IMDB’s China Connection

By: Clare Rewcastle Brown

The background to Malaysia’s East Coast Rail Link (ECRL) project, due to begin operations in January, is widely known among Asia watchers. The proposal had been worked on for decades as an important development driver designed to connect the mainly agricultural areas on Malaysia’s east coast with the more urbanised west coast region, and also Port Klang at the exit of the Malacca Strait facing the Indian Ocean and potential export markets beyond.

In mid-2016, the project was due to go out to tender after the cost was estimated by the East Coast Economic Region Development Council to be in the region of RM30 billion (just over $10 billion dollars at current rates). However, then Prime Minister Najib Razak had other priorities at that time, as it marked the height of the 1MDB sovereign wealth fund scandal, by then fully in the public eye following a year of exposures and reporting kicked off by my online site, The Sarawak Report. Asia Sentinel was one of the key regional media that kept running with a story that was eventually picked up globally.

Extraordinary theft

Najib, now sentenced to 15 years in prison, had only himself to blame for the situation, given he had authorised the wholescale looting of the fund, which he had set up under his sole control in his simultaneous role as Minister of Finance. One Malaysia Development Berhad, to give its full name, was allegedly designed to borrow money to drive development, however its real purpose was to fund political patronage. Moreover, Najib’s co-conspirators, including his informal fixer, the young Chinese Malaysian, Jho Low, siphoned off hundreds of millions for themselves and were indulging in headline-catching ostentation. By this point, the fund’s debts stood at RM11 billion, of which over RM5 billion had been outright stolen by Najib and his collaborators.

On July 20, 2016, a year of denials from the Malaysian government that 1MDB’s mounting debt was due to poor governance, let alone grand larceny, came to a humiliating juncture. On that date, the US Department of Justice took the groundbreaking step of initiating its first major asset seizure by its new Kleptocracy Asset Recovery Unit, freezing over $1.7 billion of property deemed to represent the laundering of stolen money from 1MDB in the United States. This included the rights to the Leonardo DiCaprio movie, The Wolf of Wall Street, a bombardier jet, two Beverley Hills Mansions and New York apartments belonging to Najib’s stepson and to Jho Low, the key proxy and fixer behind the fund.

Malaysia was dumbfounded. Najib, clearly identified as “Malaysian Official One” in the DOJ filing, continued to deny all, however he was on a major hook over the debts that needed repaying. The original scenario, mapped out by his advisors from Goldman Sachs, had been to float the fund and encourage the public and pension funds subject to influence by his own Ministry of Finance along with government-linked companies to inject much-needed cash to plug the holes in 1MDB’s accounts. The floatation could no longer survive such publicity. Tim Leissner, the Goldman Sachs Southeast Asia boss, is now also imprisoned in the United States for the role he played in raising $6.5 billion dollars in Goldman Sachs bonds for 1MDB, of which around half went into the pockets of Najib, Jho Low, himself and a dozen other fund managers and officials from the Gulf.

In a corner, Najib had sent Jho Low to China to explore a bailout from Beijing. This was to prove rapidly successful. However, the relief came with major strings attached, including the delivery of the East Coast Rail Link into the orbit of China’s Belt & Road initiative, bypassing the original tender, at a 100 percent mark-up.

China and Najib

The full story behind China’s extraordinary collaboration with Najib and Jho Low in their attempted cover-up of the 1MDB theft – by stealing further billions of dollars from the Malaysian people and then laundering it back into the fund – has only been possible to fully piece together over time. It forms the substance of my new book The China Contract, which has ironically coincided with a closed-door settlement of key outstanding issues between the two countries relating to that mutual participation in a shameful episode. In my book, I reveal that summit negotiations between the two countries last year resulted in China waiving an outstanding debt owed by Malaysia of some $3 billion in return for a pledge to not include Chinese state companies and banks in the ongoing quest for reparations from firms caught up in facilitating the world’s largest recorded kleptocracy.

I received my first inkling of what was going on almost immediately. Just one week after the DOJ press conference, I was leaked a copy of an extraordinary document that mapped out the deal. The document outlined in precise detail the terms agreed by Jho Low following meetings with the state-owned Assets Supervision and Administration Commission (SASAC) in Beijing days before.

The ECRL would be removed from public tender and converted into a Chinese Belt & Road project funded through loans from China and constructed by Chinese companies. In return, China would facilitate a project inflation theft by Najib whereby the cost would be doubled to RM60 billion, half of which would then be laundered back to 1MDB to pay its debts. The document spelled out 1MDB’s debt repayment schedule over the next five years and specified the method by which Chinese banks and Chinese companies would channel the money out of the project.

My publication of this scoop rightly resulted in more scandal for Najib and more denials. Nonetheless, in November of that year, the prime minister flew to Beijing to sign off on the project along the very same terms. Moreover, he tied Malaysia into a wider Belt & Road Treaty that involved important realignments in defense and further major infrastructure, including two oil pipeline projects that conveniently allowed for 8