Introduction

1MDB was founded on January 2009 and it drives a sustainable long-term

economic growth and development in Malaysia. The organizational goals of 1MDB
include major development in an array of different economic sectors which include
tourism, agribusiness and real estate. 1MDB has attracted numerous leading key
players in the international financial growth market in Malaysia which drive and
sustain socio-economic growth in various strategic sectors of the economy.

In recent years, 1MDB has faced backlash from whistle blowers, local and
international mass media, agencies and the citizens of Malaysia due to its
unscrupulous activities which led to the infamous corruption scandal. The
mismanagement of the organizations funds and the lack of transparency are some
of the several issues that troubles the organization also inhibit the economy growth
of Malaysia in world ranking to 54 out of 168 countries from 50. The organizations
debt levels is soaring at an alarming rate as it is not able to settle its debts with its
creditors

Thus, it is important to highlight the 1MDB issues to state the causes and the
effects that will affect Malaysia as a sovereign nation. Several recommendations will
be analyzed and elaborated to help solve issues related to corruption within an
organization. Organizational Behaviour theories will be linked to the issue to
determine the reasons on why and how these serious issues occur in 1MDB even if
it is under the Malaysian Governments control and supervision.

Company Background
1Malaysia Development Berhad (1MDB) is a strategic development company
which is fully owned by the Government of Malaysia. The company was founded in
year 2009 and it aims to drive strategic initiatives for sustainable economic
development for the country by forging strategic global partnerships and promoting
foreign direct investment. 1MDBs major role is to lead market-driven initiatives to
assist the Government in propelling Malaysia towards becoming a developed nation
in 2020 that is highly competitive, inclusive and sustainable. 1MDB has a threetiered governance comprising of a Senior Leadership Team, Board of Directors and
the Board of Advisors. Our Prime Minister, Dato Sri Mohammad Najib Tun Abdul
Razak is the Chairman of Board of Advisors, Tan Sri Dato Seri Lodin Wok
Kamaruddin, the Chairman of Board of Directors and Arul Kanda, the President and
Group Executive Director.
The company was originally started as Terengganu Investment Authority
(TIA), which is a sovereign wealth fund aimed to ensure economic development for
Terengganu and also protecting the economic well-being of the residents of
Terengganu. TIA was established in the year 2008 and was later renamed to
1Malaysia Development Berhad (1MDB) on January 2009. The announcement was
made by the Prime Minister Dato Sri Mohammad Najib Tun Abdul Razak. In his
speech, he said that the decision to expand TIA into a government entity is to
enable the companys benefits to expand and reach a broad spectrum of Malaysians
rather than to the residents of a state only.
1MDB focuses on strategic development projects in the areas of tourism,
energy, agribusiness and real estate. On 30 September 2009, 1MDB and PetroSaudi
International Limited had set up a US$2.50 billion joint venture company which
aimed to obtain foreign direct investment from the Middle East to Malaysia. 1MDB
also signed a co-operation framework agreement with State Grid Corporation of

China on 11 January 2010. This collaboration is aimed to undertake energy-based

projects in the Sarawak Corridor of Renewable Energy and then becoming its major
investors. Following that, on 18 January 2010, 1MDB signed a co-operation
agreement with Abu Dhabi Future Energy Company to explore green technology
projects. After that, the company also had collaboration with Qatar Investment
Authority and Mubadala Development Company to develop the Tun Razak Exchange
project in Kuala Lumpur. Recently, the company agreed to sell its energy assets to
China General Nuclear Power Group
1MDB Issues
i.

