Battle Rages In Swiss Court As PetroSaudi Directors Claim Endangerment and 'Bias'!

Battle Rages In Swiss Court As PetroSaudi Directors Claim Endangerment and 'Bias'!

The two indicted directors of the sham PetroSaudi oil company, charged with defrauding Malaysia’s 1MDB fund of USD 1.83 billion, turned up for the first day of their trial at the Swiss Federal Court in Bellinzona today…. but immediately challenged the case against them.

Lawyers for the owner of PetroSaudi, Tarek Obaid, and his Chief Investment Manager, Patrick Mahony, who plead not guilty, entered a slew of complaints even demanding one of the three judges, the president of the Court of Criminal Affairs, David Bouverat, be recused on grounds of alleged bias – a matter the lawyers claim to have reported to the European Court of Human Rights!

Patrick Mahony’s lawyer was also reported complaining that what he called “the verbose indictment” was  “the culmination of a totally biased and incomplete investigation“, which he described as too prejudicial and one-sided against his client.

Meanwhile, Obaid’s lawyers made a separate application for the proceedings to be heard in secret on grounds of safety, given he is purportedly taking refuge from the authorities in Saudi Arabia and claims to be in fear of his life.

Such was the level of obstruction that the court sat beyond 10pm Swiss time on Tuesday night, creating an unprecedented state of affairs on the first day of one of the countries largest and most significant criminal fraud trials in recent years.

The public prosecutors gave as good as they got criticising these manoeuvres as “yet another delaying attempt”.  According to local reporting Prosecutor Alice de Chambrier told the court “[Tarek Obaid] demands the closed session because he claims to fear for his life given his role in the high echelons of Saudi Arabia … But if Mr. O. feared for his physical integrity, he would not have sat in the sun smoking a cigarette on a terrace in Bellinzona, as he did this morning.”

Sarawak Report understands that the court has now conceded that certain private matters relating to Obaid’s family and his whereabouts may be kept secret. However, the trial will continue as planned in the public interest.

Mahony’s own lawyer then refused to give ground as the hours rolled by, insisting the prosecutors had built an unfair case against his client that should be thrown out of court and totally re-drawn.

Watching the proceedings, whistleblower Xavier Justo commented there is “no such thing as unfair facts”.  “Since they cannot deny the evidence they are fighting against the system”, he told Sarawak Report.

Extended Fraud and Massive Theft Totalling $1.83bn

As detailed in SR’s previous report the Swiss indictment states that Tarek Obaid was directly enriched to the tune of USD 580m and indirectly by a further USD 220m from the initial round of thefts from 1MDB involving PetroSaudi.

Apart from direct kickbacks from their co-conspirator Jho Low, who paid Obaid USD85m and later USD43m after he signed off on successive frauds to steal the $1.83bn from 1MDB, PetroSaudi made USD 1,096,000,000 from the proceeds of Venezuelan drill ships bought with 1MDB cash, virtually none of which returned to the Malaysian fund.

The lengthy indictment traces the entirety of the theft which began in October 2009 after 1MDB transferred a billion dollars into a fraudulent joint venture with PetroSaudi, based on the false narrative that the company was a state connected oil company based in Saudi Arabia with extensive assets worth $2.9 billion that it was injecting into the venture.

In fact PetroSaudi was a network of offshore shell companies which generated a fake loan to the joint venture company of $700 million that was immediately ‘repaid’ under terms written into the agreement.

That fraudulent repayment went into an account allegedly owned by PetroSaudi, but which in fact belonged to Jho Low who was controlling decisions at 1MDB at the behest of the prime minister in charge of the fund, Najib Razak.

The remaining $300 million was forwarded from the Joint Venture into accounts personally owned by Tarek Obaid to fund his businesses and private spending.

He also paid kickbacks to his business partner, the Saudi Prince Turki bin Abdullah, and to Patrick Mahony himself who gained at least $33 million from his role in orchestrating the theft and subsequent investments in Venezuela.

‘Islamic Loan’ and Restructuring Exercises Disguised The Theft

The indictment is based on testimony and information provided by the string of banks involved and former associates from the company, including former PetroSaudi COO (2009-16) Rick Haythornthwait, now the newly appointed chairman of NatWest Bank, who explains he had no idea of the fraud taking place on his watch.

The charges confirm the continuing trajectory of the further theft and cover-up engaged in by the two defendants, as has been reported from 2015 by Sarawak Report which obtained inside documentation from the deal from the former director and whistleblower Xavier Justo.

Restructuring & Cover Up

In order to conceal the disappearance of 1MDB’s investment, the initial joint venture arrangement, into which 1MDB had ‘invested’ one billion dollars of borrowed cash, was converted into a so-called loan (sanctimoniously described as an Islamic ‘Murabaha’ instrument) whereby PetroSaudi became a borrower rather than a joint venture partner.

