Rosmah Mansor: Malaysia’s First Lady of Greed


September 14, 2016

Rosmah Mansor: Malaysia’s First Lady of Greed

by  Visahakha Sonawane

http://www.ibtimes.com/malaysia-1mdb-scandal-prime-minister-najib-razaks-wife-rosmah-mansor-spent-6-million-2414448

I grant him bloody,
Luxurious, avaricious, false, deceitful,
Sudden, malicious, smacking of every sin
That has a name.
Macbeth 4.3.70-3, Malcolm speaking to Macduff about Macbeth’.–William Shakespeare

Greed is Thy Name– Apt description of the qualities of Malaysia’s First Lady, Rosmah Mansor–Din Merican

Image result for Rosmah Mansor of Greed

Malaysian Prime Minister Najib Razak’s wife Rosmah Mansor spent $6 million using credit cards in recent years, amid corruption allegations surrounding state-fund 1Malaysia Development Berhad (1MDB) that was set up by her husband, the Wall Street Journal reported Monday, citing newly revealed documents.

Rosmah reportedly made purchases at European and American jewelry and fashion stores in 2014, where Najib paid using credit cards that drew on 1MDB funds. The new documents show these purchases were part of at least $6 million spent by Rosmah from 2008 to 2015 on clothes, shoes and jewelry from Harrods in London, Saks Fifth Avenue in New York and elsewhere, the Journal reported. The newspaper also noted she hadn’t held a regular paying job in years and Najib has been a longtime bureaucrat with an annual salary of $100,000.

Image result for jho low 1mdb

Furthermore, a source with direct knowledge of the U.S. investigation into 1MDB’s alleged fraud told the Journal that Rosmah introduced Najib to Jho Low. According to a lawsuit filed by U.S. officials, Low is at the center of the alleged 1MDB scandal.

The Journal pointed out that in her 2013 autobiography, Rosmah said she has a habit of saving. “I have bought some jewelry and dresses with my own money. What is wrong with that?” she wrote.

Some time last year, Najib’s office said his family’s spending was proportionate with his inheritance from his father Abdul Razak Hussein who served as Malaysian Prime Minister from 1970 to 1976. In February 2015, Najib’s four brothers reportedly said their father did not leave a big estate. Najib, without addressing the inheritance, then said that his father was as thrifty and a man of integrity.

Image result for us justice department and 1mdb

In the lawsuit filed late last month, the U.S. Justice Department said over $3.5 billion was misappropriated from 1MDB in alleged fraud committed over a four-year period. It further added that it is seeking to seize more than $1 billion of assets linked to the fund.

Najib set up 1MDB in 2009 to spur economic growth in the Southeast Asian country. However, he was linked to the corruption scandal at the fund from which $681 million was traced to bank accounts allegedly owned by him. The prime minister has consistently denied corruption allegations, first made in a July 2015 report by the Journal, which said investigators tracked the money from an account at Falcon Private Bank in Singapore to accounts in Malaysia.

 

Fiscal Deficit and Fiscal Reform in Japan


September 13, 2016

Asia Pacific Bulletin

Number 351 | September 13, 2016
ANALYSIS

Fiscal Deficit and Fiscal Reform in Japan

by Taro Ohno

Over the past few decades, Japan has experienced a number of changes in its social and economic circumstances as its population has been aging, its birth rate has been falling, and its economic growth rate has been declining. These changes all affect central government finances: they encourage increased expenditures (especially with regard to social insurance benefits) and decrease tax revenues, thereby increasing the fiscal deficit.

Image result for Shintaro Abe

The key turning point for central government finance came around 1990 when the economic bubble burst, and since that time Japan has been grappling with the issue of fiscal reform. The first attempt to deal with the fiscal deficit was a set of fiscal reforms introduced in 1997, the goal of which was to reduce the deficit by 2003. However, this effort proved ineffective because of the domestic financial crisis that started in 1997. The second attempt came in 2006, when the government set a policy target that sought to shift the primary budget balance to a surplus by 2011. However, this target was deferred in 2008 as a result of the recession. The most recent attempt was the setting of a new policy target in 2010 to eliminate the deficit and create a surplus by 2020. Currently, the Abe cabinet is continuing to pursue that target. It raised the consumption tax rate to 8 percent in 2014 and will raise it to 10 percent in 2019 to achieve this goal. However, these reforms alone are insufficient.

