Billions of dollars were stolen from 1MDB and the nation between 2009 and 2015. The unprecedented scale of the theft, the ostentatious spending of the stolen money and the involvement of global banks are now known as the world’s largest kleptocracy case. The Edge Malaysia, relying extensively on the exclusive genuine emails it obtained on these criminals, published the money trail leading from the sovereign wealth fund to the perpetrators — primarily Low Taek Jho, the fugitive businessman also known as Jho Low; Swiss-Saudi national Obaid; and Swiss-British Patrick Mahony — made through global banks across multiple jurisdictions over a period of almost four years (see flashback below). (You can also scan the QR code for the story published in The Edge Financial Daily on July 20, 2015 [one of the last issues before the daily was suspended by the Home Ministry on July 27]). We have summarised part of the chart titled “The Money Trail Involving Global Banks” that directly ties the flow of 1MDB money to the Palantir investment (see chart titled “Follow the money”).
To briefly recap, the first US$1 billion was stolen under the guise of a sham joint venture (JV) between 1MDB and PetroSaudi International, which was presented as associated with the government of Saudi Arabia and the late King Abdullah. PetroSaudi was in fact a shell company founded by Obaid and Mahony just a few years prior, with little to no assets. On Sept 28, 2009, 1MDB signed an agreement to invest US$1 billion cash for a 40% stake in the JV company while PetroSaudi was to inject assets it claimed to own worth US$2.7 billion (PetroSaudi was not the owner of the asset and the valuation was a sham) for its 60% share. Obaid executed the agreement with 1MDB on behalf of PetroSaudi.
See also: China, from one great economic transformation to another
On Sept 30, 2009, US$1 billion was transferred from 1MDB in two tranches: US$300 million to the JV company, 1MDB PetroSaudi Ltd (BVI); and the larger amount of US$700 million was siphoned to Good Star Ltd (Seychelles), a company linked to Jho Low. Of this amount, a total of US$159 million was then moved into a JP Morgan account (A/C no: 7573800) belonging to Obaid in three transactions over the next five months. And, from there, the money was traced to various payments, including to co-conspirator Mahony’s personal bank account and two other Obaid bank accounts at Morgan Stanley (Zurich) and Banque Saudi Fransi (Riyadh). Another US$2 million was used to purchase 2½ million shares in Palantir at roughly 80 cents per share on March 11, 2010, in the company’s Series D venture capital funding round (Palantir was subsequently listed on the New York Stock Exchange in 2020). At today’s price of US$181, his 2½ million shares are worth a whopping US$453 million, or RM1.9 billion! There is no doubt Obaid made a brilliant investment decision at the time — but can he now claim rights to the profits?
In August 2024, the Swiss Federal Criminal Court convicted Obaid and Mahony of fraud, criminal mismanagement and money laundering for embezzling US$1.8 billion from 1MDB. They were ordered to repay more than US$1.75 billion to Malaysia. Obaid was sentenced to seven years in prison; Mahony received six.
See also: Transparency demands courage, clarity requires discipline — both are needed to build trust
Aside from the Malaysian High Court ruling, the US Department of Justice’s civil forfeiture suit (under its Kleptocracy Asset Recovery Initiative) to recover the Palantir shares — as assets that could be seized because they were bought using illicit 1MDB money — is also ongoing.
The Swiss Federal Criminal Court effectively decided that Obaid and Mahony should repay what they stole — roughly US$1.75 billion. But what if they made huge profits from the stolen money? Should the profits also be seized?
Let’s assume for a moment that Obaid was both brilliant and prudent. He stole US$1.75 billion from 1MDB. He invested only US$2 million on the Palantir shares, which is now worth US$453 million. Let’s assume the remainder of the stolen funds — US$1.748 billion (that is, US$1.75 billion minus US$2 million) — was kept in a bank or hidden somewhere, earning no interest. Now, he repays the US$1.75 billion as determined by the Court. He walks away with US$451 million — not bad for a thief. Back in 2009, he was not even able to qualify for the Amex Centurion card that he desperately craved, as we saw in his many email exchanges with the bank and Mahony. It pays to steal! Is this what we want to teach our children?
