21 July, 2016
Kleptocracy: a government where those in power have stolen from the rest of people to make themselves rich. This term gives an indication of the circumstances surrounding the misappropriated funds of 1MDB.
The US Department of Justice announced that it initiated court actions to take back more than RM4 billion in assets linked to an international conspiracy to launder money stolen from 1MDB. This was under the US Kleptocracy Asset Recovery Initiative.
When the news broke and after the filing of the court action, the Wall Street Journal uploaded the court papers for one of the court actions. It is a 136-page document and I set out below the summary of the allegations set out in the US court action.
This particular action is brought by the United States of America against essentially “The Wolf of Wall Street” as the US Government wants to seize all the rights and payments under this movie.
Introduction
1MDB is a company set up by the Malaysian Government for the public good. However, various individuals and public officials conspired together to steal billions of ringgit from 1MDB. The monies was used by the alleged wrongdoers for their own personal benefit. The money was used to fuel their lavish lifestyle.
Some of the Significant Characters
(i) Jho Low: The court papers state how the monies flowed to him and his associates.
(ii) Eric Tan: A close friend of Jho Low. The court papers also state how the monies flowed to his accounts.
(iii) Riza Shahriz: A close friend of Jho Low and a relative of Malaysian Official 1 (explained further below). He co-founded
Red Granite Pictures, a Hollywood production studio and producer of “The Wolf of Wall Street” movie.
(iv) Malaysian Official 1: Left unnamed in the court papers. Described as a high ranking official in the Malaysian Government and had a high position in 1MDB. He is described as having had great power in 1MDB and could approve and remove 1MDB’s directors and senior management.
The Facts in the Court Papers
The court papers spell out how 1MDB’s money was stolen in three stages.
The first stage was when 1MDB wanted to transfer USD1 billion (or more than RM4 billion) to a business venture. Out of this USD1 billion, USD700 million was diverted to a bank account held by a company called Good Star Limited. This company, Good Star, was owned and controlled by Jho Low.
Later, 1MDB’s directors wanted to again transfer more money, now USD330 million (or more than RM1 billion) to this business venture. Now, the whole USD330 million was instead diverted to Good Star i.e. diverted to Jho Low’s control.
The second stage was when 1MDB needed more money. After all, USD1 billion was now missing although 1MDB’s directors did not quite know that. The directors were lied to and kept in the dark. 1MDB proceed to borrow money, through issuing bonds. When 1MDB borrowed money, around $1.3 billion (more than RM5 billion) was diverted and stolen. The money was diverted to shell companies which bore similar names to genuine reputable companies.
The third stage was when 1MDB wanted to borrow even more money, also through bonds, to buy up power plants. However, out of the borrowed money, yet again, around $1.2 billion was diverted and siphoned off.
So at this stage, the court papers asset that billions of 1MDB’s monies have been siphoned off. Where did all these billions end up?
Here are some of the examples in the court papers of how these monies were used for the personal benefit of the alleged wrongdoers:
(1)Payments of $681 million, $20 million and $30 million were made into the bank account of Malaysian Official 1;
(2) Multiple high-end properties were purchased. A hotel, a Beverly Hills property, a Beverly Hills mansion, various penthouse apartments;
(3) Purchase of a Bombardier Jet;
(4) Millions went to Red Granite Pictures to fund “The Wolf of Wall Street”;
(5) Purchase of Van Gogh and other valuable artwork; and
(6) Millions were spent in Las Vegas.
The Malaysian Official 1
The Malaysian Official 1 is referred to multiple times in the court papers. There is a reference to the Malaysian Attorney General’s press release dated 26 January 2016 on the $681 million (RM2.08 billion) payments. A copy of this press release is here.
The court papers state that in the press release, the Attorney General confirmed that “the sum of USD681 million (RM2.08 billion) [was] transferred into the personal account of [Malaysian Official 1]“. But this payment of $681 million was characterised by the Attorney General as a personal donation to the Malaysian Official 1 from the Saudi royal family.
However, the court papers show that the payment of the $681 million to the Malaysian Official 1 in fact came from a bank account beneficially owned by Eric Tan (i.e. the close friend of Jho Low). The monies that were in this bank account, had in fact came from the siphoned funds out of 1MDB’s borrowings.
