Imagine a man robbing a country of $4.5 billion and then spending that money on yachts, art jets, and partying with celebrities. Imagine if that one man was helped by senior directors at some of the world’s most prestigious investment banks. And imagine that this man still remains at large, a fugitive with immense means at his disposal. This is the story I’ll be covering today: one of intrigue, skullduggery, and epic levels of state and tradified corruption.
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Our story begins on June the 22nd, 2015. A 48-year-old retired Swiss banker named Xavier Andréi Justo was walking towards the front door of his brand new boutique hotel on Koh Samui, a tropical Thai island suitable.
He’d spent the past three years building out this luxurious white stone complex of chalets and apartments overlooking the shimmering sea and was almost ready to open for business. On that June afternoon, he was expecting a visit from the tourism authorities to sign off on the paperwork. Instead, an armed squad of Thai police burst through his front door, bundling him to the ground. The police quickly moved into his office, bagging up the computers and emptying out the filing cabinets.
After spending the next two days in jail, the Swiss banker was then flown to Bangkok and paraded before the media. He was still wearing his shorts and flip-flops when he was flanked by four armed commandos while a group of senior Royal Thai Police officers briefed the reporters on the charges against him. Xavier Andréi Justo was charged with an attempt to blackmail his former employer, an under-the-radar London-based oil services company called PetroSaudi. However, behind this seemingly mundane charge lies a much greater, more scandalous story.
In fact, only six months before his arrest, Justo had handed Claire Recassel Brown, a British journalist, thousands of documents, including a total of 227 000 emails from Petro Saudi’s servers. These documents appeared to shed light on the alleged theft of hundreds of millions of dollars from the state-owned Malaysian investment fund 1MDB. The documents leaked by the Swiss whistleblower set off a chain reaction of investigations in at least half a dozen countries, leading to what Loretta Lynch, the U.S attorney General, described as “the largest kleptocracy case in U.S history”. For those who have never heard of it, 1MDB is short for 1 Malaysia Development Berhad, the sovereign wealth fund of Malaysia.
However, according to lawsuits filed by the US department of justice in July 2016, a reported $3.5 billion had been stolen from 1MDB. The purpose of the fund, which was set up by the then Malaysian prime minister, Najib Razak, in 2009, was to promote economic development and technological growth in a country where the median income stands at approximately £300 per month.
At first, 1MDB was presented by Razak as a wonderful opportunity. He was going to raise huge sums of money for this so-called sovereign wealth fund and allocate the capital to all sorts of money-making and socially productive activities that would benefit Malaysian citizens in need of development. However, all of that money was progressively disappearing, and there was no oversight as to where it was going.
Introduction To 1MDB
By 2014, there’d been five years of massive fundraising and then a total black hole as to how that money had been deployed or where it had gone. And the numbers were outrageous. We’re talking about a whopping 11 billion unaccounted deficit by 2014. In fact, instead of benefiting Malaysian society, the department of justice alleged that the stolen money from 1MDB found its way to numerous associates of Razak who subsequently went on a prolonged and lavish spending spree across the world.
This stolen money was also allegedly used to finance the famous Wolf of Wall Street film, starring Leonardo DiCaprio. The department of justice furthermore accused Razak of receiving almost $700 million in cash from 1MDB, a claim that he, of course, continues to deny. Now the US department of justice breaks the alleged theft down into three distinct phases. 1MDB attempted to defraud its first one billion dollars under the pretense of investing in a joint venture between 1 MDB and PetroSaudi. Another $1.4 billion raised by Goldman Sachs in a bond issue was misappropriated and fraudulently diverted to a Swiss offshore company, and another $1.3 billion was raised by Goldman Sachs in the market, which was then diverted to a Singapore account.
At the time, there were certain other characters associated with the 1MDB fund, and the man at the center of this intricate swindle is a young, harrow-educated Chinese adviser to the fund and to the prime minister named Jho Low. Jho Low, a baby-faced young man who’d been spotted on multiple occasions partying with celebrities such as Lindsay Lohan and Paris Hilton, is accused by the department of justice of masterminding and orchestrating the theft of 2 billion from 1MDB, which was reportedly sent to bank accounts in Switzerland, Singapore, and the Virgin Islands.
Low had gained an international reputation for himself as a massive spender, catching the headlines in New York, Las Vegas, and, of course, Hollywood. Low was creating a stir, ranking amongst the highest spenders in all the top nightclubs. Yet he had no explanation for the source of his wealth.