To give the appearance of a paper profit, PetroSaudi agreed in June 2010 to purchase the billion dollar investment as a $1.2 billion loan owed to 1MDB and subject to an 8.5% annual interest.

The arrangement, which was signed off by prime minister Najib as the sole signatory and shareholder of 1MDB, even made provision for PetroSaudi to borrow further cash without any due diligence having been conducted into how its network of offshore shell companies could pay any of the money back.

To forward the deception Obaid had implied to banks that the real beneficial owner of the company was the King of Saudi Arabia where its wealth was based.

The fraudsters then attempted to borrow up to $1.25 billion more in the ensuing months. However, the cash strapped 1MDB was in the end only able to itself access a further $500m (much of which was used by Jho Low to buy out UBG bank) and later $330m which was passed on to Jho Low’s Good Star Ltd by early 2011.

Given the lack of due diligence, 1MDB’s accountants Ernst & Young refused to sign off on the loan arrangement without further assurances of PetroSaudi’s ability to repay such sums. In response, Najib sacked the auditors and replaced them with KPMG, which back-dated a financial report describing the investment as a loan.

As the indictment details, the restructuring of the relationship between the fund and PetroSaudi continued through several further stages, thanks to complicity from both sides and with the clear intent of separating 1MDB from control over its $1.83 billion investment and relieving PetroSaudi from the liability to pay it back.

First, in 2012 1MDB agreed to cancel the loan altogether to PetroSaudi in return for a 49% share of the oil company’s Venezuela subsidiary PSOSL, registered in the Cayman Islands. PSOLS’s only assets consisted of two elderly drill ships which had been bought with 1MDB cash.

According to the indictment Obaid explained this amazing cancellation of the 1MDB debt in return for worthless shares in his company to his JP Morgan bankers 0n the grounds:

“that the Repayment and Termination Deed was in fact because the Royal Court of the late King Abdullah had repaid the loan agreement in order to strengthen its relationship with Tarek Obaid and to thank Tarek Obaid for arranging a meeting between himself and the Malaysian Prime Minister. Tarek Obaid also indicated that it was not possible for him to obtain a copy of any proof of repayment, on the grounds that the matter was “highly sensitive”

The share in PSOSL was nonetheless touted as being worth $2.03 billion (amounting to the total of the loans made) and promoted as a profitable outcome for 1MDB’s investment . The shares were pledged to produce interest of 8.67% per year for 11 years, but according to the indictment Obaid only paid one first instalment in March 2011 (of USD81.2m) as an inducement to receiving the sign off from 1MDB, which was taken from money obtained in the earlier loans.

The revenue from the drill ships eventually amounted to over a billion dollars the indictment has revealed. However, this money was channelled to PetroSaudi and not as dividends to 1MDB.

In a further re-structuring PetroSaudi bought out 1MDB’s 49% share in return for ‘promissory notes’ which were then invested by 1MDB in a bogus Bridge Capital Global fund, still based in the Cayman Islands and valued on the basis of the drill ships.

IMDB’s continuing ‘investment’ in this venture was held in the newly incorporated 1MDB owned Brazen Sky Limited and declared by the fund to be worth over $2 billion.

The indictment quotes Patrick Mahony explaining to Tarek Obaid the purpose of this restructuring in September 2010, just after the joint venture was converted to a loan and a further $500 million had been ‘borrowed” . He told his PetroSaudi boss:

“Right now we are in a good situation because we have this money in a clean, proper and legal way so there is nothing anybody can do to us. Our issue now is with how to move it around. There are many ways to do this, we just need to think through the one that makes the most sense and, more importantly, works best for you. Chunk [Jho Low] has a view on how to do this but I think we can do it better and we can get them to do this our way for once as we hold the funds. In my mind, this is finally our advantage as we can dictate. Usually they have the funds but this time we do so we can do it our way.”

However, the second accountants KPMG refused to sign off on the Brazen Sky so-called asset without a full audit of PetroSaudi’s assets and it Venezuelan business. Najib sought to intimidate the accountancy firm at a meeting in his own home in December 2013 according to testimony given at his current trial in KL. Having failed, the prime minister  sacked them, replacing them with Deloitte.

Both IMDB and Brazen Sky Ltd are represented as interested parties in the trial on the grounds the Cayman fund was indeed valueless and both entities are therefore victims of the purported fraud conducted by the two PetroSaudi directors, together with Jho Low, ex-PM Najib and a slate of top officers appointment to the management of 1MDB by Jho Low himself.

The trial is expected to last the whole of the month of April.

Want to get alerts for new articles ? see our Subscribe page

Your views are valuable to us, but Sarawak Report kindly requests that comments be deposited in suitable language and do not support racism or violence or we will be forced to withdraw them from the site.

Comments

comments