Billion Dollar Whale

by Tom Wright

  Low’s connections with Chinese state-owned companies proved helpful in another way. The 1MDB scandal had wrecked Najib’s relations with Abu Dhabi and Saudi Arabia. The attorney general had tried to pass off the money Najib received in his secret accounts as a donation from Saudi Arabia. The Saudis had refused to publicly confirm this fiction, despite Malaysia’s entreaties. The kingdom’s foreign minister would only say he believed Najib did nothing wrong and that there had been some kind of donation to Malaysia, but he wouldn’t commit fully to the false story being put forward.

  What the prime minister needed now was a way to fill the 1MDB financial black hole. The fund had more than $13 billion in debt and needed to repay Abu Dhabi for bailing it out. But its assets were worth nothing like this amount. In a series of deals, Chinese state-owned companies agreed to acquire the bulk of 1MDB’s assets: land in Kuala Lumpur and power plants. If completed, the deals would raise about $4 billion, still well short of wiping out 1MDB’s debt, but a start to cleaning up the mess.

  The troubles at 1MDB offered a perfect opportunity for China to supplant the United States in Malaysia—just the latest sign of America’s declining power in the region.

  It was no surprise then that Najib turned away from President Obama, who had lost faith in Malaysia as a model Islamic democracy, and looked instead to China’s authoritarian rulers. Under President Xi Jinping, Beijing was extending its influence outside of its borders, whether through more aggressive territorial claims to islands in the South China Sea, or via a softer diplomatic approach, offering to build infrastructure like highways and ports in neighboring countries.

  Najib was quick to claim victory, saying the deals, and the end to Malaysian investigations, put the fund’s problems behind the country. The National Audit Department had finished its probe into 1MDB, but the government classified it under the Official Secrets Act, attempting to bury its contents.

  The Prime Minister continued to instill fear in his political opponents. In April, police arrested an opposition leader who had gotten hold of the National Audit Department’s report, which showed billions of dollars of 1MDB money was unaccounted for. He was sentenced to eighteen months in jail for breaking the Official Secrets Act. When the Journal reported on the secret document, Najib threatened the newspaper with a lawsuit. A leader of the Bersih protests also was detained under a new law meant to fight terrorism.

  There had been intimidation—a murder, even—of those involved in 1MDB investigations, and people were frightened. Yet some patriotic Malaysians held out hope that authorities overseas would not let their investigations drop. At the Malaysian Anti-Corruption Commission, which had recommended the prime minister’s arrest, there was simmering anger over the mothballing of their investigation.

  And so, a handful of investigators began to secretly feed information to the FBI. McMurry’s team of agents had spent months disentangling the money flows. By July 2016, the Department of Justice was ready to take action. It did so in a way that caught Low, Najib, and other conspirators off guard.

  Chapter 49

  Glass Half Full

  Washington, DC, July 2016

  U.S. Attorney General Loretta Lynch stepped up to the microphone in a press room at the Department of Justice’s offices on Pennsylvania Avenue in Washington, DC. Moments later, she announced the largest-ever asset seizure under the Kleptocracy Initiative. With the help of the Malaysian Anti-Corruption Commission, and other Malaysian officials who met FBI investigators in secret, the Bureau had pieced together the details of one of the biggest frauds in history.

  Flanked by senior Justice Department and FBI officials, Lynch laid out how the U.S. government was seeking to seize more than $1 billion in assets bought with proceeds stolen from 1MDB—the largest corruption case on record—from mansions in New York, Los Angeles, and London, to a stake in EMI, a private jet, and the future proceeds from The Wolf of Wall Street, to name just a few. For maximum publicity, the Justice Department filed its lawsuit—United States v. The Wolf of Wall Street—at the District Court for the Central District of California, where Hollywood is located.

  “The Department of Justice will not allow the American financial system to be used as a conduit for corruption,” Lynch said. “Corrupt officials around the world should make no mistake that we will be relentless in our efforts to deny them the proceeds of their crimes.”

  This was the largest kleptocracy seizure in U.S. history, and Heuchling’s team, together with Justice Department prosecutors, had painstakingly laid out every twist and turn of the scheme in clear prose.

