Malaysia After the Scandal

High-level corruption in Malaysia is gaining unprecedented levels of attention and spurring a movement for political reform. But it may not be enough to change the status quo.

Last year, the Wall Street Journal revealed that Malaysian Prime Minister Najib Razak was being investigated for transferring almost $700 million from a state-controlled investment fund, known as the 1 Malaysia Development Berhad (1MDB), into a personal fund during the lead up to the country’s 2013 parliamentary elections. The transfers crossed enough borders that entities as diverse as the Swiss Attorney General and the FBI launched investigations. Now, amidst ongoing calls for his resignation, the prime minister is using every means available to protect his position. Over the past six months, Najib blocked the website of an opposition group, suspended two Malaysian newspapers, fired his deputy and several police officers, and threatened to take legal action against the Wall Street Journal. Most recently, a critic of the prime minister was arrested and forbidden from leaving the country. In late January, the Malaysian attorney general announced that he had decided to close an investigation into the transfer. The announcement was greeted with outrage.

None of this has stopped Malaysian civil society, which launched into action by staging some of the largest anti-corruption demonstrations the country has seen in years. Rallies organized by Bersih (which means “clean” in Malay), a nine-year-old civil society group that advocates for free and fair elections, drew around 25,000 people in the country’s capital, Kuala Lumpur. A variety of non-governmental organizations joined Bersih to demand accountability and reform, leading some to suggest the financial scandal was energizing a widespread movement for political transformation. Activists say the Malaysian public has never been more aware of high-level corruption, and almost everyone knows about the 1MDB scandal. Still, experts say that popular demand is not enough to rid the government of corruption. Major structural reforms are needed if the political system is to be wiped clean.

“Until we fix political funding laws it will be very hard to solve high-level corruption,” says Tricia Yeoh, chief operating officer at the Institute for Democracy and Economic Affairs, a liberal think tank in Malaysia. “It’s a systemic problem. If there is any change in government in the future, corruption will continue to be perpetuated because of this flawed system.”

The prime minister’s party, the United Malays National Organization (UMNO), has ruled Malaysia since the country gained independence in 1957. But UMNO came perilously close to losing power during the 2013 elections. Investigators allege that Najib used millions from the 1MDB investment fund, which owes around $11 billion in debt, to bolster his popularity during the electoral period.

In 2013, the 1MDB also contributed millions of dollars to a charity led by the prime minister. The charity’s activities were then highlighted by Najib’s election campaign. UMNO members have argued that funding was needed to counter the growing influence of ethnic Chinese opposition parties. Ethnicity and xenophobia are increasingly used as political tools in Malaysia.

Najib, however, maintains the funds came from wealthy friends in the Middle East and not from public coffers. Still, no one has publicly taken credit for the donation. In announcing an end to the case, Attorney General Mohamed Apandi Ali said that $681 million was a donation from the Saudi royal family, and claimed that $620 million was returned.

However, at least $11.1 million originated from the Malaysian government, according to the state investigation, and is believed to have come from an energy company called SRC International. The company was previously owned by 1MDB but was transferred to the Finance Ministry in 2012.

1MDB issued a statement claiming it never gave funds to the prime minister, but many doubt its credibility. Najib founded 1MDB in 2009 to develop new infrastructure and energy projects, and he continues to sit on its advisory board.

In what appeared to many as an admission of guilt, in September Najib opted to withdraw from an international anti-corruption conference in Kuala Lumpur where he was scheduled to speak.

Many Malaysians are convinced the prime minister isn’t the only problem. Cronyism is widespread and deeply entrenched across all levels of government, citizens say.

“1MDB is just the largest, but we’ve see the same governance structure of 1MDB replicated in almost all states in Malaysia, both by the current government and by opposition,” says Khairil Yusof of the Sinar Project, a citizen-led initiative that uses open data and technology to track corruption in Malaysia.

As the country’s economy slumps due to dropping oil prices, more young people are starting to realize how deep-seated the corruption is.  

“The problem that we have right now is a long term issue. It didn’t just start with Najib,” affirms a Malaysian accountant in her 20s who asked to remain anonymous. “The same ruling party has been in power since our independence. When there’s a monopoly on power, there will eventually be people taking advantage of it.”

Meanwhile, existing laws do little to regulate political financing. Although the government recently set up a committee to review political finance procedures, activists complain it’s moving at a sluggish pace. 

Generally, government agencies appear to have little incentive to crack down on corruption. The government’s anti-corruption agency, the Malaysian Anti-Corruption Commission (MACC), recently submitted its assessment of the 1MDB scandal to an independent panel for review. However, experts say the MACC lacks the independence necessary to complete an unbiased investigation. The MACC relies on the central government for financing and reports directly to the prime minister’s office.

Meanwhile, Najib is successfully muzzling dissent and employing religious rhetoric to compel his cronies to demonstrate loyalty. Anwar Ibrahim, an erstwhile protégé of Najib, is languishing in prison on dubious sodomy charges after calling attention to government nepotism. The attorney general in charge of investigating 1MDB was also replaced, allegedly for health reasons. Members of UMNO who criticize the prime minister have been referred to the party’s disciplinary board or removed from the party altogether. Now rumors suggest the head of the MACC may soon be removed from his position, too.

“I want to remind everyone of the principle of loyalty to the leadership,” Najib said during a speech at his party’s annual congress in December. “Islam states that it is compulsory to be loyal to the leader.”

Still, loyalty is not what’s keeping the prime minister out of hot water, critics say. Even the $11.1 million transferred from the state-owned energy company SRC International is impossible to trace due to the removal of key figures leading the investigation. In August, police arrested several of the MACC investigating officers looking into the SRC’s finances and confiscated their laptops and other work-related documents.

