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May 2020 Issue [Letter from Washington]

The Malaysian Job

How Wall Street enabled a global financial scandal
Illustrations by Jialun Deng

Illustrations by Jialun Deng

[Letter from Washington]

The Malaysian Job

How Wall Street enabled a global financial scandal

This past January, Goldman Sachs CEO and chairman David Solomon strode onto a stage at the bank’s lower Manhattan headquarters to launch the first “Investor Day” in the famously secretive institution’s one-hundred-and-fifty-year history. The celebration was promoted as an inspiring review of Goldman’s “strategic road map and goals,” and the presentations were replete with pledges of “transparency” and “sustainability,” though the overall performance was unkindly summarized by bank analyst Christopher Whalen as “investment bankster BS.” Early in his opening address, Solomon expounded the “core values” of the firm he had headed since October 2018. After “Partnership” and “Client Service” came “Integrity.” Solomon stressed that he was “laser-focused” on this last term, emphasizing that the company “must always have an unrelenting commitment to doing the right thing, always.” There followed, however, a glancing reference to a singular black cloud hovering over the proceedings. “In the wake of our experience with Malaysia,” he said, “I am keenly aware of how the actions of a few can harm our reputation, our brand, and our performance as a firm.” With that brief mention, he moved on to a fourth core Goldman value: “Excellence.”

Everyone in the room had recognized the allusion. “Malaysia” was shorthand for a gigantic fraud—possibly the largest in financial history—in which, beginning in 2009, billions of dollars were diverted from a Malaysian sovereign-wealth fund called 1Malaysia Development Berhad (1MDB) into covert campaign-finance accounts, U.S. political campaigns, Hollywood movies, and the pockets of innumerable other recipients. The “few” Solomon referred to were those Goldman executives whose active participation in the scam’s bribery and money laundering had since become undeniable.

Despite efforts by Solomon and other senior employees to plead innocence by reason of ignorance, Goldman’s pivotal role in the heist has exposed another obvious, if unspoken, core value: greed. But years of diligent investigation into 1MDB by courageous journalists and law-enforcement officials have revealed a network that extends far beyond Wall Street. Like the veins and arteries of a patient highlighted by an angiogram, the money’s crooked pathways illuminated the bloodstream of a corrupt world and the lengths to which its beneficiaries were prepared to go to protect themselves and their gains. A Swiss whistleblower who leaked damning evidence of the scheme to the media was arrested in 2015 by Thai police on trumped-up charges. He signed a forced confession and spent eighteen months in jail. At least one Malaysian official investigating the crime was murdered, his body stuffed into an oil barrel and encased in concrete. Well-remunerated international legal and PR firms worked to suppress public knowledge of their clients’ misdeeds by lying to the media and threatening litigation. Coursing across the globe, the money reached many distant corners, including both the Obama and Trump campaigns. Former British prime minister Tony Blair was on the payroll of one of the conspirators for $65,000 a month.1 Jamal Khashoggi, the late, murdered Washington Post columnist, was paid $100,000 to conduct a friendly interview for a Saudi newspaper with the scam’s most prominent protagonist.

The scheme laid bare the dark underbelly of globalization. A racket concocted in far-off Malaysia came to involve people and institutions all across the world, owing to a system of elite networks seemingly fine-tuned for criminal enterprise. “Using prestigious, brand-name gatekeepers is often the key to pulling off complex financial crimes,” Dennis Kelleher, CEO of the financial watchdog group Better Markets, told me. “They effectively sell their credibility and imprimatur, which criminals use to overcome their victims’ skepticism. When they get caught, the enriched gatekeepers that made it all possible claim no knowledge or liability for the billions of dollars in damage done. The corruption of the enablers and their lack of accountability is what makes people so angry.”

In broad outline, the Malaysia scheme worked in the following way: In 2009, Najib Razak, the country’s prime minister, oversaw the creation of 1MDB, a state-owned and -controlled fund supposedly dedicated to domestic investment and development. Scion of a powerful family that had ruled Malaysia for much of its post-independence history, Najib was no stranger to corruption. In 2002, as defense minister, he had, according to French prosecutors in an ongoing case, taken a 114-million-euro bribe to buy French submarines. Altantuya Shaariibuu, a Mongolian translator and aspiring model who threatened to make that arrangement public, was murdered by two of Najib’s bodyguards, who then destroyed her body with plastic explosives. One of them, who was scheduled to be hanged, confessed that the minister himself had ordered the killing. (His allegation is being investigated and may yet result in Najib’s arrest.)

