The 1Malaysia Development Berhard scandal (1MDB Scandal) is known  as one of the world’s most prolific financial scandals. With billions lost as a consequence of fraudulent activity by a Malaysian sovereign wealth fund, 1MDB, the scandal saw a huge backlash from Malaysian citizens, the media, and civil society organisations alike. In this episode, P. Gunasegaram, an Independent Journalist and author of 1MDB: The Scandal That Brought Down A Government, joins the host, Max Levites (Senior Governance Specialist, International Republican Institute), to discuss the history and context of the scandal itself and the motivations for and nature of the collective action response.
Gunasegaram discusses the driving force behind the collective action movement, more notably the importance of the media and news outlets, derived from his own personal experience and involvement. He highlights the significance of cohesive and coordinated action by the media, civil society, and international actors working together to  bring corrupt government officials to account and recover stolen assets. Gunasegaram finally outlines the key lessons and success factors to take away from this complex and multi-faceted case and its subsequent collective action response.
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Transcript
Announcer (00:03):
Welcome to the Collectively Combating Kleptocracy podcast series. This podcast is supported through a project on identifying successful collective action approaches against kleptocracy as part of the United States Agency for International Development-funded Democratic Elections and Political Processes Cooperative Agreement carried out by the Consortium for Elections and Political Process Strengthening. It is co-implemented by the International Republican Institute and the Center for International Private Enterprise and accompanied by related case studies. The views expressed in this podcast are that of the speakers and do not necessarily reflect the views of USAID or the United States government.
Max Levites (00:41):
Hello and welcome to another episode in this series of podcasts on Collective Action Against Kleptocracy. My name is Max Levites and I’m a senior governance specialist at the International Republican Institute. In this episode, we’ll be discussing Malaysia and the collective action that took place following the infamous 1MDB scandal.
(00:57):
So our guest today is P Gunasegaram. Guna has 45 years of experience as a teacher, journalist, analyst, columnist, and author. He was an editor at major publications in Malaysia, including Focus Malaysia, Kinibiz, The Star, The Edge, Malaysian Business and Business Times, and currently writes two columns a week from Malaysia’s leading news portal, Malaysiakini. He has also written three books, including one titled 1MDB: The Scandal that Brought Down a Government. Welcome Guna, and thanks so much for being here.
P Gunasegaram (01:24):
Thank you. Good to be here.
Max Levites (01:25):
I guess I just want to start by asking, can you give us a little bit more context about the 1MDB scandal and kind of the background that led to the collective action movement around that?
P Gunasegaram (01:35):
Initially at least, there was no planned collective action as such, but they eventually developed a sort of concerted action in terms of reporting by some of the media. So I was involved in it when I was with Kinibiz, which is a business news portal, a joint venture with Malaysia’s most popular news portal, Malaysiakini. So we started writing about Malaysiakini in a big way in March 2013, which is before most people had actually even started mentioning Malaysiakini. So we started with an eight-part series in March 2013, and we had several other series throughout the year.
The 1MDB scandal is, as it turned out, was many billions of US dollars were borrowed on bonds raised, which were arranged by Goldman Sachs. So 1MDB actually stands for 1Malaysia Development Berhad, which is a strategic development company. Although it is commonly referred to as a sovereign wealth fund, it is not because it is not managing any money as such, it is actually borrowing the money to invest in what was supposed to be strategic investments for Malaysia.
(02:51):
So what transpired was most of the money was borrowed through bonds arranged by Goldman Sachs, which amounted to about US $6.15 billion, and there were also other amounts of money which were borrowed by others such as a local bank, Arab Malaysian AMMB Bank. So in all, it involved perhaps about 7 billion US dollars, most of which went missing. The money which was borrowed was actually subsequently found to have been stolen, misappropriated, and the Department of Justice in the US, which investigated this, described it as the biggest kleptocracy the world had ever seen at that point of time. There were two reports. The final report said it was in excess of US 4.5 billion was stolen from 1MDB. It actually used the word stolen.
Max Levites (03:44):
So in the collective action that kind of followed the revelations of the 1MDB scandal and the fact that that money ended up in the bank account of the Prime Minister at the time, was that the kind of triggering point or the tipping point for collective action? Was there any kind of previous anti-corruption civil society actions that took place?
P Gunasegaram (04:03):
If you can just backtrack to a little bit. As I mentioned just now, by 2013, we were reporting on it, and then there were other media which began to pick up on these things. And by about 2014, 2015, a number of other media was also weighing in on the case. Our meaning Kinibiz, our primary source of information was annual reports and audited accounts, which we obtained from the Companies Commission of Malaysia to which all Malaysian companies are supposed to submit annual reports.
