Malaysia’s 1MDB economic development fund was used as a Ponzi scheme by a clutch of conspirators to pay bribes and enrich themselves, Switzerland’s top prosecutor said days after former Malaysian Prime Minister Najib Razak was charged with corruption for his role in the affair.
Swiss authorities are now investigating six people for their alleged involvement in the multi-billion dollar 1MDB scandal and two Swiss banks — Falcon Private Bank and BSI SA — remain under suspicion, Swiss Attorney General Michael Lauber told reporters Tuesday in Putrajaya following a meeting with his Malaysian counterpart Tommy Thomas.
Switzerland has been investigating how billions of dollars earmarked for economic development through 1Malaysia Development Bhd. was diverted and made its way into Swiss banks for the personal enrichment of the accused. Lauber, working with Singaporean and U.S. authorities, had been publicly critical in the past of Malaysian officials for their lack of cooperation. After Najib lost his bid for re-election in mid-May to rival and former premier Mahathir Mohamad, the new government said it would reopen a graft probe.
“We think it was a pretext, it was kind of a Ponzi scheme,” Lauber said in an interview after the briefing. “It was used for bribery of foreign officials, it was used for paying interest, it was used for motivating new officials to run against the legal requirements or it was just simply to reward them.” Lauber did not identify any of the people he was referring to in his comments.
Swiss prosecutors earlier in May revealed they’d opened criminal proceedings into two former officials of PetroSaudi. Under the pretense of investing about $1 billion in a joint venture between 1MDB and PetroSaudi, 1MDB officials and others instead transferred about $700 million to an account not associated with PetroSaudi, the U.S. Justice Department alleged in a 2016 seizure order.
Lauber said about $7 billion of funds from 1MDB and its former unit SRC International Sdn flowed through the global financial system from 2009 to 2015 and he’s still assessing how much of that was misappropriated.
Lawyers for PetroSaudi have denied any wrongdoing. Najib, the former prime minister, has pleaded not guilty to the charges against him and was released on $247,000 bail. Spokespeople for EFG and Falcon Bank declined to comment.
Word of both banks’ involvement is not new and they have already come in for punishment. Zurich-based Falcon and and BSI, since bought by larger rival EFG International AG, were ordered in 2016 to shut down their Singapore banking units as punishment for facilitating illicit payments. BSI was fined 95 million Swiss francs ($96 million) last year for ignoring “clear warning signals.” Falcon, owned by Abu Dhabi investors, is still the subject of a criminal investigation by Swiss federal prosecutors.
Coutts & Co., sold by Royal Bank of Scotland Group Plc in 2016, was fined $6.5 million in 2017 for allowing $2.4 billion worth of assets related to the Malaysian development fund to flow though its accounts in Switzerland.