Billion Dollar Whale: Superbly reported book on swindle of the millennium

The story of the 1Malaysia Development Berhad fraud highlights the shocking power of those who learn to con the masters of the international finance community, writes Rahul Jacob

Parties figure all too prominently in Billion Dollar Whale. But these are not just celebrity-heavy, Page 3 affairs; they offer a case study of how to build a financial business on a house of cards. It is only his second year at the University of Pennsylvania, but the precocious Malaysian Jho Low, who has just turned 20, understands that the appearance of wealth is a building block to more wealth. Low spends a staggering $40,000 at a Philadelphia nightclub. Champagne flows liberally. Guests use chopsticks to help themselves to sushi placed on a bikini-clad model as if she were an elongated tray. Rumours abound that he is “a prince of Malaysia”.
 
Low was “a serial fabulist,” the authors Tom Wright and Bradley Hope, reporters for the Wall Street Journal, observe. This game of make-believe was central to raising several billion dollars through bond issues for 1Malaysia Development Berhad with the enthusiastic help of Goldman Sachs. Myth-making is useful also in understanding Nirav Modi with his flagship jewel stores and brash billboards that dotted the most expensive retail districts in the world. “Jho Low’s story epitomises the shocking power of those who learn to master the levers of international finance in the 21st century,” Wright and Hope observe. (Disclosure: Wright is a friend, but in part because I admired his 1MDB coverage well before we met a couple of years ago.)
 
When the extended financial party was over at the expense of investors in 1MDB, dressed up as a sovereign wealth fund for Malaysia, not to mention the credibility of regulators worldwide, 1MDB’s debts stood at about $7 billion. An entity that had raised $10 billion but owned only a handful of power plants appeared to have been created to channel cash through a myriad web of accounts in places such as the Cayman Islands and the Seychelles to benefit Low and the family of the former prime minister of Malaysia, Najib Razak. “(Low’s) was a scheme for the 21st century, a truly global endeavour that produced nothing — a shift of cash from a poorly controlled state fund in the developing world, diverting it into opaque corners of an under-policed financial system.”
 

Billion Dollar Whale The Man who fooled Wall Street,
Hollywood and the World Author: Tom Wright & Bradley Hope,
Publisher: Hachette, Pages: 400, Price: $16.99

Take, for instance, what Goldman dubbed Project Maximus in which it bought and then sold on $1.75 billion in 1MDB bonds to finance the acquisition of power plants from Malaysian conglomerate, Genting Group. Goldman would make $114 million on the deal, a commission that even Goldman’s then head of Asia operations, David Ryan, thought excessive. (This was the second of the two offerings totalling $3.5 billion that Goldman sold in 2012 of 1MDB bonds) For Maximus, Low roped in IPIC, one of the world’s largest sovereign wealth funds controlled by Abu Dhabi. About $1.4 billion was diverted. “Here was the capital needed to make The Wolf of Wall Street, pay off Malaysian voters” and, of course, fund more parties and gambling. Low once lost $2 million in minutes at the casino tables and kept playing.
 
One of the curious aspects of this cinematically well-told tale is how joyless being ludicrously rich seems. Low is almost a bystander at his own parties, sipping Corona beer and behaving awkwardly among the crowds he has lured with his reputation for excess while guests are literally doused with Cristal champagne. Rosmah Mansor, the wife of former PM Razak, walked into luxury stores and handed them lists of what she didn’t want; store assistants packed up the rest. After this May’s tumultuous election in Malaysia when voters voted out her husband, police raids on their homes in Kuala Lumpur unearthed $274 million worth of items ranging from jewellery to bags (567 bags in total) to 423 watches. Rosmah was arrested on October 3 on charges of money laundering.
 

This mostly seems an amorality tale of our times; financial crimes so often go without commensurate punishment. And, it wasn’t all about shell companies. A Malaysian public prosecutor of Indian origin, Kevin Morais, was murdered for investigating 1MDB. Not unlike Nirav Modi and his uncle, Low ended up living luxuriously overseas well before the regulators and police deciphered that billions of dollars had gone missing. Low remains free and in China after a long sojourn in Bangkok at a luxury hotel. Red Notices from Interpol have been issued against him but so far count for little. Squeaky clean Singapore is seeking his arrest, but the Asian private banking centre even has a temperature-controlled giant vault near Changi airport where multi-millionaires such as Low keep their art purchases.

 
Then there is Goldman Sachs, larger than life and with a revolving door in perpetual motion for former chief executives to enter successive White House administrations. The firm devised a new kind of business called “monetising the state,” aimed at sovereign wealth funds. It even sounds dubious. Goldman’s defence is that its business was to devise complex financial mechanisms such as the 1MDB bonds. It could not be expected to know how the money would be used.
 
The former Southeast Asia chairman for Goldman is reportedly in a plea bargain negotiation with US prosecutors. Goldman has argued it discovered after the fact that he deliberately misled the firm, even though committees of high-level Goldman executives approved the deals. Perhaps he did fool so many clever top bankers, but I doubt I will be the only reader who finishes this book wishing that the US government had in effect put Goldman Sachs in a straitjacket after it threw it a lifeline of several billion dollars during the bailout of AIG in 2008. (Former Goldman chief executive Hank Paulson as US Treasury secretary was central to those decisions.)
 
One finishes this superbly reported book completely unsettled: The world would be a better place if Goldman Sachs was not a master of our dystopian universe, but because our financial system is so complex and inter-connected, the consequences of adequately punishing institutions such as Goldman or IL&FS now seems the economic equivalent of dropping a nuclear bomb. And, so the merry-go-round continues to the next debacle.