INTRODUCTION OF 1MDB

Originally 1MDB – an abbreviation of 1Malaysia Development Berhad (which means

limited) – was nothing more than a Malaysian state fund, set up in 2009 to promote
development through foreign investment and partnerships. The then prime minister, Najib
Razak, was its chairman (Wikipedia, n.d.). The fund has since been at the heart of one of the
biggest corruption scandals in the world. The US justice department believes more than
$4.5billion was stolen and the resulting scandal has been responsible for the toppling of a
government this year and the arrest of Najib, his wife Rosmah Mansor and a growing number
of close associates. Leaked financial documents allege that 1MDB was a hub of fraudulent
activity from the outset. Vast sums were borrowed via government bonds and siphoned into
bank accounts in Switzerland, Singapore and the US. Some $731m appeared in the personal
bank account of Najib just ahead of the 2013 election, and is alleged to have been used to pay
off politicians, his credit card bill and fund the lavish shopping habits of his wife. Najib denies
the allegations and insists the money was donated by a Saudi prince (Petersen, 2018).

It was reported by news portal Sarawak Report and British newspaper The Sunday
Times, using leaked email correspondences, that Penang-based financier Jho Low, who has ties
with Najib's stepson, siphoned out US$700 million from a joint venture deal between 1MDB
and PetroSaudi International through Good Star Ltd. An email revealed that Jho Low had the
loan approval from Prime Minister Najib for US$1 billion without getting any approval from
Bank Negara. Sarawak Report showed minutes of a meeting at 1MDB that CEO Arul Kanda
gave out false bank statements pertaining to its subsidiary's accounts at the Singapore branch
of BSI Bank. Arul Kanda denied the allegation that he gave false bank statements to Bank
Negara.

It was claimed through a report by the Wall Street Journal that 1MDB made overpriced
purchases of power assets in Malaysia through Genting Group in 2012. Genting then allegedly
donated this money to a foundation controlled by Najib Razak, who used these funds for
election campaign purposes during the 2013 general elections. According to a news report
quoting 1MDB, the company denied that it overpaid for its energy assets. 1MDB was quoted
as saying that their energy acquisitions were made only when the company was convinced of
its long-term value.

Further allegations were made by the Wall Street Journal that US$700 million was
transferred from 1MDB and deposited in AmBank and Affin Bank accounts under Najib
Razak's name. A task force that was tasked to investigate these claims has frozen 6 bank
accounts linked to Najib and 1MDB. The Malaysian Anti-Corruption Commission (MACC)
subsequently, in August 2015, cleared 1MDB of this allegation. MACC issued a statement
saying, among other things, "Results of the investigation have found that the RM2.6bil which
was allegedly transferred into the account belonging to Najib Razak came from the contribution
of donors, and not from 1MDB" (Bloomberg, 2016).

The event triggered widespread criticism among Malaysians, with many calling for
Najib Razak's resignation – including Dr. Mahathir Mohamad, one of Najib's predecessors as
Prime Minister, who eventually defeated Najib to return to power after the 2018 general
election.

HOW WAS THE SCANDAL UNCOVERED?

The alleged embezzlement of 1MDB money between 2009 and 2012 went
unchallenged until 2015. That year, British journalist Clare Rewcastle-Brown, who ran the
website Sarawak Report, was handed 227,000 leaked documents detailing the depth of fraud.
The Wall Street Journal was also given documents. All of this thanks to a jailed former banker
who told the public about the scandal. This is when Xavier Andre Justo come to light.
EXTENT OF XAVIER’S INVOLVEMENT

INTRODUCTION

Xavier Andre Justo is a Swiss nationale and been living his life around the world. He
was called to join PetroSaudi International Ltd as an executive. This company was founded by
his friend, Tarek Obaid, one of his very best friends in 2005. He claimed that the company has
only one good asset, its name. It sounds like a Saudi government company. The joint-venture
deal between PetroSaudi International Ltd (PetroSaudi) and 1Malaysia Development Berhad
(1MDB) was purposefully done to steal money, claimed Xavier Andre Justo. In Saudi Arabia,
which was supposed to be the central of the business, there was only one guy picking up the
phone. In London, three oilmen were paid part-time. So the company almost did not exist until
September 2009 when they did this famous joint-venture with 1MDB (Webmaster, 2018).

The Swiss whistle-blower explained that he wasn’t there when PetroSaudi signed and
received the money from 1MDB. Xavier went to Thailand with his wife. Few months after the
deal was struck and money received, Obaid called Xavier a few times and asked him to come
back to London to work officially for PetroSaudi. He refused at the beginning but eventually
joined the company in London in February 2011. He wasn’t there when they signed and
received the money, but he knew that they were doing a deal with 1MDB, which was already
a topic in August 2009.

HOW DID XAVIER DISCLOSE THE INFORMATION?

Justo was growing disaffected with working conditions at PetroSaudi. According to his
wife, Laura, the first sign of discontent was his discovery that his salary payments were only
about half of what Justo said Obaid had offered him. In 2013, Xavier left the company and
supposedly received a compensation of Swiss Franc 2.8million. But Obaid refuses to pay him
and this cause Xavier to blackmail PetroSaudi. As head of IT, he used his privileged access to
the company’s computer systems to copy emails and documents with a view to selling them to
the highest bidder if his funds ran low (Ramesh, 2016).

With his Thai ventures stalled and no prospect of other income, Justo resorted to a crude
blackmail and extortion attempt, threatening to sell what he had to unnamed buyers unless the
company paid him off. The figure of 2.5 million Swiss Francs (RM10 million) has been widely
reported. But the company did not pay him a single Swiss Franc in response to his crude attempt
at extortion.
 Due to his blackmailing tries, Justo was arrested in Thailand in 2015. Justo was charged
with an attempt to blackmail his former employer, PetroSaudi. But behind this seemingly
mundane charge lay a much bigger story.

