1MDB-Tanore Trial: Deutsche abided by SOP in fraudulent transfer, says former MD

This article first appeared in The Edge Malaysia Weekly, on June 27, 2022 - July 03, 2022.
1MDB-Tanore Trial: Deutsche abided by SOP in fraudulent transfer, says former MD
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A former officer at Deutsche Bank (M) Bhd testified last week that the bank had already done more than it was required to do in the transfer of US$1 billion as requested by 1MDB in 2009 — even though US$700 million of it was illegally diverted to Good Star Ltd — especially as Bank Negara Malaysia green-lit the transfer.

Testifying at the 1MDB-Tanore trial before Justice Datuk Collin Lawrence Sequerah, the bank’s former managing director, Jacqueline Ho Yek Wan, told the court that 1MDB’s director of business development Casey Tang Keng Chee had approached the bank to handle the remittance. Tang, like financier Low Taek Jho (Jho Low) who is credited with masterminding the heist of billions of dollars from 1MDB, is subject to an Interpol Red Notice and has gone into hiding.

Ho testified that Tang was in a hurry to get the US$1 billion remitted, even after 1MDB changed the recipients of the transfer at the 11th hour. The US$1 billion remittance was for 1MDB’s 40% stake in a joint venture company (JVCo) with Petro Saudi International known as 1MDB PetroSaudi Ltd, and to be used purportedly for oil exploration.

“Casey Tang continued to persistently press upon Deutsche Bank again, that Deutsche Bank needed to speed up the money transfer process as the then prime minister, Datuk Seri Najib Razak, wanted to make a press statement on the 1MDB joint venture project with PetroSaudi International Ltd,” she said.

Ho maintained that before Deutsche Bank made the transaction, it took multiple steps to check on the sudden change in the recipients of the funds before making the transfers, including checking with Bank Negara to see if the central bank had approved the change of recipients.

In the initial stages of the remittance, she had asked former 1MDB CEO Datuk Shahrol Azral Ibrahim Halmi to obtain permission from Bank Negara for the US$1 billion transaction as it was required under the Foreign Exchange Administration Regulations for transactions of RM100 million and above.

On Sept 29, 2009, Ho said she received a letter from 1MDB with the central bank’s written approval and a certified extract of a 1MDB board resolution to transfer the funds to 1MDB-PetroSaudi’s BSI bank. The two documents were needed for the bank to carry out the remittance, she said.

However, the following day, when the transaction was to be remitted into the joint venture’s BSI account, Ho said Deutsche received a remittance instruction from 1MDB Treasury executive Stephenny Chow for the US$1 billion to be remitted in two separate transactions.

Chow further informed that the US$1 billion was not to be remitted to the BSI account as per 1MDB’s prior authorisation request to Bank Negara but it was to be transferred in two tranches to two different accounts: US$300 million to a J.P. Morgan SA account and US$700 million to an RBS Coutts Bank Ltd account.

She testified that the remittance instructions did not name the beneficiaries of the two transfers and upon query, she was told by 1MDB that the name of the beneficiaries should not be in the remittance instructions.

She said she had called 1MDB to check on this odd request, and Tang and Chow informed her in an email that the beneficiaries of the transfers were 1MDB PetroSaudi for the sum of US$300 million and PetroSaudi International Ltd for the sum of US$700 million. Tang and Chow also impressed on her not to include the names of the beneficiaries in the remittance instructions.

Because of the change in beneficiaries, Bank Negara approval for the change was required by Deutsche before the remittances could be made.

“Casey Tang came to Deutsche’s office and presented us with a letter from Bank Negara confirming that the transfers will be made to two different accounts in J.P. Morgan and RBS Coutts,” Ho said.

She added that it was incumbent upon the client to seek the central bank’s approval and it was not the job of Deutsche to seek its approval. “We trusted what 1MDB told us about the recipient and it was not our role to check the receiver of the cash,” she said, adding that Deutsche Bank had also carried out the standard checks to ensure that both the joint venture firm and PetroSaudi International were not on any sanctions or criminal watch lists.

Ho testified that Deutsche Bank Malaysia, via its then CEO Raymond Yeoh Chen Seong, had even called Bank Negara to confirm if the change of recipient was true and testified that the central bank said it had no issues with the money going to the two entities.

When it was put to Ho by Najib’s lawyer Wan Aizuddin Wan Mohamed that the bank had gone over and above its duties and responsibilities to call Bank Negara to verify the approval, she agreed.

“I partially agree with it. I believe Raymond, who called Bank Negara to find out the beneficiaries of these transactions, went over and above [his responsibilities],” she said.

“After we received approval from Bank Negara that they had no objections to the funds going to the two beneficiaries, the remittances were sent out,” she said of the transfer on Sept 30, 2009 at about 3pm.

Prior to that, she said Tang had pestered her to speed up the transactions.

“As such, we were urged to accelerate the US$1 billion remittance process into those two accounts.”

But as Deutsche had cautioned, the receiving banks wanted to know who the beneficiaries were.  On Oct 2, RBS Coutts contacted Deutsche Bank to ask for the name of the recipient of the funds. Ho said she contacted former 1MDB CEO Shahrol and he told her that the name was a certain Good Star Ltd, which was a different name to what Chow had previously given to Deutsche.

“I then asked Shahrol why the name of the beneficiary is different from the name 1MDB had provided to Deutsche on Sept 30, 2009. Shahrol informed me that Good Star Ltd is a wholly-owned subsidiary of PetroSaudi International Ltd and they wanted the funds transferred directly to their subsidiary,” she said.

The JV turned out to be a sham and Good Star, to be a company linked to Jho Low.

In hindsight, Ho said that she now knows that the US$1 billion transaction was for fraudulent purposes.

Because of these transfers, 1MDB has filed a lawsuit against Deutsche Bank — one of six suits worth US$1.83 billion against several foreign banks.

1MDB’s lawsuit against Deutsche Bank

1MDB’s claim against Deutsche Bank, RBS Coutts and J.P. Morgan Ltd in Geneva contends that the financial institutions did not practise due diligence, resulting in fraudulent transfers between 2009 and end-2011 that led to losses for 1MDB.

1MDB is seeking US$1.1 billion from Deutsche Bank for negligence, breach of contract, conspiracy to defraud and dishonest assistance.

Deutsche Bank, in its defence filed last year, denied that it had not practised due diligence in the transfer of the funds. It also denied the assertion made in 1MDB’s statement of claim (SOC) that 1MDB held a current account at the bank. It claimed its involvement was having a transfer of foreign funds facility.

The bank further claimed that it had taken screening measures to prevent money laundering or anti-terrorism financing.

“The screening did not disclose any negative results with regard to the JVCo [1MDB PetroSaudi], PetroSaudi or any PetroSaudi entities. As such, Deutsche Bank is under no obligation to carry out a further review under the relevant regulatory guidelines applicable at the material time,” it said.

“Deutsche Bank has also conducted inquiries and due diligence to ascertain the identity and purpose of the US$700 million transfer.”

The bank noted that at all times, it followed Shahrol and Tang’s instructions regarding the purported transfer, and that they were accompanied by Bank Negara letters dated Sept 29 and 30, 2009, to two different accounts: one in RBS Coutts and the other in J.P. Morgan.

“Deutsche Bank also avers that as [Shahrol and Tang] are agents of 1MDB, their knowledge of the true nature of 1MDB’s remittance instructions of 2009 was attributed to or imputed on 1MDB as the principal.”

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