Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World

by Tom Wright

Otaiba had reason to keep his dealings with Low under wraps. A few months earlier, he had become the UAE’s ambassador to the United States, fast establishing himself as one of Washington’s most prominent diplomats. His dinner parties, at the ambassador’s palatial residence on the Virginia bank of the Potomac River, catered by celebrity chefs such as Wolfgang Puck, attracted White House staffers, members of Congress, and top cable-news hosts.

One recent estimate puts the money stashed in offshore financial centers since 1970 at $32 trillion—a figure equal to the combined economies of the United States and China—with hundreds of billions lost in tax revenues.

Bankers are supposed to catch wrongdoing and report it to authorities. But this self-policing system doesn’t work. Turned down by one institution, financiers can simply shop around until they find someone willing to assist them. After facing problems with BSI, Mahony turned to his private bank, J.P. Morgan (Suisse). J.P. Morgan agreed to open an account, seemingly asking few questions about why a sovereign wealth fund needed a relationship with a Swiss private bank.

His was a scheme for the twenty-first century, a truly global endeavor that produced nothing—a shift of cash from a poorly controlled state fund in the developing world, diverting it into the opaque corners of an underpoliced financial system that’s all but broken.

Some states mandate that law firms set them up. IOLTAs are at once good for society and a powerful tool for crime.

Lawyers, unlike bankers, don’t have to conduct due diligence on a client. Details of transfers through IOLTAs, meanwhile, are protected by lawyer-client privilege. While it is illegal for lawyers to abet money laundering, they are not required to report suspicious activity to regulators. The Financial Action Task Force, a Paris-based intergovernmental group that sets standards for stopping fraudulent use of the global finance system, has highlighted the United States’s poor oversight of lawyers as a weak spot in its defenses against money launderers.

In the days after his heist, Low was driven by the need to live among celebrities, as if this would validate his worth. In the future, he would see Hollywood as an investment opportunity. But right now, flush from the success of his scheme, Low just wanted to enjoy the thrill of buying his way into celebrity friendships.

It’s a little-discussed secret that even the biggest movie stars take payment to attend events, and Low began to seek out the managers of top actors, or pull on the Strategic Group’s network of club promoters, to get celebrities to his parties.

By 2010, faceless shell companies, many of them based offshore, accounted for more than half of the hundreds of billions of dollars in high-end U.S. property sales each year—an arrangement that was wholly legal under U.S. law—and Low was becoming adept at hiding his involvement.

The collapse of the housing market had left many Americans destitute. Goldman’s profit, by contrast, soared to a record $13.4 billion in 2009. Senator John McCain, a Republican from Arizona, asked Blankfein to tell the room his bonus for the year. Visibly ill at ease, the chief executive stuttered, before responding: it was $9 million.

Sitting opposite the Goldman banker in a room at the fund’s downtown Kuala Lumpur offices, just a few weeks after Leissner’s meeting in Abu Dhabi, some of the board members looked skeptical. Goldman was preparing to launch what it internally dubbed Project Magnolia, a plan to sell $1.75 billion in ten-year bonds for the 1MDB fund. But some board members were alarmed by what Leissner had informed them: Goldman would likely make $190 million from its part in the deal, or 11 percent of the bond’s value. This was an outrageous sum, even more than Goldman had made on the Sarawak transaction the year before, and way above the normal fee of $1 million for such work. The banker defended Goldman’s profit by pointing out that 1MDB would make big returns in a future IPO of the power assets, all without putting down any money of its own. “Look at your number, not at our number,” he said cajolingly.

Even at Goldman, some bankers, including David Ryan, considered the bank’s likely profit excessive. Alex Turnbull, a Hong Kong–based Goldman banker whose father, Malcolm Turnbull, would later become Australia’s prime minister, also raised concerns internally. Turnbull wasn’t involved in the deal, but he knew how bond markets worked, and he sent an email to colleagues expressing disbelief about Goldman’s profits. The email led to a reprimand from Goldman’s compliance department, while Turnbull’s boss told him to keep his mouth shut if he ever wanted to get promoted.

