Billion Dollar Whale
The trick in writing a story about bonds and banking, one learns, is to add “color” (or “colour” since I’ve been liberated from the use of American English): a spicy biographical detail or choice quote that lifts the whole. Sometimes it takes a bit of work to find.
Billion Dollar Whale: the man who fooled Wall Street, Hollywood and the world
Tom Wright and Bradley Hope, 2019
Billion Dollar Whale — a book essentially about bonds and banking — is so bursting in colour as to induce motion sickness. Among the first to suspect that a 30-something Malaysian named Jho Low was laundering money through the Hollywood film industry was Jordan Belfort, himself a convicted fraudster who recognised Low’s attitude to money as that of someone who had stolen it.
Belfort’s fictionalised memoir of pumping penny stocks and going to gaol was turned into ‘The Wolf of Wall Street’ — the film starring Leonardo DiCaprio that was financed substantially by a production company Low set up with the Malaysian prime minister’s step-son.
DiCaprio is roasted by the authors, Wall Street Journal reporters Tom Wright and Bradley Hope, who dryly note the $13 million of personal gifts (including a Picasso) that DiCaprio quietly received from Low in the days after he presented Wolf of Wall Street to the world as “an indictment about something that’s in our culture, this incessant need to consume.” He and other Hollywood beneficiaries of Low’s largess, including Miranda Kerr, later forfeited the gifts.
Jho Low, one of Harrow school’s less-distinguished alumni, is now thought to have stolen more than $4 billion from the Malaysian people through his stewardship of 1 Malaysia Development Berhad, known as 1MDB. The publication of Billion Dollar Whale has come amid a flurry of charges against both Low and former Malaysian prime minister Najib Razak. The essential allegation is that Razak and Low set up 1MDB with the purpose that it borrow money from global institutions to finance Razak’s personal slush fund at home and Low’s business ambitions abroad. Razak is on trial while Low is a fugitive, reported to be hiding in China, which hasn’t stopped him seeking to prevent publication of the book in the U.K.
Among the most vexing and bitterly-fought questions is the role of Goldman Sachs. Goldman’s Asian business underwrote $6.5 billion of bond sales for 1MDB, earning fees whose rumoured size was among the first nuggets to interest financial journalists in 2012. It later emerged the fees were even bigger than the rumours, approaching 10% of the issue amount. Wright and Hope’s sources in Billion Dollar Whale characterise this as danger money while Goldman argues it was justified by the complexity and risk of the deal. Unhelpfully for Goldman, the partner who led the deals has pled guilty to taking bribes. Goldman itself is reported to be negotiating a settlement of between $1.5 billion and $2 billion to end the profound risk of a U.S. criminal prosecution. Malaysia is also seeking fines.
The interesting question that won’t be tested if settlements are reached is what amount of knowledge should be found in the bank — and by which members of the bank — to say it is criminally liable? Before Goldman’s investment bank earned half a billion dollars in fees from 1MDB, its private-wealth management division had rejected Low’s application to open an account because it didn't understand his source of funds, the book reports. That wasn’t the only example of Low-skepticism inside Goldman.
So, do we hold an institution liable because it failed to listen to its sanest voices? And if one acknowledges that lies were told by the client and/or its own employee, does that relieve it of corporate liability? To what extent can the corporate cite the trust that characterises most of its business relationships to say it can’t be blamed for trusting the counterparty who was rotten?
These are not novel questions. The U.K. has developed seemingly-tough ‘failure to prevent’ laws against tax evasion and bribery that only allows the corporate to escape liability if it had ‘reasonable prevention procedures’ in place. Legal commentary suggests there have been few successful prosecutions so far. The role of Goldman in Billion Dollar Whale prompts me to wonder whether a failure to prevent approach to crime can really work. If the essence of fraud is dishonesty, then facilitators will always seek — as Goldman does in respect of 1MDB — to rely on the fact that they were lied to and no ‘prevention procedure’ can be immune to lies.
