Impending graft trial raises curtain on 1MDB legal battles

This article first appeared in The Edge Malaysia Weekly, on February 11, 2019 - February 17, 2019.
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NINE months after a shock election defeat, the first corruption trial of former prime minister Datuk Seri Najib Razak begins on Tuesday. The High Court trial is only the beginning — it involves only seven out of a total of 42 charges brought against Najib involving funds allegedly siphoned off of 1Malaysia Development Bhd (1MDB).

The seven charges relate to RM42 million Najib allegedly received from SRC International, a former 1MDB subsidiary, in 2014.

For Malaysians, the trial is doubly significant. First, no other prime minister past or present has faced criminal charges before, let alone stood trial for alleged corruption.

Second, the impending trials will mark the beginning of a long legal road towards ascertaining the full truth to the 1MDB scandal, which has tarnished the country’s reputation, and punishing those responsible.

Despite its significance, this week’s trial will involve only a fraction of the sums at play in the larger scandal.

According to the latest figures, 1MDB is saddled with over RM42 billion in debt (not including interest and borrowing costs) with US$4.5 billion (RM18.3 billion) said to have been stolen over the years it was operating. But there may be revelations during these and subsequent proceedings involving Najib’s other charges that provide details on the wider scandal.

And, if he is convicted, Najib may become the first Malaysian prime minister to go to jail. Each of the charges against him carries a sentence of up to 20 years in jail, plus the possibility of a hefty fine.

The stakes are high, as the former premier enters the dock for the first time. It is not surprising then, that his legal team is working hard to delay the trial. Last Friday, his team filed an urgent stay application pending a decision on whether the prosecution can transfer cases from the Sessions Court to the High Court. The application followed High Court judge Mohd Nazlan Mohd Ghazali’s dismissal last Thursday of Najib’s application to delay the trials. In early January, Najib’s lawyers had attempted to postpone the trials pending his appeal on three interlocutory applications.

The Malaysian Bar previously described the move as “frivolous” and in breach of the Legal Profession Rules, a misconduct under the Legal Profession Act 1976.

On his part, Najib has ramped up his charm offensive on social media and appears to be regaining some popularity with the Malay-Muslim voter base. His political capital is growing again, at a time when Umno, the party he used to lead, is trying to move past the old leadership and scandals with new leaders at the helm.

Political analysts have noted that Najib’s renewed popularity may become politically significant should the Pakatan Harapan government be weakened after an expected power transfer to Datuk Seri Anwar Ibrahim in a couple of years. That may open avenues for Najib and his supporters to cut political deals in relation to the handling of the charges against him.

In regards to the SRC International charges,  ownership of the company was transferred from 1MDB to the Ministry of Finance in 2012. Najib was finance minister at the time in addition to holding the prime minister’s post.

The four charges in the SRC International case are brought against him in his capacity as prime minister, finance minister and Advisor Emeritus to SRC International, as he had control of the company’s approximate RM4 billion in funds.

The flow of RM42 million from SRC International started  between December 2014 and February 2015, and ended in Najib’s personal bank accounts at AmIslamic Bank.

It is worth noting that in 2011, when it was still owned by 1MDB, SRC International had borrowed RM4.385 billion from Kumpulan Wang Persaraan (Diperbadankan) (KWAP). The loan — ostensibly to fund strategic investments overseas in energy — was at a rate of 4.3% to 5.1% a year with a 10-year repayment period.

A statutory body, KWAP administers the pensions of Malaysia’s civil service and manages about RM141 billion in investment funds.

While the money trail from SRC International to Najib’s bank accounts was documented in a Wall Street Journal report dated July 2, 2015, it attracted less attention than another money flow that involved US$681 million (RM2.6 billion) that went into the same bank accounts. The WSJ report turned international attention to the unfolding scandal, following several months of intensive coverage locally.

Several weeks later, Najib reshuffled the Cabinet and removed his critics. He was also behind the unprecedented sacking of the then attorney-general, Tan Sri Abdul Gani Patail, who was preparing to charge him in court.

The next attorney-general — Tan Sri Mohamed Apandi Ali, who was appointed by Najib — publicly cleared him of wrongdoing. He acknowledged the money trail from SRC International to Najib’s accounts, but did not explain why the money was transferred there.

Following the public scrutiny, SRC International directors Nik Faisal Ariff Kamil and Datuk Suboh Md Yassin went into hiding. After the fall of the Najib-led Barisan Nasional in the 14th general election last year, Suboh surrendered in June and is now in a witness protection programme.

Despite the relatively small sum involved in the larger scheme of things, the SRC International trial may only be the tip of the iceberg in respect of potential wrongdoing at the company itself. The company’s financial records reveal other dubious money transfers, which may still be under investigation. These include a total of RM170 million sent in July 2014 to Putra Perdana Construction Sdn Bhd, a unit of construction firm Putrajaya Perdana Bhd.

From the RM170 million, RM42 million was eventually transferred to Najib’s accounts. PPB was previously investigated by the Malaysian Anti-Corruption Commission for the RM42 million transfer.

This means more actors could face charges over the alleged misuse of SRC International funds, as Najib’s impending trials may reveal critical details.

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