Setback for 1MDB case as US judge rules against Dept of Justice

Published Fri, Mar 26, 2021 · 05:50 AM
Share this article.

Washington

A US judge rejected the Department of Justice's (DOJ) attempts to seize US$325 million from an oil exploration joint venture linked to the 1Malaysia Development Berhad (1MDB) scandal, in a setback for federal prosecutors in a multibillion dollar kleptocracy case.

The US ruling emerged at a London court hearing this week where PetroSaudi Oil Services (Venezuela) Ltd is battling to win release of hundreds of millions of dollars at the heart of the case.

US District Judge Dale Fischer in Los Angeles earlier this month granted PetroSaudi's request to dismiss the DOJ's forfeiture claim, ruling that the government had failed to make an adequate allegation between the money and any criminal offence.

The DOJ created the Kleptocracy Asset Recovery Initiative in 2010, with the aim of seizing proceeds from foreign corruption.

"It appears that the government would like to take advantage of an inference that one or more PetroSaudi entities were knowingly involved in the theft of the US$700 million, and the subsequent laundering and cover-up without actually making any allegations to that effect," Ms Fischer said in her March 9 ruling.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

VIEW ALL

The 1MDB scandal has spurred court cases around the world, as Malaysian authorities try to track down more than US$4 billion that was siphoned off from the country's economic development fund.

US prosecutors, for their part, have been seeking to recoup at least US$1 billion that was allegedly spent on yachts and paintings by Claude Monet and Vincent Van Gogh and other luxury goods.

The DOJ alleges that the alleged perpetrators of the 1MDB scam pledged US$1 billion in Malaysian state funds to a proposed joint venture between PetroSaudi and PDVSA, Venezuela's state-owned oil producer, only to redirect US$700 million of that into their own account for their personal benefit, leaving the venture with just US$300 million. The DOJ has until March 29 to file an amended complaint.

Two PetroSaudi executives are the subject of a criminal investigation in Switzerland, where they were based, and face charges of engaging in a criminal conspiracy in Malaysia linked to 1MDB.

The two men, who cannot be identified under Swiss reporting restrictions, in January lost a bid to have hundreds of thousands of PetroSaudi e-mails and other documents excluded from the ongoing probe.

The Swiss Federal Criminal Court ruled that the documents were admissible, rejecting the argument that the data was "stolen" by Xavier Justo, a former employee. The January decision was reported earlier on Thursday by Swiss blog Gotham City.

Mr Justo has been heralded as a whistleblower in the case, and was awarded US$2 million by a Malaysian tycoon for sharing the documents. He called the January ruling a victory for Swiss justice.

"PetroSaudi has tried to discredit me, and has tried to have these files declared unacceptable in court," Mr Justo said in a message. "They have failed in both cases."

Swiss lawyers for the two men did not immediately return messages seeking comment. A lawyer at Baker & Hostetler, which represents PetroSaudi in the US case, declined to comment.

Meanwhile in London, PetroSaudi is fighting to release more than US$300 million it was awarded by a Paris arbitration court in July in its dispute with PDVSA. The money has been frozen since PDVSA unsuccessfully pushed for an asset freeze and authorities in the US, and Malaysia moved to seize it.

Judge Robert Miles in London said on Tuesday that the funds should be routed from an escrow account held by London law firm Clyde & Co to the UK court itself as he allowed a transfer of almost US$440,000 to Petrosaudi to pay for legal expenses.

PDVSA had briefly secured a freeze of the assets, before it was overturned, because of what it said were allegations that the funds were linked to "money-laundering, bribery and corruption connected to the alleged fraud in Malaysia". BLOOMBERG

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to  t.me/BizTimes

International

SUPPORT SOUTH-EAST ASIA'S LEADING FINANCIAL DAILY

Get the latest coverage and full access to all BT premium content.

SUBSCRIBE NOW

Browse corporate subscription here