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Understanding Corporate Scandals like 1MDB and its Financial Perspectives
Behind every crime there is a purpose and intent, and this holds true particularly to white collar crimes where large corporations are often involved in a process of breaching their moral, ethical, and legal obligations towards their stakeholders. It has been often observed that political leadership can contribute to corporate corruption by establishing a political environment which is conducive to corporate crimes. But there are several other factors that propel corporate crimes, including the autocratic hierarchical structure of an organization that often centralizes power within the hands of the few, making it difficult for the stakeholders to determine the legitimacy of several of the strategies implemented by the top management organization-wide. The politics of power centralization can be considered as one of the primary factors that support the amplification of white-collar crimes from the organizational perspectives. Besides, there are several other factors, including the interplay between domestic and international organizations in the context of concealing illegitimate financial transactions under the veil of clean business operations, which also contribute largely to the propensity of a large corporation and its key players to perform acts of criminality.
Moreover, there is a specific modus operandi which such organizations follow in order to accomplish their illegitimate objectives putting the financial health of the stakeholders at stake. Hence, there is a need of understanding how a specific corporation can operate criminal activities for achieving its unethical purposes. In this respect, understanding the modus operandi of the 1MDB corporate scandal can eventually help in understanding the common reasons and ways in which corporate scandals, from the financial perspectives, often occur.
Modus Operandi of the 1MDB Scandal
As Khair et al. (2015) have pointed out, there is a close relationship between autocratic leadership, personalization of power, weakening of the governmental structure, and the growth of corporate corruption. For understanding the modus operandi of the 1MDB scandal one has to explore the aforesaid relationship. In this respect, it has to be noted that 1MDB scandal is the outcome of an amalgamation failure in the political and organizational governance. 1MDB, which had its inception in 2009, was a Malaysian state fund that was established for promoting development through foreign investment and partnerships, and the limited organization was chaired by the then prime minister of Malaysia, Najib Razak (Ellis-Petersen, 2020). The very link between the ex-prime minister and the concerned limited organization supports the postulation of Khair et al. (2015) that rebranding of neoliberalism has resulted in the proliferation of corruption at the political and corporate levels, making it difficult for the state to have control over organisations and individuals. Such lack of control resulted in endless pursuit of private gains and legitimization of illegal activities, particularly financial activities (Khair et al., 2015). Lack of state control and the personalization of political power by unethical individuals through exploiting the loopholes widened by lack of state control over organizations and key market players result in growth of corruption at political and corporate levels, with outcomes such as the 1MDB scandal. The mode of operation (modus operandi) of 1MDB scandal can be understood specifically from the perspective of the interplay between political power personalization and its misuse for the sake of appeasing illegitimate personal gains.
The personalization of power by the former prime minister of Malaysia, Mahathir, which resulted in the bail-outs of his close companions in the corporate sectors using public funds (Khair et al., 2015). What Khair et al. (2015) have pointed out is that the chain of corporate corruptions was started under the regime of Mahathir and its culmination can be explicitly seen in the form of the 1MDB scandal. The trend of personalisation of political power to appease self-interests at the cost of the wellbeing of the public and the financial health of the country that was started especially by Mahathir was reutilised by Razak in the quest of fulfilling his illegitimate objectives through heading an apparently legitimate government sponsored organization/fund. Razak, the ex-prime minister of Malaysia, under the veil of leading a welfare project sponsored by the government for developing the country’s infrastructure through foreign investment and partnerships, utilized his opportunities to personalise political power for confirming his election and for paying off his personal debts while enriching his financial position by ruining the financial prospects for the Malaysian populace. In this respect, it has to be noted that 1MDB was, since its inception, a hub of fraudulent activities and its purpose was to appease the self-interests of a handful of individuals, including its chairman, Razak (Ellis-Petersen, 2020). Utilizing the loopholes of the neoliberalist ideologies and embarking on deception to accomplish his personal gains, Razak, as the core of the modus operandi of the 1MDB scandal, got engaged in corruption through performing activities like borrowing vast sum of money via government bonds and then siphoning those borrowed sums into back accounts in Switzerland, Singapore and the United States, and among such dispersion of vast amount, Razak also filled his personal bank account with $731, part of which was used in purchasing politicians ahead of the election of 2013 and in paying off his credit card bills (Ellis-Petersen, 2020). The personalization of political power, facilitated Razak with the opportunities to spend public money on his and his wife’s lavish shopping habits (Ellis-Petersen, 2020). Moreover, it was found that the Malaysian Development Bank (1MDB) was used as a vehicle to steal large sums of money from Malaysia, and supporting this finding the Swiss authorities argued that about $4 billion was misappropriated from Malaysian government companies through 1MDB to appease the personal interests of a handful of individuals among whom Razak topped the list (Peel, 2016). Notably, 1MDB systematically developed complex financial structures for transferring money meant for infrastructural development of Malaysia into persona accounts of a handful of individuals, including Razak, and this complex financial structure contradicted the modus operandi of any government investment fund, thereby eventually drawing the attention of authorities towards the misappropriation of fund (Peel, 2016).