The major contributor to the current negative fiscal situation is the increasing cost of social insurance, and given the country’s aging population, that trend will continue. The current fiscal reform will not be able to achieve its target by relying only on restraining the costs of social insurance, and so a further tax hike is unavoidable.

What kind of tax policy, then, would be most effective? In Japan, current fiscal policy over emphasizes inter-generational redistribution, which places a heavy burden on the younger generation to fund the benefits of social insurance for the elderly generation. In addition, the burden on the younger generation is already heavy due to pension insurance premiums. Therefore, because an income tax has the disadvantage of the burden falling predominantly on those who are younger, an income tax hike is not a feasible approach. What is desired is that both young and old alike bear the burden. A consumption tax has the advantage that the burden falls on all age groups, making it a more feasible approach. However, it also poses a problem. Namely, the consumption tax burden on lower-income households is heavier than that for higher-income households on a point-in-time basis, as the ratio of tax burden to income is disproportionate. A consumption tax is “regressive,” meaning that some measures for low-income households would be necessary.

A lower consumption tax burden on higher-income households exists because of their high savings rate. As a household’s ratio of savings to income increases, its ratio of consumption to income decreases. This in turn lowers the ratio of consumption tax burden to income. However, a household will spend down its savings in the future, and thus will eventually bear the consumption tax burden on that spending. In other words, savings only has the effect of changing the timing of consumption; it does not relieve the tax burden entirely. Therefore, it is also necessary to evaluate the tax burden on a lifetime basis. Based on the author’s estimates (Ohno et al. 2014), the consumption tax burden of higher-income households is heavier than that for lower-income households. This implies that the consumption tax is in fact “progressive.” This would imply that any measures for low-income households might be adequate if applied only to the younger age brackets.

The current policy debate in Japan emphasizes the results on a point-in-time basis. This leads to the conclusion that some measures need to be taken to protect low-income households. Several such measures exist as options. First is a reduced consumption tax rate for necessities, such as food. Second is a benefit given only to low-income households — for example cash benefits or an earned income tax credit. In September 2015, Japan’s Ministry of Finance proposed a plan for low-income households that included a combination of the reduced tax rate on food and a tax refund. Each individual’s consumption information would be recorded through a unified electronic card called the “My Number Card,” which is similar to a social security card in the United States. Low-income households could apply for a tax refund equal to the amount of the tax cut for food expenditures at the end of the fiscal year. The public, however, reacted negatively and criticized the plan for the complexity of the system and voiced concerns about the security of the identity card. The public prefers a reduced rate for the consumption tax on food rather than the plan proposed by the Ministry of Finance because it is a simpler system and free from worry about the security of personal information in the unified electronic card. As a result, the government decided to raise the general consumption tax rate to 10 percent while at the same time adopting a reduced tax rate for food. However, the reduced tax rate for food is not an optimally effective policy because higher-income households are benefiting as well.

“Given the current situation in Japan, where a further tax hike is unavoidable, a consumption tax hike is a better option than an income tax hike.”

Barring any sudden drastic changes in the country’s birth rate or immigration policy, Japan will continue to face daunting fiscal challenges in the years ahead, and thus finding the most effective and equitable fiscal policy should be a top priority for the Japanese government. We can conclude that a further consumption tax hike is desirable. Given the current situation in Japan, where a further tax hike is unavoidable, a consumption tax hike is a better option than an income tax hike. However, the policy debates in Japan today seem to emphasize the results only on a point-in-time basis. In designing the optimal policy, it is important to evaluate the current tax system not only on a point-in-time basis but also on a lifetime basis. Finally, the reduced consumption tax rate for food needs to be reconsidered. While the public prefers the reduced tax rate, this policy is less effective in terms of being a measure for lower-income households.

About the Author

Taro Ohno is an Associate Professor in the Faculty of Economics and Law at Shinshu University, Japan. He can be reached at taro_ohno@shinshu-u.ac.jp.

The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.

Established by the US Congress in 1960, the Center serves as a resource for information and analysis on critical issues of common concern, bringing people together to exchange views, build expertise, and develop policy options.

The Asia Pacific Bulletin (APB) series is produced by the East-West Center in Washington.

APB Series Editor: Dr. Satu Limaye, Director, East-West Center in Washington
APB Series Coordinator: Alex Forster, Project Assistant, East-West Center in Washington

The views expressed in this publication are those of the authors and do not necessarily reflect the policy or position of the East-West Center or any organization with which the author is affiliated.

