U.S. Targets $1 Billion in Assets in Malaysian Embezzlement Case

By LOUISE STORY
New York Times
JULY 20, 2016

The United States government plans to move Wednesday to seize more than $1 billion in assets purchased with money that it believes was stolen from a Malaysian sovereign wealth fund by people close to the country’s embattled prime minister.

Hidden in the United States in real estate, art and other luxury goods, the money was embezzled from the fund and moved around the world using secretive shell companies that masked its trail, a person familiar with the Justice Department plan said.

The $1 billion that prosecutors will allege was laundered in the United States is but a portion of the billions that international investigators suspect was siphoned off by high-level officials at the fund and their associates. The fund — called 1Malaysia Development Berhad, or 1MDB — is overseen by the prime minister, Najib Razak, and has become a focus of rising popular discontent with Mr. Najib’s government amid several investigations at home and abroad.

The forfeiture complaint, to be issued by a unit known as the Kleptocracy Asset Recovery Initiative, will be the largest such case brought by the Justice Department. The United States is among several governments, including Malaysia, Singapore and Switzerland, that have investigated the fund.

The international inquiries into the sovereign wealth fund began last year after an investigative report in The New York Times. As part of a broader examination of the use of shell companies in high-end real estate in the United States, The Times traced the purchases of about $150 million in residential properties in New York and in the Los Angeles area, as well as several works of art, to relatives or associates of Mr. Najib.

The Justice Department will name two of those people in its court filing. One, Riza Aziz, is the stepson of Mr. Najib and a Hollywood producer of films including “The Wolf of Wall Street.” The other, a financier named Jho Low, is a longtime friend of Mr. Aziz and his family. Prosecutors will also name a third person, Khadem al-Qubaisi, who was an official at a government fund in Abu Dhabi, United Arab Emirates, that participated in deals with Malaysia’s public fund.

The Justice Department’s kleptocracy unit often seizes assets rather than charging individuals, but an asset complaint does not preclude criminal charges.

Mr. Aziz, Mr. Low and Mr. Qubaisi could not immediately be reached for comment.

In the past, representatives of Mr. Aziz and Mr. Low have acknowledged that their clients own United States properties but have said that they did nothing improper. Mr. Qubaisi did not respond to past inquiries.

Mr. Najib will not be named in the complaint.

Public concern has increased over international corruption and the use of shell companies to hide assets. In the spring, the leak of the so-called Panama Papers cast light on secret offshore accounts held by politicians and other wealthy people from around the world.

The Treasury Department announced recently that it would begin requiring banks to identify customers who use shell companies. And the department began a test program this spring requiring people who buy expensive properties in New York and Miami using cash and shell companies to report their actual identities.

Despite being a leader in enforcement cases involving international bribery, the United States has relatively lenient rules for establishing limited liability companies, known as L.L.C.s, and other types of shell companies. In the case of the Malaysian money, shell companies in Delaware were used.

The forfeiture process is lengthy. First, a court must make sure that no other interested party has a valid claim to the properties. Once true ownership is determined, the court must decide whether the money used to buy those assets was, in fact, earned illicitly. Only then can the government permanently seize the assets.

In the nearer term, the government’s action may increase the political pressure on Mr. Najib, who has been under fire since early 2015, as the Malaysian public has become concerned about the corruption allegations and his rivals have sought to oust him.

Mr. Najib has held on to power by halting investigations into the investment fund and by removing officials in his governing party who criticized him. Some outspoken artists and activists who questioned his conduct on social media face criminal charges, and the government has shut down critical online news outlets. Mr. Najib’s strategy has been effective: Candidates from his party won in recent by-elections.

The 1MDB fund was created in 2009 as a “strategic development company” to invest the Malaysian public’s money, primarily its oil wealth, in projects that would benefit the country. Mr. Low helped set up an earlier version of the fund.

The Times reported last year that Mr. Low was secretly involved in major transactions with a small oil company called PetroSaudi International and Malaysia’s public fund, which was led by Mr. Najib in his position as prime minister. Mr. Low then helped the prime minister’s stepson buy property in the United States using shell companies and finance his movie production company, Red Granite Pictures.

PetroSaudi has not been accused of wrongdoing.

The Times investigation also described lavish spending by the people said to be involved in the theft of funds. The Times documented property transfers between Mr. Low and Mr. Aziz, including one transfer in Beverly Hills that was done entirely behind the veil of a shell company, with no property transfer filed in public records, as well as the role that Mr. Low played in helping to finance Mr. Aziz’s movie business.

The Justice Department has brought other kleptocracy cases against the children of heads of state, including one involving the daughter of the president of Uzbekistan and another involving the son of the president of Equatorial Guinea.