1MDB-Tanore Trial: Najib asked to speak with sham fund Bridge Partners

Thursday 25 Apr 2024

This article first appeared in The Edge Malaysia Weekly on March 6, 2023 - March 12, 2023

IN 2014, former prime minister Datuk Seri Najib Razak requested a quick chat with the fund manager of Bridge Funds, which was managing 1Malaysia Development Bhd’s (1MDB) purported overseas investment of US$2.3 billion.

This was an unusual request as Najib had left the inner workings of 1MDB mostly to fugitive financier Low Taek Jho (Jho Low), who put himself forward as the former premier’s proxy and adviser to the company.

The Ministry of Finance (MoF) — Najib was the minister at the time — had hand-picked Bridge Partners Investment Management (Cayman) to handle the US$2.3 billion, based on “the stability of the firm, its reputation [and] its track record in investments”.

Kevin Michael Swampillai, a 58-year-old Malaysian who was previously BSI Bank Singapore’s head of wealth management services, testified that in 2014, his colleague, BSI Singapore relationship manager Yak Yew Chee, had told him and his subordinate Yeo Jiawei that Najib wanted to have a quick chat with the fund manager of Bridge Funds, represented by Lobo Lee.

Testifying as a prosecution witness at Najib’s 1MDB-Tanore trial, he said the US$2.3 billion investment in Bridge Funds by 1MDB’s Cayman Islands subsidiary Brazen Sky Ltd was in fact a sham.

Kevin said he could not remember when in 2014 the request was made, but members of parliament began asking questions about Bridge Partners, given that not much was known about the fund managers.

In November 2014, The Edge had also published a special report titled “Who are the Bridge Partners?”, which delved into the inner workings of Bridge Partners and provided a clearer picture of who Lee is (scan QR code at top right).

The article showed that Bridge Partners (Cayman) was part of Hong Kong-based Bridge Partners Investment Management Ltd (Bridge Partners), whose track record and pedigree were not exactly what they were made out to be in the written MoF reply to parliament.

Furthermore, documents on the Cayman Islands-registered segregated portfolio company (SPC), where the US$2.3 billion had been invested, showed the SPC — called Bridge Global Absolute Return Fund SPC and registered in August 2012 — to be a high-risk portfolio, with investors being warned they could lose everything.

The documents also showed that Bridge Partners (Cayman) was appointed the investment manager via a tripartite agreement signed between itself, Bridge Global Absolute Return Fund and Brazen Sky — a British Virgin Islands (BVI) registered company owned by 1MDB.

Information on the Hong Kong-based Bridge Partners was limited as, unlike established global fund managers, it did not publish figures on its assets under management nor its investing performance.

Following Najib’s request, Kevin said a conference call was then arranged with Yeo and Yak with the fund manager’s representative Lee.

“The call connection was bad as Najib was calling from somewhere overseas and Lee was on a ferry to Macau. There was constant static interference during the call so both parties did not hear each other too well,” he said.

On the stand, Kevin explained that Brazen Sky maintained an account with BSI that was opened in 2012, ostensibly for the purpose of transferring the ownership of certain drilling assets held under the 1MDB-PetroSaudi joint venture to the Bridge Partners fiduciary fund.

He testified that the Brazen Sky transaction through Bridge was a different fiduciary fund transaction “in both form and substance compared” to the transactions by SRC International Sdn Bhd, 1MDB Global Investment Ltd and Aabar Investments PJS.

Highlighting some of the differences, Kevin said there was no cash involved. This was because “the intention was to transfer the ownership of certain assets from the PetroSaudi JV to Bridge at what turned out to be a vastly overinflated valuation”.

Elaborating further, he said the promissory notes involving Bridge funds were used as IOUs that were exchanged between Brazen Sky and Bridge to satisfy consideration for the transfer of the PetroSaudi assets to Bridge, and the issue of shares in the Bridge funds to Brazen Sky.

He added that the key parties in this transaction were Yeo and himself acting on behalf of BSI, Lee acting on behalf of Bridge, and Jasmine Loo and Terence Geh on behalf of 1MDB.

Using fiduciary funds to launder 1MDB money

During his testimony last week, Kevin elaborated on how Jho Low used fiduciary funds to essentially move billions in 1MDB money around while giving the optical illusion to stakeholders that the funds from 1MDB were in real investments.

