Why we say the US$1.83 billion 1 Malaysia Development Bhd invested in Petro Saudi International between 2009 and 2011 was a scheme to defraud Malaysia
1. The joint-venture agreement was signed on Sept 28, 2009. The terms include 1MDB contributing US$1.0 billion cash for a 40% stake in the JV Co called 1MDB PetroSaudi Ltd. PetroSaudi Holdings Cayman will put in assets worth US$2.7 billion. The JV Co will be valued at US$2.5 billion with PetroSaudi Holdings’ 60% stake derived from assets it will inject into the JV Co.
2. The valuation of the assets that PetroSaudi Holdings will put in was done by one Edward Morse who was hired by PetroSaudi and work was done within days. Morse was issued his appointment letter on Sept 20, 2009 and submitted his report on Sept 29, 2009 — a day after the JV was signed. He valued the Turkmenistan assets at US$3.5 billion and the Argentinian assets at US$108 million.
3. PetroSaudi Holdings never owned the Turkmenistan assets that were to be injected into the JV Co. Those assets were owned by Buried Hill Energy (Cyprus) CoLimited. PetroSaudi Holdings was only in negotiation to buy the assets from Buried Hill. They signed a negotiation agreement on July 4, 2009 and this was eventually terminated on Nov 23, 2009.
4. 1MDB did not hire its own independent valuer to do the valuation. 1MDB management did not comply with a decision of its own board of directors to do an independent valuation.
5. PetroSaudi Holdings committed FRAUD by selling assets which it did not own into the JV Co.
6. Lawyers for 1MDB, Wong & Partners, as well as the 1MDB board of directors were not given the valuation report by Edward Morse until after Sept 30, 2009 — two days after the JV agreement was signed.
7. When the deposit money of US$7.1 million paid to Buried Hill was returned after the negotiation was cancelled, the cash was not returned to the JV Co but to PetroSaudi Holdings. This deposit money should have been returned to the JV Co as it formed part of the assets sold by PetroSaudi Holdings to the JV Co.
8. There was also FRAUD in the creation of a fake US$700 million loan from PetroSaudi Holdings to the JV Co. These are the evidence of fraud:
a) There was no corresponding cash in the JV Co or any of its subsidiaries on or after Sept 25, 2009 (the date the loan agreement was signed). But a letter of demand dated Sept 29, 2009 from PetroSaudi Holdings was sent to the JV Co to pay the loan.
b) From the US$1 billion cash that 1MDB remitted for the JV, US$700 million was paid directly from 1MDB to Good Star Limited instead of the supposed lender PetroSaudi Holdings.
c) The scheme to scam US$700 million from 1MDB was discussed as “over payment” in various email exchanges and attachments between Jho Low and his associates Seet Li Lin, Tiffany Heah, with PetroSaudi executives Patrick Mahony and Tarek Obaid between Sept 11, 2009 and the signing of the JV on Sept 28, 2009.
d) Timothy Buckland (from the UK law firm of White & Case which represented PetroSaudi Holdings) admitted in an email to Charlie Sparrow of PetroSaudi Holdings and copied to Mahony that the letter of demand for repayment of the US$700 million loan was not needed but only “necessary for your docs to legitimise prepayment”.
e) The board of directors of 1MDB was not told about this “loan” prior to the signing of the JV on Sept 28, 2009.
9. The remittance of the US$700 million from 1MDB to Good Star at its bank account at RBS Coutts (Zurich) approved by then 1MDB CEO Sharol Halmi was done without the consent of the 1MDB board of directors which had approved payment of the entire US$1 billion directly to the bank account of the JV Co at JP Morgan Suisse (SA). Two directors of 1MDB Mohd Bakke Salleh and Azlan Zainol resigned because of this payment of US$700 million to Good Star.
10. This transfer of the US$700 million was also a breach of the approval given by Bank Negara Malaysia for 1MDB to remit US$1 billion for the JV. BNM approved payment to the account of the JV Co at JP Morgan Suisse (SA) and not to anyone else.
Why we say Good Star was controlled by Jho Low at the time 1MDB transferred US$700 million
1. 1MDB’s lawyers Wong & Partners, had questioned why the US$700 million was to be paid to Good Star Limited and not to the “lender” PetroSaudi Holdings Cayman. Patrick Mahony, the CEO of the JV Co, said that they were all part of the same company. He lied.
2. 1MDB had on Sept 29, 2009 remitted US$700 million to account number 11116073 at RBS Coutts Zurich. The Malaysian remittance bank was Deutsche Bank Malaysia. RBS Coutts’ risk and compliance unit wanted to know the beneficial owner of the account and then 1MDB CEO Shahrol Halmi replied that it was Good Star Limited.
3. Email communication between the banks and 1MDB on this payment was forwarded to Jho Low by 1MDB executive director Casey Tang.
4. Good Star executed an agreement on Sept 30, 2009 to pay PetroSaudi Holdings’ executive and shareholder Tarek Obaid US$85 million as broker fee. If Good Star was part of PetroSaudi why was there a need to do this?
