Insight: In Malaysia's election, a focus on rainforest graft

By Niluksi Koswanage

KOTA KINABALU, Malaysia (Reuters) - The island of Borneo may be all that stands between Malaysian Prime Minister Najib Razak and an unprecedented election defeat within weeks for his ruling coalition.

Borneo's two Malaysian states -- Sabah and Sarawak -- have been a bastion of votes for the National Front coalition headed by Najib's party, the United Malays National Organisation (UMNO).

The two states, among Malaysia's poorest despite vast natural resources, kept the National Front in power in 2008 even as a groundswell of support for the opposition deprived the government of its iron-clad two-thirds parliamentary majority.

That could start to change. Allegations of corruption in recent months have dogged the chief ministers of both Sabah and Sarawak, long-time rulers who hold vast sway over some of the world's largest tracts of tropical forests.

The National Front is favored to win the election that Najib must call by the end of April, extending its 56-year rule thanks to robust economic growth and its strong electoral machinery.

But it could be one of Malaysia's closest elections. Corruption scandals threaten to undermine one of Najib's central messages -- that he is making Southeast Asia's third-largest economy more transparent and competitive.

Sabah Chief Minister Musa Aman, who is also the state's top UMNO official, has been under scrutiny the past year after whistleblower website Sarawak Report published documents from the Hong Kong and Malaysian anti-corruption agencies.

The two agencies started investigating Musa in late 2008. The probe was based on a tip-off that the chief minister was extracting money from businessmen seeking timber concessions and funneling it to UBS bank accounts in Hong Kong and Singapore, sources close to the investigations said. They declined to say who gave the tip-off.

The Hong Kong anti-graft agency froze a UBS account managed by a lawyer on behalf of Musa, the sources said, and began a joint investigation with its Malaysian counterpart.

The agencies closed the case three years later and unfroze the funds after the Malaysian government publicly said the money was donations for UMNO, not bribes. The Malaysian government has not explained why political donations had to be routed through Hong Kong and Singapore.

Musa told Reuters in a statement that he has been cleared by both anti-graft agencies. However, an independent panel overseeing the Malaysian graft agency has recently requested the case be reviewed.

"These are the same old stories, rehashed over and over again," Musa said. "It is just the usual silly season before the general election, when the opposition gets up to their usual monkey business."

The opposition, which argues the fruit of Malaysia's brisk economic growth is largely concentrated in the hands of a well-connected elite, has vowed to keep pouring it on.

"How Musa manages Sabah in favor of the government rather than the people will certainly be a prominent part of election rallies on the opposition side," said Lim Kit Siang, a leader in the opposition coalition headed by former deputy prime minister Anwar Ibrahim.

HONG KONG TIMBER ACCOUNTS

The Hong Kong anti-graft agency told Reuters it investigated a number of Malaysian nationals, including a government official, for breaching the prevention of bribery ordinance in connection with the UBS accounts. It neither confirmed nor denied that Musa was the focus of the investigation.

Malaysia's anti-corruption agency said it provided assistance to its Hong Kong counterparts but declined to give details. Malaysian anti-corruption officials, speaking on condition of anonymity, told Reuters the leaked documents obtained by Sarawak Report were genuine and Musa was, indeed, the focus of the investigation.

Sarawak Report said the Hong Kong and Malaysian anti-graft agency documents it acquired showed that $90 million in illegal logging proceeds from Sabah were channeled to the UBS accounts. That prompted Swiss prosecutors to open a criminal money laundering probe into UBS last August.

The investigations into UBS and its relationship with Musa are continuing, a spokesman for the Office of the Attorney General of Switzerland said. UBS said it was fully cooperating with the authorities but declined to give more details.

As chief minister, Musa is in charge of the Sabah Foundation, which manages a state forest reserve covering 3,861 square miles, nearly half the size of New Jersey. The foundation allows timber companies to annually log a tiny fraction of that area. The logging proceeds are supposed to fund education and welfare projects in the state.

As chief minister, Musa signs off on all the logging permits that its board of directors agree to award to timber firms, or at least in one case, to a family member.

One of the Malaysian anti-corruption agency documents listed companies that won permits from the foundation. It shows the foundation awarded 2,000 hectares (7.7 sq miles) of primary forest to Musa's younger brother, Foreign Minister Anifah Aman, at a special board of directors' meeting on May 7, 2004.

