Billion Dollar Whale

by Tom Wright

  By the 1990s, private banks were looking to expand in Asia, an area of fast economic growth, and Brunner moved to head Coutts’s business in Singapore. The Southeast Asian city-state of five million people, located on a tropical island near the equator, was positioning itself as the “Switzerland of the East,” complete with banking secrecy laws modeled on Switzerland’s.

  For a while, business flourished as Asia’s economies powered ahead, generating scores of new millionaires. After the Asian financial crisis took hold in the late 1990s, slashing the stock holdings of rich Asians, Brunner was recalled to Switzerland to head the bank’s international business. But he had developed a taste for the lifestyle in Asia, with its servants and drivers, and he was back in Singapore by 2006, residing in a modern apartment with a pool and outdoor whirlpool bath within walking distance of the city’s botanical gardens. In the other direction was Orchard Road, a shopping-and-entertainment hub with restaurants and bars. The remuneration was another attraction: Brunner earned more than 1 million Swiss francs a year, with more in bonuses, received stipends for a driver and multiple free business-class flights home, and enjoyed tax rates of only 15 percent.

  But he also had a problem. The global financial crisis had forced the British government to bail out the Royal Bank of Scotland, Coutts International’s parent company. Now state controlled, RBS set about cutting bonuses at Coutts and offering deferred payments in bonds instead of cash. Brunner was incensed. Senior management demanded his return to Switzerland. Hooked on the perks of living in Asia, and with another card up his sleeve, he declined to do so.

  For a year, Brunner had been holding talks with senior executives at BSI. Founded in the nineteenth century in the Italian-speaking part of Switzerland, BSI had thrived for generations in a similar fashion to all Swiss banks: aiding wealthy Europeans and Americans who wanted to hide their cash in private accounts and evade the payment of taxes at home. For decades, rich Americans, Germans, French, and Italians would come to see their bankers in Switzerland, sometimes lugging suitcases of cash on the train to Geneva, Zurich, or, in BSI’s case, the bank’s headquarters in a 1700s colonnaded mansion in the picturesque Alpine town of Lugano. Switzerland’s stringent bank secrecy laws, which made it illegal for banks to divulge information about their clients, protected the business.

  By the mid-2000s, however, European nations and the United States had lost patience with Switzerland and began to pressure the country to hand over information on tax cheats. The European Union and Switzerland signed a treaty that forced Swiss banks to divulge information on accounts held by citizens of other European nations or withhold a tax on customers who wished to remain anonymous. Surrounded by EU nations on all sides, and dependent on open-border trade with its neighbors, Swiss politicians had no choice but to agree to this compromise. European clients began to look for other places to stash their money. Under this regulatory onslaught, the business model of small Swiss banks like BSI was imperiled.

  BSI had opened a Singapore office in 2005, but it had failed to make headway in Asia against better-known rivals like UBS and Credit Suisse. Brunner knew this and he hatched an audacious plan that would change BSI’s fortunes overnight. In late 2009 he reached an agreement with Alfredo Gysi, the bank’s Lugano-based chief executive, to jump ship with more than one hundred Coutts employees, who were enticed by promises of salaries that were 20 to 40 percent higher and guaranteed bonuses for three years. The bank suddenly had over $2 billion in new customer money, more than tripling its assets under management in Asia, with Brunner as the new regional chief. “It was a marriage of convenience,” said Kevin Swampillai, a Malaysian banker who was among those who left Coutts for BSI.

  Ahead of the exodus, some Coutts bankers feared they might lose account holders who didn’t want to shift their assets to BSI. Among the most nervous was Yak Yew Chee, a Singaporean banker in his fifties, who had a very important client: Jho Low. Yak was the private banker at Coutts for Larry Low, helping to invest the Penang resident’s modest fortune. In 2006, just after Low had graduated from Wharton, Larry asked Yak to open an account for his son at Coutts in Singapore.

  Yak, who had spiky, thinning hair, graying at the sides, and often wore sunglasses, was a domineering personality who cowed coworkers. Often dismissive of others’ views, he would complain to subordinates that women weren’t cut out to become bankers, as they demanded time off for maternity leave. But he was tolerated by his bosses because he aced the only metric that counts in private banking: He brought in clients. The key to his success was a burgeoning relationship with Larry’s son, Jho Low.

