1MDB Not An Overnight Monster; Likewise Malaysian Official 1

1MDB Not An Overnight Monster; Likewise “Malaysian Official 1”

M. Bakri Musa

www.bakrimusa.com

The colossal corruption scandal that is 1MDB is not an overnight monster; likewise its principal rogue, “Malaysian Official 1” (MO1).

           

            The loss from 1MDB, though in the billions, is at least quantifiable. Not so the besmirching of Malaysia’s good name by its leader MO1 being labelled the world’s most corrupt kleptocrat by the US Department of Justice.

            So hideous and unprecedented was MO1’s conduct that I believe he (or maybe she) was born corrupt. Or to use Mahathir’s words in his The Malay Dilemma, it is in his (MO1’s) genes to be corrupt.

            I go further. Even if you are inherently (that is, genetically predisposed to be) corrupt, you would not necessarily be so if you were to be brought up along the straight path. So the only conclusion is that MO1 in addition to being born corrupt was also nurtured by a corrupt family.

           

            That is a near-blasphemous statement to make in Malaysia. The memory of the father of MO1 is still held in high regards by most Malaysians. Most but not all. For those not lucky enough to be born of the right heritage to benefit from the father’s new enlightened policy, the image is less pristine. 

            In trying to defend his (and his spouse’s) current wealth and profligate ways, MO1 once claimed that he was blessed with a bountiful inheritance. Offended by that statement, one of his siblings took the unusual step of publicly contradicting him, claiming that their father died while not quite in poverty was definitely not wealthy. At least that family has one honest member.

            This MO1 has a long history, both personal as well as official. As for the personal, let’s just say that he is a Malaysian Bill Clinton, minus the brilliance. There is little need to pursue that prurient path.

            As for the official, as Minister of Education back in the 1990s he approved over 500 permits for private colleges during a two-year period. That was more than one application a day! You would need a lot of grease to make the normally sluggish Malaysian bureaucracy go that fast and smooth. He must have received plenty of grease to slide by all those applications.

            A measure of the ministry’s “thoroughness” was that many of those colleges closed shop after their students had paid the exorbitant fees, stranding the students and disappointing their parents.

            As Defense Minister he gave his buddy millions as “commission” to buy a billion-ringgit used submarine that could not submerge. We may yet know more about that scandal as the French is reopening that corruption case. As for his buddy, he too shared MO1’s personal morality. All that is now cleansed, in the eyes of the Malaysian brand of Islam, with their trip to Mecca.

            Now with MO1 as Finance Minister, should Malaysians and the world be surprised then that 1MDB is the consequence?

            One person however vile, corrupt, or greedy could not possibly execute a heist on the scale of 1MDB. MO1 must have had many enablers. Not only that, the nation’s institutions must also have been sufficiently weakened and their personnel emasculated not to have noticed the massive looting. The rotting of Malaysian institutions and the breeding of those enablers too did not happen overnight.

            The heads of Bank Negara, Anti-Corruption Commission and the police, as well as the Auditor-General and Attorney-General during the looting of 1MDB were individuals appointed by other than MO1. The exception is the current Attorney General, that failed former UMNO operative.

            There may be some poetic justice if not perverse irony in that a few of those enablers now face the threat of being charged for treason, for not protecting MO1 vigorously or enough.

            I draw a difference between those enablers versus the UMNO ministers, divisional chiefs, and UMNO Youth “red-shirts” who mindlessly defend and sing praises of MO1. These latter characters are whores; they are paid to pleasure MO1. Destroy 1MDB and MO1, and with their lifeline cut off, watch them convert to be MO1’s and UMNO’s severest critic.

            Now with the National Security Act of 2016 operative, criticisms of MO1 would be that much more difficult and treacherous. Again, that NSA did not appear overnight. It took decades in preparation, going back to the constitutional amendment of 1994 which made possible for laws passed by Parliament to dispense with royal assent.   

            That constitutional amendment, as well as the rotting institutions, is water underneath the bridge. No point wallowing in it. Yet many are still obsessed with the blame game and relish indulging their status as Mahathir’s victims. They are more interested in settling old scores or getting even on earlier slights instead of helping solve the current problem. Some let their hatred and contempt for Mahathir get in their way of rational thinking. What’s the point? All Malaysians are now victims of MO1’s greed, except for the equally corrupt few recipients of his “cash is king” mode.

