The banks, lawyers and auditors at the heart of Malaysia’s biggest corruption scandal
In Leonardo DiCaprio’s acceptance speech after winning a Golden Globe in 2014 for his role in The Wolf of Wall Street, he thanked the production team for the film including his collaborators “Riz and Jho”.1
Six months later, the US Department of Justice (DoJ) announced that these two individuals – Riza Aziz and Jho Low – were at the centre of a multi-billion-dollar corruption scandal. It claimed that Aziz had financed The Wolf of Wall Street with money embezzled from a Malaysian government-owned company called 1MDB.
The story of how these two Malaysian businessmen and their associates apparently embezzled billions to fund lavish lifestyles and Hollywood films is a plot worthy of a film of its own. It’s a story of mega-yachts, luxury properties and multi-million-dollar gambling trips. It briefly promoted Low into the world of global celebrities, earning him a reputation as a party animal.2 Paris Hilton was photographed going clubbing with Low and posing topless on his yacht in Saint-Tropez.3 Low also reportedly dated the model Miranda Kerr and used money from 1MDB to buy her over $7 million worth of jewellery.4
But it’s not just a story of glitz and glamour. It’s also a story of major banks and New York lawyers failing to prevent the flow of billions of dollars of dirty cash. And while all of this was happening 1MDB’s finances were given a clean bill of health by some of the world’s most prestigious auditors.
At Global Witness, we have been campaigning to tackle the role of professionals who enable corruption for nearly ten years, and this is one of the largest and boldest cases we have seen. Yet while this case’s sheer size is exceptional, there is nothing unique about the ways in which those involved were able to launder the proceeds through the international financial system.
This analysis reveals for the first time the unique insights this case gives into how financial professionals enable high-level corruption. In many ways this analysis, by following one complex case in forensic detail, sheds far more light on this system than the vast range of less detailed revelations from the Panama Papers and Paradise Papers. This analysis does not try to cover the full story of the scandal, or of every bank or lawyer involved, but focuses on some of the most significant players in the 1MDB scandal to reveal insights about the state of the international financial system.
A global anti-money laundering system exists to prevent the laundering of the proceeds of crime through the international financial system. This costs banks and other financial professionals around $8 billion per year.5 Yet as expensive as this system is, it is not nearly as effective as it needs to be. The UN estimates that law enforcement seize and freeze less than 1% of criminal funds laundered through the international financial system.6
These rules are there for a reason. Behind every flow of laundered funds lies a crime, and those crimes have victims.
It now appears likely that 1MDB will fail to repay its debts, given the scale of embezzlement alleged to have taken place. If that happens, the Malaysian government will face a bill greater than the country’s annual healthcare budget.7 In the end, the people of Malaysia will pay the price.
So how did these Malaysian businessmen manage to launder billions of dollars from a government-owned company through the international financial system, as the DoJ alleges? Are the banks, lawyers and auditors involved the real wolves of Wall Street – willing to put morality and the law aside for their pursuit of profit – or are the rules just not fit for purpose?
This analysis will show that for the banks involved, this was not a problem of inadequate regulations — it was a clear failure of those banks to follow the rules. The existing regulations should have prevented the embezzlement of these billions of dollars, yet the banks ignored the rules, turned a blind eye, kept profitable clients and continued handling billions of dollars of dirty money despite clear warning signs.
This does not mean that the rules are perfect. The lawyers involved handled hundreds of millions of dollars from the scheme, yet were never required by law to do any checks on that money. The auditors that gave 1MDB a clean bill of health were never required to blow the whistle despite the increasingly suspect excuses given for the whereabouts of 1MDB’s billions.
Ultimately, this is a story where almost no one involved comes out looking good. It is a story of the failure of the system designed to prevent corruption on such an enormous scale. However, that story also shows where and how action is needed to make sure such scandals never happen again.