The operations of major international banks including Deutsche Bank in Singapore were linked to the money laundering scandal involving the now defunct Malaysian sovereign wealth fund 1Malaysia Development Berhad (1MDB), according to a recent US court document.
From 2009 to 2015, more than US$4.5 billion (S$6.1 billion) was misappropriated from 1MDB by high-level officials of the Malaysian state fund and their associates, much of which was laundered in countries like the US, France and UK, the US Department of Justice (DOJ) allege. The DOJ is investigating whether Germany’s largest lender violated US anti-money laundering laws or the US Foreign Corrupt Practices Act in its dealings with 1MDB, the Wall Street Journal reported on July 10, 2019.
In 2014, 1MDB obtained two loans totalling US$1.225 billion from a syndicate of banks led by Deutsche Bank in Singapore, of which over US$850 million was diverted for fraudulent purposes and money laundering, alleged a complaint filed at the US District Court for the Central District of California on September 16.
The ostensible purpose of both loans was to allow 1MDB to buy back options that it had given Aabar Investments, a subsidiary of International Petroleum Investment Company (IPIC), an Abu Dhabi sovereign wealth fund, for IPIC’s guarantee of bonds issued by 1MDB.
“1MDB officials secured approval of these two loans through material misrepresentations and omissions to Deutsche Bank, including that the proceeds of the loans would be paid to a legitimate affiliate of IPIC. In fact, the bulk of the proceeds of both loans went to two offshore entities named to create the false impression of an affiliation with IPIC: Aabar-BVI and a similarly-named entity incorporated in the Seychelles,” the complaint alleged.
The first loan from Deutsche Bank was approved in May 2014 to the tune of US$250 million. Almost immediately upon draw-down, 1MDB sent US$175 million in loan proceeds to a Swiss bank account called Aabar-BVI, the complaint alleged. The Aabar-BVI account, which was set up by Low Taek Jho, Khadem al-Qubaisi and Mohammed al-Husseiny, was used to siphon off funds from 1MDB and/or IPIC, the complaint alleged.
Low Taek Jho, popularly known as Jho Low, is a Malaysian businessman whom the DOJ alleges played a key role in laundering 1MDB funds. Jho Low, who is wanted by the Malaysian authorities, is reported to be shuttling between Macau and mainland China. Qubaisi, a former managing director of IPIC, and Husseiny, a former chief executive officer of Aabar Investments, are serving jail sentences in Abu Dhabi.
Some of the proceeds of this US$250 million loan ended up in the bank accounts of Jho Low and Najib Razak, who was Malaysian Prime Minister while the allegedly illegal 1MDB transactions occurred, said the complaint, which did not name Najib but referred to him as “Malaysian Official 1”.
A guarantee for this US$250 million loan required the approval of Bank Negara, but 1MDB never obtained the approval of the Malaysian central bank, “for reasons that were not disclosed to Deutsche Bank, and thus it never satisfied this condition of the loan,” alleged the complaint.
Deutsche Bank arranged a second syndicated loan for 1MDB in September 2014 in the amount of US$975 million. Upon draw-down on this second loan, 1MDB asked Deutsche Bank to send nearly US$700 million in loan proceeds to a bank account at UBS in Singapore that was held in the name of Aabar Investments PJS Limited.
At the time it released the loan proceeds, compliance and risk officers at Deutsche Bank believed that the destination account was owned by a legitimate affiliate of IPIC and that the proceeds would be used to buy the Aabar options, said the complaint. In fact, the loan proceeds were sent to a UBS bank account belonging to a company bearing the name of Aabar in Seychelles which had no connection with the Abu Dhabi sovereign wealth fund Aabar Investments, the complaint alleged. “The Aabar-Seychelles Account, like the Aabar-BVI Account, was a dummy account used to facilitate fraudulent funds transfers.”
Najib wrote a letter of support for the US$975 million loan to Deutsche Bank, said the complaint. “Internal Deutsche Bank records reflect that 1MDB officials opted to provide a Letter of Support signed by (Najib), rather than some form of guarantee by 1MDB (as with the prior $250 million loan), at least in part because a letter of support did not require Bank Negara or Cabinet approval. At the request of 1MDB, all references to the Letter of Support were removed from the Facility Agreement.”
1MDB has since defaulted on this US$975 million loan.
“Sovereign wealth funds are supposed to be fully backed and guaranteed by the sponsoring government organization. A default represents a serious credit event against the rated debt and other obligations of the government. It would impact its ability to borrow and issue credit in the future,” said an ex-banker.
Millions of dollars from the Deutsche Bank loans to 1MDB were laundered through the purchase of assets like jewellery and a yacht, the DOJ alleges.
In October 2014 for example, Jho Low arranged for the use of US$1.3 million from the Deutsche Bank loans to buy 27 18-carat gold necklaces and diamonds from a shop in New York for Najib’s wife Rosmah Mansor, the complaint alleged.
In October and November 2014, Jho Low used US$7.8 million of the US$975 million Deutsche Bank loan to buy jewellery from the same shop in New York for Australian model Miranda Kerr, the complaint alleged. Kerr is now married to Evan Spiegel, chief executive officer of Snap, a US technology firm.
In 2014, Jho Low used part of the US$250 million loan from Deutsche Bank plus proceeds of 1MDB bonds issued in 2013 to buy a 300-foot yacht registered in the Cayman Islands, named Equanimity, the complaint alleged. The fugitive splashed more than US$250 million on the mega-yacht, which includes a cinema, massage room, sauna, steam room and plunge pool, and won the prize for “Best in Show” at the Monaco Yacht Show in 2014. The current owner of the Equanimity is Genting Malaysia, a Malaysian gaming company.
On July 28, the Malaysian High Court sentenced Najib to 12 years in prison with a fine of RM210 million (S$69 million) on seven charges related to 1MDB. The former Malaysian Prime Minister, who is free on bail, faces over 40 additional charges related to this scandal. Rosmah is on trial in Malaysia for bribery over a solar project in Sarawak.
Deutsche Bank declined to comment.
Toh Han Shih is a Singaporean writer in Hong Kong.