Catharin Dalpino on Malaysia’s 1MDB Scandal

Catharin Dalpino is a contract course chair in Southeast Asian Studies at the State Department’s Foreign Service Institute and Adjunct Professor in the Washington Program of the State University of New York-Albany. She has also taught at Georgetown University; Johns Hopkins School of Advanced International Studies; George Washington University; Simmons College; and Seton Hall University. For five years she was Director of Georgetown University’s Thai Studies Program. From 1993 to 1997 she was Deputy Assistant Secretary of State for Democracy in the State Department’s Bureau of Democracy, Human Rights and Labor.  Professor Dalpino has also been a Fellow at the Brookings Institution; a Resident Associate at the Carnegie Endowment for International Peace; an Associate at Georgetown University's Institute for the Study of Diplomacy; a Visiting Scholar in Southeast Asian Studies at SAIS; and a Nonresident Senior Fellow at the Atlantic Council.  From 1983 to 1993 she was a career officer with The Asia Foundation, and was the Foundation’s Representative for Thailand, Laos and Cambodia. In that capacity, she re-opened the Foundation’s programs in Laos and Cambodia after a hiatus of fifteen years. She was the founding director of the Aspen Institute Program on Agent Orange in Vietnam (2007-2009), which urged the US Government to provide assistance for Vietnamese affected by exposure to dioxin during the Vietnam War. Professor Dalpino is the author of two books about US foreign policy and numerous articles and journal chapters. She has testified before Congress, on both the House and Senate sides, more than a dozen times.
Kelsey Clarke CMC '22 interviewed Catharin Dalpino on March 6, 2020.
Photograph and biography courtesy of Dr. Dalpino on behalf of Seton Hall University

The 1MDB corruption scandal has not only cost Malaysia billions of dollars, but the fallout of the scandal has been significant in terms of domestic stability and international reputation. What have been the key developments over the past year?

We probably want to date it back to 2018 when Mahathir came back and began to pursue this scandal. First of all, let me emphasize that this is still an ongoing scandal. We have not seen the end of it - the Malaysian government will continue to try and recover the assets from the over $4 billion that were considered to have been stolen. They are still working with six countries, including the U.S. Department of Justice. It is not something that is a done deal. Clearly,  the most important impact is the political fallout in Malaysia. I want to be very careful not to imply that the 1MDB scandal is the only factor that has driven some of the remarkable changes in the past two years in Malaysia because there were many. However, given the exposure of the fraud and Najib’s alleged role in it, the 1MDB scandal tipped the edge. Before that, there had been a growing but cautious sense that UMNO could no longer be the dominant party in Malaysia forever. It had been the dominant party pretty much since independence, and how that transition was going to play out was very important. The scandal was also certainly one of the things that caused Mahathir to come out of retirement and challenge Najib. It certainly contributed to Najib’s downfall politically, and in 2018, Mahathir opened the investigation and proceeded to bring charges against Najib. That said, we are seeing some reversals of that with Mahathir’s resignation and there are several accounts that have led him to resign. But we never know since he has always been an opaque and mercurial personality. We now see an UMNO Part II, if you’d like. A new prime minister, who is there under sort of interim circumstances, until there is a general election but did come from UMNO. The fact that he was the one that helped expose the scandal and was very critical of Najib is important. However, it does show that UMNO is not going to be sidelined that easily. 

I also think that some of the things that have contributed to the recent turn of events, particularly Mahathir’s resignation, were the question marks that hung over the ruling coalition in the past two years, including whether and when Mahathir was going to transfer power over to Anwar. It is reasonable to conclude that he did not want to, and as the two-year promised timeframe approached, he began to do things that showed he was very reluctant to do so. So, in one sense, this may have been a maneuver on Mahathir’s part that backfired on him. It was interesting how Muhyiddin was chosen by the king, because Mahathir even as recently as last week contended that a majority of members of parliament were on his side. The king took measure of the 222 MP’s and decided that they were not. My point is that this could have the potential, if UMNO assumes a more essential role in the political area, that we could see a softening of those who are on trial, though I am not saying that we will. One thing we want to question is how vigorously Kuala Lumpur is going to want to pursue the recovery of the missing assets and how this is going to impact Malaysia’s reputation in the international community and cooperation with more than 6 countries, including the United States. 

