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

by Tom Wright

Low’s very success, at its core, was rooted in the failures of the twenty-first-century global economy.

His unremarkable appearance was matched by an awkwardness and lack of ease in conversation, which the beautiful women around Low took to be shyness.

The cars sailed through security checkpoints before stopping at a red carpet entrance, manned by burly security personnel in black suits and the first of scores of young models wearing red dresses, some of whom handed out drinks and food, while others—in the crude language of nightclubs—acted as “ambient” decorations.

It was a lesson that power and prestige—or at least the appearance of it—opened all kinds of doors. Low positioned himself in the group as someone who could get things done. He’d make the bookings and collect money when it came time for the bill, making it appear like he was the one paying. He became the fixer, trading off his proximity to the truly powerful, and it had the effect of making him a focus of attention.

For sure, he enjoyed partying, and he liked having pretty women around, but more than anything this was an investment, one that made him appear successful and indispensable.

But Mubadala was novel: Rather than simply invest oil profits, securing them for future generations, the fund was borrowing from global markets and actively trying to move the economy in new directions.

One Malaysian businessman detailed how it worked: He would buy properties from state-owned companies before selling them at a markup to other state firms, sharing the profit with Rosmah.

The key to his success at Wharton, he once boasted, was turning in essays that were big on buzzwords and short on substance.

The Terengganu deal was the beginning of a line of business that in short order would earn hundreds of millions of dollars for Goldman. Suddenly, the one-time backwater of Malaysia would become one of Goldman’s biggest profit centers anywhere in the world.

Unbeknownst to Najib and Rosmah, it was a setup, a facade of officialdom, aimed at making the prime minister and his wife feel they were getting close to Saudi Arabia’s royal family. Luckily for Low, Najib wasn’t one to scratch the surface too deeply. After a lifetime of enjoying the perks afforded to a leading Malaysian politician—the VIP limousines, hotel suites, and yachts—he didn’t ask many questions at all.

Like many minor aristocrats, Prince Turki was trading off his name, and PetroSaudi was little more than a shell, with negligible business to speak of.

In the space of a month, since Prince Turki had written Najib with his proposal in late August, a multi-billion-dollar joint-venture agreement had been completed. Such a time frame—to complete due diligence, asset valuations, and other legal checks—was virtually without parallel. Such deals normally take months, if not a year, to wrap up. A 1MDB employee later compared the process to attempting to read the entire works of Shakespeare in an hour.

If the board members are smart , this would have ring an alarm bell

Deutsche’s compliance department had some queries. Why wasn’t $1 billion flowing to the joint venture with PetroSaudi, as agreed by the 1MDB board? And how come Tang was asking for $700 million to be put into an unnamed account with RBS Coutts in Zurich?

Despite the confusion, Deutsche sent two wires around 3 p.m., one of $300 million to the joint venture’s new account at J.P. Morgan (Suisse) and another of $700 million to the mysterious account at Coutts in Zurich. As it was a dollar transaction, the money needed to pass through a U.S. bank. Under American anti-money-laundering laws, these correspondent banks are obliged to check the source and use of funds.

Two days later, an employee from Coutts’s regulatory risk department in Zurich sent an urgent email to 1MDB. The employee was confused by Deutsche Bank’s omission of the full name of the beneficiary of the $700 million transfer, which is required on bank-transfer requests. When pushed, Shahrol Halmi, the fund’s chief executive, acknowledged the account was owned by a Seychelles company called Good Star Ltd.

At that moment, in late 2009, Low had access to more liquid cash than almost anyone on earth—and he wasn’t shy about spending it.

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.

To pull it off, Low relied on skills he’d honed for years. He knew that transactions between governments attracted less scrutiny from auditors and banks, and so he had set about building high-level connections in Malaysia, the UAE, and Saudi Arabia.

Low informed his new legal team that he would be making a sequence of major investments, but he was very concerned about privacy. He opted to use the firm’s Interest On Lawyer Trust Accounts, or IOLTAs, to help distribute the money.

This arcane corner of the financial world came into existence three decades ago as a way for law firms to earn short-term interest on client money to finance legal aid for the poor, but over time the accounts developed a reputation for shielding the identity of clients in transactions and helping to hide the origin of funds.

IOLTAs are at once good for society and a powerful tool for crime.

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.

Low was becoming skilled in working out ways to use relatively unobserved parts of the financial system to avoid detection, darkened corners where regulators don’t have full visibility

Between October 2009 and June 2010—a period of only eight months—Low and his entourage spent $85 million on alcohol, gambling in Vegas, private jets, renting superyachts, and to pay Playmates and Hollywood celebrities to hang out with them.