The same Malaysian anti-graft document shows Musa consistently signed off on concessions that exceeded, or even doubled, the allowable timber cut. While not illegal, it shows the state was exceeding its own guidelines on deforestation.

Some of the companies on that list made payments into a UBS corporate account belonging to a former Musa associate, bank statements on the account obtained by Reuters shows. From the same account, withdrawals were made by the associate to fund Musa's sons who were studying in Australia, the statements show.

Two timber firms in Sabah transferred two payments totaling $4.04 million on August 16, 2006 into the corporate UBS account belonging to the former Musa associate. Six days later on August 22, the exact same amount was transferred into a personal UBS account belonging to Musa's lawyer. The Hong Kong anti-graft agency described that account as "held in trust" for Musa, according to the bank statements and investigation documents.

That same day, the firms won a 32,000 hectare (124 sq miles) timber concession and a contract to maintain a road to a logging camp, according to the Malaysian anti-graft agency document.

The owners of those two timber firms confirmed to Reuters that the $4.04 million transactions were "donations" to Musa and UMNO to secure the contracts. They requested their names and the names of their firms not be identified.

Malaysia's government has said all the funds in that UBS account were ultimately sent to UMNO as political donations. Other firms on the list of companies that received timber concessions could not be reached or declined to comment.

LESS LOGGING REVENUES

While there is no published data on how much forest has been cleared within the Sabah Foundation forest reserve, official data shows significant deforestation throughout the state.

In 1992, the state's total forest cover stood at 17,000 square miles, about half the size of Ireland. By 2011, it had shrunk to 13,900 square miles, based on the latest available data from the forestry department. Primary or virgin forests have been particularly hard-hit, declining from 1,595 square miles in 1992 to just 348 square miles in 2011.

With diminishing forests left to cut, logging revenues fell by half over five years to less than 250 million ringgit in 2011 ($80.6 million).

Musa has made a push for Sabah to diversify into agriculture and oil and gas, which helped state budget revenues hit a record 4.1 billion ringgit last year. But the state's unemployment rate remains at 5.4 percent, the highest of any state in Malaysia, where the national average is 3.0 percent.

Musa's popularity ratings have declined as well, to 45 percent in 2012 from 60 percent in 2009, according to a survey by the Merdeka Centre, Malaysia's most respected pollster.

CORRUPTION CHARGES

Law Minister Mohamad Nazri Aziz told parliament last October the funds in the UBS bank account held on behalf of Musa were political donations, without giving details about the source of the money or explaining why such funds had to be routed through foreign countries.

Based on evidence submitted by the Malaysian anti-graft agency, Malaysia's attorney-general found no indication of corruption or linkages with the Swiss government's investigation into UBS, Nazri said.

But an independent panel overseeing the Malaysian anti-graft agency has since written to the attorney-general requesting a review of his decision to close the case on Musa, a high ranking anti-graft official said at a public forum held by the Bar Council. The official did not disclose why the review was requested and declined to respond to Reuters requests for comment.

The attorney general did not respond to requests for comment.

As UMNO's party leader in Sabah, Musa is expected to find ways of raising money for the party - and to get out the vote.

"For UMNO, Musa is almost indispensable in Sabah. You lose him, you may lose your whole regime," said Oh Ei Sun, senior visiting fellow with Singapore's Nanyang Technological University and a former political secretary to Prime Minister Najib.

NAJIB AT RISK

The opposition, campaigning on an anti-corruption platform, is banking on winning 20 seats in Sabah and Sarawak in the election, which could put it within sight of a 112-seat simple majority in parliament.

Sarawak has also been under the spotlight over allegations of timber corruption. The Malaysian anti-corruption agency said it has been investigating Sarawak Chief Minister Abdul Taib Mahmud since 2011 in response to environmental activists' complaints about corruption in the forestry industry. That investigation continues and any new evidence will be taken into account, the agency spokesman said.

He was referring to environmental activist group Global Witness, which posted a video in March that went viral. It showed Taib's cousins and associates apparently offering thousands of hectares of forest land to the group's undercover investigators and formulating plans to book the land sales in Singapore to avoid Malaysian taxes. The cousins could not be reached for comment. (For the video, see: http://www.globalwitness.org/insideshadowstate)

Taib publicly denied the allegations raised as a result of the video. "I saw the so-called proof. It has nothing to do with me," he told local media. "Everything has to be done with government procedure."