            Yes, Mahathir let possible for all those things to happen during his watch. However, he has been off the stage now for well over a decade. Surely Malaysians could rise above and rectify his mistakes. Why blame the man? He is over 90 now. No glory in beating up an old man. Besides he is trying very hard to undo his errors. Help him succeed, and once that is achieved you could then engage in a post-mortem and assign blame.

            It takes more than a little bit of humility to admit to one’s error. It takes an even greater courage to rectify it.  Mahathir admitted that appointing that dud Abdullah Badawi was a mistake. Being instrumental in Najib’s ascend was also Mahathir’s mistake. Mahathir was successful in correcting his first. Malaysians should now help him correct his second–get rid of Najib.

            Malaysia would be the ultimate beneficiary, not Mahathir. He doesn’t need the trophy. If 1MD and MO1 are not destroyed, both will destroy Malaysia. Then all Malaysians will be the victim.

The Malay Shame and Tragedy That Is 1MDB

The Malay Shame and Tragedy That Is 1MDB

M. Bakri Musa

www.bakrimusa.com

Imagine had Prime Minister Najib Razak responded differently to the US Department of Justice Asset Forfeiture lawsuit and said instead, “I have instructed my Foreign Minister to seek clarification to determine who this “Malaysian Official 1” so we could investigate him. I have also directed the Attorney General to review the evidence in the DOJ complaint.”

            As for 1MDB, imagine if its spokesman had responded, “We view with deep concern allegations that assets meant for our company, a public trust, had been corruptly diverted. We seek clarification on who 1MDB Officials 1 and 2 are to make sure that they are no longer in our employ. We will review our policies to ensure that such pilferages as alleged by DOJ if they did occur will not recur. Additionally, we are engaging legal counsel to protect our interests in the American trial.”

            Instead, what Malaysians and the world heard last Wednesday were irrelevant and meaningless statements to the effect that neither Najib nor 1MDB are the defendants in the suit. True and obvious, needing no response or clarification. The defendants are the owners of those seized assets which are alleged to have been acquired with funds corruptly siphoned from 1MDB, a GLC of which Najib is the Chairman.

            The responses from Najib, his ministers, and 1MDB only brought shame to themselves, to Malays, and to Malaysia.

            As for the defendants, their options are either not to contest the suit and thus forfeit those assets, or fight it. Negotiated settlement is unlikely. This is the biggest asset forfeiture in US history; Attorney-General Lynch is out to make a point to corrupt kleptocrats everywhere in these days of complex cross-border money laundering.

            Before this, the biggest forfeiture involved the giant telecom company, Amsterdam-based Vimpel.com, and individuals close to the president of Uzbekistan. The Uzbeks ignored the suit while the company pleaded guilty to the criminal charges. Rest assured that those defendant Uzbeks won’t be visiting Disneyland or Las Vegas any time soon!

            This 1MDB corruption may be a legal case but politics is never far off the radar in Putrajaya and Washington, DC, as well as in the potentially more volatile international arena.

No-Contest Option

Not contesting would save substantial legal fees and other costs, as well as the not insignificant personal hassle factor. Those aside, the biggest advantage would be not further exposing the defendants and others, legally as well as in many other ways, during the pretrial discovery and trial. Spared a trial the identity of “Malaysian Official 1” will never be known, at least not officially, a crucial consideration in Putrajaya.    

            The loss of those assets, even though in the hundreds of millions (in US dollars, not worthless ringgit), is at least quantifiable. However, even the Sultan of Brunei could not shrug off a loss of that magnitude.

            Choose this option and Reza Aziz, one of the defendants who according to court documents is also related to Malaysian Official 1, would be well advised to pack up and find a country that does not have extradition or tax treaty with the US. He also had better get used to a much less luxurious lifestyle.

            Were Reza to pursue this course, at least in his old age he could regale his grandchildren with stories that he once owned a glittering condo in Manhattan and shared drinks with Hollywood stars in Las Vegas.