Now, you may think this is a hypothetical question, and the scenario above is unique to Obaid. No, it is not — and, in Malaysia, we have seen this happen repeatedly. It is about time we highlighted this elephant in the room; it is time to make sure crime does not pay.
Profits made from tainted sources, even from legitimate activities, should also be seized. The only way to make sure crime never pays is to also seize the current wealth from legitimate sources, if the source of wealth is tainted by past criminal activities. In the above example of Obaid and the theft from 1MDB, I am confident almost everyone will agree that the profits he made from the Palantir shares must be seized, and rightfully so. The 1MDB scandal remains an emotional and traumatic chapter for Malaysians, and Jho Low and Obaid stand as villains who must be held fully accountable and made to pay the highest possible price to show that crime does not pay.
Now, allow me to extend the argument. What about all the other crimes committed over at least the past three decades by individuals who have clearly stolen or engaged in fraud — from banking scandals to stock manipulation and other corrupt practices and abuses? We have seen inexplicable wealth, truckloads of cash stashed away. Like Obaid, many have been found guilty in court, while others have admitted to their offences and paid administrative fines to regulators.
Many were fined and paid back a pittance relative to the amount they stole. At least in Obaid’s case, he had to pay back the entire amount he stole. In Malaysia, how many cases can you name where the culprits, after being caught and found guilty, paid back a tiny fraction of what they stole? Not only does crime pay in these cases, but it also allows them to go on and build massive fortunes and empires using the stolen money as seed capital — and then apply these criminal proceeds into legitimate and respectable businesses (to clean their money).
For more stories about where money flows, click here for Capital Section
If you believe Obaid’s profits from the investment in Palantir should be seized by Malaysia because the source of funds was the criminal act of stealing from 1MDB, should not the fortunes of some people — now seemingly legitimate but originating from and tainted by criminal acts committed years or even decades ago — be subject to similar seizure? As a matter of criminal law, there is no statute of limitations for prosecuting a past offence, unlike civil claims, which are subject to limitation periods. And if the prosecution is under AMLA, then the proceeds of the crime can be attached and, in theory, there is no limitation periods — although a direct nexus must be established between the assets sought to be attached and the offence committed.
Yes, it may be difficult — even impossible — to trace the trail from decades ago. But, ultimately, it is a question of will, not of difficulty, which too often serves as a convenient excuse. In the UK, for example, there is legislation for the British Court to compel a person or company to reveal the sources of their unexplained wealth (how they acquired particular assets) under the unexplained wealth order (UWO), part 8 of the Proceeds of Crime Act 2002, further strengthened by the Economic Crime (Transparency and Enforcement) Act 2022. The law does not in itself confiscate assets but shifts the burden of proof.
And, of course, it will be a bonanza for government revenue — which will reduce our national debts, and allow the government to spend on developing schools, roads and hospitals, and help the poor with affordable housing or mitigate the rising cost of living.
The general principle behind the law is clear in the US, the UK, Malaysia and across most nations — a thief has no legal right to profits made with stolen money. There are long lists of court case precedents. The illicit money and any substitute (investments made and assets bought with them) as well as any subsequent profits belong to the victim — and all benefits from illegal activities are held on trust for the victim (or state, in the case of corruption/bribery). No one should be allowed to benefit from their own wrongdoing. Beyond protecting the true owner’s rights — since a thief never acquires good title — and ensuring restitution, the principle serves to prevent unjust enrichment, uphold equity and affirm that crime must never pay.
