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Monday, December 26, 2016

Report: Loopholes allowed 1MDB funds to be 'laundered' through law firms

Loopholes in the regulation of trust accounts by US law firms allowed allegedly them to be abused for money laundering purposes, reports The Wall Street Journal.
Citing 1MDB and other examples, the report said these loopholes were used by masterminds behind the international money laundering scandals.
Unlike normal accounts, which require clients to declare the purpose to the financial institution when transferring large amounts of money, the same standards do not apply to trust accounts by law firms, it said.
Trust accounts are used by law firms to handle the funds of their clients, such as money for the purchase of a property.
"Law firms lump together client money they are holding for short periods... into pooled bank accounts, and the law firms face no requirement to disclose whose cash is in the accounts.
"Banks say they generally see only a law firm’s name," said the report.
In the case of 1MDB, after US$700 million was purportedly siphoned to a RBS Coutts bank account in Switzerland, controlled by the Jho Low-owned Good Star Ltd in September 2009, US$148 million was then transferred into the trust account of law firm Shearman & Sterling the following month.
Low bought Park Laurel in 2010
A sum of US$22 million of the money from the trust account was then used to allegedly buy a Park Laurel Condominium unit in New York in February 2010.
Likewise, when US$238 million was purportedly siphoned from 1MDB between June and November 2012 into a BSI Bank account in Singapore, controlled by Riza Shahriz Abdul Aziz-owned Red Granite Capital, US$34 million was transferred to the trust account of Shearman & Sterling on Nov 16, 2012.
Three days later, the US$34 million was transferred to the trust account of another law firm, Sullivan & Cromwell.
The money was used by Riza, the prime minister's stepson, to allegedly purchase the same Park Laurel Condominium unit from Jho Low.
All these are detailed in the US Department of Justice's (DOJ) 136-page filing to seize assets acquired using money purportedly misappropriated from 1MDB and laundered through the US financial system.
Prior to the US federal investigation, only bits and pieces of information emerged in the public sphere from leaked bank details, such as shell companies controlled by the masterminds.

It was only after the DOJ's investigation that the money trail of transactions going through the law firms' trust accounts were detailed.
"Lawyers in the US don’t have to investigate client conduct unless they believe a client may be engaging in illegal activity while using the lawyer’s services, unlike requirements in other developed countries," the report says.
It also quoted Shearman & Sterling as saying that it was in compliance with legal and ethical standards and had no reason to believe the money was misappropriated. 
Sullivan & Cromwell declined to comment.- Mkini

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