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Archive for July 17th, 2017

Introduction

Malaysia has wasted too much time going after Najib Razak with the truncheon named 1MDB. Not that getting rid of Najib is unimportant but because past results from expending the effort have been limited and often counter-productive.

Out of USD15 bn that 1MDB borrowed (see other entries in these pages), about USD10 bn was raised offshore and in US bank notes. Of this 10 bn, no more than 2 bn would have ‘genuinely’ been used by Malaysia, paradoxically, to buy its own assets. The remaining sums were, plainly said, looted.

Getting back the remaining USD8 bn is not a lost cause because, think about it, how much can a man spent in a day or a year or ten years: give 1 bn to Jho Low, 1 bn to Najib, 1 bn  to Arabs & others, plus expenses. Eight bn less 3 is 5 bn lying around, but where, what form, and in whose name?

Because of sheer numbers, any high cost of recovery still makes the effort worthwhile. Even in Low’s hands or in Najib’s, much of the money can be recovered because those sums are lodged in individuals, companies and assets such as subscriptions in funds. The efforts may take time but the financial rewards are worth it especially since USD1 buys MYR4.50 today compared to MYR3.20 six, seven years ago. Therein is already a forex profit.

The US could directly trace USD1.5 bn to many types of assets which are recoverable because of its forfeiture laws. It is a starting point but not good enough because Singapore is making no such attempts. Nor the Swiss, it appears. For example, between Yak Yew Chee and Yeo Jiawei they creamed off more than USD40 million and this sum have to exist; you name it, cash or non-cash assets? These assets, Singapore says, will be forfeited (it has such a law for it) but to who does the money go eventually, or where and when? It doesn’t say, that rascal of a state.

The money belongs to Malaysia and must be return to us. Similarly, hundreds of millions in USD lodged by Low in funds also belong to Malaysia and so, too, Najib’s money dissipated to various parties, whether in Malaysia or out it doesn’t matter. Those Arabs, princes and scammers combined, have our money as well and they must be made to cough it out.

A full accounting of 1MDB assets, their whereabouts and so on would need to be carried out but independent of government and Najib. This is possible.

To begin this process of accounting and recovery, Malaysia must first step off from looking at and dealing with 1MDB as a truncheon for use against Najib. Zaid Ibrahim, Mahathir Mohamad and Tony Pua have many times treated it as such. The reality is not so, and some of the reasons are spelled out below. Furthermore, if the political parties are serious about saving Malaysia they should be, for many good reasons, the first to step off the block in this recovery process.

Getting back USD10 bn, or even just USD1 bn, will invariably affect Najib. But this process cannot even begin if Malaysia does not or cannot disabuse itself of the notion that 1MDB is a victim of fraud. It is the fraud. As financiers would say, a special purpose vehicle (SPV) for fraud that the world has never before seen — and probably ever.

To disabuse ourselves of that notion, begin with understanding things: the background and the drivers in 1MDB’s creation, the mechanics of setting it up, its influences, why and how, the financial system, why most of the cash are lodged in Singapore and Switzerland but not the US. We, too, must understand the international laws related thereto: why is Singapore and the US doing different things to 1MDB. Also understand why Jho Low used private banks for much of 1MDB transactions and not, say, HSBC or Citibank. The answers are below.

Malaysia rely too much on newspaper reports to formulate ideas, make resolutions and pass judgment. This is dangerous: Example, the like of Bloomberg and Reuters have endlessly referred to 1MDB as a sovereign wealth fund, even now, and this long-standing, prestige badge once tied to 1MDB have been deceitful and most disadvantageous. It prompted worldwide subscriptions to 1MDB’s USD bond issuance not once but three times! It helped 1MDB get away with raising billions more in bank debt then squirreling away the money. Being a sovereign wealth fund, backed by Malaysia state power, have prompted no less than eight international banks, in Singapore alone, to aid 1MDB in its fraud by transferring money around the world and by acquiring other financial assets. All eight banks have since been penalized by Singapore.

The time has come for Malaysia to stand up and say stop, no more going around in circles: We want our money back! The posting below is the first stab at this effort.

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https://shuzheng.files.wordpress.com/2016/05/missing-money1.jpg?w=804&h=622

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Why Singapore?

Private banking developed in Europe, Switzerland in particular, from commercial or industrial or retail banks during the tumultuous decades between World War I and WWII when they helped many families and individuals preserved their wealth which, otherwise, might have fallen into the hands of governments, the Nazis especially.

