By Randeep
Ramesh / The Guardian | July 29, 2016, 5:59 PM MYT
On 22 June 2015, Xavier Justo, a
48-year-old retired Swiss banker, walked towards the front door of his brand
new boutique hotel on Koh Samui, a tropical Thai island. He had spent the past
three years building the luxurious white-stone complex of chalets and
apartments overlooking the shimmering sea and was almost ready to open for
business. All he needed was a licence.
Justo had arrived in Thailand four years earlier, having fled the
drab world of finance in London Bangkok
That June afternoon, he was
expecting a visit from the tourism authorities to sign off on the paperwork.
Instead, a squad of armed Thai police burst through the unlocked door, bundling
Justo to the ground. The officers tied their plastic cuffs so tightly around
Justo’s wrists that he bled on the dark tiled floor. The police quickly moved
into his office, ripping out the computers and emptying the filing cabinets.
After two days in a
ramshackle local jail, Justo was flown to Bangkok
Justo was charged with an
attempt to blackmail his former employer, a little-known London-based
oil-services company named PetroSaudi. But behind this seemingly mundane charge
lay a much bigger story.
Six months earlier, Justo had
handed a British journalist named Clare Rewcastle Brown thousands of documents,
including 227,000 emails, from the servers of his former employer, PetroSaudi,
which appeared to shed light on the alleged theft of hundreds of millions of
dollars from a state-owned Malaysian investment fund known as 1MDB.
The documents that Justo
leaked have set off a chain reaction of investigations in at least half a dozen
countries, and led to what Loretta Lynch, the US
attorney general, described last week as “the largest kleptocracy case” in US
According to lawsuits filed last week by
the United States Department of Justice (DoJ), at least US$3.5bn has been
stolen from 1MDB. The purpose of the fund, which was set up by Malaysia US
also claimed, helped to purchase luxury apartments in Manhattan, mansions in
Los Angeles , paintings by Monet, a corporate
jet, and even financed a major Hollywood
movie.
The US justice department
breaks the alleged theft down into three distinct phases: the first US$1bn
defrauded under the “pretence of investing in a joint venture between 1MDB and
PetroSaudi”; another US$1.4bn, raised by Goldman Sachs in a bond issue,
misappropriated and fraudulently diverted to a Swiss offshore company; and
US$1.3bn, also from money Goldman Sachs raised on the market, which was
diverted to a Singapore account.
“A number of corrupt 1MDB officials
treated this public trust as a personal bank account,” Lynch told the press
last week. “The co-conspirators laundered their stolen funds through a complex
web of opaque transactions and fraudulent shell companies, with bank accounts
in countries around the world, including Switzerland ,
Singapore and the United States US
Najib, who has used every
ounce of his power to obstruct investigations into the scandal – a charge he
denies – is not mentioned by name in the US US
Low’s sidekick is Riza Aziz,
Najib’s stepson. Riza produced The Wolf of Wall Street – Martin Scorsese’s tale
of corruption, decadence and greed – and both he and Low were thanked by name
in Leonardo DiCaprio’s Golden Globes acceptance speech for best actor. In 2011, Low took a
20% stake in EMI, the world’s largest music-publishing company, for US$106m –
in the same year, he bought a US$30m penthouse for his father at the Time Warner Center in Manhattan ,
overlooking Central Park . Riza’s Hollywood production company has said: “There has never
been anything inappropriate about any of Red Granite Pictures or Riza Aziz’s
business activities.”
All this and more is laid out
in the US filing, which details claims of an amazing heist, carried out by
conspirators who rinsed billions from the people of Malaysia through
offshore accounts and shell companies in tax havens such as the Seychelles and
British Virgin Islands. The scale of the enterprise echoes Balzac’s maxim that
behind every great fortune lies a great crime.
