by Tom Wright
As Low’s group forged ahead, they worked hard to ensure the pillars of capitalism—lawyers, investment bankers, auditors, and valuation experts—were involved at every turn. The effect was to give the deal between PetroSaudi and 1MDB a patina of respectability. For a fee, most were happy to oblige. Just over a week after the Geneva meeting, Mahony reached out to Edward Morse, a former senior U.S. State Department official and energy analyst at Lehman Brothers, to conduct an independent valuation of PetroSaudi’s assets, which 1MDB’s board had requested before the fund sent its $1 billion investment. One of the world’s foremost experts on global oil, Morse had worked with Obaid’s elder brother, Nawaf Obaid, who had written a book-length study on Saudi energy markets. Mahony told Morse he was seeking a valuation of $2.5 billion.
“Ok. Got it!” Morse replied.
Only two days later, Morse was done with his report, a technical analysis of reserves and prices based on numbers that PetroSaudi had provided.
“I think you won’t be displeased with our conclusions either on Turkmenistan or Argentina,” Morse wrote Mahony.
His valuation range went up to $3.6 billion, more than Mahony had requested, and a high number given the Turkmenistan fields were in waters of the Caspian Sea that were disputed with Azerbaijan. In the report, Morse made it clear his analysis was purely an economic valuation of the oil contained in the fields. He was paid $100,000 for the work.
Others involved were happy to facilitate the deal, even when aspects of it made no sense at all. Timothy Buckland, a New Zealand national who worked for the London office of U.S. law firm White & Case, counsel for PetroSaudi, was eager to please his client. On September 22, Mahony, in an email to Buckland, copying other White & Case lawyers, asked the law firm to prepare a document to send $2 million to an unnamed “broker” for helping put the joint venture deal together. Buckland simply replied, “Will do.” It’s unclear whether the broker fee was ever paid.
White & Case also helped PetroSaudi prepare a presentation of the proposed deal. The slides, replete with professional-looking diagrams of money flows, showed how PetroSaudi would inject its assets and 1MDB would put in $1 billion for a minority stake in the joint venture, based in the British Virgin Islands—all as agreed. But the presentation also indicated a strange payment of $700 million that the joint venture would make back to PetroSaudi. The payment supposedly was to repay a loan that PetroSaudi had extended to the joint venture. In fact, the loan could not have existed; the joint venture hadn’t even been set up and didn’t have a bank account.
On September 26, 1MDB’s newly constituted board met in Kuala Lumpur to approve the initial $1 billion transfer from the fund to the Swiss account set up for the joint venture with PetroSaudi. Before the meeting, Low telephoned Najib to apprise him of what was about to transpire. Then Low attended the meeting, one of the few times he was physically present at a 1MDB official gathering. At the meeting, Low explained the plan. He did not mention the $700 million payment. The board agreed to fund the joint venture.
In the space of a month, since Prince Turki had written Najib with his proposal in late August, a multi-billion-dollar joint-venture agreement had been completed. Such a time frame—to complete due diligence, asset valuations, and other legal checks—was virtually without parallel. Such deals normally take months, if not a year, to wrap up. A 1MDB employee later compared the process to attempting to read the entire works of Shakespeare in an hour.
Chapter 9
“I Feel the Earth Move”
Kuala Lumpur, September 2009
Shortly after lunch on September 30, Jacqueline Ho, an employee with Deutsche Bank in Malaysia, was in a quandary. She was the relationship manager for a new client, 1MDB, and Casey Tang, the fund’s executive director, was on the phone pressuring her to push ahead with a series of substantial payments out of the country.
Earlier that day Deutsche had received a letter from Tang, oddly delivered by hand, which asked for the bank to complete the transfers. But Deutsche’s compliance department had some queries. Why wasn’t $1 billion flowing to the joint venture with PetroSaudi, as agreed by the 1MDB board? And how come Tang was asking for $700 million to be put into an unnamed account with RBS Coutts in Zurich?
Tang replied that the account, identified in the wire request only by a number, was owned by PetroSaudi, and the transfer was to repay a loan.
