1MDB - Department of Justice continues the hunt

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FOR IMMEDIATE RELEASE

Thursday, June 15, 2017

U.S. Seeks to Recover Approximately $540 Million Obtained From Corruption Involving Malaysian Sovereign Wealth Fund

The Justice Department announced today the filing of civil forfeiture complaints seeking the forfeiture and recovery of approximately $540 million in assets associated with an international conspiracy to launder funds misappropriated from a Malaysian sovereign wealth fund. Combined with civil forfeiture complaints filed in July 2016, seeking more than $1 billion, and civil forfeiture complaints filed last week seeking approximately $100 million in assets, this case represents the largest action brought under the Kleptocracy Asset Recovery Initiative. Assets now subject to forfeiture in this case total almost $1.7 billion.

Acting Assistant Attorney General Kenneth A. Blanco, Acting U.S. Attorney Sandra R. Brown of the Central District of California, Assistant Director Stephen E. Richardson of the FBI’s Criminal Investigative Division, and Deputy Chief Don Fort of the IRS-Criminal Investigation (IRS-CI) made the announcement.

According to the complaints, from 2009 through 2015, more than $4.5 billion in funds belonging to 1Malaysia Development Berhad (1MDB) was allegedly misappropriated by high-level officials of 1MDB and their associates. 1MDB was created by the government of Malaysia to promote economic development in Malaysia through global partnerships and foreign direct investment, and its funds were intended to be used for improving the well-being of the Malaysian people.  

“The Criminal Division is steadfast in our efforts to protect the security, safety, and integrity of the American financial system from all manner of abuse, including by kleptocrats seeking to hide their ill-gotten or stolen wealth,” said Acting Assistant Attorney General Blanco. “Today’s complaints reveal another chapter of this multi-year, multi-billion-dollar fraud scheme, bringing the total identified stolen proceeds to $4.5 billion. This money financed the lavish lifestyles of the alleged co-conspirators at the expense and detriment of the Malaysian people. We are unwavering in our commitment to ensure the United States is not a safe haven for corrupt individuals and kleptocrats to hide their ill-gotten wealth or money, and that recovered assets be returned to the victims from which they were taken.”

“These cases involve billions of dollars that should have been used to help the people of Malaysia, but instead was used by a small number of individuals to fuel their astonishing greed,” said Acting U.S. Attorney Brown. “The misappropriation of 1MDB funds was accomplished with an extravagant web of lies and bogus transactions that were brought to light by the dedicated attorneys and law enforcement agents who continue to work on this matter. We simply will not allow the United States to be a place where corrupt individuals can expect to hide assets and lavishly spend money that should be used for the benefit of citizens of other nations.”

“Today’s filing serves as a reminder of the important role that the FBI plays in rooting out international corruption. When corrupt foreign officials launder funds through the United States in furtherance of their criminal activity, the FBI works tirelessly to help hold those officials accountable, and recover the misappropriated funds,” said Assistant Director Richardson. “I applaud all my colleagues and our international partners who have worked to help recover an immense amount of funds taken from the Malaysian people, who are the victims of this abhorrent case of kleptocracy.”

“Today’s announcement is the result of untangling a global labyrinth of multi-layered financial transactions allegedly used to divert billions of dollars from the people of Malaysia and fund the co-conspirators’ lavish lifestyles,” said Deputy Chief Fort. “The IRS is proud to partner with other law enforcement agencies and share its world-renowned financial investigative expertise in this complex financial investigation. It’s important for the world to see, that when people use the American financial system for corruption, the IRS will take notice.”

As alleged in the complaints, the members of the conspiracy – which included officials at 1MDB, their relatives and other associates – diverted more than $4.5 billion in 1MDB funds.  Using fraudulent documents and representations, the co-conspirators allegedly laundered the funds through a series of complex transactions and shell companies with bank accounts located in the U.S. and abroad. These transactions allegedly served to conceal the origin, source and ownership of the funds, and ultimately passed through U.S. financial institutions to then be used to acquire and invest in assets located in the U.S. and overseas.

