One major reason the US goes after officials in foreign countries – including Malaysia – suspected of being involved in money laundering is that it impacts the stability of US markets.
According to Global Financial Integrity, about USD1 trillion in illicit funds flow out of developing countries annually. This does not affect just the country where it happens but also the major world markets.
Another reason is that corruption on a massive scale could affect the national interests of nations such as the US.
That is why the US Department of Justice (DoJ) has taken such a keen interest in the affairs of 1Malaysia Development Bhd, according to a report in the Financial Times.
The report quoted Kendall Day, who heads the DoJ’s asset forfeiture and money laundering section as saying the US financial market was attractive for corrupt cash because it was stable and liquid.
“But hot money can really distort our markets and create risks for our financial institutions.”
Also, corruption flourishes under the same conditions that offer comfort to organised crime or terrorists. “Criminal activity literally is a destroyer of nation states,” John Kerry, secretary of state, said in May at a London anti-corruption summit.
The report said many of the kleptocracy unit’s cases involved staggering betrayals of the public trust. Sani Abacha, the late Nigerian president, accumulated at least USD630 million in illicit assets with US links.
DoJ prosecutors won a default judgment involving USD480 million two years ago, but the matter remains on appeal.
Since its 2010 launch, the programme has frozen USD2.8 billion stolen by foreign officials in countries such as South Korea, Equatorial Guinea, Taiwan and Honduras.
According to the FT report, the 1MDB affair, which US prosecutors say involves USD3.5 billion in misappropriated funds, dwarfs previous cases.
Day’s office oversees the kleptocracy unit and a separate team that is pursuing an investigation of Goldman Sachs. The bank is being probed for potential violations of the Bank Secrecy Act in its handling of the money it raised from three 1MDB bond deals.
Day was quoted as saying the 1MDB saga was just one of the cases it was pursuing. “There are going to be significant foreign kleptocracy actions in the future.”
The DoJ has filed civil forfeiture suits to recover about USD1 billion in assets that it says were bought using stolen 1MDB money and which went through the US money system.
However, the legal battle for those assets is going to test the unit as convincing Malaysian witnesses to testify against powerful officials and obtaining documents from Malaysia will be difficult and time-consuming.
“I can tell you from personal experience that corruption cases of any stripe are hard,” Day told the FT.
According to the report, the DoJ to date has returned to its rightful owners only 5 per cent of the funds that it has intercepted. Often several years elapse before funds are repatriated.
In July, for example, the US returned USD1.8 million to Taiwan, capping a courtroom battle that began six years earlier.