Arrest of Malaysia's former leader will test the country's reform-minded government

  • The criminal case against former premier Najib Razak is seen as a chance for his successor, Mahathir Mohamad, to demonstrate political transparency.
  • Legal proceedings will be closely monitored to ensure that rule of law and justice is maintained, experts say.
  • Mahathir, who came out of retirement to lead the vote against Najib, rode to power on promises to reduce corruption.
Former Malaysian prime minister Najib Razak was charged on four counts over his role in a multi-billion dollar corruption scandal in Kuala Lumpur on July 4, 2018.
MOHD RASFAN/AFP/Getty Images
Former Malaysian prime minister Najib Razak was charged on four counts over his role in a multi-billion dollar corruption scandal in Kuala Lumpur on July 4, 2018.

International attention is on Malaysia's new government to demonstrate its commitment to political transparency as the criminal case of former scandal-ridden ruler Najib Razak gets underway.

Najib's Tuesday arrest and subsequent charges — three criminal breach of trust counts and one offense of abuse of power — are a major development in a multibillion-dollar corruption case that's stained the country's image for years. The charges are related to $10.6 million that was deposited into Najib's personal bank account from a former unit of state investment fund 1MDB — a small fraction of the total $4.5 billion that the U.S. Justice Department says was misappropriated from 1MDB.

It's welcomed as yet another milestone for Malaysian democracy after newly minted Prime Minister Mahathir Mohamad ousted Najib in the country's biggest-ever political upset nearly two months ago.

The 1MDB case is seen as a way for Mahathir to uphold his campaign pledges of restoring rule of law and abolishing graft in a country where deeply rooted patronage and cronyism have stymied economic and political reforms. To boost the country's health, it's imperative for Mahathir's team to show that the premier's office will no longer be exploited, experts have said.

Najib's legal proceeding "is a test for the new government to see how they are carrying out the rule of law," said Bridget Welsh, a longtime watcher of Malaysian politics and associate professor of political science at John Cabot University. "From the perspective of the investment community, this has to be seen as a positive sign because it shows mettle and a willingness to address underlying problems."

The troubles of 1MDB have not only dented Kuala Lumpur's reputation with foreign investors, they've worsened government coffers — national debt was found to be almost 60 percent higher than previous estimates due to previously hidden liabilities related to 1MDB.

Najib, who cleared himself of wrongdoing during his time in office, released a pre-recorded video message following his arrest saying that not every accusation against him was true. That raises the possibility of a plea bargain, with the defense team potentially seeking a massive fine in exchange for zero or minimal prison time, said Ei Sun Oh, principal advisor at Kuala Lumpur-based Pacific Research Center.

But given mounting public pressure for the 64 year-old's imprisonment, the courts may not agree to any deal.

"There is a huge clamor for his arrest, subsequent prosecution and hopefully conviction ... that [was] one of the impetus that propelled the current government into power," explained Oh.

The public "wants change, they want to see blood," said Wong Chen, a Malaysian parliament member and supporter of the current ruling party. Despite being granted bail, Najib will still ultimately spend years in jail, Wong projected.

A fair trial

Some critics called Tuesday's arrest "politically motivated" given the long-standing animosity between Najib and Mahathir, his ex-mentor and a former autocrat who is no stranger to jailing opponents.

While the case is "inherently political," the new government needn't worry about the legal process being perceived as a witch hunt, according to Welsh. Najib's future is now entirely in the hands of the courts, which is basing decisions on the evidence at hand, she said.

Welsh told CNBC she expects the arrest to produce greater momentum on the multiple international investigations that are chasing 1MDB's money trail.

The 1MDB case isn't seen ending with Najib. Members of his family, previous administration officials and board directors involved with the troubled fund are also expected to be implicated in criminal proceedings going forward.