What's behind Malaysia's '1MDB' scandal?

Embattled Malaysian Prime Minister Najib Razak (L) gestures as he arrives along with Deputy Prime Minister Muhyiddin Yassin (R) to take part in an event for new government interns at the Prime Minister's office in Putrajaya in this photo taken July 28, 2015.

Story highlights

  • Malaysian PM accused of financial impropriety
  • Demonstrators demand PM Najib's ouster
  • Swiss authorities freeze accounts associated with 1MDB fund

Kuala Lumpur (CNN)Malaysia's Prime Minister, Najib Razak, is being buffeted by accusations of financial impropriety and noisy, angry protests calling for his ouster. The claims go back to July and relate to transfers made as far back as 2013.

So what is behind the political turmoil currently engulfing Kuala Lumpur?

    What's behind the scandal?

    At the center of the graft scandal is the 1Malaysia Development Berhad (1MDB) fund, which was founded, and is chaired, by Najib. 1MDB, which is wholly owned by the Malaysian government, was formed in 2009 to invest in property, infrastructure and energy projects.
    The Wall Street Journal, citing investigative documents from a government probe into the fund found transfers totaling $681 million from a company in the British Virgin Islands, to accounts investigators believe belong to the Prime Minster.
    In July, 1MDB insisted in a statement that "the company has never provided any funds to the Prime Minister."
    Najib responded strongly to the July 2 report, denying the claims. His office has so far declined to speak on the record to CNN.
    Najib has long refuted any corruption or wrongdoing and insists that the funds were political donations. He has not provided an explanation as to why he has received these donations, or who the donors are.
    Amid the accusations engulfing his administration, the Prime Minister withdrew from a global anti-corruption conference being held in the Malaysian capital Kuala Lumpur, where he was scheduled to give the opening speech, Singapore's Straits Times reported.

    What is the significance of the Swiss financial freeze?

    On Wednesday the Office of the Attorney General of Switzerland announced it has frozen accounts, containing millions of dollars, as part of an investigation amid corruption and money laundering suspicions related to the fund.
    "The Office of The Attorney General of Switzerland (OAG) has frozen assets amounting several tens of millions of US-dollars on Swiss bank accounts," a statement from the OAG read.
    "At this early stage of the procedure, the OAG is analyzing and consolidating evidence. The OAG is already in contact with the Malaysian authorities. International cooperation with foreign countries, in particular with Malaysia, will probably be necessary to establish the facts."
    By freezing accounts held in Switzerland, the OAG's involvement suggests that the probe is widening and the international community is paying more attention to alleged financial wrongdoing in Malaysia.
    The fund acknowledged the OAG statement and responded, saying in a statement "As far as 1MDB is aware, none of the company's bank accounts have been frozen.
    "1MDB is in the process of developing a better understanding of the ongoing investigations in Switzerland so the company can cooperate to its fullest extent."

    Who are the protestors, and what do they want?

    Dissatisfied with his answers and what they decry as a lack of progress into the 1MDB investigations, Malaysians took to streets in their tens of thousands at the end of August. Najib's critics called for his resignation in the two-day protest.
    The main protest organization, Bersih, has for years also pushed for electoral and parliamentary reform.
    Former Prime Minister Mahathir Mohamad has emerged as a fierce critic of the incumbent and become central to the protests. He has repeatedly called on Najib to step down.

    What has been the government's response?

    The government has published a 62-page book called "Siapa Kata Tidak Dijawab," which translates as "Who Says It's Unanswered?" which includes the government's answers to 32 frequently asked questions and, the government says, will put to bed the notion that it has been evasive over its handling of the affair.
    "1MDB is not directly funded by the Government and has to look for its own fundings (sic) in local and international capital markets and invest using its own capital," the book says. "The RM42bil ($9.9 billion) is in the form of bank loans, bonds and sukuk (Sharia-compliant bonds)."
    In response to the protests that rocked the capital and other Malaysian cities at the end of August, a senior police official told reporters that the force seeks to question Mahathir.
    "He has given speeches and made several allegations. We want to know what he meant and where he got his information from," Inspector-General of Police Khalid Abu Bakar said at a press conference on Wednesday.
    Mahathir's personal assistant Sufi Yusof told CNN Wednesday that the former Prime Minister has not received any notice from the police to have his statements recorded yet. But if he is summoned, Sufi said Mahathir will comply with the police instructions. According to the assistant, Mahathir is currently overseas and will return to Malaysia later in September.

    Could this scandal bring down Najib?

    The Prime Minister is steadfastly denying any wrongdoing and accused Mahathir of "political sabotage" on his Facebook page.
    "He's no longer Prime Minister, he shouldn't take center stage," he also remarked at the start of his keynote address at the World Capital Markets Symposium in Kuala Lumpur Thursday, according to state media Bernama.
    "Never in my wildest dreams would I have thought that one of my predecessors will be against me in this manner."
    Najib remains adamant that he will not step down over the matter, and "that the government has its own way of solving the 1MDB issue."
    However, Malaysia is a parliamentary democracy and thus Najib, who is also president of his party, Umno, is safe from expulsion unless parliament passes a vote of no confidence against him, his party removes him, or the authorities charge him for corruption.
    His coalition, the National Alliance, has a majority 134 seats out of a 222-seat parliament.