The Malaysian portfolio fell 0.3% for the week ended Oct 22, amid broader market weakness and renewed volatility in the global markets. That said, United Plantations (+5.1%), Hiap Teck (+1.8%) and Hong Leong Industries (+0.6%) ended higher. On the other hand, Southern Cable Group was the biggest loser with its shares falling 10.6% while Maybank (-0.6%), Kim Loong Resources (-0.4%) and LPI (-0.1%) traded marginally lower. Total portfolio returns now stand at 182.9% since inception. This portfolio is outperforming the benchmark FBM KLCI, which is down 12.4% over the same period, by a long, long way.
Meanwhile, the Absolute Returns Portfolio was down 0.4%, paring the total returns since inception to 40.4%. The top three gainers were CrowdStrike (+2.3%), Ping An Insurance - H (+1.4%) and Kanzhun (+0.9%), while the three biggest losing stocks were JPMorgan (-3.8%), Goldman Sachs (-3.0%) and SPDR Gold MiniShares Trust (-2.6%).
The AI portfolio also ended in the red last week, down by 0.6%. The loss pared total returns since inception to 3.8%. The biggest gainers were ServiceNow (+3.6%), Intuit (+2.8%) and Cadence Design Systems (+2.0%). Marvell Technology (-8.8%), Horizon Robotics (-3.9%) and Datadog (-3.6%) were the three losing stocks.
What if the US and China decide to collude instead of collide?
Nations have no permanent friends or enemies, only permanent interests. Or as a senior diplomat often commented, foreign affairs are national interests. Alliances and rivalries can and do shift over time depending on evolving interests, circumstances and perspectives. An ally yesterday, a rival today and a partner tomorrow. The choices of the words “collude and collide” instead of “cooperate and compete” is intentional — reflecting intensity and extreme nature of the action.
Complementarity: mutually beneficial and reinforcing comparative advantages
For the better part of the past 40 years or so, the US and Chinese economies have been deeply entwined and complementary, and especially after the latter’s entry into the World Trade Organization (WTO) in 2001. Strengthening ties and cooperation between the world’s largest economy and the most populous nation underpinned a period of relative peace and stability, where global trade and investments boomed. The world prospered.
China’s market reforms and opening under Deng Xiaoping in the late 1980s initiated one of the most important structural shifts in recent history — the massive influx of cheap labour that transformed China into the world’s factory. While Deng is usually credited for initiating this remarkable feat, it was made possible because of the groundwork laid by former US President Nixon and his National Security Advisor and Secretary of State, Henry Kissinger. Despite ideological differences, Nixon was a staunch anti-communist but he was also a realist. Kissinger has an exceptional grasp of realpolitik, widely regarded for his formidable intellect and influence. Reestablishing diplomatic relations with China (the landmark Shanghai Communique in 1972) — engagement instead of isolation — reshaped the Cold War dynamics and paved the way for China’s eventual integration into the world economy.
China became THE cheap manufacturing base for multinationals. US companies the likes of Nike, General Motors, Dell and Apple profited by keeping production costs low, expanding their markets rapidly with affordable goods for the rest of the world.
Outsourcing labour-intensive, low-value manufacturing enabled the US to move up the value chain, to focus on research and development, technological breakthroughs, and the capital and knowledge-intensive as well as services sectors — creating more and high-paying jobs for the people.
Cheap and cheaper goods fed America’s growing consumerism — all the while driving inflation lower. Low and falling inflation, in turn, drove interest rates lower. China accumulated massive trade surplus from its exports. Chinese savings rate is high. Export earnings and savings were recycled back into US Treasuries, providing a source of steady demand that kept the US dollar strong even as borrowing costs fell for American consumers, businesses and the government. Cheap money that fuelled mortgages, investments and government spending, supporting US economic growth.
As China’s income grew, it also became a key market for US companies. The combination of stronger sales, lower costs and cheap money underpinned US corporate earnings growth that drove the long equity market uptrend — the S&P 500 index has risen by more than 20-fold since 1990, further raising American incomes, wealth and living standards.