  The lawsuit named Jho Low—the first time he had been publicly referred to by a law-enforcement agency—as well as Riza Aziz, Khadem Al Qubaisi, and Mohamed Al Husseiny. (Later addendums to the lawsuit would name Tarek Obaid and “PetroSaudi Officer,” a reference to Patrick Mahony.) Tim Leissner was referred to as “Goldman Managing Director,” and his interactions with Jho Low during the meeting with Sheikh Mansour in Abu Dhabi were sketched out. But most shockingly, Prime Minister Najib Razak was thinly disguised as “Malaysian Official 1,” the lawsuit describing him as a relative of Riza Aziz and holding a position of authority at 1MDB. (Later, the department would add Rosmah as the wife of “Malaysian Official 1.”)

  The allusion to Najib shocked the prime minister’s entourage, which never thought the United States would take such a bold step. This was a civil lawsuit, looking to seize assets, but from here on Jho Low would avoid the United States, fearing criminal proceedings were also under way. Even Najib would keep out of the United States for a while, sending a deputy to the U.N. General Assembly in New York later that year.

  The prime minister never expected the hammer of U.S. justice to land so close to his door. After years of privilege, of golfing with President Obama, of endless speeches to the United Nations, he felt untouchable. It was hard for Najib to even conceive of an independent justice system that would embarrass a sitting prime minister. It formed a stark contrast to his ability to shut down investigations at home.

  In the days after Lynch’s press conference, Najib told family members he was not aware of the scale of Low’s theft. It was hard to believe—he knew for sure about the homes in Los Angeles, New York, and London that Low had bought and transferred to Riza Aziz. But it’s possible the prime minister did not realize the full extent of Low’s actions. The Justice Department said that at least $3.5 billion had gone missing, an estimate it would raise by a billion dollars within a year. In the days after Attorney General Lynch’s announcement, the prime minister did not know what to do. There was no way out of this. A week later, in a feeble news conference, Najib pointed out that 1MDB did not directly own any of the assets named by the Justice Department. It was technically true, but beside the point.

  The Journal had reported the Justice Department’s suits just ahead of Lynch’s press conference. When Low read the story, he thought it was a big mistake, because U.S. authorities had not served his lawyers with any legal documents. The action scuttled Low’s efforts to liquidate his stake in the Park Lane, or to sell any other U.S. assets. His mansions, art, even his Bombardier jet, were now frozen. Only the Equanimity, in the open ocean and out of reach of U.S. authorities, was still his to enjoy. But Low already had hundreds of millions—if not billions—secreted away in secret accounts around the world. And he remained free.

  Watching from the sidelines, Bill McMurry, whose New York–based international corruption squad had led the investigation, perhaps felt this was a glass-half-full moment. Global Financial Integrity, a Washington-based anticorruption group, estimated that $1 trillion was drained from developing economies in 2012 alone, especially poorly regulated places like Brazil, China, India, and Russia. But McMurry had a more optimistic take.

  By mid-2016, the FBI was ratcheting up its cooperation with foreign anticorruption agencies, including Brazilian investigators looking into the Petrobras scandal, in which the state-owned oil company made illegal payments of more than $5 billion to
company executives and politicians. Brazil’s attorney general already had secured convictions of scores of Petrobras officials, politicians, and businesspeople. And despite Najib’s best efforts, the Justice Department was moving to punish those involved in 1MDB.

  “There is undoubtedly a global push toward anticorruption that has never really existed, even just a decade or two earlier,” McMurry told a seminar.

  In a later news release, the FBI even praised the “tremendous courage” of the Malaysian Anti-Corruption Commission in pursuing its own investigation. It was as close as the FBI could get to thanking the commission’s staff for secretly helping the Bureau with its own probe.

  There was a glass-half-empty way of looking at events. Hadn’t the system of checks and balances at banks failed to catch Jho Low’s malfeasance for seven years because of the greed of financiers? Wasn’t he still at liberty to enjoy a life of ease in five-star residences in China and Thailand, where he lived in the St. Regis apartments in Bangkok, or on his superyacht berthed in Phuket? In Malaysia, Najib’s position appeared unshakable. What sanction had anyone from Al Qubaisi to Leissner and the BSI bankers faced?