For comments/responses on APB issues or article submissions, please contact washington@eastwestcenter.org.

East-West Center | 1601 East-West Road | Honolulu, HI | 808.944.7111
East-West Center in Washington | 1819 L Street, NW, Suite 600 | Washington, DC | 202.293.3995

East-West Center in Washington, 1819 L Street, NW, Suite 600, Washington, DC 20036

Top UK Politician Held Interests In A Group Funded By Jho Low


September 8, 2016

Top UK Politician Held Interests In A Group Funded By Jho Low – EXCLUSIVE

Billionaire player in the Middle East - Thomas Kaplan of Electrum Group

Billionaire player in the Middle East – Thomas Kaplan of Electrum Group

http://www.sarawakreport.org

Sarawak Report has learnt that a senior UK politician who holds strong connections with the Middle East was linked to a company that received a $150,000,000 injection of money from Jho Low.

In late 2012, Jho Low’s Jynwel Capital invested $150 million into the newly formed Electrum Group run by Anglo-American billionaire Thomas Kaplan – money now suspected as having emanated from the looting of 1MDB.

The investment formed 7% of the fund’s total worth of over $1 billion, which is mainly owned by Kaplan’s private family trust, according to filings in the United States and it earned Jho Low a place on the board of Electrum.

Two other major institutions also invested in Electrum at the same time: Abu Dhabi’s Mubadala Sovereign Wealth Fund and the Kuwait Investment Fund together added a further $300 million of investment, the company has said.

However, Sarawak Report has learnt from inside sources that a senior British political figure also held an interest in the company and therefore stood to benefit from these injections of hundreds of millions of dollars from Malaysia and the Middle East.

Top connections – How Jho Low used his partners as referees

Jho Low was soon utilising his connections with Kaplan and also Mubadala to promote Jynwel’s credentials as a global investor and his own image as a man of vision and integrity. A corporate video commissioned by Jynwel in 2014 features Kaplan, extensively praising his new business partner:

“What do we look for in a partner? Someone first and foremost whose word is their bond, that when they say they’re going to do something, you can bank it.” [Jynwel promotional video]

Jho Low also joined the Board of Kaplan’s wild cat charity Panthera, contributing $20 million to the fund and promoting his ‘philanthropy’ in the process.

Abu Dhabi connection

The same promotional video also features Mubadala’s Deputy Group CEO, Waleed al Muhairi again praising Jho Low. By late 2012 Jho Low had already stolen hundreds of millions of dollars from 1MDB, according to the DOJ, in connivance with a fellow Abu Dhabi sovereign wealth fund manager, Aabar’s Khadem al Qubaisi:

“In Jynwel we have found a partner that not only shares the same passion for investing that we do, but also is a match for our values… we have worked hand in hand with Jynwel across multiple projects, multiple investments, across multiple geographies” explains Waleed Al Muhairi 

These joint investments have included, according to the Department of Justice seizure filing of 20th July, the purchase of EMI Publishing and also New York’s Park Lane Hotel Group, which Jho Low funded through money stolen from 1MDB.

The DOJ has already identified a record $1 billion in assets, now under seizure in the United States, as products of money laundering from 1MDB. However, it has stated that at least $3.5 billion was stolen in total from the Malaysian fund, leaving major question-marks over Jho Low’s other investments.

There is therefore considerable speculation over whether the money which flowed into Kaplan’s funds will also eventually be traced to 1MDB.

Spokesmen for Electrum (from which Low recently resigned his post) informed the Wall Street Journal that they are working with the US authorities and have ‘safeguarded and sequestered‘ any potentially tainted funds.

Potential for embarrassment

Jonathan Powell's memoir of his years working for Tony Blair

Jonathan Powell’s memoir of his years working for Tony Blair

Whether or not this turns out to be the case, Sarawak Report has been informed that the matter could cause  embarrassment for a senior UK political figure, whose involvement in the Kaplan fund was not previously known. This is particularly so, given the added investments made by the sovereign funds from the Middle East.

Kaplan, who studied at Oxford University, but is based in the United States, already has extensive links with well-known politically connected figures in the British establishment.

His former fellow undergraduate friend, Jonathan Powell, took up a position as a ‘Senior Advisor’ to Kaplan’s multi-billion dollar Tigris Financial Group in 2011. Powell has also acted as a member of Kaplan’s wild cat charity, Panthera’s Conservation Council.