For China, America’s voracious appetite for its manufactured goods also meant robust economic growth, jobs and higher wages. The nation benefited from the transfer of American technology know-how and investments. Indeed, China’s transformation from a rural, agriculture-based economy to manufacturing powerhouse is nothing short of an economic miracle in modern history. It lifted nearly 800 million people out of extreme poverty, according to the World Bank definition of living on less than US$1.90 ($2.47) per day. China’s GDP per capita adjusted for purchasing power parity (PPP) rose dramatically from about US$1,667 in 1990 to approximately US$23,846 in 2024. China’s economy grew, rapidly eclipsing that of the UK, Italy, France, Germany and, finally, Japan to become the world’s second largest (in nominal GDP terms).
In short, the US welcomed cheap Chinese goods, feeding its consumerism and reaping the benefits from lower inflation, interest rates and strong US dollar. Meanwhile, US investments and technological transfers transformed China into a global manufacturing and economic powerhouse. Both countries gained from the creation of more and higher-paying jobs, raising incomes and living standards. Complementarity.
From economic partners to intense rivalry
It is inevitable that China’s rapid ascent, from economic backwater to the world’s second largest economy, will bring it into conflict with Western interests. Politically, China began asserting its military power in the South China Sea and expanding influence through the Belt and Road Initiative. It was also becoming increasingly clear that despite market reforms and integration into the global economy, China’s liberalisation is not following the ideological path envisioned by the liberal, progressive left. Case in point, it decisively stamped out budding democracy and dissent in Hong Kong.
To be clear, we think Western liberals have confused freedom with democracy. And democracy as merely about holding elections. Western liberalism is built on prioritising individual rights and autonomy — the Enlightenment values. In Asia, identity, rights and responsibilities are derived from group (or communitarian). Democracy depends on an engaged citizenry, independent media, civic organisations, rule of law and a functioning state.
China, for its part, understands that it cannot remain a cheap, low-value-added and low-margin production hub for the US and the developed West. It must move up the value chain, to innovate and boost productivity to ensure continued growth in wages, incomes and standard of living for its people. Its “Made in China 2025” strategy unveiled in 2015 represented the beginning of the next phase of China’s economic transformation. To achieve self-sufficiency in core technologies and transition towards innovation and productivity-driven quality growth in key high-tech sectors, including semiconductors, AI, renewables, electric vehicles, biotech, new materials, humanoid robots, high-end machinery and robotics. And to gain global market leadership.
Many in the US started seeing China’s rise as a clear and present threat to its supremacy, economically and militarily. Chinese enterprises were evolving into global technology champions — for instance, Huawei’s huge lead in 5G infrastructure (owning one of the largest patent portfolios in 4G/5G) — and are perceived as a direct challenge to heretofore US tech dominance.
As competitive rivalry grew, the US initiated trade restrictions, export controls, sanctions and so forth — turning from engagement to technological containment and suppression. For China, this justifies its self-sufficiency strategy. And with rising geopolitical conflicts, China is less willing to finance US deficits by holding Treasuries. In short, as China’s economy develops and evolves, past complementarity impact is gradually eroded. But can the US and China really afford to disengage? More precisely, to achieve “Make America Great Again” (MAGA) objectives quickly, which strategic direction is US President Donald Trump more likely to take?
Future collaborators and collusion?
Much has been written about the US-China tech war, the resulting technological decoupling and emergence of a bipolar world order. Yes, as we explained above, the US and China are locked in a strategic rivalry spanning technology, military, ideology and global influence. But here’s a critical difference. For former US president Joe Biden and the Democrats, the conflict was driven by the liberal ideological framing of “democracy versus autocracy”. The Biden administration was focused on the larger goal of building a Western-led alliance — whether it was against China or Russia — and its global strategic leadership to last the next 100 years. For Trump and his MAGA, the goal is all about strengthening the US. As we have explained at great length in previous articles, the MAGA Pathway is about boosting domestic investments and revitalising manufacturing to increase exports (jobs, productivity and wages), reduce unsustainable US fiscal deficits and debts in order to preserve US dollar hegemony. And this is why, Trump’s primary arsenal to achieve this, tariffs and “Art of the Deal” bilateral pressure tactics were not only aimed at China but also its closest friends and allies, including Europe, Japan, the UK, Canada and Australia (Biden’s “Coalition of the Willing”). It’s not philosophical but economics.