Reading from his witness statement before Justice Datuk Collin Lawrence Sequerah, Kevin testified that at the beginning of the client relationship with Jho Low and SRC, 1MDB and Aabar in 2011, he was not aware of Jho Low’s motives for selecting fiduciary funds over other solutions such as insurance structures and trusts.

“However with the benefit of hindsight based on the information that has come out in the public domain since 2015, it is evident to me that Jho Low intended that the fiduciary funds would be better at giving the optical illusion to various stakeholders in Malaysia and elsewhere that the funds belonging to SRC, 1MDB and Aabar were invested in bona fide investment instruments such as investment funds,” he said.

Kevin detailed how Jho Low came to use the fiduciary funds by companies such 1MDB Global Investments Ltd, SRC, Brazen Sky and Aabar, which can be traced back to a meeting he had with Jho Low in 2011.

“I understand Jho Low had come to know about fiduciary funds and how they are used from his relationship manager Yak.

“Yak then asked me to conduct a presentation to Jho Low in order to explain to him the entire range of fiduciary solutions available through BSI Bank. This range of solutions included trusts, insurance structures as well as fiduciary funds,” he said.

Kevin added that clients using fiduciary funds have virtually limitless flexibility to decide on the structure of transactions placed through fiduciary funds. For example, they can choose the target destinations where the money will eventually end up.

They decide on the instruments (such as equity shares or loans in the form of lending agreements such as promissory notes) used to optically legalise the flow of money from the fund to target companies or assets intended to be acquired. The clients are also in control of the timing and amounts channelled through such fiduciary structures.

He testified that not long after this meeting, the SRC account was opened, followed by Aabar Investment PJS Ltd and Brazen Sky in 2012 and 1MDB GIL in 2013.

“The use of fiduciary funds was prevalent in all of these accounts without exception. The common denominator prevalent in all these accounts or companies was the presence of Jho Low and the fact that all these companies came under the auspices of the Ministry of Finance Malaysia,” he said.

Kevin then testified that after using this modus operandi, Jho Low had also used the fiduciary funds method for his other shell companies such as Cistenique Investment Fund, Enterprise Emerging Market Fund (EEMF), Devonshire Capital Growth Fund and Bridge Absolute Return Fund.

“Each of these funds were domiciled in offshore fund jurisdictions which are widely considered to be ‘light’ in terms of regulatory oversight and control,” he said of the funds that were either domiciled in Curaçao in the Caribbean or in BVI and Cayman Islands.

“Each of these funds was managed and administered by third-party fund managers but in all transactions undertaken by Aabar BVI, 1MDB, SRC in these funds, the investments and structure thereof was determined by the client,” he said.

In the case of the fiduciary funds used by Aabar, SRC and 1MDB, he added, the monies transferred to these funds were not placed on fiduciary deposit. “[...] rather they were conduits to channel monies to various beneficiaries known only to the clients themselves while at the same time obscuring the intentions of the client from scrutiny by various stakeholders in Malaysia.”

Withholding information from KPMG

In 2012, 1MDB faced an impending audit by KPMG, and its executive director of finance Terence Geh Cho Heng did not want the auditors to know the true nature of the underlying assets in the Bridge Funds.

“BSI Bank had no obligation to disclose any information to the client’s auditors unless expressly authorised by the client. In the case of Brazen Sky, I was directed by Terence Geh not to disclose any information about the underlying assets in Bridge Funds,” Kevin said.

Earlier, the BSI banker testified on March 16, 2022, in the New York trial of ex-Goldman Sachs banker Roger Ng, where he said Geh told him KPMG would be asking about the account that was supposed to hold liquid assets valued at US$2.3 billion. Geh instructed him not to reveal to the auditor that the only assets were two illiquid drilling ships.

The US$2.3 billion that was parked in a Cayman-registered fund was a point of contention that 1MDB had with its auditors, and when KPMG refused to sign the FY2013 accounts unless it was provided with more proof of the nature and value of the Cayman fund plus a few others, the auditors were sacked on the instruction of Najib and replaced with Deloitte.