  In mid-2009, Low told Yak he would be helping a Malaysian sovereign wealth fund called 1MDB invest money. The idea was preposterous—why would a state fund need to work through someone so young, and for what ends would it require the services of a bank specializing in private wealth of individuals?—but Yak agreed to help. He opened an account for Good Star at Coutts, and he kept the firm’s records. It was this account that ultimately received more than $1 billion in 1MDB money, forcing Low to make up a story to compliance staff at Coutts that Good Star had an investment agreement with the Malaysian fund. Yak knew Good Star was controlled by Low, who explained that he was engaged in super-secretive “government-to-government” business—a line the banker swallowed without query.

  Low had found his perfect banker—tough but unquestioning—and when Yak told him of his decision to move to BSI, a more obscure institution than Coutts, he decided to move his accounts over. Ecstatic at his accomplishment, Brunner boasted to a Bloomberg journalist about his plans to triple BSI’s assets under management in Asia in just five years.

  Yak already had proven pliable, and Low sensed BSI would not create trouble for him, especially if he helped turn Brunner’s dream into a reality by channeling billions of dollars to the bank. It was part of a system Low was developing to identify institutions with weak governance, and use that to his advantage. A few years later, he would ask a New York art dealer in an email to recommend him a lender with a “quick and relaxed [know your customer] process.” BSI would prove to be the ultimate example of this—a bank whose management, in the search for profit, asked few probing questions.

  From late 2010, Low relayed instructions to Yak, now a managing director at BSI, to open a series of accounts in his name and those of scores of shell companies. There was an “onboarding” procedure—a checklist of simple know-your-customer bullet points that included items such as passport details, legal convictions, and the source of a customer’s money. Low came up clean. It was at this point that he began laying the groundwork for his tale of family wealth. The June 2011 transfer of $55 million—some of which was used for the Time Warner purchase—was a test to see if BSI compliance staff would buy the story that this was family money. It worked and Low began to send gushers of cash into his BSI accounts.

  The 1MDB fund also opened a slew of accounts with BSI—accounts which would receive billions of dollars in funds in the years ahead. The bank’s compliance queried why a Malaysian sovereign fund would need a Swiss bank account. So, to ensure the buy-in of senior management at BSI, Low took precautions. He arranged for Yak to set up a meeting in Lugano between senior 1MDB officials, including Chief Executive Shahrol Halmi, and BSI’s top management.

  It was yet another sign of Low’s total control over the fund. The Malaysian executives flew to Switzerland, telling Brunner, BSI’s chief executive, Gysi, and others to expect billions of dollars in business from the sovereign wealth fund. Low’s ability to arrange such gatherings gave him an aura of respectability, and, despite his lack of a formal role at the fund, senior bankers like Gysi and Brunner stopped asking questions.

  Yak was feted as BSI’s star banker.

  “I wanted to personally thank you for your immense contribution not only to our new Asia business, but to BSI Group as a whole,” Gysi, the chief executive, wrote Yak.

  His connection to Low made him exceedingly rich; Yak began to take home ar
ound $5 million a year in salary and bonuses, more than five times his previous earnings, binding him to Low, the money and adulation too alluring to turn down. The bosses, too, began to reap the benefits of the relationship, as BSI became a force to be reckoned with in Singapore and globally. Brunner enjoyed hosting parties at his $7 million, 2,500-square-foot colonial-era town house in Singapore, close to his old apartment. The two-story whitewashed building had been restored and furnished in the opulent style of a Chinese mandarin, with terra-cotta horses, statues of Chinese gods, and deep Persian carpets.

  According to Kevin Swampillai, who became BSI’s head of wealth management in Singapore, it was a “lame duck” management team that cared only about salaries, allowing lower-ranking bankers to act however they pleased. One of those given free rein was Yeo Jiawei.