At the front of his most recent book, ‘The New Machiavelle – How to Wield Power in the Modern World’, regarded as an anecdotal memoir of his 13 years serving under former UK premier Tony Blair, Jonathan Powell acknowledges the support and assistance of his ‘colleagues’ Thomas Kaplan, Ali Erfan and Aamer Sarfraz, who are all associated with Tigris Financial Group, in the writing of the book.

Jonathan Powell - Kaplan already has close business associations with the British establishement

It is well known that after Tony Blair left office Powell continued to play a senior role within his former boss’s private commercial operations, acting as a consultant to his private company Tony Blair Associates and working also with various linked PR and lobbying groups.

Blair was simultaneously Middle East envoy for the United Nations, European Union, United States, and Russia from 2007 until last year.

Considered a player, Powell was himself appointed as David Cameron’s personal Libyan Special Envoy in 2014, on the basis of his earlier diplomatic career and peace negotiations in Northern Ireland. His brother has long been close to the Conservative Party.

Billionaire businessman who stuck his nose into the Middle East

These links have now raised controversy, given Kaplan’s own interests and connections in the Middle East.

After years of non-disclosure, the billionaire has been revealed as the main funder of the campaigning organisation known as UANI (United Against Nuclear Iran), which has been the most vocal opponent of Obama’s recent peace initiatives with Iran, bitterly opposed by the Gulf States and also Israel, where Kaplan has strong ties.

For example, it has been pointed out that the Chief Executive of UANI, a former American Ambassador Mark Wallace, receives no current income from the non-profit group, yet has simultaneously acted as the CEO of Tigris Financial Group and also Chief Operating Officer of Electrum Group, both owned by Kaplan.

Investigative journalists have further identified at least three other staff connections between Kaplan companies and the UANI campaign group, which he funded to the tune of $843,,000 in 2013.

In this context, according to court filings against Kaplan (he was sued for defamation by a Greek businessman, Victor Restis) Jonathan Powell also featured as a board member for UANI in recent years:

“Jonathan Powell, an Advisory Board member of UANI and The Institute for Strategic Dialogue was a college classmate of Kaplan’s and serves as a Senior Advisor to Tigris Financial Group.” [How much money can these two Iran hawks make out of the Middle East?]

Powell's Powerbase resume includes Senior Advisor to Tigris and Advisory Board Member of UANI

Powell’s Powerbase resume includes Senior Advisor to Tigris and Advisory Board Member of UANI

Powell appears to have now resigned from this position, but archives show the link:

Screen Shot 2016-09-07 at 19.11.44

Politics or the business of instability?

Kaplan has himself claimed that his activities in the Middle East through UANI have made his organisation one of the most effective actors on the political stage and a combat force against Iran:

” “Hard to know what the outcome will be but I do know that as much as United Against Nuclear Iran may not have had Tomahawk missiles and aircraft carriers at its disposal, we’ve done more to bring Iran to heel than any other private sector initiative and most public ones.” [Video of Kaplan speaking on UANI]

However, critics have suggested that his driving motivation is financial.  His billion dollar business, mining precious metals, openly trades on the profitability of instability and conflict in places like the Middle East, they say.

One investigator, who exposed Kaplan as the primary funder of UANI, says there is ample evidence that Kaplan seeks investors in his gold and silver mining ventures by directly pointing to conflicts that threaten economic stability:

The 2002 annual report for Kaplan’s Apex Silver Mines, Ltd., which has since gone bankrupt, contained an insight into his thinking. The report, issued by Kaplan and Apex’s CEO, Keith R. Hulley, asks investors to “consider the following factors: destabilization in the Middle East and Persian Gulf, tensions between India and Pakistan, the potential for nuclear confrontation with North Korea and Iran, […] religious extremism and terrorism on a global scale and corporate hooliganism.”

The solution, explained Kaplan, is that the “trend to invest in companies with real assets and exposure to the non-correlated commodities sector is likely to prove to be long-term and secular rather than cyclical.”

In other words, if you believe political instability is likely, invest in assets like those mined by Apex.

