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* Malaysian election to be announced any day now
* Borneo's vanishing rainforests becoming an issue
* Borneo states of Sabah, Sarawak key to election
* Sabah chief minister under cloud over timber graftallegations
* UBS bank probed for money laundering over theseallegations
* Sarawak chief minister also investigated for timber graft
By Niluksi Koswanage
KOTA KINABALU, Malaysia, April 3 (Reuters) - The island ofBorneo may be all that stands between Malaysian Prime MinisterNajib Razak and an unprecedented election defeat within weeksfor his ruling coalition.
Borneo's two Malaysian states -- Sabah and Sarawak -- havebeen a bastion of votes for the National Front coalition headedby Najib's party, the United Malays National Organisation(UMNO).
The two states, among Malaysia's poorest despite vastnatural resources, kept the National Front in power in 2008 evenas a groundswell of support for the opposition deprived thegovernment of its iron-clad two-thirds parliamentary majority.
That could start to change. Allegations of corruption inrecent months have dogged the chief ministers of both Sabah andSarawak, long-time rulers who hold vast sway over some of theworld's largest tracts of tropical forests.
The National Front is favoured to win the election thatNajib must call by the end of April, extending its 56-year rulethanks to robust economic growth and its strong electoralmachinery.
But it could be one of Malaysia's closest elections.Corruption scandals threaten to undermine one of Najib's centralmessages -- that he is making Southeast Asia's third-largesteconomy more transparent and competitive.
Sabah Chief Minister Musa Aman, who is also the state's topUMNO official, has been under scrutiny the past year afterwhistleblower website Sarawak Report published documents fromthe 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 wasextracting money from businessmen seeking timber concessions andfunnelling it to UBS bank accounts in Hong Kong and Singapore,sources close to the investigations said. They declined to saywho gave the tip-off.
The Hong Kong anti-graft agency froze a UBS account managedby a lawyer on behalf of Musa, the sources said, and began ajoint investigation with its Malaysian counterpart.
The agencies closed the case three years later and unfrozethe funds after the Malaysian government publicly said the moneywas donations for UMNO, not bribes. The Malaysian government hasnot explained why political donations had to be routed throughHong Kong and Singapore.
Musa told Reuters in a statement that he has been cleared byboth anti-graft agencies. However, an independent paneloverseeing the Malaysian graft agency has recently requested thecase be reviewed.
"These are the same old stories, rehashed over and overagain," Musa said. "It is just the usual silly season before thegeneral election, when the opposition gets up to their usualmonkey business."
The opposition, which argues the fruit of Malaysia's briskeconomic growth is largely concentrated in the hands of awell-connected elite, has vowed to keep pouring it on.
"How Musa manages Sabah in favour of the government ratherthan the people will certainly be a prominent part of electionrallies on the opposition side," said Lim Kit Siang, a leader inthe opposition coalition headed by former deputy prime ministerAnwar Ibrahim.
HONG KONG TIMBER ACCOUNTS
The Hong Kong anti-graft agency told Reuters it investigateda number of Malaysian nationals, including a governmentofficial, for breaching the prevention of bribery ordinance inconnection with the UBS accounts. It neither confirmed nordenied that Musa was the focus of the investigation.
Malaysia's anti-corruption agency said it providedassistance to its Hong Kong counterparts but declined to givedetails. Malaysian anti-corruption officials, speaking oncondition of anonymity, told Reuters the leaked documentsobtained by Sarawak Report were genuine and Musa was, indeed,the focus of the investigation.
Sarawak Report said the Hong Kong and Malaysian anti-graftagency documents it acquired showed that $90 million in illegallogging proceeds from Sabah were channelled to the UBS accounts.That prompted Swiss prosecutors to open a criminal moneylaundering probe into UBS last August.
The investigations into UBS and its relationship with Musaare continuing, a spokesman for the Office of the AttorneyGeneral of Switzerland said. UBS said it was fully cooperatingwith the authorities but declined to give more details.
As chief minister, Musa is in charge of the SabahFoundation, which manages a state forest reserve covering 3,861square miles, nearly half the size of New Jersey. The foundationallows timber companies to annually log a tiny fraction of thatarea. The logging proceeds are supposed to fund education andwelfare projects in the state.