Kevin and a few other BSI bankers — Yak, Yeo and Yvonne Seah — received kickbacks from the various 1MDB transactions. Kevin was subsequently banned from working in the financial sector in Singapore while Yak, Yeo and Seah were jailed 18 weeks, 30 months and two weeks respectively.

Swiss-based BSI was ordered to shut its operations in Singapore.

Former BSI banker regrets 1MDB-related actions

While BSI Bank in Singapore was raking in millions in fund management fees from 1Malaysia Development Bhd’s various fiduciary accounts with them, former BSI Bank (Singapore) Ltd banker Kevin Michael Swampillai and his former colleague Yeo Jiawei manoeuvred to make “secret profits”.

Kevin made some US$6 million, which he says has now been “disgorged” or returned since Singaporean authorities clamped down on him and the bank.

Testifying in the 1MDB-Tanore trial, Kevin explained that he received US$6 million in “secret profits” through deals he and Yeo had brokered with the banks’ relationship managers for the 1MDB-linked accounts.

Under questioning from deputy public prosecutor Mohamad Mustaffa P Kunyalam on how he obtained the money and where it is now, Kevin said the money had been “disgorged” to the Singapore authorities.

He said he and Yeo felt slighted that they were not making profits from 1MDB deals even though they helped set them up, such as the commissions that other bank officers were getting from certain 1MDB transactions. This included the banks’ relationship managers for the 1MDB-linked accounts.

“They [the relationship managers and other bankers] started receiving percentages of revenue from transactions initiated by 1MDB. They received bonuses that ran into millions. When that happened, my colleague Yeo and I felt we were involved in the transaction implementation and that we deserved a little more. We then approached our employer and asked for an increase, which was swiftly declined,” he said.

He called his next move “stupid” as he and Yeo decided to negotiate commissions for themselves with the 1MDB relationship managers. They channelled a portion of the fund management fees or “secret profits” to an entity beneficially owned by Kevin.

“We rather stupidly decided to seek these benefits ourselves. We negotiated commissions to be paid to us. That is how we received our benefit.”

Speaking candidly on the witness stand, Kevin said he “immensely” regrets his actions in dealing with 1MDB, and added that the consequences of his involvement and actions have been severe and are a “source of regret”. He also wishes he had done things differently.

In October 2020, the Monetary Authority of Singapore (MAS) issued lifetime Prohibition Orders (POs) against Kevin for his role in the 1MDB scandal.

According to a statement, MAS prohibited him permanently from performing any regulated activity under the Securities and Futures Act (SFA) and providing any financial advisory service under the Financial Advisers Act (FAA).

“He is also permanently prohibited from taking part in the management, acting as a director, or becoming a substantial shareholder of any capital market and financial advisory services firm under the SFA and FAA,” the statement said.

How 1MDB brought down BSI Singapore

In 2016, the Monetary Authority of Singapore (MAS) sent shock waves through the nation and internationally when it ordered BSI Bank in Singapore to shut down its operations in the city-state.

Little was known about the reasons for its immediate shutdown. BSI Bank (Singapore) Ltd was a wholly-owned subsidiary of the 150-year-old BSI SA bank headquartered in Switzerland; it had been operating in Singapore since 2005.

However, information coming out of the city state then showed that the action was part of the global money-laundering and embezzlement investigations surrounding 1Malaysia Development Bhd (1MDB).

The Swiss authorities, via The Office of the Attorney-General of Switzerland (OAG), also opened criminal proceedings against BSI SA “based on information revealed by the criminal proceedings in the 1MDB case”.

Former BSI Singapore banker Kevin Michael Swampillai, who testified last week at the 1MDB-Tanore trial in Kuala Lumpur, explained how Low Taek Jho (Jho Low) had used fiduciary funds (see main story) with the bank to essentially launder billions of dollars of 1MDB money, which was supposed to be used for investments for the benefit of Malaysia.

Kevin, former head of wealth management services at BSI Bank Singapore, agreed with lead defence counsel Tan Sri Muhammad Shafee Abdullah that the bank had encouraged these transactions because it was making “tonnes of money”.

“Yes, I did have suspicions. I did have concerns at the very beginning during the SRC [International Sdn Bhd] phase of these transactions. I voiced my concerns, not just SRC but even Brazen Sky transactions. I voiced my concerns to my supervisors in the bank. I don’t think I was the only one, for that matter, I believe there were loads of concerns being expressed by compliance in particular.