The 140-year-old Swiss bank BSI (now defunct and renamed EFG) in Singapore is such an exclusive private bank. Exclusive because some commercial banks like HSBC offers private banking from within its range of businesses; they are the Johnny-come-lately. Also exclusive because, to open a private bank account in Hong Kong, requires satisfying certain conditions, such as personal background checks and USD1 million in minimum deposit which must be maintained.

Private banks are almost non-existent in — dare we say — third rate cities such as KL. But, as Singapore’s economy grew and wealth accumulated, a need for it grew, especially involving privacy, personal service, speed, and informality. Jho Low could toss around USD1 bn in a matter of days. (To appreciate this fact, try remitting USD1,000 from KL to Singapore via Maybank.) Falcon Bank which belongs to IPIC (remember Falcon? remember IPIC?) was an attempt to imitate this facet of banking; too many rich towel heads, you see.

Then something happened — 9-11 in 2001 — so that in this Era of International Terror a slew of tougher conditions grew for handling money, especially private wealth. These tougher conditions, collectively known as Compliance, issued under UN auspices, were especially placed on banks’ internal processes when handling large sums of monies. For the Compliance to be binding, laws were passed or were updated stringent so that being a banker might not be as fashionable as you once assumed. Before, when you fuck up you are fired. Today, you go to jail, on top of your criminal record. Yvonne Seah who once worked as deputy to Yak Yew Chee, BSI managing director, therefore taking his instructions, is one such casualty.

All the above is by way of background that drives Singapore’s jailing of its four bankers, its penalty fines imposed on eight banks, and closure of two, BSI and Falcon. Singapore, however, didn’t shut down Standard Chartered nor was its MD hauled before the court although, on behalf of the fraudulent company named Blackstone, it moved around more than half of the USD790 million that left 1MDB. It didn’t fine Goldman Sachs through which, and within 12 months, 1MDB got USD6.5 bn. It merely banned Tim Leissner from working there.

There are valid legal and expedient reasons for what Singapore did. In particular, it’s too faraway from the explosions in New York or London or Syria or Afghanistan to feel the compunction or the necessity to be so stringent. There is also an overriding reason to explain Singapore’s actions that we shall return to. For the moment, the purpose of mentioning the above is for a perspective so that you don’t place too much faith — or hope or bets — on reports (from Malaysiakini or Straits Times or blogger Syed Akbar Ali) that, because of Singapore, there’s even a “noose” tightening around the neck of Najib Razak. This ‘noose’ thing may be useful for political or electoral purposes but that’s it.

Illustrating the point above is Yeo Jiawei who is probably the last of the Singapore bankers to be jailed. Of five convictions of its bankers who handled 1MDB money, only Yeo was the most closely connected to Jho Low. His convictions also got the most jail time, total 7 years:

  • 30 months for witness tampering, December 2016;
  • 24 months for cheating BSI, July 12, 2017; and
  • 30 months for ‘money laundering’, also July 12, 2017.

Only the last one appears directly related to 1MDB, but the connection is doubtful. This doubt can be seen in the Yaw Yew Chee case (he got 18 weeks last November, which means he’s out today). There money laundering fell under the law Corruption, Drug Trafficking and Other Serious Crimes and under which Serious Crimes affected (i) ‘Cross Border Movements of Physical Currency and Bearer Negotiable Instruments, Regulations 2007’ and (ii) ‘Cash Transaction Reports 2014’. Money laundering is, therefore, a generic term that newspapers and their reporters conveniently employ but never bother to specify. The US defined it, briefly, as ‘placing “dirty” money in a service company, where it is layered with legitimate income and then integrated into the flow of money‘. It is this ‘layering’ that is illegitimate which meant that, although the operative word is “dirty” — which covers extortion, insider trading, drug trafficking, and illegal gambling — whether the money being ‘layered’ into the system was originally dirty or not dirty becomes irrelevant.

Singapore’s convictions were for failure to legally comply with preventive methods of laundering; in another word, Compliance.

Why only bankers?

Looked at in this way, Singapore’s money laundering affected only people in finance (bankers, insurers, stock brokers) because only they could be involved in the ‘layering’. Jho Low, on the other hand, doesn’t work in a bank and, therefore, doesn’t have the power nor, therefore, the liability involved. Once Singapore didn’t care for whether the money is dirty or clean, then many of its financial employees could easily have landed in court. Example: In October 2012, almost immediately after 1MDB’s USD1.75 bn bond issuance via Goldman Sachs, Jho Low used USD790 mn of it for subscription-purchases into:

  • the Christenique Investment Fund, USD291 million;
  • the SHS Enterprise Emerging Market Fund, USD76 million.

