Billion Dollar Whale

by Tom Wright

  Only days later, Goldman deposited the proceeds from the $3 billion bond with BSI, and $1.2 billion immediately was purloined, moving through the Curaçao funds into a British Virgin Islands company. The shell firm, Tanore Finance Corporation, was controlled by Fat Eric. Then, in two separate transfers, $681 million moved from Tanore to the prime minister’s secret account. The correspondent bank for both wires was Wells Fargo, which Low used, along with J.P. Morgan, for most of his large transactions involving U.S. dollars. Seemingly unperturbed by the lack of a beneficial owner’s name on such a large transfer—a glaring red flag—Wells Fargo let it through, just a tiny drop in the pool of trillions of dollars that U.S. correspondent banks process every day.

  Low had set up the AmBank account for Najib in 2011 with the help of Cheah Tek Kuang, the bank’s chief executive. Low had gotten to know Cheah, who was in his sixties, after he returned from Wharton, almost a decade earlier. He had borrowed from AmBank to finance Wynton’s early deals. When Low explained the need to set up a secret account for Najib, Cheah had been willing to oblige, drawn in by Low’s promises of business opportunities, including a chance to advise on 1MDB’s plans to IPO its power assets.

  The following year, Low had arranged for $170 million from the Goldman-prepared power-plant bonds to fill Najib’s account. To avoid questions, Cheah and Low had seen to it the account was marked as one used for internal bank transfers, meaning it would not be visible to compliance staff. The Australian and New Zealand Banking Group, known as ANZ, owned a minority stake in AmBank, giving it the right to appoint executives and board members. But ANZ’s management had no idea about this secret account’s existence. Joanna Yu, a middle-level AmBank executive, was tasked with taking instructions from Low about incoming wires and outgoing checks. Najib had used most of the initial infusion to pay off crony politicians, as well as on jewelry and a $56,000 expense at Signature Exotic Cars, a high-end car dealership in Kuala Lumpur. Now, ahead of the elections, the account was about to become a lot more active.

  With such a large movement of cash, Low wanted a “friendly” bank on both sides of the transfer. To be safe, Tanore Finance opened an account with Swiss-based Falcon Bank, which was owned by Aabar and controlled by Al Husseiny, Low’s associate. He also drew up fake loan agreements that purported to show the $681 million was a loan from Tanore to the “AMPRIVATE BANKING—MR” account, which the loan documents falsely made out to be owned by a company under the Finance Ministry, not the prime minister. But Low’s risky maneuvers and slapdash creation of supporting documentation were getting difficult for even the most pliable banker to permit.

  At Falcon’s headquarters in Zurich, Eduardo Leemann, the bank’s chief executive, couldn’t believe the amateurishness of the loan documents. Although Low was trying to be careful, he was also rushing, and he found it hard to stay on top of all his varied schemes. On March 25, the day of the second wire transfer, Leemann patched Al Husseiny into a conference call to discuss the worrying transaction.

  In his fifties, Leemann was a Swiss national and former head of Goldman Sachs’s private-banking business. He had joined Falcon in the 1990s when it was still called AIG Private Bank. Leemann was no stranger to huge flows of dubious money, but what Low was trying to do risked landing him in trouble, and he was scared.

  “Mohamed, the rest of the documentation, which our friend in Malaysia has delivered is absolutely ridiculous, between you and me… This is… gonna get everybody in trouble,” Leemann said, his voice shaking with emotion. “This is done not professionally, unprepared, amateurish at best. The documentation they’re sending me is a joke, between you and me, Mohamed, it’s a joke! This is something, how can you send hundreds of millions of dollars with documentation, you know, nine million here, twenty million there, no signatures on the bill, it’s kind of cut and paste… I mean it’s ridiculous!… You’re now talking to Jho, and tell him, look, you either, within the next, you know, six hours produce documentation, which my compliance people can live with, or we have a huge problem.”

  Falcon’s chief executive next called Low himself to convey the message: “The documentation which we have received, Jho, it’s a joke. It is not good,” he said. Leemann was particularly worried that other banks, especially U.S. correspondent banks, would raise a red flag over the transfer, alerting authorities that something was not right. He said Falcon had hired an outside counsel to look at the transfer from a legal perspective. “If any other bank just makes a ‘peep!’ and this gets reported… we are gonna have a huge problem.”

