KUALA LUMPUR, Sept 26 — The 1Malaysia Development Berhad (1MDB) scandal holds some important lessons for Asia, said an academic in the Nikkei Asian Review.

James Crabtree, an associate professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore, wrote in an opinion piece that a similar financial scandal could happen again if the lessons were not heeded.

"Penalties for serious financial crime in Asia remain much too light,” he said on the ongoing investigation into the 1MDB scandal in the US, Switzerland, Singapore and Malaysia, which is also pursuing the alleged mastermind, Low Taek Jho, who is better known as Jho Low. 

Pointing out that Singapore had last year sentenced a banker to jail and that a former Goldman Sachs banker was reported to be negotiating a plea bargain with US prosecutors, Crabtree opined: "Yet given the scale of the alleged crime, the risk remains that many others involved in the 1MDB debacle will never be appropriately punished.”

He noted that Malaysia was now seriously pursuing the case, but it was unclear if it will succeed in its legal manoeuvres or if it will also go after domestic and international financial institutions involved in the scandal.

"Even Singapore, among the more aggressive authorities in Asia, in May 2017, levied fines against two implicated banks — Credit Suisse of Switzerland and Singapore-based United Overseas Bank — for breaches related to anti-money laundering laws.

"Yet, while both banks accepted the judgment, the size of the fines — more than US$1 million (RM4.14 million) — were scarcely large enough to send a sufficiently serious signal to the sector,” Crabtree said.

Crabtree said the 1MDB scandal exposed the unwillingness or inability of central banks and financial regulators in Asia to look into such financial crimes, either because they lacked the resources and expertise, or due to the political constraints imposed by their governments.

He said another lesson to be learned was geopolitical, highlighting that the 1MDB scandal came to light at a time when American regulators were willing to probe crimes in almost any country.

He said the investigations by the US Department of Justice kicked off under former US president Barack Obama and it was unlikely that the country will continue to play that role in Asia, "especially so given the inclinations of President Donald Trump.”

"Financial wrongdoing is not a problem that will go away as economies grow richer, as the money-laundering scandal in Europe involving Denmark’s Danske Bank shows. Without regulatory vigilance, the risk is that it simply gets more sophisticated, and the sums extracted more eye-catching,” said Crabtree.

Yet another lesson from the scandal, Crabtree said, involves China and its growing financial clout.

He said China had recently taken centre stage in the 1MDB investigation as Low is believed to be hiding in the country.

Citing a statement by Finance Minister Lim Guan Eng in July, Crabtree said Lim had suggested a connection between the scandal and Malaysia’s involvement in China’s Belt and Road Initiative.

He said Malaysia is examining whether loans from Chinese state-owned banks were used to repay debts run up by 1MDB.

"Whatever the details of this, there is a general lesson to be drawn, which is that as Asia’s financial system becomes more dominated by opaque Chinese flows, the odds of future 1MDB-style scandals will only increase.

"The giant quantities of money linked to the Belt and Road Initiative and sloshing with little transparency from China are an obvious channel for potentially carrying out and concealing fraud.

"Around the region, and especially so in Beijing, there is a sense that Malaysia should now quietly move on from 1MDB. This would be exactly the wrong thing to do. 1MDB remains the biggest recent stain on Asia’s reputation for financial probity. On present form, it isn’t going to be the last,” said Crabtree.