Lawyer: No 1MDB funds in UK-based escrow account

No monies from 1MDB were ever funnelled into an oil drilling and exploration venture between an entity linked to Petrosaudi International Limited (PSI) and the Venezuelan government, the Kuala Lumpur High Court heard today.

Lawyer Alex Tan also submitted that no funds from the Malaysian sovereign wealth fund ended up in an escrow account managed by United Kingdom-based law firm Clyde & Co LLP.

The lawyer represented three of the five respondents targeted by the Malaysian government’s legal action to prohibit them from dealing with US$340 million in alleged 1MDB funds in the escrow account.

The three respondents are PSI, Petrosaudi Oil Services (Venezuela) Limited (Incorporated in Barbados) also known as PSOSL, and UK-based Temple Fiduciary Services Limited.

PSI’s director, Saudi national Tarek Obaid, was represented by lawyer Mohd Yusof Zainal Abiden, while Clyde & Co was unrepresented.

‘No evidence’

During open-court proceedings before judicial commissioner Ahmad Shahrir Mohd Salleh this afternoon, Tan argued that the prosecution failed to show evidence that any 1MDB funds were laundered into the oil drilling and exploration venture between PSOSL and Venezuela’s national oil company Petroleos de Venezuela SA (PDVSA), in 2010.

The lawyer submitted that there is no money traceable to 1MDB that was used in the operation of the oil venture.

Tan contended that this was shown among others by the fact that PSOSL was not even the owner of one of the drilling ships that Malaysian authorities claimed were funded by 1MDB.

The lawyer also contended that this lack of evidence on the 1MDB link on these funds proceeded all the way to the money in the escrow account, which he argued was actually money owing to PSOSL following an arbitral award.

Tan explained that the escrow funds were held in trust pending disposal of arbitration proceedings between PSOSL and PDVSA when parties entered a dispute linked to the oil venture.

The lawyer explained that the final arbitral award was issued a few days after the Malaysian government filed the legal action against the five respondents, namely on July 14, 2020 (date of filing of the legal action.

“When PDVSA failed to make payment (to PSOSL that led to the dispute), they engaged in arbitration and at the conclusion of the arbitration, the arbitral tribunal ruled in favour of the third respondent (PSOSL).

“We have a situation where the applicant (Malaysian government) seeks to prevent dealings (by all five respondents) with these monies.

“The monies in the escrow account are clean monies, and no money from 1MDB can be said or suggested to be traceable to the final (arbitral) award in the escrow account or account of the fifth respondent (Temple Fiduciary Services),” Tan told the court.

The lawyer also denied the prosecution's contention that Tarek used PSOSL as a way to hide unlawful activities.

Proceedings before Ahmad Shahrir will resume tomorrow afternoon, with the prosecution expected to mount rebuttal arguments.

Money laundering scheme

Yesterday, deputy public prosecutor Norinna Bahadun submitted that part of the US$340 million in 1MDB funds was laundered into the Venezuelan oil venture.

The DPP contended that as part of the money laundering scheme that funnelled millions of US dollars out of the Malaysian wealth sovereign fund beginning in 2009, around US$185 million of this portion ended up being used by PSOSL for its oil venture with Venezuela in 2010.

Previously, the prosecution claimed that the money laundering began when US$700 million of US$1 billion meant for a joint venture between 1MDB and PSI had ended up instead in the account of Seychelles-incorporated Good Star Limited.

Good Star is alleged to be linked to fugitive businessperson Low Taek Jho (Jho Low), whom the prosecution contended had arranged the embezzlement of funds out of 1MDB with the authority of former prime minister Najib Abdul Razak.

These contentions were raised by the prosecution during the separate, ongoing criminal corruption trial against Najib involving RM2.28 billion of funds from 1MDB.

In the present legal action filed on July 14, 2020, the Malaysian government claimed that the amount totalling US$340,258,246,87 at Clyde & Co was derived from money laundering.

The legal bid was filed under Section 53 of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001.

According to the US Department of Justice, the joint venture was alleged to have been a front to siphon off 1MDB funds.

Najib is currently serving a 12-year jail sentence following the apex court on Aug 23 upholding his conviction and custodial sentence as well as an RM210 million fine in the separate RM42 million SRC International corruption case.

Initially a subsidiary of 1MDB, SRC was later fully transferred to the Minister of Finance Incorporated (MOF Inc).

Najib also used to be finance minister, adviser emeritus of SRC and chairperson of 1MDB’s board of advisers.

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