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Malaysian “Wolves of Wall Street” charged with fraud and money laundering

The United States recently filed a complaint against the Malaysian government in which it accused high-up officials of swindling the country of out billions.

A billion-dollar judgment sounds nice – especially since customary fee agreements dictate that the attorney gets a third of that judgment.  The United States Justice Department filed civil forfeiture complaints on July 20th alleging an international conspiracy to launder and embezzle funds.  Specifically, the complaint accuses key players within the Malaysian government of laundering funds from a sovereign wealth fund intended to support Malaysia’s infrastructure.  The justice department is seeking to freeze and seize over a billion dollars in assets, both domestic and abroad, to satisfy the potential judgment.

The whole situation is years in the making.  Since 2009, U.S. companies have assisted Malaysia’s government in raising billions of dollars to be put into an investment fund (1MDB), the goal of which was to boost the infrastructure of the Malaysian government.

1MDB stands for 1Malaysia Development Berhad and is an investment fund that is intended to help boost Malaysian infrastructure by attracting foreign investors and establishing long-term economic development.  1MDB is used to finance both government and private projects.  The Malaysian government wholly owns and operates the 1MDB.

When, in 2015, the 1MDB failed to make payments to banks and bondholders, suspicions were raised as to how the operators were managing 1MDB funds. 

Initially, the 1MDB issued bonds in order to bring in capital from foreign investors for the purpose of financing projects that would help improve the Malaysian economy.  Goldman Sachs conducted the initial offer of bonds.  In the end,  Goldman Sachs helped the 1MDB raise $6.5 billion over the course of three bond offerings.  Of that $6.5 billion, $2.5 billion was misappropriated.  Goldman Sachs has not been charged with any crimes and has denied any wrongdoing, although the investment bank did earn $600 million to conduct the deal.

When, in 2015, the 1MDB failed to make payments to banks and bondholders, suspicions were raised as to how the operators were managing 1MDB funds.

The United States is seeking proceeds of the “Wolf of Wall Street” movie because not only were the parties alleged in the complaint conducting a white collar scam like the movie, but they also helped finance the making of the movie. 

Allegedly, after receiving an influx in capital, a significant amount of funds from the 1MDB account were transferred into private accounts.  It is believed that the private accounts belong to the managers of the 1MDB fund.  In the United States’ complaint, allegations are directed at several players including a financier by the name of Jho Low, the Prime Minister’s stepson, and Khadem Al Qubaisi, a former Abu Dhabi managing director of a sovereign-wealth fund.  The complaint also alleges that an individual known as “Malaysian official 1” was integrally involved in the misappropriation of funds.  The alias, “Malaysian Official 1” is referenced 32 times in the complaint.  It is widely believed that “Malaysian Official 1” is the Prime Minister of Malaysia, Najib Razak.  Razak has been pinned as “Official 1” because of the character’s description, as well as the amount access and various duties involving the 1MDB fund.  In addition to these things, a source told Wall Street Journal that Malaysian official 1 is Razak.

The other masterminds of this scam are “higher than life” characters who would be fit for a role in the movie, “Wolf of Wall Street,” the proceeds of which, by the way, the U.S. government is also seeking. Other assets that the United States is seeking to seize include lavish real estate, fine art work, a jet, and night clubs. The United States is seeking proceeds of the “Wolf of Wall Street” movie because not only were the parties alleged in the complaint conducting a white collar scam like the movie, but they also helped finance the making of the movie.  The Justice Department alleges that $100 million was transferred into an account owned by the Prime Minister’s stepson, Riza Aziz.  From there Aziz transferred the funds to a production company he owned, Red Granite pictures, which in turn, produced “Wolf of Wall Street.”  Pleadings indicate that Malaysian officials used funds from 1MDB to take actor, Leonardo DiCaprio out partying and gambling while negotiating and casting for the movie.

Other items purchased with the misappropriated funds include paintings by Van Gogh and Monet.  Switzerland officials have already reported that they have seized a painting by Van Gogh as well as two Monet paintings at the request of the United States.