To operate 1MDB, Najib recruited a twenty-eight-year-old hustler named Low Taek Jho, commonly known as Jho Low. Born to a wealthy Malaysian-Chinese family, Low, who would become notorious for his efforts to buy himself friends with costly presents (Leonardo DiCaprio got a Picasso) and extravagant parties financed with stolen money, has often been credited as 1MDB’s mastermind. True power, however, seems to have remained with the prime minister. As a former senior employee of the fund would later testify, Low and Najib had a “symbiotic relationship,” in which “Jho executes what . . . Najib wants.”

The first major payoff, like subsequent depredations, was both complex—involving a thicket of shell corporations and offshore money-laundering entrepôts—and crude, in view of the fraud’s effrontery. The fund’s initial stake was raised through the sale of $1.4 billion worth of bonds; $126 million was immediately siphoned off by Low. The Malaysians then teamed up with a pair of Saudis—one of whom was a son of then-king Abdullah—to form a joint venture with a company they pretended was backed by the Saudi government. Having paid a former U.S. State Department official to certify an inflated value for that company’s purported energy concessions (of which it actually had none), they then sent $1 billion raised from the earlier bond sale to the joint venture. Seven hundred million of that sum, disguised as the repayment of a loan—which didn’t actually exist—was then wired to a private Swiss bank account controlled by Low through a corporation in the Seychelles.

As documented in correspondence between the conspirators, all of this was enabled by aboveboard institutions. The London branch of the New York law firm White & Case crafted the legal paperwork. Respectable banks, such as the Swiss branch of J.P. Morgan and Coutts (where Queen Elizabeth II keeps her money), handled massive transactions without asking too many questions, or, in some cases, any questions at all. Over the next few years, maneuvers similar to this initial grift netted as much as $4.5 billion for the plotters. Najib helped himself to $1 billion, including $681 million wired into his personal bank account in March 2013 for the urgent purpose of financing his 2013 presidential campaign. Thanks to the money, he eked out a narrow victory, reportedly by showering voters with cash at the doors of polling sites, stuffing ballot boxes, and recruiting illegal voters.

Outside Malaysia, bankers, politicians, lawyers, accountants, and public-relations specialists all ultimately shared in the loot. Even a humanitarian news agency funded by the United Nations got a cut. Through the patronage of Low, Najib, and his family, huge sums flowed to Hollywood studios, Las Vegas casinos, jewel merchants, art auctioneers, and other vendors catering to the super-rich. The exuberant excesses of Low’s circle inevitably attracted publicity, notably his bankrolling of The Wolf of Wall Street, in partnership with Najib’s stepson, Riza Aziz. Low’s efforts to ingratiate himself with some of the tackier elements of celebrity culture also garnered attention. According to Billion Dollar Whale, a book by a team of Wall Street Journal writers who covered the 1MDB scandal, he paid Paris Hilton to attend his parties at $100,000 per bash. Other high-dollar outlays included private jets, $100 million properties, and a $250 million yacht called Equanimity.

All the while, money also surged into more mainstream channels such as Goldman Sachs. According to federal indictments, Goldman was drawn into the plot early in 2009, when two senior employees—Tim Leissner, head of investment banking for Southeast Asia, and Roger Ng, a managing director—first met Low. As Leissner would testify to a U.S. court in 2018, at that point he “entered into a conspiracy . . . to pay bribes and kickbacks to obtain and then retain business from 1MDB for Goldman Sachs.” Following an initial deal with Low, in which Leissner, for a small fee, advised on the formation of the provincial Malaysian fund that would grow into 1MDB, the relationship burgeoned.

It was not the best of times for Goldman, which had survived the 2008 crash thanks only to multi-billion-dollar bailouts from the U.S. Treasury and Federal Reserve. Revelations of the firm’s unseemly behavior in the lead-up to the crisis, such as marketing securities to its own clients that it knew were worthless, were battering its reputation. As part of an institutional reform effort, senior management had set up a “business standards committee,” a report from which concluded that Goldman should maintain a “constant focus on the reputational consequences of every action.”

