DOJ’s eye-popping revelations on 1MDB stun Malaysians

Social media is absolutely buzzing in Malaysia this morning following the latest US Justice Department’s revelations into the 1MDB probe.

It is all simply staggering and mind-boggling. What can you say?

What the DOJ puts forward indicates misappropriation on an industrial scale. We can surmise from its findings below that the 1MDB black hole is at least RM19bn. It is the first official estimate into the scale of the losses, and it is the largest action brought under the US Kleptocracy Asset Recovery Initiative.

Meanwhile, the surplus on the Sungai Besi/Bandar Malaysia and TRX land revaluations has been estimated at perhaps RM12bn-RM15bn. This would help to cover the black hole – but there would still be a shortfall in the long run.

Some key takeaways from the findings of the Justice Department:

Acting Assistant Attorney General Kenneth A. Blanco: “Today’s complaints reveal another chapter of this multi-year, multi-billion-dollar fraud scheme, bringing the total identified stolen proceeds to US$4.5 billion [RM19bn using today’s exchange rate].

Department of Justice: “… 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 [RM7.3bn].

Assistant director Stephen E Richardson of the FBI’s Criminal Investigative Division: “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.”

Acting US Attorney Sandra R Brown of the Central District of California: “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…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.”

Deputy Chief Don Fort of the IRS-Criminal Investigation: “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.”

Some of the shocking details include Jho Low’s purchase of a stone-and-necklace priced at $27.3m [RM117m using today’s exchange rate) for “the wife of Malaysian Official 1”. The money allegedly came from diverted bond proceeds in 2013.

The court filing (p228) claims:

This was far from the only time that TAN and LOW used the Blackrock Account to pay for jewelry purchases for themselves and their associates. Between April 2013 and September 2014, the Blackrock Account was used to purchase a total of approximately $200 million [RM854m using today’s exchange rate] in jewelry from firms located around the world, using funds traceable to the 2013 bonds and the 2014 Deutsche Bank loans.

Jho Low also bought 27 assorted gold necklaces (US$1.3m) for MO1’s wife allegedly from misappropriated Deustche Bank loans proceeds.

He even bought matching diamond ring and ear-rings for his mother allegedly using diverted 2012 bond proceeds.

Check out more details of how the funds were allegedly used. Read from page 224 onwards of this court filing.

According to the US Justice Department, 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 US and abroad. These transactions allegedly served to conceal the origin, source and ownership of the funds, and ultimately passed through US financial institutions to then be used to acquire and invest in assets located in the US and overseas.”

The complaints filed yesterday allege that:

In 2014, the co-conspirators misappropriated approximately US$850m 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 $1.225bn from a syndicate of banks to fund the buy-back of the options.

The complaints allege that some US$850m 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 $260m,
• 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 $1bn 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 $1.4bn in funds raised through the bond offerings in 2012, and more than $1.2bn following another bond offering in 2013.

The full US Justice Department statement can be found here.

Najib’s press secretary Tengku Sharifuddin responded to the DOJ’s findings in a statement:

Malaysian authorities have led the way in investigations into 1MDB. The company has been the subject of multiple investigations within Malaysia, including by the Malaysian Anti-Corruption Commission, Auditor General and bi-partisan Public Accounts Committee. After comprehensive review, the Attorney General found that that no crime was committed. 1MDB is still the subject of an investigation by the Royal Malaysia Police.

We note the United States Department of Justice’s civil lawsuits brought against various assets. As previously stated, the Malaysian Government will fully cooperate with any lawful investigation of Malaysian companies or citizens in accordance with international protocols.

As the Prime Minister has always maintained, if any wrongdoing is proven, the law will be enforced without exception.

1MDB’s response can be found here.