All of the alleged conspirators have denied any wrongdoing and the Razak regime has vowed to cooperate with ongoing investigations. 

In a public address about the complaint, Attorney General, Loretta Lynch, stated that the Justice Department believes a privileged few “used a public trust as a personal bank account.”

The 136-page complaint states that the parties are officially charged with money laundering and fraud.  The complaint goes into detail about how 1MDB was constructed and its purpose.  It then goes on in to explain in detail how the parties misappropriated all of the funds.

All of the alleged conspirators have denied any wrongdoing and the Razak regime has vowed to cooperate with ongoing investigations.  Since the scandal was uncovered, the Malaysian government has conducted multiple probes into whether the Prime Minister acted inappropriately in handling funds.  The most recent investigation was conducted in 2015.  Interestingly, in the middle of that investigation, Razak replaced the attorney general.  Soon after taking office, Razak announced that no criminal offense was committed regarding a $ 681 million dollar transfer into one of his accounts.  The commission and the attorney general absolved the Prime Minister, stating that the contributions were legally obtained from Saudi Royalty.  The Saudi government vouched for the Malaysian officials and agreed that the contributions were legitimate.

However, the Justice Department has stated that they have evidence that there was a wire transfer of $700 million to a private account believed to belong to Razak as well as a $330 million transfer from the 1MDB fund directly to a company owned by Jho Low.  In addition, all of these funds were used for personal financial gain instead of Malaysian economic growth.

Some have suspected that pursuing an aggressive prosecution against Malaysian officials could be a part of a justice department initiative to tackle large-scale white-collar crimes, especially since the U.S. government has come under pressure in recent years for being soft on white-collar crimes.

Despite the allegations and global pressure, the Najib regime has been able to maintain political control.  In addition to corruption, the Najib regime is notorious for condemning and punishing speech or actions aimed at criticizing the regime.  A political cartoonist, Zulkiflee Anwar Ulhaque, has been making cartoons that make fun of the widespread corruption in the Malaysian government.  The cartoons are conservative in comparison to the cartoons surrounding the U.S. presidential race, but nonetheless, Ulhaque has been charged with sedition that carries a sentence of 43 years in prison.

Given the nature of the Najib regime, one would think that the United States is not a supporter of the regime.  However, the U.S. government has conducted many successful deals with Najib over the last few years.  Some claim that the United States government is willing to overlook some of the regime’s conduct, given the country’s importance in the region.  The U.S. has a vested interest in maintaining good relations with Malaysia due to its location and culture.  Malaysia is an important foreign policy foothold.  It is a buffer and moderate ally against surrounding countries that contain large segments of the population who harbor radical Islamic ideals.  Malaysia is also important because of its close proximity to China and opposition to Chinese expansion in Asia.  Regardless of what may have motivated the United States to tolerate such suspicious activity, this complaint signals that the U.S. is ready to take action against impropriety.

Some have suspected that pursuing an aggressive prosecution against Malaysian officials could be a part of a justice department initiative to tackle large-scale white-collar crimes, especially since the U.S. government has come under pressure in recent years for being soft on white-collar crimes.  With the spotlight on banks during the 2008 recession, the Panama Papers, and other financial conspiracies, the 1MDB controversy is ripe to be made an example.

Regardless of the motive, the complaint is filed.  After Malaysia files an answer, discovery will begin.  Discovery is bound to turn up more interesting facts about the case.  If the Malaysian players are anything like the Wolf that they created, there is sure to be more entertaining allegations and stories.

Johnny Hutchens, Senior Staff Writer
About Johnny Hutchens, Senior Staff Writer (19 Articles)
Johnny Hutchens is a third year law student and serves as a Senior Staff Writer for the Campbell Law Observer. He is originally from Charlotte and graduated from the University of South Carolina in 2012 with a Bachelor of Arts in Political Science. The summer following his first year, he interned as a research assistant for Professor Collins in the Legal Research and Writing department at Campbell.
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