Fund while it lasted: the 1MDB scandal

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Hello and welcome to the intelligence on Economist Radio. I'm your host Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. Today, the former prime minister of Malaysia goes on trial. Najib Razak is in the dock for his alleged involvement in a scandal that has outraged the country. Billions of dollars have gone missing from a state run divor development fund. He denies all seven charges that he faces today in the first of several trials. Scandals, though, take different forms, from one MDB's bilked billions to Facebook's sloppy use of customer data to Wells Fargo's millions of fraudulent accounts. Now the spotlight has fallen on Purdue Pharma, the maker of OxyContin. Thousands of lawsuits have been filed against the company alleging that its business practices contributed to America's opioid crisis. We take a look at what the scandals coming from AM American businesses seem to have in common. And older TV viewers in China are scandalized too about how a wildly popular soap opera depicts the realities of adults relationships with their elderly parents. First up though, Najib Razak became Prime minister of Malaysia in 2009 with a promise of political reform. Early in his tenure, he began overseeing a national fund to pay for development projects in the country. It was called One MDB and it aimed to encourage foreign investment. But by 2016 One MDB had gone very, very wrong.

You look happy. Can I ask you, sir, why you haven't resigned over personal involvement in a corruption scandal of global proportions? Sir, are you going to Resign?

Prime Minister, Mr. Najib is being tried on dozens of counts of money laundering, corruption and abuse of power related to his oversight of one mdb. The trial had been delayed for two months because of appeals lodged by his lawyers. If he's found guilty, he could spend decades in prison. Following the initial allegations, Mr. Najeeb ordered an audit of one MDB. But the final report was never published. There was huge public anger and in 2018, the Malaysian people voted him out of office. Now more significant judgments await him.

According to America's Department of Justice, between 2009 and 2015, 1mdb, which is an acronym for a Malaysian State development fund, raised billions and billions of dollars, but also $4.5 billion disappeared from it.

Miranda Johnson is our Southeast Asia correspondent.

And that money passed through a maze of institutions and shell companies and accounts in the midd. In the Caribbean and the Seychelles. And a lot of it went on parties, it went on private jets. Some of it went to fund the film the Wolf of Wall street, which of course, ironically, is about scamming. And the mastermind behind this allegedly is a Malaysian financier called Jho Low. Others being looked at in one MDB are Najib Razak, the former Malaysian Prime Minister himself.

And so what exactly is Mr. Najib accused of?

Mr. Najib denies wrongdoing in any of this. And he says that money he received, in particular a $600 million sum which ended up in his personal bank account. He says that that was a gift from an unnamed Saudi royal. He's facing several trials relating to dozens of counts of money laundering, abuse of power and criminal breach of trust, all of which he. This initial trial relates to $10.6 million which went awry from SRC International, which was a unit of one MDB set up to invest in energy projects. So basically, the 1mdb scandal is so massive that prosecutors are breaking it down bit by bit, trial by trial.

So concerns about this fund and how it was used clearly go back quite a few years. Why has it taken so long to bring this to court?

So there is obviously a big political element here. We saw the change in government in Malaysia last year and Mr. Najib lost power. And under his administration, a lot of investigations into the larger 1mdb scandal were squashed. With the new administration, those investigations were opened up again and they Moved quickly. Malaysian anti corruption officials and other others were seen entering Mr. Najib's properties very shortly after the election. And they took out boxes of expensive handbags and they confiscated jewelry and cash.

The most expensive uni for cost is a necklace. The retail price will be touching 910 to 1.1 billion ringgit.

The media loved it. I mean, it obviously was quite a scandal.

So tell me more about Mr. Najib. What kind of person is he?

So he is the son of a former Prime Minister. He's a political animal. He's a showman, very influential in his party for a number of years, since he has been booted out of office, he's had a bit of an image shift. He was renowned for wearing extremely smart suits and his wife was known for for her jewelry and her silk attire. And more recently on his social media pages, on his Instagram, he has been seen wearing jeans and hoodies and visiting people in hospital. And he's trying to generate a larger movement around him and around sympathy for him, for the way he's being treated. Recently he recorded a version of the 1970s soul ballad by the Manhattans called Kiss and say Goodbye. To be honest, the whole thing is quite excruciating. He's in a recording booth with several young people. He translates the lyrics into Malay and adapts them in a bid to redeem himself before Malaysians and around the one MDB scandal. But it's all part of this greater campaign to invoke, you know, sorrow and sympathy for the way he's been treated over one mdb, even though he says that he's innocent.

