Billion Dollar Whale Read online

  It was just the kind of acquisition that appealed to Low: a swanky hotel at the center of London’s Mayfair district. The involvement of Aabar was also an attraction. The fund was controlled by the International Petroleum Investment Company, or IPIC, a $70 billion sovereign wealth fund owned by the government of Abu Dhabi. Low had done business with Mubadala of Abu Dhabi, but he had yet to make contacts at IPIC or Aabar. The IPIC fund’s managing director, a wealthy Arab businessman named Khadem Al Qubaisi, had a reputation among financiers who did business with him for demanding kickbacks from deals. In the wake of the financial crisis, IPIC had been snapping up stakes in Western companies—Barclays Bank, Daimler-Benz, Virgin Galactic—and Al Qubaisi had become a powerful figure in the emirate.

  Low wanted in on the deal, and he got to know Tchenguiz through a wealth adviser they both knew. At first Tchenguiz did not consider Low a serious investor. Who had heard of Wynton, after all? But then, during discussions over the deal for Claridge’s, Low provided a letter from 1MDB stating it would provide up to 1 billion pounds in financing for the acquisition.

  “We didn’t know 1MDB was a bullshit thing,” Tchenguiz told friends later. It appeared to be a government subsidiary, just like Aabar. “That’s why we went partners with him.”

  To show his seriousness, Low signed a check on the spot for 50 million pounds, which he said could be used to start building a stake in Coroin. In the end, the shareholders of Coroin decided against the Wynton-Aabar offer. Still, it wasn’t a wasted exercise; through the deal making, Low had made a new connection with Aabar’s chief executive, Mohamed Badawy Al Husseiny, a U.S. citizen of Kenyan origin.

  A former accountant who went by “Mo” to friends, Al Husseiny wore sharp suits and expensive watches. He was short and balding but fit, with a penchant for the “Insanity” workout routine, an interval training set that burned one thousand calories an hour. He was Al Qubaisi’s right-hand man in Aabar and was known mostly for his obedience to the “boss.” Low began to invite Al Husseiny to his star-studded parties, and the Aabar chief executive took to Low’s exclusive social milieu, boasting to friends about the celebrities he was meeting.

  If Low had started cultivating famous friends to quell some kind of lingering insecurity—or even for the sheer hell of it—he also came to realize it was good business. Many of his prospective partners were wowed by Low’s familiarity with DiCaprio, Hilton, and others. His Hollywood friends gave him an edge over other investors looking for Middle East tie-ups. It wasn’t long before Low and Al Husseiny worked out a way for the entities they controlled to work together. In June 2011, Low brokered a deal for Aabar to acquire a stake in a Malaysian bank, RHB, for which it paid $2.7 billion. Soon after, the bank’s stock price fell sharply, and Aabar was stuck with paper losses of hundreds of millions of dollars.

  Undeterred, 1MDB and Aabar then set up a joint venture of their own—a fund intended to invest in commodity markets—and the first deal was for a stake in a Mongolian coal mine. That investment also performed badly when coal prices crashed as China’s economy slowed. No matter: Low and Al Husseiny personally prospered from the deal by arranging a multi-million-dollar fee from the seller as a reward for bringing in Aabar and 1MDB.

  When he found out about the losses, Al Qubaisi, the IPIC chief, was livid, and, once again, Low needed another deal to placate an angry partner. To make it up, Low was hoping to involve his new Abu Dhabi friends in his biggest scheme yet, one that would leech even more cash out of 1MDB, helping to pay for DiCaprio, Scorsese, and the production budget of The Wolf of Wall Street.

  With his ambitious new collaborators, Low was moving on from 1MDB’s original partner, PetroSaudi. But there was a dangerous divide at the company, one that threatened to bring the whole house of cards crashing down.

  Chapter 21

  Bitter Severance

  London, April 2011

  The bar in the Connaught, a five-star hotel in London’s Mayfair district, was an apt place for Xavier Justo, an employee of PetroSaudi, to be discussing his severance deal with Patrick Mahony. The place reeked of money, from the dark leather sofas to the Cubist-inspired wood paneling and a Wedgewood-like molded plaster ceiling. Justo, a muscled and extensively tattooed Mediterranean-looking man in his midforties, who at six feet six inches tall towered over most people, repeated his demand for 6.5 million Swiss francs.

  As head of PetroSaudi’s London office, Justo had worked on deals involving the oil drill ships that the PetroSaudi–1MDB joint venture acquired. Tarek Obaid, the firm’s chief executive, was an old friend, and he had promised Justo millions of dollars for opening the London office. But the money had never materialized, and Justo had even been left to personally cover some company expenses. He was there at the Connaught to try to get his money.

  Fearing a problem, Mahony was keen to settle, but he haggled. The pair talked for some time, with Tarek Obaid on the phone with Mahony at one point, and left the Connaught agreeing on 5 million Swiss francs.

