U.S. Targets $1 Billion in Assets in Malaysian Embezzlement Case

New York Times
JULY 20, 2016

The United States government moved Wednesday to seize more than $1 billion in assets purchased with money that it believes was stolen from a Malaysian sovereign wealth fund by people close to the country’s embattled prime minister.

Hidden in the United States in real estate, art and other luxury goods, the money was embezzled from the fund and moved around the world using secretive shell companies that masked its trail, the Justice Department said.

The $1 billion that prosecutors say was laundered in the United States is but a portion of the billions that international investigators suspect was siphoned off by high-level officials at the fund and their associates. The fund — called 1Malaysia Development Berhad, or 1MDB — is overseen by the prime minister, Najib Razak, and has become a focus of rising popular discontent with Mr. Najib’s government amid several investigations at home and abroad.

The forfeiture complaints, issued by a unit known as the Kleptocracy Asset Recovery Initiative, represent the largest such case brought by the Justice Department. The United States is among several governments, including Malaysia, Singapore and Switzerland, that have investigated the fund.

“1MDB was ostensibly created to pursue investment and development projects for the economic benefit of Malaysia and its people, primarily relying on the issuance of various debt securities to fund these projects,” the department said in one of its court filings. “However, over the course of an approximately four-year period, between approximately 2009 and at least 2013, multiple individuals, including public officials and their associates, conspired to fraudulently divert billions of dollars from 1MDB through various means.”

The international inquiries into the sovereign wealth fund began last year after an investigative report in The New York Times. As part of a broader examination of the use of shell companies in high-end real estate in the United States, The Times traced the purchases of about $150 million in residential properties in New York and in the Los Angeles area, as well as several works of art, to relatives or associates of Mr. Najib.

The Justice Department named three of those people in its filings. One, Riza Aziz, is the stepson of Mr. Najib and a Hollywood producer of films including “The Wolf of Wall Street.” Another, a financier named Jho Low, is a longtime friend of Mr. Aziz and his family. The third is Mohamed Badawy al-Husseiny, a former official at a government fund in Abu Dhabi, United Arab Emirates, that participated in deals with Malaysia’s fund.

The attorney general, Loretta Lynch, announced that the Department of Justice is seeking to recover $1 billion from a Malaysian embezzlement case that was laundered in the United States.

Prosecutors also cited Khadem al-Qubaisi, who was an official at a related fund in the United Arab Emirates, as well as another individual who was an associate of Mr. Low’s.

The people named in the complaint have not been charged with crimes. The defendants in an asset forfeiture case are the properties that the government wants to seize. But an asset complaint does not preclude criminal charges.

The complaints were filed Wednesday morning in federal court in Los Angeles. Mr. Aziz, Mr. Husseiny, Mr. Low and Mr. Qubaisi could not be reached for comment. In the past, representatives for Mr. Aziz and Mr. Low have acknowledged that their clients own United States properties but have said that they did nothing improper.

The complaint does not name Mr. Najib, but it does cite “Malaysian Official 1,” described as a high-ranking government official who oversaw the fund and is a close relative of Mr. Aziz.

Public concern has increased over international corruption and the use of shell companies to hide assets. In the spring, the leak of the so-called Panama Papers cast light on secret offshore accounts held by politicians and other wealthy people from around the world.

The Treasury Department announced recently that it would begin requiring banks to identify customers who use shell companies. And the department began a test program this spring requiring people who buy expensive properties in New York and Miami using cash and shell companies to report their actual identities.

Despite being a leader in enforcement cases involving international bribery, the United States has relatively lenient rules for establishing limited liability companies, known as L.L.C.s, and other types of shell companies. In the case of the Malaysian money, shell companies in Delaware were among those used.

The forfeiture process is lengthy. First, a court must make sure that no other interested party has a valid claim to the properties. Once true ownership is determined, the court must decide whether the money used to buy those assets was, in fact, earned illicitly. Only then can the government permanently seize the assets.

In the nearer term, the government’s action may increase the political pressure on Mr. Najib, who has been under fire since early 2015, as the Malaysian public has become concerned about the corruption allegations and his rivals have sought to oust him.

Mr. Najib has held on to power by halting investigations into the investment fund and by removing officials in his governing party who criticized him. Some outspoken artists and activists who questioned his conduct on social media face criminal charges, and the government has shut down critical online news outlets. Mr. Najib’s strategy has been effective: Candidates from his party won in recent by-elections.

The 1MDB fund was created in 2009 as a “strategic development company” to invest the Malaysian public’s money, primarily its oil wealth, in projects that would benefit the country. Mr. Low helped set up an earlier version of the fund.

The Times reported last year that Mr. Low was secretly involved in major transactions with a small oil company called PetroSaudi International and Malaysia’s public fund, which was led by Mr. Najib in his position as prime minister. Mr. Low then helped the prime minister’s stepson buy property in the United States using shell companies and finance his movie production company, Red Granite Pictures.

The Times investigation described lavish spending by Mr. Low and Mr. Aziz. It also documented property transfers between the two men, including one transfer in Beverly Hills that was done entirely behind the veil of a shell company, with no property transfer filed in public records, as well as the role that Mr. Low played in helping to finance Mr. Aziz’s movie business.

The Justice Department’s complaint described several crucial transactions involving 1MDB, including the one with PetroSaudi. In that transaction, the complaint said, 1MDB officials and their associates stole about $1 billion that was supposed to be used for oil exploration. In addition, more than $2.5 billion was stolen through bond offerings for 1MDB in 2012 and 2013 that were managed by Goldman Sachs, the complaint said.

The complaint described lavish spending by the people said to be involved in the theft of funds. From October 2009 to June 2010, it said, more than $85 million was spent on gambling in Las Vegas, jet rentals, luxury yachts and payments to other individuals.

It said that the $150 million used for luxury properties in New York and California came from the PetroSaudi deal, as did $44.8 million to buy a hotel in Beverly Hills and $35.4 million for a jet. Money from the Goldman Sachs bond deals was illicitly used, along with $130 million in artwork purchased at United States auction houses and an interest in the music rights of EMI, to finance the production of “The Wolf of Wall Street,” prosecutors said.

PetroSaudi, Goldman and 1MDB were not accused of wrongdoing.

The Justice Department has brought other kleptocracy cases against the children of heads of state, including one involving the daughter of the president of Uzbekistan and another involving the son of the president of Equatorial Guinea.

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