(04:36):
From there, it became obvious that the accounts were actually not proper. In fact, some were qualified and the first sign of major trouble was when the accounts were not filed in time. So that was a definite indication that things were not going right. And the company at that point in time was actually making money from so-called investment gains, which were not visible in the accounts at all.
(05:04):
And then subsequently there were email leaks, which indicated money was transferred inappropriately out of 1MDB into the accounts of other companies. And then I think The Wall Street Journal reported the story that something like 680 million US dollars came into Prime Minister at that time, Najib Razak’s, account. And soon after that was the US Department of Justice report. This was a comprehensive report showing all the money flows and a lot of information that all of us subsequently used as journalists and came from the US DOJ report, which was very comprehensive.
(05:50):
So those were basically the kind of things which started to come up. And the problem that was 1MDB was being very difficult to hide. It became very difficult to hide the problem, and it was being reported not just in Malaysia, but all over the world. It gave the country some infamy because it was the world’s largest theft at that point of time.
(06:14):
In terms of tipping point in terms of public awareness, I think it started from 2013 with us and Malaysiakini, and then it moved on to the other media. And then the international media when The Wall Street Journal also started reporting about this. And this was picked up by the press throughout the world. Locally, The Edge, and then there was another website called SarawakReport, which started writing a lot about these things.
(06:44):
But what was happening then was that the current government in power, Prime Minister was Najib Razak. We will call him Najib for short now. So when this came out, he tried to justify the whole thing and denied that there was any theft saying that the 680 million US dollars were donations from Saudi Arabia for purposes that he did not really specify what they were. And then because of public pressure, he had earlier agreed to the auditor general of the country to investigate 1MDB.
(07:22):
And when the Auditor General’s report was released, it wasn’t straightaway released to the public, it was given to the authorities first, which means the Prime Minister himself. And that report was put under the official Secrets Act, classified as a secret under the Official Secrets Act, and therefore it could not be disclosed in public.
(07:40):
But there were leakages from that report, and it was shown, that report basically said that US $7 billion of 1MDB money could not be accounted for. So this was around the 2015, 2016 period. So there was actually action afoot by investigating authorities such as Bername, the MACC, to begin to take action, which included the Attorney General who has to formulate charges against the Prime Minister himself.
(08:10):
Just to give the context, the Prime Minister was responsible because he was also finance minister, and 1MDB is a company which is wholly owned by a subsidiary of the finance ministry called Minister of Finance Incorporated. So anything that happened at 1MDB could have only have happened with the knowledge of the finance minister who was also the Prime Minister at that time. In fact, the articles of association of 1MDB actually specified that this has to be the case that any action, any serious action that 1MDB takes in terms of investments and all has to be approved by the finance minister first, which means that the finance minister has to be aware of all these transfers which took place out of 1MDB and into different accounts all over the place.
Max Levites (09:01):
Yeah, bold of Prime Minister to deny any responsibility.
P Gunasegaram (09:05):
Yes. And then he not only denied it, and then after that he used existing laws and his powers to change some of the regulators to put a lid on some of what the Malaysian Anti-Corruption Commission was doing. He removed the Attorney General and he removed some offices from the central bank, Bank Negara Malaysia from doing the work and so on.
(09:32):
So despite all of these things happening from as far back as 2015 and 2016, he continued to remain in power until 2018 when the general elections happened. So if you want a tipping point, the general elections was the tipping point. The public awareness over this issue had been raised, and everyone in Malaysia more or less knew that the Prime Minister was culpable as far as this was concerned. When the opposition used the opportunity to the hilt, as it turned out, Najib Razak lost the 2018 elections. So that was the big turning point. Part of the big reason for why he lost the elections was the 1MDB issue itself, although there was a lot of dissatisfaction about Najib as a prime minister even then.
(10:23):
So after the elections, the new Pakatan Harapan government, we call them PH for short, started investigating Najib’s actions and he was subsequently charged, found guilty. He’s now in jail. And there are a lot of other charges which have been placed against him. So that is where it stands now.
Max Levites (10:45):
So between that period of the big revelations of the money ending up in the Prime Minister’s bank accounts and him subsequently losing the election, who were the actors involved in mobilizing citizens against him, maybe convincing them not to vote for him later on? Was civil society heavily involved? Were there other actors trying to mobilize against the Prime Minister?
P Gunasegaram (11:07):
I think basically the press played a huge part by publicizing this, but then the print media was largely controlled because of legislation, which gave the government huge powers to close down the print media. In fact, one print media, The Edge, which ran a weekly publication and also had an online presence, was banned during this period.
