PetroSaudi: The Story, Part One
PetroSaudi was set up by Tarek Obaid and Prince Turki in 2009 (with assets of only a few hundred francs listed in the Swiss company registry) with the claim that it was a Saudi government/royal enterprise.
Patrick Mahony, a school friend of Obaid from Geneva, joined shortly afterwards, initially as their contact to his investment firm Ashmore, whom he persuaded to invest and loan millions in an Argentinian oil concession, and an option to explore a Caspian Sea oil field in Turkmenistan disputed border area (owned by a Canadian company called Buried Hill).
Mahoney moved over from Ashmore and became a director as they needed a business-savvy person – Xavier Justo later described Patrick Mahony as “the cleverest businessman I have ever encountered.” He had worked at Goldman Sachs and Blackstone.
Prior to 1MDB, PetroSaudi had just two dubious failing assets mentioned above.
There were two parts to PetroSaudi’s involvement in laundering 1MDB funds: Joint venture in September/October 2009 and the buy-out of Taib’s UBG interests in late 2010
The PetroSaudi guys first met Jho Low/1MDB in June or July 2009. By September 2009 Jho Low had made clear to them that they needed a venture into which to sink $1 billion raised from banks by 1MDB within a month, with most of it going straight back to Jho Low and Najib. They provided such a structure by setting up joint venture. Jho Low, on behalf of Najib, would get 70% laundered back to him immediately, out of which he would pay off Mahony and Obaid and 30% would remain in joint venture.
PetroSaudi transferred ownership of the two virtually worthless assets mentioned above (the Argentinian concession and the option on the Turkmenistan oil field), which were falsely valued at around $3 billion to the joint venture company. The deal included an encumbrance of $700 million on the joint venture company in favour of PetroSaudi, to be paid immediately as part payment for the transfer of assets – to explain on paper the immediate siphoning away of $700 million. The $700 million went not to a company owned by PetroSaudi but to a company called Good Star, incorporated in the Seychelles and fully owned by Jho Low.
Patrick Mahony co-ordinated all the legal work and coaxed the banks involved in the course of a frenetic week at the end of that September. They used the UK law firm White & Case, signing everything in their offices, and the UK firm Maples & Calder to help set up a labyrinthine structure of offshore shell companies, partly to confuse and give the impression on paper that PetroSaudi was a big international entity.
Mahony emailed Jho Low and his lawyers: “I have tried to think of deals that would be very justifiable to any investment committee… I am also thinking of structures where funds need to move a few times, which generally makes it easier for any fees we would need to pay our agents.” [The Sarawak Report, p.174]
They had some difficulty getting banks to set up accounts for the entities because of the suspicious transactions involved and were eventually scrambling in a panic over this. Obaid’s bank BSI refused to open the joint venture account because Mahony could not satisfactorily answer their questions about the mysterious destination of the $700 million. He kept prevaricating about what authority would oversee its legitimacy, initially claiming PWC would and then back-tracking.
(Ironically BSI, the oldest Swiss bank, would later be the first bank to be shut down over the 1MDB scandal, because of the involvement of its Singapore branch in a later aspect of the affair.) But Mahony persuaded JP Morgan Suisse Zurich to open the joint venture account and immediately to send the $700 million to Coutts Zurich and from there straight to Coutts Singapore where Jho Low’s Good Star account was held. Mahony was hired for a hefty fee to manage the funds in Jho Low’s Good Star account and an $85 million ‘brokerage fee’ was paid from the Good Star account to Tarek Obaid. The remainder of the money in the Good Star account was soon afterwards transferred to BSI Singapore and the bank’s senior managers likewise moved from Coutts Singapore to BSI Singapore along with their client’s money. Deutsch Bank, 1MDB’s bank in KL, was initially reluctant to send the $700 million without further answers about the validity of its destination but caved in.
Sam Warshaw and Nick Kochan