And Wallace, as CEO of Tigris, oversaw similar language in a 2011 prospectus — after his stint with UANI commenced — for the Sunshine Silver Mine Corp., an Idaho mine owned by the group, which he played an active role in acquiring. “Investment demand for silver exposure remains strong,” said the prospectus, which was filed with the SEC, “driven in part by continued U.S. dollar weakness, ongoing economic uncertainty in Europe and political unrest in the Middle East.” [Eli Clifton, Document Reveals Billionaire Backers Behind United Against Nuclear Iran]

The message must surely be that politically connected people with links to the Middle East should shun business with Thomas Kaplan, if they want to avoid embarrassment, because his business benefits from further conflict and his organisation meddles actively in the politics of the region.

Patronising Politicians like UMNO’s Nazri Aziz et. al should SHUT UP


September 3, 2016

Patronising Politicians like UMNO’s Nazri Aziz et. al should SHUT UP

by Scott Ng

http://www.freemalaysiatoday.com

Image result for Nazri Aziz

The Tengku Mahkota of Johor and Veteran UMNO Pol. Nazri–Generation Gap

The argument between Tourism and Culture Minister Nazri Aziz and Bersatu youth leader Syed Saddiq Abdul Rahman brings to the fore a concern among young Malaysian activists over a tendency in their elders to treat their opinions with contempt. Often enough, that contempt is implied rather than crudely expressed in the way Nazri has done.

Called a “little boy” by the minister, Syed fired back with a statement that accused UMNO of arrogance and being anti-youth. He noted that the youngest minister from UMNO, Khairy Jamaluddin, is already 40 years old and that many so-called youth leaders in the party are above 40.

Indeed, considering UMNO’s apparently inability to refresh its leadership with young blood carrying fresh ideals, Syed’s accusation rings true enough.

Nazri may cite his own attainment of a senator’s position at the age of 36 as an example of UMNO’s recognition of youthful talent, but that was a long time ago and one of a few isolated cases. And yes, we are aware that our Prime Minister was elected to Parliament at 23 and quickly joined the Cabinet. But he is from an elite class, the son of a former Prime Minister and a member of an aristocratic family in Pahang.

Can Nazri name anyone below 40 whom UMNO has given the opportunity to wield significant power on behalf of Gen Y? No, the Youth Parliament is not a good example.

Nazri’s dismissal of the 24-year-old Syed as a “little boy” is a perfect demonstration of the hubris of age. Syed is right to assume that in Nazri’s mind all young people are little boys. Many youths do feel left out of the political process. Our concerns are not heard and our efforts unrecognised, if not criticised.

Syed is also right in saying that the people who now wield power give little stock to character when promoting someone to political leadership. It seems that the only things that matter are seniority and blind loyalty.

Image result for Aging UMNO Leadership

Aging and Corrupt UMNO Leader and Prime Minister, Najib Razak

There will come a time when UMNO and, in fact, all other political parties in Malaysia will regret their attitude of contempt towards young activists, whether this attitude is latent or obvious. As youths get more and more disenchanted, there will be a gradual draining of the voter bases of these parties.

We young Malaysians are becoming better informed, and it has become clear to many of us that no political party currently active in the country is worthy of our trust.

China–In an Emerging Global Order


September 1, 2016

China–In an Emerging Global Order

by Katherine Morton

http://www.eastasiaforum.org

Image result for China in an Emerging Global World Order

China’s status within the prevailing global order has sparked one of the most contested debates in international affairs. For some, it evokes their worst fears over a rising revisionist power; for others it creates inflated expectations over what the Chinese leadership is willing to commit to within the global arena.

The tendency to exaggerate Chinese global influence is, in part, a reflection of the difficulties involved in gauging the extent to which China’s external commitments are driven by domestic political imperatives. China’s international behaviour is also often defined in relation to the United States, thus creating an image of a superpower in waiting that underestimates the complex realities of China’s expanding influence in the world. For some commentators, China’s rising international status presages the eclipse of a Western-dominated liberal order. In reality, China’s position within an emerging global order that is both inclusive and legitimate has yet to be clearly defined.

Existing accounts of China’s role in order building suggest three divergent approaches based upon opportunism, ambivalence and accommodation. The opportunistic approach is centrally focused upon material preponderance, rising nationalism and a strategic posture that seeks to achieve China’s rightful status as a powerful nation.

Ambivalence is most keenly expressed in China’s defensive approach towards global leadership and an inherent sense of historical entitlement that places nation-building before the obligation to deliver global public goods. This ambivalence also includes a continuing emphasis on reforming global institutions to simply accord with national interests.

