International Financial Community Grows Leery of Malaysia

August 18, 2016

International Financial Community Grows Leery of Malaysia

by John Berthelsen

1MDB’s Chairman of the Advisory Board and Malaysia’s Scandal ridden Finance Minister

“It’s next to impossible for a Malaysian – especially non businessmen – to open an account in the UK or Europe for children staying there,” said one. “Now, over the past several weeks, even Singapore, where you could walk in and open an account, has tightened screws and a Malaysian would have to jump through fifty hoops to open one.”–John Berthelsen

Although Malaysian politicians and government officials remain in full denial of reality over a US Justice Department investigation of massive fraud involving Prime Minister Najib Razak and his family, local and international bankers are not.

The bankers are trying to digest the implications of a downgrade by Fitch Ratings in late July of  long-term foreign and local currency issuer default ratings for Petronas, Malaysia’s state-owned energy conglomerate, from A to A minus. That followed a downgrade of the government’s IDRs themselves on July 12 from A to A minus.

In a statement, Fitch said that while Petronas continues to maintain a strong credit profile, the Petronas IDRs are constrained by the Malaysian government’s own IDRs. An issuer default rating is a measure of credit risk, defined by the threat of an entity’s becoming defunct or entering into a variety of legal proceedings from bankruptcy to administration, receivership, liquidation or other formal winding-up procedures.

“The downgrade will certainly worry bankers especially, all for the right reasons because how much more blue-chip can you get than Petronas?” asked a Malaysian businessman who asked not to be named.  Another source pointed out that Petronas is usually higher ranked than sovereign IDRs “so what does it all mean for the broader economy?”

Both described a global financial system that is tightening informally on Malaysian international depositors as bankers apparently grow increasingly distrustful. However, other than a bland report of the Fitch action, there has been no reporting in the local press of the implications of the report.

“It’s next to impossible for a Malaysian – especially non businessmen – to open an account in the UK or Europe for children staying there,” said one. “Now, over the past several weeks, even Singapore, where you could walk in and open an account, has tightened screws and a Malaysian would have to jump through fifty hoops to open one.”

In addition to uncertainty generated by the US Justice Department probe, other investigations are going on in Singapore, Switzerland, the UK, France, Luxembourg and other countries into the scandal, involving the state-backed 1Malaysia Development Bhd., which was founded in 2009 and which has fallen into a river of red ink even without the scandal.

On August. 15, for instance, the Swiss Federal Prosecutor’s Department sent letters to several banks, including BSI, whose Singapore office was ordered closed over money-laundering connected to 1MDB, naming Tarek Obaid, a shareholder and former director of PetroSaudi International a middle eastern oil exploration firm which received hundreds of millions of dollars from 1MDB. The letter named Tarek as an individual presently under investigation over the scandal.

Earlier the Swiss Attorney General issued a statement saying as much as US$4 billion had been laundered out of 1MDB into Swiss banks by unnamed individuals.

The Swiss officials are said to be seeking information about Obaid’s involvement in dealings between PetroSaudi and 1MDB. The investigation reportedly is focused on four other officials, two from 1MDB and two from an entity called Aabar Investments, which is believed to have diverted hundreds of millions of US dollars from 1MDB into a British Virgin Islands entity with a nearly identical name.

In April, because of that controversy 1MDB defaulted on US$1.75 billion bond it issued in 2012 after missing a US$50 million interest payment in a dispute with an Abu Dhabi guarantor. However, the government has since settled the dispute.  It has also sold off millions of dollars of 1MDB assets to Chinese interests and reportedly is trying to settle a vastly overpriced rail contract with the Chinese to use the funds to pay off 1MDB debt.

On July 20, the US filed lawsuits in federal court that, while they did not name Najib, instead referred to “Malaysian Official 1,” alleging among a wide range of money laundering and other criminal and fraudulent activities that US$681 million from a 2013 bond sale by 1MDB had been transferred into the premier’s personal bank account.

Riza Aziz: The Wolf of Malaysia’s Main Street

Civil lawsuits alleged that a total of US$2.5 billion had been stolen from 1MDB and poured into a wide range of questionable activities including funding the blockbuster movie The Wolf of Wall Street, produced by Najib’s stepson Riza Aziz, the founder of Red Granite Pictures, as well as into luxury real estate in Los Angeles and New York and multimillion dollar paintings by Vincent van Gogh and Claude Monet. Jho Taek Low, a young Penang-born financier and close friend of Najib and Riza Aziz were named in the suit.

Najib, however, has gone on television to say that “what was done by the DOJ recently does not involve me, or the Malaysian government, or 1MDB directly….This is not a criminal suit, but a civil suit… but it has been politicized by certain enemies.”

Although he has continued to insist that he is blameless, last year he acknowledged that US$681 million – the amount specified by the Justice Department – had been deposited in his personal accounts at Ambank in Kuala Lumpur in 2013.

Almost immediately after the US Justice Department in Washington, DC, the Prime Minister’s Office in Putrajaya issued an astonishing statement saying that “Malaysian authorities have led the way in investigations into 1MDB. The company has been the subject of multiple investigations within Malaysia, including by the Malaysian Anti-Corruption Commission, Auditor General and bi-partisan Public Accounts Committee.”

