SLOW MOTION CRASH: MALAYSIA BROUGHT TO ITS KNEES BY NAJIB & ROSMAH

On Friday, Malaysian authorities arrested Khairuddin Abu Hassan. According to WSJ, the charges were “attempting to undermine democracy.”

What Khairuddin - a former member of Malaysia’s ruling party - was actually “attempting” to do, was travel to New York and urge US authorities to investigate 1MDB, the infamous Goldman-backed development bank turned slush fund that’s become the subject of intense scrutiny after allegations that some $700 million was diverted to Prime Minister Najib Razak’s personal account surfaced earlier this year. Those allegations, along with the perception that Najib’s government has sought to stimy attempts to investigate the bank, have led to calls for the premier’s ouster and were the catalyst for street protests that swept through Kuala Lumpur last month.

For those who need a refresher on the backstory, here’s how we explained it last month:

1MDB was set up by Najib six years ago and has been the subject of intense scrutiny for borrowing $11 billion to fund questionable acquisitions. $6.5 billion of that debt came from three bond deals underwritten by Goldman, whose Southeast Asia chairman Tim Leissner is married to hip hop mogul Russell Simmons’ ex-wife Kimora Lee who, in turn, is good friends with Najib’s controversial wife Rosmah Manso.

The plot only thickens from there, and as we detailed in "Abu Dhabi Can't Find $1.4 Billion It Supposedly Received From Malaysia PM's Slush Fund," when UAE went looking for a $1.4 billion payment Abu Dhabi's International Petroleum Investment Co. supposedly received in exchange for guaranteeing some $3.5 billion in 1MDB bonds, the money was nowhere to be found, casting considerable doubt on IPIC's manager who was fired earlier this year. Incidentally, IPIC was also involved in a rather nefarious looking deal in which one of its subsidiaries guaranteed $2.3 billion in 1MDB mystery money that may or may not be parked in the Cayman Islands in order to secure a sign-off from Deloitte after KPMG was dismissed as 1MDB's auditor for asking too many questions.

Since then, another $993 million has turned up missing at IPIC and it's certainly starting to look like the rabbit hole goes pretty deep on this one. Ultimately, the future of Najib's political career will likely depend on how it all shakes out.

Unfortunately for the Prime Minister, it looks as though arresting Khairuddin Abu Hassan on his way to New York was too little too late because now, WSJ is reporting that the FBI has opened an investigation into the development fund. Here's more:

The FBI has opened an investigation into allegations of money-laundering related to a Malaysian state investment fund, a person familiar with the matter said.

The scope of the investigation wasn’t known. It is the latest in a series of international investigations related to the fund that have been revealed in the past several weeks.

The international investigations center on entities related to 1Malaysia Development Bhd., which was set up by Prime Minister Najib Razak in 2009 to help drive the economy. The fund is having difficulty repaying more than $11 billion of debt and is at the center of investigations that are destabilizing the government.

Late Friday, a former member of Malaysia’s ruling party who had raised questions about money transfers to the Malaysian prime minister was arrested on charges of attempting to undermine democracy, his lawyer Matthias Chang said.

The arrest of Khairuddin Abu Hassan, who remained in custody on Saturday, prevented him from traveling to New York where he planned to urge U.S. authorities to investigate the transfers, Mr. Chang said.

A spokeswoman for the FBI’s New York office said that no agent in the office had arranged to speak with Mr. Khairuddin or had any previous contact with him.

Two of the transfers were made through the Singapore branch of a Swiss private bank and routed via Wells Fargo & Co. Wells Fargo declined to comment.

We'll close with our assessment from earlier this month as it's still the best way to sum up the situation as it stands today: The more information the public gets about corruption at 1MDB, the louder will be the calls for Najib's head (figuratively speaking we hope), and the larger will be the street protests.

Throw in the fact that the loudest calls for Najib's exit come from former Prime Minister Mahathir Mohamad and it seems like a very good bet that the political (not to mention social) upheaval in Malaysia is just getting started and that is precisely what the country does not need as it desperately tries to hang on to its stash of hard fought FX reserves in the face of a plunging currency and looming financial crisis. - http://www.zerohedge.com/