Far East: Malaysia’s 1MDB Scandal Took A New Turn After Standard Chartered Sued for $2.7 Billion
A new chapter of the 1MDB saga is finally unfolding, with a new lawsuit filed against the banking giant Standard Chartered in Singapore’s High Court. The $2.7 billion lawsuit came on behalf of three companies affected, including Alsen Chance Holdings, Blackstone Asia Real Estate Partners, and Brightstone Jewelry. The bank is accused of facilitating over 100 transactions between bank accounts from 2009 to 2013 and, therefore, may be considered liable for attempting to conceal stolen funds from the infamous 1MDB wealth fund in Malaysia.
With this lawsuit underway, the true scale of the damage 1MDB has caused not only in Malaysia but also across Southeast Asia and the broader international community.
1MDB Recap
Founded in 2009 initially as the Terengganu Investment Authority, the 1Malaysia Development Berhad or 1MDB was initiated and chaired by Malaysia’s former Prime Minister, Najib Razak. Its core goal was to establish a ‘strategic development company’, but this core goal was later undermined as the initiative raised over $4.5 billion in funds in the course of 2009 to 2015. Those funds were later misappropriated to offshore shell companies and personal bank accounts.
By 2015, a bombshell leak was reported on PM Najib’s accounts, which have received over $700 million in funds, allegedly being used for luxurious spending, gifts, and expanding his immense political influence. To put a cherry on top, an advisor to the initiative, Jho Low, was known to have bankrolled purchases of prime real estate such as an apartment once occupied by Jay-Z and Beyoncé, financing a Hollywood film The Wolf of Wall Street, and hosting his own birthday party with acts from Jamie Foxx, Chris Brown, Ludacris, Busta Rhymes, Pharrell Williams, and Britney Spears.
Other than the latest lawsuit on Standard Chartered, one of the financial institutions that was hit the hardest was Goldman Sachs, which allegedly facilitated the diversion of funds and underwrote several bond offerings, totaling up to $6.5 billion for the 1MDB initiative from 2012 to 2013. Goldman Sachs was later fined over $3.9 billion and had its former bankers sentenced to 10 years in prison for money laundering and violating bribery laws. Malaysia also later charged 17 Goldman Sachs executives.
In the case’s resolution, the U.S. Department of Justice has recovered and returned billions in cash and assets to Malaysia through an asset recovery drive.
What’s New?
Standard Chartered, a British multinational financial institution, was sued over its alleged involvement in the 1MDB scandal. The lawsuit was filed earlier this month in the High Court of Singapore, with the financial services firm Kroll acting as a liquidator for 1MDB. According to a statement from the 1MDB initiative board, Standard Chartered was accused of “the systematic theft of funds which ultimately belonged to ordinary Malaysians.” Standard Chartered has so far denied any wrongdoing, citing that they have not yet received any formal legal papers and adding that those liquidators are for the shell companies.
This, however, is not the first time that Standard Chartered was subjected to legal prosecution for its involvement in financial crimes. Back in 2016, the bank was under an investigation by the Monetary Authority of Singapore to where significant deficiencies were found in the bank’s customer due diligence procedures, eventually leading to breaches of anti-money laundering regulations. As such, the bank was subjected to $3.5 million in fines. This time, the bank sought to make a difference in its ethical concerns with a statement saying, “Standard Chartered takes our responsibility to fight financial crime extremely seriously. We have made significant investments in strengthening our controls and uplifting our anti-money laundering standards, and will continue to do so.”
This new legal development came at a critical time for Standard Chartered as the bank is also facing another legal battle in London over the alleged breach of U.S. sanctions on Iran. The legal move can also be seen as an ongoing effort to get back misused funds and hold the transaction facilitators accountable, just like the cases moved against Goldman Sachs.
What Are the Implications?
The 1MDB scandal in general highlighted a massive failure of the global anti-money laundering defenses on a scale never seen before. The process of legal work and returning the assets to multiple jurisdictions also became a multinational effort to push prosecution on those who were held accountable, with significant involvement from government agencies, ministries, and banks alike. With a mounting legal battle to come for Standard Chartered in Singapore, the bank must prove its innocence and that it was not involved with the accusations. This is to avoid the damage to reputation inflicted on Goldman Sachs when they were subjected to fines for its involvement with the 1MDB scandal. Within the financial fields, institutional investors seem to be more inclined to invest more into firms with good ESG and governance records, exhibiting a poor ethical compliance record could potentially divert those investors away from Standard Chartered.
Moving forward, the bank is now at a major turning point where it must prove to the world that it has its anti-money laundering regulations under control to improve its credibility in the financial world. A loss in this lawsuit could potentially trigger a chain reaction for further investigation from the bank’s major markets, such as those in the U.K. and the U.S., which will prove costly in the long run. In the meantime, the story of the 1MDB scandal will continue to serve as a cautionary tale for other financial firms regarding ethical financial conduct for years to come.