The series of forfeiture lawsuits recently filed by the Justice Department against those alleged to have looted the Malaysian sovereign wealth fund 1MDB will continue to be mined for information for some time to come. With the Complaint coming in at 136 pages, there is a wealth of information on the first and third parties involved in the massive fraud and how they accomplished it. It will be most interesting to see what might be the fallout for those parties.
One of the most prominent third parties named in the filings is the New York law firm of Shearman and Sterling, a white shoe firm if there ever was one. However as reported in the Wall Street Journal, the filings laid bare “the purported role that a Shearman & Sterling LLP trust account played in a range of multimillion-dollar deals funded with allegedly dirty money.”
The WSJ piece went on to detail that “Court filings say 11 transfers totaling $368 million were sent into the Shearman account between October 2009 and October 2010 from a Swiss bank account prosecutors say contained $1 billion siphoned from 1MDB. That includes a $148 million wire transfer in October 2009, and another $117 million the following January, both held for a client listed as the Wynton Group.” While lawyers, law firms, and (most importantly) law firm trust accounts are not generally required perform background due diligence on the source of funds, they cannot simply practice conscious indifference by putting their head in the sand about the sources of funds put in their trust accounts.
However in the 1MDB matter, the actions by the law firm in accepting the allegedly corrupt monies into its trust account were compounded when the banks did not apply normal anti-money laundering checks, assuming the law firm had done so. Of course there is the fact that family members and close friends of the Malaysian Prime Minister did seem to be spending large amounts of money on seemingly private purchases and residences…