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

by Tom Wright

The “offshore” designation typically refers to jurisdictions whose financial systems are much larger than their domestic economies; in other words, the banking system exists purely for nonresidents to stash cash, unlike international financial centers in London and New York that also service local citizens and companies. In recent years, offshore centers have come under pressure to share information on their clients. But many of these centers, reliant on annual fees from the thousands of companies seeking a cloak of secrecy, remain safe harbors for money launderers and other criminals to wash cash and avoid taxes.

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.

For only a few thousand dollars, a corporate-services firm like U.S.-headquartered Trident Trust or Mossack Fonseca of Panama would open an account or form a company, and deal with all the paperwork. (The Panama Papers, a leak in 2016 of hundreds of thousands of Mossack Fonseca client records going back to the 1970s, showed the extent of the use of offshore accounts by the global elite, from the family of Chinese president Xi Jinping to actress Emma Watson.)

For the next step of his scheme, Low set up two shell companies in the Seychelles. The firms—ADIA Investment Corporation and KIA Investment Corporation—appeared, given their names, to be related to the Abu Dhabi Investment Authority, or ADIA, and Kuwait Investment Authority, or KIA, two of the most famous, multi-billion-dollar sovereign wealth funds in the world. But the look-alike companies were purely Low’s creation, with no links to Abu Dhabi or Kuwait.

In setting up ADIA Investment Corporation, Low experimented with another financial trick that he would add to his repertoire. The company issued just one unregistered share, valued at $1, and it was controlled by whoever physically held the stock certificate. These “bearer shares” were banned in many jurisdictions, including Great Britain and the United States—Nevada and Wyoming in 2007 became the last states to abolish their use—because they allowed owners of companies to hide behind layers of secrecy and made it nearly impossible for regulators to determine the owner of an asset at a given point in time. Seeking to find tax cheats in the early 2000s, the United States started to pressure offshore centers to hand over details of the beneficial owners of companies and accounts. Even the British Virgin Islands had recently outlawed the practice of bearer shares. But in the Seychelles, Low learned, they were still permitted.

Next, Low had these look-alike offshore companies take minority stakes in the Malaysian construction firms. It now would appear to any prospective business partner doing due diligence that royals from Kuwait and Malaysia, as well as Ambassador Otaiba, and two major sovereign w...

in the fall of 2009, armed with almost endless amounts of money, Low embarked on a period of incessant partying—and networking. Even after the payments to Obaid and others, hundreds of millions of dollars were just sitting in the Good Star account he controlled in Switzerland, for Low to deploy in any way he saw fit. There were no shareholders, no co-investors. His wasn’t a Ponzi scheme like Bernie Madoff’s, which used new money to pay “profits” to earlier investors.

Low’s mark—the little-known 1MDB, a Malaysian government fund—wasn’t asking for any money back and it wouldn’t so long as he controlled it through his proxies.

Low also wasn’t like junk-bond king Michael Milken, who had amassed a personal fortune in the 1980s before going to prison for violating securities laws. The Malaysian had simply taken hundreds of millions of dollars. The excesses of Madoff or the 1980s would seem prosaic compared to the multiyear spending spree on which Low was about to embark.

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...

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. These trust accounts are typically formed by U.S. law firms to pool clients’ money, say, when they are holding short-term funds for business deals or property purchases. 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. 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.

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.

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 primary U.S. law against money laundering is the Bank Secrecy Act of 1970, which requires institutions to keep records of financial transactions and report suspicious activity. A 1986 law made it illegal for banks to take part in, or cover up, money laundering. The PATRIOT Act of 2001, aimed at snuffing out terrorism financing after the September 11 attacks, forced banks to set up compliance programs and enhance due diligence on customers. And it allowed harsher financial penalties against banks that failed to stop shady transfers. By the late 2000s, though, banks were making too much money in the housing bubble to lose sleep over compliance. Few punishments were meted out and, as a result, banks and regulators didn’t enforce these regulations all that stringently. More often than not, compliance departments were a weak appendage of a bank’s ecosystem, isolated under legal affairs.

