Late last month, tens of thousands of Malaysians donning banned yellow attire took to the streets in Kuala Lumpur to call for the ouster of Prime Minister Najib Razak whose government has been accused of obstructing an investigation into how some $700 million from 1Malaysia Development Berhad mysteriously ended up in Najib’s personal bank account. The story behind 1MDB would be hard to believe if it weren’t so familiar to anyone who understands how the inextricable link between politics and finance fosters deep seated corruption across the globe. Here’s the story, as told here last month: MDB 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. What Goldman did, apparently, is arrange for three private placements, one for $3 billion and two for $1.75 billion each back in 2013 and 2012, respectively. Goldman bought the bonds for its own book at 90 cents on the dollar with plans to sell them later at a profit (more here from FT). Somewhere in all of this, $700 million allegedly landed in Najib’s bank account and the going theory is that 1MDB is simply a slush fund. So you can see why some folks are upset, especially considering Rosmah has a habit of having, how shall we say, rich people problems, like being gouged $400 for a home visit by a personal hairstylist. As it turns out, the story goes well beyond Goldman, Najib, and Kimora Lee. As WSJ reports, the 1MDB debacle takes us deep into the shadowy world of sovereign wealth funds where it appears as though someone told a $1.4 billion lie: The corruption scandal around an economic-development fund in Malaysia is spilling beyond the country’s borders, as officials at a United Arab Emirates state investment vehicle raise questions about more than a billion dollars in money that they said is missing. Abu Dhabi has long been a source of support for the fund, 1Malaysia Development Bhd., which was set up six years ago by Malaysian Prime Minister Najib Razak to develop new industries in the Southeast Asian country. Now, as 1MDB tries to fend off a cash crunch, its backers in Abu Dhabi are asking what happened to a $1.4 billion payment the fund said it made but which they never received, two people familiar with the matter said. The disputed payments are related to the purchase of power plants around the world by the Malaysian fund in 2012. A state investment fund in Abu Dhabi, the International Petroleum Investment Co., or IPIC, guaranteed the $3.5 billion in bonds that 1MDB issued to finance the purchase, according to the bond offering documents. In return, IPIC was to receive options to buy a 49% stake in the power plants as well as collateral for the bond. According to 1MDB’s financial statements, the Malaysian fund made a collateral payment of $1.4 billion. A draft report into 1MDB’s activities by Malaysia’s auditor general, reviewed by The Wall Street Journal, said the payment went to a subsidiary of IPIC called Aabar Investments PJS. IPIC’s consolidated financial statements, however, contain no reference to the receipt of the payment. Two people familiar with the matter said IPIC and Aabar never received the money. It isn’t clear what happened to the funds. 1MDB didn’t respond to requests for comment. The dealings between the two countries shines a rare light on the workings of sovereign-wealth funds, which have increased significantly in size and are backed by wealthy governments but often lack transparency. The interactions between the two funds also are attracting scrutiny in Malaysia. “This relationship is beyond a normal business relationship,” said Tony Pua, a member of the Malaysian opposition Democratic Action Party who sits on a parliamentary committee that also is investigating 1MDB. As it turns out, UAE dismissed IPIC's manager earlier this year and new management is apparently taking a close look at exactly what's going on between the investment fund and 1MDB. The Journal goes on to say that IPIC has now taken over the bonds at the center of the dispute, along with the assets they were issued to finance and has also injected $1 billion into 1MDB. More interesting still is this: Aabar, the IPIC subsidiary, also helped 1MDB during a disputed audit. According to the Malaysia auditor general’s draft report, 1MDB fired KPMG LLP as its auditor in late 2013 after the firm declined to sign off on 1MDB’s accounts unless it received more details about $2.32 billion the fund said was invested in a Cayman Islands account. Aabar stepped in and guaranteed the Cayman Islands funds, an official for Deloitte Touche Tohmatsu Ltd., which took over as 1MDB’s auditor, told a closed-door meeting of the parliamentary committee probing 1MDB, according to a transcript of the proceedings reviewed by the Journal. This guarantee was never made public. Deloitte later signed off on the fund’s accounts. KPMG and Deloitte declined to comment. So in short, a subsidiary of an Abu Dhabi investment fund whose manager was fired this year has lost track of a $1.4 billion payment it supposedly received from 1MDB and this very same subsidiary guaranteed $2.3 billion in 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. Nope, nothing suspicious going on there. Finally, as The Journal reported last week, Swiss authorities have frozen "tens of millions" in funds linked to 1MDB and have opened a criminal investigation into two executives and some other folks the identities of whom they will decide on later: The Office of the Attorney General has frozen the money held in Swiss bank accounts linked to 1Malaysia Development Bhd., or 1MDB, on suspicion of corruption and money laundering, a spokesman said. He declined to give an exact figure for the amounts involved, but said it amounted to several tens of millions of dollars. On Aug. 14, the OAG launched criminal proceedings against two executives of the fund, as well as what it called “persons unknown,” for suspected corruption of foreign officials, suspected misconduct in a public office and suspected money laundering, the spokesman said. The inclusion of “persons unknown” means the matter could grow to encompass other people. What all of this suggests - beyond the rather obvious implication that a whole lot of people have been skimming money from 1MDB for pretty much as long as it's existed - is that Najib's political future in Malaysia is now in serious doubt. 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. * * * A picture of 1MDB begins to emerge...