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U.S. Targets $1 Billion in Assets in Malaysian Embezzlement Case | ASHARQ AL-AWSAT English Archive 2005 -2017
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Malaysia’s Prime Minister Najib Razak speaks at the 48th Association of Southeast Asian Nations (ASEAN) foreign ministers meeting in Kuala Lumpur, Malaysia, August 4, 2015. REUTERS/Olivia Harris/File Photo

A $30.6 million penthouse at the Time Warner Center in Manhattan, overlooking Central Park. A $39 million mansion in the Los Angeles hills. A $17.5 million tear-down in Beverly Hills. Each was bought anonymously, the source of its financing hidden. On Wednesday, the Department of Justice charged that these lavish properties were among the more than $1 billion in United States assets bought with money stolen from Malaysia’s sovereign wealth fund by people close to that country’s embattled prime minister, Najib Razak.

The story line of sudden riches and lavish spending by people close to Malaysia’s prime minister has been told many times over the last year, amid rising discontent with his government and corruption investigations at home and abroad. But federal prosecutors offered the most scathingly detailed version yet as they filed a complaint to seize the assets in federal court in California.

According to the complaint, the stepson, close friends and associates of the prime minister diverted more than $3 billion from Malaysia’s sovereign wealth fund — called 1Malaysia Development Berhad, or 1MDB. Some came from an international oil deal and some from bond deals managed by Goldman Sachs.

Then, the complaint said, they transferred more than $1 billion of the embezzled funds into the United States using shell companies and the client bank accounts at the white-shoe law firm Shearman & Sterling. They rose up the social ladder, spending on celebrity-studded parties, purchasing high-end real estate, financing movies like “The Wolf of Wall Street” and buying paintings by the likes of Picasso and Monet.

“The money was raised by the Malaysian sovereign wealth fund and it was supposed to be used for investments that would return profits that would be used to support the Malaysian people,” Leslie R. Caldwell, the assistant attorney general who heads the department’s criminal division, said in an interview. “What happened instead was corrupt officials within 1MDB and others siphoned off a very large percentage of the money that was raised to the tune of $3 billion and used it in ways that provided absolutely no benefit to people in Malaysia other than themselves.”

The forfeiture complaint, issued by a unit known as the Kleptocracy Asset Recovery Initiative, represents the largest such case brought by the Justice Department. It comes at a time of heightened concern about secrecy, shell companies and illicit money flow around the world.

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.

The United States is among several governments, including Malaysia, Singapore and Switzerland, that have investigated 1MDB. The inquiries 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 film producer. 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. 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.

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.

Mr. Aziz’s movie company, Red Granite Pictures, said in a statement that it was confident that “when the facts come out, it will be clear that Riza Aziz and Red Granite did nothing wrong.”

Mr. Low, Mr. Husseiny and Mr. Qubaisi did not respond to requests 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.

Tengku Sariffuddin, Mr. Najib’s press secretary, said in a statement issued early Thursday that Malaysia would cooperate with “any lawful investigation.” If any wrongdoing is proved, he said, “the law will be enforced without exception.” He said the investment fund had been the subject of several investigations in Malaysia and that authorities found no crime was committed.

The immediate effect of the Justice Department’s action is effectively to freeze the assets. 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 held on to power by halting investigations into the investment fund and by removing officials in his governing party who criticized him.

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 to 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 company.

The Times investigation documented property transfers between Mr. Low and Mr. Aziz, including one on Hillcrest Road in Beverly Hills that was done 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’ movie business.

That transaction was one of several using shell companies that were detailed in the Justice Department complaint.

The complaint minutely chronicled an odyssey of embezzlement, global money flow and lavish spending in the United States.

Prosecutors 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.

Then, according to prosecutors, Mr. Low and the others involved in the embezzlement wired hundreds of millions of dollars into the escrow account of the Shearman & Sterling law firm. Banks generally do not do due diligence on the clients of law firms, leaving that step to the law firms themselves.

PetroSaudi, Goldman and Shearman were not accused of wrongdoing. Those firms did not respond to requests for comment Wednesday. 1MDB, the sovereign fund, was also not accused of wrongdoing and said in a statement that it was cooperating with investigators.

According to the complaint, from October 2009 to June 2010, more than $85 million of the stolen money was spent on gambling in Las Vegas, jet rentals, 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, prosecutors said, was used to purchase $130 million worth of artwork at auction, as well as an interest in the music rights of EMI. It also helped finance the production of “The Wolf of Wall Street,” they said.

According to the complaint, money from the bond offerings was put into a shell company in the British Virgin Islands and then transferred in part to Red Granite Pictures. Mr. Aziz and Mr. Husseiny previously told The Times the financing for the movie had come from personal funds of Mr. Husseiny, the complaint notes, even though the money came from 1MDB.

In New York, the funds for the purchase of the Time Warner penthouse originated with 1MDB and were siphoned off from the PetroSaudi deal, the complaint said. The money was transferred through accounts in numerous countries but eventually landed in an account that Shearman & Sterling held for “client 37103 (TJL/RT MISCELLANEOUS INVESTMENT MATTERS).”

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. In many cases, Justice Department officials have found that shell companies have facilitated illicit money flow and made stopping it more difficult. The Malaysian case, Ms. Caldwell of the Justice Department said, was no exception.

“This case is a perfect example of how shell companies can be used by criminals and kleptocrats and other people to steal money, hide money, launder money and make it very difficult for law enforcement to find out who controls that money,” she said. “It’s a big problem globally but it’s also a problem in the United States.”