My recent observation that perceptions can be more powerful than facts in politics (“Writer weighs in on Beacon articles” in the May 10 edition) was borne out by the poor publicity our financial services industry received in the light of the role that Virgin Islands-registered companies — commonly called BVI Business Companies — played in the outcome of the May 9 Malaysian general election, which was another rod for critics at this critical time.
The shock result in Malaysia’s 14th general election since independence from Britain in 1957 may be seen as the local equivalent of the outcome of the Brexit referendum or the last United States presidential election.
A lawyer’s online article published two days before the election told Malaysians that “1MDB is all the reason to vote out” then-Prime Minister Najib Razak and his Barisan Nasional party.
The 1 Malaysia Development Berhad (1MDB) is a state investment fund established in early 2009 to develop Malaysia’s financial services industry.
In 2015, The Wall Street Journal published allegations that Mr. Najib, the chairman of 1MDB’s advisory board, had diverted funds from it into his personal bank account. His Barisan Nasional party had been in power since independence from Britain.
The opposition coalition led by Dr. Mahathir Mohamad, Mr. Najib’s predecessor as prime minister, won a resounding victory. His accusations of government corruption had led him to switch sides. He is now, at 92, the oldest national leader in the world.
Since the election, Mr. Najib has been forbidden to leave Malaysia and police reportedly have taken from his properties 284 Hermes handbags and 72 bags of jewellery, watches and $29 million cash in various currencies.
Malaysia is today in a severe financial crisis, with a VI-registered company — Aabar Investment PJS Ltd (Aabar BVI) — accused of deep involvement in the alleged scandal. The outgoing government had introduced a very unpopular goods-and-services tax in order to meet the financial shortfalls created by having to service the accumulated debt 1MDB had taken on board.
The US Department of Justice claims that 1MDB was by September 2009 already being used to embezzle funds eventually totalling $4.5 billion through money laundering activities in several countries, including the US, in which Aabar BVI allegedly has played a significant role.
Following a series of lawsuits during 2016 and 2017, the DOJ reportedly has seized illicitly acquired assets worth $1.7 billion. Then in February this year it seized the luxury yacht Equanimity off Bali, naming owner “Eric Tan” (an alleged pseudonym for Jho Low, a Malaysian businessman) as a mastermind behind the whole money-laundering exercise.
Mr. Low is accused of operating behind VI-registered companies in which he was the sole shareholder, often giving them similar names as well established companies — like his Blackstone-BVI, which has no connection to the global Blackstone Corporation — and putting illicit transfers through them.
The DOJ divided the periods of money laundering it was investigating into four phases, doing us the dubious honour of naming the third one the “Aabar BVI phase.”
I was already aware of the DOJ’s allegations, but reading the details since the Malaysia election turned my disgust that the Malaysian leaders’ treacherous greed was ruining their country to anger at their besmirching the name of our beloved VI. They allegedly had spent their ill-gotten gains on luxury property, a megayacht, a private jet, artworks, jewellery and even a collection of movie posters.
The DOJ’s dossier of its investigations fills hundreds of pages covering 2009 to 2014. The lawsuits also name 15 other defendants, including “Malaysian Official 1 (MO1), a high-ranking official in the Malaysian government who also held a position of authority in 1MDB” (who some have suggested is Mr. Najib himself), and Riza Aziz, MO1’s stepson, who had been at university with Mr. Low.
In September 2009, 1MDB had agreed to invest $1 billion cash in a joint venture with PetroSaudi International (PSI), a private company that purportedly owned oil extraction concessions, but $730 million of that was actually invested in Goldstar Ltd., one of Mr. Low’s companies, according to allegations.
The DOJ claims successive deals diverted funds into Goldstar, which Mr. Low allegedly tried to hide by investments in property in London and the US and a movie production company, disguising the transactions by passing them through his father’s accounts and US law firms — and that other beneficiaries included MO1, who allegedly was paid $20 million.
The DOJ claimed that Mr Low and the two directors of Aabar BVI opened a bank account in its name in Switzerland, then transferred $1.092 billion from it to Mr. Low’s Blackstone Real Estate Asia Partners through two of his investment funds. He then paid MO1 $30 million, used to buy Beverly Hills property, and Mr. Raza $238 million, with which he set up a film production company, the DOJ alleged. He reportedly has since come to a $60 million settlement with the US government for that.
In 2012, $1.367 billion allegedly was diverted from a $3.5 billion 1MDB bond offering underwritten by the International Petroleum Investment Company (IPIC) — owned by the Abu Dhabi government — to Aabar BVI with nearly the same name as Aabar, an IPIC subsidiary.
Following an arbitrated settlement between 1MDB and IPIC in April 2017, a Malaysian Ministry of Finance official made public a startling letter allegedly sent from the VI’s Registry of Company Affairs dated Aug. 11, 2016. It stated that Aabar BVI was actually a subsidiary of IPIC. It transpired that both the managing director of IPIC and CEO of Aabar were also directors of Aabar BVI.
High profile lifestyle
Mr. Low allegedly maintained a high profile lifestyle to give the impression that his money came from his family wealth, buying his mother jewellery costing nearly $3 million and laundering transfers through his father’s bank account.
In 2014 1MDB borrowed from Deutsche Bank $1.225 billion to complete another business deal with IPIC subsidiary Aabar, but over $850 million of that was shared between Aabar BVI and a similar Seychelles company, then transferred indirectly to MO1, according to DOJ allegations. Funds allegedly were also siphoned off from 1MDB to Mr. Low, who bought jewellery for MO1’s wife. $206.96 million was also transferred to Mr. Low, who used $140,636,225 to buy the Equanimity, the DOJ alleged.
However, in 2015 Deutsche Bank found that 1MDB had not fulfilled all its obligations and called in its loan. The DOJ accused 1MDB of having materially misrepresented the purpose of the loan.
The VI’s financial services industry has had to learn from this saga. Uncle Sam smelt the smoke in his own backyard and rushed to help put out the fire. It is in our self-interest to be more vigilant in the future. Better to prepare and prevent than repair and repent.
Meanwhile, the new Malaysian government has started its own investigations into the fraudulent use of 1MDB, in an effort to recover its missing funds.
This commentary is dedicated to the memory of my son Joseph Paul Moll (June 2, 1970-Nov. 10, 2017), whose abhorrence of social injustice led him from helping his neighbours into entering the political arena.