FROM PAINTINGS by Monet and van Gogh to diamond jewellery and a superyacht, a Hollywood blockbuster and a transparent piano, the $4.5bn that America’s Department of Justice says disappeared between 2009 and 2015 from 1MDB, a Malaysian sovereign-wealth fund, was not spent subtly. The spree attracted investigations in at least six countries. On July 28th a court in Malaysia convicted Najib Razak, the former prime minister who co-founded and chaired the fund, of seven charges of abuse of power, breach of trust and money-laundering relating to the scandal. The court sentenced him to 12 years in prison and fined him 210m ringgit ($49m). The verdicts come days after Goldman Sachs reached a settlement with Malaysian authorities related to its underwriting of three bond offerings which raised $6.5bn for 1MDB. The bank will hand over $3.9bn: it is paying $2.5bn in cash and promising to return at least $1.4bn in assets linked to the bonds.

The criminal trial was the first of several facing Mr Najib (he denies any wrongdoing). This one related to payments totalling 42m ringgit made to him by SRC International, a former subsidiary of 1MDB that was set up to invest in energy projects. After hearing evidence for almost 16 months, the judge poured cold water on the argument that Mr Najib had been deceived by associates. Mr Najib will thus need to reconsider his defence in his other trials, reckons James Chin of the University of Tasmania. The judge also questioned Mr Najib’s assertion that he believed the money to be a donation from Saudi royalty, remarking that the former prime minister never sent King Abdullah (who died in 2015) a note of thanks. Mr Najib plans to take the case to the court of appeal, where the verdicts could be overturned—as has previously happened in some political cases. The process will drag on for months yet.

The verdicts come at a febrile time for Malaysian politics. When the scandal became public in 2015 it caused ructions within Mr Najib’s party, the United Malays National Organisation (UMNO). Muhyiddin Yassin, his deputy prime minister, was fired after criticising his boss’s handling of the furore. At a general election in 2018 voters unexpectedly ousted Mr Najib and UMNO, which had led every Malaysian government for 61 years. That election gave power to Pakatan Harapan, a coalition that included Bersatu, a new party founded as an alternative to UMNO by Mr Muhyiddin and Mahathir Mohamad, another former prime minister and ex-UMNO heavyweight.

The new regime lasted barely 22 months. In February squabbles within Pakatan Harapan caused it to collapse. Mr Muhyiddin and a group of renegades, including most members of Bersatu, broke away. They joined with UMNO and several other parties to form a new ruling coalition, Perikatan Nasional. This bloc now runs the country with Mr Muhyiddin as prime minister.


Relations between Perikatan Nasional’s constituent parties are lukewarm. UMNO and its ally PAS, an Islamic outfit, dominate. They resent Mr Muhyiddin’s leadership, given that his party, Bersatu, is fairly small. In an apparent bid to keep them sweet, Mr Muhyiddin has created an unusual number of ministerial jobs and doled out roles at government-linked companies. Terence Gomez, a professor of political economy at the University of Malaya, deems such appointments extremely irresponsible while the country is grappling with covid-19. He adds that Malaysia’s sprawling ecosystem of government-linked entities is in desperate need of reform. 1MDB itself emerged from within it.

Mr Najib’s conviction on all seven charges was not widely expected. Some of his supporters could now seek to make trouble within Perikatan Nasional. But other members of UMNO may be chastened. That would benefit Mr Muhyiddin—as will the opportunity to make tough-sounding noises about corruption, which will please the public.

In the longer term, Mr Najib’s conviction could slightly increase the chance that Mr Muhyiddin might choose to leave his new-fangled party and return to UMNO, four years after his confrontation with the former prime minister led to him being kicked out of it. This possibility is being openly discussed by the party’s elites and could save Bersatu and UMNO from scrapping for the same voters at any future election. It would be a remarkable turnaround if Mr Najib’s conviction were to end up helping his party to prolong its time in power.

By The Economist

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