  Chapter 24

  Brazen Sky

  Singapore, December 2011

  With pointed eyebrows, pronounced cheeks, and a thick head of hair, Yeo Jiawei, a twenty-eight-year-old Chinese Singaporean banker at BSI, gave off a boyish air. But Yeo had become an expert in a dark corner of the global financial system. At BSI he was a “wealth manager,” but his real expertise lay in an intricate knowledge of ways to help elite customers reduce tax bills. The bank’s bread and butter—like many private banks in Singapore—was devising such strategies, largely for rich Indian and Southeast Asian clients. One method Yeo employed was to wash clients’ money through investment funds in faraway places.

  Yeo’s skills were perfectly suited to one of BSI’s star clients: Jho Low. Low wanted a way to send money through multiple accounts to keep its origins secret, and Yeo had promised to deliver.

  Instead of dealing with mundane tax evasion, Low told Yeo he would have a new assignment: secret government work. Like many people who brushed up against the Malaysian, Yeo was intrigued and flattered. He set about doing what Low wanted. In December 2011, Yeo set up a meeting in Singapore with José Renato Carvalho Pinto, a Brazilian relationship manager at Amicorp Group, a small financial firm. Yeo described to Pinto how BSI was doing work involving Malaysian and Middle Eastern investment funds and needed Amicorp to set up a series of fund structures. Pinto was interested.

  Amicorp was cofounded by a Dutch financier named Toine Knipping, who had worked for years as a financier in Curaçao, a sun-swept Caribbean island that was formerly a colony of the Netherlands, before settling in Singapore. Knipping had an eclectic curriculum vitae: He’d worked for a Venezuelan bank, held an interest in a South African aloe vera drinks company, and authored a book on ethical investing. One of his main areas of expertise was Curaçao, which in the 1970s and 1980s emerged as a major offshore center. It also got a name as a transshipment point for drugs from South America to enter the United States and a haven to stash dirty cash, regularly landing Curaçao on the U.S. State Department’s list of “Major Money Laundering Countries.”

  Knipping’s company helped hedge funds and other financial firms run their day-to-day business—calculating the value of investments, for instance, or clearing trades. But like many smaller trust companies, Amicorp did a bit of everything, and this included administering small investment funds in Curaçao that were often used by rich Asians to discreetly move money around.

  In the meeting, Yeo explained how BSI needed Amicorp’s help to set up an investment-fund structure for Malaysian fund 1MDB, and Pinto got to work. The first transaction, for $100 million, went from a BSI account controlled by 1MDB into an Amicorp-administered mutual fund in Curaçao. But it wasn’t a usual mutual fund, the kind in which a manager pools cash from mom-and-pop investors, using it to buy stocks and bonds. Sure, this entity, Enterprise Emerging Market Fund, took cash from multiple investors. But the structure masked one major difference from a plain-vanilla mutual fund: It also comprised segregated portfolios that took cash from only one client, before “investing” in another asset.

  It was simply a way to wash a client’s money through what looked like a mutual fund. In other words, cash coming out the other side appeared to be a transfer from a mutual fund. This was exactly what happened with the $100 million, which Enterprise Emerging Market Fund promptly sent to a shell company controlled by Fat Eric, Low’s associate and, increasingly, an important nominee for his many companies. Yeo never made clear the business reason for the transfer. It was unclear why a state fund such as 1MDB would use such secretive financial structures, but Pinto didn’t pry, as BSI had vouched for 1MDB. As Kevin Swampillai, Yeo’s boss, put it: “There was only a semblance of compliance at these funds.” In the next couple of years, Amicorp would set up $1.5 billion of such structures for 1MDB, Low, and his family.

  Here was a legal, if highly questionable, way to disguise money flows. In the earlier stages, Low had been content to send cash straight from Good Star to his U.S. law-trust accounts with Shearman & Sterling or, more recently, into his accounts at BSI. But the media spotlight on his partying, and the compliance hassles, were making him more paranoid. By using an intermediary step like the Curaçao fund, Low hoped to cover over any footprints.

  Yeo had delivered and Low began to trust him. As he moved deeper into Low’s orbit, Yeo’s self-regard for his own skills grew, and he expressed disdain for bankers at BSI who didn’t deal directly with such powerful clients. Like BSI itself, Yeo had proven himself an amenable fit for Jho Low, and Low would soon turn to the young banker again.

