- Wright, Tom and Bradley Hope.
Billion Dollar Whale.
New York: Hachette Books, 2018.
ISBN 978-0-316-43650-2.
-
Low Taek Jho, who westernised his name to “Jho Low”,
which I will use henceforth, was the son of a wealthy family
in Penang, Malaysia. The family's fortune had been founded
by Low's grandfather who had immigrated to the then British
colony of Malaya from China and founded a garment manufacturing
company which Low's father had continued to build and recently
sold for a sum of around US$ 15 million. The Low family were
among the wealthiest in Malaysia and wanted the best for
their son. For the last two years of his high school education,
Jho was sent to the Harrow School, a prestigious private British
boarding school whose alumni include seven British Prime
Ministers including Winston Churchill and Robert Peel, and
“foreign students” including Jawaharlal Nehru and
King Hussein of Jordan. At Harrow, he would meet classmates
whose families' wealth was in the billions, and his ambition
to join their ranks was fired.
After graduating from Harrow, Low decided the career he wished to
pursue would be better served by a U.S. business education than
the traditional Cambridge or Oxford path chosen by many Harrovians
and enrolled in the University of Pennsylvania's Wharton School
undergraduate program. Previous Wharton graduates include Warren
Buffett, Walter Annenberg, Elon Musk, and Donald Trump. Low
majored in finance, but mostly saw Wharton as a way to make
connections. Wharton was a school of choice for the sons of
Gulf princes and billionaires, and Low leveraged his connections,
while still an undergraduate, into meetings in the Gulf with
figures such as Yousef Al Otaiba, foreign policy adviser
to the sheikhs running the United Arab Emirates. Otaiba, in
turn, introduced him to Khaldoon Khalifa Al Mubarak, who
ran a fund called Mubadala Development, which was on the
cutting edge of the sovereign wealth fund business.
Since the 1950s resource-rich countries, in particular the
petro-states of the Gulf, had set up sovereign wealth funds
to invest the surplus earnings from sales of their oil.
The idea was to replace the natural wealth which was being
extracted and sold with financial assets that would generate
income, appreciate over time, and serve as the basis of their
economies when the oil finally ran out. By the early 2000s,
the total funds under management by sovereign wealth funds
were US$3.5 trillion, comparable to the annual gross domestic
product of Germany. Sovereign wealth funds were originally
run in a very conservative manner, taking few
risks—“gentlemen prefer bonds”—but
since the inflation and currency crises of the 1970s had
turned to more aggressive strategies to protect their assets
from the ravages of Western money printing and financial
shenanigans.
While some sovereign wealth funds, for example Norway's (with
around US$1 trillion in assets the largest in the world)
are models of transparency and prudent (albeit often politically
correct) investing, others, including some in the Gulf states,
are accountable only to autocratic ruler(s) and have
been suspected as acting as personal slush funds. On the
other hand, managers of Gulf funds must be aware that bad
investment decisions may not only cost them their jobs but
their heads.
Mubadala was a new kind of sovereign wealth fund. Rather than
a conservative steward of assets for future generations, it was
run more like a leveraged Wall Street hedge fund: borrowing
on global markets, investing in complex transactions, and
aiming to develop the industries which would sustain the
local economy when the oil inevitably ran out. Jho Low saw
Al Mubarak, not yet thirty years old, making billion dollar
deals on almost his sole discretion, playing a role on the
global stage, driving the development of Abu Dhabi's economy, and
being handsomely compensated for his efforts. That's the game
Low wanted to be in, and he started working toward it.
Before graduating from Wharton, he set up a British Virgin
Islands company he named the “Wynton Group”, which
stood for his goal to “win tons” of money. After
graduation in 2005 he began to pitch the contacts he'd made
through students at Harrow and Wharton on deals he'd identified
in Malaysia, acting as an independent development agency. He
put together a series of real estate deals, bringing money from
his Gulf contacts and persuading other investors that large
sovereign funds were on-board by making token investments from
offshore companies he'd created whose names mimicked those of
well-known funds. This is a trick he would continue to use in
the years to come.
Still, he kept his eye on the goal: a sovereign wealth fund,
based in Malaysia, that he could use for his own ends.
In April 2009 Najib Razak became Malaysia's prime
minister. Low had been cultivating a relationship with
Najib since he met him through his stepson years before in
London. Now it was time to cash in. Najib needed money to
shore up his fragile political position and Low was ready to
pitch him how to get it.
Shortly after taking office, Najib announced the formation of
the 1Malaysia Development Berhad, or
1MDB,
a sovereign wealth fund aimed at promoting foreign direct
investment in projects to develop the economy of Malaysia
and benefit all of its ethnic communities: those of Malay,
Chinese, and Indian ancestry (hence “1Malaysia”).
Although Jho Low had no official position with the fund, he
was the one who promoted it, sold Najib on it, and took the
lead in raising its capital, both from his contacts in the Gulf
and, leveraging that money, in the international debt markets with
the assistance of the flexible ethics and unquenchable greed of
Goldman Sachs and its ambitious go-getters in Asia.