  Low moved quickly, tapping Al Husseiny to find a solution. He was having to rely more and more on his high-placed friends in banks like BSI and Falcon to keep the money moving, threatening to make this scheme unmanageable. By now he was dealing with too many flows to keep it all straight in his head—money to the prime minister, to his business deals, for mansions, parties, and more.

  Jasmine Loo, his friend and 1MDB chief counsel, noticed he was putting on more weight, a sure sign of stress with Low, and he himself noted to others he was having problems sleeping at night. But he plowed on, too deep to stop. And despite Leemann’s concern, Falcon Bank processed the money after Al Husseiny, the bank’s chairman, vouched for the legitimacy of the transfer.

  Armed with dirty 1MDB cash, the prime minister had a powerful weapon to win the 2013 election. As the vote approached, Low managed the account, diverting hundreds of millions of dollars to the prime minister’s allies across the country. He barraged Joanna Yu with BlackBerry messages, ordering her to move chunks of money from Najib’s account to ruling-party politicians. Frustrated with having to arrange hundreds of checks, she started to refer to Low as “Fats” behind his back. Some of the money moved to politicians via the private account of Nazir Razak, another of the prime minister’s brothers and head of CIMB bank. The deluge of cash was an enormous advantage for Najib over an opposition without access to that kind of financial backing.

  On Election Day, May 5, Najib averted disaster, clinging to power with the most slender of margins. Low had delivered yet again, and the prime minister was grateful. But it was a Pyrrhic victory. Not only did the government’s coalition fail to win back Penang, it also lost the popular national vote. Najib remained in power only because of electoral rules that reserve more parliamentary seats for Malay-dominated rural areas. Sophisticated urban voters, many of them Chinese-Malaysians, had turned out in droves for the opposition, sick of the money politics. Anwar Ibrahim claimed election fraud, but the system was skewed against him.

  Low’s patron was still in power. But there was a new problem on the horizon. With Najib still in office, Low was able to avoid a full dissection of 1MDB’s business by a hostile new government. But the unbridled spending on the elections, and Goldman’s outlandish profits, were starting to attract attention from journalists. The Edge, Malaysia’s weekly English-language newspaper, had raised questions about 1MDB’s investments in PetroSaudi, including the unexplained, abrupt resignation in December 2009 of the fund’s chairman. But the Edge’s journalists had failed back then to uncover solid evidence of wrongdoing, and instead turned to other stories.

  Now, the paper’s owner, Tong Kooi Ong, the multimillionaire who had made enemies due to his closeness with opposition candidate Anwar Ibrahim, ordered a fresh reporting effort. Over the summer, the Edge published its most detailed investigation yet on 1MDB. In a two-thousand-word story, the paper laid out how 1MDB had raised over $10 billion but invested only in power plants. It gave a skeptical account of how the fund claimed its $1.8 billion investment in PetroSaudi had miraculously been turned into a deposit in a Cayman Islands fund worth $2.3 billion. The piece noted Low’s role in setting up 1MDB’s predecessor fund, but made no other mention of him.

  International journalists also had started to hear about Goldman’s huge profits, mainly from other investment bankers in Southeast Asia, many of whom were getting heat from their bosses in London and New York for losing out on the business of the cen
tury. Even Gary Cohn, Goldman’s president, boasted about the fees during meetings with journalists in New York.

  Around the elections, the Wall Street Journal published a story under the headline GOLDMAN SEES PAYOFF IN MALAYSIA BET, in which reporters Alex Frangos and Matt Wirz detailed how Goldman had made $200 million raising bonds for Sarawak’s government and 1MDB. The amount was, in fact, three times higher, but the story broke into the open the highly unusual Goldman windfall. A Goldman spokesman defended its role, saying clients sought out the bank for its ability to “deliver complex financing solutions” not available on “public markets.”

  Then, in August, a business weekly called Focus Malaysia published a cover story titled “Just Who Is Jho Low?” It mentioned Low’s influence with Abu Dhabi funds and raised questions about his deals, including the purchase of EMI, suggesting his money might have originated with 1MDB, although the piece offered no proof. Those who worked at the fund did all they could to put the media off track. “The role of Jho Low as far as 1MDB is concerned is zero,” Shahrol Halmi, the chief executive, was quoted by Focus Malaysia as saying.

