Behind the 1MDB scandal – Part 2

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

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 $US1 billion. Only $US300 million of 1MDB’s money reached the Saudi joint venture, the Justice Department says. Officials at the fund ordered the rest —$US700 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 $US330 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.

1MDB’s executive director at the time told a Deutsche Bank officer in a phone conversation to push through the payment or face blame if the “deal goes off,” according to a transcript cited by the Justice Department. The transcript didn’t name the executive director, but someone with direct knowledge of the matter said it was Casey Tang.

“I’m under tremendous pressure” to get the deal done, the executive director added, according to the transcript.

“Let me just convince my compliance person,” said the banker, who wasn’t named. “It’s a little bit sticky.”

When the banker kept asking for details, 1MDB’s executive director said the money was going directly to PetroSaudi to settle debts, even though there had been no discussion of that in 1MDB’s agreement with the Saudi company, according to the Justice Department.

Deutsche Bank processed the transfer. Bank Negara Malaysia, the central bank, which monitors large transfers into and out of the country, added its imprimatur, according to the Justice Department complaint.

PetroSaudi has denied wrongdoing and “rejects any claims that it is involved in the misappropriation of funds from 1MDB,” its lawyer said. Mr Tang couldn’t be reached for comment. Deutsche Bank declined to comment.

Malaysia’s Corruption Scandal

Months later, 1MDB’s auditing firm, Ernst & Young, asked questions about how the fund was classifying the Saudi joint venture investment on its books. 1MDB management tried to portray the payments as government-to-government business, even though PetroSaudi was a private company, according to minutes of the fund’s board meetings.

Unsatisfied with the answer, the audit firm declined to sign off on 1MDB’s financial accounts for the 2010 financial year.

Mr Najib, who headed 1MDB’s board of advisers, intervened, firing the auditor, according to a 1MDB document reviewed by the Journal. When the new auditor, KPMG, raised questions about the same investment a few years later, he fired that company, too, according to 1MDB board minutes.

Ernst & Young and KPMG declined to comment.

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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