Proponents of an accommodationist approach highlight Chinese efforts to seek social prestige by gradually increasing international commitments; taking responsibility across a wider spectrum of functional areas of cooperation; and enhancing China’s contributions to international peace, security and development in accordance with its perceived ranking in the global power hierarchy.

All three approaches are visible in practice, making it difficult to discern a clear position on the part of the Chinese leadership. Under the Xi Jinping administration it is possible to distinguish a new approach aimed at centralising China’s role in global order building. This involves placing China at the centre of new and existing institutions, promoting Chinese ideas and experiences, and advocating a new type of international relations with explicitly Chinese characteristics.

Image result for china an economic superpower

Three trends in contemporary Chinese foreign policy support this new, centralising approach.

The first is China’s strategic reorientation. China’s overriding concern lies with the post-WWII US-led alliance system, which is primarily seen as a bulwark against the advancement of Chinese strategic interests. Chinese military and defence elites no longer tolerate the status quo. China’s strategic posture is now delineated on the basis of geopolitical imperatives that aim to place China at the centre of an East–West axis in both continental and maritime domains. China’s commitment to the defence of its periphery is underscored by the One Belt, One Road and its attempts to consolidate strategic space in the South China Sea.

The second trend is China’s leadership in global governance. At the diplomatic level, Chinese foreign policy discourse is now replete with references to the importance of a Chinese voice in global governance. Chinese representation in international institutions is spreading gradually across the economic, security and legal realms of global policymaking. Chinese commitments to peacekeeping and development have also increased exponentially in recent years. The United Nations remains China’s institutional focal point. But increasingly Chinese policy elites are more actively engaged in regional fora and informal institutions such as the G20. Chinese sponsorship of an Asian Infrastructure Investment Bank attests to the determination of the Xi administration to place China at the centre of reforms in global economic governance.

Image result for BRICS Bank

The BRICS

The third trend is China’s emphasis on civilisational revival as a counter-balance to ideological conflicts. Chinese policy and intellectual elites advocate the idea of a peaceful coexistence between civilisations based upon a pluralistic understanding of global political culture. A new civilisational politics aims to provide a means of overcoming the zero-sum predicament of power politics via the cultivation of global values linked to modernity. Ideas promoting gong sheng, the Chinese concept of symbiosis, seek to place cultural fusion between East and West at the centre of global relations.

What are the implications for the rules-based liberal order? China seeks to play a central role in the creation of a more inclusive and equitable global order that is aligned with its own national interests and worldview. But its new approach creates a legitimacy dilemma: China’s potential to contribute to the reform of global institutions and the re-making of international rules and norms requires social consent. This can only be fully realised if its search for power status is seen as legitimate in the eyes of other nations.

The Achilles heel of Chinese foreign policy is political legitimacy. Currently, both internal and external sources of legitimacy for the Chinese Communist Party rely upon nationalism and economic performance. Waning external legitimacy is most evident in the case of China’s provocative stance in the South China Sea, which threatens to jeopardise its fledgling status as a responsible major power.

In the context of current structural power shifts within the international system, China’s active engagement in global governance is a positive sign of our collective potential to safeguard international peace and development. Beyond the parameters of national rejuvenation, if China is to play a central role in reforming international rules and institutions it will need to engage with the aspirations of other states andpeoples. This raises a fundamental question: where do individual rights and freedoms fit within the Chinese vision of a global rules-based order?

Katherine Morton is Professor in China’s International Relations, School of East Asian Studies, University of Sheffield.

1MDB scandal reveals tangled web of global finance


August 30, 2016

1MDB scandal reveals tangled web of global finance

by Natasha Hamilton-Hart

http://www.eastasiaforum.com

 

Image result for 1mdb scandal

From Sarkosy to Nixon with Najib in Between

Malaysia’s 1Malaysia Development Berhad (1MDB) scandal reached a crescendo in July 2016. The US Attorney General claimed that more than US$3.5 billion belonging to 1MDB was ‘allegedly misappropriated by high-level officials of 1MDB and their associates’ between 2009 and 2015. The case is officially closed in Malaysia, but Prime Minister Najib Razak’s difficulties remain.