“If they’re going to overkill on the compliance thing, uh, they have to be responsible you know,” Tang told Ho, according to a transcript. He seemed agitated, warning the banker that the joint venture might fail if Deutsche Bank didn’t hurry up and transfer the funds.
“Yes that’s, that’s fine. But just one question as to why this is going to [PetroSaudi] itself? Is there any particular reason,” Ho asked.
“For us, we don’t care. Because $700 million I mean it’s an advance [that’s] owed to them,” he replied. “This is where they want to send. They want to send to Timbuktu also, we don’t care.”
“Yeah that’s fine. Alright. We just wanted to understand the background.”
Ho’s supervisor called Bank Negara Malaysia, the central bank, to check if it was okay to proceed with the enormous transaction. The bank gave the green light, as long as the money was going to the joint venture. Despite the confusion, Deutsche sent two wires around 3 p.m., one of $300 million to the joint venture’s new account at J.P. Morgan (Suisse) and another of $700 million to the mysterious account at Coutts in Zurich. As it was a dollar transaction, the money needed to pass through a U.S. bank. Under American anti-money-laundering laws, these correspondent banks are obliged to check the source and use of funds. But with trillions of dollars flowing daily through the global foreign-exchange markets, such checks are little more than perfunctory, and in this case, J.P. Morgan let the money through.
Two days later, an employee from Coutts’s regulatory risk department in Zurich sent an urgent email to 1MDB. The employee was confused by Deutsche Bank’s omission of the full name of the beneficiary of the $700 million transfer, which is required on bank-transfer requests. When pushed, Shahrol Halmi, the fund’s chief executive, acknowledged the account was owned by a Seychelles company called Good Star Ltd.
“Good Star is owned 100% by PetroSaudi International Ltd,” he wrote.
Shahrol was parroting what Low told him. In truth, Good Star was another bearer-share company, the kind made illegal in many jurisdictions, and its single share was held by Jho Low, who also was signatory to its accounts. Only months before, he had set up the shell company, using the services of a trust company. It was a simulacrum of a bona fide business, a front the perpetrators hoped would shield them from detection.
Still, Coutts bankers were not satisfied, and Low and Casey Tang flew to the bank’s headquarters in Zurich to smooth things over. Here they told a different story from the one Tang had spun to Deutsche Bank about the PetroSaudi loan: Good Star was an investment management company, and 1MDB had decided to put in $700 million of its money. Why would a Malaysian state fund put so much cash into an unknown Seychelles fund management company? Whatever the Coutts bankers’ concerns, however, the bank pushed the transfer through.
The 1MDB money began to move across the world. Low had carried off a move so brazen, it was hard to fathom how no one had stopped him. Several years before, in Abu Dhabi, he’d learned how sovereign wealth funds like Mubadala were pots of gold, and he yearned to control one. Drawing on the Abu Dhabi model, Low had convinced Prime Minister Najib that Malaysia needed its own powerful fund to tap global markets, and that he, a twenty-eight-year-old, should be permitted to run its affairs.
Low had tried to earn a commission for putting 1MDB and PetroSaudi together, but he’d been stymied by BSI. At some point, Low’s scheme had evolved. Maybe PetroSaudi had been planning to invest the money in oil-field development with the hopes of earning a fat share of profits using Malaysian government money.
But Najib was giving Low so much room to maneuver, he dared to think
on a grander scale. His people were running 1MDB, with cover from the prime minister. The involvement of Prince Turki, the co-owner of PetroSaudi, and a Malaysian state fund offered a sheen of officialdom. (Indeed, PetroSaudi would later argue that it was an arms-length transaction between sophisticated and well-represented sovereign parties.) An idea had taken shape in Low’s mind. Perhaps, he wondered, it was possible to take hundreds of millions of dollars in broad daylight, fooling Western banks and regulators.