Goldman’s internal committees, set up to catch fraud, had failed in their job. Those arguing in favor of the deal cited the imprimatur of Malaysia’s government and the role of Prime Minister Najib in 1MDB. But there was another—unspoken—reason to make this happen. The profits would make this one of Goldman’s biggest paydays of the year. The stewards of Goldman, only a few years after the mortgage meltdown and promises of more upright behavior, were once again failing to uphold principles. The whole notion of “monetizing the state”—in countries without rule of law and sophisticated investors—risked costing taxpayers in poor places for the benefit of Wall Street. Goldman already had gotten entangled in a bad situation with the Libyan Investment Authority. Now the bank appeared to be overcharging a client in Malaysia whose willingness to pay above the odds was illogical.

David Ryan, president of Goldman’s Asia operations, argued to lower the fee on the second bond, given how easy it had been to sell the first round. But he was overruled by senior executives, including Gary Cohn. While Goldman was working on the deal, Ryan was effectively sidelined; the bank brought in a veteran banker, Mark Schwartz, a proponent of the 1MDB business, as chairman in Asia, a post senior to Ryan’s. Goldman earned a little less than the first deal, making $114 million—still an enormous windfall.

Known to only a handful of insiders at the time, the money fanned out from the look-alike Aabar to a small set of beneficiaries connected to the deal. In total $1.4 billion was diverted. Here was the capital needed to make The Wolf of Wall Street, to pay off Malaysian voters, and to finance ever-more-exuberant parties and gambling.

The $2.2 billion acquisition of EMI, finalized a month earlier, was led by Sony Music Holdings, the Estate of Michael Jackson, and U.S. private equity giant Blackstone Group. Low’s Jynwel Capital had invested alongside Mubadala, the Abu Dhabi fund run by Khaldoon Al Mubarak. His share, just over $100 million, was by far his most legitimate-looking deal to date. Low had set up Jynwel with his brother, Szen, and told financiers it was his “family office,” investing his grandfather’s billions. His partners in the EMI deal had fallen for it.

Low’s share, in truth, was financed by the 1MDB bonds that Goldman had sold for the fund. To hide the origin of the money, Low used an old trick, getting his associate Fat Eric to set up an offshore shell company called Blackstone Asia Real Estate Partners. This firm was designed to look like a bonafide subsidiary of the Blackstone Group but was controlled by Fat Eric, who worked for Low. On official documents, it would appear that Fat Eric owned scores of shell companies and assets, permitting Low to keep his involvement secret.

By now Low had siphoned off more than $1 billion of the 1MDB money generated by the bo...

By now, Goldman had established a track record for this kind of transaction, and on March 19, the Hong Kong PFI desk, as with the earlier two issuances, bought the $3 billion bond in its entirety. This time, Prime Minister Najib, who also headed the Finance Ministry, signed a letter of support for the bond, meaning Malaysia’s government promised to repay the debt in the event of a default. For the firm’s work, Goldman made just short of $300 million in profits. In total, over just twelve months, the bank had earned nearly $600 million from selling three bonds for the 1MDB fund—two hundred times the typical fee. This amount of profit was too implausible to go unnoticed.

Seemingly unperturbed by the lack of a beneficial owner’s name on such a large transfer—a glaring red flag—Wells Fargo let it through, just a tiny drop in the pool of trillions of dollars that U.S. correspondent banks process every day.

Only ten days after the Malaysian elections, Low marked Najib’s victory by purchasing one of the world’s most expensive paintings. It was a moment of victory and supreme hubris. He had arranged after the vote to open an account at Christie’s in the name of Tanore, the shell company which by this point had received $1.2 billion from the latest Goldman bond. And he was set on building a world-class art collection.

Low believed government funds were limitless and he could just keep on spending. State leaders were able, unlike individuals, to forgive their own administration’s debt;

Western financial institutions, from Goldman to auditors and private banks, had unwittingly helped Low get away with it, impoverishing Malaysia. As Low amassed his art collection, he paid no heed to the 60 percent of Malaysian households who lived on less than $1,600 a month. The 1MDB fund had amassed $10 billion in debt, which would weigh on future generations. Prime Minister Najib boasted the country would attain developed-world living standards by 2020. But the leaders of the country, as they enriched themselves, were failing to achieve this. With national income of $10,000 per person, a fifth of the United States’s level, Malaysia was stuck in the middle-income trap, no longer poor but not yet rich.