Economically, both the US and China remain inter-dependent, even if their past complementarity is narrowing. We summarise some of the key economic metrics for the US and China in Table 2 — underscoring how the two largest economies in the world today remain complementary. Both still have much to gain by cooperating instead of being confrontational.
For instance, the US is a consumption-driven economy. But it needs to reduce consumption and raise savings, domestic investments and exports to reduce its trade deficit. China, on the other hand, wants to reduce its savings rate and boost imports and domestic consumption as a sustainable long-term growth driver.
The average wage in China remains far below that in the US — which means production costs are still much lower — as is its per capita income. That is, their relative consumer sophistication and therefore, consumer demand, preferences and behaviour are also quite different. China represents a huge market with growth potential for US companies. In short, there remains significant opportunities and reasons for cross-border trade flows and foreign direct investment.
While the US-China comparative advantages in some sectors like plastics, chemicals and transportation have narrowed (as expected, with China moving up the value chain), there remain many where the divergence is very wide — for example, the US has a strong comparative advantage in vegetables, including oilseeds, fuels and food products while China is efficient in producing textiles-clothing, footwear, as well as machinery-electronics and metals (having overtaken the US). In other words, their relative strengths and exports are more complementary than in direct competition. Case in point, the export similarity between China and US is lower than China-EU and China-Japan as well as the US-EU, US-UK and US-Japan.
US companies have in the past made a lot of money in China, despite allegations of unfair subsidies, intellectual property theft and regulatory hurdles. And not just in the manufacturing and consumer sectors. China is encouraging its companies to expand and invest overseas, as part of its broader strategy for global cooperation and collaboration, further integration into the global economy and financial system. And American financiers like Morgan Stanley, JP Morgan and Goldman Sachs are profiting from their fundraising and dealmaking.
Critically, the US and China complement each other very well in the embodied AI (integration of AI into physical systems) and robotics revolution that could unlock enormous potential across industries such as manufacturing, logistics, healthcare, transportation and biotechnology. Embodied AI will significantly enhance productivity and relative competitiveness for both nations in the global market — likely at the expense of the rest of the world.
The US is strong in foundational research, AI models, software as well as some specialised components/materials used in the most sophisticated equipment (lithography machines) to produce high-end chips needed for massive compute power.
China, on the other hand, has a robust manufacturing and supply chain ecosystem — batteries, sensors, mechanical components, electronics and so on — that can produce robots at scale and much lower costs. And of course, its dominance in rare earth — China has 60%-70% market share of global rare earth output and 85%-90% of global refining capacity — elements that are critical to a wide range of modern technology and green energy products (including smartphones, electric vehicles, chips and batteries) as well as defence systems (jet engines, precision-guided missiles and radars). Plus, the nation is well on its way in integrating AI into real-world applications. Because of its massive market (believe it or not, the Chinese are much more inclined to embrace new technologies than the Americans), China can deploy at scale, achieve rapid iteration (innovation cycles) and generate positive feedback loop from real-world data (including leveraging synergistic data gathered from its huge fleet of drones, electric vehicles and autonomous vehicles). See Table 3 for a summary of their relative strengths.
In other words, where many see AI as the frontline in the economic war between the US and China, we see instead a perfect complementarity. Where, by colluding, both will make huge gains. Recent reports suggest a growing school of thought in the US that “winning the AI race against China is unrealistic and that US policy should shift towards risk mitigation, in a context of widespread integration with Chinese-developed AI”.