The complaints filed today allege that in 2014, the co-conspirators misappropriated approximately $850 million in 1MDB funds under the guise of repurchasing certain options that had been given in connection with a guarantee of 2012 bonds. As the complaints allege, 1MDB had borrowed a total of $1.225 billion from a syndicate of banks to fund the buy-back of the options. The complaints allege that approximately $850 million was instead diverted to several offshore shell entities. From there, the complaints allege, the funds stolen in 2014, in addition to money stolen in prior years, were used, among other things, to purchase a 300 foot luxury yacht valued at over $260 million, certain movie rights, high-end properties, tens of millions of dollars of jewelry, and artwork. A portion of the diverted loan proceeds were also allegedly used in an elaborate, Ponzi-like scheme to create the false appearance that an earlier 1MDB investment had been profitable.  

As alleged in the earlier complaints, in 2009, 1MDB officials and their associates embezzled approximately $1 billion that was supposed to be invested to exploit energy concessions purportedly owned by a foreign partner. Instead, the funds were transferred through shell companies and were used to acquire a number of assets, as set forth in the complaints. The complaints also allege that the co-conspirators misappropriated close to $1.4 billion in funds raised through the bond offerings in 2012, and more than $1.2 billion following another bond offering in 2013.

The FBI’s International Corruption Squads in New York City and Los Angeles, and the IRS-CI are investigating the case. Deputy Chief Woo S. Lee and Trial Attorneys Kyle R. Freeny and Jonathan Baum of the Criminal Division’s Money Laundering and Asset Recovery Section and Assistant U.S. Attorneys John Kucera and Christen Sproule of the Central District of California are prosecuting the case. The Criminal Division’s Office of International Affairs is providing substantial assistance. 

The Kleptocracy Asset Recovery Initiative is led by a team of dedicated prosecutors in the Criminal Division’s Money Laundering and Asset Recovery Section, in partnership with federal law enforcement agencies, and often with U.S. Attorney’s Offices, to forfeit the proceeds of foreign official corruption and, where appropriate, to use those recovered asset to benefit the people harmed by these acts of corruption and abuse of office. In 2015, the FBI formed International Corruption Squads across the country to address national and international implications of foreign corruption. Individuals with information about possible proceeds of foreign corruption located in or laundered through the U.S. should contact federal law enforcement or send an email to kleptocracy@usdoj.gov(link sends e-mail) (link sends e-mail) or https://tips.fbi.gov/.

A civil forfeiture complaint is merely an allegation that money or property was involved in or represents the proceeds of a crime. These allegations are not proven until a court awards judgment in favor of the U.S.

Attorney General Apandi Ali may want to take a second look at the 1MDB scandal before its too late for him.

p/s 

Inspector General of Police Khalid Abu Bakar appears a bit busy clarifying his much talked about Gopi-link. 

1MDB on Wall Street Journal

Malaysia is now famous for all the wrong reasons, thanks to Najib Razak

Fund Controversy Threatens Malaysia’s Leader

Debts run up by state development fund 1MDB have roiled Malaysia’s markets and led to calls for its leader to step aside

By

TOM WRIGHT

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KUALA LUMPUR, Malaysia—A state investment fund is at the center of a burgeoning political and financial controversy that is roiling markets and leading to calls for the ouster of Malaysia’s prime minister.

The fund, 1Malaysia Development Bhd., or 1MDB, was set up to spur economic growth in Malaysia. But it has rolled up more than $11 billion of debt that it now struggles to repay, and has invested in such projects as power plants in foreign countries and an oil venture abroad that yielded no oil.

Another fund initiative: Amid a close election, it indirectly supported Prime MinisterNajib Razak’s campaign, according to an examination by The Wall Street Journal.

The fund paid what appeared to be an inflated price for assets acquired from a Malaysian company; the company then contributed to a Najib-led charity that announced projects, such as aid to schools, that Mr. Najib was able to tout as he campaigned.

Concerns over 1MDB’s high debts and limited transparency have triggered four government investigations. The concerns also have set up a confrontation between Mr. Najib and his mentor, Mahathir Mohamad, who led Malaysia for 22 years.

Mr. Mahathir says 1MDB’s assets are too meager for its huge debts. “What happened to that money?” Mr. Mahathir said in an interview. “They can’t explain.” He has publicly called on Mr. Najib to resign, as have other former allies from the ruling party and opposition politicians.

Were the prime minister to heed such calls, the result could be a setback for U.S. interests in Southeast Asia. Under Mr. Najib, relations with the U.S. have improved as Washington tries to build up its alliances in the region to counter China’s rise.

Mr. Najib, who is chairman of 1MDB’s board of advisers, has said he did nothing wrong and has urged critics to wait for the results of the investigations. His office didn’t respond to specific questions about the fund’s activities, including about any role in election-related spending.

