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.