5. Good Star signed a draft investment management agreement with another PetroSaudi executive Patrick Mahony on Sept 29, 2009. The chief investment officer of Good Star in the agreement was Seet Li Lin, an employee of Jho Low at Jynwell Capital. The metadata of this document in an email attachment showed Jho Low to be the last person to save this file on Oct 1, 2009.
6. On July 21, 2010, Jho Low emailed to Mahony’s Good Star bank account details at RBS Coutts in Zurich to receive part of the US$500 million that was to come from the Murabaha notes 1MDB was to subscribe.
7. On Sept 13, 2010, Jho Low emailed again to Mahony asking him to remit the money to Good Star.
8. Between June 2011 and September 2013, Good Star remitted a total of US$529 million in several transfers to a bank account at the Swiss private bank BSI in Singapore that belonged to Abu Dhabi-Kuwait-Malaysia Investment Corp (ADKMIC).
9. Jho Low has been identified as the beneficial owner of that bank account which was closed in February, 2014.
10. Jho Low had declared himself as a shareholder of ADKMIC when he was involved in the acquisition of the then Bursa Malaysia-listed UBG Bhd in 2010.
Who got what and the trail of international money laundering
1. Good Star Limited received in total about US$970 million from the US$1.83 billion that 1MDB invested with PetroSaudi Holdings Cayman between 2009 and 2011. From this amount of US$970 million, US$529 million went to the bank account of Abu Dhabi Kuwait Malaysia Investment Corp (ADKMIC) at BIS Bank in Singapore. Jho Low was the beneficial owner of that account.
2. Javace Sdn Bhd, the company that Jho Low used in the 2010 takeover of UBG Bhd, received US$260 million via a loan from PetroSaudi International Seychelles. That money was transferred from the JP Morgan bank account of Tarek Obaid which he received from the US$500 million Murabaha notes subscribed by 1MDB in Sept, 2010. (See The Money Trail Flow Chart)
3. Besides the US$260 million, Tarek Obaid received in total another US$240 million from 1MDB. From this, US$77 million was paid to his partner at PetroSaudi, Prince Turki, US$33 million to Patrick Mahony and US$1.0 million to Nawaf Obaid. (See Money Trail Flow Chart).
4. Various PetroSaudi companies received around US$330 million, of which US$185 million was used to buy a drill ship.
5. Some of the money received by these individuals were used for their personal investments. For example, Mahony used US$10 million (6.5 million pounds) to buy a house in his home country the United Kingdom. (See Money Trail Flow Chart)
6. All these point to a clear case of fraud and international money laundering. 1MDB’s money went from Malaysia to Switzerland via US clearing banks and then to the United Kingdom, the UAE and Singapore.
7. What happened to 1MDB’s money is no longer a domestic issue but is a global fraud and money laundering matter involving the United States, the United Kingdom, Switzerland and Singapore. Global banks like JP Morgan, RBS Coutts, Credit Suisse, HSBC, Citibank, Deutsche Bank, BSI and others have all been channels for the money flow.
Covering the US$2.23 billion hole (Original US$1.83 billion cash & US$400 million paper profit) hidden as units in the Cayman SPC via the US$2.23 billion payment to retire the Aabar options
1. With the US$1.83 billion cash 1MDB invested with PetroSaudi Holdings Cayman all gone, how then can it cover the hole plus the so-called US$400 million in declared profit that it was supposed to have made?
2. By 2012, all the US$2.23 billion was captured as Murabaha notes issued by PetroSaudi. It was later “redeemed” for a 49% stake in PetroSaudi Oil Services Ltd (PSOSL).
3. On Sept 12, 2012, 1MDB “sold” this 49% interest in PSOSL to Bridge Partners International Investment Ltd for US$2.32 billion. Bridge Partners International did not pay cash but issued promissory notes as payment.
4. On the same day, 1MDB through its subsidiary Brazen Sky Ltd, invested these US$2.32 billion of promissory notes in a fund called Bridge Global Absolute Return Fund SPC which was managed by Bridge Partners Investment Manager (Cayman). According to its prospectus, the fund makes high risk investments and investors can lose all its money.
5. The actual value of the US$2.32 billion kept in the SPC was unverifiable and the dispute 1MDB had with its then external auditor over this was the reason why KPMG was sacked for refusing to sign off the accounts for FY March 31, 2014.
6. Throughout 2013 and 2014, 1MDB’s board of directors had pressed its management to redeem the money from Cayman, because it was getting worried over the increased scrutiny by its external auditors.
7. Disputes and disagreements between 1MDB and Ernst & Young and then KPMG were primarily over the inability of 1MDB and Bridge Partners Investment Manager to provide enough proof that the fund was worth the US$2.32 billion ascribed to it or that they were readily realisable to be categorised as Available-For-Sale Investments in the audited accounts.
8. Subsequent to this, Aabar Investments stepped in to guarantee Bridge Partners International’s US$2.32 billion debt to 1MDB held as units in the Cayman SPC.
Covering The Hole:
1. In 2012, the International Petroleum Investment Corp (IPIC) of Abu Dhabi was given an option to subscribe to 49% of the future listing of the power assets owned by 1MDB. This 10-year option, which was later transferred to IPIC’s associate Aabar Investments, was for co-guaranteeing two bonds totalling US$3.5 billion that 1MDB issued.