  What remained to be seen was whether the U.S. government—or Singapore, Switzerland, and Abu Dhabi—would launch criminal prosecutions against those involved. The U.S. kleptocracy action was a civil case—an attempt to claw back assets. But only jail time, not simply a slap on the wrist and a confiscation of assets, would serve as a real deterrent to this kind of transnational fraud.

  Chapter 50

  White-Collar Crime

  New York, Fall 2015

  In the fall of 2015, Goldman compliance executives sifted through Tim Leissner’s official Goldman email account. After the 1MDB scandal hit the pages of the Wall Street Journal in July 2015, Goldman launched an internal investigation into its dealings in Malaysia. The German banker told Goldman executives conducting the probe that he barely knew Low. But they didn’t take Leissner’s word for it and carried out a review of his communications. Normally, Wall Street bankers are savvy about keeping sensitive business offline, either meeting in person or using private emails and phone messages.

  But Leissner had been sloppy.

  Earlier in 2015, the banker had prepared his unauthorized reference letter for Jho Low—to help him open an account with Banque Havilland in Luxembourg—from a personal computer. The letter never should have formed part of Goldman’s internal inquiry. But someone on Kimora Lee Simmons’s staff mistakenly sent the document to Leissner’s Goldman email, and compliance executives uncovered it.

  At Goldman’s Manhattan headquarters, there was a heated debate about how to deal with the 1MDB issue, which was turning into a public relations debacle. Some executives cautioned against scapegoating Leissner. Pablo Salame, cohead of Goldman’s securities division, rejected an internal suggestion that the firm’s involvement in the mess could be blamed solely on him.

  “Goldman Sachs did these deals,” Salame told colleagues in one discussion.

  In public, Goldman Sachs stood by its actions, pointing out it had taken risks in helping 1MDB raise money and was fairly paid for its services. The bank said it had no idea of Low’s role at the fund and could not have been expected to know what 1MDB would do with the money.

  Despite high-level Goldman support of the 1MDB business, Leissner couldn’t survive the evidence of his secret support of Low to open the Luxembourg account. In January 2016, Goldman put Leissner on personal leave, and the next day he quit, formally leaving the bank the following month.

  In the following weeks, Leissner often was spotted at Club XIII, a futuristic-looking nightclub in Hong Kong’s financial district, where he told friends he felt betrayed by Goldman. Sporting a graying beard and looking haggard, the banker complained it was unfair he was being singled out, arguing that senior Goldman executives in New York had signed off on these deals. Despite the bank’s denials, many executives at Goldman were aware of Low’s role in 1MDB but had not raised concerns, he claimed.

  Andrea Vella, who structured the 1MDB bond deals and backed them internally, had been promoted to cohead of investment banking in Asia. Gary Cohn, Goldman’s president and a big supporter of the 1MDB business, became director of President Donald Trump’s National Economic Council in January 2017, a job he stayed in for a little over a year.

  Leissner didn’t go public with his grievances. He was still engaged in negotiations with Goldman over deferred pay worth millions of dollars. The banker had not expected to be fired, and it appeared he needed the money to finance his lifestyle with his new wife, Kimora Lee Simmons; around that time he even asked a friend for a cash loan of a few million dollars. Plus, there was the code among Goldman bankers to never talk about deals, even once you have left the firm.

  He tried to build other businesses. With Simmons, Leissner had set up Cuscaden Capital, a British Virgin Islands–based venture capital fund. Cuscaden invested in Celsius, a U.S.-based energy-drink company, and he became cochairman. Leissner divided his time between Hong Kong and Los Angeles, where Simmons purchased a $25 million mansion in the gated Beverly Park neighborhood, a twenty-thousand-square-foot estate with an olive-tree-lined driveway leading to a seven-bedroom mansion. Neighbors included Rod Stewart and Denzel Washington. Simmons posted Instagram pictures with her husband on the ski slopes in early 2018. But the specter of legal proceedings continued to hang over Leissner.

  FBI agents had begun to look at payments of hundreds of thousands of dollars by Jasmine Loo, 1MDB’s former legal counsel and a close Low aide, into one of Leissner’s personal accounts. The purpose of the transfers was unclear. The banker appeared to maintain other links to people close to Low. The Wall Street Journal, in November 2017, reported that Leissner and a Thai associate of Low’s had attempted in late 2016 to buy a small bank in the Indian Ocean nation of Mauritius—but regulators there had blocked the acquisition.

