Malaysia Central Bank Sought Najib-Linked Fund's Prosecution

  • Ex-ruling party official had sought overseas probes of 1MDB
  • State fund is subject of multiple investigations in Malaysia

Malaysia charged a former ruling party official with economic sabotage after he lodged reports overseas seeking investigations into a debt-ridden state investment company.

Khairuddin Abu Hassan and his lawyer Matthias Chang were accused of attempted sabotage of Malaysia’s banking and financial sectors, the official Bernama news agency reported, citing court proceedings. The locations of the alleged crimes include police stations in London, Hong Kong and Singapore, plus offices of the Swiss Attorney General in Bern and France’s economic and financial crimes division in Paris, according to Bernama.

They were detained under the Security Act and not granted bail, Bernama said.

Khairuddin, a former branch official in Prime Minister Najib Razak’s ruling United Malays National Organisation, said Sept. 18 he had lodged reports against 1Malaysia Development Bhd. in five jurisdictions. He commented in a Facebook post after his name and Chang’s were added to the immigration department’s blacklist on orders from the police and he was prevented from traveling to New York and London. The police said he’d been detained on Sept. 18.

The police chief said queries should be directed to the attorney general’s office, which declined to comment on the charges.

The latest actions may represent an effort to bring a funding scandal involving 1MDB and Najib to a close, at a time it has risked denting investor confidence and been one factor weighing on the currency, the ringgit. Central bank Governor Zeti Akhtar Aziz said in an interview on Sunday in Peru that “people are distracted now” because the country rarely has political developments of this nature.

Security Law

Malaysia’s parliament passed amendments to strengthen its security law in April and adopted an anti-terrorism law under which suspects can be held for years without trial, bringing back security measures repealed in 2012 that were used mostly against the government’s political opponents. Transparency International Malaysia said in a statement on Monday it “strongly condemns the use of this law to detain whistle blowers without trial.”

1MDB has been the subject of overlapping investigations amid allegations of financial irregularities. The Wall Street Journal said last month the U.S. Federal Bureau of Investigation began a probe into the company for alleged offshore money laundering. The paper reported in July that about $700 million may have moved through government agencies and companies linked to 1MDB before ending up in accounts bearing Najib’s name ahead of elections in 2013. 

The anti-corruption commission said the money was from donors in the Middle East, not 1MDB. Najib, who has acknowledged the money went into his accounts, has said they were political donations and denied any wrongdoing.

Leadership Crisis

Facing his biggest crisis in six years in power, Najib in July removed his deputy Muhyiddin Yassin, who had called for answers on the 1MDB imbroglio including its investment decisions. The government also said it was replacing attorney general Abdul Gani Patail for health reasons, with former Federal Court judge Mohamed Apandi Ali taking the role.

At a press conference on Monday, Muhyiddin and former premier Mahathir Mohamad were among those who criticized the use of the security act for the detentions of Khairuddin and Chang, who was once Mahathir’s political secretary. Mahathir has repeatedly asked Najib to step down and urged parliament to call a vote of no confidence against him.

Malaysia’s central bank, which was investigating 1MDB, said last week it proposed criminal proceedings against the company after its probe found inaccurate disclosures, a recommendation the Attorney General dismissed as it concluded there was no wrongdoing.

“He has the right to make that assessment,” Zeti said in Peru, referring to the attorney general. “But for the central bank we believe it is very, very important to comply with our rules and regulations that we have in place. This is vital, it’s critical for the functioning of the financial system” and its integrity.

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