Corruption scandal

The purpose of 1MDB is to transform Kuala Lumpur into a global financial

nexus. According to Fuentes (2014), U.S. authorities are gathering information to
determine if the matter will become a focus on any investigations into the 1MDB
scandal. The country's state fund that has been embroiled in corruption scandal
since July, when $700 million was traced and transferred from the organizations
fund to the personal bank accounts.
Wall Street Journal (WSJ) has reported that Goldman Sachs advised
organization on three acquisitions which include a $740 million acquisition on asset
in 2012. According to Galani (2015) and Whitman (2015), in that specific purchase,
Goldman Sachs helped with financing through its Principal Funding and Investment
desk, which was effectively and consistently used by Goldmans own funds to pay
for the deal. Goldman also earned $600 million in fees to help 1MDB sell $6.5 billion
in bonds. Goldman Sachs is one of the culprits in the corruption scandal and the
organization is currently being investigated by the Federal Bureau of Investigation
and the U.S. Department of Justice.
1MDBs corruption scandal also include other individuals like Jho Low, a
Malaysian financier. According to The Malaysian Insider (2015), A UK-based website
revealed that the 1MDB PetroSaudi joint companys $700 million loan repayment to
PetroSaudi in 2009 was a front and funds channeled to a firm allegedly owned by
Jho Low, called Good Star Limited. Sarawak Report reported that Jho Low was
3

involved in $700 million loan straight after the signing of the agreement between
1MDB and PetroSaudi and copied n on every step. The $700 million had been
loaned from PetroSaudi Caymans Holdings to the 1MDB joint venture company
according to copies of the PetroSaudi loan agreement that obtained by Sarawak
Report.

ii. Mismanagement of Organizations fund

A few months after the inception of 1MDB in 2009, the organization drew
controversy where board members of 1MDB started to complain about the
organizations dealings and activities. Its vice activities causes it to accumulate a
debt of up to hundreds of millions in Malaysian currency. According to minutes of
1MDB board meetings, board members of 1MDB expressed their concern that only
$300 million was transferred directly to PetroSaudis account while the remaining,
$700 million was channeled to an unknown account which was not part of the joint
venture.

Application of Theory to Solve the Issues

Everyone has their own beliefs regarding on what is right and what is wrong
or what is good and what is bad. These own beliefs will lead to the decision and
action

of

the

person.

According

to

Kohlbergs

theory

of

cognitive

moral

development, people will develop over the years in their capacity to understand
what is right and wrong. Every individual are different in cognitive moral
development. There are three levels of moral development in the Kohlbergs theory
which are pre-conventional level of moral reasoning, conventional level of moral
reasoning and post-conventional level of moral reasoning. Pre-conventional level of
moral reasoning states that people at this level havent yet developed the capacity
to assume the perspective of others, leading them to interpret what is right solely
with respect to themselves. At conventional level of moral reasoning, people judge
right and wrong in terms of what is good for others and society as a whole. Next, at
post-conventional level of moral reasoning, people judge what is right and wrong
not solely in terms of their interpersonal and societal obligations, but in terms of
complex philosophical principles of duty, justice, and rights. The individuals which
involved in the corruption and mismanagement of fund scandals are individuals with
conventional level of moral reasoning, they judge the right and wrong of something
that are believe to be good to others and society as a whole. They did not attain the
5

post-conventional level of moral reasoning that judge right and wrong of something
in a more complex philosophical principles of duty, justice and rights. They simply
think of finding more money to develop the country through the unethical behavior
of corruption to obtain the money.
To prevent the unethical behavior and to supervise the behavior of the
employees, the organization should set up a code of ethics which are a document
describing what an organization stands for and the general rules of conduct
expected of employees. Ethics is a very important element that an organization
should have. Ethics is defined as the standards of conduct that guide peoples
decisions and behavior. Based on this code of ethics, people are guided in ways that
influence their behavior, influence the decisions they make and the actions in which
they engage. Some codes of ethics of some organization are highly specific in
stating some standard, for example the maximum size of gifts that can be accepted
and given to the suppliers or customers. In contrast, some organizations code of
ethics are more general in nature, specifying only the general guidelines that should
be taken into account when making decisions.
Moreover, the organization can prepare an ethics training to its employees.
The codes of ethics will be ignored by the employee if there is no ethics training
provided to the employees. Ethics training is a program that teaches or trains the
employees of the organization with reference to the codes of ethics and this
programs can reinforce the organizations employees ethical values. Besides, it will
help the employees to remember and understand more about the codes of ethics of
the company so that they will not ignore the existence of the standard.
Furthermore, an ethics audits should be establish to ensure their employees
behave well in the organization. Ethics audits is a practice of assessing an
organizations ethical practices by actively investigating and documenting incidents
of dubious ethical value, discussing them in an open and honest fashion, and
developing a concrete plan to avoid such actions in the future. The practice of ethics
audits is very useful and important to supervise the employees so that they will not
do anything that are unethical.
In addition, an organization should have an ethics committee in their
management team. An ethics committee is a group of senior-level managers from
6