For Saudi royalty, the boundaries between state and personal wealth were blurred, and so it was becoming for Low. What if someone caught on? Did Low have a deeply thought-out plan about what to do when someone noticed the financial hole? The events of the past month had happened at a rapid pace, and he was ad-libbing. It was an opportunistic move, and Low had pulled it off. Like he had always done, Low would rely on his ability to think on the fly.
In this age of social sharing, the conspirators could not even hide their glee. Seet Li Lin, Low’s Wharton friend, took to Facebook on the day Deutsche Bank sent the $700 million to Good Star.
“i feel the earth move…,” he wrote in a public message on his wall.
From Good Star’s account at Coutts, Low distributed money among the group. In early October, he transferred $85 million to Tarek Obaid’s J.P. Morgan account in Switzerland, under the pretense the amount was a private-equity investment. Coutts permitted the transfers, and three months later the bank similarly let through another payment of $68 million from Good Star to Obaid.
Weeks after, Obaid paid $33 million to Patrick Mahony, and over 2009 and 2010, sent $77 million from his account to Prince Turki. Months later, Buckland, the White & Case lawyer, left the firm to take a new position as in-house counsel at PetroSaudi UK.
Low had pulled off his first major heist, and even after paying off his partners, enjoyed virtually sole control over hundreds of millions of dollars. Armed with inordinate wealth, he set off to see what was for sale in the United States. The answer was almost anything he wanted.
PART II
OVERNIGHT BILLIONAIRE
Chapter 10
An Evening with the Playmates
Las Vegas, October 2009
The Playmates were nervous as they made their way across the casino floor of the Palazzo. The young women, about twenty of them, a mix of blonde and dark-haired models, had worked in Las Vegas on multiple occasions. But the instructions for this job were especially secretive: Check into your room, put on a black cocktail dress, and pack a bikini. The women had no idea who had hired them.
It was October 22, 2009, only three weeks since Low took $700 million from 1MDB. Hours earlier, the Playmates had flown in—first class—from across the United States. One of the newest hotels on the Strip, the Palazzo was an impressive sight, with stately stone staircases that brought visitors up to a lobby with an indoor waterfall. Beyond that was the casino floor, one of the largest in the country.
Clouds that afternoon had dispersed, and it was a beautifully clear late-fall evening. At around 8 p.m., the Playmates arrived at the door of a VIP room and entered. Inside, around a long card table, were a handful of Asian men playing poker, accompanied by Leonardo DiCaprio. Some of the models had met the actor before, but his presence in this gathering struck some of them as peculiar. The party, the women quickly learned, was an early celebration for the birthday of a portly Asian man who introduced himself as Jho Low. What, some of them wondered, was the actor doing in the company of these anonymous and rather dull men?
After about twenty minutes of watching the group play, Low began to pass $1,000 chips down the table, one for each woman, and made a signal for the party to move to a suite in the hotel. With a huge security entourage, the group made its way across the gaming floor, as tourists looked on. No one appeared to recognize DiCaprio, who was wearing his trademark battered baseball cap, pulled down tightly to assure anonymity.
At the doors of the Chairman Suites on the fifth floor, the most opulent at the Palazzo, security guards waited. The burly men in dark suits and earpieces required the Playmates to hand over their bags, phones, and driver’s licenses, and then sign a nondisclosure agreement before finally entering the suite. The women were used to attending openings and nightclub events, but this high-security atmosphere was strange. Nonetheless, the $3,000 fee they had been promised to hang out for just a few hours overcame any qualms they might have had.
In the suite’s living room, with a wood fire, plush couches, and doors that opened out to a pool terrace overlooking the Strip, the atmosphere was somber. The lights were off, and hotel staff had constructed a makeshift dance floor of white tiles, with a disco ball hanging overhead. The Palazzo also had set up a card table in the suite, and Low, DiCaprio, and the few other Asian men went off to play baccarat, which they taught to some of the Playmates who didn’t know the game. With the ice broken, the gambling took off. Baccarat was Low’s favorite. It involves little skill, revolving around whether the player or the “bank” gets the highest hand in a complicated scoring system, but rewards—or punishes—those willing to wager big.
