1MDB


1Malaysia Development Berhad is an insolvent Malaysian strategic development company, wholly owned by the Minister of Finance.
In 2015, the company became the subject of a major international corruption scandal, with evidence pointing to money laundering, fraud, and theft. A lawsuit filed by United States Department of Justice, alleged that at least US$3.5 billion has been stolen from Malaysia's 1MDB state-owned fund. US attorney general Jeff Sessions had described it in an international conference as "kleptocracy at its worst". In September 2020, the alleged amount stolen had been raised to US$4.5 billion and a Malaysian government report listed 1MDB's outstanding debts to be at US$7.8 billion. The scandal implicated Malaysian prime minister Najib Razak, contributing to the 2018 election loss of his party and his eventual trial and imprisonment.
As of 6 August 2022, in an ongoing effort to fight global kleptocracy, the U.S. Department of Justice recovered and returned a total of US$1.2 billion of 1MDB funds misappropriated within U.S. jurisdiction to the people of Malaysia, joining a list of several countries which have initiated recovery or that have already repatriated smaller recovered amounts.

History

1Malaysia Development Berhad started off as Terengganu Investment Authority which was initiated by the Menteri Besar of Terengganu at the time, Ahmad Said in 2008. TIA was a sovereign wealth fund with an initial fund of RM11 billion aimed at ensuring the economic development of Terengganu state. The fund's purpose was to ensure a long-term sustainable development while safeguarding the economic well-being of Terengganu residents. The TIA fund was derived from outstanding royalty income of RM6 billion and funds from bond issued by local and overseas financial markets. In addition, the Federal Government had proposed to provide a guarantee of RM5 billion based on Terengganu's future oil revenues.
On 27 May 2009, Ismee Ismail and Shahrol Azral Ibrahim Halmi signed a deal arranged by AmInvestment Bank Bhd to raise RM5 billion via the issuance of Islamic medium term notes , despite being told not to do so by the Terengganu state government. This exercise was advised by TIA's special advisor, Jho Low. On 29 May 2009, TIA received RM4.385 billion in net proceeds from IMTN from the full value of RM5 billion.
On 31 July 2009, Minister of Finance took over TIA and amended its name to 1Malaysia Development Bhd. This acquisition by MOFI took place four months after Najib Razak became the Prime Minister of Malaysia. In his announcement on 22 July 2009, Najib said the decision to expand TIA into a federal entity was made to enable its benefits to reach a broader spectrum of Malaysians rather than the residents of only one state.
In general, 1MDB investments can be summarized as:
  • Investment in PetroSaudi Holdings Ltd
  • Investment in Segregated Portfolio Company
  • Investment in SRC Group
  • Investment in real estate sector
  • Investment in the energy sector
On 10 March 2015, Auditor General of Malaysia under the mandate of the Cabinet and the Public Accounts Committee was assigned to audit the financial statements of the 1MDB Group and to evaluate whether the financial performance and activities of the 1MDB Group are aligned with the company's original objectives. However, on 4 March 2016, the audit report produced by the Auditor General of Malaysia was classified as Official Secrets Act under the Official Secrets Act 1972 by the National Security Council.
After the victory of Pakatan Harapan in the 14th general election in Malaysia, the audit report was declassified. The declassification was made on 15 May 2018 at the request of the seventh Prime Minister of Malaysia, Mahathir Mohamad.
On 23 May 2018, the newly appointed Minister of Finance, Lim Guan Eng, appointed PricewaterhouseCoopers to review and perform an audit of 1MDB. This followed revelations by directors of 1MDB that the company was insolvent and unable to repay its debts. On 28 June 2018, the president and chief executive officer, Arul Kanda Kandasamy was sacked for dereliction of duty.
In 2024, firms and liquidators that were linked to the 1MDB corporate scandal were put into Chapter 15 bankruptcy as they are currently looking to recover assets.