The global effort to uncover Malaysia
Justo’s connection to
PetroSaudi was his long friendship with one of the company’s two founders, a
Saudi national named Tarek Obaid. The two men had met back in the late 1990s,
when they both partied regularly in the nightclubs of Geneva Geneva
Obaid and Justo were an
unlikely pair, brought together by a love of the high life. Justo, the son of
Spanish immigrants to Switzerland Georgetown
University ’s prestigious School of Foreign Service UK
When Justo left Geneva in 2009, PetroSaudi was little more than a name on
a calling card, formally incorporated in London
with an address at an anonymous business unit near Victoria
PetroSaudi’s business was
access capitalism: opening doors with the help of friends in high places. The
basic idea was to capture a piece of the huge oil revenues being generated by
state-owned firms in developing countries – treasure chests waiting to be unlocked
by a firm that was a “vehicle of the Saudi royal family”, which could count on
the “full support from the kingdom’s diplomatic corps”. PetroSaudi told
potential partners that it controlled oil fields in central Asia ,
which it would put up as collateral to secure cash from state investors.
This was the pitch that
landed PetroSaudi’s founders a meeting with the Malaysian prime minister in
August 2009. Aboard a 92m megayacht off the coast of Monaco
Although Low held no formal
position in the Malaysian government, he had become a trusted confidant to the
prime minister. Despite his youth, Low had been instrumental in working with
Goldman Sachs to set up a sovereign wealth fund to invest the revenues of an
oil-rich Malaysian state.
Around the time that Low and
Najib went boating with the PetroSaudi founders, the Malaysian central
government took control of the wealth fund – which was soon renamed as 1Malaysia Development Berhad (1MDB) and given a mandate to promote
economic development in Malaysia
The new fund’s first major
deal was signed a few weeks after the meeting with PetroSaudi – a US$2.5bn
joint venture agreement between PetroSaudi and 1MDB, inked during a visit by
Najib to Saudi Arabia Saudi Arabia has in Malaysia
But, according to the US
justice department, the deal was merely a “pretence” for “the fraudulent
transfer of more than US$1bn from 1MDB to a Swiss bank account” controlled by
Low – “a 29-year-old with no official position with 1MDB or PetroSaudi”.
PetroSaudi has always maintained that all 1MDB funds were paid to entities
owned by its shareholders.
The multibillion-dollar joint
venture deal was completed with extraordinary speed – in less than a month.
Shortly after the yacht meeting, on 28 August 2009, Obaid had introduced Low to
Patrick Mahony – the company director who handled PetroSaudi’s business
affairs. According to documents seen by the Guardian, Low and Mahony met for
lunch in New York
After dining at Masa – a
sushi restaurant where the set menu costs US$540 a head – Mahony emailed Low
the next day with an offer: “We know there are deals you are looking at where
you may want to use PSI [PetroSaudi] … we would be happy to do that. You need
to let us know where.” PetroSaudi said the documents seen by the Guardian are
unreliable, stolen, fake and that they have been selectively quoted.
Less than three weeks later,
the deal was done. PetroSaudi would contribute US$1.5bn in oil and gas assets
to the joint venture, while 1MDB would inject US$1bn in cash.
According to the US US US
In documents seen by the Guardian, on
30 September 2009 PetroSaudi appears to direct that the US$700m be paid into an
account controlled by the company – but three days later, when the compliance
department at RBS Coutts requested further details about the name of the
beneficiary account, the address given by 1MDB was the Good Star account. On
the same day, 2 October, Low emailed Mahony to say “Shld be cleared soon”.
PetroSaudi told the Guardian: “No money put into the joint venture by 1MDB was
misappropriated or is missing. Its investment was repaid with profit … All
transfers from 1MDB were paid with the full approval of the 1MDB board.”
According to documents seen
by the Guardian, the Good Star transaction made Obaid, then 32, and Mahony,
then 33, very rich men. Records indicate that on 30 September 2009, Good Star
agreed to pay $85m to Obaid, which the Seychelles
Four days later, Mahony began
discussions to set up an offshore company to buy a £6.7m townhouse in Notting
Hill – and by 12 November, contracts for the house had been exchanged. The
former banker created a numbered bank account in Switzerland ,
and all payments for the purchase were made from this account, via a British Virgin Islands company that Mahony had set up.
In response to questions from
the Guardian, PetroSaudi said the payment to Obaid was not a brokerage fee and
that the transfer of US$33m to Mahony had nothing to do with the
PetroSaudi-1MDB joint venture.
