The role of compliance officers within financial institutions has grown over the past decade of massive outlays to settle sanctions and money laundering-related violations, but the subtext of “Billion Dollar Whale,” one of the most important books of 2018, is that their warnings are still routinely ignored when big money is at stake.
Penned by Wall Street Journal reporters Thomas Wright and Bradley Hope and subtitled “The Man Who Fooled Wall Street, Hollywood and the World,” the book recounts how Malaysian national Low Taek Jho, known to friends as Jho Low, stole billions from Malaysia’s sovereign wealth fund 1Malaysia Development Bhd., or 1MDB.
The fund was founded in 2009 under the pretext of spurring economic development within the impoverished country, but from then until its bankruptcy in 2016, made few actual investments, and lost an estimated $5.5 billion to embezzlement and fraud that ultimately benefited Low and his associates, including then-Prime Minister Najib Razak.
Low pulled off what the coauthors describe as “heists” from the $10 billion fund with the aid of bankers, fund managers and Malaysian officials who variously took exorbitant fees, kickbacks, gifts and other forms of bribes to facilitate the theft. Some were blatantly complicit, others willfully blind.
Throughout the scheme, which began shortly after 1MDB’s formation, compliance officers at some of the world’s most prestigious banks raised questions about Low’s source of wealth and opaque transfers to accounts for shell companies, and separately questioned the business purposes of other money movements associated with the fund.
But their objections at best only slowed the transactions, with the minor exception that despite all its business with Low, Goldman Sachs refused to give him a bank account.
Luxury properties in London, New York and Los Angeles, a $250 million yacht and unimaginably lavish parties where millions of dollars were spent on Cristal champagne alone are just a few of the places at which 1MDB funds terminated.
Even Red Granite Pictures, the production firm behind “The Wolf of Wall Street” film starring Leonardo DiCaprio, a regular at Low’s parties, was a recipient of stolen 1MDB money rather than an investment.
For those of us unaccustomed to private jets and yachts, the book’s celebrity name-dropping and accounts of excess beg the question: how did the perpetrators of the 1MDB scandal keep up the charade of legitimacy for so long?
One possible answer: the balance of power within financial institutions remains firmly with the big revenue producers. Compliance professionals, when push comes to shove, still lose to the business side.
Goldman Sachs, despite protests from compliance staff at various stages and for various reasons—not least of those being 1MDB’s inexplicable connection to Low—still underwrote roughly $6.5 billion in bonds for the sovereign wealth fund in 2012 and 2013.
Malaysian authorities now claim Goldman executives knew proceeds from the bond sales would be misallocated, and are seeking billions of dollars from the New York-headquartered investment bank.
But Goldman, which is also under investigation in the United States, was neither alone in its ties to 1MDB and Low, nor in fielding objections from compliance staff. A few by-no-means exhaustive examples of pushback by financial institutions cited in “Billion Dollar Whale” include:
• BSI. Long before the Swiss private bank landed in hot water for handling proceeds from the 1MDB theft, it declined a $1 billion transfer from the fund on the grounds that it included a suspect fee to Low. “The role and involvement of Mr. Low Taek Jho ‘looks and feels’ very [suspicious] to me,” a BSI official wrote in an email at the time. Another bank, the Swiss affiliate of JPMorgan Chase, completed the transaction. (p.71)
• Compliance staff with RBS Coutts in Switzerland questioned a transfer of $700 million from 1MDB because of incomplete details on the beneficiary. But the bank relented after the recipient was identified as Good Star Ltd., a Seychelles-based firm Low secretly owned via a single bearer share, a high-risk financial instrument outlawed by most jurisdictions. Who did the identifying? Low and a 1MDB official. Good Star was falsely described as an investment management firm, and compliance was overruled. (p.76)
• Low’s effort to buy Vincent van Gogh’s “La Maison de Vincent a Arles” was blocked by compliance officers at Switzerland-based Falcon Bank’s branch in Singapore despite the institution having already processed similar payments to Christie’s auction house and at least one other dubious payment. Low responded by making the purchase “from elsewhere.” (p.234)
• Following his successful re-election to prime minister in 2013, Najib attempted to move $620 million left over from a political slush fund to accounts ultimately controlled by Low at DBS Singapore. The bank’s compliance department froze the assets—$27.5 million of which were intended to buy jewelry for Najib’s wife—until Low successfully lobbied staff to release the funds. (p.238)
• Low also had designs on Coastal Energy, a Houston firm controlled by Texas oilman Oscar Wyatt, and enlisted Goldman to do the deal. Compliance again interjected, advising bankers to dump Low because his source of wealth remained a mystery. (p. 245)
In a better world, bank executives and other managers may have heeded the concerns of their anti-money laundering professionals and shut down 1MDB before its purloined funds seeded massive corruption and further impoverished Malaysia.
The 1MDB scandal at the heart of “Billion Dollar Whale” instead illustrates that despite their new and hard-won clout, compliance officers still face massive liabilities and have only limited power to address them.
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|Topics :||Anti-money laundering , Counterterrorist Financing , Corruption/Bribery|
|Document Date:||January 30, 2019|