  Reporters were nipping around the edges. Was Low alarmed? Far from it. The latest $3 billion hadn’t gone only to Najib and politicians. Hundreds of millions of dollars flowed to Low, and he went out to celebrate his patron’s election victory by amassing an art collection fit for a Hollywood billionaire.

  Chapter 31

  Art No One Can See

  New York, May 2013

  Low was tingling with nerves, his heart beating fast as he clutched his phone. “Thirty-seven point five,” he breathed.

  At the other end was Loïc Gouzer, a Swiss specialist in contemporary art at Christie’s, the 250-year-old British auction house. Gouzer was standing at the edge of the auction hall at Christie’s New York headquarters, a grand, high-ceilinged room at Rockefeller Plaza. Between him and the auctioneer, affluent collectors and onlookers, who had come for this sale of postwar and contemporary art, sat in tight rows of seats, watching the bidding unfold.

  Gouzer signaled to the auctioneer a bid of $37.5 million. The auctioneer chuckled.

  “Will it work this time?” he said.

  Low had just upped his offer by a million dollars, more than previous increments of $500,000—what’s known in the auction trade as a “jump bid,” or an attempt to scare off your rival.

  On the side wall of the auction room hung the work that was the target of the bidding war: Dustheads by Jean-Michel Basquiat. A 1982 masterpiece of two figures with wide eyes, evoking African tribal masks, constructed in colorful red and green with acrylics, oil sticks, spray enamel, and metallic paint on canvas, the nearly seven-foot-high piece was among Basquiat’s most sought-after pieces. The former Brooklyn graffiti artist had died aged twenty-seven in 1988, limiting the supply of his work. Prices for Basquiats had been steadily climbing.

  Another anonymous bidder on the phone went up by $500,000; Low’s aggressive jump bid had failed to see the rival off. The amounts kept rising—$38 million, $39, $40, $41, $41.5, $42, $42.5—as the bidders matched each other. Taking a breath, Low launched another jump bid—$43.5 million—and Gouzer signed to the auctioneer. There was a pause. No response on the other phone line.

  “It’s worked. I think,” the auctioneer said, bringing his gavel down with a thud. “Sold at forty-three million five hundred thousand.”

  With the buyer’s premium—a commission charged by Christie’s—the price tag came to $48.8 million, a record for a Basquiat painting.

  The private room at Christie’s, from where Low was bidding, erupted. Leonardo DiCaprio, Swizz Beatz, Joey McFarland, and others congratulated the Malaysian for clinching the bidding war.

  Only ten days after the Malaysian elections, Low marked Najib’s victory by purchasing one of the world’s most expensive paintings. It was a moment of victory and supreme hubris. He had arranged after the vote to open an account at Christie’s in the name of Tanore, the shell company which by this point had received $1.2 billion from the latest Goldman bond. And he was set on building a world-class art collection.

  No one except Low knew how much he had taken over the past four years, and even he was stretched to stay on top of it: more than $1.5 billion from the PetroSaudi phase from 2009; $1.4 billion from the first two Goldman bonds in 2012; and now over $1.2 billion more. On top of this, over $1 billion in loans from the pension fund for Malaysia’s civil servants to a 1MDB unit called SRC International had gone missing. More than $5 billion in funds, one of the largest-ever financial frauds, and it wasn’t over yet. More than a billion had been frittered away, more than a billion went into property and businesses, and more than a billion was used to pay off the prime minister and other conspirators.

  To resolve this crazed theft, Low wagered an IPO of 1MDB’s power plants would bring in billions of dollars. Yet he never spent long cogitating the endgame. Bernie Madoff bet he could always find new investors in his pyramid scheme, which ran more than four decades. But Madoff’s fraud, like many other examples before, collapsed when he could no longer lure new dupes, whose money he needed to pay “profits” to other investors.

