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Corruption and Incompetence
Malaysia’s Money Mystery

Malaysia’s Prime Minister Najib Razak has been battling allegations that he illegally moved state funds into his own private accounts. The Wall Street Journal:

Deposits into personal accounts of Malaysia’s prime minister totaled more than $1 billion—hundreds of millions more than previously identified—and global investigators believe much of it originated with a Malaysian state fund, people familiar with the matter say.

The investigators’ belief contradicts a conclusion reached recently by Malaysia’s attorney general.

The attorney general said $681 million deposited to Prime Minister Najib Razak’s account—identified by The Wall Street Journal last year—was a legal donation from a member of Saudi Arabia’s royal family, and most was returned. The attorney general said there was nothing improper and it was time to stop scrutinizing the deposits, a notion echoed by Mr. Najib.

Investigators in two other countries, while agreeing most of the $681 million ultimately was returned, believe the money originated with a Malaysian state development fund called 1MDB that the prime minister founded, according to people familiar with the probes.

At one point, it looked as if Najib might escape the whole mess unharmed. But the tide seems to have turned, and his fishy excuses aren’t holding up.

This is an important story for Malaysia, but it also highlights how the international finance system allows thieves to stow away dark money without any real difficulty. International regulators and state regulators generally do a poor job keeping track of and vetting money transfers across state borders.

Najib’s alleged abuse also speaks to the dangers of state-owned asset funds, which politicians can easily use these as piggy banks — to fund projects that help them win re-election, or simply to feather their own nests. The sheer incompetence with which this fund has been managed, apart from any shenanigans, is stunning.

It’s also reminder that even politicians who can resist the temptation to abuse public funds are often very poor investors. Funds like the 1MDB should be subject to very strict and non-political scrutiny. If politicians demand a large role in running them and managing their investments, voters should assume the worst.

At this point, we suspect many Malaysians are coming to this conclusion.

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