Cannes yacht encounter triggered alleged $1.8 billion 1MDB fraud that put Malaysia’s ex-prime minister in prison



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It began with a meeting on a yacht off the coast of Cannes in the summer of 2009. The newly-elected prime minister of Malaysia was aboard at the invitation of businessman Jho Low and Saudi-Swiss businessman Tarek Obaid. The men had gathered to explore deals for Malaysia’s new economic development fund, 1MDB. 

Fifteen years later, the prime minister is in a Malaysian prison serving time for corruption. Low, the alleged mastermind behind the $4.5 billion defrauding of 1MDB, remains at large. And Obaid and his business partner Patrick Mahony will stand trial at Switzerland’s top criminal court on April 2, accused of creating a sham oil exploration company through which they stole more than $1.8 billion in 1MDB funds. 

Neither Mahony or Obaid have spoken in public about their deals with Jho Low, a round-faced businessman they nicknamed ‘Chunk.’ The month-long trial, set in Switzerland because the two men based their business there, may reveal fresh details about the fugitive, who is suspected of pulling off arguably the biggest financial heist of the 21st century. Mahony has denied the charges and pleaded not guilty. A lawyer for Obaid didn’t return multiple messages seeking comment on the charges.

It’s also a chance for Switzerland, seen as a soft touch on white-collar criminals, to demonstrate it can be tough on financial crime. A former Coutts & Co. banker found guilty in 2020 of failing to flag money-laundering concerns related to a $700 million transfer made by Low was fined just 50,000 Swiss francs ($55,700). 

Prosecutors claim that the pair worked with Low on the scheme from as early as 2009, and the amounts at stake make it one of the largest frauds that Low allegedly helped orchestrate.

Mahony has been charged with criminal mismanagement, fraud, bribery and aggravated money-laundering, according to the 213-page indictment, with Obaid accused of all that and forgery. A conviction just on fraud charges carries a prison sentence of as much as 10 years, though in many Swiss cases, the sentence is suspended.  

In the indictment, Swiss prosecutors lay out the pair’s alleged scheme — which, they say, included negotiating on behalf of a Saudi king they had no mandate from, while claiming the rights to a Caspian Sea oilfield that they never controlled — from that first Mediterranean meeting in 2009. 

A lawyer for Obaid didn’t return emails seeking comment on the charges against her client. Laurent Baeriswyl, a lawyer for Mahony, said by email that the indictment is the result of a “totally biased and incomplete investigation.”

The Swiss Attorney General’s Office “ignored all the facts which did not correspond to its thesis, contrary to what the law requires” and so “our client therefore strongly contests the facts as they emerge from the indictment and he will defend his rights before the Federal Criminal Court.”

Saudi Connections?

Obaid founded oil exploration company Petrosaudi in 2005 with his acquaintance Prince Turki Bin Abdullah al Saud, determined to capitalize on the connections that royal name could enable. 

But even with that woven into the company’s pitch, the ambitious 30-year-old still needed cash. He had secured a modest loan through Patrick Mahony, a former classmate from private school in Geneva, who would become Petrosaudi’s unofficial chief investment officer in 2009, according to the indictment. But he needed more, prosecutors say, and turned to Low.

Communicating only through encrypted BlackBerry messages and private email accounts, the three men got to work on the company. But according to the indictment, their strategy had little to do with oil exploration. 

Prosecutors highlighted emails among the three men to drive home their argument that Petrosaudi didn’t control the assets it purported to have, nor did it have the Saudi monarch’s blessing. According to one sent in mid-September 2009 before an introductory call with a 1MDB executive, it was imperative to “hint that PSI is indirectly owned by King Abdullah.”

Turki, the seventh son of the late King Abdullah, isn’t accused of any wrongdoing in connection with Petrosaudi, and didn’t exercise any operational role within the company, according to prosecutors. Turki was one of several princes detained in November 2017 by Saudi Arabia’s defacto ruler Mohammed bin Salman, and his current whereabouts are unclear. 

Turkmeni Oil

Following the Cannes meeting, Obaid proposed that 1MDB and Petrosaudi create a joint venture to exploit Petrosaudi’s stake in a Turkmeni oilfield. Obaid laid out in writing, according to prosecutors, that Petrosaudi would bring “$2 billion worth of its assets in the energy sector into the joint-venture company.” 

There was one problem: Petrosaudi didn’t own the oilfield or the rights to it, but was rather in stalled negotiations with a firm that had paid $10 million to buy up the rights. But those paper rights were essentially worthless as the oilfield lay in waters whose ownership was disputed by Turkmenistan and Azerbaijan. 

So Obaid turned to an oil consultant and old family friend to value the oilfield. Nine days later, he produced a report that put the “fair net present value” of the assets at between $2.98 billion and $4.06 billion.

With that hefty valuation in writing and the Saudi royal family’s backing established in the minds of 1MDB executives, the board of directors signed off on Sept. 26, 2009, and two days later authorized the transfer of $1 billion to bank accounts held by the new joint venture, 1MDB PetroSaudi. 

Three hundred million of that went to an account controlled by Obaid, according to prosecutors. The remaining $700 million went to GoodStar, which was falsely presented as a unit of PetroSaudi but was in fact a Seychelles-based entity controlled by Low. On Oct. 5, the businessman wired $85 million of that to an account held in Obaid’s name. Obaid, in turn, wired $33 million to Mahony on Oct. 21. 

‘Our Way’

The following year, prosecutors allege that the pair set about extracting additional money from 1MDB. Obaid had persuaded the fund to turn the joint venture into a loan facility and he drew down $500 million, ostensibly to invest in French oil company GDF Suez.

Newly flush, the pair appeared keen to distribute the funds quickly, emails show.  

“Right now we are in a good situation because we have this money in a clean and proper legal way so there is nothing anybody can do to us,” Mahony wrote to Obaid in September 2010. 

The next day, he transferred $300 million into Obaid’s personal account and the remaining $200 million to Petrosaudi accounts he controlled, according to prosecutors. 

Then in 2011, Obaid drew down again, this time for $330 million, prosecutors allege. To pressure the Malaysians to accept, he reminded them of how King Abdullah helped evacuate Malaysian Muslims during the Arab Spring protests, and how he had increased the quota of Malaysian Muslims able to make the pilgrimage to Mecca. 

Between 2009 and the end of 2011, prosecutors say that the men took a total of $1.83 billion from 1MDB, with Obaid personally pocketing $580 million, and Mahony, $37 million. 

Bangkok Prison

Obaid and Mahony’s 2023 indictment was based in part on the testimony of Xavier Justo, the third employee at Petrosaudi. After just a year at the company, Justo left and was arrested in Thailand in June 2015. Convicted of attempted blackmail in what he says was a conspiracy on the part of Obaid, Mahony and the Malaysian authorities to silence him, the Swiss national spent 18 months in prison before his country’s government intervened to help get him released. 

Documents Justo shared with The Sarawak Report, a blog focused on corruption in Malaysia, led to the first expose of the Petrosaudi pair in 2015. He published a book last year, co-written with his wife, chronicling his experience with the two men. 

The Malaysian Anti-Corruption Commission flagged its own arrest warrants for Obaid and Mahony to Interpol in early 2020. It’s unclear if they were ever detained and Swiss prosecutors declined to say whether they ordered their arrest. 

Years on, Justo says he hopes that his country’s justice system will now do the right thing.  

“This is the perfect opportunity for Switzerland to show the world that it is serious about fighting financial crime and that it is prepared to punish those who perpetrate it,” he said.



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