various areas of the organization who assist an organizations CEO in making ethical
decisions. This committee will develop and evaluate company-wide ethics policies.
With this committee, a good behavior of the organization can be practiced and
maintained in the management of the organization.
The issues that happened in the scandal of 1 Malaysia Development Berhad
is due to the unethical behavior of the management executives of the fund. To fix
the ethical problem of the employees, the organization should practice the right
ethical theory in the organization. With the implementation of ethical theory in the
organization, unethical behavior cases will not happen anymore if the organization
take this issues seriously.

Recommendations to resolve the problems

There are several ways to resolve the fund mismanagement issues or corruption
scandals that occur in an organization. One of the ways that is recommended to
resolve the issues that occurs in 1MDB organization is by doing a complete and
professional internal investigation. Internal investigation will uncover the truths and
facts about the corruption scandal that happens behind the scene. It might be a
difficult task as it can be costly, disruptive and time consuming. However, a well
run internal investigation can help detect and settle all the suspicious activities,
speculations and unclear scandals that happens in 1MDB organization.
In conducting an investigation, it is important to have a good planning,
consistent effective execution, analytical skills and a solid grasp of the legalities
7

involved. A typical element of an internal investigation include collection and

examination of written or recorded evidence. In the 1MDB issue, the evidence
related to corruption and mismanagement of funds is obtained and investigated by
higher authorities to determine the culprits that are behind the vice activities. The
people related to the scandal will include the suspects and witnesses are needed to
be investigated through an interview. In this case, even though the suspect denied
taking the fund from 1MDB for personal gains, the investigation must proceed in a
professional manner. Internal investigations on individuals will include the personal
background check and performance of individuals in the organization in order to
obtain more evidences.
Besides, the other recommendation to resolve the issues happen in 1MDB
organization is encourage transparency and independence of operation of the
Malaysian Anti Corruption Commission (MACC), Public Accounts Committee (PAC),
Bank Negara and all other organizations. The application of transparency and
independence in operations make it easy to resolve the issues behind the 1MDB
without any obstacles, fears and interference from any third party and it can help to
restore the public confidence in the operation. However, the Malaysian government
makes it difficult to investigate the 1MDB scandal by slowing down investigative
operations.
It is also highly pertinent to ensure that the integrity of Malaysian Anti
Corruption Commission as an independent anti-corruption commission is to be
maintained and will not be compromised. Public Account Committee that is
responsible to make public the interim reports by the auditor general on 1MDB,
cited that public concerns in the 1MDB issues. In these issues, the position of
Former Deputy Prime Minister Muhyiddin Yassin and other ministers that have been
replaced, triggered a widespread criticism among Malaysians, with many calling for
a transparency and independence of operations in the 1MDB scandal.

