Scale of M’sia’s scandals ‘will scare off investors’

KUALA LUMPUR — The scale of the controversy surrounding state investment firm 1Malaysia Development Berhad (1MDB) and the US$681 million (S$947 million) donation to Malaysian Prime Minister Najib Razak will cause investors to be wary of dealing with state-owned firms here, a unit of world financial rating agency Fitch Group said yesterday. According to Business Monitor International (BMI), both scandals, as well as the numerous investigations launched in foreign jurisdictions, are set to damage Malaysia’s well-perceived legal environment.

BMI explained that the contrast in action taken within Malaysia, where the cases on both have been closed, versus emerging investigations elsewhere have contributed to concerns over the levels of impunity and the erosion of the rule of law here.

It said the country’s score for its legal system in BMI’s Trade and Investment Risk Index was due to decline from its currently “strong” 75.2 out of 100 (and fifth highest in the region), as the controversies will discourage foreign investment here.

“The number of international authorities investigating 1MDB operations, the size of the amount misappropriated, as well as the alleged public authority involvement in the scandal, will all concern foreign investors,” said BMI.

“Businesses will therefore be cautious to deal with Malaysian state-owned enterprises as well as government institutions, due to the heightened risk of being implicated in the corruption scandals, which could result in the imposition of fines and subsequent reputational damage — including a loss of investors, clients and customers.”

It also urged foreign firms already operating in Malaysia to protect themselves from possible corrupt practices by ensuring their compliance efforts are transparent and well-publicised.

Malaysia is behind only Singapore, Hong Kong, Taiwan and South Korea in the BMI index.

Last month, Malaysia’s Attorney-General, Mohamed Apandi Ali, announced that he found no evidence of wrongdoing in the corruption probes on SRC International, a former 1MDB subsidiary, and the transfer of a US$681 million donation from the Saudi royal family into Mr Najib’s private accounts.

He then directed the Malaysian Anti-Corruption Commission (MACC) to close both cases.

Just days later, Swiss Attorney-General Michael Lauber said his office contacted Malaysia formally to request the country’s aid in his investigation into possible violation of Switzerland’s laws, as a suspected misappropriation of nearly US$4 billion from Malaysian state companies had been detected.

The probe was part of criminal proceedings Switzerland opened last August against two former 1MDB officials and “persons unknown”, although the Swiss Attorney-General Office clarified that Mr Najib was not one of the suspects.

Following that, both the Monetary Authority of Singapore and the Commercial Affairs Department announced that they had seized a “large number” of bank accounts and are interviewing various individuals in connection with their probes into 1MDB. MALAY MAIL ONLINE