Billion Dollar Whale

Just finished Billion Dollar Whale. A great - and awful - read. Great: Tom Wright and Bradley Hope have done a fantastic job of telling an intricate financial tale (tho’ the endless, unbelievably-bling parties do help lighten up all the scheming). Awful, as the scale of corruption is appalling. A few very scattered thoughts:

Correct me if I’m wrong, but I guess it was the biggest single heist in history – some USD 7bn, 2.5% of Malaysia’s GDP. They’ll be individuals (in Russia, China, and in the US?) who’ve stolen more, but not as quickly or through just one scheme.

The looting of 1MDB really wasn’t complicated. It issued bonds, with the backing of the Malaysian government, then Jho Low, our anti-hero, wired most of the funds to his own bank accounts and blagged/paid off anyone who raised concerns. Cue massive, ridiculous spending spree on models, Cristal, a plane, a yacht, plenty of jewelry and on voters. Jho Low was fresh out of US grad school, and basically just blagged his way to billions after a few failed starts. Maybe he really thought 1MDB could be a legitimate business, and he could just skim off the top. Maybe, but probably not.

The lure of money, a bit of nasty foreign influence plus a few immoral people in power trump institutions. Malaysia is not a tin-pot country, but it was still ridiculously easy for Prime Minister Najib Razak to despoil it. At least the institutional architecture is there now for good people to repopulate and strengthen the government again. But it makes me wonder about places like the UK and the US – where the institutions are being decayed by exactly the same forces.

Democracy – however flawed we know it is – worked in Malaysia in 2018. If not for that election, Najib would be turning Malaysia into Venezuela. That might sound like an exaggeration but the rot would have spread, capital and people would have left, Najib would have been forced into ever-crazier, damaging schemes.

Amazing how easy it is to fool people when you set up a company with a name very similar to that of a large, well-known, legitimate company. There are pretty shameful standards of compliance out there.

Investigative journalists really are awesome – especially folk at The Edge and the Sarawak Report – who started the investigations, even when a government investigator turned up dead. The Wall Street Journal management was happy for Wright and Hope to continue digging deep. Heroes all of them.

Deloitte signed off on 1MDB accounts after Ernst & Young and KPMG raised questions over a non-existent USD 2.3bn asset. They wanted to do more business with 1MDB. Pretty disgusting. It would make sense for auditors not to be able to sell non-auditing services; and to have more liability for acts like this.

Beijing’s CCP government got in late to the 1MDB game, but they were happy to help. China Exim Bank was front and centre – lending to Malaysian projects at huge markups in order to funnel funds to 1MDB accounts just when Jho Low was desperate for funds. It seems likely that Exim’s leadership knew, but one often hears in Beijing that such loans are directed by senior political actors rather than the bankers. It’s a pretty brutal indictment of Beijing’s “pay to influence” foreign policy. The Belt & Road Initiative would be so much more effective if the financing were clean and transparent. Possible?

Not surprising how quickly Najib blamed a colonizing West when his scam went bad and investigators started circling. At some point, I hope we learn again that nationalism is the last refuge of the scoundrel, but so many people seem so happy to be played these days.

Najib wasn’t the smartest guy in town. Who knows how much he knew of Jho Low’s theft – but the fact that he tried to fly out of Kuala Lumpur days after the election, not that very night, suggests a certain slowness of thought.

People complain about the US being the “world’s policeman” but without them, maybe the whole 1MDB scheme would have not been unraveled. I’m rather glad the FBI and DOJ launched a criminal investigation, seized stolen assets and will likely prosecute many involved.

Goldman Sachs, which underwrote all the 1MDB bonds, has some real problems, it seems. A number of very senior Goldman people cheered on the 1MDB business, which from the very beginning was suspicious, to say the least. There are a number of folk there who raised red flags, all ignored. The main bankers Tim Leissner and Andrea Vella certainly appear to have the biggest legal problems, but they’ll have incentives to talk. As will others who think there’s a bus coming at them. Malaysia wants back all of the bond proceeds. If I had to guess, I’d say GS will end up paying most of that – and paying a huge DoJ fine too.

GS has publicly claimed they took enormous underwriting fees on the bonds because they took balance sheet risk. But that’s not really how it went down. According to Wright & Hope, GS already had buyers lined up for at least two of the three 1MDB bonds. They then flipped the bonds and made 200x more profit than in a usual bond issue. This stuff is not complicated – if a client is paying through the nose for a simple transaction, its likely there’s something very wrong. GS also claim they’re not responsible for the use of the bond proceeds. Hmmm… In this regard, Hope and Wright wonder if GS broke the Bank Secrecy Act – which JP Morgan did in the Bernie Madoff case, implying some kind of due diligence liability. I’d be really interested in reading more about how the law works here. Call me crazy, but I’d like to see bankers who commit serious crimes go to jail. I think we’ve now learned the lesson of post GFC – that white collar crime (by people who don’t need the money!) needs to be punished properly. And banks who facilitate this stuff need to be punished too.

Singapore seems to have gone pretty easy on all the dodgy private bankers involved. Most had to hand back their illegal gains, some got just a few weeks or months in jail, but some don’t seem to have been punished at all. I’d hazard a guess that some folk might even go so far as to imagine they don’t take financial crime all that seriously in Singapore.

Finally two small moments I really loved.

First is when Jho Low is explaining to a bank compliance officer that its “Chinese culture” that explains why he is sending millions to his dad’s bank account, as a token of his filial respect, blah, blah, blah. Of course, he just wanted to wash the money, make it appear it was part of his family estate. It drives me nuts that Chinese culture is abused like this – and that folk like Jho Low think non-Asians are so stupid that “respecting another’s culture” means they should ignore a crime.

Second, Jordan Belfont – the real-life “Wolf of Wall Street” – is attending one of Jho Low’s super-extravagant, multi-million dollar parties. Jho Low set up Red Granite, which financed the Scorcese/DeCaprio film, an immoral but hugely-entertaining roller-coaster (film mirrors life, etc.). Belfont looks around the party and remarks to his partner: “These guys are fucking criminals - there’s no way someone who earned this kind of money would spend it like this”. Belfont then disassociates himself from Jho Low, turning down USD 500,000 in appearance fees! There you have it – the Wolf is one of the few guys who walked away from this robbery with his integrity intact. Respect.

Finally, boys and girls, the last lesson: money does not buy you happiness. Jho Low is continually chasing other people’s love and attention, showering them with gifts. Wright and Hope say they never met him, but the portrait they paint is of a man who is not enjoying this crazy life. He’s now thought to be hiding in China, with money, and secrets that some folk in Beijing will not want laundered. He seems lonely most of the time in the book. I imagine its worse for him now.

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