Najib’s 1MDB ‘modus operandi’

US$8 billion civil suit claims interference on the part of the former prime minister.

Pic credit: Sopa Images Ltd / Alamy

Good morning, Malaysia. Today’s newsletter looks at former prime minister Najib Razak’s alleged modus operandi in the 1Malaysia Development Bhd (1MDB) scandal, based on court documents filed by the company on August 4.

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Najib is facing a slew of 1MDB-related charges – last year he was found guilty of all seven counts related to the misappropriation of RM42 million of SRC International funds – with the latest being an US$8 billion (RM33.24 billion) civil suit brought by 1MDB and its subsidiaries.

The claim against the former prime minister is for breach of duties, fraud, breach of trust, negligence, knowing receipt, fraudulent misappropriation and misfeasance in public office.

In its court filing, 1MDB outlined, among other things, the Pekan MP’s alleged modus operandi in siphoning money from the company and its subsidiaries for his benefit and that of his conspirators.

The defendants are 1MDB and subsidiaries 1MDB Energy (Langat) Ltd, Global Diversified Investment Co Ltd (formerly 1MDB Global Investments Ltd), 1MDB Energy Holdings Ltd and 1MDB Energy Ltd.

The plaintiffs are Najib and seven others: Terence Geh Choh Heng (former 1MDB deputy chief financial officer and executive finance di­rector); former general counsel Jasmine Loo Ai Swan; Casey Tang Keng Chee (executive director of business development); Vincent Beng Huat Koh (former director of investments and chief investment officer); Radhi Mohamad (former chief financial officer and subse­quently chief operating officer); Kelvin Tan Kay Jim (director of in­vestments before his secondment to Pemandu) and Nik Faisal Ariff Kamil (1MDB’s chief investment officer).

The 245-page document read:

“Najib’s usual modus operandi was to use his position, power and influence as follows:

“Identify a project or transaction which is to be entered into by one or more of the plaintiffs ostensibly involving the larger national interest and/or the interest of 1MDB.

“These projects in turn require substantial funds which are to be raised or borrowed with the support of a federal government guarantee. Najib signs to authorise or approve the project or transaction and/or fund-raising activity (venture).

“Constraints and pressure is placed on the 1MDB board to confirm and agree to proceed with the venture including by the imposition of tight timelines.

“Considering Najib’s position and power and the stated purported larger national interest, the 1MDB board would comply with his wishes and/or instructions by resolving to approve the venture without being able to duly consider its merits, exercise independent judgment and/or to carry out the appropriate due diligences, analysis, checks and/or reviews before deciding whether to enter into the venture.

“When the funds raised enter the plaintiffs’ accounts, a substantial portion, if not all, are expeditiously syphoned off and fraudulently misappropriated for improper purposes, resulting in loss and damage to the plaintiffs.”

'Accustomed to comply'

The court document argued that Najib’s alleged modus operandi was evident throughout the four key 1MDB phases – Good Star, Aabar, Tanore and the Options Buyback – and spanned six years, beginning in 2009 when Najib was chairman of the 1MDB board of advisers.

Najib received more than US$700 million (RM2.6 billion) of misappropriated funds belonging to the group.

To execute the modus operandi, according to 1MDB, Najib relied on Article 117 of the company’s memorandum and articles of association that made him a silent director.

1MDB directors, by virtue of Article 117, could not make or implement any major decisions without Najib’s approval, instruction or authorisation.

“Under the Articles of Association of 1MDB, even the continued appointment of the de jure directors and the senior management team required the approval of Najib.

“By virtue of his power, position and influence, the de jure directors and the senior management of the plaintiffs were accustomed to comply with the directions and instructions issued by Najib either directly or through his proxies and/or agents, in particular Low Taek Jho (Jho Low) and his then principal private secretary, Azlin Alias.”

1MDB claimed “reference to instructions, directions, stated intentions and decisions communicated by Jho Low to members of 1MDB board and/or management constitute allegations that the same were issued for and on behalf of Najib”.