Stephanie Larimore, a dark-haired model, wearing a black dress with silver material around the bust, tried to make conversation with Low. He was polite, but shy and almost unable to think of what to say. Boxes of German chocolates were stacked round the room, and Low offered her one, saying the gold-wrapped squares were his favorite. He’s intimidated by women. Why have they hired us to be here? Larimore thought.
The men, smoking cigars, began to gamble large amounts of money, putting down chips of $5,000, and after an early winning streak against the house, some of the Asian men began to throw chips around the room. Some of the Playmates, who were mingling on the sofas and around the table, chased after them, down on their hands and knees. After a couple of hours, a birthday cake came out, and the women crowded around Low.
Later, DiCaprio and Low sat on a sofa in the dark, smoking cigars and talking, as they watched three or four women dancing in the living room under disco lighting. Low then asked for some of the girls to change into bikinis and swim in a small pool on a balcony outside.
“I think he was selecting people,” said Starz Ramirez, a makeup artist who was present that evening, referring to Low. “It was weird we were there. He didn’t socialize with us.”
Around the pool were trays filled with barbecued food and ice cream, but no one ate much. Everything had been selected in advance by Low, who quietly orchestrated the night’s activities with a few words to staff standing by to cater to his every whim.
Someone took off DiCaprio’s baseball cap and wore it. But there wasn’t really a party atmosphere. The actor was in the process of filming Inception, a science fiction film, and, to some of the models, he still seemed to be in character, focused and distant. DiCaprio drank some bourbon, but there wasn’t much alcohol flowing.
“They weren’t crazy party guys,” Larimore said.
Then Low asked Larimore whether she’d like to spend a few days longer with him in Vegas. He would pay $10,000 and take her shopping on the Strip. Some of the women stayed the night in the suite, but Larimore declined the offer and left to her own room around midnight.
“It was like he was bribing you to stay.”
At that moment, in late 2009, Low had access to more liquid cash than almost anyone on earth—and he wasn’t shy about spending it. Even before his big haul, Low had made a splash in New York and Las Vegas, dropping exorbitant sums of cash, profits from the Iskandar deal. But in the fall of 2009, armed with almost endless amounts of money, Low embarked on a period of incessant partying—and networking. Even after the payments to Obaid and others, hundreds of millions of dollars were just sitting in the Good Star account he controlled in Switzerland, for Low to deploy in any way he saw fit. There were no shareholders, no co-investors.
His wasn’t a Ponzi scheme like Bernie Madoff’s, which used new money to pay “profits” to earlier investors. Madoff’s fraud led to losses of at least $18
billion, but his take was a fraction of that, as the “profits” were shared among other investors. By the time the scheme imploded in late 2008, Madoff had amassed a paper fortune of $800 million, but most of this was the value of his market-making business; the amount he personally stole was a fraction of the amount lost. Low’s mark—the little-known 1MDB, a Malaysian government fund—wasn’t asking for any money back and it wouldn’t so long as he controlled it through his proxies.
Low also wasn’t like junk-bond king Michael Milken, who had amassed a personal fortune in the 1980s before going to prison for violating securities laws. The Malaysian had simply taken hundreds of millions of dollars. The excesses of Madoff or the 1980s would seem prosaic compared to the multiyear spending spree on which Low was about to embark.
His was a scheme for the twenty-first century, a truly global endeavor that produced nothing—a shift of cash from a poorly controlled state fund in the developing world, diverting it into the opaque corners of an underpoliced financial system that’s all but broken.
Did he really think he could get away with it? Perhaps Low believed he could make investments that would more than cover for what he had taken. With the protection of a prime minister, who would stop him? To pull it off, Low relied on skills he’d honed for years. He knew that transactions between governments attracted less scrutiny from auditors and banks, and so he had set about building high-level connections in Malaysia, the UAE, and Saudi Arabia. He understood that once money was sent into an anonymous offshore account, it was difficult to trace, and he’d learned how to layer transactions—sending cash around in a whirl between shell companies. And to keep everything flowing, he constantly misrepresented money as investments or loans, giving his scheme a veneer of formality.