Investments

PetroSaudi Holdings (Cayman) Ltd

On 28 September 2009, 1MDB established a joint venture with PetroSaudi Holdings Ltd; the company name was 1MDB-PetroSaudi Ltd with a 60:41 ratio where 1MDB held 41% with a cash contribution of US$1 billion while PetroSaudi Holdings contributed with assets of at least US$1.6 billion. There were four different companies registered under the name of PetroSaudi, but the investment proposals submitted to the board of directors of 1MDB failed to state that.
On 29 September 2009, Edward L. Morse submitted an asset valuation report on the same day he was appointed by the 1MDB chief executive officer. The assessment report takes into account assets in oil exploration and production rights in Turkmenistan and Argentina. The assessment was implemented on PetroSaudi International Ltd's assets despite the JV agreement clearly stating that the company owning all the rights and interests of the agreed assets for the joint venture project is PetroSaudi International Cayman, the report said.
Besides that, the JV agreement lacked clauses to guard the interests of the company. Among others, there was an advance of US$700 million in fees to 1MDB-PetroSaudi from PetroSaudi Holdings to be fully repayable on or before 30 September 2009. On 30 September 2009, a total of US$1 billion was transferred by 1MDB into two separate accounts. The first US$300 million was transferred into joint venture account, and the remaining US$700 million was transferred into another company's account, , with the aim of repaying the advance taken by the joint venture company. However, approval by the board of 1MDB was not obtained for the payment of US$700 million into a non-joint-venture account.
In March 2010, about six months after the formation of joint venture of 1MDB-PetroSaudi, 1MDB disposed all the 40% stake for US$1.2 billion in Murabahah Note. Murabahah Notes are guaranteed by corporate guarantee, PetroSaudi International Ltd. On the other hand, 1MDB made an additional subscription to this Murabahah Notes up to additional US$830 million with partly funded via loans from financial institutions.
On 1 June 2012, 27 months after holding on this Murabahah Notes, 1MDB redeemed all of the Murabahah Notes with a total of US$2.22 billion including profits. This redemption of US$2.22 billion was done via an asset swap arrangement where 1MDB International Holdings Ltd, a 1MDB subsidiary received 49% equity stake in PetroSaudi Oil Services Ltd, a PetroSaudi International Ltd subsidiary. This exercise raised a question in the auditor-general's audit report where the conversion of Murabahah Notes to equity investments in PSOSL was done without any study to identify PSOSL liabilities, the ability to generate funds, and past financial performance. The 1MDB board was aware that PSOSL operates in Venezuelan waters where sanctions have been imposed by the United States and ending drilling contracts, but the decision to invest in PSOSL proceeded despite such conditions. The documents were signed by 1MDB's CEO on 1 June 2012, long before obtaining the approval of 1MDB board on 20 June 2012.
During mid-July 2012, 45 days after the investment in PSOSL equities on 1 June 2012, 1MDB disposed all 49% equity in PSOSL to Bridge Partners International Investment Ltd for a minimum of US$2.2 billion at the suggestion of 1MDB's CEO. The sale was done on 12 September 2012 and Bridge Partners issued six non-interest bearing promissory notes worth US$2.318 billion.
These promissory notes were further used as an investment in segregated portfolio company.

Segregated portfolio company (SPC)

On 12 September 2012, Brazen Sky Ltd, entered into an investment management agreement with Bridge Global Absolute Return Fund SPC and Bridge Partners Investment Management Ltd. to invest US$2.318 billion funded by the promissory notes from PSOSL sales. The investment involved various portfolio investments in the segregated portfolio company of the Cayman Islands. However, the company in charge of this investment, Bridge Global Absolute Return Fund SPC, was a new month-old company with no fund management licence nor experience in managing large funds.
On 20 May 2013, 1MDB's board of directors redeemed the investment gradually which would improve perceptions of the funds's credibility. As of 20 December 2014, the total redeemed from the SPC fund was US$1.39 billion out of US2.318 billion and the balance of US$939.87 was to be fully redeemed by the end of December. The US$1.39 billion was transferred into Brazen Sky's bank account and then transferred into 1MDB Global Investment Ltd account. The SPC funds with a booked value of US$2.318 was pledged to Deutsche Bank for a loan amount of US$975 million without the approval of 1MDB's board. From the proceeds of initial redemption and with Deutsche Bank loan, some US$993 million was used for the payment of the Aabar option termination. The Aabar option was an option given to Aabar Ltd in exchange of a guarantee of Abu Dhabi's International Petroleum Investment Co to give 1MDB a total of US$3.5 billion in bond issuances via Goldman Sachs. All of these actions raised questions as they were not consistent with the initial objective of bringing the SPC portfolio back to Malaysia.

SRC Group

1MDB established SRC International Sdn Bhd on 7 January 2011. According to the SRC Business Plan for the period of 2011 to 2015, SRC will supply coal for long-term needs of national by the fourth year of operation.
SRC obtains funding from government grants in the form of development grants of RM15 million out of RM20 million that were approved by the Economic Planning Unit and RM2 billion financing from the Retirement Fund Incorporation. Financing amounting of RM2 billion from KWAP was received on 29 August 2011 with a term of financing of 10 years. The loan is guaranteed by the government which includes principal and financing benefits of RM2.902 billion.
On 3 November 2011, SRC establish a joint venture with Aabar Investments PJS with the name of Aabar-SRC Strategic Resources Limited. The initial paid-up capital was US$120 million with each party contribute US$60 million.
The board of directors of SRCI approved a US$45.50 million investment in the coal industry at Mongolia but this investment was questioned as this investment was done without any evidence showing any feasibility studies done on the status of the project. The mentioned project was undertaken by the joint venture of ASRC with the Gobi Coal & Energy Limited company.
SRC also invested in PT ABM Investama TBK, that operates in the energy resources, energy services, and energy infrastructure sectors in Indonesia up to US$120 million through published share prices listed on the Indonesia Stock Exchange.
During the meeting on 14 February 2012, CEO of SRC reported an estimated profit on the investment amounting to US$4 million.
On 15 February 2012, SRC's shareholding by 1MDB was transferred to the Ministry of Finance Incorporation by way of acquisition of shares through interim dividend-in-specie payments. The transfer of SRC shares has reduced the operating losses of the 1MDB Group from RM25 million to RM16.2 million, lowering the gearing ratio of 1MDB from 12 times to 9.5 times and reducing the government's total guarantee of RM2.902 billion to the 1MDB Group.