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By Dylan Kean
It was Christmas Eve 2014 and President Barack Obama had arrived in Hawaii with the First Family several days earlier for some much needed rest and relaxation, which meant golf. While neither golf nor the choice of venue were out of the ordinary, Obama's partner, Malaysian Prime Minister Najib Razak, certainly was. Najib's presence in Hawaii was not a happy accident, but instead a sign of the warming relations developing between the United States and Malaysia, strengthened by Obama's state visit earlier that year - the first such visit by a sitting U.S. president since Lyndon Johnson.
At the time, the countries seemed poised to elevate relations to their highest point in more than a decade, buttressed by the seemingly friendly rapport developing between the two leaders. Less than a year later in a disappointing turn of events, Najib, the person to whom much of this optimism was attributed, would emerge as a new obstacle to overcome in the bilateral relationship.
So what went wrong?
It all began in 2009 when newly-elected Prime Minister Najib set up the strategic development fund known as 1Malaysia Development Berhad (1MDB). Najib would later distance himself from the fund, but as prime minister, finance minister and chairman of 1MDB's board of advisors, his close ties to 1MDB could not be overstated. Flash-forward to 2015 and 1MDB is in shambles, owing in excess of $11 billion. In June The Wall Street Journal published a story claiming that Malaysian authorities investigating 1MDB had traced nearly $700 million in deposits to what they reportedly believed were Najib's personal bank accounts. The revelation sparked outrage in Malaysia, dealt a body blow to Najib, and threatened to derail Obama's upcoming visit to Malaysia.
In response to the article, Najib came under intense scrutiny from Malaysia's Anti-Corruption Commission (MACC), the Malaysian Parliament, at least four foreign law enforcement agencies (including the FBI), domestic and international media outlets, his own party, and the Malaysian people. However, despite the unprecedented level of attention paid to the scandal, Najib has continued to avoid any legal consequences. This is due in large part to his powerful position within the ruling United Malays National Organisation (UMNO) and his support among the Malay ethnic majority. Najib has also been quite adept at silencing those who oppose him, including defiant members of his own party. When his deputy Muhyiddin Yassin publicly criticized the prime minister's media crackdown and questioned the slow pace of the attorney general's investigation, both he and the attorney general were sacked. The investigation limped along after that, but without any hint of credibility; the replacements were handpicked by Najib himself. As a result, when the new attorney general recently announced that Najib had been cleared of all charges regarding the deposits into his personal accounts, it did little to deter domestic and international critics.
Despite the negative impact of Najib's scandals on Malaysia's credibility abroad, the U.S.-Malaysia relationship remains deep and complex, based on mutual benefits that are often insulated to a certain degree from domestic political dynamics. As a member of the U.S.-led Global Coalition to Counter the Islamic State of Iraq and the Levant (ISIL), Malaysia has been a strong voice against violent Islamic extremism. With the very real threat of ISIL fighters returning to Malaysia and radicalizing new recruits, cooperation on this front is unlikely to cease. Malaysia's decision to join the 12-party Trans-Pacific Partnership (TPP) agreement also shows that it recognizes the need for better economic cooperation with countries like the United States in order to escape the middle-income trap. With the recent passage of the agreement through Malaysia's upper and lower houses of parliament, progress on this front also appears steady.
Nevertheless, strategic cooperation only goes so far. Anti-corruption bodies in the United States, Switzerland, Singapore and Hong Kong are all actively investigating the 1MDB scandal, and French authorities recently announced a separate bribery investigation dated back to Najib's time as defense minister. Meanwhile, civil society organizations like Human Rights Watch and Transparency International have harshly criticized Najib for his frequent use of sedition laws to silence opposition voices and his administration's anemic response to human trafficking. As a result of Najib's worsening reputation and its effect on Malaysia's international standing, the Financial Times recently penned a biting commentary, dubbing him "a disastrous prime minister for Malaysia." At some point, the elites in Kuala Lumpur have got to be asking themselves whether defending Najib is worth the trouble.
Najib was no boy scout before the 1MDB scandal, but for many in the U.S. policy community he was at least a credible leader who could get things done. Now it appears that the embattled prime minister is more interested in protecting himself than accomplishing the grand reforms he had promised. It's unclear whether Najib's hold on power will last, but as long as scandal and corruption continue to plague Malaysia's government, relations with the United States will have little hope of reaching their full potential.
Dylan Kean is a Graduate Fellow at McLarty Associates where he provides research and analysis to the firm's Fortune 200 clients operating in East and Southeast Asian markets. He also serves as the Asia-Pacific Research Fellow at Young Professionals in Foreign Policy. The views expressed belong to the author alone, and do not represent the views of McLarty Associates.