  The 1MDB fund still had to account for the $1.8 billion it claimed to have lent to PetroSaudi. Of this, Low and his conspirators had taken the lion’s share, and now he needed Yeo to help make the debt go away. Earlier, the fund’s executives had attempted to get Tim Leissner of Goldman to find a bank that would value the oil drill ships—about the only asset PetroSaudi had acquired with 1MDB’s money—at an inflated price of $1 billion. The idea was for 1MDB to take over those assets and, in return, write down the debt. Although he likely did not know the full picture, Leissner got Lazard, the U.S. investment bank, to take a look at the drill ships, but it couldn’t come up with a valuation anywhere near high enough to make this plan work.

  Instead, Yeo got to work on a convoluted set of transactions that was pure financial trickery. Essentially, 1MDB would swap a large portion of its debt for a stake in a PetroSaudi subsidiary that owned the drill ships, even though they were worth nothing like the $1.8 billion that 1MDB was owed. Yeo then arranged for 1MDB to sell that stake to Bridge Partners International, which was controlled by a Hong Kong financier named Lobo Lee.

  A long-distance triathlete, who was middle-aged but kept fit cycling Hong Kong’s mountainous terrain, Lee was just another one of the many small-time fund managers in the Caribbean, Hong Kong, Bangkok, and Singapore who created arcane structures for a fee, without querying the need for such complexity. By remaining ignorant of the full terms, they were the cogs that allowed the money-laundering machine to keep humming along.

  Instead of paying in cash, Bridge Partners set up a Cayman Islands investment fund, effectively giving 1MDB units in the fund in return for the stake. The fund, called Bridge Global, had only one client—1MDB—and hadn’t even registered with authorities in the Cayman Islands for permission to make investments. Magically, 1MDB now claimed in its financial statements the Bridge Global investment was worth $2.3 billion—a profit of $500 million on the money it had lent to PetroSaudi. The 1MDB fund set up a new subsidiary called Brazen Sky, which opened a bank account with BSI to hold the units. It was nothing but a facade: There was no cash there, only fund units, supposedly the profits from selling a stake in two almost-worthless oil drill ships.

  On paper, however, 1MDB could claim it had made a profit, and Low conspired to get it past auditors. Pressed by accountants at KPMG, Yeo gave the impression the Bridge Global fund units were backed by cash. The financial engineering had helped disguise the truth, and KPMG carried on with its audit. But the problem hadn’t gone away, and the firm’s accountants would not prove that easy to con the following year.

  Yeo must hav
e known what BSI was doing was ropy, and so he set up a scheme with his boss, Kevin Swampillai, to profit himself. The 1MDB fund had agreed to pay $4 million annually to Bridge Global and $12 million to BSI for helping set up the Cayman Islands arrangement. But Yeo was managing the process and Lobo Lee didn’t know the full details, so Yeo persuaded the Hong Kong fund manager to settle for $500,000, and Yeo and Swampillai funneled off millions of dollars to their personal accounts.

  The seemingly massive amount now in 1MDB’s Brazen Sky account at BSI worried Hanspeter Brunner, the bank’s chief executive in the region. BSI’s Singapore branch suddenly appeared to have billions of dollars in new deposits, and Brunner feared the Monetary Authority of Singapore, Singapore’s central bank, would want an explanation. After a period of fast growth in its private banking industry, the city-state was facing pressure to do more to impede money laundering.

  Singapore’s private banking industry was booming, managing $1 trillion in assets, a third of Switzerland’s total, but still making it one of the largest offshore centers on the planet. The city-state already had a reputation as a place for corrupt Indonesians, Chinese, and Malaysians to hide money. Now, it was attracting more European and U.S. clients trying to escape the increased scrutiny from Western regulators, who were fed up with tax cheats. The Financial Action Task Force, the Paris-based group which sets anti-money-laundering standards, recently had singled Singapore out for failing to prosecute more dirty-money cases.

  So Brunner later set up a meeting with Singapore’s central bank, during which he gave a presentation on Brazen Sky and the bank’s other 1MDB-related business. But he did not go into detail, instead giving a simple overview and stressing this was the business of an official Malaysian government fund.