World's top banks in U.S. cross-hairs over 1MDB dealings

(Reuters) - US Department of Justice officials have asked Deutsche Bank and JP Morgan to provide details on their dealings with 1MDB, amid widening global investigations into the troubled Malaysian state fund.

DoJ officials also travelled to Kuala Lumpur to speak to senior bankers and other people with close links to the state fund, three people with direct knowledge of the matter told Reuters. They said JPM and Deutsche were not the target of investigations at this stage, but had been asked to provide details.

JPM and Deutsche declined to comment to Reuters. The DoJ also declined to comment.

The US move marks the latest development in a wide-ranging global investigation across three continents into possible corruption and money-laundering at 1MDB, where Prime Minister Najib Razak chairs the advisory board.

Najib has denied any wrongdoing and has said he has not taken any funds for personal gain, but opposition leaders and government critics have stepped up calls for him to resign.

The sources have spoken on condition of anonymity as they are not authorised to speak to the media. It is unclear how long the US officials have been in Kuala Lumpur, or if they have completed their visit.

A team of lawyers for Deutsche are in Kuala Lumpur preparing the report they intend to submit to the DoJ, says one of the sources.

Malaysia’s Attorney General, who was hand-picked by Najib, cleared him of all criminal offences in January, declaring that the US$681m deposited into his personal bank accounts was a gift from Saudi Arabia’s royal family.

The Wall Street Journal reported in March that more than US$1bn was deposited in Najib’s account and global investigators believe much of it originated from 1MDB.

The fund has consistently denied these claims and repeated again last Thursday that no 1MDB funds went into the Najib’s personal accounts.

Deutsche is one of the many global lenders that had dealings with 1MDB, as the energy-to-real estate group expanded rapidly after its inception in 2009. The bank provided a US$975m loan to 1MDB in late 2014, which was repaid last year.

The German bank was also advising the fund on a proposed US$3bn IPO of its energy assets, which never took place.

JPM normally acts as a US clearing bank for lenders operating in Malaysia. Its dealings, if any, with 1MDB were not immediately clear.

Goldman, others probed The US government is already reviewing Goldman Sachs’ relationship with the Malaysian fund. A Federal Bureau of Investigation team, specialising in “international kleptocracy” was leading the bureau’s inquiries, a person familiar with the matter told Reuters last year.

Goldman came under fire for the fees it charged for helping 1MDB raise funds through bond offerings. The fund racked up borrowings of about M$42bn (US$11.5bn), before selling off assets in 2015 to pay down debt. Goldman has declined to comment.

Other international banks that have dealt with the fund also face questions.

Singapore’s central bank said on Friday it had asked financial institutions to provide details of any transactions linked to 1MDB, without naming any lenders.

The burgeoning 1MDB scandal has rocked Najib’s government as public outrage over the alleged mismanagement and corruption grows. The scandal has fuelled a sense of crisis in a country under economic strain from slumping oil prices and a prolonged slide in its currency last year.

Mahathir Mohamad, Malaysia’s longest-serving leader and once Najib’s patron, has become his fiercest critic and is leading a campaign to oust the prime minister with the support of some opposition leaders.

Mahathir quit the long-ruling United Malays National Organisation party, and joined hands with longstanding foes to crank up pressure for Najib to quit.

Along with the US and Singapore, other countries are conducting investigations.

Last Thursday, Luxembourg’s state prosecutor launched a judicial inquiry into allegations of money laundering involving hundreds of millions of dollars against 1MDB.

This follows a similar inquiry by Swiss prosecutors, who said earlier this year they had identified four cases of alleged criminal misconduct in the suspected misappropriation of about US$4bn from Malaysian state companies.

Malaysia’s central bank also said it would pursue administrative action against 1MDB for missing a deadline to submit documents on its finances abroad.

Additional reporting by John Chalmers and Olivia Oran