Rather than clean up its act, however, the bank began seeking profits in sunnier climes, well away from public scrutiny and irksome regulations imposed in the wake of the crash. Shortly before the onset of the recession, the firm’s executives in London had discerned the rich pickings to be had in Muammar Qaddafi’s Libya, whose vast sovereign-wealth fund lay in the hands of managers whom Goldman coolly assessed as displaying “zero-level” financial sophistication. Following a series of bewilderingly complex derivatives deals in 2008, the Libyans, courted with lavish hospitality (allegedly including prostitutes), were out $1.2 billion, while Goldman took home fees totaling as much as $350 million. Chafing at the loss, the Libyans sued on grounds that they had been misled, but an indulgent British judge let the bank off the hook, ruling that the Libyans had only themselves to blame. One of the key players in Goldman’s Libya operation, Andrea Vella, was promoted and moved from London to Hong Kong. Soon after, Vella was hard at work with Leissner on Malaysia.

In September 2009, when Leissner recommended Low for an account with Goldman’s private-wealth bank in Switzerland, the internal compliance office summarily rejected the proposal on account of the mysterious provenance of Low’s wealth. Notwithstanding this emphatic red flag, according to the Wall Street Journal, Lloyd Blankfein met personally with Najib, Low, and Leissner just two months later at the Four Seasons Hotel in New York City to discuss future deals. This was the first of no fewer than three meetings that the CEO reportedly had with Low. In 2012, seemingly oblivious to any possible “reputational consequences,” the bank embarked on a series of three major deals with the Malaysian conspirators, even as Kuala Lumpur was rocked by mass demonstrations against government corruption.

First, through an operation code-named Project Magnolia, in May 2012 Goldman sold $1.75 billion in 1MDB bonds, mostly to unwitting mutual funds in Asia, creaming off $192 million for itself. As 1MDB lacked a credit rating and was heavily in debt at the time, the conspirators secured a guarantee for the bonds from yet another sovereign-wealth fund, in the United Arab Emirates, a paper transaction that netted handsome bribes for the relevant Emirati officials. (According to Leissner, all those involved were fully briefed on the bribery.) Goldman’s enormous cut, 11 percent, was as much as two hundred times the customary rate. A few months later, the bank sold another $1.75 billion worth of bonds, with a similar whopping rake-off for Goldman. Then, in March 2013, only ten months after the first bond sale, Goldman launched Project Catalyze, the third and largest deal, a $3 billion bond issue, purportedly for “energy” and “strategic real estate.” According to U.S. prosecutors, nearly $300 million went to Goldman, while $681 million sped to Najib for his aforementioned election fund.

Over the course of a year, Goldman had earned $600 million from its deals with Low, a man whom its own internal watchdogs had warned was highly suspect. David Ryan, president of Goldman Sachs Asia, excluding Japan, protested without avail and eventually resigned. Another Goldman executive in Asia, Alex Turnbull, son of former Australian prime minister Malcolm Turnbull, later claimed that he, too, had raised questions about the bond sales, telling an Australian paper: “When the 1MDB deal was done with Goldman I sent an email to some of my colleagues saying, ‘What the fuck is going on with this? The pricing is nuts, what is the use of the funds?’ ” In reference to the murder of Altantuya, he added, “How many Mongolian models did we have to bury in the jungle for this pricing?” Turnbull claimed that the only reaction on behalf of Goldman was a “talking to” on keeping his mouth shut. Sidelined, he, too, quit.2

Leissner and Vella, meanwhile, were hailed by their bosses as exemplary employees and rewarded with bonuses and promotions. “Look at what Tim and Andrea did in Malaysia,” Blankfein told employees in a 2014 meeting, around the time federal prosecutors launched a criminal investigation of Vella’s dealings in Libya. “We have to do more of that.”

Though the con remained largely unnoticed by the outside world, observers in Malaysia began to raise questions about the fund’s operations as early as 2010. As one of the few Malaysian news outlets not controlled by Najib cautiously hinted, regarding Low’s initial deal, “Some critics have suggested that certain intermediaries had pocketed a hefty profit from the [pre-Goldman] bond issue.” But the story did not take on an international life until several years later, when an attentive British journalist received a tip.

