Rights: Investigating and Prosecuting Kleptocracy in Malaysia
By Khamal Patterson
942. Misappropriating public funds by a public official is a criminal offense under Malaysian law, as enumerated by the Penal Code of Malaysia, including but not limited to sections 403 (dishonest misappropriation of property), 405 (criminal breach of trust), 409 (criminal breach of trust by public servant or agent), 166 (Public servant disobeying a direction of the law, with intent to cause injury to any person (including a company)), 415 (cheating), 418 (cheating with knowledge that wrongful loss may be thereby caused to a person whose interest the offender is bound to protect), and 420 (cheating and dishonestly inducing delivery of property); and the Malaysian AntiCorruption Act 2009, including sections 16, 17, and 23. (Forfeiture Complaint, June 15, 2017).
In 2016 and 2017, the United States Department of Justice (“DOJ”) filed civil forfeiture actions against Certain Rights to and Interest in the Viceroy Hotel Group, believed to be owned by the Malaysian Prime Minister Najib Razak, after connecting several of his assets to $1.5 billion missing from Malaysia’s state-owned 1 Malaysia Development Berhad (“1MDB”). The most notable assets are three masterpieces: Nympheas avec Reflets de Hautes Herbes (1917) and Saint-Georges Majeur (1912) by Claude Monet and La Maison de Vincent à Arles (1888) by Vincent van Gogh. The Kleptocracy Initiative of the DOJ led the prosecution effort. Its partners in Switzerland have already moved to seize Razak’s assets there, including the masterpieces. This was the largest seizure action the DOJ’s anti-corruption unit has undertaken. The DOJ’s complaint follows transactions and activities regarding 1MDB and its management from the fund’s founding in 2009 to 2014.
The DOJ has scrutinized multiple assets, including bond offerings from Goldman Sachs to accounts associated with Razak because activities that could be categorized as money laundering began almost as soon as the ink was dry on these bond agreements. David Honig, in his article “No Secrets About Money Laundering,” describes money laundering as “the process by which money obtained through ill-means is “cleansed” and made to appear legitimately obtained. In this case, money from 1MDB bonds was transferred to receiving accounts, but receiving accounts would receive funds only after funds were transferred through accounts controlled or managed by a conspirator that diverted funds further or made purchases.
In 2012, Goldman Sachs arranged for two separate bond offerings totaling $3.5 billion. The first bond offering was for $1 billion, and the second was for $2.5 billion. A third bond offering was arranged in March 2013 for $3 billion of which 1.26 billion was infamously diverted to a company controlled by a close financier associate of Prime Minister Razak. These funds were used to purchase property, paintings, and pleasure or were wired to various accounts. Bond guarantor Al-Qubaisi received nearly half a million dollars in his company account from an account that had received proceeds siphoned from the $1 billion bond offering. Funds from this offering were quickly diverted to Prime Minister Razak and his associates. Riza Aziz, the Prime Minister’s stepson, received $1.4 billion. Aziz owns Red Granite Capital, which financed the production of The Wolf of Wall Street (2013).
Though the DOJ action does not name Prime Minister Razak specifically, it can be reasonably inferred that the figure identified as “1MDB Official 1” is indeed Prime Minister Razak. The complaint states, “MALAYSIAN OFFICIAL 1 is a high-ranking official in the Malaysian government who also held a position of authority with 1MDB”. The document goes on to say that “1MDB Official 1” was a public servant at all times relevant to the complaint. Razak’s status as Prime Minister and the timeline of his actions all lend credibility to the belief that he is the unidentified “1MDB Official 1.” As of January 19, 2018, Prime Minister Razak is still in office. There is a burgeoning interest in the offshore financial district of Labuan, and an eager Razak recently announced plans to develop infrastructure there for tourism and high class-recreation. Razak’s recent financial projects are part of his continuing response to the crash of the vital local oil and gas economy a few years ago, and diversifying Labuan’s economy is the grand centerpiece of his plan.
Malaysia purchased an American energy company holding Southeast Asian assets, and the new Malaysian state entity was incorporated in Labuan in 2014. This entity, 1MDB Energy Limited, has also been connected to the billions stolen from 1MDB in 2013. Razak’s diversification of the Malaysian economy is crucial especially after 1MDB defaulted on a series of bonds that affected the country’s sovereign debt and currency in April 2016.
Authorities were also investigating several others in connection to the missing money from the sovereign development fund. One is Khadem al-Qubaisi, the Emirati financial benefactor to the Razak family. Another is Riza Aziz whose film, The Wolf of Wall Street (2013), earned immense profits that are now subject to seizure by American authorities. Additionally, the DOJ is investigating Malaysian businessman Jho Low, a Singaporean financier, international art connoisseur, and power player with Prime Minister Razak’s ear.