  But Obaid later sought to lower the amount further. As Obaid saw it, he had been good to Justo, and now his friend was being disloyal. Justo was a Swiss citizen, born to Spanish immigrants, who had gotten to know Obaid in the 1990s. After working for a Swiss private bank, Obaid had set up businesses with Prince Turki, looking to pave the way for foreign investors in Saudi Arabia. He took a desk at a financial services company in Geneva partly owned by Justo. The pair became close despite the decade difference in their ages.

  Justo owned a share in a Geneva nightclub called the Platinum Club, but it made little money. When Obaid set up PetroSaudi, he persuaded his friend to become director of a number of the new firm’s affiliates. Initially, Justo had little to do—PetroSaudi’s operations were more or less nonexistent—and he went traveling in Asia. Obaid called him in 2010 with an offer: PetroSaudi had come into a lot of money, and he wanted Justo to become director of the firm’s London office.

  Offered a starting salary of 400,000 pounds per year, with the chance to make millions, Justo moved to London and ran PetroSaudi’s sleek new offices in Curzon Street, only a five-minute walk from the Connaught. Justo helped with the only real business the 1MDB-PetroSaudi joint venture ever conducted—two drill ships, acquired by the company and then leased to Venezuela’s national oil company—and was often on the plane to Caracas. But his relations with Obaid soon deteriorated, as his young friend seemed paranoid and arrogant after the 1MDB deal, while at the same time failing to deliver the proposed millions.

  Seemingly intoxicated by the extent of his newfound wealth, Obaid began flying to Saudi Arabia and elsewhere in the Middle East on private jets and, like Low, renting yachts in the south of France. His brother suggested setting up a family office to manage all the money. To some observers, Obaid started to act erratically. He always had been a hypochondriac, complaining of vague illnesses, and after the money started flowing he wrote to the Mayo Clinic in the United States to get a full medical check-up, despite being in his midthirties. He began to party incessantly and put on weight. People who knew him said he flew into frequent rages.

  Patrick Mahony also began to spend. His wife was pregnant with their first child, and in November 2009 Mahony signed a deal to buy a 6.2-million-pound town house overlooking a private park in London’s Ladbroke Square. He talked with his private banker at J.P. Morgan about getting an Amex Black card, the kind used by celebrities and billionaires. Only thirty-two years old, he worried about one of his sisters being jealous over his growing success and the lifestyle that came with it.

  Observing all this, Justo, though he didn’t know the full details of what had happened at PetroSaudi, sensed he was not getting treated fairly. He believed Obaid was stiffing him by not fully paying his salary, as well as failing to reimburse travel and other costs. Adding insult to injury, Justo had to perform what he considered menial work, including organizing for Obaid and Jho Low to get exclusive credit cards from a Dubai bank. Fed up, in the spring of 2011, he decided to quit. But he
wasn’t just going to walk away.

  “Due to our history, and all the projects I’ve taken part in over the years, I think an amicable separation is the best way for me to leave PetroSaudi and the other companies,” he wrote Obaid in an email. “I’ll wait for your confirmation that our collaboration is over from today, and that I’m to leave the office, and also that you will let me know how to get my severance pay.”

  “You’re a smart ass. It’s one thing to be a big mouth but now you’ve blown everything up. Another word from you on that, and we’re finished,” Obaid replied.

  The Connaught meeting was a last-ditch attempt to reach terms. But Obaid insisted the amount agreed on in the bar be reduced again, this time to 4 million francs. It was a fateful decision. Justo received the 4 million Swiss francs in a severance agreement with PetroSaudi, but he felt short-changed by 2.5 million Swiss francs.

  In the ensuing weeks, Obaid went around telling mutual friends that Justo was a loser who owed everything to PetroSaudi. Justo was furious when he heard the talk, so he came up with another plan. He knew something was not right about PetroSaudi’s relationship with 1MDB, so he set about obtaining proof. To gain leverage in his dispute, Justo arranged to get ahold of a copy of PetroSaudi’s computer servers from a PetroSaudi IT person. Amid the more than 140 gigabytes of data, including some 448,000 emails, documents, and other official papers, were details of the fraud that had transpired.

  He wouldn’t do anything with the servers for more than two years, but when he did, it would cost Obaid and Mahony more than a few million Swiss francs.

  As the drama unfolded in Europe, Low, unaware, was a continent away—busy shopping for a New York penthouse fit for a billionaire. And he was trying out a new story to explain his riches: family wealth.

  Chapter 22

  Penthouse with a View

  New York, March 2011

  Surrounded by an entourage of security, models, and friends, Low took in the views from penthouse 76B in the Time Warner Center on the southwest corner of Central Park. With trees and lawns filling the floor-to-wall windows to the east, and the Hudson River stretching out to the west, the apartment boasted unfettered views of virtually the entire island of Manhattan. The 4,825-square-foot unit, with three bedrooms, a library, and a fish tank hanging from the ceiling in the “Great Room,” had once been the home of Jay-Z and Beyoncé, who rented it for $40,000 per month.