Laura and Xavier Justo were
blissfully unaware of their friend Obaid’s changing fortunes. The couple were
sunning themselves on Thailand ’s
Andaman coast in December 2009 when Obaid rang Justo offering him a director’s
position in London
Justo rejected Obaid’s
initial offer, but he was eventually persuaded by the temptation of a well-paid
“adventure”. According to Justo, Obaid promised him a salary of £400,000,
“millions in bonuses” and the perk of a £10,000-a-week flat in Mayfair, central
London London Venezuela ,
and spent much of 2011 flying between London and
Caracas
Between September 2010 and
May 2011, 1MDB agreed to lend an additional US$830m to the joint venture with
PetroSaudi – bringing 1MDB’s total investment to US$1.83bn. Of these new
payments, US officials allege, US$330m was paid into the Swiss account they say
was controlled by Low, on the basis of a request by Obaid – who is identified
in the US
Emails and bank records seen
by the Guardian suggest that in the nine months from September 2010, Obaid
transferred US$77m from his Swiss JP Morgan account to his PetroSaudi
co-founder, Prince Turki bin Abdullah. According to the US
Meanwhile, Low was becoming
known on the New York club scene as a fixer
for the global super-rich – snapped by paparazzi swigging magnums of Cristal
with R&B singers and Hollywood stars.
According to US authorities, Low spent US$100m from the joint venture
transactions on properties in Hollywood and
US$40m on New York US
In the meantime, Justo was growing
disaffected with working conditions at PetroSaudi. According to his wife,
Laura, the first sign of discontent was his discovery that his salary payments
were only about half of what Justo said Obaid had offered him – a slight that
was compounded when he learned that the promised multimillion-pound bonus would
be considerably less than that – more like six figures than seven.
There were other niggles,
too. He complained to Laura that he was often paid late, and sometimes not at
all. He claimed that he ended up paying rent on the flat in Mayfair
that was supposed to be covered by his employers.
At first, Justo told Laura,
he thought these were just mishaps – nothing malicious, just poor corporate
bookkeeping. But he became increasingly dismayed by Obaid’s behaviour. Justo
told friends that Obaid had become “arrogant” after striking it rich. Justo was
especially disturbed by what he described as changes in his younger Saudi
friend – telling other people that Obaid had become irrational, and displayed
“uncontrollable” rage.
Justo and Obaid’s long
friendship, stretched to breaking point over 12 months of highly charged
corporate life, finally snapped. At the end of 2010, Justo missed a flight for
an important meeting. He apologised to Obaid, but according to Justo, his
friend “went mad”, sending him a stream of abuse, via text messages and emails.
Sick with worry, Justo
decided to resign in March 2011. In the angry email exchanges that followed,
Obaid called Justo “arrogant” and a “smart ass”. In April, things came to a
head in Mayfair . Amid the marble, dark leather
and metal art deco detailing of the exclusive Connaught
hotel bar, Mahony and Justo hammered out the terms of his departure. According
to Justo, Mahony had agreed to pay him about 6.5m Swiss francs (£5m) in
severance. However, in the midst of a heated conversation, Mahony’s phone rang.
It was Obaid, who apparently told Mahony to settle on 5m Swiss francs (£3.85m).
Justo, who had poured his heart out to Mahony, telling him he was at his
“lowest point emotionally”, shed tears. A day later, Justo claims that he was
told his severance package would, in fact, be 4m Swiss francs (£3m).
As the rancour set in, Justo
took a copy of the data on the PetroSaudi servers. In September 2013, a little
more than two years after he had left PetroSaudi, Justo sent a fateful email to
Mahony. Justo was insistent that he be paid what was owed to him, warning that
he had a file of information on PetroSaudi. “The official side paints a nice
picture but the reality is commissions, commissions, commissions,” he wrote.
In the furious exchanges that
followed, Mahony accused Justo of blackmail. Mahony presciently told his former
colleague: “What troubles me so much is the way in which I see this situation
ending – with the destruction of you.”