But what he's actually accused of is involvement anyway with the moving of $600 million. What about the rest of it? The whole scandal involves many billions.

So Joe Low, the Malaysian financier, is thought to be the mastermind and also thought to have spent rather a lot of the money on parties and yachts and other things. He was known to hang out with celebrities such as Paris Hilton and Leonardo DiCaprio. I spoke to his spokesman through his lawyers, and spokesman said that the deals under investigation were undertaken openly and lawfully. And he added that Mr. Lowe intends to defend himself against these false allegations. Others being looked at are those who help to enable the fraud, allegedly including Goldman Sachs. Goldman faces particular trouble for underwriting three bond offerings for one MDB, which were worth more than $6.5 billion in total.

What about the Malaysian people? What do they make of all this?

So I think that Malaysians have in some ways been shot by the scandal and by images of handbags and boxes coming out of their former prime minister's home. In other ways, they somewhat are moving on. They voted last year, possibly with one MDB in mind, and now they want the new government to make progr, but also to implement reforms and new policies.

Miranda, thanks a lot for joining us.

Thanks, Jason.

It's not only politicians who face allegations of misconduct. Big businesses are also dealing with a slew of scandals. Household names are confronting damning accusations and the bad press that comes with them. From Volkswagen to Wells Fargo to Facebook.

We didn't take a broad enough view of our responsibility and that was a big mistake and it was my mistake and I'm sorry.

Recently, a lesser known name, Purdue Pharma, has come under fire. It's accused of misleading the public about the risks of OxyContin, its blockbuster pain medication. The firm now faces thousands of lawsuits that claim it's fueled America's opioid crisis, which in 2017 alone claimed almost 50,000 lives. The Economist's international editor, Simon Long, has been talking to Patrick Fowles, our business affairs editor, about the changing nature of corporate scandals.

Patrick, why do you think we're seeing so many scandals in America the moment?

The interesting question is America's always had this sort of different approach to business. So you have the dynamism of the American economy with companies seeking to take on established wisdom, to push the rules, to push the boundaries, which is a good thing in many ways and why America is so innovative against that. You've always had three restraints in America. One is obviously regulation, but the other two are more distinctly American. It's litigation, so the threat of class action, lawsuits and and so on. And the last one is competition in the sense that if you really do badly by your customer, actually someone else might win market share. And our sense is all three of those restraints on business may have weakened a bit over the last 10 or 15 years, which could explain why there seems to be an upsurge in kind of more risky behavior by businesses.

It says something about the corporate culture of the individual firms, doesn't it, that they reward success in narrow terms rather than put past the doing right, there's a risk.

We're a bit too kind of nostalgic about that. I mean, if you go back to the 60s and 70s when America was a more corporatist place, with businesses sort of signing up to the national good as one of their objectives, it was also famous for having terrible consumer standards. So the carmakers in Detroit, in the words of Ralph Nader, a campaigner and former presidential candidate, were unsafe at any speed. And similarly, you know, an interesting side note is Scandinavian companies have always been famous for having a kind of inclusive model that considers other stakeholders. At the moment, it's also the center of an enormous money laundering scandal. So my sense is that the specific objectives of individual companies are less important than these bigger structural factors.

It does suggest, though, something of a failure of the legal system, doesn't it, that the punishments have not been sufficient to deter bad behaviour?

Yes. So if you talk to class action lawyers in America, who are a very special breed of people who love taking on these huge companies, I mean, what they say is if you go back 15 years ago, the risk of a serious class action lawsuit was enough to terrify companies into settling quickly. They were worried their stock price would fall, they were worried that the case would spiral out of control. What's happened since then is companies have got much bigger through consolidation, so the damage caused by a billion dollar fine for many big American companies is peanuts. I mean, it just does not move the needle. And also some of the details of the litigation process have been tilted towards companies who found it easier to defend. And the effect of all of that means that whereas once the class action lawsuit was enough to terrify the typical chief executive, enough perhaps, that they avoid doing dangerous things, I think now it's seen more as a bearable cost of doing business, in which case it's obviously.

Good business for lawyers, but it must also be great business for public relations companies, because the reputational risk then must be more of a worry than the fines.

I think that's right. But for these things to become a sort of PR problem, in a way, makes them relatively trivial in the sense, I think companies probably feel they have to withstand a period of opprobrium in public and blowback on social media and that kind of thing, which is clearly a problem. But it's not the same as being told you will face a bill that is so big your share price will fall significantly or the company may even go bust. And that's the difference between having a few unpleasant weeks and having an existential crisis.

