Corruption allegations

On Friday, July 3, PM Najib dismissed as "political sabotage" reports by The Wall Street Journal and Sarawak Report, claiming that $700 million were funneled to his personal accounts from banks, government agencies and companies linked to the debt-laden state fund 1MDB. The fund, which is currently under investigation for alleged impropriety, also denied the claims, describing them as "unsubstantiated" and stating the existence and authenticity of the documents had not been publicly verified.

Citing documents from four ongoing official probes into the fund, the news reports said that five deposits were made into Najib's account and the two largest transactions, worth $620 million and $61 million, were done in March 2013 during a heated election campaign in Malaysia. The investigation documents mark the first time PM Najib has been directly connected to the probes into state investment fund 1Malaysia Development Bhd., or 1MDB.

Najib has come under increasing pressure over his leadership amid attacks from the opposition and from within his own party related to of graft and mismanagement claims. In a DW interview, Jahabar Sadiq, chief editor of The Malaysian Insider news portal, explains the story behind the scandal which to his view reflect that the both the PM and ruling party are abusing publicly-funded companies for party use in elections or for election goodies.

DW: What lies at the core of the accusations against PM Najib?

Jahabar Sadiq: At the core is the unaccounted money from the RM42 billion ($11.2 billion) raised by 1Malaysia Development Bhd, a government-owned strategic investor that has bought parcels of government land at low prices, private land at high prices and utility companies at high prices too. The bill for all purchases amount to some RM15 billion, leaving RM27 billion of which some money was allocated to partners in joint-ventures as a means to guarantee the loans.

1MDB was set up in 2009 from an earlier state fund, the Terengganu Investment Authority (TIA) which was renamed after the state refused to use its oil money as a guarantee for a RM5 billion bond. The federal government under Najib Razak went ahead to issue bonds for its purchase before the 2013 general elections.

But the purchases have not generated enough cash to pay off interest and loan repayments which the government has admitted run between RM2.4 to RM2.7 billion annually. So it has had to take loans and advance payments from its partners to meet short-term debt obligations to the tune of RM5 billion in the first half of 2015 alone.

Former PM Dr. Mahathir Mohamad has become 1MDB and Najib's harshest critic over the loans, saying the government should not go into business for profit and that all is left is debt and the mystery of where all the money raised thus far has gone.

1MDB is under probe now by the Auditor-General's Office, the Parliament's Public Accounts Committee (PAC) and other authorities over its business, accounts and if there have been any offences committed in the operations of the company. Najib chairs 1MDB's advisory panel although 1MDB is officially run by a board of directors and a senior management panel.

The Najib government has promised to solve 1MDB's debt woes by end of the year, including divesting its assets to stand-alone companies owned by the Ministry of Finance and to list the power units or sell it to another operator. All the money derived from the sale will be used to settle its debts and wind down 1MDB. But it does not answer the question where the original loans went to or were used for.

PM Najib has denied that the money way funneled into his personal accounts. Is it likely that the news reports are nevertheless true?

It is true that 1MDB and Najib Razak have both denied the news reports that 1MDB money was credited to his personal accounts and used by him personally. It is thought that the accounts exist but due to private banking laws, it is not known exactly how much was sent to the account, by whom and what it was used for. It is also important to note that there is no evidence Najib handled the accounts personally as the reports say another man had power of attorney to handle the accounts.

So, are the reports true? Yes, to the extent that there is no denial that the accounts exist. However, there is still no proof that it has money from 1MDB or that it has been used in any way.

A statement from Najib's office criticized "concerted efforts by certain individuals to undermine confidence in our economy, tarnish the government and remove a democratically elected prime minister." Is this likely to be the case?

PM Najib along with his aides and supporters have consistently accused some people of undermining his government. They have not come out openly to name them but social media accounts, websites and newspapers under his party's control have been agitating against some individuals including Mahathir Mohamad and his cohorts for this campaign.

At this point, it is hard to see if it is a political campaign as the exposes are done by The Wall Street Journal and Sarawak Report, both of which operate out of Malaysia and are not known to be supporters of any politicians in Malaysia. Both have interviewed Mahathir but have not done any political reporting beyond these accusations and traced the money trail to reflect possible corruption.

Have there been any political repercussions thus far?

The powerful United Malays National Organization (UMNO), which dominates the ruling coalition, remains solidly behind Najib at this point, with a decision last week to postpone party polls by 18 months to the middle of 2018. That effectively means he will be party president until the next general elections, thanks to the backing of 160 division leaders out of the 191 divisions in the party. Each division represents one federal seat.

So in terms of repercussions, nothing as yet. Dr. Mahathir's campaigns these past years have had little effect and almost no traction within the ruling UMNO. And he does not have any strong challengers within the party. But while Najib remains strong and popular within his party, the same cannot be said outside his party and among Malaysians at large.

What are the potential political implications of the scandal?

This scandal further reinforces the speculation that UMNO and Najib are abusing publicly-funded companies for party use in elections or for election goodies. But such goodies benefit the rural electorate, which is the bedrock of UMNO support. The scandal might be a rallying cry for the opposition which is fraying over disagreements about the Islamic criminal law called "hudud" but that has yet to be seen.

The scandal might further tarnish Najib's image in and outside of Malaysia, but he remains strong and has his party's support to keep his job as PM. Unless he decides to quit, there is nothing out there - not even this so-called smoking gun in the WSJ report, that can make him resign from public office.

How widespread is the issue of corruption among politicians in Malaysia?

Corruption remains rife in Malaysia but politicians said to be corrupt remain free and at large in the country. The Malaysian Anti-Corruption Commission (MACC) has made large strides in eradicating graft among the civil servants and private sector but not so much among politicians as it is hard to prove such claims.

The ruling Najib-led government says it is committed to stamping out corruption but it remains a big issue as long as wealth declarations are kept private, direct awards and negotiated contracts, and opaque methods of operating organizations are carried out in Malaysia. Most politicians are unusually wealthy, especially after getting top party positions and government posts, and have not explained their wealth publicly leading to suspicions of graft.

This scandal just reflects that ruling party politicians in Malaysia operate war chests with opaque sources of funding and are brazen enough to do it without covering their tracks well.

Jahabar Sadiq is chief editor and chief executive of The Malaysian Insider news portal.

The interview was conducted by Gabriel Domínguez.