(Note: Not widely seen in Malaysia, these ‘Funds’ are so named to designate money pooled from various places and sources around the world then used by its managers to, in turn, buy equity or shares or bonds, private or government. EPF is such a manager of pooled funds, except it doesn’t directly operate such funds but passes its workers’ savings into these funds. Profit (but not losses) from these funds are shared between the fund manager and the subscriber such as EPF or Jho Low, who may be operating on behalf of 1MDB. The KL stock market typically receives buy-sell orders from these funds.)

If BSI and other banks were guilty of money laundering, regardless of whether money is ‘dirty’ or clean then, technically, these fund managers are equally liable in the laundering process of ‘layering’. Yet, lawyers for the bankers never offered this defense — that there was nothing illicit in the money — and this is because people like Yak and Yvonne were charged with offenses like forgery and cheating. Yak, for instance, drew up a BSI letter vouching for Jho Low as to the USD110 million — which is a part of 1MDB’s USD790 million received in October 2012 — deposited in his Selune company account with the Swiss Rothschild Bank. (This is the Compliance part of the receiving bank). There were several things wrong with the letter to the Rothschild CEO (again, don’t think highly of bankers, they can be pretty stupid): it required two signatories but only Yak signed; it has to be issued on a template, it wasn’t; it had to be cleared by the bank’s legal department, it wasn’t.

Although written about as a money laundering case, none of these facts presented in court that got conviction had any bearing on money laundering of money, especially if it is illicit. It was, simply, a failure in Compliance. With these bank convictions, you can see why the DOJ didn’t follow Singapore’s criminal prosecutions in the US. On top of combing through millions of emails and hundreds of thousands of correspondence pages, there is especially the difficulty, no, near impossibility, of:

  • (a) proving 1MDB money itself was originally obtained from illicit activities, which it was not; it was a bond issue gotten via Goldman Sachs;
  • (b) proving ‘layering’, that is, money in, money out, and routed through various channels to disguise the source of illicit money; which was not because the 1MDB money left for Singapore and Switzerland as soon as bond proceeds turned up in 1MDB’s US bank accounts;
  • (c) proving there was, as in the Singapore’s cases, forgery and non-Compliance conduct but these had little opportunity to happen because most transactions happened outside.

In the US, the next best thing to do was forfeiture, on the grounds that the 1MDB money, or a large portion of it, didn’t go to its intended purpose. Those are examples of fraudulent conduct, not money laundering. The Swiss has the best description for 1MDB: it is a ponzi scheme (ponzi definition here). This meant that 1MDB itself is a ponzi company and not a victim that Singapore has begun to paint it.

A Singapore-Najib Conspiracy?

We now return to Yeo Jiawei and Jho Low both of who have been accused by Singapore of looting 1MDB like it were a hapless ‘victim‘. This line of argument is highly presumptuous as if Low alone influenced the project and loan decisions, Low secured money for 1MDB, Low instructed 1MDB officers, including Najib, where to send the monies. In short, Low is more powerful than Najib.

Ignore for a moment these absurdities but to say 1MDB is the victim of Jho Low is as good as suggesting that the company along with its officers, namely Sharol Halmi, Casey Tang, Jasmine Loo et al are innocent of any complicity in the fraud, direct and indirect. Singapore’s assertion isn’t just false but also contradictory because some 1MDB senior officers have disappeared while Casey and Jasmine were, at one time, wanted by Bank Negara. In Singapore, Yeo is on trial but it was Low who, out of the blue, was singled out by prosecutors as if he was on trial, and that’s without even charging him for any crime. This is clearly an abuse of law.

The greater, sinister part is this: By declaring 1MDB as victim, Najib is exonerated, in exactly the same fashion as Apandi Ali had exonerated him. Being victim, Najib didn’t ask for any of this, money comes and go, he knows nothing, and all this is a conspiracy to topple him.

The inference of victim is this: Pity 1MDB, looted to the hilt, not once but repeatedly, and it didn’t suspect a thing. Poor fella.

Singapore could’ve just gone on cleaning up its own house, clearing it of its rogue bankers, redeem its clean reputation, and leave it at that. Instead it has deliberately gotten itself into the 1MDB dragnet, stepping right into it. Question, therefore: Has Singapore made a deal with Najib not only to get him out from under the pincers of worldwide investigations, but especially to declare him innocent of all alleged offenses? If so, what is in it for Singapore?