Furthermore, the arrest of whistle blowers that drew public attention to the
1MDB issues must be stopped in order to solve the 1MDB scandal. Whistle blowing
is good as it is needed to unmask dangerous behaviours that needs to be stopped
and it exposes individuals that are involved in corruption, fund mismanagement and
8

fraud. In the 1MDB issue, the scandal was reported independent publications, The
Edge Malaysia and The Edge Financial Daily who also raised the issue on the
corruption scandal. However, the local news channels bend facts which lead to
misjudgment or misunderstanding among netizens. Moreover, Sarawak Report and
Wall Street Journal which reported the issues of 1MDB helped exposed the truth
behind the funds transferred. The fact related to this issue must be in a legal way so
Malaysians not became confuse and make their own speculations.
The last recommendation on solving the corruption scandal is to establish a
check and balance system. The justice system must be reinforced and protected so
that any individuals that are involved in vice activities can be prosecuted and
charged in court. In the 1MDB issues, the mismanagement of funds occur because a
corrupted individual with selfish needs and greed steals money from the
organizations funds. In the check and balance system, the mismanagement or
corruption in 1MDB can be detected by conducting of external and internal audit by
an independent audit committee. Therefore, the audit committee must work on
check and balance system to gather information about the financial operations of
the 1MDB organization and to conduct additional fact finding where there is reason
to believe corruption and mismanagement of fund occur.

Conclusion
In conclusion, the crisis of 1MDB affect most of the Malaysian either physically
or mentally, we welcome outsiders help with a big heart not knowing the after
effect. We let Malaysia to be exploited when we can form our great army to solve
the issues independently as mostly Malays are the dominant. They should stand for
9

Malaysia as they are the first owner of the country. Hence Malays play a crucial part
in Malaysia Economics. If 70% of Malays willingly to join hands in increasing the
Malaysia economy, we are sure worth the compete . Even so, investigation of the
1MDB corruption scandal is inconclusive and still ongoing even with the present and
obvious evidences and proofs provided by whistle blowers through independent
media outlets. This case is heavily monitored by both the citizens of Malaysia and
individuals and entities outside of Malaysia. The corruption scandal that involved
hundreds of millions of Malaysian Ringgit will have a negative impact on the image
of Malaysia. Investors are not confident in the Malaysian market and will avoid
investing funds in Malaysia which led to the drop in the value of the Malaysian
currency that will have a disruptive effect on the economy.
The issue needs to be taken seriously as it involves key people in the
government which will cause distrust and disharmony in the country. Investigators
on the issue must be quick, intelligent and brave in solving the issue as there are
people in the government who is trying to cause disturbance and disruption in the
investigations. The integrity and rights of various anti-corruption agencies must be
uphold as these agencies play a vital role in the check and balance system.
Whistle blowers, independent reporting channels and law enforces must work
hand in hand to expose scandals and work together to solve the issue. The
individuals involved in the 1MDB corruption scandal must be arrested and charged
in court as they have committed fraud and misused their power in managing public
funds.

References
10

Fuentes, S. (2014). 1MDB scandal coming to the surface. Retrieved from

http://www.freemalaysiatoday.com/category/nation/2014/12/13/1mdbscandal-coming-to-the-surface/

Galani, U. (2015). A Goldman risk. Retrieved from

http://www.breakingviews.com/malaysia-mess-puts-goldman-sachs-in-thehot-seat/21210973.article

Sarawak Report. (2015). Millions of cash go into Rosmahs account. Retrieved

from
http://www.sarawakreport.org/2015/07/millions-in-cash-go-into-rosmahsaccount-how-come-exclusive/

The Malaysian Insider. (2015) Jho Low allegedly siphoned off US$700 million
from 1MDB. Retrieved from
http://www.themalaysianinsider.com/malaysia/article/jho-low-allegedlysiphoned-off-us700-million-from-1mdb-says-website

Whitman, E. (2015). Najib Razak 1MDB Corruption Scandal.

http://www.ibtimes.com/najib-razak-1mdb-corruption-scandal-usinvestigating-goldman-sachs-adviser-malaysian-2141319

11

Appendices

GOVERNANCE
Board of Directors
Share on facebookShare on twitterShare on email
YBHG TAN SRI DATO' SERI LODIN WOK KAMARUDDIN

