|If You Were Owed $700 Million, What Would You Do?|
Much has been written following the US Department of Justice’s 20 July 2016 filing of (at least) sixteen complaints to seize assets alleged to have been purchased with the proceeds of an alleged misappropriation of $3.5 billion from 1MDB, Malaysia’s state-owned strategic investment and development fund.
List of Cases: CV 16-05362; CV 16-05363; CV 16-05364; CV 16-05366; CV 16-05367; CV 16-05368; CV 16-05369; CV 16-05370; CV 16-05371; CV 16-05374; CV 16-05375; CV 16-05376; CV 16-05377; CV 16-05378; CV 16-05379; CV 16-05380.
Not one to be left behind, I’ll be contributing my own thoughts.
Given the focus of this blog, my initial posts will deal with GCC entities that were involved in transactions with 1MDB and thus may have wittingly or unwittingly participated in the misappropriation.
Unless otherwise noted, the primary source document I’m using is the DOJ complaint against Red Granite, producers of The Wolf of Wall Street (the “Red Granite Complaint” or “Complaint”). I will cite sources paragraph numbers rather than page numbers as “sourcing” for various points.
Before I begin one very important note.
The US DoJ has filed complaints. The parties mentioned in the complaints have not been convicted of any crime, nor have they had a chance to neither respond to the charges made against them, nor have their responses and the original complaints tested by the judicial process. At this stage all that can be said is that allegations have been made. Please bear that in mind as you read this post.
Let’s start with PetroSaudi International (“PSI”), a privately owned Saudi company founded in 2005, its CEO and founder and a Saudi royal prince described as the “PSI Co-Founder” in the Complaint. While their names were not disclosed in the Red Granite Complaint, enough information was supplied so that they could be separately identified.
- PSI’s website identifies Mr. Tarek Essam Ahmed Obaid as CEO and founder.
- Press reports identify Amir Turki Bin Abdallah Al Saud as the co-founder of PSI. But note he is not mentioned on PSI’s website. The second link contains copies of documents from a variety of sources that purport to confirm Amir Turki’s role in the company.
The Complaint alleges that the misappropriation of funds took place in three phases: the Good Star Phase ($1 billion); the Aabar BVI Phase ($1.367 billion) and the Tanore Phase ($1.2 billion).
While I want to focus on what appears to be curious behavior by PSI and its principals in this post, let’s start with some details about the alleged misappropriation to provide context.
The Good Star Phase - Overview
Para #8 - In the Good Star Phase (2009-2011) more than $1 billion was illegally transferred to an account in Switzerland belong to Good Star Limited, which is alleged to have been under the control of LOW Taek Jho instead of to accounts of PSI or the 1MDB/PSI JV. The transfers were in two tranches: $700 million (2009) and then $330 million (2011) as detailed below.
First Tranche - $770 Million
Paras #40-112 contain a detailed analysis of the Good Star Phase including the alleged diversion of funds and use of the funds for asset acquisitions and payments to parties involved.
Para #60 – On 30 September 2009 1MDB issued two payment orders to Deutsche Bank Malaysia to pay: (a) $700 million to RBS Coutts Switzerland for the account of Good Star (the alleged fraud) and (b) $300 million to JP Morgan Suisse for the account of 1MDB/PSI JV (the “JV”). This latter payment appears to be in line with the JV agreement and so is not described as fraudulent in the Complaint. Note that 1MDB’s instructions did not specify the names of the beneficiary accounts only their account numbers.
Paras #60-77 detail the compliance questions that Deutsche raised with 1MDB and Malaysia’s central bank and those RBS Coutts raised with Deutsche. Both banks request the names of the beneficiaries of the payments not just account numbers as identifiers. As per standard payment protocols, any compliance questions that Coutts had would have to be routed to/through Deutsche, not directly to 1MDB. 1MDB advises the names and that Good Star is owned by PSI.
Paras #81-90 detail questions raised by 1MDB’s Board about the $700 million transaction’s conformity with the JVA, including an unacted upon request that the $700 million be returned and paid “through the originally agreed channel” (Para #85). This request was apparently turned aside by a 1MDB officer’s statement that funds had been paid to PSI.
Second Tranche - $330 Million
Para#94 – Between 20 May 2011 through 25 October 2011, 1MDB made five payments totaling $330 million to Good Star’s account for drawdowns by the 1MDB/PSI JV under a loan facility provided by 1MDB to the JV in June 2010 (Para #92). A 1MDB official told 1MDB’s board that the JV had instructed that the payments go to PSI. Once again the payments went to Good Star.
Curious Behavior by PSI and the PSI Co-Founder
Without prejudging their eventual responses to the Complaint, AA found two incidents of “curious” behavior by PSI and the PSI Co-Founder.
