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Behind The 1MDB Scandal: Banks That Missed Clues And Bowed To Pressure

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Behind The 1MDB Scandal: Banks That Missed Clues And Bowed To Pressure

By Pathay Singh on 09/06/16

Financier Jho Low, who investigators believe is at the center of one of the largest-ever financial scandals, kept up a stream of messages to an official at AmBank Bhd. Mr. Low was obsessed about how the bank handled the peculiar accounts of Malaysian Prime Minister Najib Razak.

Don’t let people outside the bank or more than a few people inside know about the accounts, he instructed. Use Gmail, not the bank’s email system, for communication. Whatever you do, don’t send credit-card statements to the prime minister’s house.

“No no no,” Mr. Low wrote, according to transcripts of BlackBerry messages reviewed by The Wall Street Journal. “Super sensitive.” He instead had someone collect the statements by hand.

Between 2009 and 2013, Mr. Low, a family friend of the prime minister, and his associates helped embezzle at least $3.5 billion from 1Malaysia Development Bhd., a state investment fund created by Mr. Najib, the U.S. Justice Department alleged in a lawsuit filed in July.

It couldn’t have happened without the cooperation of a handful of bankers and the failure of a host of financial institutions and regulators to detect the alleged fraud, investigators believe. Mr. Low and his cohorts for years eluded detection or interference by at least eight banks, big accounting firms, a central bank and various government regulators, according to the Justice Department, investigative documents from other countries and people familiar with the affair. The banks included Goldman Sachs Group Inc. and Standard Chartered PLC.

Mr. Low, who had no official position at 1MDB, employed trickery, setting up offshore shell companies with misleading names, misidentifying money transfers as “gifts” and putting money into art and real estate to conceal its origins, according to the Justice Department. His cohorts inside and outside the fund pressured bank compliance officers, relied on close relationships with others and got help from people inside governments, according to the complaint and other documents. When some accountants raised questions, they were fired.

That the alleged fraud could roll on for so long without detection suggests weaknesses in a global system designed to clamp down on money laundering, a problem U.S. and other Western leaders have pledged to fix.

Investigators in at least seven countries are still trying to figure out what happened to all the money. 1MDB was supposed to invest in energy and property businesses to create jobs, but funds instead moved to secret offshore havens and later were distributed among various participants, the Justice Department alleges. Bank-transfer records reviewed by the Journal show that large sums wound up in the prime minister’s personal accounts at AmBank, which is based in Kuala Lumpur. So far, U.S. investigators have traced more than $1 billion to the purchase of luxury real estate in Beverly Hills, New York and London, as well as the financing of a Hollywood movie, “The Wolf of Wall Street,” the Justice Department says.

The U.S. has moved to seize assets and is conducting a criminal investigation of some of those involved, according to people involved with the matter.

Mr. Najib has denied any wrongdoing and said the money received came from a Saudi donor, much of which was returned. The Malaysian attorney general agreed and cleared him of any crime. 1MDB has denied wrongdoing and said it would cooperate with any lawful international investigation. A lawyer for Mr. Low declined to comment. Goldman Sachs and Standard Chartered have said they did nothing wrong.

Saudi connection

The alleged plot began just after Mr. Najib, the prime minister, founded 1MDB in mid-2009.

That August, a group of Malaysians, including the prime minister and Mr. Low, met in France with Turki bin Abdullah al Saud, a son of the late King Abdullah of Saudi Arabia and co-owner of a private Saudi oil company called PetroSaudi International Ltd., according to documents reviewed by the Journal.

Weeks later, 1MDB signed a joint venture with PetroSaudi toward which the Malaysian fund pledged to contribute $1 billion. Only $300 million of 1MDB’s money reached the Saudi joint venture, the Justice Department says. Officials at the fund ordered the rest—$700 million—to go to a Seychelles-based shell company called Good Star Ltd., which the Justice Department says was owned by Mr. Low. Later, 1MDB sent another $330 million to Good Star.

Employees at 1MDB’s banker, Deutsche Bank AG, wanted to know why the money wasn’t going to the joint venture and asked questions about Good Star, according to the Justice Department complaint.

Source: The Wall Street Journal