Behind the 1MDB scandal – Part 1

Behind the 1MDB scandal: How banks missed clues and bowed to pressure

Financier Jho Low, who investigators believe is at the centre 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 $US3.5 billion from 1Malaysia Development Bhd, a state investment fund created by Mr Najib, the US Justice Department alleged in a lawsuit filed in July.

It couldn’t have happened without the co-operation 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 US 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 was 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, US investigators have traced more than $US1 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 US 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 lawyer general agreed and cleared him of any crime. 1MDB has denied wrongdoing and said it would co-operate with any lawful international investigation. A lawyer for Mr Low declined to comment. Goldman Sachs and Standard Chartered have said they did nothing wrong.

Behind the 1MDB scandal: How banks missed clues and bowed to pressure
Tom Wright, Bradley Hope
Wall Street Journal
September 6, 2016 – The Australian

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All that is necessary
for the triumph of evil
is for good men
to do nothing.

- Edmund Burke
When the people
fears their government,
there is TYRANNY;
when the government
fears the people,
there is LIBERTY.

- Thomas Jefferson
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