A few months earlier, over a
Chinese meal in London, the journalist who would break open the 1MDB scandal
first heard rumours about an extraordinary heist in Malaysia. Clare Rewcastle
Brown met a contact at a restaurant in Bayswater who showed her screen grabs of
internal documents from PetroSaudi: on a single printed page, there were
highlights of PetroSaudi’s dealings with 1MDB, under the heading “Thousands of
documents related to the deal (emails, faxes and transcripts)”. She recognised
the names and the deal. Her heart skipped a beat. “A bomb went off in my head,”
Brown recalled. She knew right away that this was a huge story.
Rewcastle Brown is a classic
British rebel at the heart of the establishment. She was born on the island of Borneo
– part of which now belongs to Malaysia
– when it was still part of the British empire ,
where her father was a colonial policeman and head of the local intelligence
service. Her brother-in-law is the former British prime minister Gordon Brown.
After working as a reporter for the BBC, in 2010 Rewcastle Brown set up Sarawak Report, a website dedicated to uncovering corruption
in the place of her birth.
Working out of her tiny
kitchen in central London
After the meeting in
Bayswater, Rewcastle Brown knew she needed to get the 1MDB documents. The first
hurdle was that the source of the PetroSaudi papers apparently wanted millions
for the information. It was money she did not have.
Another stumbling block was
that no journalist in Malaysia Malaysia
Undeterred, Rewcastle Brown
arranged with her contact to meet the source in Thailand Bangkok
But Justo admitted that he
was just as scared as she was. According to Rewcastle Brown, he seemed “very,
very nervous” and repeatedly warned her that “the people we were dealing with
were ruthless, had huge amounts of money and were very, very powerful – and
they could do what they liked to us”.
Justo told Rewcastle Brown
that he wanted US$2m in exchange for the PetroSaudi-1MDB documents. It was, he
said, the money he should have been paid when he left PetroSaudi.
Although he shared a few
documents at the meeting, Justo was adamant: no cash, no data. Rewcastle Brown
needed to find a rich person prepared to pay for the papers.
At around this time, concerns
about 1MDB had begun to spread in Malaysia
In August 2014, Najib
received another political blow. Mahathir Mohamad, the towering figure of
modern Malaysian politics who served as prime minister from 1981 to 2003,
announced that he was withdrawing support for Najib, his former protege. In the
weeks that followed, Mahathir became more vocal in his criticism, warning that
1MDB was adding to Malaysia
This warning went unheeded.
The fund’s debt swelled. By November 2014, 1MDB owed almost US$11bn. Najib, who
chaired the fund’s advisory board, appeared unconcerned, telling the state news
agency that the government was not liable for the debt if the fund went
bankrupt.
As the crisis deepened, Rewcastle
Brown continued her quest for a person willing to pay Justo for the
PetroSaudi-1MDB documents. She noticed that some of the most searching
reporting on the scandal had appeared in Malaysia
In January 2015, Tong,
Rewcastle Brown and Justo met in a five-star Bangkok
hotel, the Fullerton
It was a potentially huge
scoop. Tong agreed to pay Justo US$2m. Tong and Rewcastle Brown were
immediately handed disk drives with the data. But the payment was never made.
Justo did not want the money in cash, and he worried that a large transfer of
funds into his account would look suspicious. Tong offered Justo one of his
Monets as collateral – but Justo declined, and said “no, I trust you”.
Rewcastle Brown finally had the documents she had been chasing for 18 months.
On 28 February 2015,
Rewcastle Brown posted the first big story online – under a typically
unrestrained headline: “HEIST OF THE CENTURY!” The article claimed to show how
US$700m had disappeared from the 1MDB joint venture and found its way into
various offshore companies and Swiss bank accounts.
The impact of the article was
felt around the world. In the US ,
law enforcement officials who had been alerted to reports that Low was spending
huge amounts on New York
While researching the story,
Rewcastle Brown had teamed up with the Sunday Times, which helped her decrypt
the files Justo had given to her. The paper ran an interview with Mahathir, the
former Malaysian prime minister, who called for an immediate investigation and
a full audit. “Somebody must be doing something stupid to part with US$700m for
no very good reason as far as I can see,” he said.
In Malaysia
Not long before Rewcastle
Brown’s story broke, 1MDB’s bonds had been effectively downgraded to junk.