  Low believed government funds were limitless and he could just keep on spending. State leaders were able, unlike individuals, to forgive their own administration’s debt; Low had promised Patrick Mahony, the director of investments for PetroSaudi, that Najib would eventually agree to write off hundreds of millions of dollars. When corrupt organizations take over a country’s apparatus, whether in Russia, China, or Malaysia, its members feel emboldened. They are not common criminals but an elite, shielded by privilege from the normal reaches of justice.

  Prime Minister Najib’s father, himself a leader, but of another era, had envisioned Malaysia as a proud democracy. The success of Low’s scheme highlighted just how far the nation had strayed from that dream. The country’s best minds increasingly were leaving, preferring a life in New York or London over the struggles in Malaysia. It was the kind of brain drain that had stunted the growth of nations from India to Indonesia, whose most ambitious citizens gave up on their troubled homeland and sought a better life elsewhere.

  Western financial institutions, from Goldman to auditors and private banks, had unwittingly helped Low get away with it, impoverishing Malaysia. As Low amassed his art collection, he paid no heed to the 60 percent of Malaysian households who lived on less than $1,600 a month. The 1MDB fund had amassed $10 billion in debt, which would weigh on future generations. Prime Minister Najib boasted the country would attain developed-world living standards by 2020. But the leaders of the country, as they enriched themselves, were failing to achieve this. With national income of $10,000 per person, a fifth of the United States’s level, Malaysia was stuck in the middle-income trap, no longer poor but not yet rich. In an earlier era, Japan, South Korea, Singapore, and Taiwan had reached developed-world status. Now, rampant corruption was condemning Malaysia, as well as Brazil, Russia, and a number of other nations, to mediocrity. But the elite—and those serving them—continued to thrive.

  Low didn’t scoop up only the Basquiat that evening. He also bought two works by Alexander Calder for over $8 million. It was a record-breaking night for Christie’s, with $495 million in sales, the largest haul in auction history. That year, global art market sales topped 47 billion euros, a jump of 150 percent from a decade earlier, according to the European Fine Art Foundation. The growing cost of fine art, like that of real estate on the Upper East Side of Manhattan or in London’s Knightsbridge, was partly due to the innate worth of the painting or the residence, coupled with limited supply. But it was also a reflection of the amount of dirty money in the market, and that night at Christie’s was a glaring example of the problem, even if the auction house was not aware of it.

  Low craved art to boost his cultural prestige—so he could tell Swizz Beatz, also an avid collector, about his latest Basquiat. But he did not display the works or appreciate them. Art had an advantage over other assets: It w
as hard to trace and could be turned into cash in an instant. Low needed somewhere secret—and safe—to house his new collection.

  In Geneva, seven low-slung, white-colored warehouses sit just south of the city center. This is not the old town, where private banks like Pictet and Julius Baer have offices overlooking the lake, but an industrial estate a short drive away. The warehouses look just like any nondescript building, with storage vans parked outside, and to a passerby they could be a depot for a major logistics company, except the complex is secured more tightly than any normal warehouse, with iris scanners on the doors. This is the Geneva Freeport, a warehouse for the überelite to stash their possessions—gold bars, bottles of rare wine, and, most recently, art.

  Freeports have a long history in global commerce as a place for traders to temporarily deposit commodities or other goods without incurring local taxes. Authorities were willing to forgo the revenues if it led to more economic activity and investment. The Geneva Freeport, majority-owned by the state of Geneva, started out in the nineteenth century as a tax-free waypoint for grain, timber, and other commodities. Over time, wealthy individuals began to use the Freeport to move gold or other possessions into or out of Switzerland, and, eventually, deposited goods there for longer periods of time. Without legal limits on storage periods, the rich could use the Freeport to keep their possessions indefinitely out of the hands of tax authorities back home.

  By 2013, Switzerland’s Finance Ministry estimated the value of goods inside came to more than 100 billion Swiss francs, including 1.2 million pieces of art and 3 million bottles of fine wine. If opened to the public, the warehouses would have been the finest museum anywhere, with more works than the Louvre or the Prado. Not only were there tax benefits, but this was a discreet place, and authorities asked few questions about the provenance of the items inside. It was a money launderer’s paradise. Perhaps Low learned about the Geneva Freeport from Al Qubaisi, who had cars there, including a Bugatti Veyron and a Pagani Huayra.