The Department of Justice (DOJ) has filed a series of 16 civil forfeiture complaints in U.S. District Court in the Central District of California to recover more than $1 billion in assets linked to funds that were allegedly stolen from a Malaysian sovereign wealth fund, the 1Malaysia Development Berhard, or 1MDB. According to the complaints, high-level 1MDB officials and their associates – including the prime minister of Malaysia, who set up the fund in 2009 to boost the Malaysian economy – looted more than $3.5 billion from the fund and then laundered those funds through a series of shell companies with bank accounts in Singapore, Switzerland, Luxembourg and the United States. The funds were used to purchase interests in luxury assets in the United States, including The Wolf of Wall Street movie, artworks by Vincent Van Gogh, a Bombardier aircraft, and real estate in New York and Beverly Hills. The complaints also implicate the Malaysian prime minister’s son, who co-owns the production company that made The Wolf of Wall Street.
We can expect the lawsuits to be heavily litigated and showcase the many challenges that parties face in these types of cases. Tracing assets through multiple shell companies and multiple banks in multiple jurisdictions is notoriously difficult because it requires extensive documentation and bank records – records that many jurisdictions are loath to divulge. More difficult still may be the task of proving that the funds were stolen in the first place, as the proof of the Malaysian officials’ corruption may reside in the hands of the accused. Perhaps in recognition of these evidentiary difficulties, the government has elected to proceed with civil rather than criminal forfeiture. The government also currently seeks only forfeiture and does not seek to impose penalties under U.S. anti-money laundering laws 18 U.S.C. §§ 1956 and 1957. The failure to plead a violation under section 1956 is particularly striking because the case seems tailor-made for section 1956(c)(7)(B)(iv)’s prohibition of the laundering of the proceeds of official corruption.
The headline-grabbing filings are the latest result of the multiagency Kleptocracy Asset Recovery Initiative, which was launched in 2010 to combat large-scale foreign official corruption. BakerHostetler’s International Dispute Resolution team has been monitoring the initiative’s enforcement actions and investigations, which reflect a growing awareness among state and federal authorities that the United States is seen by criminals around the globe as a safe haven for the proceeds of crime. To combat weaknesses in the U.S. anti-money laundering laws, the U.S. Department of Treasury has recently announced that it is working with Congress to pass legislation that would require companies to know and report beneficial ownership information at the time of a company’s creation. Meanwhile, the DOJ also plans to submit proposed legislation to Congress to aid its anticorruption initiative. The proposed legislation includes enhanced evidence-gathering authority in money laundering investigations as well as substantive changes to the money laundering statute that would greatly expand the DOJ’s ability to bring suit against foreign actors.