            That would also be a very Malay story. At Kampung Baru today there are many elders who look with nostalgic gaze at the skyscrapers in the Golden Triangle and lament, “Ah, itu cerita dulu!” (Those are old stories!)

            The US Government would recoup its considerable costs from those assets. Rest assured there would be itemized bills for every paper clip and DOJ lawyers would be charging senior partners’ rates. Even after factoring that there will still be substantial loot left. By statute, that belongs to the people of Malaysia.

            If Najib is still Prime Minister, do you think those Americans would be dumb enough to return those millions to the same scoundrels? America could not disburse them to Malaysian NGOs either as most are not sympathetic to UMNO. That would present a delicate diplomatic problem. On the hand it could prove to be the most sophisticated and effective exercise of “soft power,” more powerful than “boots on the ground” in effecting regime change.

            At any rate don’t expect those Monet paintings to hang on the walls of kampung huts any time soon.

Contesting the Forfeiture

Contesting would be no walk in the park. It would be expensive, protracted, and risk uncovering details that could trigger criminal charges. American lawyers are not cheap and potential defense attorneys would want their substantial fees paid upfront and from “clean” sources. With those assets tied, Reza better have other fat bank accounts. Even if he were to receive help from his “Malaysian Official 1” relative, Reza’s defense attorneys would insist, and need unchallenged documentation, that the money is legitimate and not siphoned public funds. 

            The earliest a trial could begin would be a year or two hence, in time for the UMNO Leadership Convention or worse, the next Malaysian election. A trial would also risk exposing the identity of “Malaysian Official 1, a consideration for Putrajaya.

            Being a civil case the burden of proof for the prosecution is lower, merely the preponderance of evidence, not the much higher “beyond a reasonable doubt” of a criminal trial. The burden also shifts to the defendants to prove that those assets were acquired with untainted funds.

            In court documents Reza Aziz claimed that the millions he received from some unknown Arab was a gift. An incredulous assertion that even his accountant did not believe him; hence the attestation from his “donor.” If this be a trial by jury, it would be tricky to convince an American juror, as with Reza’s accountant, that receiving millions from a stranger is a “gift.” Besides, the image of an Arab in America these days is far from pristine.

            With a trial the testimonies of those professionals who had advised the defendants would be scrutinized. The Watergate Hearings of the 1970s exposed the unsavory activities of the various advisors. Many prominent lawyers ended being disbarred, including the President’s Counsel as well as a former Attorney-General.

            A trial would highlight an ugly truth that could prove explosive in race-sensitive Malaysia. That is, Reza Aziz excepted, those corrupt Malays got only the crumbs while the gravy flowed to that Wharton-trained Chinaman. That won’t sit well with UMNO Youth’s “Red Shirts” or PERKASA boys.

            A trial would also showcase the professionalism and meticulousness of American prosecutors and investigators. That would not make the former failed UMNO operative and now Malaysia’s Attorney-General look good. The Malay image is already battered by the amateurs at 1MDB.

            From the perspective of international politics, it may be shrewd not to identify “Malaysian Official 1.” This forfeiture however, is not the only game. After all, Obama did not tee off with Najib that Christmas in Hawaii because he (Najib) was a Tiger Woods. It was part of Obama’s “Pivot to Asia” show, with Najib the prop.

            There are other actors in this new shadow play. China is asserting itself, most visibly through military exercises in the South China Sea but more effectively elsewhere. Note the abrupt change of face at the recent ASEAN conference that had initially condemned China, and ASEAN’s collective silence on the International Court’s decision on the South China Sea dispute.  

            China too could play the Obama game, not on the green of Hawaii’s golf course but FELDA’s oil palm oil plantation. China could buy palm oil from Africa, and not offer inflated prices for those rusty 1MDB assets.

            Najib now has to balance the interests of his stepson and former Beverly Hills real estate tycoon Reza Aziz versus that of FELDA settlers and their wooden huts. Not an easy choice!

            The kampung boy in me longs to see a good fight by our modern-day Hang Tuah. Thus I challenge Reza to be jantan (man) enough to fight this US forfeiture.