Was there a justification for all this conspicuous consumption? To Low, it was part of a larger design. If the parties were successful, Low figured, he would grow in stature, enticing more powerful figures into his world.

another trait of Low’s: a seemingly photographic memory. Some friends noticed he had an ability to remember very specific details of what money was moving where, down to a decimal point.

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

“The substantial investment of US$1 billion should have merited a more thorough thought and due diligence process,” the board recorded blandly in the official minutes from the meeting.

The prime minister knew 1MDB was secretly fueling his political machinations and was not as legitimate as it appeared.

Everyone knew that Jho Low was the chief decision maker at the fund, but he was almost never around, and for some reason management asked staff to refer to him by a code name, “UC.” A joke started going around that it stood for “unsavory character.”

Even without steady cash flow from operations, 1MDB was starting to channel money as “corporate social responsibility” to help encourage voters to support UMNO, the ruling party. “We even joked that many of the projects we were assessing were pretend projects to give the company a legitimate front,” the 1MDB employee said.

Like any old-school Malaysian politician, he saw money—not ideas—as the only way to achieve popularity with voters, and he squeezed 1MDB for funds.

If the press wasn’t exactly independent, at least Malaysia wasn’t a dictatorship, and the Edge’s editors had learned to push the limits of free expression, writing stories on corruption, while maintaining their license.

Bankers told him the Terengganu fund, the predecessor of 1MDB, had sold its Islamic bonds too cheaply. That meant whoever bought the bonds could resell them in the market for a handsome profit.

To trumpet the award, the Malaysian government spent hundreds of thousands of dollars on a double-page advertisement in the New York Times to coincide with her visit, congratulating the first lady with a full-page photo of Rosmah and the words “Welcome to New York.”

Vanity on tax payers' dough

Senator Carl Levin, a Democrat from Michigan who headed a Senate subcommittee that had spent eighteen months looking into Goldman’s actions, wanted to know why the bank had sold securities backed by toxic subprime mortgages to clients while, at the same time, betting against them.

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.

On a simple level, derivatives are financial products whose value is linked to an underlying set of assets. Derivatives can help businesses smooth out price fluctuations.

The transaction in Sarawak was the first time Leissner, the relationship banker, had joined forces with Vella, the derivatives whiz, to deliver a major amount of money to a client, quietly and fast, while making large profits for Goldman. It was a formula that would be central to Goldman’s future relationship with 1MDB.

The friend came to believe he was taking part in a charade of wealth, rather than genuinely having fun.

Low told friends he was torn by the duplicity in his life, between maintaining a girlfriend and the other women. His relationship with Chuan had been on and off for years. But he wasn’t a typical playboy. Some of the models whom Low regaled with Cartier jewelry or gambling chips were astonished he never hit on them. Far more than sex, it seemed, he craved recognition, whether from women or Hollywood stars, and he sought to create spectacles that reinforced his power and prestige.

Low’s ability to procure the biggest and best of anything, be it a yacht or a Hollywood star—was also his Achilles’ heel.

At home, Low knew he couldn’t get away with the story he told abroad: that he came from a billionaire family. Now his stories were starting to collide into one another. Any potential investor overseas who heard Low boast that he was from old money in Asia need only have perused the Star’s interview, easily available online, to know something was wrong.

Low and PetroSaudi had agreed to turn the initial $1 billion investment into a loan of $1.2 billion, and 1MDB wanted to book the difference as profit.

Wow

The 1MDB board began to fret, noting in its minutes that the fund was “perceived as a secretive cloak-and-dagger setup with sinister motives to benefit cronies and not the Malaysian people.”

Eventually, KPMG signed off on the accounts for the financial year to March 31, 2010, but was worried enough to cover itself with an “emphasis of matter” paragraph, a section of an audited account meant to underline a potential future problem to investors.

“This is a fucking scam—anybody who does this has stolen money,”

(“The sky’s not the limit, it’s just a view,”

On the same day, Low sent $54.75 million from that account to one that Larry Low had recently opened, also with BSI in Singapore. From there, only hours later, $30 million was sent to Switzerland, digitally moving to Asia and back on the same day, landing in the account of another Low-controlled company at Rothschild Bank in Zurich. This was layering, the process of hiding money’s origins through a complex maze of transactions—a crucial instrument in the money launderer’s tool kit. In this case, Rothschild’s compliance department could only see money coming from Larry Low to Jho Low. By this simple process, Low created the impression of inherited money, flowing down through the generations.

Now Low was testing BSI’s willingness to look the other way, a tryout the bank passed with flying colors, opening the doors to more lucrative business. The bank would become a crucial element in the plumbing of the 1MDB scheme as its scale escalated in the years ahead.