In an interview with Reuters last Tuesday, Prime Minister Najib declined to discuss details of the investigations into the Sabah and Sarawak chief ministers, and said he was against corruption in "any form."

Asked about the Global Witness video, Najib said: "It's ok, everything will be investigated, and due process will take its course."

(Additional reporting by David Fogarty, Angie Teo and Stuart Grudgings in KUALA LUMPUR and James Pomfret in HONG KONG; Editing by Bill Tarrant)

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Insight: Bipartisan Senate group on path to immigration bill

By Thomas Ferraro

WASHINGTON (Reuters) - In a Congress riven by partisan conflict on deficits and guns, a circle of eight senators from both parties meeting several times a week might be on the cusp of a major legislative breakthrough.

The so-called Gang of Eight - four Democrats and four Republicans - is completing a plan for the biggest overhaul of immigration laws since 1986. The group is not only holding together after four months of intense discussions - an accomplishment in itself in Washington's brutally partisan atmosphere - it is down to the last sticking points, according to the senators and aides.

The centerpiece, they say, will be a 10- to 15-year path to U.S. citizenship - perhaps under a different formulation - for 11 million illegal immigrants. The issue has gained new urgency for both parties after strong Hispanic support for President Barack Obama and fellow Democrats in last year's election.

In an effort to improve the plan's chances with Republicans, the path to citizenship may wind up being called a road to a green card - the permit issued by the government that allows foreigners to work in the United States and ultimately apply for citizenship.

If so, that would reflect the influence of Republican Senator Marco Rubio of Florida, one of the group's members.

"There is no such thing as a path toward citizenship," Rubio said in an interview. "There is a path toward a green card."

"We want to be generous and we want to be fair, but we also have to be fair to the people trying to do it legally," Rubio said. "To become a citizen, you first have to get a green card. I made that clear" to the others, Rubio said.

Senate aides said they were not worried about what one called "semantics. ... We all agree you need to get a green card before getting citizenship. He is just reflecting concerns in his own party."

The goal is a Senate bill sometime next month, with a Senate vote by June or July. Considering the battles in line ahead of immigration - on deficit reduction and gun violence - that schedule could be optimistic.

There are also plenty of challenges ahead.

The group envisions a commission that would help control the future flow of low-skilled guest workers into the United States in a way that satisfies businesses' need for employees as well as unions' desires to protect their members and U.S. wages.

But satisfying both the U.S. Chamber of Commerce and the AFL-CIO labor organization on how that would work has become a problem.

"It is a tightrope to bring in the workers that are necessary but not at the expense of American workers," Democratic Senator Dick Durbin of Illinois, one of the eight, said in an interview. "We need to find a reasonable way to thread the needle."

BORDER COMMISSION DEBATED

The group has promised that before there is a pathway to anything, U.S. borders must be declared "secure."

It has been considering a commission composed of elected officials from border states to help the U.S. government make that determination, a prospect that has raised concerns from some Democrats, who fear giving border-state Republicans - they point to Arizona Governor Jan Brewer - an outsized role.

Brewer has clashed with the Obama administration over an Arizona law she signed in 2010 clamping down on illegal immigration.

"The idea is to have local input about the progress we are making on the borders," said Durbin. "But critics fear any one governor could say it is inadequate, denying citizenship to millions."

"We need a way to have local input, but not local veto," Durbin said.

The senators appear to have public opinion on their side.

According to a Public Religion Research Institute poll released on Thursday, 63 percent of Americans said they supported a path to citizenship for undocumented foreigners.

But the path through Congress will not be easy.

Republican Senator Mike Lee of Utah, a favorite of the conservative Tea Party movement, was invited to join the group, but declined, for reasons that reflect broader concerns within the Republican Party.

"There were a few things I couldn't agree to," Lee said of the framework the group of eight developed and released in January, which included the pathway to citizenship.

"In trying to address the problem, we shouldn't create another one by giving a special set of legal advantages to illegal aliens," Lee said.

Lee warned that the group may be trying to do too much with one bill. "I'm not convinced that comprehensive" legislation - as opposed to a piecemeal approach - "won't be a problem itself," Lee said.

