Malaysian problem with reach in Australia - $US3.5 billion was siphoned out of the fund

"I myself have never wanted foreign interference in our domestic affairs," former Malaysian prime minister Mahathir Mohamad told me in late June. "But domestic means of redress have been closed." Since then there's been much debate on whether the current Prime Minister Najib Razak's position is safe, and how much longer he can hold on before the cluster of problems now assembled around him ends his political career.

This is an important question, not only for Malaysia but for Australia. Analysts in Asia continue to argue that Najib is unassailable, because of the structures of his ruling party, UMNO, and the Malaysian bureaucracy.His former mentor now chief opponent, Mahathir largely concurs. "The AG [Attorney-General] will not take up the case against him in the court," he told me. "The AG simply brushes aside all reports, just like 1MDB," the state development fund that the US Department of Justice is now investigating under its "kleptocracy asset recovery initiative".

Nevertheless, Justice Department documents have named Najib's step-son Riza Aziz, financier Low Taek Jho (or Jho Low), his associate Eric Tan, along with two government officials in Abu Dhabi. The Justice Department believes that $US3.5 billion was siphoned out of the fund, of which it claims that $1 billion was laundered through the purchase of US-based assets or "dissipated" through lavish lifestyle expenses.

The Justice Department announcement makes clear that the international reach of the Najib saga – now creating many problems for Malaysia's trading partners – makes external jurisdictions the key arena in which his opponents are now moving to depose him.

Yet precisely because the networks, relationships and Machiavellian stand-offs now operating around Najib are so numerous and diffuse, there remains no telling how long he will last, or, importantly, what change will follow if sufficient forces combine to push him.

The problem is nevertheless now affecting elites at the highest level in the US, where the scandal has reached Hillary Clinton's presidential campaign. Leonardo DiCaprio, a potential beneficiary of 1MDB funds through Riza's company Red Granite Productions, has had to drop out of hosting a Hollywood fundraiser he planned to hold for her. It has also prompted action in Switzerland and Singapore, which have acted against banks and account-holders in their jurisdictions that have links with 1MDB.

In Australia, the government has stayed relatively quiet on 1MDB, although Foreign Minister Julie Bishop has finally noted publicly that the allegations against Najib are "serious". Mahathir, however, argues that the government is out of step with Australians' attitudes.

"Your government is not willing to confront the Malaysian government."

Indeed, in open forums this might be genuinely difficult. Key regional relationships are built around Malaysia's political stability, a strong volume of trade, migration and regular elections.

The words "Malaysia Solution" have even returned to national public debates around refugees and asylum-seekers, and counter-terrorism and other security relationships also depend on Malaysia as a key regional partner.

In Malaysia, Mahathir is setting up a new party that is negotiating with the opposition over how best to oust UMNO at the 2018 election. Mahathir's credentials as a Malay nationalist are a useful support for his pitch to disproportionately powerful rural seats dominated by Malay Muslims, and his social media channels are actively calling on UMNO members to defect to him.

Yet these negotiations are sticky. Mahathir must avoid being damaged by racially charged allegations that he is in league with Malaysia's ethnic Chinese, and he will also need to find a way to address the rift between him and Anwar Ibrahim, who was imprisoned for five years in 1999 on charges of corruption after a lengthy and damaging trial for sodomy.

He will also need to avoid being tainted by allegations that he is working with foreign imperialists, as Najib and his allies have begun a strong nationalist campaign at home, insinuating that Western powers like the US carry an anti-Muslim agenda that infects the Justice Department investigation.

The last thing the Australian government needs is to be confronted with similar allegations. Yet it is now finding itself inexorably drawn in to the contest, due to awkward connections enabled by this nation's very strong ties with Malaysia. For example, Stephen Lee, a suspect under investigation for the recent murder of Sarawak PKR leader Bill Kayong has been tracked down in Australia, a logical place to flee given Australia will not extradite people at risk of being executed for capital crimes.

Sydney's Villawood detention centre is also now host to Sirul Azhar Umar, convicted murderer of Altantuya Shaarribuu, a Mongolian interpreter who assisted Malaysian negotiations with French submarine firm DCNS in 2002. From time to time, speculation emerges in Malaysia as to when he might go public with allegations that Najib and his wife Rosmah ordered the murder, after Altantuya threatened to expose alleged kickbacks between Malaysian officials and the firm in question.

Sirul has already been sentenced to death in Malaysia for his part in the crime, while DCNS has since won a contract to build 12 submarines for Australia, a project that has been touted as a victory for job creation in South Australia. DCNS built Malaysia's Scorpene submarines, whose secret combat capability has been leaked in recent days.

Meanwhile, Mahathir-linked figure Matthias Chang has filed a class action on behalf of Malaysian citizens over 1MDB funds in the US, supported by a group of opposition leaders, who are also seeking support for the suit from Malaysia's king.

With every such move and countermove the Najib issue grows yet larger, and becomes yet more international in its scope. The political impasse remains in place, yet if and when a decisive shift suddenly results, it may set off a chain of events all over the world, including in Australia.

Amrita Malhi is a visiting research fellow at the ANU Coral Bell School of Asia Pacific Affairs.The Bell School holds the 2016 Malaysia Update, "Najib's Malaysia: a crisis of confidence", with the ANU College of Asia and the Pacific on Friday.