ultimately stolen.¹⁷
• Around USD1 billion has been returned from US proceedings to Malaysia. This money relates to properties relating to the businessperson Jho Low for his alleged involvement in the case,¹⁸ as well as from a film production company linked to the former PM and his stepson.¹⁹
• A superyacht believed to be the proceeds of corruption was seized and returned to Malaysia by Indonesia at the start of the process in 2018.²⁰ This yacht was sold in May 2019 for USD126 million, believed to have originally been purchased for USD250 million.²¹
• Approximately USD 36 million has been or is in the process of being returned from Singapore to Malaysia.²² Initial estimates were of much higher potential returns.²³
• Another USD800 million is estimated in further returns relating to the US. The latest filings include efforts to seek forfeiture of luxury items, including real estate in Paris, artwork by Monet and money in international bank accounts.²⁴ The US Dept. of Justice also announced in July 2020 that the superyacht ‘Topaz’, estimated to be worth USD688 million, was related to 1MDB.²⁵

The Malaysian Ministry of Finance has established a special account for receiving returned stolen assets.²⁶

Controversies have been raised about these returns. There are allegations that the Goldman Sachs settlement was lower than expected, according to persons linked to the previous government, while there have also been concerns that a deal is pending with the Abu Dhabi State Investment Fund, that would also see a lower than expected payout.²⁷ Proposals have been made for special parliamentary committees to be set up to oversee these settlements.²⁸

Other cases
Apart from the 1MDB case, a coalition of national and international NGOs, in particular the Bruno Manser Fund, the C4 Center and Bersih 2.0 have raised a suspicion of grand corruption in relation to the former Chief Minister and current Governor of Sarawak state: Abdul Taib Mahmud. During his time in office, the former chief minister was also the minister of finance and the minister for natural resources for the state. They have alleged that through control over logging concessions, his personal and his family’s wealth has grown to several billion dollars, with estimates that his assets amount to USD 15 billion.²⁹ Investigations into possible corruption and/or money laundering have taken place in Germany,³⁰ Switzerland,³¹ and the UK.³²

Malaysia is engaged in several asset recovery initiatives. It is a member of the Asset Recovery Interagency Network- Asia Pacific³³ and has been a member of the Financial Action Task Force (FATF) since February 2016.³⁴ It is also a member of the Asia/Pacific Group on Money Laundering (APG).³⁵

The latest full FATF report for Malaysia, from 2015, recommends several Priority Actions, including placing greater focus on obtaining money laundering convictions and confiscation of assets, in particular relating to high-risk offences.³⁶ Since then, some progress has been made to address these issues, with four recommendations being upgraded, around cash couriers, guidance and feedback, terrorist financing and targeting sanctions.³⁷

According to the World Bank/UNODC’s StAR initiative, Malaysia has engaged with the initiative on asset recovery.³⁸ Malaysia was not a focus country at the Global Forum for Asset Recovery, nor has there been a regional equivalent.