But the root of the problem can be found in personalization of power by Mahathir, the person who helped Razak assume the political power (Ellis-Petersen, 2020). As Khair et al. (2015) have pointed out, Mahathir personalised political power by packing the most important posts in the cabinet and infusing loyalists in the institutional infrastructure and by subsuming two vital posts, the post of the home minister and finance minister in 1998, eventually helping him to trigger a trend of corruption that was eventually capitalized by Razak later on. Moreover, Razak was shown the way how to centralise ruling party’s power in a few executives’ hands by Mahathir, leading to negative consequences like the shocking 1MDB scandal (Gomez, 2006; Saw &Kesavapany, 2006). Mahathir also contributed largely to the modus operandi of the 1MDB scandal though indirectly. This can be argued by citing the fact that the process of gaining direct control over a variety of discretionary funds that was explicitly and implicitly performed by Razak was a process which, in the political and financial contexts of Malaysia, was popularized by Mahathir (Slater, 2003). It was through personalizing political power that Razak gain control over a variety of government procedures (especially in the financial context) which helped him to illegitimately fund the flamboyant lifestyle of Malaysian businessman Jho Low, who was brought in to oversee 1MDB (Ellis-Petersen, 2020). Moreover, proving the rationality of the postulation of Khair et al. (2015) suggesting that personalization of political power through exploiting the loopholes of neoliberalism in the political sphere can give rise to corruption, Razak spent billion of dollars that belonged to the Malaysian public and was meant for the infrastructural development of the country on purchasing properties oversees, including purchase of property in Beverly Hills and Manhattan, a private jet, a yacht, paying off gambling debts, in arranging celebrity studded birthday party, and in purchasing costly diamonds for Australian model Miranda Kerr (Ellis-Petersen, 2020). Moreover, the money borrowed through 1MDB was also used by Razak to stabilize the financial health of his stepson, Riza Aziz, whose production house was provided with tens of millions of dollars that went towards funding the film, Wolf of Wall Street (Ellis-Petersen, 2020).
Final Thoughts on 1MDB Scandal
Behind every crime there is a purpose and intent, and this holds true particularly to white collar crimes where large corporations are often involved in a process of breaching their moral, ethical, and legal obligations towards their stakeholders. It has been often observed that political leadership can contribute to corporate corruption by establishing a political environment which is conducive to corporate crimes.Moreover, there is a specific mode of operation which corporates follow in order to accomplish their illegitimate objectives putting the financial health of the stakeholders at stake. Hence, for the purpose of understanding how a specific corporation can operate criminal activities for achieving its unethical purposes, the paper discussed the case of 1MDB, which reveals a stunning linkage between personalization of political power and corporate crime. The paper discussed how utilizing the process of personalizing political power exploiting the loopholes neoliberal ideologies, individuals and corporations can misappropriate money that is meant for serving the populace.
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