Analyzing the 1MDB Scandal: Ethics, Fraud, and Corporate Governance

This case study delves into the ethical and corporate governance failures within the 1MDB scandal, focusing on the actions of key figures like Jho Low and Najib Razak. It analyzes Jho Low's adherence to ethical relativism and dissects the fraud triangle to understand the motivations behind the fraudulent activities, including money laundering and white-collar crimes. The case study also examines the duties of care expected from bankers and directors, highlighting the breaches in corporate governance and the failure to uphold stakeholder interests. It contrasts stakeholder and shareholder theories, emphasizing the importance of ethics and control in preventing financial fraud. Desklib provides access to similar case studies and solved assignments for students seeking further understanding of such complex issues.

Running head: MANAGEMENT
Management
Name of the Student
Name of the University
Author Note

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Q. 1.
Ethical theories imply different approaches to morality. These theories have their roots in
field of philosophy, namely ethics. Ethics refers to a set of principles relating to morality. It
has a basic objective of creating a distinction between right and wrong. Ethics strives to
decide the correctness of an action. It deals in the moral principles to arrive at conclusion
regarding the moral validity of an action. Ethics generally involves three approaches of study
namely, meta-ethics, which is concerned with the process by which can conclude an action to
be right or wrong; normative ethics, which is concerned with the actions that might be
adopted to achieve ethical results and applied ethics, which concerns with the mandate that
must be followed in a particular situation.
Business ethics is a branch of applied ethics. Business ethics involves an analysis of
ethical issues and principles that may evolve in a business environment (Szegedi, 2015). It
implies the practices that are visible amongst the individuals or a section of individuals within
an organization that has a favourable or adverse effect in the core values of a business. It is
based on the values, norms, ethical principles that guides a business.
Jho Low adheres to the theory of relativism. Relativism is the theory of ethics, which is
based on the idea that morality is relative to and varies with circumstances and perceptions.
According to this concept, there are no universally accepted right or wrong. Every act has its
own correctness. A particular idea may seem to be true to some while it might regarded as
wrong to some other. In Relativism moral principles varies from situation to situation and
person to person. There will be differences in the moral judgements with respect culture,
conscience, society and other situations. The moral principles of a person subject to the
perception of the person. Therefore, it is evident that the actions of Jho Low was in pursuance
of the theory of relativism.

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Q. 2.
A fraud triangle is a framework on the basis of which the probability of a person
committing a fraud can be analysed. This provides for a reason behind the decision of the
commission of fraud (Mansor 2015). A decision of committing a crime can be influenced by
three stages. These stages are:
 The first stage in a fraud triangle is the pressure acting upon the individual
influencing the commission of the fraud. This pressure may include legal, financial
and other pressures, which seems unbearable and unsolvable to the individual
committing the fraud.
 The second stage in a fraud triangle is the opportunity that is available to a person,
which enables them to engage in the act of fraud. The individual being under a
pressure seeks to avail the opportunity to commit the fraud in order to relieve
himself from the pressure.
 The third stage in a fraud triangle is the ability of the person committing the crime
to provide a rational character to his act of fraud. In this stage, the individual
committing the fraud makes an effort to justify the fraud to boost his moral
principles.
In this case, every act of fraud committed by Jho Low was accompanied by an act to cover
up the same. For instance, his grand operation to siphon funds through Tanore Finance
Corporation was disguised keeping his friend Fat Eric in the front.
Money Laundering involves the suppression of the origins of money, which is obtained by
way of illegal means. This suppression may be effected by transfer of the illegally obtained
money to legitimate businesses or foreign banks.

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In this case, Jho Low drew fake loan agreements to present US$681 million as a loan to
Tanore from an account opened by him in the Swiss-based Falcon Bank.
A white-collar crime implies a crime, which is non-violent in nature. It is generally, driven
by financial motives. White-collar crimes are mostly visible among the government and
business professionals. White-collar crimes includes insider trading, fraud, bribery, forgery,
money laundering and other similar crimes.
Q. 3.
Jho Low funnelled millions of dollars through a branch of the Development Bank of
Singapore by blindsiding the banker. However, the banker also failed to comply with his
duties properly. The banker was under the obligation to pursue preventive measures before
effecting the same. The banker failed to carry out his duty of care and due diligence while
effecting the deal with Jho Low. The following paragraphs would strive to enumerate
different preventive measures that the banker of the Development Bank of Singapore was
under an obligation to avail before effecting the deal with Jho Low (Gil et al 2015).
The first preventive measure that the banker was supposed to avail was to run a research
into the background of Jho Low. He should have checked the past transactions that have been
made by Jho Low. The character and behaviour of Jho Low in past cases must have been
taken into account. Any criminal or civil charges or any instances of fraud committed by Jho
Low must have been examined and considered by the banker.
The banker also had a duty to consult a senior or colleague who is an expert in this matter.
An expert opinion is necessary in any transaction that involves sum a lump sum amount of
money. The transaction must have been effected after a thorough analysis and consideration
of all the aspects of the transaction. An opinion of all the experienced bankers of the
Development Bank of Singapore must have been taken before effecting such a transaction.