            Back to reality, the winners in this 1MDB shadow play are many and obvious. Reza is one, though not as big as he was before the forfeiture; so too Malaysian Official 1 as well as IMDB Officials 1 and 2. As for that Wharton MBA character, he could still savor his shark’s fin soup in Taiwan. The US DOJ too is a winner, and a very big one.

            As for the losers, 1MDB is the obvious. Its current management should sue the previous board and management for incompetence as well as breach of fiduciary duties to recover some of the losses. Current management owes the company and Malaysians that much.

            The other victims are less obvious. They include FELDA settlers now deprived of better schools, smart young Malays who excelled on their IB tests but now cannot go abroad, and those dedicated GLC Malay executives whose reputations are now tainted because of the shenanigans of those monkeys at 1MDB.

            Those Malaysian officials who responded last Wednesday to the DOJ’s lawsuit and those Malays who still strenuously defend Malaysian Official 1 have yet to recognize these victims. That’s the terrible shame and great Malay tragedy.

The Noose Tightens on 1MDB

The Noose Tightens on 1MDB

For those who missed the live-streaming of the United States Department of Justice Press Conference on Wednesday, July 20, 2016 in Washington, DC, regarding the 1MDB scandal, here is a partial transcript. The full transcript is available at recapd.com.

            A few preliminary observations. First, this civil filing of asset forfeiture is only the first action following an intense and still ongoing investigation. There could be other charges later on, including criminal ones against specific individuals. The presence of senior officials from the criminal divisions of the DOJ and IRS, as well as the top FBI official, at that press conference would indicate this. Assets do not become corrupt by themselves; individuals through their corrupt acts created those assets.  

            Second, this is a civil complaint against the assets that were acquired from alleged corrupt acts perpetrated on 1MDB. Those assets are now legally tied up. There could be two possible responses. At one extreme the owners of those assets would choose not to challenge the complaint at which point those assets become US Government property and will be auctioned off. The US Government would recoup its costs and the people of Malaysia would be entitled to claim the leftover. The other would be for their owners to challenge the order. That would incur substantial legal fees as the filings are in many courts and your adversary is the US Government with its near unlimited resources. And American lawyers are expensive. With those assets frozen, their owners could not liquidate or mortgage them to finance their defense. Knowing that should be satisfaction enough for Malaysians.

            A court challenge would be very enlightening. Rest assured that the ensuing trials would reveal much of the truth.

            Third, this is by far the largest (in monetary terms) asset seizure in US history. As such those professional prosecutors would not settle for anything less than total victory. Before this, the largest forfeiture under the Kleptocracy Asset Recovery Initiative involved the Amsterdam-based Vimpel.com, a telecommunication giant, and its wholly-owned subsidiary in Uzbekistan. That involved top Uzbek officials related to that country’s president.

            Fourth was the impressive performance by Attorney General Loretta Lynch and her team at that press conference. It is not simply a matter that she is a seasoned professional prosecutor with a Harvard law degree while her Malaysian counterpart is a failed UMNO operative with a legal qualification from an obscure British Inn of Courts.

Attorney-General Lynch:  Today the Department of Justice has filed a civil complaint seeking to forfeit and recover more than [US]$1 billion in assets associated with an international conspiracy to launder funds stolen from 1MDB. This $1B in assets are just a portion of the more than $3B that was stolen from 1MDB and laundered to American institutions in violation of US law.       

            1MDB was created in 2009 to initiate economic development through international partnership and foreign direct investment with the ultimate goal of improving the well-being of the Malaysian people. Unfortunately and tragically, a number of corrupt officials treated this public trust as a personal bank account. Our complaint alleges that from 2001 to 2015 these officials and associates conspired to misappropriate and launder billions of dollars from 1MDB. They laundered their funds through opaque actions in bank accounts in countries around the world including Switzerland, Singapore and the United States. The funds were then used to purchase a range of assets for the conspirators and their relatives and associates including high-end real estate in New York and Los Angeles and art works by Monet and a Bombardier Jet aircraft.

            Today’s case is the largest single action ever brought by the Kleptocracy Asset Recovery Initiative which was established by AG Eric Holder in 2010 to forfeit the proceeds of foreign official corruption and where possible to use the recovered assets to benefit the people harmed. This case and the kleptocracy initiative as a whole should serve as a sign of our firm commitment to fighting international corruption. And it should also send a signal that the Department of Justice is determined to prevent the American financial system to be used as a conduit for corruption, and should make clear to corrupt officials around the world that we will be relentless in our efforts to deny them the proceeds of their crimes.

