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Malaysia in transition

Najib's corruption charges taint Malaysian political dynasty

Former leader's family faces 1MDB fallout as arrest lifts hope for transparency

Women walk past a portrait of Najib Razak during the United Malays National Organization general assembly in December 2017.   © Reuters

KUALA LUMPUR -- The indictment of former Prime Minister Najib Razak on corruption charges Wednesday deals widespread damage to a Malaysian political dynasty, but also raises expectations for greater transparency in the country.

The Kuala Lumpur High Court charged Najib with four criminal offenses over allegations that he embezzled funds from SRC International, a unit of state fund 1Malaysia Development Berhad. The criminal charges are the first ever against a former Malaysian prime minister.

The 1MDB scandals have gripped the nation and drawn global attention since July 2015 when a Wall Street Journal report alleged that Najib -- then the prime minister -- pocketed $681 million. Najib responded swiftly, firing cabinet ministers who questioned him as well as top government officials involved in the investigations.

A new attorney general cleared Najib of any wrongdoing after the prime minister declared that the money came from an anonymous Saudi royal. But authorities in several countries including the U.S. who followed the trail of money -- one involving a complex web of transfers through proxies -- continued with the probes.

An Interpol red notice was issued to track down witnesses and properties allegedly bought with funds siphoned from 1MDB were confiscated, extending the scandal beyond Malaysia. Authorities in the U.S., Switzerland and Singapore investigated the case over its opaque flow of money.

The surprise election victory on May 9 by Mahathir Mohamad, the opposition leader and a former prime minister, delivered a major blow to Najib. Mahathir made resolving the 1MDB scandal a top priority. He restored officials fired by Najib to their respective agencies and formed a special task force to speed the investigations.

Mahathir Mohamad In 2016, Mahathir Mohamad joined a 1MDB protest led by a pro-democracy group calling for then-Prime Minister Najib Abdul Razak to resign.    © Reuters

At least 900 million ringgit ($225 million) worth of cash and luxury items has been seized in raids at six residential properties linked to Najib. The haul, which police deem the largest in the country's history, includes 72 pieces of luggage containing jewelry and foreign currency as well as 284 boxes of designer handbags.

Najib said most of these items were gifts to his family over the decades.

Separately, authorities have frozen 408 bank accounts containing over 1 billion ringgit belonging to 81 individuals and 55 companies involving funds received from 1MDB. Accounts belonging to the political party led by Najib also are barred from transactions pending investigation.

Najib, who turns 65 on July 23, is the eldest son of Razak Hussein, who was Malaysia's second prime minister and the man credited with bringing the country back from the brink of collapse following race riots in 1969. His uncle Hussein Onn was the third prime minister.

Najib attended boarding school in the U.K. before graduating with a degree in industrial economics from the country's University of Nottingham. He was thrust into national politics at the age of 23 when his father Razak died in 1976 due to leukemia.

After winning an election to replace his father, Najib rose through the ranks quickly, becoming chief minister of a state. He served in the cabinet of Mahathir, then in his first stint as prime minister. Najib later succeeded Abdullah Badawi as the country's sixth prime minister in 2009, in an orderly process designed by Mahathir who stepped down earlier in 2003.

Najib at a ralley Malaysia's former prime minister and president of ruling National Front, Najib Razak, and other party leaders wave party flags during the launch of its manifesto before the most recent general election in May.    © Reuters

Mahathir had said in blogs that he owed Razak for his rise to the top of the political hierarchy, and that he repaid it by nurturing Najib to become the prime minister.

As prime minister, Najib portrayed himself as a reformer, joining the likes of emerging leaders in Southeast Asia that include Singapore's Lee Hsien Loong and Thailand's Abhisit Vejjajiva. He initiated liberalization in the country's services sector, while promoting investments in oil and gas as well as palm oil to capitalize on rising crude prices. He also led the nation into the Trans-Pacific Partnership multilateral trade pact.

But Najib, who served concurrently as finance minister, also strengthened his grip on sovereign funds that controlled state-owned companies in strategic sectors. He took over a state fund set up with oil royalty and renamed it 1MDB in 2009 with a capital of 1 billion ringgit, aiming to make strategic investments in the energy sector. Najib made himself the chair of 1MDB's advisory board.

Najib acknowledged "lapses in governance" by 1MDB's management during speeches and interviews.

In the case of SRC International, a report by Malaysia's auditor general highlighted one dubious transaction, citing a $45.5 million joint venture with a United Arab Emirates partner for coal mining in Mongolia that was approved without due diligence.

When 1MDB defaulted on debt service, Najib turned to China for help in bailing out the state fund's loss-making subsidiaries. China became one of the largest investors in Malaysia, winning infrastructure projects through direct negotiations. Some of these projects such as the East Coast Rail Link have come under scrutiny by the current government, which deemed the terms set in these contracts unfavorable to Malaysia.

Najib's indictment looks to reverberate across the people closest to him.

His wife, Rosmah Mansor, also is under investigation by Malaysia's anti-graft agency in relation to 1MDB. Najib's youngest brother, Nazir, the chairman of CIMB Group Holdings, said recently he would leave his fate to the lender's board following reports of his imminent resignation.

Hishammuddin Hussein, Najib's cousin and the son of Hussein, the third prime minister, declined to compete in a recent party leadership election. Once a rising star and potential prime minister candidate, Hishammuddin held the defense minister portfolio before the change in government.

The former ruling coalition, Barisan Nasional, which won 79 seats in the last election, has since been deserted by a number of parties wary of scandals, leaving UMNO with 51 seats. UMNO has been the largest political party since Malaysia's independence in 1957, but is now struggling to recovery.

The 1MDB probe could reshape how the Malaysian government and companies make transactions in the future, improving transparency. The public at large often complains about the need to pay middlemen in order to get government approvals, while investors lament at the opaqueness surrounding tenders. Politician or proxy from political parties sitting as board member in sovereign funds and state-linked companies also complicated decision-making and business process.

Malaysia stood 62nd in Transparency International's graft ranking in 2017, slipping seven spots from 2016 to hit the country's lowest since the index was created in 1995.

In an interview years ago, Najib said his father had wanted him to become an accountant.

"Actually, my father did not want me to enter politics because he saw it as a very challenging occupation," Najib told state TV RTM, "and perhaps because he thought I was too quiet, which I was back then."

But his interest in politics eventually developed by watching his father, Najib said, citing "commitment, honesty and sincerity" as the traits that inspired his own career -- traits that now face heavy scrutiny by a court.

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