Of course, this outrageous spending caught the attention of Malaysian journalists and authorities as they began wondering if his advisory role at the state-owned 1MDB, where billions of dollars had not been accounted for, might have been connected to the acquisition of extraordinary wealth by a 26-year old who, quite frankly, had come out of nowhere. Suspicions over the way one MDB’s funds were being spent rose even higher with the launch of the aforementioned 100 million movie, “The Wolf of Wall Street,” which is, of course, a film about a bunch of high-fliers who had stolen money and were spending it. This is ironic given that this is exactly what the funders of the movie were doing through 1MDB. This is because one of the producers of the movie was Ariza Aziz, the stepson of the Malaysian prime minister, who was also in control of the fund. And in fact, both Jho Low and Ariza Aziz got a shout out from Leo at the 2014 Golden Globes.
Jho Low’s Strategy With 1MDB
Even now the 1MDB scandal could not have happened on just a local basis. The ringleader in this case, Jho Low, had to find accomplices and entities that he could deal with in other countries around the world. The conspirators laundered their stolen funds through a complex web of opaque transactions and fraudulent shell companies with bank accounts spread out across the globe.
If we look back and unwind the development of 1MDB and who its early partners were, there was clearly a certain amount of collusion from interested parties in Saudi Arabia and the United Arab Emirates. The Swiss ex-banker I mentioned earlier, well, the PetroSaudi data that he leaked to the public revealed all the internal workings behind the original setting up of the first joint venture of 1MDB called the PetroSaudi bond deal. It was a joint venture with this Saudi shell company that was purporting to be an oil company.
Now whether Jho Low should be considered a criminal genius is up for debate. However, he was financially very sophisticated. He understood, according to the charging documents in the U.S., how to set up shell companies, how to hide the identity of certain entities and how to create a level of observation. Jho Low and the other characters associated with 1MDB were able to construct an elaborate set of deceptions and shell companies that sounded just like real entities. This was done in order to divert the money, launder it, cover it up and make it appear legitimate.
‘Good Star’ & 1MDB’s First Venture
This, of course, means that Jho Low was, and still is, pretty good at covering his tracks. For instance, the first thing he did right when 1MDB was getting up and running in 2009 was establish an account at a bank or company in the Seychelles called Good Star.
And when the deal was struck for the Petro Saudi Bond Deal, with sign off from the 1MDB board, a mysterious loan obligation appeared stating that $700 million of the first 1 billion committed to this venture was destined to go to pay back a loan from PetroSaudi. The U.S government then discovered that there was no such loan under the excuse that the 700 million loan needed to be paid immediately. A transfer took place from 1MDB’s primary bank to a Good Star account instead of PetroSaudi. The ownership was hidden, with only one shareholder, Jho Low.
Now this was just one example of Low’s ability to disguise and obscure the source or destination of funds. Lowe set up a second company called Blackstone Asia Real Estate, which sounds remarkably like a very successful U.S. private equity firm. But this was merely a shell company that used the fancy title “Blackstone” to give it a level of credibility. This would happen time and time again, with Low selecting seemingly credible names for his shell companies in order not to raise any red flags for the banks transferring the funds.
But what made these thefts so successful was that Low had the full support of the Malaysian prime minister at the time. The money spread quickly around the world, though the majority of it was laundered and spent in the U.S. We can see this extraordinary constellation of luxury properties and homes in New York, Beverly Hills, and London, with their famous pieces of art, luxury yachts, and gambling sprees in Las Vegas.
Goldman Sachs Involvement
What’s particularly ludicrous about this entire story is the involvement of none other than Goldman Sachs, yes, the good old vampire squid of Wall Street.
In 2012 and 2013, Goldman reportedly assisted 1MDB in fundraising, a total of 6.5 billion, an operation that netted the investment bank over $600 million in fees. Goldman has long blamed rogue employees for its involvement in 1MDB, asserting that it had no idea the money it helped raise would be diverted from planned development projects in Malaysia.
Nevertheless, in October 2020, Goldman admitted that its Malaysian unit had “knowingly and willingly paid bribes to foreign officials and that it had ignored all red flags associated with the consequences of facilitating the deal”. Goldman agreed to return the 600 million dollars to Malaysia and pay roughly 2.3 billion dollars to regulators in the U.S., Hong Kong, Singapore, and the UK.