After another £200m of Malaysian government funds were required to plug a hole
in 1MDB’s finances, Najib bowed to the inevitable and ordered investigations by
the country’s auditor general and the parliamentary accounts committee. Soon,
the country’s central bank and anti-corruption agency were also looking at
1MDB. Malaysia
Najib tightened his grip on
power. As prime minister and finance minister, he wielded enormous authority:
in April, the government pushed through harsh penalties and restrictions on
free speech, particularly on social media. Five executives of Tong’s The Edge
Media Group – which had also published details of the PetroSaudi deal – were
arrested for sedition. The government also introduced a new law, ostensibly
aimed at terrorists, which allowed suspects to be detained indefinitely. In
July 2015, The Edge weekly was banned from publishing.
Although the scandal only
seemed to be getting bigger, it had not ensnared Prime Minister Najib
personally. Then, on 2 July, Rewcastle Brown and the Wall Street Journal
reported that Malaysian government investigators had discovered that US$681m
from banks, agencies and companies with ties to 1MDB had been deposited in Najib’s
private accounts in 2013. A few days later, investigators raided the offices of
1MDB.
Najib was now at the centre
of a corruption probe relating to allegations that billions of dollars had
disappeared from a Malaysian investment fund he controlled. Deputy Prime
Minister Muhyiddin Yassin, once a supporter of Najib, publicly called on him to
answer questions about the fund. It seemed that Najib was cornered.
On the morning of Monday 28
July, the attorney general, Abdul Gani Patail – a party loyalist who had
previously gone after the prime minister’s opponents – arrived at his office
expecting to finalise corruption charges against Najib. The indictment, which
Rewcastle Brown later obtained and published, would have charged the prime
minister with corruption resulting from the investigations into 1MDB.
The attorney general never
got to press those charges. On reaching his office, he was summarily dismissed
by a civil servant. In a public statement, Najib said the country’s top legal
officer was too ill to continue in the role. Also relieved of their posts were
the head of special branch and the deputy prime minister. Meanwhile, four
members of the investigating parliamentary accounts committee were promoted,
without any choice, to cabinet positions, which left them with no power to
continue investigating, and the committee’s work was declared suspended. The
next day, a mysterious fire swept through police headquarters, where records of
white-collar crimes were kept.
It seemed that Najib was in
control again.
The crackdown revealed a ruthless
side to Najib. However, there was a loose end that could unravel everything:
Xavier Justo. Not only had Justo leaked information about 1MDB’s dealings with
PetroSaudi, he was also a potential star witness in any future court
proceedings about the financial scandal.
After Justo was arrested for
blackmail and flown to Bangkok
Laura says that Mahony
offered Justo a deal: confess and plead guilty, and PetroSaudi will get you out
of here by the end of the year. Justo reluctantly agreed. He signed a
confession – without a lawyer present – which claimed that he had attempted to
blackmail his former employers, and apologised to Mahony and Obaid “for the
harm stress and anxiety I caused them”.
According to Laura, a man who claimed
to be a Scotland Yard detective – and later told her he had been hired by
PetroSaudi – took down Justo’s confession. (PetroSaudi told the Guardian that
Justo had “illegally obtained commercially sensitive, confidential and private
documentation” and was in prison for “blackmail and extortion”.)
Justo was sentenced on 17
August 2015 at Southern Bangkok criminal
court. At the trial he was granted a translator, but his lawyer did not turn
up, sending an assistant instead. The trial and sentencing took 15 minutes.
Justo got three years in a Thai jail for attempting to blackmail a UK
Life behind bars in Klong
Prem Central prison, where Justo is incarcerated, is not for the fainthearted.
In a city where temperatures rarely drop below 26C, Justo shares a cramped
“VIP” cell with 25 other prisoners. Breakfast is at 7am. Water is rationed.
Prisoners have no food after 3pm. There is a small bathroom area at the rear of
the cell, which consists of a tap and a hole in the floor for a lavatory.
As 2015 wore on and it became
clear that her husband was not going to be out of jail by the end of the year,
Laura grew increasingly suspicious of her contacts at PetroSaudi. A series of
stories in the Swiss and Malaysian press purporting to tell Justo’s side of the
story depicted him as an unwitting pawn in a political plot against the
Malaysian prime minister. Things were not getting better for Justo – they were
getting worse. In his prison cell, Justo was now sleeping on a thin blanket –
his mattress was withdrawn a few months after he arrived, as was his exercise
hour.