In 2015, evidence reported by The Wall Street Journal and individuals associated with the anti-government website, Sarawak Report, suggested that Najib had received around US$680 million into his personal account. The Malaysian Anti-Corruption Commission found that the money came from ‘donors’ and disputed that the funds came from 1MDB. A complex series of foreign transactions obscured the ultimate source of the funds. Najib was officially cleared of any wrongdoing by Malaysia’s Attorney General in January 2016, despite news sources alleging that Malaysia’s Anti-Corruption Commission had privately recommended he face criminal charges.

Image result for 1mdb scandal

Malaysia’s Prime Minister Najib Razak with the Infamous Big Momma

What does the scandal tell us about the global financial system? Global financial institutions had key roles to play in constructing 1MDB’s ‘edifice of debt’. In 2014, questions were raised in Malaysia about the reported RM1.7 billion (US$476 million) in commission paid by 1MDB to Goldman Sachs in 2012 and 2013. An opposition politician called for an investigation into ‘the significantly higher than normal interest rates paid for the 1MDB bonds as well as the excess of 10 per cent “commissions, fees and charges” paid to Goldman Sachs International’.

Two years later, the US Department of Financial Services investigation into the role played by Goldman Sachs raised questions about the due diligence performed by Goldman in connection with its bond sales for 1MDB between 2012 and 2013. Some of the funds raised by Goldman Sachs were transferred through the Singapore office of BSI — a Swiss bank that specialises in private wealth management services.

Another institution to be implicated was the private wealth arm of the Royal Bank of Scotland, RBS Coutts. It has since been revealed that Swiss authorities were investigating client accounts at Coutts, which used to be part of RBS’s private bank. It is claimed that a number of other financial institutions were also involved in the web of 1MDB transactions.

Regulatory action extends beyond the United States. Singapore government authorities have seized assets worth around US$89 million from a colourful Malaysian deal broker, Jho Low. Singapore also laid charges of money-laundering against a former private banker who had worked for BSI. The Singapore operations of BSI have since closed, with the managing director of the Singapore Monetary Authority describing the bank’s behaviour as ‘the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector’.

BSI is also facing charges from the Swiss financial services regulator, FINMA. It has alleged that BSI ‘failed between 2011 and 2015 to identify risks around “dubious” transactions totalling hundreds of millions of dollars involving “politically exposed” persons’. Following the US government’s allegations in July 2016, Swiss police were reportedly investigating a former senior Abu Dhabi finance official over alleged attempts to embezzle money from 1MDB.

Image result for 1mdb scandal

Official action has only come as a result of private individuals taking enormous risks — and paying a very high price. Xavier Justo (pic above), the former Swiss banker who leaked key information now languishes in a Thai prison. Xavier first made his explosive revelations privately in 2013 to Clare Rewcastle Brown — the key figure behind Malaysia’s Sarawak Report — who enlisted the support of a Malaysian media tycoon to publicise the story in 2015.

Regulators in global financial centres failed to take significant action when they were first made aware of potential problems. An insider had reportedly told the British authorities in 2008 that BSI was offering services that could facilitate tax evasion and money laundering. But the authorities ‘took no public action over the financial-secrecy services that the bank was providing — and there was no indication that they took any private action’.

In Singapore, the monetary authority(MAS)  had issued adverse rulings against BSI as early as 2011. They found ‘serious shortcomings’ when they inspected the bank for a second time in 2014. They only closed its Singapore operations after another inspection in 2015 found ‘multiple breaches of anti-money-laundering regulations and a pervasive pattern of non-compliance’. By this time, the 1MDB case was making headlines around the world.

Image result for 1mdb scandal

Mahathir Mohamad, Malaysia’s former Prime Minister, has criticised Singapore for not taking more robust action, claiming that the government of Singapore ‘is very reluctant to pinpoint the people involved in this corruption’. He also suggested that the reticence to act was motivated by its concern to maintain its reputation as a financial centre.

It seems unfair to single out Singapore when the problem is systemic in a world of globalised finance. As underlined in the so-called Panama Papers, the global financial system is one in which complex offshore financial deals by private individuals are routine. The line between ‘perfectly legal’ tax minimisation and illegal tax evasion is blurred.

But there is a line. It is clear that the system is essentially designed to facilitate transfers which have the purpose of concealing beneficial ownership and reducing tax payments. This suggests that the problem is systemic rather than being a matter of a closing a few loopholes or bringing a few rogue bankers to heel.

Natasha Hamilton-Hart is Professor of Asian Business in the Department Management and International Business at the University of Auckland.