Clare Rewcastle Brown, sister-in-law of former British prime minister Gordon Brown, spent her early childhood in Sarawak, a Malaysian state on the island of Borneo that was then a British colony. In 2009, working as a journalist in London, she revisited Sarawak and learned of corrupt government lumber deals that were stripping the land of its forests and replacing them with destructive palm-oil plantations that impoverished the local population. As she investigated further, she received the first of many death threats and was banned from Sarawak. Undeterred, she launched a blog, Sarawak Report, and began detailing governmental corruption in a way that the generally muzzled Malaysian press could not. In July 2013, a source slipped her inside details of the Goldman bond deals, and she posted a series of articles questioning the outrageous fees and interest on the loans. Later that year, she followed up with a report detailing the curious involvement of Najib’s stepson, Riza Aziz, in the financing of The Wolf of Wall Street. “If the money is Najib’s,” asked Rewcastle Brown, “how did the PM get to be so rich?” Subsequent posts highlighted Low’s partnership with Aziz in film financing and the latter’s high-priced property acquisitions, including a $35 million Manhattan condominium.

These revelations spurred a growing outcry within Malaysia and in the international business press. Less so, it seemed, in Washington, where for years Najib’s underlings had made efforts to garner high-level goodwill. Frank White is a case in point. White was the national vice chair of President Obama’s reelection campaign, raising at least $500,000 for the race, and he went on to serve as a cochair of Obama’s Inaugural Committee. In 2012, he received a $10 million “consulting” payment from a firm owned by one of Low’s business partners, one who had played an integral role in the Goldman-brokered bond deals. Additional millions were channeled from the fund into DuSable Capital, an “energy and infrastructure firm” co-owned by White and Pras Michel, a former member of the hip-hop group Fugees whom Low had met on the party circuit. (According to a 2019 federal indictment, Low sent Michel $21 million, much of it to be laundered into a number of Democratic campaigns. Among Michel’s initiatives was Black Men Vote, a super PAC funded with illegal, foreign money.)

Shortly after DuSable was founded, and despite the absence of any track record, the company announced it had raised an impressive $505 million from a private equity firm, some of which came from the chief executive of the same United Arab Emirates fund that had been so helpful in the Goldman deals. In short order, DuSable partnered with 1MDB to build a $300 million solar plant in Malaysia, for which White received a fee of $506,000. By October 2014, there was little sign of construction on the solar plant, but 1MDB nonetheless paid DuSable a handsome $69 million for its 49 percent share in the project.

Najib and Low must have thought their money well spent. On December 18, 2013, White escorted Riza Aziz and other members of the Najib family, along with Leonardo DiCaprio, to a private Oval Office visit with Obama, at which they gave the president a Wolf of Wall Street DVD. Four months later, Obama made the first visit to Malaysia by an American president in fifty years. Eight months after that, on Christmas Eve, he hosted Najib for a round of golf in Hawaii. As reported in Billion Dollar Whale, the administration cherished Malaysia as a key component in its projected “pivot” to Asia and as an impediment to Chinese expansionism. In a September 2014 address to the United Nations General Assembly, Obama hailed Malaysia’s culture of “vibrant entrepreneurship,” which was “propelling a former colony into the ranks of advanced economies.”

It seems that the conspirators found such high-level lobbying to be both worthwhile and increasingly important as more and more of the grimy truth regarding 1MDB’s operations leaked out. In February 2015, Rewcastle Brown published a plethora of compromising emails between the Malaysians and the Saudis, revealing for the first time how the original scam had worked. Major American newspapers began covering the story, drawing heavily on Rewcastle Brown’s reporting, often without credit. That summer, Malaysian anti-corruption investigators discovered evidence of the $681 million wired into Najib’s personal bank account ahead of the 2013 election. Federal investigators in Washington, including the FBI, were also on the case. Starting in July 2016, the DOJ moved to seize $1 billion worth of assets (including the $250 million yacht), artworks (including a Picasso and a Basquiat), profit rights (including those to The Wolf of Wall Street and Dumb and Dumber To), and other investments owned by Low and his fellow collaborators.

