Complicity of banks, breakdown in global regulatory system allowed 1MDB scandal to happen: report

Nearly $350 million was allegedly diverted into New York real estate investments

TRD New York /
Sep.September 06, 2016 08:00 AM

The alleged $3.5 billion embezzlement of the 1MDB development fund — which found its way into U.S. luxury real estate, art and Hollywood blockbusters — couldn’t have happened without all-too-willing bankers and a broken global regulatory system.

According to an investigative report by the Wall Street Journal, at least eight banks, several top accounting firms, numerous regulators and even a central government failed to bring light to the purported embezzlement of Malaysia’s sovereign development fund.

The Justice Department says the central figure in the scandal, Jho Low, used a network of shadowy figures and off-shore shell companies to cover his tracks, buying pricey art and real estate alongside various confidants.

According to the federal government, nearly $350 million was diverted into New York real estate investments, including a full-floor penthouse at Walker Tower ($50.9M, bought by Khadem Al Qubaisi), a penthouse at the Time Warner Center ($30.55 million), a pad at the Park Laurel ($33.5M million, and sold to the prime minister’s stepson, Riza Aziz) and a condo at 118 Greene Street ($13.8 million). Federal prosecutors have moved to seize the assets, as well as a roughly $200 million stake in the Witkoff Group’s  Park Lane Hotel.

Global financial institutions such as Deutsche Bank often looked the other way when irregularities appeared, according to the Journal. When firms did find suspect accounting — like Ernst & Young and later, KPMG — they were unceremoniously fired, documents show.

The Justice Department says Citigroup, J.P. Morgan Chase, Wells Fargo and Standard Chartered were among the “correspondent banks” that helped move money between various accounts and ventures.

Goldman Sachs, meanwhile, earned hundreds of millions of dollars in fees on the bonds, even though money flowed out of 1MDB but no revenue replaced it, the Journal reported.

Sotheby’s Financial Services, the Journal reported, lent $107 million to shell company owned by Low, who used $350 million in art as collateral for a loan. The auction house said in a statement that it fell victim to “a complex web of transactions designed to hide and disguise the alleged illegal source of funds.” [WSJ]James Kleimann


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