For instance, Najib purportedly spoke to then 1MDB chairman Bakke Salleh vide Jho Low’s mobile phone and, according to the document, “instructed and/or abused his position to pressure Bakke to inter alia firm up and expedite the 1MDB board decision to approve the joint venture between 1MDB and ‘PetroSaudi’, as the family members of the King of Saudi Arabia would be visiting and the agreement in relation thereto will be executed by Saudi Arabia and Malaysia”.

Bakke quit on October 19, 2009, as chairman and director of 1MDB with immediate effect. Lodin Wok Kamarudin would succeed him.

1MDB claimed all seven individuals mentioned earlier – from Teng to Nik Faisal – conspired with fugitive financier Jho Low in defrauding the companies.

Speaking on Najib's behalf

At each phase, according to the court document, 1MDB and its subsidiaries would engage in dubious projects, where money was raised used government guarantees with portions siphoned off with the help of the defendants.

Najib allegedly approved or facilitated the companies to enter sham agreements to create a trail of money to facilitate or conceal the misappropriation of 1MBD funds.

Jho Low had the authority to instruct and speak on Najib’s behalf of the board because of his personal relationship with the former prime minister and his family, the document said.

“When Jho Low’s instructions on behalf of Najib in relation to the affairs of IMDB were verified or checked with the former premier, Najib would confirm those instructions as being issued by him.”

Jho Low, the plaintiffs argued, attended the meetings between Najib and the 1MDB board or senior management at the former prime minister’s invitation and participated in them even though he held no official position in the group.

1MDB said Najib allegedly disregarded his obligations under Article 117 and abused his powers in exercising his public functions to maliciously commit fraud and misappropriation, resulting in a fraudulent transfer of funds and losses to them.

Najib also purportedly refused to answer or gave misleading answers in parliament about the company’s financial position.

1MDB alleged Najib benefitted from his position and power to influence and facilitate and cause fraud so that the management complied with his stated intentions.

He also purportedly did this even though said intentions might run counter to 1MDB’s corporate objectives, national interests and that of the Ministry of Finance Inc.

According to the court document, Najib’s “agents, associates and collaborators, including his stepson, Riza Aziz” were among the beneficiaries.

The former prime minister also ensured Jho Low’s proxies like Loo, Geh and Nik Faisal were appointed to monitor management and implement key decisions.

Where the others stand

In its claim, 1MDB said Geh allegedly abused his position, breached his contract and acted in negligence in relation to the bond money raised for 1MDB’s power plant purchases.

A substantial portion of the 2012 bond proceeds, amounting to US$1.37 billion, was paid to Aabar BVI (a fake company set up to mimic the real Aabar).

As general counsel, Loo is alleged to have breached her duties to the company. A US Department of Justice filing claimed she had misappropriated US$5 million of the 2012 bond process for unjust enrichment in the purchase of a condo unit in Madison Park, New York.

She also purportedly played a role in confusing the 1MDB board, saying Aabar BVI was Aabar even though they were separate entities, resulting in the transfer of 1MDB funds to Aabar BVI.

Tang is said to have misrepresented the 1MDB board on the PetroSaudi joint venture that led to US$700 million being transferred to Jho Low-controlled Goodstar.

Tan and Beng are accused of playing a role in preparing the joint venture agreement with PetroSaudi International dated September 18, 2009, that led to a dubious venture between PSI and 1MDB.

Radhi and Nik Faisal are charged with failing to properly advise the 1MDB board on the company’s further investment in PSI, resulting in the transfer of US$380 million to PSI, which was never recovered.

High Court judicial commissioner Atan Mustaffa Yusoff Ahmad has instructed the lawyers of Radhi, Tan and Beng to file their defence while Najib has entered an appearance through his lawyer, Muhammed Shafee Abdullah.

Attempts have also been made to serve Loo, Tang, Geh and Nik Faisal the documents. This civil suit is one of six filed by 1MDB and its subsidiaries.

Business publication The Edge reported on August 16 that seven other individuals had been dropped from the US$8 billion suit. They are former 1MDB directors Lodin, Ismee Ismail, Ong Gim Huat and Ashvin Jethanand Valiram; former chiefs Shahrol Azral Ibrahim Halmi and Mohd Hazem Abdul Rahman; and former 1MDB chief financial officer Azmi Tahir.

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