First judgment on 1MDB and Najib: Who knew what and when?

News and opinion on finance

This week former Malaysian prime minister Najib Razak was sentenced to 12 years in jail after being found guilty on seven corruption counts associated with 1MDB in the Kuala Lumpur High Court. He was also fined RM210 million ($49 million).

The transcript of judge Mohamad Nazlan Mohama Ghazali explaining his judgement has become available and will be of interest to several key financial figures in Malaysia – but not, for once, Goldman Sachs, which isn’t referenced in the 55-page judgment (this is only the first of potentially five trails related to Najib and 1MDB).

This trial focused on wrongdoing around a subsidiary of 1MDB called SRC International; it was alleged that transfers totaling RM42 million from SRC were placed into Najib’s account at AmIslamic Bank in 2014. These were presented as a gift from the Saudi royal family.

Najib Razak leaves court

The judgment says Najib testified that he had spoken with Zeti Akhtar Aziz, then governor of Bank Negara Malaysia, “and informed her about the donation he was expecting.”

“The accused took comfort in this,” the judgment reads, reasoning that if anything was suspicious, Bank Negara would raise its concerns.

Former Ambank managing director Cheah Teck Kuang gave evidence that he had met with Zeti and discussed the opening of Najib’s personal account, called Account 694 in the ruling.

Foreign remittances

None of this affected the judge’s thinking on Najib’s guilt: he described the advance meetings around the accounts as “entirely… self-serving” and “pushing the onus of determining whether the foreign remittances would [be] regular or otherwise to Ambank and Central Bank”.

The judge’s view was that if Bank Negara didn’t like what they saw, “the accused would easily have pleaded ignorance” and points out that “at the material time, the accused was also the prime minister and the finance minister of the country. This must have embolden[ed] the accused.”

This touches upon a question that has never quite been entirely resolved: what exactly Zeti, among the most highly regarded central bank governors ever in Asia, knew about the money in Najib’s accounts and what she did about it.

Zeti Akhtatar Aziz 

Last year, Zeti explained to me her battles over 1MDB with the ministry of finance (run by Najib) and the attorney general from 2013 to 2015, during which Bank Negara highlighted its concerns about 1MDB and eventually took legal action against it. Eventually she revoked 1MDB’s approvals to make investments abroad and refused all subsequent ones.

But at the time of this meeting she was unable to discuss anything about Najib’s accounts because of the trials – and still can’t, because there are up to four more to come. She has said she will comment when the cases are done.

Zeti herself was not called to give evidence in the SRC trial. Cheah at AmBank was, and he testified that Najib said he had informed Zeti the accounts had been formed to receive donations from Saudi Arabia. Cheah says he and Zeti agreed the donations should be subject to Malaysia’s banking regulations.

Four letters

At the heart of the SRC trial were four letters, supposedly from the Saudi royal family, whose contents Najib’s defence relied upon to show that the funds that came through his accounts were genuinely just donations with no strings attached.

On this point, the judge is damning.

“There are, in my evaluation, many problems with these letters and the conduct of the accused,” he writes, “especially when tested against the evidence of the belief of the accused that the remittances into his accounts came from donations from King Abdullah.”

And then, with great bathos: “I list only ten (10) such problems.”

Listing these “only ten” problems takes several pages, but several points stand out:

That one letter specified an amount of several hundred million US dollars, “a stupendously large amount of money which incredibly did not trigger the accused to make inquiries to satisfy himself as to the legality of the source,” even as the figures grew in subsequent letters, to $375 million in the second and “a whopping 800 million USD in the third letter”;

That the letters “take great pain to emphasize that the gifts should not be construed as corruption and the writer did not expect anything in return,” which the judge says “reflects the suspicious nature of these letters in the first place. Yet the accused, an intelligent person, and the Prime Minister of the country at that time did not seek an appropriate opponent to consult the authorities on the matter.”

The judge was also suspicious that although Najib claims to believe that the funds, including what would eventually amount to RM2.6 billion credited into his accounts, had come from the Saudi King, at no stage did Najib sending a letter “acknowledging the alleged donations or even thanking the Saudi Monarch”, even though he wrote two letters to the King on other subjects during the same period.

So who actually wrote those letters? “The identity of the person who signed all the letters,” who claimed to be Prince Saud, “remains unproven as no evidence was given to prove his identity,” the ruling says.

While the ruling doesn’t explicitly address this, there is widespread belief that Jho Low, Malaysian businessman and the fugitive at the heart of the 1MDB scandal, wrote the letters; Tom Wright, who wrote the Billion Dollar Whale expose, points out that exactly the same language appears in the Saudi ‘donation’ letters and another letter in which a friend of Low’s supposedly donated hundreds of millions of dollars of artwork to him.

There is plenty more to unfold before 1MDB can really be put to bed 

There is plenty more to unfold before 1MDB can really be put to bed: Najib’s further corruption trails; his appeal against this sentence, and potentially against any others that may come in the other trials; Goldman Sachs’ settlement with the US Department of Justice, and potentially a criminal charge; the sentencing of the former Goldman executives, in particular Tim Leissner; and, of course, finding Jho Low.

The last one may take the longest.