And I suppose we're bound to hear, as one often does, complaints that not enough business people go to jail.

In the crisis of the 1990s, the accounting crisis, you did actually see big figures go to prison. And a couple of the executives, Enron were probably the most famous example of that. The financial crisis, roughly 10 years on, didn't really, somewhat amazingly, to be honest, result in a Big figure going to jail. It's possible that this new outbreak of crisis in America could result in sort of criminal charges of some kind happening. That's very hard to predict. But one thing is clear, it's happening at a time when the mood of the public towards big business is probably more hostile. There's a sense the system doesn't work and that's the kind of febrile atmosphere that these corporate incidents are taking place in.

And what about ownership though? I mean, we're seeing Purdue pharma family held concern in trouble as well as a lot of huge listed companies, companies.

It's hard to generalise and again, I think anti capitalists might argue that private ownership is inherently unethical. But if you look at one of the biggest European scandals, Volkswagen, it has a significant government in Germany as a major shareholder and it also has workers on its board. So I think you can have scandals in all forms of businesses. To me, it's not the corporate form that necessarily causes scandals, but more the kind of broader framework that society, society puts around businesses to try and temper their appetites for risk.

Patrick, thanks very much.

Thank you very much.

You can hear more about what's going on with Purdue Pharma and about the members of the Sackler family who own it on Money Talks, the business and finance show from Economist Radio. Find it wherever you listen to podcasts. In their glossy way, soap operas do reveal some truths about a society, about its fears and ambitions, its view of itself. But sometimes they can expose tensions confronting deeply held values.

All Is well is a show about a fictional middle class Chinese family torn apart by conflict.

James Yan is a China correspondent for the Economist.

The three adult siblings don't get along with each other. The middle sibling is a wife beater. The widowed father is an old crank who throws temper tantrums and expects his two adult sons to fund his lavish tastes. The two sons, unsurprisingly, are not too happy about this.

I mean, it sounds like a sort of fairly standard issue family TV drama. How's it going down?

Well.

All Is well is by far the most popular TV series in China right now. Episodes of All Is well have been streamed more than 400 million times since the first episode aired on 1 March. The hashtag for the show, which is called Dou Ting Hao in Chinese, has been one of the most popular trending hashtags on Weibo, China's version of Twitter, for the past 20 days or so.

And so what do you think is driving this wild popularity?

Well, I think A couple reasons. The show stars one of China's most famous actresses, Yao Chen. Unlike many Chinese TV shows, this show makes a bigger point about Chinese society. It questions blind attachment to filial piety, which is this Confucian principle still widely held in China today, which says that children, even adult children, must be absolutely loyal to their parents and that they cannot say no to their parents demands.

So how is this show kind of upending those ideas?

Well, the show upends those ideas by portraying the elderly father as a nagging old crank. Rarely do you come across a TV show in China that portrays Chinese parents in such a negative light. So in this show, for example, the father, quite unreasonably expects his eldest son to buy him a three bedroom apartment. The father insists on eating the most expensive food. He throws temper tantrums if dinner is not served on time. And so viewers are meant to sympathize with the three adult siblings who do not want to be labeled unfilial, but secretly resent having to serve their father.

So why is this idea of ophelial piety so deeply held in China?

Well, because Confucian principles in China still hold sway even today. Young children are taught to obey their parents, to never say no to their parents, and are told by their parents that it's up to the children to take care of their parents in old age. A recent poll by an online news site, Toutiao, found that 54% of elderly people in China get more than half of their expenses covered by their adult children.

So viewers clearly kind of take some delight in seeing these notions challenged. I mean, at the same time, that must be, well, rankling the old guard.

Yes, very much so. And the show has received mixed reviews in state media. One conservative paper, the Beijing Daily, called the show unrealistic for caricaturing elderly parents. That editorial complained that the show had unreasonably ascribed every possible bad quality of old people to one character. So clearly some officials are not happy that the show is challenging this notion of filial piety.

But you know that some of them are going home and watching it anyway. James, thank you very much for your time.

Thank you, Jason.

That's all for this episode of the Intelligence. If you like us, give us a rating on Apple Podcasts and you can subscribe to the economist@exterator.com radio. Offer 12 issues for $12 or 12 pounds. See you back here tomorrow.