Let me move on to another impact which is that one way, the scandal had a positive impact for Malaysia even though it did uncover tremendous amounts of corruption, in that it did give the Malaysian government a common cause with other governments to pursue an anti-corruption effort. That is a positive and an interesting after-effect of the scandal. 

You mentioned how Muhyiddin Yasin was appointed prime minister by the king this week. This has  sparked concerns that his appointment has ushered in the de-facto return of the UMNO party in the handling of the 1MDB trials. Are these concerns valid?

The concerns are valid, but they are not conclusive. Firstly, he was appointed by the king because Mahathir’s resignation left the appointment of the prime minister in the hands of the king rather than the parliament itself. That is why it may have been a ploy on Mahathir’s part that backfired because he may have expected to be able to rearrange things to his own advantage. The new PM is an appointed PM but we probably won’t see a lot of the dust settle until there is another general election. The new PM has said in fact that there won’t be parliamentary procedures for the next couple months. Now, technically speaking, there doesn’t need to be a new general election until 2023. However,  Muhyiddin will get a lot of pressure to bring that election forward. Although he is officially and legally the PM, whether or not he has the full political legitimacy of an elected PM is very much in doubt. And so, if his coalition can survive for the next 4-5 months, then we might be looking at a return of UMNO. 

But let me say something about the problem that Mahathir had, and arguably, if Anwar had taken over, he would have had, too. All of these people came from UMNO. Mahathir was a PM under UMNO for decades, Anwar was a deputy PM of UMNO. Everybody was from UMNO basically. And in 2018, when Mahathir’s coalition took power, they had a very shallow bench of officials who had experience in policy-making and governance because UMNO had been the dominant party. I question how long it will be until some UMNO officials, whether they were clearly anti-1MDB or not, will be taken back into the government because one of the things Malaysia wants is an ongoing government that is very efficient and can fulfill a lot of their objectives. The power of UMNO as a dominant party and as an economic force was vast, and it was not possible to sideline UMNO altogether. 

One of the things people are concerned about with Muhyiddin is that his party in the ruling coalition seems to be rather more visibly a Malaysian party, and whether or not he will be able to put together a truly communal ruling coalition with Chinese, Indian and other groups. There was not an equal political apparatus to counterbalance UMNO. It is very difficult for a country to emerge from a dominant party model. And where we have seen this before, and which has so far been more successful, is in Taiwan where the Kuomintang (KMT) was the dominant party for many years and the Democratic Progressive Party (DDP) emerged. 

Was the fall of the corruption-tainted UMNO party a positive step forward for Malaysia or did it just open up the floodgates for political turmoil and an unstable political climate? 

Anytime you have the dramatic events of 2018, it's going to open up floodgates for political instability. That’s almost inevitable. However, one of the things that is most important is the hope that with another ruling coalition by a major Malay party, that politics in Malaysia will no longer be as based on racial identity as they had been in the UMNO period. If you start having Malay parties successfully challenging another Malay party, then you will put politics on a different footing. This is a positive.  It has shown that you can move away from UMNO and have another coalition led by a Malay party because the Malay group is still an important group in Malaysia. This is an important watershed. One of the problems, however, was that transition was attended by Mahathir. Another process is to put politics on a stronger footing without the old crew and someone who had been very dominant in the time of authoritarian rule in the past. Now he’s 94 years old, but that's inevitable. Malaysia is transitioning not only out of a dominant party model, but out of a one-man rule model as well. And that has taken many years. There have been three prime ministers since Mahathir: Badawi, Najib, and now Muhyideen, but it still takes a long time. Mahathir’s influence is very strong as we saw by the way he was able to retake power. 

