US probe on 1MDB 'pushed KL-Abu Dhabi settlement'

The signage for 1Malaysia Development Bhd (1MDB) displayed at the site of the Tun Razak Exchange financial district, which is owned by 1MDB, in Kuala Lumpur.
The signage for 1Malaysia Development Bhd (1MDB) displayed at the site of the Tun Razak Exchange financial district, which is owned by 1MDB, in Kuala Lumpur.PHOTO: BLOOMBERG

KUALA LUMPUR - This time last year, relations between Malaysia and Abu Dhabi plunged to an all-time low after Kuala Lumpur defaulted on a multibillion-dollar financial assistance arrangement for scandal-plagued state fund 1Malaysia Development Berhad (1MDB).

But after the 1MDB financial assistance package became a key part of a United States Justice Department probe into alleged money laundering in July last year, both sides were forced to open backdoor channels to get bilateral ties back on track and to work on hammering out a settlement for the dispute, according to financial executives and government officials close to the matter.

Messy and protracted arbitration over the dispute would have brought into the open serious failings in the management of state-owned entities such as 1MDB, Abu Dhabi's International Petroleum Investment Company (IPIC) and its associate concern Aabar Investments, they said.

Led by Mr Khaldoon Al-Mubarak, the managing director of Abu Dhabi's giant sovereign wealth fund Mubadala Development, and Datuk Amhari Efendi Nasaruddin, who is Prime Minister Najib Razak's principal troubleshooter for economic affairs, both sides worked out a settlement to the dispute.

Both sides reached an agreement in principle late last week, and legal documentation for the proposed settlement was finalised on Friday (April 21), according to legal and financial executives, as reported by The Straits Times on Thursday.

 

Abu Dhabi is expected to officially announce the proposed settlement on Monday, legal executives close to the situation said.

 

The Malaysia-Abu Dhabi dispute centres on agreements in which the Gulf emirate agreed to guarantee two bond issues amounting to US$3.5 billion (S$4.9 billion) in May 2012.

1MDB has maintained that it made several payments to the tune of US$3.54 billion to units of IPIC and Aabar under obligations of the bond issue. But Abu Dhabi said it did not receive a large chunk of those payments.

International investigations revealed that the funds were sent to a company in the British Virgin Island set up to appear like a subsidiary of IPIC. These funds were later distributed to associates of Datuk Seri Najib and business interests linked to a former representative of the Abu Dhabi government, Mr Khadem Al Qubaishi, according to the investigations.

In July last year, the US Department of Justice (DOJ) filed civil suits for alleged money laundering involving funds at 1MDB and the Abu Dhabi concerns.

Mr Qubaishi, who served as IPIC's managing director, was arrested in the Gulf emirate. He has yet to be charged with a crime.

Under the Malaysia-Abu Dhabi agreement, which is to be signed in the coming days, Kuala Lumpur will repay a loan of about US$1.2 billion in two equal instalments. The first payment of roughly US$603 million will be made before end-July and the balance before the end of the year.

Malaysia will also honour all obligations to bondholders of the 10-year US$3.5 billion bond issue that was raised in May 2012 under the settlement.

The proposed agreement will be closely scrutinised by international regulatory agencies that have begun money-laundering probes into 1MDB's financial dealings.

The successful implementation of the proposed settlement could impact legal action being considered against 1MDB by foreign governments, including the DOJ.

Legal executives noted that the settlement agreement between Malaysia and Abu Dhabi would achieve what is known in legal parlance as "no predicate offence".

A predicate offence is a crime that is a component of a more serious crime and in the US, it frequently applies to actions providing funds for money laundering and the financing of terrorism.