As the investigations continued into 2017 and Donald Trump moved into the White House, Low mounted a determined effort to retrieve the $1 billion worth of laundered plunder that had been targeted by the DOJ. Again the conspirators chose the tried and trusted route of political “contributions.” This time their conduit was Elliott Broidy, a Los Angeles–based defense contractor who had been convicted of bribing New York State pension officials in 2009. (His charge was reduced to a misdemeanor after he informed on others involved in the scheme.) Since then, Broidy had secured Trump’s affections by helping to raise $108 million for his campaign, eventually becoming vice chairman within that organization, and later serving in a senior role on Trump’s Inaugural Committee. (The two even shared the same fixer in matters of the heart: Michael Cohen, the go-between for Trump’s settlement with Stormy Daniels, who performed a similar service in negotiating a $1.6 million payoff to a Playboy Playmate whom Broidy had impregnated.)

As with the efforts to buy influence with the Obama Administration, Low funneled tens of millions of dollars to Michel, who was then to get it to Broidy, thus, according to another participant’s plea agreement, resolving Low’s “issues surrounding the 1MDB forfeiture matters and the DOJ’s investigations thereof.” The parties drew up a draft agreement to regularize the arrangement: Low would pay $8 million up front. Success in “settling the Matter”—the DOJ investigation—within a year would earn Broidy a $50 million fee. If he worked fast and got things sorted in less than 180 days, there would be a handsome $25 million bonus.

On September 12, 2017, three months after DOJ prosecutors filed a formal 251-page complaint detailing the progress and scope of the entire fraud, Najib returned to the Oval Office. In preparation for the visit, Broidy had sent a colleague an email with the subject line “Malaysia talking points *Final*,” recommending that Najib emphasize to Trump that “Malaysia fully backed U.S. efforts to isolate North Korea.” Before the two leaders sat down for their private meeting, Trump remarked publicly that Najib “does not do business with North Korea any longer. We find that to be very important.” Trump also praised his visitor’s commitment to fighting terrorism—a point that surely gratified the 1MDB chief, given that Najib was claiming this as the very reason he had received a cool $681 million as a present from the Saudis. One month later, Michel sent Broidy at least $6 million from an account controlled by Low, using George Higginbotham, a DOJ attorney moonlighting as a money launderer, as the conduit.

In May 2018, the cascade of corruption reports regarding 1MDB finally caught up with Najib, and Malaysians voted him out of power. Arrested two months later, he has been fighting charges of money laundering and abuse of power ever since. In February, in the first of what will likely be several trials, he finally dropped his long-held pretense that the fund was legitimate, instead opting to blame everything on Low. “He must have thought that if he didn’t continue to make sure donations flow into my account, it would have affected his relationship with me,” testified Najib, “and this would lead me to uncover the scams.” Should he be found guilty, appeals will likely keep the disgraced former prime minister out of prison for years, unless the murder of Altantuya puts him behind bars first.

The Malaysian people, meanwhile, will be paying for Najib’s crimes for decades to come. The government will be spending almost half a billion dollars a year in interest and principal on 1MDB’s debt—which includes the bonds sold by Goldman—until 2039. “Worst of all,” Tony Pua, an opposition politician, told me, because most of the money was stolen, “there is nothing to show for the large debt burden.” As for the bankers, lawyers, and other professionals who enabled the scam, Pua said, “Many of them knew it was wrong, or at the very least knew it was suspicious, yet they turned a blind eye and went through with it anyway.”

So far, few of these parties have paid much of a price, let alone seen the inside of a jail cell. Two Emirati officials in Abu Dhabi were jailed for their role in the fraud, as were two non-Goldman bankers in Singapore, and both Roger Ng and Pras Michel are awaiting trial in the United States. Andrea Vella was placed on administrative leave by Goldman and later resigned, while Leissner and Higginbotham remain free on bail until their sentencing.

Jho Low is reportedly somewhere in China, where authorities apparently feel little obligation to surrender him to Malaysia. The country’s inspector general of police recently claimed that he had been informed that Low had surgically altered his appearance and now “looked like a bear.” Whether that’s true or not, Low maintains a tastefully designed website promoting the message that he was merely a pawn in the scheme. Having apparently anticipated the possibility of eventual attention from law enforcement, he acquired Cypriot citizenship in 2015. According to an investigation done by a Cypriot newspaper, this was managed courtesy of Henley & Partners, a British firm that advertises itself as “a global leader in citizenship and residence planning” for clients with a lot of money and a desire to sink below the radar—one more service on offer in the world of 1MDB. (Henley denies that Low was ever a client.)

