New Arrest Warrants in the 1MDB Scandal

February 21, 2020 5 minute read

New 1MDB criminal conspiracy charges are brought forward, the US sanctions Rosneft Trading and the UK leaps forward on the Financial Secrecy Index.

We share our financial regulatory highlights from the week of 17 February 2020.

New Arrest Warrants in the 1MDB Scandal

Malaysian law enforcement filed new criminal conspiracy charges against Jho Low earlier this month for his alleged role in the 1Malaysia Development Berhad (1MDB) scandal. He and two PetroSaudi International executives, Tarek Obaid and Patrick Mahony, have been accused of colluding with Malaysia’s former prime minister, Najib Razak, to funnel money from the state-owned fund. Separately, Obaid and Mahony were also charged with money laundering — prosecutors claim they pocketed $300 million of the fund’s money for themselves.

These are the first charges against Obaid and Mahony, while they are merely the latest in a series of them filed against Jho Low, the man who many believe orchestrated the scheme to turn the 1MDB into a multi-billion-dollar slush fund. The court has authorized arrest warrants for all three men.

Carrying out the warrant, however, is proving to be a difficult task, as the accused have fled the country and are currently in hiding. Reports that Jho Low is in China remain uncorroborated, and the other two men’s whereabouts are unknown. In hopes of gaining some traction, The Malaysian Anti-Corruption Commission (MACC) has sought help from Interpol to find them, requesting the issuance of a Red Notice — Interpol’s version of an arrest warrant — but a glance at Interpol’s website shows that request hasn’t yet been granted. Meanwhile, Malaysia’s former prime minister is facing over 40 counts of corruption, breach of trust and money laundering. His wife, Rosmah Mansor, is also facing a total of 20 counts, including charges of money laundering, tax evasion and bribery. Both are currently on trial for their role in the scandal.

US Sanctions a Trading Unit

The US government announced Tuesday it’s bringing sanctions against Rosneft Trading for failing to sever ties with Venezuelan oil company PDVSA, thereby helping the South American country evade US sanctions. Rosneft Trading’s chairman, Didier Casimiro, was also designated. Companies will have a 90-day grace period to wind down business with Rosneft Trading, though they’ll still be able to transact with its parent company, Rosneft.

The action targeting Venezuela’s main source of export revenue, crude, is the latest of several meant to ratchet up the pressure on Nicolás Maduro’s regime and encourage his ouster. While tensions between the two countries have been high for the last several years, they’ve escalated since Juan Guaido, leader of Venezuela’s opposition party, proclaimed himself the interim president of Venezuela last year and was immediately recognized by the US. In the intervening months, the US has sanctioned a number of Venezuelan individuals and entities in an attempt to further cripple the Maduro regime.

Rosneft condemned the sanctions, asserting they were “illegal and unjustified,” and indicated it would continue its business with Venezuela despite being blacklisted by the US — a move that signals it doesn’t expect to be significantly impacted. Shareholders seem to agree: Rosneft shares fell over 5% after the initial news broke but recovered quickly after it was made clear that the sanctions only applied to the Rosneft subsidiary.

Whether this holds true remains to be seen, however. While the US has refrained from sanctioning Rosneft in an attempt to avoid significant disruptions to the global market, the Trump administration hasn’t ruled out additional designations. It has also repeatedly demonstrated its willingness to use sanctions, both direct and secondary, to exert its influence on the world stage. Moreover, given that the conflict with Maduro is far from being settled, it’s likely the US will take additional action in the near future.

Financial Secrecy in the UK

The Tax Justice Network (TJN) released its 2020 Financial Secrecy Index on Tuesday, revealing the world’s topmost secretive financial systems. The index’s findings provide cause for optimism globally — financial secrecy is on the decline overall. Almost every nation was able to decrease the level of secrecy their financial systems afford, in turn making it harder for illicit money to flow undetected. Yet the silver lining doesn’t quite extend to all nations: the United Kingdom leapt from 23rd on the list two years ago to its current spot as the 12th least transparent nation and increased its overall contribution to secrecy in the global financial system by 26%.

The TJN attributes the jump to its use of a more rigorous methodology this year and to changes to the UK’s corporate reporting rules. The HM Treasury, however, disagreed with the TJN’s assessment and maintains that the UK has been “at the forefront of the global drive for greater tax transparency.”

And that’s true: In 2016, the UK became the first EU member country to require companies to register their ultimate beneficial ownership data. Two years later, in 2018, it issued its first “unexplained wealth order,” an investigative measure that compels individuals and entities to reveal the source of their wealth. Finally, 5AMLD went into effect at the start of this year, and even with Brexit, the UK is expected to comply and implement new legislation in line with the directive.

Still, especially given these initiatives to increase financial transparency, the climb is noteworthy. Effective implementation of these policies would theoretically make the UK less secretive compared to the rest of the world, not more.

As for the top ten, the Cayman Islands took the top spot, followed by the US holding steady at number two and Switzerland at number three. Interestingly, the British Virgin Islands placed ninth and eleventh, respectively. Further, if taken together, the UK and its overseas territories and dependencies would easily rank as the world’s top enabler of financial secrecy.