In contrast to Singapore, the DOJ depositions not only made clear that Najib Razak received financial benefits from the 1MDB scam, but  Jho Low was only one of numerous players. He couldn’t have succeeded without the support of financing, of numerous bankers, of Goldman Sachs, of Arabs, of Saudi Arabia and UAE and of two top IPIC executives, indeed the whole world and the entire financial system in which Singapore was representative. The scam didn’t just take place once, in a single strike, but went on and on for five years.

The claim that 1MDB is the victim is also mischievous because, if Singapore is right, then it is like saying Low received those monies in the exact same, mysterious manner as the MYR42 mn going into Najib’s AmBank account: 1MDB didn’t give it to me; I don’t know who the fuck left it there, or why?

How the Ponzi scheme?

Farther below is a table which details, step-by-step, the first 1MDB fraud involving the company and the Arab PetroSaudi International Ltd (PSI), creating 1MDB-PSI. In the table are salient features of the fraud, which goes to show Singapore is absolutely wrong to exonerate 1MDB in the way it did.

1MDB, and not Good Star, is the key, or central, to unlocking monies that were borrowed then taken out.

Good Star was the first big recipient of the outward transfers of MYR5 bn raised via AmBank with ‘Islamic’ bonds. After Good Star, the money was redistributed to various parties on a modus operandi that ran like this: 1MDB transfers to > Recipient company #1 > Other companies, #2 to #n then to > Individuals (including Najib, Jho Low et al).

This same method was repeated in every fraud that followed 2009, in 2012, in 2013 and 2014. Aabar BVI simply replaced Good Star as the primary Recipient company #1. The MYR5 bn Islamic bond issued through AmBank in 2009 was replaced by USD6.5 bn borrowed via the Goldman Sachs in 2011 and 2012.

In all cases, connivance, forgery, false representation and plain lying started from the top and in the heart of 1MDB:

  • As late as 2016, Sharol Halmi and 1MDB board continued to say PSI owned Good Star although this was later discovered by the Parliament’s PAC as false.
  • 1MDB continued to give money to PSI, USD2 bn in 2010 and 2011, although by then PSI had next to nothing to show other than what it produced on paper, and the 1MDB-PSI jv was turning belly up. That is, PSI had been talked up all along.
  • Between 2015 and 2016, Arul Kanda continued to deal with Aabar BVI and al-Husseiny, accepting every word of the latter, in spite of the suspicious circumstances of the company’s set-up.

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1MDB Ponzi Distribution Model

Below is the proto-model of the 1MDB ponzi scheme; it was actually launched (officially) by Najib Razak no less:

  • Fraud #1: 1MDB-PetroSaudi International
  • Total amount: USD1 bn from 1MDB to and for PetroSaudi JV.
  • 1MDB source of fund: AmBank bond issue, MYR5 bn, Aug 2009

Remittance instruction date

Approving 1MDB officer

(Ostensible) Purpose of Remittance

Remitting account/bank

Recipient account/bank

Remitted amount

Final destinations

2009/09/30

Tan Keng Chee ED & Sharol Halmi CEO

Payment, 1MDB to PSI

Deutsche MY

1MDB-PSI/JP Morgan, Swiss

USD300mn

Tarek Obaid, ‘Prince’ Turkey, others

2009/09/30 – 10/02

Tan Keng Chee & Sharol Halmi

Payment, 1MDB to PSI (which owns Good Star)

Deutsche MY

Good Star/RBS Coutts, Zurich

USD700mn

Jho Low, Najib, others

2011 May – Oct

(Unspecified)

Muradbaha financing (2010)

Deutsche MY

Good Star/RBS Coutts, Zurich

USD330mn

(Undetermined)

Total outward remittance amount by 1MDB

USD1,030mn

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Postscript: The Dao of Finance

The penultimate point in the essay which didn’t make clear or specific is borrowed from Li Lin Seet, Jho Low’s man in Singapore: it is called ‘gaming the system‘. That is, if Najib Razak and Low can, at our expense, make a fortune from loopholes within the system without getting caught, then so can we in the reverse.

Call it the Dao of Finance: the high and low define each other, the winners and the losers cause each other.

Restated, it means we can make a fortune with some or all of the money the two men took and, in the process, impoverish both and turning them into dogs and paupers. We fail in getting back the money, Malaysia loses, and this admits they are smarter than us, even collectively as a nation. Instead of beating our chest and shouting curses at the two men, it is better to act — only the will is require — because it can be done.

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River flows … and never returns. Never.

 

 

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