You have mentioned various positive aftereffects of the 1MDB scandal, such as how it aided the transition of Malaysia’s government from a dominant one-party model, and helped form a basis of cooperation with other countries in pursuing an anti-corruption effort. What have been the most significant domestic or international consequences of the 1MDB scandal that have not been so positive? In retrospect, do you think the positive impacts of this “watershed” event outweigh the immediate negative consequences of the scandal? 

No, not yet. It still remains the reality that the Malaysian people have been defrauded allegedly over $4 billion dollars. It did lay bare a vast amount of corruption in Malaysia, which is not surprising to most people who are familiar with the cronyism and corruption that had been part of Malaysian politics for many years. However, the scandal laid bare Malaysia’s corruption for the whole world to see, which has hardly increased international confidence in Malaysia. I would say that the positive things are minor, and I did not mean to imply that they overshadowed the negative things. In the future, historians may look at the 1MDB scandal as something of a blessing in disguise because it was simply one step too far. It was what finally galvanized the political community to do something about the very entrenched political corruption that comes from having a party that had simply had an unchallenged run for literally the country’s whole history. 

Goldman Sachs’s involvement resulted in criminal charges against two of the firm’s bankers and a third banker has been barred from working again on Wall Street. Should Goldman Sachs itself be held accountable for the illegal actions of its employees? What has happened so far?

I think the question is a little bit behind the curve as the U.S. Department of Justice has been in pursuit of Goldman Sachs itself. It’s not just these three people. First of all, let’s just put this in perspective. 

Goldman Sachs as a global investment bank was involved in the issuance of about 6.5 billion bonds for 1MDB. It was a major player, and the Department of Justice has gone after Goldman Sachs as an institution, and the last I heard was in December, they were on the verge of a settlement in which Goldman Sachs would pay a multimillion dollar fine for its role in the corruption. They would be subject to an independent monitor to reform some of their compliance rules. The CEO of Goldman Sachs has made a public apology to the Malaysian people for the company’s role in the fraud. I don’t think Goldman Sachs has been let off the hook at all as an institution. What Goldman Sachs has been successful in doing, however, is to place blame on their Asian subsidiaries. 

Was the 1MDB scandal an isolated case or is it merely a symptom of a much larger corruption problem in Malaysia?

I don’t think anybody would say it's an isolated case, it was just an extreme case. I'm sort of repeating this ad nauseum, but you have a party that has been in place for pretty much the entire history of the country. You have all kinds of rent-seeking mechanisms that tie to business contracts and etcetera. And again, as the dominant party, like the KMT in Taiwan, UMNO was functioning not only as a political party but also as a business. Imagine the Republican or Democratic party going after contracts for businesses and things like that! I think that nobody is surprised that this happened, I think they are just surprised by the magnitude and the brazenness, such as the fact that over a billion of these embezzled funds have allegedly gone into the personal accounts of the former PM Najib. It's not a matter of what happened; it's a matter of the scale that surprised people. 

Many have called the 1MDB scandal “the biggest scandal in financial history.” Do you agree with this assertion? 

That is hard to say because the global economy is much larger now than in previous eras, so it is one of the largest scandals in our current time. However, you can’t just look at the dollar numbers. You have to look at the time frame. So, I am not sure how meaningful it is to say it is the biggest scandal ever. But it is certainly one of the largest scandals. Let’s look ahead a little bit, however, and say that one of the things that is at risk in this is Malaysia’s credit rating which is very important. So part of the political and economic reason for pursuing 1MDB as much as Malaysia has is to recover some international confidence in Malaysia. Malaysia is by no means out of the woods. Although the Malaysian government is determined to recover as many of the assets as possible, they are struggling to maintain some kind of decent credit rating for the country. There’s much more at stake than just the money. 

Kelsey Clarke CMC '22Student Journalist

Firdaus Latif / CC BY-SA (

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