Laura came to believe that
Justo was a victim of a deceit by his former friends, who tricked him into
confessing and handing over copies of PetroSaudi’s servers, in an attempt to
protect themselves and their Malaysian associates by burying the case. In May
2016, in a last-gasp effort to save her husband, Laura turned to the one person
who she knew Justo trusted: Rewcastle Brown, who brought her to the Guardian.
When I met Laura in June
2016, she was at first calm and composed, but broke into tears when speaking
about her husband, her voice cracking with emotion. Justo has not seen their
son since he was eight months old. “I only want justice to be done,” Laura
recently wrote in an email. “Xavier was no thief, he was only asking for what
he had been promised. Even through this darkest and most difficult time of his
life, which is right now, he writes to me that he is keeping strong for our son
and I – that he will fight for us whatever it takes.”
Since reaching out to
Rewcastle Brown and the Guardian, Laura has handed over notes smuggled out of
prison in which Justo says he has been framed. Laura believes that Patrick
Mahony of PetroSaudi has controlled Justo’s life behind bars, deciding how
comfortable his living space would be and who could visit him. (Foreign
prisoners have a list posted outside the prison of permitted visitors. Mahony
is listed as number two. Laura is number five.)
Laura says she has emails and
WhatsApp messages, as well as recordings of phone calls from last year that
suggest that Mahony is under increasing pressure from Najib, on one hand, and
from US and Swiss investigators combing through 1MDB’s deals, on the other.
In taped telephone
conversations with Laura, Mahony appears obsessed with Rewcastle Brown, whom he
refers to as a “bitch”. In a recorded conversation with Laura from November 2015, Mahony refers
obliquely to a powerful person whom he claims could help reduce Justo’s
sentence: “I told you the other evening, who the ultimate person is controlling
this, and I am due to have another meeting with him soon … This guy is still
stressed because it’s his political career on the line. He’s in deep shit and
that’s all he cares about, nothing else.”
When Laura asks what she
should tell her husband, Mahony says: “The only way that you can show that
you’re on his side – to be a team player – is if you’re ready to put yourself
out in the media. You are ready to denounce all the people who are conspiring
against him … I am not going to lie to you … You can help the situation or you
cannot help the situation.”
When Laura presses for
Justo’s release, Mahony snaps. “I’m still dealing with this shit every day. You
need to remember we are all in the shit. I know he’s in prison and you are
alone with the baby. And I looked at you the other day and I told you I feel
for you. But me, I’m also in the shit. And a lot of other people are in the
shit. A prime minister of a country is in deep shit because he has been put in
this shit.”
By December, Mahony admits in
another phone call that he had been to the US
The consequences of Justo’s leaks are
still reverberating around the world. When the US Department of Justice laid
out the case against 1MDB last week, it pulled no punches. “The Malaysian
people were defrauded on an enormous scale,” said Andrew McCabe, the FBI’s
deputy director. US
In a separate case, the DoJ
is also investigating whether Goldman Sachs violated US banking law in its
handling of US$6.5bn in bond offerings that it carried out for 1MDB. The Wall
Street behemoth earned US$593m in fees for the issue. Goldman Sachs denied any
wrongdoing. The bank told the Guardian: “We helped raise money for a sovereign
wealth fund that was designed to invest in Malaysia
Most important was that the
DoJ allegations directly contradicted repeated assertions by Prime Minister
Najib about the origins and purpose of hundreds of millions of dollars that
ended up in his personal bank accounts – which he had claimed was a gift from a Saudi benefactor.
The DoJ filing was released
at a critical moment for democracy in Malaysia Malaysia
But in the rest of the world,
investigations into the sprawling corruption scandal are continuing to expand.
In Switzerland , the US
The board of 1MDB said that
it was “confident that no wrongdoing had been committed” but as a
“precautionary measure”, its accounts for 2013 and 2014 should no longer be
“relied on by any party”. Najib has said that he did not commit “any offence or
malpractice”. His attorney general cleared him of corruption earlier this year.
For now, the man whose
revelations enabled the exposure of this vast fraud remains in a Bangkok