Assistant US AG (Criminal Division) Leslie R Caldwell: The complaint filed today really goes in great detail about the complex web of transactions these co-conspirators used to launder billions of dollars they stole from the people of Malaysia.

            What I’d like to focus on now is allegations involving two bonds offerings in 2012 through which 1MDB raised some of the money siphoned off by the corrupt officials and their associates. The stated purpose of the bond offerings was to allow 1MDB to raise money to invest in various energy assets of the Malaysian Government and people. Almost immediately after receiving the proceeds of the two bond issues, roughly 40 percent of the money that was raised, which was about $1.7B, was transferred out of 1MDB account and into Swiss bank account that was in the name of a shell corporation incorporated in the British Virgin Islands. The complain alleges that the name of that shell company was chosen because it sounded like the name of a legitimate company that was involved in the bond offering but in fact the Swiss bank account was controlled by corrupt officials and associates.

            From Switzerland the corrupt officials transferred money using a series of transactions involving more shell companies and bank accounts located all over the globe. Eventually more than $223M of that money found its way in the account of shell companies whose beneficial owner was a close relative of a senior 1MDB official and that individual used the the money to buy luxury real estate in the US and other assets and also used the money to fund a motion picture company called Red Granite who in turn used more than $100M of that money to finance the award-winning 2013 film “The Wolf of Wall Street.” Of course neither 1MDB nor the Malaysian people saw a penny of profit from that film or the other assets purchased with funds siphoned from 1MDB. Instead that money went to relatives and associates of the corrupt officials of 1MDB and others.

            Because the assets were laundered money, the future rights to that film are subject to the forfeiture complaint filed today in Los Angeles.

            The assistance we’ve gotten from international partners has been critical in identifying and restraining assets and I think that international cooperation and the action we are taking today which I said is the largest action taken to date in connection with our kleptocracy initiative should send a message to kleptocrats and corrupt kleptocrats and others that the US is not a safe haven for their stolen money and they cannot avoid law enforcement through shell companies, nominee entities and other structures that are essentially designed to thwart law enforcement. The department will continue to track and seize assets that kleptocrats and other corrupt officials steal from the people of their countries.

US Attorney, Central California (Los Angeles) Eileen M Decker:    Another phase of this money laundering scheme occurred in early 2013 in connection with a third bond offering arranged by Goldman Sachs International. In this offering, 1MDB raised approximately $3 billion purportedly to form a joint venture with an entity from Au Dhabi to promote growth   Instead the officials misappropriated a significant amount of the funds raised. In fact only days after the initial bond sale, approximately $1.26 billion was diverted for the benefit of individuals associated with 1MDB. Approximately $137 million of the pilfered money was spent to purchase works of art, including a $34 million work by Claude Monet. It was not to the benefit of the population of Malaysia but to enhance the luxury and lavish lifestyles of those stealing money from 1MDB. Funds diverted from the third bond offering were also traced to the purchase of an interest in the Park Lane Hotel in New York. We seek to forfeit approximately a quarter billion dollars invested in that luxury hotel. The laundering of the proceeds continued throughout 2013 with an additional $106 million used to purchase an interest in EMI Music Publishing.

            EMI is the world’s third largest music publishing company by revenue, and the company has the rights to publish approximately 2.3 million musical compositions including a number of top hits from Grammy award-winning artists. Since the conspirators purchased them in EMI, it was they and not the citizens of Malaysia who earn money every time those songs were performed publicly, recorded, or downloaded. In seeking to seize these forfeited items the Department of Justice is sending a message that we will not allow the United States to become a playground for the corrupt and that we will not allow it to be a platform for money laundering or a place to hide and invest in stolen riches.