“Unfortunately, the prime minister’s political opponents, unwilling to accept his record or the facts, continue to try to undermine him with baseless smears and rumors for pure political gain,” his office said.

Debt levels

Though wholly owned by the government, 1MDB isn’t government-funded, except for a small initial amount; it has to raise money in the debt markets for its projects. In an “F.A.Q.” section of a news release in December, 1MDB said there was no reason to be concerned about its debt level.

Still, the fund has at times rescheduled its debt repayments. And in May, 1MDB got a $1 billion capital injection from a state fund in Abu Dhabi—a close ally of Malaysia—to help meet a looming loan repayment. Interest costs ate up half the fund’s revenue in the year ended March 31, 2014, the last for which the fund has filed a financial report.

Arul Kanda, 1MDB’s president and group executive director, said the fund hopes to repay debt by selling assets, which he said are worth more than its borrowings. In an emailed response to questions, he said the government has guaranteed only 14% of 1MDB’s total debt, limiting its exposure.

Mr. Arul, who was appointed in January, also said that “1MDB’s financial decisions are driven by the best interests of the business, not political considerations.”

Worries about 1MDB’s debt have helped make Malaysia’s markets among the worst performers in the world in recent months, according to investors. Malaysia’s currency, the ringgit, has fallen 6% against the U.S. dollar this year, to its weakest in almost a decade. Though credit-rating agencies consider Malaysia’s debt safe, government bond prices have fallen, and foreign investors are pulling cash out of the country’s markets at an accelerating rate.

Some investors are betting the Malaysian government will end up bailing 1MDB out.Moody’s Investors Service has estimated such a rescue could cost as much as 1.4% of the country’s annual economic output. Meanwhile, Malaysia is facing low prices for its major exports: oil, natural gas, palm oil and rubber.

“At the end of the day, this entire entity is owned by the Ministry of Finance,” said Dhiraj Bajaj, a fund manager with Swiss bank Lombard Odier Darier Hentsch & Cie., who bought more 1MDB debt after recent declines, betting the government will step in with a bailout if needed.

Prime Minister Najib faced political problems almost immediately after he took office in 2009.

His party, the United Malays National Organization, had only narrowly retained power a year earlier. UMNO has headed every government since Malaysia gained independence from Britain in 1957. It has been losing the financial backing of the country’s ethnic Chinese minority, who dominate the economy but have been growing frustrated with government programs that favor ethnic Malays. The ebbing support, according to party insiders, forced Mr. Najib to look for other sources of financing.

Mr. Najib formed 1MDB in 2009, saying the fund would develop lucrative industries and create a new financial district in Kuala Lumpur that later was named after his father, the country’s second prime minister. Besides its development efforts at home, the fund has poured money into investments such as power-plant purchases abroad and a since-liquidated venture with a Saudi oil company. The fund has said it made money on the oil venture but hasn’t disclosed details.

Paying a high price

In one power-plant deal, the seller was Genting Group, which calls itself Malaysia’s leading corporation. The sprawling real-estate, plantation, hospitality and casino company owns New York City’s only casino and just broke ground on a $4 billion Chinese-theme casino in Las Vegas. 

The 1MDB fund in October 2012 acquired a Genting unit that owned a 75% stake in a 720-megawatt coal-fired power plant near Kuala Lumpur. The price, which was equivalent to about $740 million at the time, came to 2.3 billion Malaysian ringgit. Genting later reported it had a 1.9 billion-ringgit extraordinary gain on this sale, implying a value for its stake in the power plant of just 400 million ringgit—or less than one-fifth what 1MDB paid for it.

In a second sign that 1MDB paid a high price, the fund’s financial statement for the fiscal year ended in March 2013 said the power unit’s property, plant and equipment were worth a little under 500 million ringgit at the time of acquisition.

The fund cited 1.7 billion ringgit of “intangible assets,” which were the value of the plant’s agreement to sell power to a state-owned entity. But this valuation appeared to be contingent on Genting obtaining a renewal of its power-sale agreement, which was running out in 2016.

Genting announced the terms of the sale to 1MDB in August. Equity analysts at the time noted the size of the deal was positive for Genting given its contract to sell power was ending. In early October, Malaysia’s Energy Commission, an independent body which regulates the energy sector, announced Genting had won a 10-year extension to sell power through 2026. A few days later, Genting and 1MDB finalized the sale.