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The banker was also supposed to conduct an external research on Jho Low. It should have
examined similar case studies considering the other banks present in the market. It should
have considered the image of Jho Low in transactions with other banks in the market.
Q. 4.
Najib Razak is the chairman of 1MDB whereas Shahrol Halmi was the CEO of the same.
Both of them are the directors of the company. Being the directors of the company, they are
imposed with all the duties that are applicable to the directors of a company (ANDREW
2016). The duties of the directors includes the following.
1. The directors must act in good faith and ensure the best interest of the company
2. The directors should not make any personal profit from their position as a director.
The directors should to disclose all the profits they derived from their position as
director.
3. The directors are supposed to maintain due care, diligence and skills required to
carry out while exercising their duties.
The directors of a company are required to comply with their duties. They should ensure
the absence of any fraud or illegal endeavours in the company. They should not allow any
white-collar crimes to occur in the company. They should ensure a healthy business
environment. They should not allow any activity, which is detrimental or is likely to be
detrimental to the company.
The board of directors should have constituted a constitution for the company. They had a
duty to develop a set of rules that the company needed to follow. The rules must have been
implemented to ensure an ethical and legal working of the company. The directors should
have enquired into the siphoning of the funds Jho Low. They should have prohibited him
from committing such a shady endeavour under the name of the company. They should have

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ensured legal workings of the company. They should not have allowed any other person to
commit any act, which is detrimental to the company. They should have reported the acts that
has been done by Jho Low.
Q. 5.
Corporate Governance implies the processes, techniques and relations applied to
corporations to ensure a control and to direct the same (McCahery, Sautner and Starks 2016).
It develops a structure and apply different principles, which enables the division of
responsibilities amongst different participants in the corporations. It also includes different
rules and procedures that are involved in the decision making process of the company.
Corporate Governance also includes the fixing of objectives of a company and its
implementations in the day to day endeavours.
The two theories of the Corporate Governance are the stakeholders theory and the
shareholders theory. The stakeholder theory implies a theory that involves business ethics and
organizational management. It strives to inculcate values and morals in the management of an
organization. The shareholders theory is concerned with the profit making process. It regards
the sole objective of a company to make profits. According to this theory, the management of
a company is appointed to run the company on behalf of the shareholders. The management
are under an obligation to run the company ensuring the best interest of the shareholder. The
have an legal and moral sanction to ensure the best interest of the company on behalf of the
shareholders.
In this case study, the board of directors of 1MDB ensured the interests of Jho Low. It
failed to ensure the stakeholders theory as no business ethics or organizational management
was visible from the endeavours of the company. The company served the interests of Jho

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Low and in that circumstances, it failed to ensure the interests of the shareholders, which is
again a violation of the shareholders theory.
Ethics and control are necessary tools for the eradication of the financial frauds but they
are not enough to abolish the same. Ethics is a relative term so is the control. The view on the
same differs from person to person. Therefore, a more stringent authority with legal sanctions
to completely eradicate financial fraud is much needed.

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Reference
Szegedi, K. (2015). Ethics in Corporate Practice.
Mansor, N., 2015. Fraud triangle theory and fraud diamond theory. Understanding the
convergent and divergent for future research. International Journal of Academic Research in
Accounting, Finance and Management Science, 1, pp.38-45.
Gil, M.I., Selma, M.V., Suslow, T., Jacxsens, L., Uyttendaele, M. and Allende, A., 2015. Pre-
and postharvest preventive measures and intervention strategies to control microbial food
safety hazards of fresh leafy vegetables. Critical reviews in food science and nutrition, 55(4),
pp.453-468.
ANDREW. KEAY, L.L.B., 2016. DIRECTORS'DUTIES. JORDAN PUBLISHING Limited.
McCahery, J.A., Sautner, Z. and Starks, L.T., 2016. Behind the scenes: The corporate
governance preferences of institutional investors. The Journal of Finance, 71(6), pp.2905-
2932.