  As Low toured the apartment in the spring of 2011 he claimed to realtors to be picking up the place for a group of investors. To a member of the condominium board, however, Low purported to represent the prime minister of Malaysia. But it was really for him. The next year, he would transfer ownership of the Park Laurel apartment and his mansions in Los Angeles and London to Riza Aziz, Najib’s stepson. The Time Warner penthouse, however, was his crown jewel, the residence that matched his aspirations to build a reputation in the United States as a movie mogul and serious investor.

  The acquisition of penthouse 76B was secured in June for $30.5 million in cash, one of the highest prices for the building and a price tag that made it among the most expensive apartments in the United States. With questions bubbling in the media about the source of his funds, Low took even greater precautions than in the past to mask his involvement. Over the years, Low had come up with creative reasons to justify his expenditures. Either rich Arab friends were paying, or he merely represented a group of investors or Malaysia’s prime minister. As it became difficult to deny his involvement, Low came to rely more on another explanation that he first had tried out on his Wharton and Harrow friends: The money issued from his grandfather, and Low simply was investing the family’s billions.

  To make the story seem true, he needed to wash hundreds of millions of dollars through the bank accounts of family members, notably his father, Larry. Thin, with a narrow mustache and neatly parted hair, Larry Low was seen as a likable party guy back in Penang—though allegations he had cheated a former business partner trailed him. To send huge amounts of cash to his father, Low had to find a bank that wouldn’t dig too deeply.

  Until this point, Low had managed to skirt banks’ compliance departments, but it was hard work. With Deutsche Bank and Coutts, he was constantly forced to invent fake investment agreements to justify weighty movements of cash, and even had to fly to Zurich to explain deals. Low’s ability to get this far was in part a result of the failings of compliance efforts at major financial institutions. Banks made money through letting transactions happen—not putting up roadblocks—and compliance officers were often pressured to turn a blind eye. But operating on this scale, Low was finding it harder and harder to hoodwink compliance.

  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.

  What Low needed was a smaller bank, one that would be dependent on his business and took compliance even less seriously than Wall Street behemoths. He found it in a struggling Swiss bank called BSI, which was owned by Italian insurance group Assicurazioni Generali. Ironically, the bank had refused to handle the original PetroSaudi deal because of concerns over Low’s role. But from late 2010, he started opening dozens of individual and corporate accounts at BSI’s small Singapore branch. One of them, on June 28, 2011, was credited with $55 million from the Swiss account of Good Star at Coutts. On the same day, Low sent $54.75 million from that account to one that Larry Low had recently opened, also with BSI in Singapore. From there, only hours later, $30 million was sent to Switzerland, digitally moving to Asia and back on the same day, landing in the account of another Low-controlled company at Rothschild Bank in Zurich.

  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.

  But BSI bankers could investigate under the hood, and should have alerted authorities to the needless back-and-forth transactions between Low and his father. The likes of Coutts and Rothschild had failed to catch Low, but they had asked questions. Now Low was testing BSI’s willingness to look the other way, a tryout the bank passed with flying colors, opening the doors to more lucrative business. The bank would become a crucial element in the plumbing of the 1MDB scheme as its scale escalated in the years ahead.

  From Rothschild, Low sent $27 million to one of his IOLTA accounts at Shearman, the
U.S. law firm. Since 2009, Low had relied on these lawyer trust accounts for his myriad purchases, drawing on them to pay for gambling, parties, and yacht rentals, as well as to purchase multiple properties. Back then, Low had sent money directly to the IOLTA accounts from Good Star. Now Low was taking greater precautions, sending money in a circuitous fashion into his lawyer accounts.

  These accounts were used to fund the purchase of the Time Warner penthouse, finalized in June 2011, as well as to pay Douglas Elliman a brokerage fee of $1.2 million. A Seychelles company, with 1MDB employee Seet Li Lin as a signatory, was the initial purchaser of the Time Warner penthouse, but it assigned its rights to yet another shell firm controlled by Low.

  A notice to the Time Warner condominium board identified Larry Low as the occupant of the apartment, an attempt to buttress the image of a billionaire family. But it was Low who would live there, a suitably grandiose base in New York for one of the world’s newest billionaires.

  Chapter 23

  Switzerland of the East

  Singapore, December 2009

  How BSI came to be Low’s bank of choice started with a fight. Back in late 2009, Hanspeter Brunner was angry with his employer, Coutts International, the Zurich-based foreign arm of the three-hundred-year-old British private bank, which has offices on the Strand and counts Queen Elizabeth among its clients. Brunner, a private banker in his fifties with short-cropped hair and a ruddy complexion, the consequence of a lifelong appreciation for vintage red wine, had taken a banking internship at age fifteen in his native Switzerland rather than finishing high school and attending university. He spent a quarter century at Credit Suisse, where he learned the ropes of private banking, the industry of investing money for individuals with more than $1 million in liquid assets.