Low didn’t scoop up only the Basquiat that evening. He also bought two works by Alexander Calder for over $8 million. It was a record-breaking night for Christie’s, with $495 million in sales, the largest haul in auction history. That year, global art market sales topped 47 billion euros, a jump of 150 percent from a decade earlier, according to the European Fine Art Foundation. The growing cost of fine art, like that of real estate on the Upper East Side of Manhattan or in London’s Knightsbridge, was partly due to the innate worth of the painting or the residence, coupled with limited supply. But it was also a reflection of the amount of dirty money in the market, and that night at Christie’s was a glaring example of the problem, even if the auction house was not aware of it.

In all, between May and September 2013, Low, via Tanore, bought $137 million in art. But Low had picked up more via other channels, such as the van Gogh, as well as works by Lichtenstein, Picasso, and Warhol, and by the end of the year he possessed art worth an estimated $330 million. He stashed it all in the Geneva Freeport and then set about covering up the evidence of how it had been financed. To do that, Low wrote a series of letters—supposedly from Eric Tan—offering him the artworks bought by Tanore as a gift. In the letters, “Tan” said he was giving Low the art because of the “generosity, support and trust you have shared with me over the course of our friendship, especially during the difficult periods of my life.” All of the letters ended, absurdly, with a rider stating that the gift “should not in any event be construed as an act of corruption.” Low was exhibiting signs of sloppiness: It was risible that someone would hand over $100 million in art for no consideration. McFarland also got a painting from “Tan”—the cheaper Mark Ryden work—but no one could enjoy these testaments to human creativity; they were locked away in the humidity-controlled vaults of the Geneva Freeport.

Before an agreement with the U.S. energy company could be reached, Goldman’s compliance department told its bankers to stop working with Low or his entity on the deal, again citing concerns over his wealth. It was the same reason Goldman’s private bank had given to reject Low for an account a few years earlier. As a result, Goldman switched to advising Cepsa, the IPIC unit, even though its bankers were aware that Low was still involved. Eventually, Wyatt Jr. agreed to sell, and Low invested $50 million in the deal, with Cepsa funding the remainder of the purchase price. One week later, Cepsa transferred $350 million into Low’s shell company, ostensibly to buy out Low’s share in the partnership. He had made 600 percent on his money in a matter of days. Shawki, the Goldman banker, who was now working with IPIC, told executives at the Abu Dhabi fund that the payout to Low was to reward him for scouting out the Coastal deal. Unknown to Shawki, in reality it was nothing less than corruption, the spoils shared between Low and Al Qubaisi. In public, Goldman denied knowledge of any agreement between Cepsa and Low’s shell company.

To build his connection to the White House, Low got involved with efforts to reelect Obama to a second four-year term. Pras Michél would be his conduit. In 2012, Low sent $20 million from an offshore company he controlled to two companies owned by Pras. The money was ostensibly a “gift,” but the musician used one of these firms to make a $1.2 million donation to a super PAC called Black Men Vote, which supported Obama’s campaign. It was a risky move for Pras, as donating money to a candidate on behalf of another person is a violation of federal campaign-finance laws. A lawyer for Pras later said the musician was the victim of a “false narrative.

When the president won reelection in November, Low wanted to celebrate with a visit to the White House. Later that month, White arranged for Low to attend the president’s holiday party. Low later showed off a photograph of himself with Obama and the first lady to friends. But on another occasion, White House security personnel turned Low away at the door. It seemed the U.S. government had growing reason to be wary of this young Malaysian with a mysterious past.

On April 27, 2014, Obama became the first U.S. president to visit Malaysia in five decades. The iconic image of the visit was a selfie that Najib took of himself and Obama.

