The China Contract: the Inside Story of the World’s Biggest Financial Scandal … and How It Was Covered Up. By Clare Rewcastle Brown. Westbourne Press £20.
In February 2019 we reviewed Rewcastle Brown’s The Sarawak Report. This revealed a scam in which large amounts of money were siphoned from Malaysian state finances, specifically the One Malaysia Development Fund (1MDB), into the pockets of the former Prime Minister, Najib Razak, and his accomplices, including Jho Low, who was in practice in charge of the Fund (though this was officially denied). Here she returns to the same events and updates the story but also adds a lot of information about China’s involvement in some of what went on.
The sums involved are staggering, with perhaps $5bn in all siphoned from the fund. One mechanism for achieving this was round-tripping, where assets are sold to another company and then bought back. This makes it look as if something productive has taken place, when in fact no such thing has occurred. It can be used to evade taxes or launder money. Subsidiary companies with only notional values can be created, with banks playing a large part in all this and collecting massive fees. Goldman Sachs in particular had a sizeable role here, for instance being paid a million dollars for ‘advising’ on one deal. One of their top managers was sentenced to two years in prison after co-operating with investigators. On one occasion, Jho made around $130m from selling and reselling bonds.
As for the role of China and the contract in the book’s title, this relates initially to an agreement between the Malaysian government and a Chinese company to build a railway line in Malaysia, as part of China’s Belt and Road Initiative. This was at an inflated price, apparently so that the Chinese company could shoulder the massive debt of 1MDB. Najib seemed to be going along with China’s expansionist plans; this is significant, as Malaysia controls the Malacca Strait, an important sea route which China needs access to. The Chinese government was behind the rail line contract, in the hope of further similar projects, with Malaysia accepting the Belt and Road idea. The country’s economic dependence on China would be enormous. Jho Low became involved with the Chinese ‘Communist’ Party and may have started running agents for them in other countries.
But, of course, it was all too good to last. The Belt and Road Initiative has run into problems but is still part of the Chinese government’s plan for economic expansion and the reduction of US power. More specifically, Najib was arrested in 2018 and subsequently found guilty of a number of offences, including abuse of power and money laundering, and was sentenced to twelve years in prison; there have been various appeals since then. Jho Low became a fugitive in 2019 and is currently believed to be living in China.
This is a comprehensive and well-argued examination of an enormous example of theft and corruption, but in many ways it is just a special case of the way capitalism operates, with a few fabulously wealthy and powerful people running things the way they want, even if in this instance they were too blatant and did not get away with it.
Paul Bennett
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