SAUDI ARABIA TO CHECK ON NAJIB'S CLAIMS ROYAL FAMILY GAVE HIM US$ 700MIL 'WITHOUT CONDITIONS'

KUALA LUMPUR—A nearly $700 million transfer to Prime Minister Najib Razak’s alleged private bank account before a 2013 election was a “personal donation” from Saudi Arabia’s royal family and not illegal, a Malaysian investigating body said.

The nation’s top prosecutor, Attorney General Mohamed Apandi Ali, said all but $61 million of the $681 million transferred in March of that year was returned to the Saudis five months later.

Mr. Apandi said he ordered Malaysia’s anti-corruption body to close its probe into the transfers, which sparked mass street protests against the prime minister after they became public last summer.

Still, Tuesday’s finding is unlikely to quell controversy about the funds.

The four-page statement didn’t address several issues that Malaysians have sought answers to, such as: Who specifically donated the money?; Why was it donated?; And what happened to the money that wasn’t returned?

Although the statement said that the Saudi donor didn’t expect anything in return from Mr. Najib “in relation to his capacity as a prime minister,” the finding could raise questions about the extent of foreign influence over Malaysia’s political establishment. The funds were received shortly before a closely-contested general election in 2013.

UNCONVINCING, NO-WIN SITUATION FOR NAJIB

Mr. Najib, who came to power in 2009, has made efforts to strengthen Malaysia’s diplomatic and business ties with Gulf nations, including Saudi Arabia Malaysian capital, Kuala Lumpur, is a center for Islamic finance. The two nations are also majority Sunni Muslim though Saudi Arabia practices a more austere version than moderate Malaysia.

“This is a no-win situation for Najib. Despite the AG decision, public perception will not be on his side,” said Wan Saiful Wan Jan, chief executive of Malaysia-based think tank Institute for Democracy and Economic Affairs.

“This issue has been an unnecessary distraction for the country,” Mr. Najib said in a statement. “Now that the matter has been comprehensively put to rest, it is time for us to unite and move on.”

SAUDI TO LOOK INTO NAJIB'S CLAIMS

A spokesman for the Saudi Foreign Ministry said they were looking into the allegations and couldn’t now comment further. The alleged donation was made under the kingdom’s previous monarch, King Abdullah, who died a year ago.

The Wall Street Journal reported in July that an earlier Malaysian government investigation found almost $700 million had entered Mr. Najib’s accounts via banks, companies and entities linked to 1Malaysia Development Bhd., or 1MDB, a state fund that Mr. Najib set up in 2009 to foster economic development.

That investigation didn’t name the funds’ source or how they were used. Malaysia’s central bank, the nation’s anti-graft body, a parliamentary committee and the auditor general went on to probe 1MDB and the transfers.

The fund is now saddled with over $11 billion in debt it is having trouble repaying. It was used to help finance Mr. Najib’s victorious 2013 election campaign, the Journal reported in December. Mr. Najib didn’t respond to questions about this.

INSUFFICIENT EVIDENCE?

Critics of Mr. Najib, who say the prime minister has stymied official investigations at home into 1MDB and the transfers, weren’t satisfied by the attorney general’s conclusions.

Mr. Apandi “has provided no new or convincing information or arguments” to show the fund transfers were “bona fide” and not used for corruption, said Tony Pua, an opposition lawmaker.

Malaysia’s former attorney general, who was coordinating investigations into 1MDB, stepped down in July. The government cited health reasons for his departure and Mr. Najib named Mr. Apandi as his successor. Mr. Najib fired a deputy prime minister who had been calling for stepped up investigations into 1MDB’s activities and promoted the head of the parliamentary committee into his cabinet, delaying its probe into the fund.

The committee’s probe, and an investigation of 1MDB by the auditor general, are ongoing.

Malaysia’s central bank in October said it had recommended the attorney general begin criminal proceedings against 1MDB’s management for allegedly breaking foreign-exchange rules. Bank Negara Malaysia said 1MDB had given inaccurate information when seeking to invest $1.83 billion overseas.

But on Tuesday, Mr. Apandi declined to take action, saying there was insufficient evidence to proceed.

Attempts to reach 1MDB for comment weren’t successful. The fund has denied wrongdoing and said it was cooperating with probes being conducted by the central bank and other investigating bodies.

MASSIVE TRANSFERS

The 1MDB fund had moved the $1.8 billion overseas to invest in a joint venture with a Saudi oil company, PetroSaudi International Ltd., which is owned by a Saudi prince.

The auditor general, in a draft version of its report into 1MDB, a copy of which was viewed by the Journal, found that $700 million of 1MDB funds meant for that venture instead were transferred to another company. Two 1MDB board members resigned in 2009 and early 2010 over the matter, the draft report found. What happened to the funds is unclear.

The 1MDB fund has said it made a profit from the venture. PetroSaudi called the venture profitable for the Malaysian fund.

Overseas, investigations into 1MDB’s activities are continuing in at least five countries. A U.S. Federal Bureau of Investigation probe is looking at assets owned by Mr. Najib and his family, including luxury real estate in New York and Los Angeles, according to people familiar with the matter.

The earlier Malaysian government investigation found the $681 million had entered Mr. Najib’s account in 2013 from the account of a British Virgin Islands-based company. The owner of that company wasn’t made public. The firm held its account at the Singapore branch of a Swiss bank owned by an Abu Dhabi sovereign wealth fund which had done business with 1MDB.

NAJIB WAS 'UNAWARE'

The attorney general also said Tuesday there was no evidence that Mr. Najib was aware of—or had approved—separate transfers of around $14 million in late 2014 and early 2015 into his private accounts.

That money entered his accounts from SRC International, a unit of the Finance Ministry, which Mr. Najib also heads, via Ihsan Perdana, which carries out corporate social responsibility for 1MDB, the earlier Malaysian government probe found.

Ihsan Perdana was used as a conduit to send money from 1MDB to politicians from Mr. Najib’s ruling coalition ahead of the 2013 elections, the Journal reported in December.

The former head of SRC International, which formerly was a unit of 1MDB, Nik Faisal Ariff Kamil, had power of attorney over Mr. Najib’s accounts, according to a document that formed part of the earlier Malaysian government investigation. Attempts to reach Mr. Kamil were unsuccessful. - WSJ