Chairman
Tan Sri Dato Seri Lodin is the Chief Executive of Lembaga Tabung Angkatan Tentera
(LTAT, Armed Forces Fund Board) since August 1982 and the Group Managing
Director and Deputy Chairman of Boustead Holdings Berhad, one of Malaysias
oldest diversified conglomerates, since 1 July 1991 and 3 March 2010.
Prior to joining LTAT in 1982, he was with Perbadanan Kemajuan Bukit Fraser
(Frasers Hill Development Corporation) as its General Manager from 1973 to 1982.
Tan Sri Lodin has extensive experience in not only managing a provident fund but
also in the establishment, restructuring and management of business interests
ranging from plantation, property, pharmaceutical, heavy industries, trading and
industrial and finance and investment.
Tan Sri Lodin is the Chairman of Boustead Heavy Industries Corporation Berhad,
Pharmaniaga Berhad and 1Malaysia Development Berhad. He is also the Deputy
Chairman of Affin Holdings Berhad, and sits on the Boards of Affin Bank Berhad,
Affin Islamic Bank Berhad, Affin Investment Bank Berhad, AXA AFFIN Life Insurance
Berhad, Boustead Petroleum Marketing Sdn Bhd, MHS Aviation Berhad, The
University of Nottingham in Malaysia Sdn Bhd, FIDE Forum and the Minority
Shareholder Watchdog Group.
Among the many awards Tan Sri Lodin received to-date include the Chevalier De La
Legion DHonneur from the French Government, the Malaysian Outstanding

12

Entrepreneurship Award, the Degree of Doctor of Laws honoris causa from the
University of Nottingham, United Kingdom, the UiTM Alumnus of The Year 2010
Award and The BrandLaureate Most Eminent Brand Icon Leadership Award 2012.
He graduated from the College of Business Administration, The University of Toledo,
Toledo, Ohio, United States of America, with a Bachelor of Business Administration
and Master of Business Administration in 1972 and 1973 respectively.
ARUL KANDA

President and Group Executive Director

Arul Kanda brings a wealth of experience in investment and senior management
leadership roles.
He has extensive expertise in structured finance, corporate finance and
restructuring across multiple markets including in Malaysia, the UK and the Middle
East.
He joins 1MDB from Abu Dhabi Commercial Bank (ADCB), where he was Executive
Vice-President and Head of Investment Banking, having previously worked in
leadership positions at Barclays Capital and Credit Agricole.
He also served on the Board of RHB Investment Bank Berhad. Arul is a Board
Member of Global Investment House (Kuwait) and Board Member/Investment
Committee Member of the ADCB Macquarie Infrastructure Fund.
Arul is a UK-qualified Barrister, with an LLB from the London School of Economics
and an LLM from University College London.
YBHG DATUK SHAHROL AZRAL IBRAHIM HALMI

13

Datuk Shahrol has over 13 years of experience in IT Transformation, IT Integration,

Service-Oriented Architecture and complex system implementations involving large
government-linked entities, government agencies as well as local, regional and
global financial institutions. He has led key projects in Malaysia, including a multiyear transformation programme at the Employees Provident Fund as well as
planning and executing the merger of Sime Darby, Guthrie and Golden Hope to form
Synergy Drive, the world's biggest plantation company. He was also the Executive
Partner of Accenture and Managing Director of the Public Service Group of
Accenture Malaysia Sdn Bhd.
Datuk Shahrol is currently PEMANDUs Director of Oil, Gas & Energy and Financial
Services National Key Economic Areas (NKEA), as well as handling the
Governments Role in Business Strategic Reform Initiative (SRI). He is also the
President and Chief Executive Officer of Malaysia Petroleum Resources Corporation
(MPRC), an agency to promote, catalyse and transform the oil and gas services and
manufacturing sector to become stronger entities in the industry.
Datuk Shahrol was the founding Managing Director and Chief Executive Officer of
1MDB.
Datuk Shahrol graduated from Stanford University in the United States of America
YBHG TAN SRI DATO PADUKA ISMEE ISMAIL

Tan Sri Dato Paduka Ismee is the Group Managing Director and Chief
Executive Officer of Lembaga Tabung Haji, the national pilgrim fund board.