Lee and five other Republican members of the Senate Judiciary Committee are trying to slow down the immigration bill. In a letter to Democratic Judiciary Chairman Patrick Leahy of Vermont on Wednesday, they warned "against rushing a massive bill with far-reaching implications," suggesting a "step-by-step" approach was needed.

It takes 60 votes to get a bill through the Senate, which is composed of 53 Democrats, two independents who vote with Democrats and 45 Republicans.

A BAND AND A BOND

But for some in the group of eight, getting this far in the era of gridlock is hope for the hopeless.

"It is the most productive series of conversations that I have had in four years in the Senate," said Democratic Senator Michael Bennet of Colorado, one of the eight lawmakers participating in the discussions. "This is the best opportunity in a generation to pass immigration reform."

"I think comprehensive reform is doable," Arizona Republican Senator Jeff Flake said, another member of the group. "We wouldn't be in this if we didn't think we could do it."

Some have been down this road before. New York Democrat Chuck Schumer and South Carolina Republican Lindsey Graham, agreed on a comprehensive plan in 2010 only to see it unravel. Senator John McCain of Arizona, working with the late Massachusetts Democratic Senator Edward Kennedy, tried unsuccessfully in 2005 and 2006.

But after the 2012 election in which Democrats won the Hispanic vote nationally by 70 percent, Graham said he sensed a new imperative.

The morning after the election, Graham called Schumer and said, "I want to get the band back together and McCain wants in."

Graham explained in an interview what prompted his call.

Democrats, including Obama, had long promised Hispanics some action on immigration.

"The reality from the Republican point of view is that we had to get this issue resolved," Graham said. "So we Republicans had a need and Democrats had a need," which equaled an "an opportunity to get it done."

Until late last year, Schumer and McCain, who have been in Congress together for three decades, had rarely spoken to each other. The chill between them eased a bit in January when they ended up as a part of a group of lawmakers who reached a deal on new Senate rules to ease gridlock.

"We bonded," said Schumer, "and then moved to immigration."

McCain brought in Durbin, with whom he grew close in 1983 when both were newly elected members of the House of Representatives.

Durbin had made friends with freshman Republican Rubio in predawn workouts in the Senate gym. Durbin invited Rubio.

"I told Marco: 'I think you should be part of this. What do you think?" Durbin recalled. "He said: 'I think I can work with you. At least I'm willing to try.'"

TALKING TO THE HOUSE

The senators have been meeting two to four times a week since December, each session focusing on a mutually agreed-upon agenda. They sit in a circle with 20 staffers behind them, aides said.

"Everyone in there wants to get it done," said Flake. "No one is looking for scoring political points. That makes all the difference."

"There have been hard and tough negotiations, but it has been done all in the spirit of achieving the goal, in which compromise has been made on both sides," said New Jersey's Democratic senator, Robert Menendez, another group member.

A group of eight House members - also four Democrats and four Republicans - began working on its own plan years ago, long before the Senate group even formed.

The emerging and comprehensive House plan, like the one in the Senate, has a proposed path toward citizenship.

Republicans Flake, McCain and Graham recently meet with a number of House Republicans to explain their efforts.

"I don't want to say what their positions were, but they were cordial," said Flake, elected to the Senate in November after 12 years in the House. "They listened."

Flake said he expected the Senate to pass a comprehensive bill while the House approved a limited one. But differences between the two measures could then be worked out, he said.

McCain said he believed "we can convince our House Republican friends - if we can make sure that they are convinced that we have an effective control of the border and it is not amnesty."

McCain said that while he recognized the political and economic advantages of immigration reform, there was a humanitarian need as well, which he said he knew well as an Arizonan.

"Young people have been brought across the border by a coyote (smuggler) and told, 'Tucson is over there,' and have died in the desert," McCain said.

All the members see their immigration effort as a test of whether Congress, when it is divided, can get anything of significance done.

"It could help get Democrats and Republicans to work together," McCain said. "That is what the American people want."

If members as far apart as Schumer and McCain can come together, it will send a message, said Graham.

"If these two guys can deal with an issue as complicated as immigration and wind up with a product good for the country, who knows, good government may break out."

"But," Graham added with a sigh, "I doubt it."

(Editing by Fred Barbash, Mary Milliken and Peter Cooney)

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