Between April 2013 and September 2014, Low used the Blackrock account to purchase $200 million in jewelry from across the globe: Las Vegas, New York, Hong Kong, Dubai. Even more portable than art, diamonds are extremely hard to track. The Financial Action Task Force, in a 2013 report, warned that money launderers and terrorists used the diamond industry as a conduit for illicit cash. In the United States, retailers like Lorraine Schwartz, or dealers in raw and cut stones, were under no legal obligation to conduct due diligence on clients. Even better, jewels could be transported without having to send money through financial institutions.

Auditors are meant to be independent, but Tan offered for Deloitte to help 1MDB with its media relations. With barely any business, and encumbered by huge borrowings, the only way for 1MDB to avoid a financial loss was to again revalue its land portfolio and book the profits, as it had done in 2010. In this way, 1MDB was hoping to show a $260 million profit.

Then, 1MDB requested Deutsche Bank send the first tranche of the $725 million loan directly to Aabar. It was an odd arrangement. Normally a bank, for compliance reasons, would send such large amounts of cash directly to the borrower. But Deutsche was satisfied by the apparent involvement of the Abu Dhabi fund. The perpetrators had tricked the bank: The recipient was another look-alike Aabar, set up by Al Husseiny with an account at UBS Bank in Singapore. Two days later, more than $100 million was diverted to a shell company controlled by Fat Eric.

It was the craziest plan to date, so outlandish it appeared to have no chance of success. The idea was to transfer a portion of cash from the latest Deutsche Bank loan into the Cayman Islands fund. From there, 1MDB would then “redeem” this money, but immediately send it into a series of offshore vehicles set up by Amicorp, until the cash ended up back at the Cayman Islands fund. From here, 1MDB could again “redeem” the money. It was the same cash going in circles. The perpetrators sent a chunk of a few hundred million dollars through this cycle, and then repeated the process five more times, making it look as if 1MDB had redeemed $1.5 billion of its nonexistent Cayman Islands investment. Satisfied by the money coming home, Deloitte in early November signed off on 1MDB’s accounts. The auditor had missed the circuitous movement of cash. The fund had made over a $200 million loss, which was unlikely to entice investors to take part in the IPO, but it appeared to have quieted its critics. In a statement, 1MDB announced it had redeemed over half of the money in the Cayman Islands. Low looked to have performed a miracle,

The revelations were also a dilemma for Bank Negara Malaysia. The central bank oversaw the country’s financial system, and it had failed to uncover one of the world’s biggest financial swindles. Cheah had informed Zeti Akhtar Aziz, the sixty-seven-year-old governor of Bank Negara, about the prime minister’s account in 2011. He told her Najib was expecting inflows of hundreds of millions of dollars in political donations from Saudi Arabia—a story concocted by Low to explain the torrent of cash.

This demand, however, to erase the data of a multi-billion-dollar sovereign wealth fund reeked of desperation. Lower-level employees were told to bring their laptops and cell phones to the IT department, where staff wiped them clear of all data. Even information on the fund’s mainframe computer was obliterated. As an excuse, executives told staff there had been a hacking of 1MDB—that was how Sarawak Report had obtained the emails—and this was the only way to ensure security. The action was not rational. A company that’s facing a hacking threat can simply take its servers offline. Not long after, the physical servers went missing, too. This was an attempt to erase history, and it was a sign Low was running out of options.

Corrupt foreign leaders and officials had an Achilles’ heel—they relied on the U.S. financial system to transfer cash and had a penchant for acquiring real estate in New York, Los Angeles, and Miami. The Justice Department set up the Kleptocracy Asset Recovery Initiative in 2010 to coordinate the work of FBI investigators and prosecutors to seize the U.S. and global assets of corrupt foreign officials. If those kleptocrats were no longer in power, Washington would transfer the proceeds back to the countries. In 2014, the Justice Department oversaw the seizure of more than $480 million in corruption proceeds hidden in bank accounts around the world by former Nigerian dictator Sani Abacha.

The troubles at 1MDB offered a perfect opportunity for China to supplant the United States in Malaysia—just the latest sign of America’s declining power in the region.