As chief minister, Musa signs off on all the logging permitsthat its board of directors agree to award to timber firms, orat 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 thefoundation awarded 2,000 hectares (7.7 sq miles) of primaryforest 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 Musaconsistently signed off on concessions that exceeded, or evendoubled, the allowable timber cut. While not illegal, it showsthe state was exceeding its own guidelines on deforestation.
Some of the companies on that list made payments into a UBScorporate account belonging to a former Musa associate, bankstatements on the account obtained by Reuters shows. From thesame account, withdrawals were made by the associate to fundMusa's sons who were studying in Australia, the statements show.
Two timber firms in Sabah transferred two payments totalling$4.04 million on August 16, 2006 into the corporate UBS accountbelonging to the former Musa associate. Six days later on Aug.22, the exact same amount was transferred into a personal UBSaccount belonging to Musa's lawyer. The Hong Kong anti-graftagency 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 loggingcamp, according to the Malaysian anti-graft agency document.
The owners of those two timber firms confirmed to Reutersthat the $4.04 million transactions were "donations" to Musa andUMNO to secure the contracts. They requested their names and thenames of their firms not be identified.
Malaysia's government has said all the funds in that UBSaccount were ultimately sent to UMNO as political donations.Other firms on the list of companies that received timberconcessions could not be reached or declined to comment.
LESS LOGGING REVENUES
While there is no published data on how much forest has beencleared within the Sabah Foundation forest reserve, officialdata shows significant deforestation throughout the state.
In 1992, the state's total forest cover stood at 17,000square miles, about half the size of Ireland. By 2011, it hadshrunk to 13,900 square miles, based on the latest availabledata from the forestry department. Primary or virgin forestshave been particularly hard-hit, declining from 1,595 squaremiles in 1992 to just 348 square miles in 2011.
With diminishing forests left to cut, logging revenues fellby 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 agricultureand oil and gas, which helped state budget revenues hit a record4.1 billion ringgit last year. But the state's unemployment rateremains 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 45percent in 2012 from 60 percent in 2009, according to a surveyby the Merdeka Centre, Malaysia's most respected pollster.
CORRUPTION CHARGES
Law Minister Mohamad Nazri Aziz told parliament last Octoberthe funds in the UBS bank account held on behalf of Musa werepolitical donations, without giving details about the source ofthe money or explaining why such funds had to be routed throughforeign countries.
Based on evidence submitted by the Malaysian anti-graftagency, Malaysia's attorney-general found no indication ofcorruption or linkages with the Swiss government's investigationinto UBS, Nazri said.
But an independent panel overseeing the Malaysian anti-graftagency has since written to the attorney-general requesting areview of his decision to close the case on Musa, a high rankinganti-graft official said at a public forum held by the BarCouncil. The official did not disclose why the review wasrequested and declined to respond to Reuters requests forcomment.
The attorney general did not respond to requests forcomment.
As UMNO's party leader in Sabah, Musa is expected to findways of raising money for the party - and to get out the vote.
"For UMNO, Musa is almost indispensable in Sabah. You losehim, you may lose your whole regime," said Oh Ei Sun, seniorvisiting fellow with Singapore's Nanyang TechnologicalUniversity and a former political secretary to Prime MinisterNajib.
NAJIB AT RISK
The opposition, campaigning on an anti-corruption platform,is banking on winning 20 seats in Sabah and Sarawak in theelection, which could put it within sight of a 112-seat simplemajority in parliament.
Sarawak has also been under the spotlight over allegationsof timber corruption. The Malaysian anti-corruption agency saidit has been investigating Sarawak Chief Minister Abdul TaibMahmud since 2011 in response to environmental activists'complaints about corruption in the forestry industry. Thatinvestigation continues and any new evidence will be taken intoaccount, the agency spokesman said.
He was referring to environmental activist group GlobalWitness, which posted a video in March that went viral. Itshowed Taib's cousins and associates apparently offeringthousands of hectares of forest land to the group's undercoverinvestigators and formulating plans to book the land sales inSingapore to avoid Malaysian taxes. The cousins could not bereached for comment.
Taib publicly denied the allegations raised as a result ofthe video. "I saw the so-called proof. It has nothing to do withme," he told local media. "Everything has to be done withgovernment procedure."
In an interview with Reuters last Tuesday, Prime MinisterNajib declined to discuss details of the investigations into theSabah and Sarawak chief ministers, and said he was againstcorruption in "any form."
Asked about the Global Witness video, Najib said: "It's ok,everything will be investigated, and due process will take itscourse."
