Emails Blow Malaysia’s 1MDB Fund Wide Open

In December of last year, the controversial investment fund 1Malaysia Development Bhd abruptly called in all of its computers, employee laptops and servers and wiped them clean of all emails.

(Read: Controversial Malaysian Investment Fund’s Computer Records Wiped Off)

It was too late. The reason has come embarrassingly clear with a report by Clare Rewcastle Brown, the indefatigable blogger who edits The Sarawak Report. Rewcastle Brown had already obtained thousands of emails and documents before the shutdown, detailing that transactions by the fund were actually run by Taek Jho Low, a close friend of the family of Prime Minister Najib Tun Razak. There were times when the CEO of 1MDB, Shahrol Halmi, and his Malaysian colleagues had no idea what was going on.

Jho Low has repeatedly told the media that he has had nothing to do with 1MDB’s investment activities, and that he has received no money or benefits. But the emails allegedly show that he orchestrated a 2009 joint venture between 1MDB, as the fund is known, and a fledgling oil exploration firm called PetroSaudi International, which was little more than a shell.

Although money provided by 1MDB was putatively going into oil exploration, Sarawak Report’s emails indicate that Jho Low siphoned off US$700 million and channeled the money to a firm he owned called Good Star Ltd. The emails and other documents show that money was then used to purchase UBG bank in Sarawak, owned by the former Chief Minister, Abdul Taib Mahmud, “at a very advantageous price for the chief minister and his family, who had been failing to get a deal on the open market.”

1MDB has denied any money has been lost and in fact on Feb. 21 it claimed that the PetroSaudi JV had turned a profit of US$488 million. 1MDB president Arul Kanda Kandasamy said on 1MDB’s website that that the money it had invested in the venture had been converted into Murabaha notes, an Islamic financing structure.

That assertion remains to be proven. But whether the fund earned money or not, the extent to which a private citizen and friend of the Prime Minister used 1MDB’s influence and apparently in his own business deals is highly irregular.

PetroSaudi, for instance, agreed to act as a “front” for Jho Low on such deals, according to the documents, and it was a subsidiary of PetroSaudi International registered in the Seychelles, which bought UBG, using money siphoned from 1MDB.

The extent to which Jho Low was using 1MD for his own purposes may go beyond just the PetroSaudi deal. Documents on file in London indicate that the young tycoon attempted to use Malaysia’s sovereign credit via 1MDB in his vain attempt to buy three exclusive London hotels including Claridge’s. Lawyers in Los Angeles have charged that money to fund the film The Wolf of Wall Street also may have been guaranteed by 1MDB. That deal was ultimately settled out of court and the lawyers refuse comment.

The revelations are certain to add to the precarious state of Najib’s premiership. As finance minister, he put together the arrangement that uses the Finance Ministry to back 1MDB. He is also its chief economic adviser. He is under intense fire over 1MDB both from the opposition and from former Prime Minister Mahathir Mohamad, who said on Feb. 10 that “something is rotten in Malaysia” and demanded that Najib step down. The prime minister’s popularity has fallen to 44 percent and seems likely to descend further. Revelations about the 2006 death of the late Mongolian translator and party girl Altantuya Shaariibuu are also coming closer to him. His own brothers have published formal statements questioning his comments that the sources of his wealth were his family.

The article, titled “Heist of the Century, displays documents that show an initial meeting took place in New York on Sept. 8, 2009, between Jho Low, then the head of Wynton Capital, a UK-based businessman named Patrick Mahony, who had been introduced a few days earlier by PetroSaudi’s CEO, Tarek Obaid. In addition to being CEO, Obaid is a friend of PetroSaudi’s owner, Prince Turki bin Abdullah, one of the sons of the then King of Saudi Arabia. Mahony worked for the investment group Ashmore, which was funding PetroSaudi’s main operation, an oil well in Argentina.

Also at the meeting were two of Jho Low’s close colleagues, Li Lin Seet and a UBG bank lawyer, Tiffany Heah.In an email written to “Jho, Seet and Tiffany” the following day, Mahony made clear on behalf of PetroSaudi that the company was very willing to become involved in a series of deals proposed by Jho Low, which were expected to involve 1MDB and Petronas, Malaysia’s national energy firm. In that email, Mahony said he also understood that Jho Low wanted “to use PetroSaudi International as a front” for certain deals and he said that “we would be happy to do that.”

1MB officials apparently only became aware of the PetroSaudi transaction about 10 days before the initial billion-dollar deal was signed. The emails show that Jho Low initiated formal written introductions between 1MDB and PetroSaudi just days before the transaction was signed. There is no evidence that the Malaysian fund concluded any due diligence into PetroSaudi at all.

Jho Low repeatedly insinuated that he represented Malaysia’s highest authorities, in this case the “YAB PM” – Najib – directly, in the matter. He focused on playing up PetroSaudi’s owner Prince Turki’s royal connection, insinuating that the negotiations were officially connected to “furthering Saudi-Malaysia bi-lateral ties,” although there was nothing to suggest bilateral ties had anything to do with the matter.

“There is no evidence to suggest that this ‘loan’ was anything apart from an entirely contrived transaction between two arms of PetroSaudi, a company with very little working capital,.” Sarawak Report said. “The US$700 million was repaid by 1MDB alone, as PetroSaudi had brought in “zero cash” into the joint venture and had only committed the valuation of its assets.”

In fact, according to Sarawak Report, “Jho Low crafted the whole Joint Venture deal before either PetroSaudi or 1MDB saw what was in the plan. These same emails provide the equally telling information that the first draft copy of the Joint Venture deal to be negotiated with 1MDB was drawn up by Jho Low’s own office."

Two days before negotiations were due to start on the billion dollar deal, “that draft was still being eagerly anticipated by Low’s contacts at PetroSaudi," the story notes. In an email from Mahony on Sept. 21, he said “ETA for first draft of agreement is still in a few hours…?

Mahony suggested that his lawyers and Jho Low’s lawyers should first liaise with each other, before they contacted 1MDB’s lawyers about the content of the proposed JV document being drawn up by Jho Low’s team in New York.

“I also need to get the 1mdb lawyer and my lawyer in touch asap,” Mahony wrote. “I will wait until you send the jva but what i suggest is that when you send me the jva, you introduce me to your lawyers by email and then i will forward the jva to my lawyers and introduce my lawyers to your lawyers. Thanks.”

“The inescapable conclusion is that the jetlagged team, arriving from Malaysia the next day, had acted as little more than onlookers in the drawing up of this ‘joint venture’, for which only they would be putting up any cash, on behalf of the Malaysian public,” the report added. “According to the contract about to be placed on the table in front of them USD$1 billion was due on day one, with further drawing rights available of up to USD$5 billion.”