           

FBI Deputy Director Andrew McCabe:  As alleged in the complaint, not long after 1MDB was established in 2009 corrupt officials at 1MDB and their associates began a sophisticated scheme to enrich themselves. In the first two years of their existence, almost $1billion was transferred out of 1MDB to bank accounts in shell corporations that were controlled by associates of corrupt 1MDB officials. The funds were stolen under the pretense of having 1MDB invest in an oil exploration joint venture with a foreign partner. On paper, the $1billion was to be 1MDB’s in what purported to be national resource rights. But this wasn’t a legitimate investment for 1MDB or the Malaysian people. Instead, the funds transferred to the shell companies were used for the personal enrichment of the corrupt officials and their associates. They used the money to pay gambling debts at Las Vegas casinos, they rented luxury yachts, they hired an interior decorator in London and spent millions on properties some of which is subject to this seizure and forfeitures. Among them was a jet purchased at the price of $35 million.

             So why does this matter so much to us? Certainly there is a lot going on in the world right now, terrorists attacks, violent crimes, and serious threats to American citizens and people around the world. Why does a corruption case halfway around the world matter so much to us here today?

            Well, I’ll tell you a few of the reasons. First, because some of the profits of these schemes were invested in the US. And when corrupt officials bring their ill-gotten gains to the US, they also bring with them their corrupt practices and disregard for the rule of law. And that presents a threat to our economy, impacts trade and investment, fuels the growth of criminal enterprises, and undermines our democratic processes.

            Second, because the stable, healthy democracies around the world are the cornerstone of global security, the more we can do to help our international partners establish and maintain stable governments, accountable to the rule of law, the more we do to ensure US national security. And finally, we did it because the FBI and the DOJ, and our colleagues in federal law enforcement are uniquely positioned to provide the sort of assistance. The Malaysian people were defrauded on an enormous scale. Its schemes whose tentacles reached around the world. This case is beyond any single agency’s ability to effectively investigate. We have investigators and prosecutors with deep experience working on matters like this so our environment is a natural fit.

            Last year we established three dedicated international corruption squads based in New York, Los Angeles, and here in Washington, DC. These squads include agents, analysts and accountants who are experts in complex financial schemes. These specialized teams are showing real results. This is the largest kleptocracy seizure in US history. We hope this investigation will send a message to corrupt officials around the world that no person, no company, no organization is too big, too powerful, or too prominent. No one is above or beyond the law.

            This case is ongoing, Corruption unfortunately, will never be eradicated because quite frankly, greed never goes away. But we are committed to working with our partners here at home and around the world to do what we can to stop it, to ensure the legitimacy of public officials and to create a level playing field for all.

IRS Criminal Investigation Chief Richard Webber:        1MDB was originally established to drive strategic initiatives for the long term economic development of Malaysia. Instead, it is alleged that money was siphoned from this fund for personal investment, not for the good of the Malaysian people and not for the achievement of their goals.

            The case is another example of the ability to follow money through complex money laundering schemes and the web of opaque transactions and fraudulent shell corporations. In October 2015 my LA field office joined the investigation specifically focusing on Red Granite Pictures. Approximately $238 million was wired to Red Granite Capital in Singapore, an entity controlled by Riza Aziz. Wire transfers totaling approximately $64 million was sent from Red Granite Capital account for an account at Citi National Bank in the US, maintained by Red Granite Pictures, a production company also owned by Aziz. This money was used to fund Red Granite Pictures operations including the production of the film “The Wolf on Wall Street.” Additionally the misappropriations was used to acquire $100 millions in relics in the US and the United Kingdom and elsewhere for the benefit of Aziz, including in the list of properties, and we have the properties outlined in the civil complaint in various diagrams but the properties include a Beverly Hills mansion, currently under construction, a Park Laurel condo in New York City, and a townhouse in the United Kingdom.

            Fighting worldwide corruption is in the interest of the United states. Corruption threatened good governance, sustainability development and the democratic process and fair business practices. Corruption erodes trust in government and private institutions alike and undermines confidence and fairness of open markets, and it breeds contempt for the rule of law. This investigation is continuing and ongoing. We will not allow the massive and blatant aversion of dollars from 1MDB and the alleged laundering of those funds through US financial institutions to continue.

            This case represents a model for international cooperation in significant cross border money laundering matters and sends a message that criminals cannot evade law enforcement authorities by simply laundering money through multiple jurisdictions and through a web of shell corporations.