LBJ-Box 13
The political season is finally upon us, with the Iowa Caucuses starting the race to the White House. In honor of this election cycle commencement, we pay tribute the long and time-honored Southern tradition of midnight voting, where people who have or had reposed for long periods in local cemeteries miraculously arose to vote when needed in elections. In Texas this event is most honored in the first election of Lyndon Johnson to the Senate in 1948, where Johnson won the election by 87 votes out of 988,295 cast statewide. (Thereby garnering the nickname Landslide Lyndon.)

Midnight voting came into play as the winning margin was provided sometime after the first results came, from a single voting precinct in Jim Wells County, Box 13, where Johnson astoundingly secured 202 previously uncounted votes that were somehow ‘found’. It later turned out that the names of the voters came from deceased residents of the county. Also rather amazingly none of those voters denied that they had not in fact voted for Johnson.

The moral of the story – the dead can get you out of a lot of problems. And people say Texans are slow on the take.

I thought about Johnson, Box 13 and midnight voting when reading about the ongoing corruption issues around the Prime Minister of Malaysia, Najib Razak. The issues surround how $681MM mysteriously appeared in his personal bank account. I said ‘mysteriously’ because the PM said it was a personal gift from the prior King of Saudi Arabia. I said prior King; that is because he is dead and is no longer available for comment about whether or not he actually made the gift. As to the living Saudi government, it denies there is any record of such a payment.

Matthew Stephenson, writing in his Global Anti-Corruption Blog, in a post entitled “Malaysia’s Anticorruption Credibility Problem, noted that the Malaysian Attorney General, Mohamed Apandi Ali, said the money was a “political donation” and the money was provided “without any consideration”. Moreover the PM had returned some $620MM of the money and “had not done anything unlawful.”

Being a good Texan, I recognized midnight voting has moved over to the corruption and money-laundering arena in Malaysia. Stephenson, with perhaps more intellectual rigor, stated “it’s more than passing strange that he [the PM] didn’t just announce that it was a political donation form the Saudi royal family right away.” Stephenson also queried about the difference between the amount received, $681MM and the amount returned, $620MM. Stephenson posed a couple of reasonable questions “Where did it go? What was it spent on?” Maybe the spare $61MM is for the PM’s household account.

Yet just when I was fired up to go see the first Houston appearance of the Broadway hit, All The Way, which is about LBJ and the passage of the Civil Rights Act; things got decidedly worse for the Malaysian government when last week the Swiss government announced initial findings in a separate corruption and money-laundering investigation. In an article in the Wall Street Journal (WSJ), entitled “Swiss Prosecutors Say Malaysia Funds Diverted, John Revill reported, “Switzerland’s top prosecutor said $4 billion may have been appropriated from state-owned companies in Malaysia.”

These allegations center on the Malaysian sovereign wealth fund, 1Malaysia Development Berhad (1MDB). Michael Peel and Jeevan Vasagar, writing in the Financial Times (FT), in an article entitled “Swiss wreck effort to contain 1MDB scandal”, said the Swiss investigation, “follows a case opened last August against two unnamed former 1MDB officials on charges including bribery. The Swiss attorney-general said there were “allegations of criminal conduct” in four cases involving 1MDB, in a period spanning 2009 to 2013.” The reporters went on to note, “the four cases involved a “systematic course of action carried out by means of complex financial structures”. They added the cases related to five companies: PetroSaudi, a Saudi Arabia-based oil group with offices in the UK and Switzerland; SRC, a former subsidiary of 1MDB; Genting and Tanjong, two Malaysian conglomerates involved in leisure and property; and ADMIC, a joint venture between 1MDB and Aabar Investments, which is controlled by Abu Dhabi’s International Petroleum Investment Company.”

Even Singapore has become involved, as reported by the BBC Online, in an article entitled “Malaysia 1MDB scandal: Singapore seizes bank accounts”, they said, “The authorities in Singapore say they have seized a large number of bank accounts as part of an investigation into possible money-laundering linked to a fund owned by the Malaysian state.” The article went on to note, “Singapore said it would not tolerate being used as a refuge for illicit funds. In a joint statement by its central bank and the police’s anti-fraud agency it said: “In connection with these investigations, we have sought and are continuing to seek information from several financial institutions, are interviewing various individuals, and have seized a large number of bank accounts.””

So now we have moved from ‘a dead guy gave me $681MM’ to potentially $4bn gone from the country’s sovereign wealth fund. What is the lesson to be learned from such ethereal activities? For the compliance practitioner, it points to the need not only to keep abreast of current events but also to know who your counter-parties are in any relationship. If your company has done business with 1MDB in the past now would be a very propitious time to review all those contracts, review your documentation of third parties involved, perform transaction analysis on the gifts, travel and entertainment expenses of any employees involved in securing those contracts and then take a very hard look to see if there are any way pools of money could have been generated to pay bribes, even if only through contract discounts.

Has your company had any interactions with PM Razak? One might think with his (apparent) $61MM in pocket money he kept from the dead Saudi King’s gift, he would not have asked for anything from your company. Yet you had probably take a close look at any interactions. As Stephenson detailed in his blog post, the entire credibility of the Malaysian government has been called into question over these allegations and the government’s response thereto.

Finally, what about the company’s named in the Swiss investigation into the potential $4bn? If your company has any interactions or contracts with such entities, now might be a very good time to make sure you have engaged in all five steps in the lifecycle of third party management. If you are considering doing business with these entities, you may well want to put those plans on hold and do some deeper digging. It is all in the public record now and there is no excuse not to investigate going forward.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

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