The scandal surrounding Malaysia's sovereign wealth fund 1MDB has roped in three major banks, with Singapore's investigations alleging failures and weaknesses at DBS Bank (DBSDY), Standard Chartered (SCBFF) and UBS (UBS) . That comes right after the largest-ever forfeiture complaint by the kleptocracy unit of the U.S. Justice Department, which has filed to seize more than $1 billion in assets in the United States.
Singapore has seized S$240 million ($177 million) in suspicious bank accounts in the city, its forces said in a statement issued on Wednesday. Half of the money belongs to the Malaysian businessman Low Taek Jho -- a socialite known as Jho Low -- and his family.
It could get ugly for the Singapore offices of the banks. Singapore says it will take action against them, and that it has uncovered "control failings in all three banks," as well as weaknesses in vetting clients and monitoring transactions. "There was also undue delay in detecting and reporting suspicious transactions," Singapore's banking regulator, the Monetary Authority of Singapore (MAS), said.
That's going to result in "firm regulatory actions against the banks," the MAS said. But the violations stemmed from specific processes and actions by individual officers, not pervasive problems at the banks, according to the regulator. So they will likely get off lighter than BSI Bank, which has had its status as a merchant bank in Singapore removed.
The crackdown is both a criminal and a financial investigation. It involves the MAS as well as the Lion City's Attorney General and the commercial-affairs department of the police. Two people, Yeo Jiawei and Kelvin Ang, have already been charged with a variety of offences and others are being questioned and investigated.
Singapore's announcement comes immediately after the United States filed lawsuits on Wednesday claiming that more than $1 billion in assets were bought with more than $3 billion diverted from the 1MDB sovereign fund by people, such as Jho Low, who are close to the Malaysian prime minister, Najib Razak.
Najib has been cleared of wrongdoing in his own country. But the suspect deals had already ensnared Goldman Sachs (GS). The complaint, filed in federal court in California, names Najib's stepson, Riza Aziz, as well as his friend Jho Low and other associates as being involved. The complaint says more than $2.5 billion in stolen money came from Goldman bond deals and another $1 billion from an international oil deal.
U.S. Attorney General Loretta Lynch said at a press conference that "unfortunately, sadly, tragically," the individuals had used 1MDB "as a personal bank account." Some of the money ultimately made its way to a high-ranking official and close relative of Aziz, identified only as "Malaysian Official 1."
Lynch said there is no way the Department of Justice is going to let the U.S. financial system function as a "conduit of corruption."
"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," Lynch said. Swiss prosecutors are also helping with the investigation.
Najib was not named in the lawsuit, although Dow Jones cited an unnamed person with direct knowledge of the investigation as saying "Malaysian Official 1" is Najib. His office says the Malaysian government will cooperate with "any lawful investigation" of Malaysian people or companies. "The law will be enforced without exception," it asserted in a statement.
The embezzlers hid their transactions through shell companies and client bank accounts at the law firm Shearman & Sterling, the complaint says. Goldman and Shearman have not been accused of any wrongdoing. Since this is a civil rather than criminal case, the defendants are actually the properties that the Department of Justice wants to seize, which are now effectively frozen.
The co-conspirators splashed embezzled cash on star-studded parties, art by Monet, van Gogh and Picasso, luxury property in New York and Los Angeles, a Beverly Hills hotel, a private jet and to pay off gambling debts. Another $100 million was used to finance the production of the movie, "The Wolf of Wall Street," the Justice Department alleges. That's a case of life imitating art, according to Assistant Attorney General Leslie Caldwell, since associates of corrupt officials used the cash to produce a movie about a corrupt stock broker who tried to hide his illegal profits in a foreign safe haven.
Aziz is a movie producer, and had said in the past that he used his own money to finance that movie. His movie-production company, Red Granite Pictures, issued a statement saying no one at the company knew of any illegitimate funding, and that it "is confident that when the facts come out, it will be clear that Riza Aziz and Red Granite did nothing wrong."
The U.S. scandal has been rumbling on for more than a year after in-depth investigations by both The New York Times and The Wall Street Journal. What the impact will be for the financial institutions involved isn't clear. But at least in the case of Singapore, the banks involved can expect much more than a slap on the wrist.