2. In May, 2014, 1MDB and Aabar signed an agreement to terminate the options. This was stated in Page 172 of 1MDB’s FY2014 accounts but no details were given.
3. In page 169 of the FY2014 accounts, it was stated that 1MDB had obtained a bridging loan of US$250 million to buy back the options.
4. In page 171, it was stated that on Sept 2, 2014, Aabar had written to 1MDB that it wished to terminate the options according to the terms set out in the agreement signed in May. Again, no details were given.
5. 1MDB has never given out enough details of the terms and costs of terminating the Aabar options. But 1MDB appeared to have paid Aabar the following as termination costs:
i) US$250 million paid in May, 2014
ii) US$975 million paid in September, 2014 via a Deutsche Bank loan
iii) US$993 million paid in November, 2014 via a partial redemption of the Cayman SPC funds.
6. This adds up to a total of US$2.22 billion.
7. The scheme to cover the US$2.32 billion hole at the Cayman SPC is by paying Aabar US$2.22 billion as option termination fee. Aabar then passes the money to the Cayman SPC from which 1MDB would then be able to redeem the money, thus covering the money that was already gone.
8. The termination fee totalling US$2.22 billion that 1MDB paid to Aabar between May and November, 2014 was, however, not reflected in the FY December, 2014 of IPIC (which owns 100% of Aabar) as income or revenue. There were no such entries in IPIC’s accounts. This reinforces our analysis that the termination fees paid to Aabar were in reality used to cover the hole at the Cayman SPC.
How Jho Low & associates made RM1.0 billion through a series of transactions involving Putrajaya Perdana Bhd, Loh & Loh Corp Bhd and UBG Bhd financed partly by using US$260 million of 1MDB’s money
1. Between 2008 and 2010, Jho Low (pic)made RM166 million entering and exiting listed companies like Putrajaya Perdana Bhd, Loh & Loh Corp Bhd and another RM350 million through the injection of a piece of land he owned in Medini, Iskandar to UBG Bhd via an asset management company called Unity Capital.
2. In September, 2010, a Jho Low-controlled company called Javace Sdn Bhd made a RM1.4 billion offer to take over UBG. This was financed by a RM700 million bank loan and a US$260 million loan from PetroSaudi International Seychelles through Tarek Obaid’s bank account. That US$260 million came from the subscription by 1MDB to murabaha notes totalling US$500 million issued that same month by PetroSaudi.
3. After the takeover by Javace, UBG had these assets (i) Putrajaya Perdana that was worth around RM680 million (ii) Loh & Loh which was worth RM330 million, (iii) Unity Capital with a carrying value of RM315 million and (iv) cash of RM82 million.
4. In September, 2012, UBG sold Putrajaya Perdana to Cendana Destini Sdn Bhd for RM240 million (a discount of RM440 million). It also sold Loh & Loh to Selesa Produktif Sdn Bhd for RM260 million (a discount of RM70 million).
5. It wrote down the cash and investment totalling RM397 million to RM200 million.
6. Cendana Destini and Selesa Produktif were set up by the same secretarial services company (B&M Consultancy Services Sdn Bhd) which also set up other companies that Jho Low owned. These include Javace Sdn Bhd, Majestic Masterpiece Sdn Bhd and Wynton Private Equity Sdn Bhd. All five companies have registered offices at the Petronas Twin Towers and they have the same company secretary Lim Poh Seng.
7. B&M Consultancy is tied to Wong & Partners, the principal legal firm of Jho Low and 1MDB.
8. The buyers of Putrajaya Perdana and Loh & Loh made a gain of RM510 million at the expense of UBG. Tabung Haji subsequently bought a 30% stake in Putrajaya Perdana in 2014 for an undisclosed sum.
9. In 2014, Javace and UBG were wound up and Javace wrote off its entire investment in UBG after paying the RM700 million bank loan.
10. The impairment of RM750 million taken by Javace is the same amount as the US$260 million of 1MDB’s cash from the murabaha notes issued by PetroSaudi. The impairment allowed the de-linking of 1MDB’s money with gains enjoyed by the new shareholders of Putrajaya Perdana and Loh & Loh. Who are these people?
Note from the publisher:
We have in this report, which is possibly the last on this subject, laid out all the key facts about what happened during the three-year business ties between 1MDB and PetroSaudi International — especially what happened to the US$1.83 billion of real cash invested by 1MDB.
Our report is based on evidence corroborated by documents that include bank transfers and statements. There is no space to publish everything and, indeed, some material cannot be published.
We will now be handing over these printed documents and the hard disk that contains them to the investigators. We will assist the investigators in any way we can to get to the bottom of what had happened.
We have a duty to find and report the truth. Our reports on 1MDB had exposed how a group of individuals — Malaysians and foreigners — schemed a multi-billion ringgit fraud against the people of Malaysia.
How can the work that we have done be deemed as a political conspiracy?
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This article first appeared in The Edge Financial Daily, on July 20, 2015.
Source : terror finance blog