Six month earlier, Justo told Rewcastle Brown that he wanted $2m in exchange for the
PetroSaudi-1MDB documents. It was, he said, the money he should have been paid when he
left PetroSaudi. Although he shared a few documents at the meeting, Justo was adamant: no
cash, no data. Rewcastle Brown continued her quest for a person willing to pay Justo for the
PetroSaudi-1MDB documents. She noticed that some of the most searching reporting on the
scandal had appeared in Malaysia’s best-selling business weekly, the Edge. Sensing that she
may have found a wealthy ally, Rewcastle Brown contacted the Edge’s owner, Tong Kooi Ong,
a former banker turned media tycoon, who owned a number of business publications.

In January 2015, Tong, Rewcastle Brown and Justo met in a five-star Singapore hotel,
the Fullerton. Tong booked a conference room, and brought a number of IT experts, as well as
the editor of the Edge, Kay Tat. At the meeting, Justo laid out the 1MDB joint venture, making
the same claims: namely that hundreds of millions of dollars that were intended for economic
development in Malaysia had instead been diverted into a Seychelles-based company. The man
at the centre of the transaction was alleged to be Najib’s adviser and family friend, Jho Low
(Loheswar, 2019).

It was a potentially huge scoop. Tong agreed to pay Justo $2m. Tong and Rewcastle
Brown were immediately handed disk drives with the data. But the payment was never made.
Justo did not want the money in cash, and he worried that a large transfer of funds into his
account would look suspicious. Tong offered Justo one of his Monets as collateral – but Justo
declined, and said “no, I trust you”. Rewcastle Brown finally had the documents she had been
chasing for more than six months (Times, 2018).

On 28 February 2015, Rewcastle Brown posted the first big story online – under a
typically unrestrained headline: “HEIST OF THE CENTURY!” The article claimed to show
how $700m had disappeared from the 1MDB joint venture and found its way into various
offshore companies and Swiss bank accounts.

For now, the man whose revelations enabled the exposure of this vast fraud remains in
a Bangkok prison. Xavier Justo was motivated by a mixture of morality and revenge – the
desire to settle scores with a friend who betrayed him. To get even, he chose to blow the whistle,
for a price. He may not go down in history as a hero who selflessly risked ruin to expose the
truth. But in doing so, he did unwittingly sacrifice himself.

SUGGESTIONS TO PREVENT THIS CASE FROM RECURRING

Based on the report, I can suggest that the best possible way to avoid this case from
recurring is by whistleblowing. Whistle blowing is the reporting of misconduct of an employee
or superior. The presence of honesty allows for complete dedication to the organization’s
mission and success. By encouraging a whistle blowing culture, the organization promotes
transparent structure and effective, clear communication. More importantly, whistle blowing
can protect the organization’s clients. Whistle blowing is an essential tool for an organization.
Without it, fraud, misconduct, and failure may dominate an organization. By promoting clear
communication and keeping the organization’s goals in focus for everyone, one can minimize
their chances of being the next Enron.

Besides, banks also plays a prominent role in combatting such case from recurring.
Banks need to perform more comprehensive transaction monitoring. Through this, unusual
purchases of securities are detected and can be handled. With new machine learning
capabilities, this instrument is very effective in preventing the type of transactions that seemed
to occur in this case. Banks also must exercise more diligence in their Know Your Customer
duty. This is critical to understand the source of funds, the beneficial owners and the customer’s
customer. This will results in greater transparency in transactions and will revealed anything
that looks abnormal.

Lastly, company must also establish a Formal Anti-Money Laundering Policy. Even a
small business can have a formal policy about its anti-money laundering strategy. The policy
can include instructions on certain actions to take or avoid. For example, you may want to
include accounting and cash handling procedures within the policy. It could also state that you
have a no-cash policy on certain transaction sizes. Having this as a framework can direct
decision-making about deals and partnerships with others. It can also help shape and train other
team members’ understanding of what might be a money laundering scheme. It also
emphasizes the serious nature of these schemes. Every company must report suspicious activity
to the authorities.
References
Bloomberg. (2016, May). Najib's stepson allegedly used $50M 1MDB fund. Retrieved from
South east Asia: https://www.scmp.com/news/asia/southeast-
asia/article/1944451/najibs-stepson-allegedly-used-us50m-1mdb-funds-buy-us
Loheswar, R. (2019, February 08). Would I have exposed 1MDB scandal had Petrosaudi
paid me? ‘I don’t know’, says Justo. Retrieved from Malay Mail:
https://www.malaymail.com/news/malaysia/2019/02/08/would-i-have-exposed-1mdb-
scandal-had-petrosaudi-paid-me-i-dont-know-justo/1720859
Petersen, H. E. (2018, October). 1MDB scandal explained. Retrieved from The Guardian:
https://www.theguardian.com/world/2018/oct/25/1mdb-scandal-explained-a-tale-of-
malaysias-missing-billions
Ramesh, R. (2016, July 18). 1MDB: The inside story of the world’s biggest financial scandal.
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https://www.theguardian.com/world/2016/jul/28/1mdb-inside-story-worlds-biggest-
financial-scandal-malaysia
Times, S. (2018, May 25). 1MDB whistle-blower Xavier Andre Justo: I didn't steal, I was
given PetroSaudi data. Retrieved from Straits Times:
https://www.straitstimes.com/asia/se-asia/1mdb-whistle-blower-xavier-andre-justo-i-
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Webmaster, M. (2018, May 21). Who is Xavier Andre Justo? Retrieved from Malaysia
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Wikipedia. (n.d.). Retrieved from
https://en.wikipedia.org/wiki/1Malaysia_Development_Berhad_scandal