By Dow Jones Business News
Malaysia’s top prosecutor, attempting to extinguish a months long scandal, said a nearly $700 million transfer to Prime Minister Najib Razak’s private bank account was an entirely legal “personal donation” from Saudi Arabia’s royal family.
Attorney General Mohamed Apandi Ali’s announcement was greeted with skepticism.
A Saudi government official, while declining to comment specifically on the prosecutor’s statement, said the Saudi ministries of foreign affairs and finance had no information about such a gift and that a royal donation to the personal bank account of a foreign leader would be unprecedented.
Representatives of the royal family couldn’t be reached for comment. Critics of the Malaysian prime minister said it was implausible the money had come as a personal donation.
Mr. Apandi said Tuesday all but $61 million of $681 million transferred in March 2013 was returned to the Saudis five months later. He said the Saudis asked for nothing in return for the gift.
The U.S. Federal Bureau of Investigation and other government agencies from outside Malaysia continue to investigate the transfer. Some international investigators don’t believe the nearly $700 million came from Saudi Arabia, according to a person familiar with the inquiries.
“The notion that the Saudi ‘royals’ would ‘donate’ hundreds of millions of dollars to a foreign leader, as opposed to a government institution, struck me as suspect, to say the least,” Fahad Nazer, a senior political analyst at consultancy firm JTG, said in an email. Mr. Nazer previously worked as a political analyst at the Saudi Embassy in Washington. The alleged donation occurred in 2013, during the reign of the now-deceased King Abdullah.
The nearly $700 million transfer is the most explosive element of a wide-ranging scandal involving a Malaysian government investment fund, 1Malaysia Development Bhd., or 1MDB. The fund amassed billions of debt it has struggled to repay and is now selling off assets.
The Wall Street Journal reported in July that an earlier Malaysian government investigation found almost $700 million had entered Mr. Najib’s accounts via banks, companies and entities linked to 1MDB, which Mr. Najib set up in 2009 to foster economic development.
That earlier investigation didn’t name the funds’ source or how they were used. Malaysia’s central bank, the nation’s antigraft body, a parliamentary committee and the auditor general went on to probe 1MDB and the transfers.
The scandal has led to calls for the resignation of Mr. Najib, who ran 1MDB. The Wall Street Journal reported in December that money from 1MDB was used to fund Mr. Najib’s party in a tight 2013 election.
Mr. Najib didn’t respond to questions about the transfer or the use of 1MDB money for the election. He has denied any wrongdoing or taking the money for personal gain.
The attorney general’s four-page statement didn’t address several questions Malaysian opposition figures have sought answers to, including: Who specifically donated the money? Why was it donated? Why did it take more than six months for the government to say where the money came from? And what happened to the money that wasn’t returned?
The statement also didn’t address why the money flowed to Mr. Najib’s account through an anonymous British Virgin Islands company and a Swiss private bank wholly owned by an Abu Dhabi sovereign-wealth fund that is deeply intertwined with 1MDB.
Mr. Najib, who came to power in 2009, has sought to strengthen Malaysia’s diplomatic and business ties with Gulf nations, including Saudi Arabia. Kuala Lumpur is a center for Islamic finance, and Malaysia was one of the first non- Arab countries to join the Saudi-led coalition fighting Houthi rebels in Yemen. The two nations are also majority Sunni Muslim though Saudi Arabia practices a more austere version than Malaysia.
“This is a no-win situation for Najib. Despite the AG decision, public perception will not be on his side,” said Wan Saiful Wan Jan, chief executive of Malaysia-based think tank Institute for Democracy and Economic Affairs.
Mr. Najib, in a statement, welcomed the attorney general’s decision but didn’t give any further details on the transfers or acknowledge they came from Saudi Arabia.
“This issue has been an unnecessary distraction for the country,” Mr. Najib said. “Now that the matter has been comprehensively put to rest, it is time for us to unite and move on.”
Critics of Mr. Najib weren’t satisfied by the attorney general’s conclusions. They say the prime minister has stymied Malaysian investigations into 1MDB and the transfers, an allegation Mr. Najib hasn’t specifically addressed.
Mr. Apandi “has provided no new or convincing information or arguments” to show the fund transfers were bona fide and not used for corruption, said Tony Pua, an opposition lawmaker.
Malaysia’s former attorney general, who was coordinating investigations into 1MDB, stepped down in July. The government cited health reasons for his departure and Mr. Najib named Mr. Apandi as his successor. Mr. Najib fired a deputy prime minister who had been calling for stepped-up investigations into 1MDB’s activities and promoted the head of the parliamentary committee into his cabinet, delaying the committee’s probe into the fund.
That probe, and an investigation of 1MDB by the auditor general, are continuing.
Malaysia’s central bank in October said it had recommended that Mr. Apandi begin criminal proceedings against 1MDB’s management for allegedly breaking foreign-exchange rules. But Mr. Apandi declined to take action, saying there was insufficient evidence to proceed.
Attempts to reach 1MDB for comment weren’t successful. The fund has denied wrongdoing and said it was cooperating with probes being conducted by the central bank and other investigating bodies.
The attorney general also addressed another, smaller transfer into Mr. Najib’s private accounts, saying there was no evidence the prime minister was aware of or approved of the $14 million deposit. That transaction is significant because the money came from a unit of the finance ministry, which Mr. Najib runs. The money came via a body that had been used to send money to Mr. Najib’s political allies during the 2013 election, the Journal reported in December. Mr. Najib didn’t respond to requests for comment at the time.
Margherita Stancati, Celine Fernandez and Ahmed Al Omran contributed to this article.
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