Although Low is still wanted in the United States for making illegal contributions to the 2012 Obama campaign, as well as on bribery and money-laundering charges, he has held his own on other fronts. He fought a legal battle to recover his share of the $1 billion in loot seized by U.S. authorities in 2016, an effort that seemed to take a turn in his favor when he added former New Jersey governor Chris Christie and Kasowitz Benson Torres—a New York law firm with close ties to Donald Trump—to his legal team. In November, this high-powered defense negotiated a settlement with the DOJ in which Low agreed to abandon claims to the seized property. Low himself, who was not required to admit guilt, certainly seemed happy with the deal. In an amiable interview conducted online with a Singaporean newspaper, he called it a “historic agreement,” and “the result of a multiyear, collaborative effort between the U.S. government and my team of advisers and lawyers. I am appreciative to all parties for their hard work.” Indeed, it was undeniably historic that the government allowed Low to use $15 million of the money he had stolen to pay his lawyers and publicists. Today, Low is represented by Schillings, a British firm of lawyers and intelligence professionals who specialize in deterring publicity unwelcome to wealthy clients. “We understand your world,” proclaims Schillings’s website. “We will be your best advocate.” Legal threats from this same firm had earlier dissuaded Rewcastle Brown’s publisher from releasing her book on the scandal, whereupon she founded her own press and published it herself.

As for Goldman Sachs, when revelations regarding 1MDB began to sap its reputation—not to mention its stock price—top executives in New York sought to pin all responsibility on Leissner and other colleagues in Asia, a charge that many analysts find unconvincing. In the derisive words of Kelleher, the Better Markets CEO, “Goldman’s position is that a ‘rogue’ banker lied and fooled all of the smartest, highest-paid bankers in the world; all of Goldman’s risk, compliance, legal, and audit systems and controls; and all of Goldman’s management.” So far as Kelleher is concerned, “the thirty senior Goldman executives who were witting of what went on should forfeit every penny they took home during the time they were assisting in this crime.”

Nevertheless, Goldman has stoutly maintained its institutional innocence. Just this January, the company filed a motion to dismiss a class-action lawsuit brought by stockholders seeking damages inflicted on the plaintiffs’ holdings as a result of the revelations surrounding 1MDB. Goldman’s motion asserts that Blankfein and company were kept ignorant of criminal goings-on by their subordinates, and disputes any direct correlation between the scandal and the bank’s stock price, which has performed poorly of late relative to Wall Street competitors. Meanwhile, the Malaysian government has charged the bank and seventeen current and former directors with criminal activities, and is aggressively seeking as much as $7.5 billion in punitive damages, a potent threat to the bank’s already battered reputation, not to mention its bottom line.

More immediately, the Justice Department is mulling a deal with Goldman in which the company would issue a guilty plea and pay a fine for its behavior. Initially, the projected penalty was reported to reach as much as $6 billion, but more recent accounts suggest that the figure may be far lower—under $2 billion. (The bank has already set aside $1.1 billion for “litigation expenses.”) Such comparative leniency might be due to the presence of friendly faces around the bargaining table, where Goldman is represented by the powerful firm of Kirkland & Ellis and the government side is headed by Attorney General William Barr, himself a former Kirkland partner, who is said to be “directly immersed” in the negotiations. Barr obtained an ethical waiver permitting him to proceed with his involvement, as did Brian Benczkowski, head of the DOJ’s Criminal Division, another Kirkland alum and a close friend of his former boss at the DOJ, Mark Filip, who also joined the Goldman team.

“Everyone has always told me,” Rewcastle Brown remarked when we spoke, “that there’ll never be any action taken against Goldman Sachs. I would find that sickening, because it proves the corruption in America is every bit as bad as what I was sneering at in covering Najib.” The 1MDB criminals who poured so many millions into totemic American institutions, from Hollywood to Wall Street to the White House, evidently came to the same conclusion. It’s a big swamp.

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