In short, a strategy where both become indispensable to the other. Your gain is my gain — my gain is also your gain. Mutual gain or mutual destruction. Or to quote Machiavelli, “Keep your friends close, but your enemies closer.”
Indeed, a “collusion” between the US and China would allow both to dominate this frontier, to the exclusion of the rest of the world. There’s no question that AI will raise productivity and relative competitiveness in the global market (and remember, the US and China have low export similarity, which means their comparative advantages and exports are more complementary than in direct competition). This is the ultimate goal that will benefit both nations for years to come. Will they do it?
Trump and Xi are pragmatic realists
To repeat a recent quote by Chinese Foreign Minister Wang Yi, “Decoupling and severing ties are not realistic and rational options, and confrontation will only hurt both sides.” As we have explained above, the US and China have different strengths that fit well together, at least in the near term (nothing stays the same forever, obviously). Bifurcation raises costs and distorts scale advantages for everyone.
Unlike his predecessor, Trump is realistic, practical and transactional — his focus is on maximising economic gains for the US in the short-medium term. And given that he will stay in power for only three more years, he has little incentive to pursue long-term strategic goals. Both Trump and Chinese President Xi Jinping are pragmatic, unconventional, right and capitalists — focused on their own citizens, livelihoods, jobs and living standards. Both are willing to think differently and do not rely on traditional institutions for advice. With an authoritarian system of government, Xi can afford to play the long game, giving credit to the populist-driven Trump (who thrives at thumbing his nose at convention, intellectuals, public opinions and newsmakers). Xi also understands China’s history very well. The Warring States period was a time of endless wars, fragmentation, and human and material destruction. After the consolidation by the Qin Dynasty, unified China was ruled by a single centralised meritocratic bureaucracy under Qin Shi Huang. A template that served China well over the long course of its history. The Han Dynasty inherited this centralised structure, and China entered its first long-lasting golden age — through expanded trade (Silk Road, maritime trade) — one of the most prosperous, stable and innovative eras in Chinese history, with major scientific and technological advancements such as papermaking, maps and navigation, astronomy and instruments, metallurgy, agriculture tools and water management, and so forth.
To paraphrase Sun Tzu, “the greatest victory is when not a bullet/arrow is fired”. In fact, given the mutually assured destruction in a nuclear war (both nations have second strike capabilities), it makes no sense for the US and China to continue ratcheting up tensions. The “winner” will inherit ruins — underscored by this poignant quote from Einstein, “I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.”
Therefore, the more rational path is to do a deal that economically benefits both countries. It will lead to a more peaceful world, with less conflicts and wars and increased opportunities, growth and prosperity. But when two superpowers collaborate, it also means less potential for smaller/weaker nations to play both sides and benefit from the conflict. And that should be the biggest concern for the rest of the world.
Asean nations are more similar than complementary in exports
We computed the export similarity for key Asean countries against their major trading partners (the US, the UK, Japan and the EU as well as fellow Asean neighbours) using the same methodology as that in the main article (where we compared the US and China against the UK, Japan and the EU). What stands out is how similar the export profiles are among Asean nations. For instance, Malaysia has very high export similarities with Singapore, Thailand and the Philippines, mainly because of the importance of the electrical and electronic (E&E) sector (integrated circuits, semiconductor devices, computers, telephones and so on) for all four countries. Vietnam too has a huge E&E sector, especially in telephones. The average export similarity with Asean is higher for Malaysia, the Philippines and Vietnam than with the major developed economies. Among Asean nations, only Indonesia has relatively low export similarities with all, given its heavier reliance on commodity exports (coal, palm oil, copper, lignite, metals and alloys). In other words, Asean nations are more likely to be direct competitors in the global markets. And this is one of the biggest reasons why Asean works better as a political cooperation than an economic bloc.
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