Soon after the purchase, 1MDB appeared to recognize that it had overpaid for power assets. In its financial accounts for fiscal 2013, the fund took an “impairment” charge of 1.2 billion ringgit, writing down part of the premium it had paid to acquire power assets from Genting and another Malaysian company.

The 1MDB fund said the premium it paid reflected the experience of the staff of the Genting unit. Mr. Arul, 1MDB’s president, said in a December news release that the valuation was “commensurate with their existing and future potential” at the time.

A few months after the sale, a unit of Genting called Genting Plantations Bhd. made a donation of about $10 million to a Najib-linked charity, according to a spokesman for Genting Plantations. The charity, Yayasan Rakyat 1Malaysia, lists Mr. Najib as chairman on its website. Stock analysts at the time said the surprise donation reduced the company’s net profit in the first quarter of 2013, and said they didn’t expect it to be repeated.

Though set up to help underprivileged Malaysians through education and sport, this charity soon got involved in spending that appeared designed to help Mr. Najib retain power in a May 2013 election.

It and other charities linked to the government spent millions of dollars before the voting in Penang, a northern state that was an important election battleground. Mr. Najib visited Penang during the campaign and announced that Yayasan Rakyat 1Malaysia would donate two million ringgit (about $660,000 at the time) to two local schools. These schools serve Chinese communities that are not a poor demographic, but whose support would be crucial to win voting in the area.

Mr. Arul, 1MDB’s president, referred questions about the matter to Genting and to the charity.

A Genting spokeswoman declined to comment on the charitable donation or the valuation of the plant sold to 1MDB.

The charity, too, declined to comment. Regulators say the charity has failed to file required financial statements since its inception in early 2013.
Before the election

Also active in Penang just before the May 2013 election was 1MDB itself. The fund purchased land in the state days before the voting.

Mr. Najib, campaigning in Penang, promised to build low-cost housing on the land.

Critics said 1MDB’s spending amounted to the use of state funds for electioneering. “They’ve shown they’ve got lots of cash to throw,” said Lim Guan Eng, Penang’s chief minister and a member of the opposition Democratic Action Party.

Mr. Arul of 1MDB declined to comment on the fund’s land purchase. He referred questions to Mr. Najib, whose office didn’t address such specifics in its response.

Opposition politicians also have criticized 1MDB for raising billions of dollars just weeks before the 2013 election. In March 2013, the fund sold $3 billion in bonds.

Goldman Sachs Group Inc. arranged the bond sale and took on extra risk to get the deal done quickly at 1MDB’s request, according to a person familiar with the matter, earning unusually high profits as a result. Goldman, which also was 1MDB’s financial adviser on the purchase of assets from Genting, declined to comment. The 1MDB fund, when asked about criticisms of the fund-raising, pointed to a past statement it had made in defense of the $3 billion bond, which said it was issued at a typical discount.

The results of the May 2013 election turned out to be the worst yet for UMNO’s ruling coalition. It not only didn’t prevail in Penang but didn’t win a majority of the national vote, either. Mr. Najib remained in power only because of electoral rules that give more parliamentary seats to candidates from UMNO’s rural heartlands.

Last month, in an election to fill a vacant seat in parliament, 1MDB used the Twitter feed of its foundation to promote the government’s candidate. A 1MDB spokesman declined to comment.

The financial situation appears to be deteriorating for 1MDB. The fund has shelved plans for an initial public offering of its power plants, a move it had hoped would raise $3 billion.

The government recently stepped in with a $260 million emergency line of credit after 1MDB had to renegotiate a loan payment to a consortium of banks.

“Like many companies, we examine our financial arrangements and restructure these from time to time in order to ensure that the company is receiving the best possible terms,” said 1MDB’s president, Mr. Arul.

The 1MDB fund recently sold some land to another state fund, one that invests money for Malaysians who want to make a pilgrimage to Mecca. Mr. Arul denied suggestions from critics that a sale to another government fund amounted to a partial bailout. The pilgrimage fund’s chairman said he expects to make a profit on the deal.

Malaysia’s police, auditor general and a parliamentary committee are investigating the fund’s investment activities. This month came word of a fourth probe, as Malaysia’s central bank launched an investigation of 1MDB’s offshore borrowings and foreign investments. —Celine Fernandez contributed to this article. 

*WSJ

Web of Entities Spent Ahead of Malaysia’s Tight Election