BRADLEY HOPE in New York, SIMON CLARK in London and YANTOULTRA NGUI in Kuala Lumpur
Wall Street Journal
April 1, 2016

Investigators in three countries studying trail of cash from Malaysia to Abu Dhabi, offshore bank accounts

Authorities in three countries investigating a Malaysian government investment fund appear to be focusing on what happened to the proceeds of $3.5 billion in bonds sold by the fund in 2012, according to people familiar with the matter.

Investigators in the United Arab Emirates, Luxembourg and Switzerland are looking at the trail of cash from Malaysia to Abu Dhabi and to offshore bank accounts for a portion of the bond proceeds that appears to have gone missing, the people said.

Authorities in the U.A.E. have frozen the personal assets of and issued travel bans to two former executives of an Abu Dhabi sovereign-wealth fund that had extensive dealings with the Malaysian fund, 1Malaysia Development Bhd., known as 1MDB, the people said.

The UAE’s actions indicate authorities have moved ahead in their probe into the dealings of Khadem Al Qubaisi and Mohammed Badawy Al Husseiny, both of whom had close connections to 1MDB, the people said. Mr. Al Qubaisi is an Emirati who was the managing director of an $80 billion Abu Dhabi investment fund, International Petroleum Investment Company. Mr. Al Husseiny, an American, was chief executive of another government investment company, Aabar Investments PJS, which is owned by IPIC.

The U.A.E.’s central bank issued the asset freezes, the people said, though it isn’t clear which U.A.E. government agency is running the investigation.

Lawyers for both men and a spokesman for IPIC and Aabar declined to comment.

Separately, the Luxembourg unit of Edmond de Rothschild Group, a private bank that manages money on behalf of wealthy clients, said it is “cooperating” with a government probe into money that may have flowed from 1MDB.

The prosecutor in Luxembourg, a tiny European country that is a hub of private banking, said in a statement that its probe is focused on the movement of funds, related to two bonds 1MDB issued in 2012, through a number of accounts of “offshore” companies in Singapore, Switzerland and Luxembourg. 1MDB, in a statement, said it had not been contacted by authorities in Luxembourg.

In its statement, the Luxembourg prosecutor said its case was connected to Swiss investigations. The Swiss attorney general’s office in January said it believed money misappropriated from 1MDB could amount to $4 billion. 1MDB at the time said it had not been contacted by any foreign legal authorities on any matters relating to the company, but remains committed to fully cooperating with any investigation.

The 2012 bond sales, each for $1.75 billion, were meant to fund the purchase of power plants in Malaysia. The bonds were guaranteed by Abu Dhabi’s IPIC. After the offering, 1MDB sent a $1.4 billion collateral payment to Aabar, according to 1MDB financial statements.

Investigators in Abu Dhabi believe that money and a later transfer by 1MDB of an additional $1 billion never got to Aabar but instead went to an almost identically named company set up in the British Virgin Islands, called Aabar Investments PJS Ltd. The firm with the similar name was set up by Messrs. Al Husseiny and Al Qubaisi, according to people familiar with the matter.

The U.A.E. probe is focusing on whether Messrs. Al Qubaisi and Al Husseiny used the British Virgin Islands Aabar to funnel money from 1MDB into various accounts and companies around the world, some of them connected to Malaysians, the people said.

Executives at IPIC have been examining the activity of Messrs. Al Qubaisi and Al Husseiny since last summer, according to people familiar with the matter. U.A.E. authorities got more involved in the investigation earlier this year, spurred in part by the Swiss investigation, the people said.

The probes into the 2012 bonds are one of several strands of global investigations into 1MDB, which was set up by the Malaysian Prime Minister Najib Razak in 2009 to develop the country’s economy but has accumulated debts of $11 billion that it has struggled to repay.

Authorities in Malaysia and at least six other nations including the U.S. are investigating the fund, including the transfer of more than $1 billion into the prime minister’s bank accounts. Some of the money was used to help the ruling party during a tight national election and some was spent on personal luxury items, The Wall Street Journal reported Thursday. About $620 million was transferred back to the same shell company that sent the $681 million into the accounts in 2013. It is unclear what happened to the money that was sent back.

Mr. Najib and his supporters have maintained the money in his accounts was a legal donation from the Saudi royal family and have denied the allegations. Mohamed Apandi Ali, Malaysia’s attorney general, cleared the prime minister of wrongdoing in January.

1MDB has denied wrongdoing and pledged to assist with any investigations. The fund has said it had not paid any funds to the personal accounts of the Prime Minister.

Separately, U.S. investigators probing 1MDB have traveled to Malaysia to interview banks, including Deutsche Bank AG and J.P. Morgan Chase & Co., and ask for documents related to their interactions with 1MDB, according to people familiar with the matter. Neither is a focus of the Justice Department’s probe, they added.

Deutsche Bank, as 1MDB’s banker, was involved in sending $1 billion of the fund’s money out of the country in 2009 as part of a joint venture with a Saudi Arabian company, according to documents that form part of a probe into 1MDB by Malaysia’s auditor general. Some of the funds have gone missing, people familiar with the matter said. J.P. Morgan was the banker for 1MDB’s joint venture with the Saudi company.

Both J.P. Morgan and Deutsche declined to comment.

The U.A.E. probe, according to people familiar with the matter, is focusing on Messrs. Al Qubaisi and Al Husseiny, who, until last year, were two of 1MDB’s most important contacts in Abu Dhabi. The men are both living in the U.A.E.

Mr. Al Qubaisi was involved in the multibillion-dollar bailout of Barclays PLC during the financial crisis in 2008 as well as several high-profile deals for IPIC and Aabar, including investments in Daimler AG and Virgin Galactic LLC.

Both men have been replaced in their positions. The men’s names disappeared earlier this week from the website of Bahrain’s First Energy Bank, where they were previously listed as board members. A spokesman for the bank declined to comment.

Mr. Al Qubaisi also resigned within the last several weeks as a director of Tasameem Real Estate Co. LLC, the personal investment company of Sheikh Mansour bin Zayed Al Nahyan, according to the people familiar with the matter. Sheikh Mansour is chairman of the Abu Dhabi sovereign-wealth fund IPIC and deputy prime minister of the U.A.E. Sheikh Mansour had declined multiple requests for comment and made no public remarks about 1MDB or the men being replaced at IPIC and Aabar.

—Tom Wright contributed to this article.