(11:34):
So much of the reporting happened in social media and also the opposition during all the rallies that they had, all their communication with the public, they kept on mentioning 1MDB. And in fact, during the election campaign, the opposition openly called him a thief. So it was that kind of a thing.
(11:56):
I think some civil election groups they added to it. But you see, the thing is the civil society groups can say something, but if it is not reported and the information disseminated, then is of no consequence. So the press and the media still had to play a part in this whole thing. I think foreign pressure and the investigations by the DHA also played a big part in convincing even Malaysians that the Prime Minister was actually very culpable over the whole thing.
Max Levites (12:25):
Of course.
P Gunasegaram (12:25):
I mean, the thing is, ironically, Malaysia has got a very complicated political history, recent political history. So this Harapan government stayed in power for all of 22 months, and then there was a change in government, but there was no change in elections. But there was a change in government because of defections from various parties to the other side. And then a new prime minister. We have had, I think, four or five prime ministers in the last five years.
(12:57):
The party from which Najib was from, which is UMNO, which is the acronym for United Malays National Organization, they lost power. They were ruling Malaysia for a period of 61 years before that. So there was a new government which came into power, and then subsequently even this government lost power. And then there was the 2022 elections where PH or Pakatan Harapan became the party with the largest number of seats, but not enough seats to form the government.
(13:26):
To form the government, they formed an alliance with UMNO, their formal foes. As a result of that, they had to, I suppose, give into some of UMNO’s demands. So UMNO is now leading a movement to actually seek a pardon for Najib. So the whole thing has now become rather complicated.
Max Levites (13:48):
That’s fascinating, actually. Kind of going back to the period after the revelations, obviously there was a big reaction from the public and from civil society, but the details of a big financial scandal like that I’m sure are kind of hard for most people to understand. So obviously the media played a role in putting it in context, but can you talk about what role civil society played in mobilizing citizens, potentially distilling some of those high-level details of this case into something that they could mobilize around, such like the Bersih rallies?
P Gunasegaram (14:16):
Yeah, Bersih’s position was slightly different. They didn’t push very hard on the 1MDB issue, but they were very big in terms of government accountability, transparency, so those kind of things. And they did actually mobilize major demonstrations earlier. A lot of the opposition members took part in this Bersih movement. They brought some of the people to the streets, so to speak, but in terms of the original information dissemination, they did not play that big a part.
Max Levites (14:48):
So yeah, the media really took the lead.
P Gunasegaram (14:50):
The media both here and overseas played a big role. And then the social media, the chatter and social media. I mean, you have a very active WhatsApping and so on going around with all kinds of things. So I think the social chat groups too played a big part in the whole situation in terms of informing the public. This was a thing which could not be hidden. By the time it came out, I think most of the country was totally convinced that there was something wrong with 1MDB.
Max Levites (15:21):
Of course. So obviously there was a big reaction from the public, civil society, the media, and international actors and agencies also trying to investigate this issue. Was there any coordination between those groups and was there any kind of objective that they had in the actions that they were taking?
P Gunasegaram (15:34):
I think sometimes the media used to share some information among itself. But the groups, I think some of them actually got together to make joint statements against 1MDB. So those were things that they did, not some other things.
(15:49):
But I think on an informal basis, the media shared information to some extent with each other. Some of the numerous irregularities, which tipped off this whole thing, annual reports and accounts were delayed and qualified. No proper explanation of how US 7 billion was just borrowed and what was done with it. The fees which were paid to Goldman Sachs were just out of this world. Something like 10% of the total amount raised, which was 6.5 billion US, when the norm is usually less than 1%. The bonds which were issued were terribly underpriced, especially since there were government guarantees. So some people got it very cheaply.
(16:39):
Assets which were bought, used, the assets that we could identify, which were bought with proceeds from this were actually overpriced. So somebody was getting paid too much for these assets. And then the transfers to people whom the money should not have been transferred to via email leaks and so on. So these were the things which led to the exposure, so to speak.
(17:06):
So in terms of the tipping point, I think, okay, the big one was the money coming into the Prime Minister’s accounts, which was about US 680 million. And then the leaked emails, the report by the Auditor General, which was classified as a secret, and leaked details indicated that at least US 7 billion was unaccounted for. And then the US Department of Justice report, which said that 1MDP funds amounting to over US 4.5 billion was stolen, and it provided an extensive money trail of this. So it also began seizing assets bought with the stolen money, and there were a lot of assets which were seized.
(17:50):
Then the big tipping point was losing the elections in 2018. That is the thing that brought the major change. Otherwise, he will still be Prime Minister and things will go on as it is.