Meanwhile, a far greater sum than $11.1 million is alleged to have gone missing from SRC coffers. Many anti-corruption activists argue that Najib is playing a central role in thwarting efforts to look into SRC’s finances.

In addition to his duties as prime minister, Najib is Malaysia’s finance minister and maintains close connections to figures in charge of running SRC. Documents from the government investigation revealed that SRC managing director Nik Faisal Ariff Kamil had power of attorney over Najib’s personal accounts, the Wall Street Journal reported.

Meanwhile, Nik Faisal and his SRC co-director, Datuk Suboh Md Yassin, fled the country around the same time police were cracking down on investigators. Some researchers argue their disappearance is proof the two officials had something to hide.

Writing on his blog, veteran Malaysian journalist Datuk Kadir Jasin opined that citizens deserve to know whether the two men were on the verge of being arrested before the former attorney general was removed from his position.

“The fact that Nik Faisal and Suboh are wanted in connection with SRC International and absconded strengthens the assumption that it was the SRC International’s case that Abdul Gani was bringing to court when he was unceremoniously booted out,” Jasin wrote.

Many, including Jasin, suspect that Nik Faisal and Suboh were ordered to leave the country after high-level officials close to Najib were tipped off about the case.

The men are suspected to be hiding in Indonesia. Many allege they are being held in “protective custody” to prevent them from speaking with investigators about SRC. The Malaysian government, meanwhile, has made no official attempt to locate them.

Several opposition politicians have since called for further transparency in relation to SRC. Rafizi Ramli, the secretary general of the People’s Justice Party, a multiracial, centrist party, is most vocal in demanding to know where SRC’s money was spent.

“Initially, the money was meant for buying a mining company called Gobi Coal & Energy as an investment in Mongolia,” he said at a press conference last year. “The investment has not happened until now and it is not known how the $4 billion Malaysian ringgit (around $900 million) was spent.”

Evidence that in 2014 Najib used SRC credit cards to purchase luxury hotels, jewelry, and meals while on vacation in Italy and Monaco was recently handed over to the new attorney general, Mohamed Apandi, according to the watchdog website Sarawak Report. Najib also allegedly used the credit cards to pay for private jets. Najib and his wife are famous for their ostentatious lifestyle, and Malaysia’s first lady has been accused of spending millions of dollars on diamond rings and boutique clothing.

The attorney general reportedly returned the evidence to the MACC with a request for further clarification. At age 65, he is expected to retire in a few weeks.

Meanwhile, demands for transparency were brushed off by the 1MDB, which was quick to point out that it no longer controls SRC’s finances.

Because SRC formally separated from the 1MDB in 2012, it’s no longer required to submit to the same auditory scrutiny. Company audits should be available to the public, but in 2014 the company failed to complete an audit, a fact researchers say will make it difficult to identify exactly how much money was pilfered from the state-owned company.

“It’s convenient, since it [SRC] is no longer under 1MDB and may not be subject to the current 1MDB audit,” says Yusof.

“Almost $1 billion are unaccounted for at the SRC and it could be that some funds came from SRC while it was still a subsidiary of 1MDB,” he continues.

Many Malaysians say they’re aware the lack of robust accounting mechanisms makes it difficult to hold officials responsible for stealing from state companies.

But activists argue that, even if the system is flawed, Najib should still be held responsible for choosing to exploit these loopholes. Some Malaysians say the previous prime minister, Mahathir Mohamad, is one of the few politicians who refused to use the system for personal enrichment.

In the aftermath of the 1MDB financial scandal, the former prime minister joined protesters in the streets and even called for a “people’s power” movement. In an interview with The Diplomat in October last year, the former prime minister called for a vote of no confidence against Najib. Critics say Mahathir’s support for the protestors is likely motivated by a desire to see his son in power. His authoritarian style of leadership during the 22 years he sat at the Party’s helm belies his commitment to democracy, critics say.

Nonetheless, the scandal did succeed in deepening the relationship between Bersih and the Malaysian anti-corruption movement. Organizations like Transparency International-Malaysia, IDEES, and the Sinar Project work informally with Bersih to review campaign proposals and champion each other’s causes.

“Bersih generally worked for fair elections and didn’t work with the anti-corruption movement,” Yeoh explains. “But after 1MDB erupted there was a lot more recognition that the two movements have overlaps.”

Even so, many in the country’s large middle class prefer to focus on supporting their families before getting involved in politics. Observers say this pragmatic attitude is prevalent because people are aware of how difficult it is to change the status quo.

Within the current system there are only three possible ways to remove Najib from power: if a no confidence vote is passed through Parliament; if his party removes him from power; or if official corruption charges are pressed. None of these scenarios seem likely within the current atmosphere of repression.

But activists say the dismal outlook is motivating them to search for new ways to expose corruption.

“We’re going to start exposing the effects of corruption on the most vulnerable members of society, such as the urban poor, instead of just exposing seemingly meaningless corruption figures and the activities of political elite,” explains Yusof.

Many Malaysians are unaware of the effects of corruption because media censorship ensures that journalists don’t report on the issues, Yusof explains.

Some activists say they’re worried their activities could draw unwanted attention. The prime minister recently passed a National Security Act that allows him to declare a state of emergency without judicial oversight, a move many suspect is a pretense to suppress protests and dissent. Still, activists say they’re determined to continue to work for a more transparent and democratic society.

“I do believe that this is the time for civil society to organize ourselves properly,” says Tricia resolutely. “Corruption has been pushed into people’s minds.”