Was 1MDB set up by the Sarawak Report?
Some emails presented on the SR website look fabricated and the conclusions drawn from the communications too simplistic.
Calvin Sankaran, Free Malaysia Today
Not many Malaysians would have heard of 1 Malaysia Development Berhad (1MDB) six months ago even though it was incorporated in 2009. The national strategic development company, as 1MDB would like to describe itself, made headlines in the financial pages late last year due to delays in submissions of financial statements to Bursa Malaysia as well as in repayments of its loans to banking institutions.
However only when the Sarawak Report (SR) website published its “The Heist of the Century”, did 1MDB hit the headlines and achieve national and international notoriety. In that story SR made serious allegations of impropriety and fraud by 1MDB in its short-lived joint-venture with PetroSaudi International (PSI). SR followed up with the story with several more reports detailing further alleged instances of wrongdoings and questionable deals.
At first, Prime Minister Dato Seri Najib Razak denied the charges and defended 1MDB vigorously. However, very quickly the allegations proved to be highly damaging and toxic. Domestically it became the lightning rod for Najib’s critics within and outside the ruling party. Internationally the issue affected investors’ confidence to such an extent that it negatively impacted the economy and the value of our ringgit.
Belatedly realising the seriousness of the consequences, Najib ordered a through audit of 1MDB by the Auditor-General (A-G) Tan Sri Amrin Buang. However allegations continued to fly and speculation only got worse as Malaysians grew impatient with the slow pace of the A-G’s audit.
The aim of this article is to analyse the veracity of SR’s accusations based on the weight of the evidence. In particular I intend to examine three of the most serious allegations, (1) USD700m was siphoned off by Jho Low, (2) Jho Low was the main architect behind the Petro Saudi deal, and (3) 1MDB lied about its money held in its Singapore bank account.
Before we carry out the analysis, let’s do an exploratory review of the evidence presented by Clare Rewcastle-Brown, SR’s founder/editor. Claire has claimed to have “thousands of documents” although she refused to disclose the source or the method the documents were obtained.
According to media reports, PSI had lodged a complaint with the London Police Action Fraud Unit at the National Fraud and Cyber Crime Reporting Centre claiming the “hacking” of its servers. An examination of documents presented in the SR website also indicates that the source is likely to be from PSI. In particular, its Chief Investment Officer (CFO) Patrick Mahony appears to be the target.
Emails published by SR do look authentic and there is no obvious evidence of forgery in terms of timeline, time stamps, content, language, etc. The documents uploaded onto the website also appear to be genuine. As such, we can proceed to examine each allegation in more depth.
Fortunately while the mechanics of the 1MDB-PSI joint-venture is complex, there is no need for us to make sense of these complicated financial transactions to seek out the answers to these three questions.
1. Did Jho Low siphon off USD700 million?
According to the terms of agreement between 1MDB and PSI, 1MDB was required to inject USD1 billion in cash into the joint-venture entity called 1MDB-PetroSaudi Limited. Because of the convoluted way the deal was structured, 1MDB was to pay USD700 million to PSI.
However according to SR, instead of paying PSI, the management of PSI and 1MDB conspired to divert the USD700 million into the account of a Jho Low-owned company called Good Star Limited.
EVIDENCE: To back its allegation, SR produced a Letter of Demand signed by PSI’s Chief Executive Officer (CEO) Tarek Obaid to 1MDB-PetroSaudi Ltd requesting for USD700 million to be credited to account number 11116073, at RBS Coutts Bank Ltd in Zurich, Switzerland.
However SR claimed that the account number (11116073) belonged not to PSI but to Good Star Ltd. To support this assertion, SR produced three more pieces of evidence. First SR produced an email from Patrick Mahony to Tarek Obaid in which the CIO said that the account number 11116073 at RBS Coutts Bank Ltd belonged to Good Star.
SR further furnished a typed extract showing Good Star Ltd having a registered office at the address: PO Box 1239, Offshore Investment Centre, Mahe, Seychelles with a Seet Li Lin as the Chief Investment Officer. SR claims that Li Lin is Jho Low’s right-hand man.
Finally SR also produced an email in which 1MDB’s ex-CEO Sharol Halmi instructed a Deutsche Bank Malaysia officer to transfer the funds to Good Star Ltd and provided the same bank, account number and address.
By linking all these pieces of evidence together, SR alleged that Jho Low used Good Star Ltd as a vehicle to siphon off the USD700 million from the 1MDB-PSI deal.
ANALYSIS: The evidence #1 looks certainly authentic as it was produced in PSI’s official letter head, carried Tarek Obaid signature. Also details such as the language, dates, address, signature etc all appear to be correct and proper.
However, the same letter also clearly states the money is to be paid to PSI (the beneficiary) while providing the same bank name and account number. So the question now is whom does the account actually belong to, PSI or Good Star? It cannot be that two different companies share the same bank and bank account number.
So let’s look at SR’s evidence linking the account to Good Star. The evidence # 2 is an email from Patrick Mahony to Tarek Obaid which links the account number to Good Star. However this email doesn’t look authentic as the format doesn’t look like email format at all but rather a typed text / memo. Also the contents – salutation, date, etc. – all do not look authentic and raises several red flags.
Evidence # 3 is also a typed extract from a memo which links Good Star Ltd to the address stated in the account number. It was not taken from any official document and as such it is hard to attach any credibility to it.
Evidence # 4 that shows Sharol Halmi instructing Deutsche Bank also raises red flags as the email looks suspicious and suggests several signs of tampering. The sender’s email address is missing and the time stamp indicates “GMT-4” which is the US Eastern Standard Time Zone which also includes the Eastern Caribbean (a region where offshore financial centres abound). The format of the email also indicates the type that is used by BlackBerry devices and looks very different from other emails SR attributes to Sharol. Since Sharol is based at KL, it is unlikely that he’s conducting business from the US East Coast or some Caribbean Island.
To get to the bottom of this mystery to find out which company is actually incorporated in the location provided, I did some research and established that in fact the address PO Box 1239, Offshore investment Centre, Mahe, Seychelles is the official address of PSI.
This is actually quite easy to prove since it is printed in PSI’s official letter head as a footer. In fact we could have called SR’s bluff had they reproduced evidence # 1 in full rather than showing only the top part of the letter and hiding the footer which had the address. The reader can independently verify this fact since PSI had issued several official statements to the local press using its official letterhead during its acquisition of UBG Bhd shares back in 2010 and which still can be found on the web.
CONCLUSION: Based on the analysis above, I can conclude that:
(i) There is no evidence that USD700 million was transferred to parties other than as stipulated by the JV agreement
(ii) It appears that there was a deliberate and systematic attempt to tamper with and fabricate emails and documents with an objective to paint 1MDB, PSI, their management team and Jho Low in a negative light for reasons unknown.