There had been intimidation—a murder, even—of those involved in 1MDB investigations, and people were frightened. Yet some patriotic Malaysians held out hope that authorities overseas would not let their investigations drop. At the Malaysian Anti-Corruption Commission, which had recommended the prime minister’s arrest, there was simmering anger over the mothballing of their investigation. And so, a handful of investigators began to secretly feed information to the FBI.

Flanked by senior Justice Department and FBI officials, Lynch laid out how the U.S. government was seeking to seize more than $1 billion in assets bought with proceeds stolen from 1MDB—the largest corruption case on record—from mansions in New York, Los Angeles, and London, to a stake in EMI, a private jet, and the future proceeds from The Wolf of Wall Street, to name just a few. For maximum publicity, the Justice Department filed its lawsuit—United States v. The Wolf of Wall Street—at the District Court for the Central District of California, where Hollywood is located. “The Department of Justice will not allow the American financial system to be used as a conduit for corruption,” Lynch said. “Corrupt officials around the world should make no mistake that we will be relentless in our efforts to deny them the proceeds of their crimes.

Only the Equanimity, in the open ocean and out of reach of U.S. authorities, was still his to enjoy. But Low already had hundreds of millions—if not billions—secreted away in secret accounts around the world. And he remained free.

Global Financial Integrity, a Washington-based anticorruption group, estimated that $1 trillion was drained from developing economies in 2012 alone, especially poorly regulated places like Brazil, China, India, and Russia.

There was a glass-half-empty way of looking at events. Hadn’t the system of checks and balances at banks failed to catch Jho Low’s malfeasance for seven years because of the greed of financiers? Wasn’t he still at liberty to enjoy a life of ease in five-star residences in China and Thailand, where he lived in the St. Regis apartments in Bangkok, or on his superyacht berthed in Phuket? In Malaysia, Najib’s position appeared unshakable. What sanction had anyone from Al Qubaisi to Leissner and the BSI bankers faced?

Normally, Wall Street bankers are savvy about keeping sensitive business offline, either meeting in person or using private emails and phone messages.

Andrea Vella, who structured the 1MDB bond deals and backed them internally, had been promoted to cohead of investment banking in Asia. Gary Cohn, Goldman’s president and a big supporter of the 1MDB business, became director of President Donald Trump’s National Economic Council in January 2017, a job he stayed in for a little over a year.

In almost a decade since the financial crisis, only one Wall Street banker—a Credit Suisse executive—had gone to jail, despite an economic collapse that had thrown millions out of work and lowered living standards. More than one thousand bankers were convicted for their roles in the savings and loan crisis in America in the 1980s and 1990s. In 2006, a court found Ken Lay, the former CEO of Enron, guilty of fraud. Since the crisis, though, the Justice Department had shied away from singling out individuals for white-collar crimes, preferring instead to reach deals with banks to defer prosecutions in return for hefty fines.

Goldman agreed in 2016 to pay up to $5 billion in a civil settlement with U.S. federal prosecutors to resolve claims stemming from the selling of faulty mortgage securities to investors during the crisis. Wall Street banks, including Bank of America and J.P. Morgan, in total paid more than $40 billion in settlements. Critics pointed out that Wall Street saw these fines as a cost of doing business that did little to alter behavior.

Few observers of the scandal were holding their breath. In America in the twenty-first century, Wall Street bankers typically did not end up in prison.

The United States was taking other measures to stop money laundering through its real estate sector. The Treasury Department launched a pilot program in 2016 forcing all-cash buyers of luxury properties in Manhattan and Miami to disclose their identities to the U.S. government. The rules targeted properties bought by shell companies and worth more than $1 million in Miami and $3 million in Manhattan. Title insurance companies, which are involved in most real estate deals, were ordered to carry out the checks.

Christie’s, the auction house that sold Low many paintings, began demanding that agents looking to buy or sell works reveal the names of their clients. These rules were voluntary, but Christie’s was taking action.

“When you fine a bank billions of dollars, it hurts basically shareholders and other stakeholders. It doesn’t hurt the board and senior management, and it doesn’t hurt the individuals much. And that is what, in my view, is one of the failings of the current regime globally, that people continue to do wrong things because they’ve not been held personally liable and responsible,” Menon said.