Low's pitch to the prime minister, either explicit or nod-nod,
wink-wink, went well beyond high-minded goals such as developing
the economy, bringing all ethnic groups together, and
creating opportunity. In short, what “corporate social
responsibility” really meant was using the fund as Najib's
personal piggy bank, funded by naïve foreign investors,
to reward his political allies and buy votes, shutting out the
opposition. Low told Najib that at the price of aligning his
policies with those of his benefactors in the Gulf, he could
keep the gravy train running and ensure his tenure in office
for the foreseeable future.
But what was in it for Low, apart from commissions, finder's fees,
and the satisfaction of benefitting his native land? Well,
rather more, actually. No sooner did the money hit the accounts
of 1MDB than Low set up a series of sham transactions with
deceptively-named companies to spirit the money out of the
fund and put it into his own pockets. And now it gets a little
bit weird for this scribbler. At the centre of all of this
skulduggery was a private Swiss bank named BSI. This was
my bank. I mean, I didn't own the bank (thank Bob!),
but I'd been doing business there (or with its predecessors,
before various mergers and acquisitions) since before Jho
Low was born. In my dealings with them there were the soul of
probity and beyond reproach, but you never know what's going
on in the other side of the office, or especially in its branch
office in the Wild East of Singapore. Part of the
continuo to this financial
farce is the battles between BSI's compliance people who
kept saying, “Wait, this doesn't make any sense.” and
the transaction side people looking at the commissions to be
earned for moving the money from who-knows-where to who-knows-whom.
But, back to the main story.
Ultimately, Low's looting pipeline worked, and he spirited away
most of the proceeds of the initial funding of 1MDB into his own
accounts or those he controlled. There is a powerful lesson
here, as applicable to security of computer systems or access to
physical infrastructure as financial assets. Try to chisel a
few pennies from your credit card company and you'll be nailed.
Fudge a little on your tax return, and it's hard time, serf.
But when you play at the billion dollar level, the system was
almost completely undefended against an amoral grifter who was
bent not on a subtle and creative form of looting in the Bernie
Madoff or Enron mold, but simply brazenly picking the pockets of
a massive fund through childishly obvious means such as
deceptively named offshore shell corporations, shuffling money
among accounts in a modern-day version of check kiting, and
appealing to banks' hunger for transaction fees over their
ethical obligations to their owners and other customers.
Nobody knows how much Jho Low looted from 1MBD in this and
subsequent transactions. Estimates of the total money spirited
out of 1MDB range as high as US$4.5 billion, and Low's
profligate spending alone as he was riding high may account for
a substantial fraction of that.
Much of the book is an account of Low's lifestyle when he was
riding high. He was not only utterly amoral when it came to
bilking investors, leaving the poor of Malaysia on the hook, but
seemingly incapable of looking beyond the next party, gambling
spree, or debt repayment. It's like he always thought there'd
be a greater fool to fleece, and that there was no degree of
wretched excess in his spending which would invite the question
“How did he earn this money?”
I'm not going to dwell upon this. It's boring. Stylish criminals
whose lifestyles are as suave as their crimes are elegant. Grifters
who blow money on down-market parties with gutter rappers and
supermarket tabloid celebrities aren't. In a marvelous example
of meta-irony, Low funded a Hollywood movie production company
which made the film
The
Wolf of Wall Street,
about a cynical grifter like Low himself.
And now comes the part where I tell you how it all came
undone, everybody got their just deserts, and the egregious
perpetrators are languishing behind bars. Sorry, not this time,
or at least not yet.
Jho Low escaped pursuit on his luxury super-yacht and now is
reputed to be living in China, travelling freely and living off
his ill-gotten gains. The “People's Republic” seems
quite hospitable to those who loot the people of its neighbours
(assuming they adequately grease the palms of its rulers).
Goldman Sachs suffered no sanctions as a result of its complicity
in the 1MDB funding and the appropriation of funds.
BSI lost its Swiss banking licence, but was acquired by another
bank and most of its employees, except for a few involved in
dealing with Low, kept their jobs. (My account was transferred to
the successor bank with no problems. They never disclosed the
reason for the acquisition.)
This book, by the two Wall Street Journal reporters who
untangled what may be the largest one-man financial heist in
human history, provides a look inside the deeply corrupt world of
paper money finance at its highest levels, and is an illustration
of the extent to which people are disinclined to ask obvious questions
like “Where is the money coming from?” while the
good times are rolling. What is striking is how banal the whole
affair is. Jho Low's talents would have made him a great success
in legitimate development finance, but instead he managed
to steal billions, ultimately from mostly poor people in his
native land, and blow the money on wild parties, shallow
celebrities, ostentatious real estate, cars, and yachts, and
binges of high-stakes gambling in skeevy casinos. The
collapse of the whole tawdry business reflects poorly on
institutions like multinational investment banks, large accounting
and auditing firms, financial regulators, Swiss banks, and the
whole “sustainable development” racket in the third
world. Jho Low, a crook through and through, looked at these
supposedly august institutions and recognised them as kindred
spirits and then figured out transparently simple ways to
use them to steal billions. He got away with it, and they are
still telling governments, corporations, and investors how
to manage their affairs and, inexplicably, being taken seriously
and handsomely compensated for their “expertise”.
June 2019 