Global financial institutions share blame in the 1MDB saga of debt, mismanagement and corruption, according to an academic.
Professor Natasha Hamilton-Hart of the Department of Management and International Business at the University of Auckland suggests the problem is systemic, and that arresting a few rogue bankers or closing some loopholes may not entirely resolve the problem.
She notes that regulators in global financial centres failed to take significant action when they were first made aware of potential problems involving 1MDB.
An insider, she says, had reportedly told the British authorities as early as 2008 that the Swiss bank BSI – against which action has since been taken in Singapore and Switzerland – was offering services that could facilitate tax evasion and money laundering.
“But the authorities took no public action over the financial-secrecy services that the bank was providing – and there was no indication that they took any private action,” she writes in an article in East Asia Forum.
The Monetary Authority of Singapore (MAS) had issued adverse rulings against BSI as early as 2011. It found “serious shortcomings” in a second inspection of the bank in 2014.
MAS only closed BSI’s Singapore operations after another inspection in 2015 found “multiple breaches of anti-money-laundering regulations and a pervasive pattern of non-compliance”. By this time, the 1MDB case was making headlines around the world.
Prof Natasha observes that in 2014, questions were raised in Malaysia about the reported RM1.7 billion (US$476 million) in commission paid by 1MDB to Goldman Sachs in 2012 and 2013.
For instance, Opposition Member of Parliament Tony Pua had called on the Malaysian Anti-Corruption Commission to investigate the 1MDB issue, especially the “the significantly higher than normal interest rates paid for the 1MDB bonds as well as the excess of 10 per cent ‘commissions, fees and charges’ paid to Goldman Sachs International”.
Two years later, Prof Natasha says, the US Department of Financial Services investigation into the role played by Goldman Sachs raised questions about the due diligence performed by Goldman in connection with its bond sales for 1MDB between 2012 and 2013.
Some of the funds raised by Goldman Sachs were transferred through the Singapore office of BSI.
Another institution implicated in the tangled 1MDB web of international money transactions was the private wealth arm of the Royal Bank of Scotland (RBS), RBS Coutts.
Prof Natasha notes that “official action has only come as a result of private individuals taking enormous risks – and paying a very high price”.
She cites the case of Xavier Justo, the former Swiss banker who leaked key information about 1MDB transactions and who now languishes in a Thai prison.
“Xavier first made his explosive revelations privately in 2013 to Clare Rewcastle Brown – the key figure behind Malaysia’s Sarawak Report – who enlisted the support of a Malaysian media tycoon to publicise the story in 2015.”
The Malaysian Government sees Brown as an enemy of the state and opened investigations into media tycoon, Tong Kooi Ong, the publisher of The Edge and online portal The Malaysian Insider. The Edge was suspended for its publication of stories about 1MDB but a court order allowed it to resume publications. The Malaysian Insider has since ceased operations.
Prof Natasha sees the problem as being systemic. “As underlined in the so-called Panama Papers, the global financial system is one in which complex offshore financial deals by private individuals are routine. The line between perfectly legal tax minimisation and illegal tax evasion is blurred.
“But there is a line. It is clear that the system is essentially designed to facilitate transfers which have the purpose of concealing beneficial ownership and reducing tax payments. This suggests that the problem is systemic rather than being a matter of closing a few loopholes or bringing a few rogue bankers to heel.”
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