Max Levites (18:01):
Right. So looking at that, and so I know you talked a little bit about how currently the party is trying to get a pardon for him, but looking back at the action that followed those revelations up through the election and ultimately Najib losing the election, how would you rate the success of the collective action around it?
P Gunasegaram (18:20):
The initial actions were great. But although the court proceedings took a long time because the defense lawyers were constantly fighting a rearguard action and slowing down the court process. So it took a long time before he was found guilty on some charges and could be put away in prison. But the early action was very strong.
(18:43):
And then when the government changed their hands again 22 months later, there was a noticeable lack of zeal in the prosecution process partly, also because the previous Attorney General. The Attorney General in Malaysia is an appointee of the Prime Minister. So when the Prime Minister steps down, if a new antagonistic Prime Minister comes in, then the Attorney General normally resigns, in any way he can be removed at any time by the Prime Minister.
(19:12):
So there was a change in the Attorney General. So the prosecution process after that slowed down a lot. The amount of action that was taking place, especially in terms of the action against Goldman Sachs, reduced a hell of a lot after the change in government, which was something which is lamentable because the previous AG had actually had the Goldman Sachs on the ropes. They were actually pressing criminal charges against some 18 directors of Goldman Sachs at that point of time. But then the new government made a deal with Goldman Sachs, which many, including myself and I followed 1MDB right through, considered were very, very insufficient considering the way that evidence which had been accumulated against Goldman Sachs and their role in this whole thing.
Max Levites (20:07):
Yeah, it’s very complicated scandal.
P Gunasegaram (20:09):
Yeah. The amount of compensation that next Malaysian government agreed with Goldman Sachs was just too little given Goldman Sachs role in it and given that Goldman Sachs had little defense for what they did.
Max Levites (20:20):
So what are some lessons that people looking to engage in collective action against kleptocracy can take away from the Malaysia case?
P Gunasegaram (20:27):
I think for all countries, developing as well as developed, one should push for proper governance measures to be put in place for all government corporations, especially in terms of how money is handled. In the case of 1MDB, there was very little control over 1MDB. We have to ensure that there is proper governance of all government funds.
(20:50):
Media played a big part in bringing this whole thing about. So one should push for the setting up of independent media, which can be set up in the social media space so that awareness can be built up over suspicious events, questions raised, and public pressure put on these top politicians to behave. So in other words, using the media to push this concept of accountability onto politicians.
(21:15):
Another one would be to work with international regulators and enforcement agencies to stop money laundering. I know there are measures which have been done, but the measures which are being taken are solely inadequate at this point of time. 1MDB could not have happened without the connivance of large financial international institutions, not just Goldman Sachs, but many other big names in the industry. These banks facilitated the transfer of money without asking the proper questions. Very few of them have been brought into account as far as this is concerned.
(21:55):
And we know that big names such as HSBC, Standard Chartered, and others have made settlements in the billions where it involved money laundering. But nobody has been brought to account. They only paid fines. So unless you impose definite custodial sentences on those who are responsible for these, that’s not going to change. Because, I mean, if you don’t get caught, you make a lot of money. If you get caught, you don’t get charged, but what happens is your employer pays a huge, big fine on your behalf.
(22:34):
So very few people have been brought to account. Say in Goldman Sachs, for instance, there’s only one person who is in prison from Goldman Sachs as a result of this entire episode. Whereas so many people in the Goldman Sachs hierarchy were aware of this or should have been. I think one has to make financial institutions more responsible for their actions. In the case of Goldman Sachs, their top executives must have known and approved of what happened, but only two of them were ever charged.
(23:00):
The custodial sentences are very important to do this. I think you might remember the case of Enron when they fixed the oil futures market, wasn’t it at that point of time? The CEO went to jail for 25 years. But that kind of action is no longer there now. The regulatory framework has just become too lenient in favor of the big banks.
Max Levites (23:22):
Yeah, I think this case more than some of the others that we’re looking at as far as this project has that really transnational component. It’s easy enough to keep the actual kleptocrat in question accountable, but actually targeting the enablers of kleptocracy internationally is much harder, especially if you’re working through grassroots collective action, for sure. So that is, I think, an interesting lesson that we can take away from Malaysia that is pretty unique to this case.
(23:49):
So thank you so much, Guna. This was a really enlightening conversation about the 1MBD scandal and the collective action that followed that. So thank you so much for being here. It was a pleasure speaking to you.
P Gunasegaram (23:49):
No problem.
Announcer (23:58):
Thank you for listening to this podcast. For more episodes from the Collectively Combating Kleptocracy series and the full report with case studies, please visit acgc.cipe.org. That’s acgc.cipe.org.
Published Date: September 19, 2024