Low arranged for the purchase of several works of art for himself and Prime Minister Razak with funds diverted from 1MDB. As the Wall Street Journal reported “Mr. Low was deeply involved in 1MDB from the start and was central to the alleged fraud.” Though Low’s ownership is in still dispute, Low was linked to company called Good Star Limited that misappropriated $400 million from 1MDB into the United States for the leisure of Low and his partners.
Low was alleged to have controlled three companies managed by his associate Eric Tan that diverted 1MDB funds to purchase works of art and jewelry: Tanore Finance Corporation, Affinity Equity Partners, and Midhurst Low also had access to an account at Blackstone Asia Real Estate Partners beneficially owned by Eric Tan. Tan’s Blackstone account received $1.1 billion from 1MDB, and proceeds from this account were transferred to officials at 1MDB, investment funds, Khadem al-Qubaisi, and individual accounts. Tan’s company Affinity Equity International Partners Limited then diverted funds through Low-controlled accounts to an account strongly believed to belong to Prime Minister Razak.
According to the DOJ complaint, in January 2013, Low transferred $25,000,000 million from his personal account to a corporate account he controlled. From this corporate account, Low transferred the $25,000,000 million to an account at Affinity Equity International Partners Limited. $3,380,0000 million from the Affinity Equity account was sent to an account at Platinum Global owned by Eric Tan. $3,200,000 million for the Platinum Global account was disbursed to pay an art dealer in Monaco for a Picasso. Eric Tan later had the Picasso presented to American actor Leonardo DiCaprio as a belated birthday gift with a friendly handwritten note signed with Tan’s initials “TKL. This is just one scheme that the pair ran to launder money through lavish gifts of fine art. Low and Tan together ran Tanore Finance Corporation which also received $1 billion diverted from 1MDB. Through Tanore, the pair engaged in what art reporter Eileen Kinsella demonstrates was “straightforward” money laundering using fine art purchases.
In November 2013, Artnet reported that “Eric Tan reportedly asked for a Christie’s skybox with enough seating for 12 people, for sales on November 5 and 12, respectively.” Low attended one of Christie’s auction with Mr. Aziz. Tan demanded that a Christie’s employee email a colleague about the venue’s ambiance before a big auction. Low waned assurance that the accommodations were grandiose and insisted that “[i]t better look like Caesar Palace [sic] . . . The box is almost more important for the client than the art . . . . ” On the night of the auction, Low used a colleague to place a “. . . $5.5. million winning bid at Christie’s for a Vincent van Gogh pen-and-ink drawing from 1888 . . . . ” The title of the work was La Maison de Vincent à Arles (1888). Low used funds from Tanore to purchase the work. According to columnist Mia Lamar, just like Low’s use of 1MDB funds diverted to Tanore to buy art, Low’s use of a colleague to secure the painting was also part of Low’s purchase pattern because “ . . . he often went to great lengths to obscure his actual purchases . . . . ”
Using money traceable to Tanore, Low purchased the Monet painting Saint Georges-Majeur for $35 million in 2013. The very next year, Low again used funds traceable to Tanore, and ultimately 1MDB, to purchase Monet’s Nympheas avec Reflets de Hautes Herbes at Sotheby’s London for $57.5 million. In total, investigations into Low’s activities revealed that he tried to unlawfully obtain $137 million of art. Because Low is currently under investigation by the DOJ in connection with 1MDB and Prime Minister Razak, Christie’s has washed their hands of Low and no longer conducts business with him.
As the DOJ turned up the heat on Low, he began selling off his collection at deep discounts. According to ArtNet, Low has sold nearly $205 million worth of art from his collection since January 2016. The whereabouts of the works sought by the DOJ at one point were unknown, though Sotheby’s reported having two of the works as recently as June 7, 2016.
Around July 25, 2016, the works were found. Swiss authorities have not disclosed from whom the the van Gogh and two Monet works were confiscated. Forfeiture expert Attorney Stefan Cassella states that parties’ whose property is subject to civil forfeiture may assert an innocent owner defense. According to Attorney Cassella, “Property cannot be forfeited- even if the Government establishes its connection to a crime- if the owner of the property was unaware of the criminal activity or was a bona fide purchaser for value.”
While remains to be seen if those from whom these works were confiscated may assert a defense to reclaim them, it is apparent that these works were purchased in connection with misappropriation and money laundering crimes at the behest of Prime Minister Razak, in power since 2009, and coordinated by Jho Low with the assistance of Eric Tan. The fact that Razak and company appropriated billions of dollars from 1MDB, purchased fine artworks using millions in misappropriated funds, and still could move them through the market even after the DOJ filed to seize them illustrates the need to reexamine how irregular financial transactions in the art market are addressed and monitored. Razak, who belongs to the Barisan Nasional party, remains in power, having been re-elected in 2013. The next elections general elections in Malaysia are coming up sometime before August 24, 2018.