In fact, as has been universally reported everywhere but in Malaysia’s kept press, officials have sought to thwart every single domestic attempt to bring an investigation into activities surrounding 1MDB.

A long list of surrogates has taken to the media to insist on the Prime Minister’s innocence and to accuse the US government of not seeking to get Malaysia’s side of the story.  Others have flatly accused the United States, which considers Malaysia one of its most important allies in Southeast Asia, of attempting to bring down the government for unknown reasons.

Shortly after the announcement of the civil charges in Washington, DC, a United Malays National Organization youth chief filed a police report accusing the former central bank governor Dr. Zeti Akhtar Aziz; former Attorney-General Abdul Gani Patail and outgoing Malaysian Anti-Corruption Commission (MACC) Chief Abu Kassim Mohamed of giving the US government falsified documents in the attempt to bring down Najib.

With the Attorney General (Gani Patail ) on the verge of filing an arrest warrant last July against Najib, the Prime Minister fired him, replacing him with an UMNO lackey named Mohamed Apandi Ali, who promptly cleared Najib of all wrongdoing.


13 thoughts on “International Financial Community Grows Leery of Malaysia

  1. Its true that the Malaysian authorities have led the way in investigations into 1MDB. The same Malaysian authorities then also led the way into closing the investigations by declaring all is well and nothing is amiss with 1MDB and its officials. Great job done by the Malaysian authorities in investigating and closing the investigations.

  2. With high inflation of essentials and daily needs with punishibg savers with reduced FD rates to help borrowers with cheaper funds (eith some countries imposing penalties – negative interest) many of whom may default and theen bailed with taxpayers’ funds most Malaysians may not be stuck in middle income trap but may ADVANCE TO LOW INCOME OR NO INCOME TRAP.
    Is this the revised VISION 2020 WHICH MAY BECOME A REALITY ?

  3. I say it again, despite the huge sums lost, billions in debt, assets sold and wrecking investors confidence its NOT about the current financial burden and pressure 1MDB is putting on Malaysian today. Its about Najib, Mr. Cash is King, with little else for political capital but to spend money and mega projects, that will put the burden in the future that is UNTENABLE…

    Najib’s game plan, is an assumption that his past track record his entirely his. Its not, most of it is not even his and his team doing – their resume and CVs are exaggeration. Hence he is rushing headlong in plans that assumes he can pay for his plans. He cannot and will fail miserably and then the burden will be unbearable. It all began with 1MDB.
    Our government is just irresponsible. It fritters our resources away.–Din Merican

  4. 1. Perhaps the 1Malaysia regime can sell Labuan island off to the Mainland Chinese? The $$$ can be used to settle 1MDB (plus plenty left over for more
    “cash is king” stuff). Anyway, China is already claiming much of the South
    China Sea. Owning Labuan will “strengthen” their case.

    2. The Naked Emperor is being closely examined, and the blemishes, warts, suppurating sores etc. are increasingly obvious to the foreigners, even if the local courtiers and hangers-on pretend that all is well.

  5. Let us make our poverty visible to the corrupt kleptomaniac gang by emulating Mahatma Gandhi passive resistance and bus in the millions of poverty stricken to sit-in in Putrajaya to save Malaysia. This is Malaysia’s people power.

  6. My comment on selling off Labuan is meant to be sarcastic and a joke 🙂
    It is a bad joke and affects your credibility. –Din Merican

  7. “Joke” is not the correct word, it should be “political satire”. Like Jonathan Swift’s satire A Modest Proposal.
    (My view is China’s claims on the South China Sea are not justified)

    Anyway, my apologies if the blog host finds it to be a “bad joke”.

  8. I can understand that Dr Phua’s “sell Labuan to China” sarcastic comment can still hurt many Malaysian’s feelings given that China is still hell bent on ignoring the ruling of the international tribunal in The Hague, and bulldozing its way at gunpoint over the rights of Malaysia, the Philippines, Vietnam and other rightful claimants.

    But at the core of Dr Phua’s point is the fact that Malaysia has already sold 100% of the crucial power generating assets once owned by 1MDB, plus 60% of the vast Bandar Malaysia project to China.

    Any notions of an actual sale of Labuan to China [or any other country] will hurt deeply, but Najib’s regime has already jeopardised the current financial viability of Malaysia, and pawned the economic future of our children and their children.

    Dr Phua’s joke may be bad, but the truth is that it is based on cold hard facts.

  9. Under the prevailing political and economic conundrum the country is in, Phua’s joke is acceptable.
    If one can say the PM has sold his soul why take offence at Phua’s so called ‘bad joke’.
    Phua’s uncompromising stance in this blog is well known. Accept him for what he is. He offended no one.

  10. Phua’s joke may come true. Didn’t UMNOb sell off some offshore oil fields Block K or L to Brunei sometime back?

  11. The Chinese Companies and China State Owned Companies are merrily courting Malaysian government for large scale projects and even willing to enter into agreement to provide large kickbacks as reported recently in regards to the East Coast Rail project.
    They are not leery even after the report by US DoJ. Meantime the Chinese Companies have also been sweeping and buying 1MDB assets and over priced power generating companies. Assets include large tracts of land that were given at give away prices to 1MDB and now owned by these Chinese companies.

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