The subprime crisis, starting in 2007, changed the picture. U.S. regulators had been caught napping, and the collapse of Lehman Brothers and Bear Stearns, under the weight of bad mortgage loans, led to tighter scrutiny of banks’ actions. That extended to anti–money laundering, as Treasury and the Justice Department began to hand out heftier punishments to transgressors. Wachovia Bank, in early 2010, agreed to pay $160 million in penalties for failing to report $8 billion in dodgy transfers. Around this time, the Justice Department was building its case against J.P. Morgan, where Bernie Madoff held his accounts, eventually leading to a record $2 billion fine under the Bank Secrecy Act. These actions were forcing Wall Street and major global banks in Europe and Japan to get their act together on compliance.

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.

From late 2010, Low relayed instructions to Yak, now a managing director at BSI, to open a series of accounts in his name and those of scores of shell companies. There was an “onboarding” procedure—a checklist of simple know-your-customer bullet points that included items such as passport details, legal convictions, and the source of a customer’s money. Low came up clean. It was at this point that he began laying the groundwork for his tale of family wealth. The June 2011 transfer of $55 million—some of which was used for the Time Warner purchase—was a test to see if BSI compliance staff would buy the story that this was family money. It worked and Low began to send gushers of cash into his BSI accounts.

The first transaction, for $100 million, went from a BSI account controlled by 1MDB into an Amicorp-administered mutual fund in Curaçao. But it wasn’t a usual mutual fund, the kind in which a manager pools cash from mom-and-pop investors, using it to buy stocks and bonds. Sure, this entity, Enterprise Emerging Market Fund, took cash from multiple investors. But the structure masked one major difference from a plain-vanilla mutual fund: It also comprised segregated portfolios that took cash from only one client, before “investing” in another asset.

It was simply a way to wash a client’s money through what looked like a mutual fund. In other words, cash coming out the other side appeared to be a transfer from a mutual fund. This was exactly what happened with the $100 million, which Enterprise Emerging Market Fund promptly sent to a shell company controlled by Fat Eric, Low’s associate and, increasingly, an important nominee for his many companies. Yeo never made clear the business reason for the transfer. It was unclear why a state fund such as 1MDB would use such secretive financial structures, but Pinto didn’t pry, as BSI had vouched for 1MDB. As Kevin Swampillai, Yeo’s boss, put it: “There was only a semblance of compliance at these funds.” In the next couple of years, Amicorp would set up $1.5 billion of such structures for 1MDB, Low, and his family.

Here was a legal, if highly questionable, way to disguise money flows. In the earlier stages, Low had been content to send cash straight from Good Star to his U.S. law-trust accounts with Shearman & Sterling or, more recently, into his accounts at BSI. But the media spotlight on his partying, and the compliance hassles, were making him more paranoid. ...

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. In an earlier era, Japan, South Korea, Singapore, and Taiwan had reached developed-world status. Now, rampant corruption was condemning Malaysia, as well as Brazil, Russia, and a number of other nations, to mediocrity. But the elite—and those serving them—continued to thrive.

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.

Blankfein, Cohn, and other Goldman leaders, in the aftermath of the mortgage crisis, had pledged to put clients first and regularly preached good governance. Yet Goldman had made hundreds of millions of dollars and 1MDB was in disarray, at a high cost to Malaysia’s people. The bank had turned a blind eye to irregularities, enabling the kind of industrial-scale corruption carried out in the past by Sani Abacha of Nigeria or Ferdinand Marcos of the Philippines. Those dictators had been crude—Abacha had sent trucks to loot cash from the central bank—but this was simply a more sophisticated way of taking money, one conducted under the noses of Goldman Sachs.

Low must have been expecting this day to come. How could he believe it possible to take so much money, revealing parts of the scheme to a prime minister, a Saudi prince, Malaysian bankers, and the head of an Abu Dhabi sovereign wealth fund, while keeping the full contours of its audacity to himself?

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.

The Federal Reserve, the Securities and Exchange Commission, and New York State’s Department of Financial Services also were examining some of the bank’s actions. 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.

Low’s genius was he sensed that the world’s largest banks, its auditors, and its lawyers would not throw up obstacles to his scheme if they smelled profits. It’s easy to sneer at Malaysia as a cesspool of graft, but that misses the point. None of this could have happened without the connivance of scores of senior executives in London, Geneva, New York, Los Angeles, Singapore, Hong Kong, Abu Dhabi, and elsewhere.