An apparent lack of follow-up on the $700 million shortfall initial JV payment due in September 2009.
Two payments made from the PSI Co-Founder’s account to a high ranking Malaysian official’s account at a Malaysian bank.
Apparent Lack of PSI Follow-Up on the $700 Million JV Payment
Para #52 – As per the JV Agreement 1MDB was to contribute $1 billion to the JV. As per the Complaint the JV only received $300 million. I didn’t see anything in the Complaint that PSI, its CEO, or any other PSI official ever contacted 1MDB about the shortfall. AA finds it rather remarkable (hence this remark) that PSI did not press for the funds, perhaps contacting 1MDB’s Board or as a last resort going public. A seventy percent shortfall and no apparent complaint. AA will be mighty interested to read PSI’s response to learn what he’s missing.
Para #96 – In May 2011, the CEO of PSI requested that 1MDB inform Coutts that the first two payments (totaling $95 million) made to Good Star earlier that month were for Good Star and not PSI. However did the CEO learn about these transfers to an account over which he had no control or ownership? Even more remarkable at this juncture is that still short a “cool” $700 million from the initial JV payment, he apparently did not ask about the missing funds. Or perhaps he did. Could it be that the DoJ didn’t consider that relevant to its case? That seems unlikely because that would provide the DoJ another argument that the $700 million was “misappropriated”.
For the sake of completeness there is perhaps another reason why there was no complaint. Alleged internal PSI documents that were leaked/sold to a Malaysian website opposed to the current Malaysian Prime Minister purport to show the project had zero value.
See the section below about blackmail.
Alleged Payments from PSI Co-Founder to Private Bank Customer in Malaysia
Para #101 on 18 February 2011 Good Star transferred $12.5 million to the account of the PSI Co-Founder at Riyad Bank. On 23 February 2011, the Co-Founder’s account transferred $10 million to a private banking account at AM Bank Malaysia for Malaysian Official 1. On 10 June 2011 Good Star transferred $12 million to the PSI Co-Founder’s same account. On 13 June 2011 that account made a similar transfer to AM Bank Malaysia. This formulation is meant to cover the possibility that another party was operating the account under a POA and that the PSI Co-Founder was unaware of and did not approve the transfers.
Para #102 the holder of the account at AM Bank is identified by the DoJ as Malaysian Official 1 who the Complaint alleges was the recipient of a $681 million transfer from Saudi Arabia in 2013. That would appear to identify the holder as the current Prime Minister of Malaysia. The Wall Street Journal.
The reason for the payments from the PSI Co-Founder’s account is not specified in the Complaint. Perhaps they were gifts as Malaysia’s Attorney General said was the case with the 2013 $681 million.
Saudi royals would appear to be quite a generous lot. Perhaps, this as well explains the apparent lack of follow-up by PSI on the “missing” $700 million JV payment. AA definitely should cultivate more Saudi royal clients, though it would be just my luck that their innate generosity has been tempered by recent and no doubt unwarranted accusations of unethical behavior.
Perhaps like the famous Devonia transaction, the Saudi shaykh bought something from the holder of the AM private bank account and sold it to Good Star. Shares in Sibneft?
For the sake of considering all the possibilities and not because AA has a suspicious mind, perhaps, it was a kickback of some sort. Seems a rather meager commission on such a large amount. Also it seems rather strange to one’s kickback payment transferred to an account in one’s own country easily identifiable.
If indeed it was a kickback, then the roughly 20% “commission” for making the payment is in line with Devonia precedent for the use of “shaykhly” accounts.
Not Relevant But Too “Good” to Omit: The Independent article claims that at a meeting among Shaykh Sultan, Mr Abramovich and Mr Berezovsky a bank compliance officer asked the good shaykh for a copy of his passport and proof of residence, the shaykh handed him some UAE dirhams and said “my face in on these”. The article notes a hearty burst of laughter by the participants but is silent on whether other KYC documents were produced.
Blackmail by Former PSI Employee
Just about one year ago (17 July to be precise), Singapore’s Straits Times reported on the apprehension of a former PSI employee who was arrested by the Royal Thai Police and charged with attempted blackmail of his former employer and the sale of PSI documents to opposition figures in Malaysia. Apparently the individual had secured an earlier payment from PSI. The payments don’t necessarily prove any wrongdoing by PSI. The earlier payment may have been made for other reasons, e.g., to avoid a scandal that would tarnish one’s name and business opportunities even if it’s not true.
These would appear to be some of the alleged PSI documents sold by the former PSI employee. Note the SR is part of the opposition in Malaysia.