- Forfeiture Complaint in US v. Certain Rights to and Interest in the Viceroy Hotel Group, 2:17-cv-04438 (C.D. CA. June 15, 2017) available here https://www.justice.gov/opa/press-release/file/973671/download
- Shannon Teoh, Najib Launches Labuan Booster Plan, The Straits Times.com (January 19, 2018) http://www.straitstimes.com/asia/se-asia/najib-launches-labuan-booster-plan.
- Stanley Carvahlo, UAE Tycoon Qubaisi Named in Billion-Dollar U.S. Suits (July 21, 2016)
- Tom Wright, Malaysia’s 1MDB Defaults on $1.75 Billion Bond, The Wall Street Journal (May 24, 2016)
- Guelda Voien, Monets, Van Gogh Sized in Switzerland in Connection with Malaysia Fund Probe, Observer.com (July 26, 2016) http://observer.com/2016/07/monets-van-gogh-seized-in-switzerland-in-connection-with-malaysian-fund-probe/.
- Bradley Hope and Tom Wright, U.S Links Malaysian Prime Minister to Millions Stolen from Development Fund, Wall Street Journal.com (July 21, 2016) http://www.wsj.com/articles/u-s-seeks-1-billion-in-asset-seizures-tied-to-malaysian-fund-1mdb-1469019540.
- Mia Lamar, The Tiny Malaysian Island That Wants to Be a Tax Haven, Wall Street Journal.com, (June 2, 2016) http://www.wsj.com/articles/malaysian-island-works-offshore-niche-1464847210.
- Stefan D. Cassella, Using the Forfeiture Laws to Protect Cultural Heritage, Asset Forfeiture Law, LLC.com (December 8, 2015) http://assetforfeiturelaw.us/wp-content/uploads/2015/12/Cultural-Property-Forfeiture-Article.pdf.
- The Edge Malaysia, Who Is This Eric Tan Who Received $US 11.9M of SRC’s Money, TheEdgeMarkets.com (May 30, 2016)
- Clare Rewcastle-Brown, BSI’s “Biggest Customer” Is Now a ‘Person of Interest’- Singapore Case Confirms Jho Low Was the Man behind the Scam, Sarawak Report (November 11, 2016)
- Clare Rewcastle-Brown, A Thief and Liar, Caught Red-Handed by the FBI-PM Najib Razak [“Malaysian Official Number 1”] is Unmasked, Sarawak Report (July 20, 2016)
- Clare Rewcastle-Brown, Forgery and Deception-1MDB’s Network of Money-Launderers Unravels, Sarawak Report (May 13, 2016)
- Reuters, Goldman Sachs Is under the Spotlight in Malaysian 1MDB Fund Scandal, Fortune.com (July 21, 2016)
- Jeevan Vasagar and Kara Scannell, US Probes 1MDB Links with $2.2Bn Energy Deal, FinancialTimes.com (June 13, 2017)
- Eileen Kinsella, Prosecutors Expose Jho Low’s Secret Schemes to Illicitly Acquire $137 Million in Art, Artnet News (July 20, 2016) https://news.artnet.com/art-world/documents-show-jho-low-tktkt-567875.
- Eileen Kinsella, Troubled Malaysian Investor Jho Low Sells of Masterpieces amid International Investigation, Artnet News (May 20, 2016) https://www,google.com/amp/s/news.artnet.com/market/jho-low-sells-art-amid-international-investigation-501479/amp-page?client=safari.
- Henri Neuendorf, Swiss Seize Paintings by van Gogh and Monet in Malaysia Corruption Case, artnet news ( July 25, 2016) https://www.google.com/amp/s/news.artnet.com/art-world/art-seized-malaysia-corruption-574268/amp-page.
- David Honig, No Secrets about Money Laundering, Itsartlaw.com (July 17, 2016) https://itsartlaw.com/2016/07/17/no-secrets-about-money-laundering/.
- Department of Justice Office of Public Affairs, U.S. Seeks to Recover Approximately $540 Million Obtained From Corruption Involving Malaysian Sovereign Wealth Fund, justice.gov (June 15, 2017) https://www.justice.gov/opa/pr/us-seeks-recover-approximately-540-million-obtained-corruption-involving-malaysian-sovereign.
About the Author: Khamal is a 2018 intern at Saving Antiquities for Everyone and recently completed a fellowship with the Lawyers’ Committee for Cultural Heritage Preservation. He is a member of the Catholic University of America, Columbus School of Law class of 2014.
The article has been revised and abridged by the Center for Art Law editors.
Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. It expresses opinions of the author.