Previously, in July of 2020, Goldman reached a 3.9 billion settlement with the Malaysian government for its role in the corruption scandal. The settlement included a 2.5 billion cash payout by Goldman, while the bank said that it would guarantee that the government would receive at least $1.4 billion from money recovered from the 1MDB scheme.
Ex-Goldman Banker Convicted
But there’s still much more to this story. Jho Low is on the run, and investigations into the 1MDB scandal are ongoing. On the 8th of April, former Goldman Sachs banker Roger Ng was convicted by a U.S jury of corruption charges related to his role in helping steal hundreds of millions of dollars from 1MDB.
Prosecutors charged Ng, Goldman’s former top investment banker, at its Malaysian subsidiary with conspiracy to violate an anti-corruption law and launder money, alleging that ung assisted his former boss, Tim Leissner, in embezzling money from the fund, laundering the proceeds, and bribing officials to win business for Goldman. He pleaded not guilty.
His lawyers say that Leissner, who pleaded guilty to similar charges in 2018 and agreed to cooperate with prosecutors’ investigation, was falsely implicated in the hopes of receiving a lenient sentence. But the jury convicted Goldman of two counts of conspiracy to violate the foreign corrupt practices act (FCPA) through bribery and circumvention of Goldman’s internal accounting controls, as well as one count of conspiracy to commit money laundering. Ng, of course, is probably the only individual to face trial in the United States over the 1MDB scheme until Jho Low is captured.
As you can imagine, international authorities are on high alert and are currently on the hunt for low. It’s rumored that he’s been residing in China, where he secretly travels extensively through major cities, making it clear that finding the man has thus far proven impossible. After all, he is a master of disguise when it comes to covering his tracks, and that primarily boils down to his level of financial sophistication. Ironically, Low has stated that he “will not submit to any jurisdiction where there is no independent legal process maintaining his innocence in relation to the 1MDB scandal”. But as the old saying goes, innocent people don’t run, right? So keep an eye out for that news headline, folks; it’ll make for interesting reading.
Consequences Of PetroSaudi Data Leaks
The consequences of Justo’s data leaks are still reverberating around the world and investigations into 1MDB are far from over. In fact, the DOJ’s allegations directly contradicted the repeated assertions by Prime Minister Najib Razak about the origins and purpose of the hundreds of millions of dollars that ended up in his personal bank accounts.
Now I don’t intend to get too political here, but the DOJ’s filing against 1MDB was released at a critical moment for democracy in Malaysia. Ever since the 1MDB case, the Malaysian government has dramatically expanded and reinforced its financial security measures.
However, around the world, investigations into the sprawling corruption scandal are also continuing to expand. In Switzerland, the U.S. justice department identified RBS Coots and Rothschild bank as conduits for transactions in the corruption complaint. 1MDB also shed light on the persistent lapses and weaknesses in anti-money laundering controls across the world’s largest banks, with Goldman Sachs at the forefront. For now, the man whose revelations enabled the exposure of this vast fraud remains in a Bangkok prison. He blew the whistle but paid the price, and while he may not go down in history as a hero who selflessly risked ruin to expose the truth, he did sacrifice his freedom nonetheless.
Now that the 1MDB case is far from over, it’s spread dirty money to all corners of the globe. Jho Low is a fugitive, and there’s plenty of money still missing. Not to mention the amount Malaysia is still paying in interest on those original shady bond deals. Ultimately, one million led to more than 11 billion dollars in debt being racked up in just five years between 2009 and 2015.
But when these types of financial scams happen, typically the people who benefit are the kleptocrats at the very top, and the people who lose and remain impoverished are the ones whom the fund was intended to benefit. Again, this type of financial scandal reveals just how easily money laundering can happen and how far corruption can reach.
Furthermore, the ability to divert that much money from a government-sponsored enterprise and then use a network of global banks to facilitate the process is, to put it mildly, incredible. Of course, billions of dollars still remain unaccounted for, and the only one who really knows the destination of those funds is Jho Low. It’s safe to say that he has no interest in telling the world where Malaysia’s funds for development are at this point, and it may stay secret for quite some time. We may never really know the full extent of what happened at 1MDB, but for now, all we can do is learn the lessons it teaches us and be vigilant for the next potential scandal that is never far away.
[This article is a transcription of a video made by Coin Bureau]
Original video: https://youtu.be/DPE5D7X3N7U ]