14

He sits on the Board of TH Plantations Berhad, which is the investment arm of

Tabung Haji involved in the cultivation of oil palm, including processing and
marketing of crude palm oil and related products. Lembaga Tabung Haji is also
involved in property development through its subsidiary, TH Properties Sdn Bhd.
Tan Sri Dato Paduka Ismee holds directorships in a number of public and private
companies, including Bank Islam Malaysia Berhad, its parent company BIMB
Holdings Berhad and Syarikat Takaful Malaysia Berhad.
He was previously the Chief Executive Officer of ECM Libra Securities and Director of
ECM Libra Capital Sdn Bhd. He had served several organisations in various
capacities, including as Senior General Manager of Finance, Lembaga Tabung Haji;
Chief Accountant at the national asset management company, Pengurusan
Danaharta Nasional Berhad; and General Manager, Business Development of Arab
Malaysian Development Berhad. He also held various positions in Shell Malaysia
Berhad.
He is a Fellow of the Chartered Institute of Management Accountants (UK) and a
Member of the Malaysian Institute of Accountants

YBHG TAN SRI DATO' ONG GIM HUAT

Tan Sri Dato' Ong has 30 years of experience in the construction and
real estate business, including trading of building materials and hardware. He sits
on the Board of several other private limited companies, including Southern Pipe
Industry (M) Sdn Bhd, a subsidiary of Southern Steel Berhad.
Tan Sri Dato' Ong is active in community services, serving as Vice President and
Trustee of Lam Wah Ee Hospital, Penang, a charitable and non-profit organisation
which runs the 500-bed hospital. He sits on the Board of Governors of several
National Type Chinese Schools in Penang. Among others, he is the Vice Chairman of
15

Union High and Primary Schools, Penang, the Assistant Secretary of Penang Chinese
Girls High and Primary Schools, Assistant Treasurer of Chung Hwa High and Primary
Schools and Honorary Patron of Chung Ling High School, Penang and Butterworth.
He is actively involved in promoting the local economy of Penang. He is the Past
Chairman of Real Estate and Housing Developers Association, Penang Branch, and is
a member of the Trustee of Master Builders and Building Materials Suppliers'
Association, Penang. He was also a Vice-President of Penang Chinese Chamber of
Commerce from 1994 to 1998.
Tan Sri Dato' Ong graduated with a Bachelor of Commerce (Hons) from University of
Manitoba, Winnipeg, Canada in 1976.
ASHVIN J.VALIRAM

Ashvin is the Executive Director of the Valiram Group, the region's

leading luxury goods retailer and travel-retail specialist.
He was instrumental in transforming the Valiram Group from its traditional textiles
business to luxury fashion, delivering cutting edge-retail concepts in the domestic
and travel retail arena. His achievements include the opening of "first-to-market"
brands and securing exclusive distributorship rights for iconic international brands
across the region.
In late 1996, Ashvins innovation lead the group to break new ground in opening the
worlds first retail store at an airport specialising in selling fabrics. Today, the
Valiram Group has evolved into a growing retail conglomerate. The Group operates
in 10 countries with 250 stores, representing 150 brands across Australia, China,
Hong Kong, Indonesia, Macau, Malaysia, Philippines, Russia, Singapore and Thailand.
The Valiram Group, with its headquarters in Malaysia, is one of the most prestigious
specialist retailer in Southeast Asia.

16

Ashvin is an active member of the Entrepreneurs Organisation and has held the
position of Vice-President of Duty Free Operators Association in Malaysia from 20032006.
He obtained a Bachelor of Science (BsBA) with double Majors in Finance and
Accounting and a Minor in Economics from The American University, Washington
D.C. He also attended the Monetary Economics & Business Strategy Summer
Program at the Harvard Business School.

17