“I raised my concerns in the beginning, but I think it sort of fell on deaf ears within the higher echelons of the bank, because nothing was being done to stop these transactions.”

The prosecution’s 44th witness added that there was no “factual basis” for these concerns because the clients — 1MDB and the related entities — were not forthcoming with the information.

“The main question was where is the money going to eventually end up, with whom, where — that question — was never answered, was never provided by the account signatory or Jho Low despite the fact that the question was posed many times but was never answered,” Kevin said.

BSI wilfully blind as it was ‘hungry for revenue’

Kevin also testified to the greed of the bank, which was willing to accede to all of Jho Low’s requests because 1MDB was one of its biggest clients ever and it was “hungry for revenue”.

Kevin was asked by Datuk Seri Najib Razak’s lead counsel Tan Sri Muhammad Shafee Abdullah whether, for a client of 1MDB’s magnitude, there would have been a need for board of director papers.

“I’m not sure if we would have needed the BoD’s approval. The way the accounts were authorised, [the] signatories to the accounts [were the ones who] ultimately approved the activity taking place in the accounts. The authorised signatory to a 1MDB-linked account was almost always one individual,” he said.

“I think he chose the bank because he figured out somewhere along the line that BSI was hungry for revenue, and he correctly deduced that the bank would compromise a little in terms of opening these accounts and carrying out those transactions,” Kevin said.

Shafee then suggested that the bank encouraged these transactions because BSI would be making tonnes of money. “Absolutely,” Kevin answered. He agreed that if board minutes had been required for evidence approval, it would have been difficult for Jho Low and 1MDB-linked fiduciary funds such as SRC International, Brazen Sky, Aabar and 1MDB Global Investments Ltd, to be opened at the bank.

Magnitude of transactions previously unseen at BSI

In dealing with the billions of dollars flowing through to BSI, Kevin said he always had the impression that these transactions were undertaken with Najib’s knowledge because SRC was a company owned by the Ministry of Finance (MoF) at the time and Najib was its minister. Najib was also the chairman of the board of advisers of 1MDB and, furthermore, 1MDB was wholly-owned by MoF.

And because of the magnitude of transactions, Kevin said an apex approval was needed by some highly-placed source in the government, but Jho Low was always evasive about the transfers.

“That in the face of persistent questions by BSI Bank on the final destination and use of funds channelled through the fiduciary funds, Jho Low’s consistent response [was] that these transactions were highly confidential government-to-government investments and therefore no further information could be made available.

“Finally, the size of these transactions was of such a high magnitude and frequency that they had to have some kind of apex approval such as that issued by a highly-placed government official such as a prime minister,” he said.

Jho Low exerted ‘tremendous pressure’ to complete transactions at ‘light speed’

Another instance of the bank bending over backwards for Jho Low was his constant haranguing of bank personnel to transfer large sums of cash from 1MDB accounts to other accounts.

Kevin testified about an example of such haste by Jho Low with regard to 1MDB Global Investment Ltd (1MDB GIL), a 1MDB-linked company that opened a fiduciary fund account with BSI.

Kevin said approximately US$2.721 billion had entered 1MDB GIL’s fiduciary fund account and most of it was transferred out at the behest of Jho Low the very next day through several transactions.

“The fact that a large number of fiduciary fund transactions, most of which took place within one day of the receipt of funds amounting to approximately US$2.721 billion in 1MDB GIL’s account in BSI Bank was not surprising to me as I observed from previous transactions involving other 1MDB-related clients that cash did not remain in their accounts for too long.”

He testified that there was always “great haste” by the clients to “invest” the money in fiduciary funds as “quickly as possible”, akin to “light speed”.

“In fact, various employees in BSI Bank were put under tremendous pressure by the clients [specifically the pressure was applied by Jho Low on relationship manager Yak Yew Chee who in turn pressured various departments in the bank] to expedite processes so that the money flow from 1MDB GIL (and other 1MDB-related client accounts) was transferred as quickly as possible from the BSI Bank account to the account of the fiduciary fund and then on to the account of the target company.”

He added that the relevant BSI staff were constantly reminded that they were handling “highly sensitive and time-bound transactions” involving the state sovereign fund and any complacency would not be tolerated by the client.

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