  Low’s role in the Mauritius deal, if indeed he had one, was unclear. It also was unknown if Leissner kept in contact with the Malaysian. Once a ubiquitous presence at Hollywood parties and an international jet-setter, Low had seemingly fallen off the map as authorities tightened the screws. He was sighted in Bangkok and Shanghai, but his associates couldn’t get hold of him as easily as in the past. No one seemed to be sure where he was at any given moment.

  In early 2017, Singapore banned Leissner from its financial industry for ten years in connection with the letter he wrote to the Luxembourg bank on behalf of Jho Low. Later in the year, the Financial Industry Regulatory Authority, a U.S. body, barred him from the American securities industry, after he didn’t respond to requests for documents and other information stemming from his departure from Goldman.

  Then in August 2017 the Justice Department made a bombshell announcement: It was pursuing a criminal investigation into the 1MDB scheme.

  The Justice Department’s earlier legal actions were civil proceedings, an effort to seize assets, not to put people behind bars. U.S. authorities had filed a number of additional civil lawsuits, targeting a growing list of assets, including the Equanimity, the proceeds from Red Granite’s Dumb and Dumber To and Daddy’s Home, the $8 million in jewelry Low had given to Miranda Kerr, and the $13 million in art presented to Leonardo DiCaprio.

  The civil action, however, was just a way to tee up the main event: a criminal investigation. Before the judge in California could rule, the Justice Department, in August 2017, asked for an “indefinite suspension” of its asset-seizure suits to permit the FBI to focus on building a criminal case. It was a sign the U.S. government was seeking to prosecute individuals involved in the fraud, and did not want to show its hand in civil proceedings.

  Jho Low, of course, was the central focus of the U.S. government’s investigation. It was unclear whether others involved—Riza Aziz, Al Qubaisi, Al Husseiny, Jasmine Loo—were possible targets of the criminal probe. The Justice Department continued to look at Leissner’s role in events. In almost a decade since the financial crisi
s, only one Wall Street banker—a Credit Suisse executive—had gone to jail, despite an economic collapse that had thrown millions out of work and lowered living standards. More than one thousand bankers were convicted for their roles in the savings and loan crisis in America in the 1980s and 1990s. In 2006, a court found Ken Lay, the former CEO of Enron, guilty of fraud. Since the crisis, though, the Justice Department had shied away from singling out individuals for white-collar crimes, preferring instead to reach deals with banks to defer prosecutions in return for hefty fines.

  Goldman agreed in 2016 to pay up to $5 billion in a civil settlement with U.S. federal prosecutors to resolve claims stemming from the selling of faulty mortgage securities to investors during the crisis. Wall Street banks, including Bank of America and J.P. Morgan, in total paid more than $40 billion in settlements. Critics pointed out that Wall Street saw these fines as a cost of doing business that did little to alter behavior.

  Now, the Justice Department was trying to determine whether Goldman had reason to believe the money it raised for 1MDB was being misused, which could lead to a steep penalty under the Bank Secrecy Act, perhaps in the quantum of the $2 billion that J.P. Morgan paid for failing to stop Madoff’s Ponzi scheme. The Federal Reserve, the Securities and Exchange Commission, and New York State’s Department of Financial Services also were examining some of the bank’s actions.

  Few observers of the scandal were holding their breath. In America in the twenty-first century, Wall Street bankers typically did not end up in prison.

  After the release of the Panama Papers in 2016, detailing how the ultrawealthy use shell companies to conceal ownership of assets, there was a heightened global debate about anonymity in the purchase of multi-million-dollar assets. The United States was taking other measures to stop money laundering through its real estate sector. The Treasury Department launched a pilot program in 2016 forcing all-cash buyers of luxury properties in Manhattan and Miami to disclose their identities to the U.S. government. The rules targeted properties bought by shell companies and worth more than $1 million in Miami and $3 million in Manhattan. Title insurance companies, which are involved in most real estate deals, were ordered to carry out the checks.