1MDB Case Hits Setback as Judge Rules Against U.S. Justice Department
(Bloomberg) -- A U.S. judge rejected the Justice Department’s attempts to seize $325 million from an oil exploration joint-venture linked to the 1MDB scandal, in a setback for federal prosecutors in a multibillion dollar kleptocracy case.
The U.S. ruling emerged at a London court hearing this week where Petrosaudi Oil Services (Venezuela) Ltd. is battling to win release of hundreds of millions of dollars at the heart of the case.
U.S. District Judge Dale Fischer in Los Angeles earlier this month granted Petrosaudi’s request to dismiss the Justice Department’s forfeiture claim, ruling that the government had failed to make an adequate allegation between the money and any criminal offense. The Justice Department created the Kleptocracy Asset Recovery Initiative in 2010, with the aim of seizing proceeds from foreign corruption.
“It appears that the government would like to take advantage of an inference that one or more PetroSaudi entities were knowingly involved in the theft of the $700 million and the subsequent laundering and cover-up without actually making any allegations to that effect,” Fischer said in her March 9 ruling.
The 1MDB scandal has spurred court cases around the world, as Malaysian authorities try to track down more than $4 billion that was siphoned off from the country’s economic development fund. U.S. prosecutors, for their part, have been seeking to recoup at least $1 billion that was allegedly spent on yachts and paintings by Claude Monet and Vincent Van Gogh and other luxury goods.
The DOJ alleges that the alleged perpetrators of the 1MDB scam pledged $1 billion in Malaysian state funds to a proposed joint venture between Petrosaudi and PDVSA, Venezuela’s state-owned oil producer, only to redirect $700 million of that into their own account for their personal benefit, leaving the venture with just $300 million.
The Justice Department has until March 29 to file an amended complaint. A Justice Department spokesman and the prosecutors leading the forfeiture effort, who’ve also been heavily involved in the broader 1MDB asset recovery efforts, didn’t return messages seeking comment.
Two Petrosaudi executives are the subject of a criminal investigation in Switzerland, where they were based, and face charges of engaging in a criminal conspiracy in Malaysia linked to 1MDB. The two men, who can’t be identified under Swiss reporting restrictions, in January lost a bid to have hundreds of thousands of Petrosaudi emails and other documents excluded from the ongoing probe.
The Swiss Federal Criminal Court ruled that the documents were admissible, rejecting the argument that the data was “stolen” by Xavier Justo, a former employee. The January decision was reported earlier Thursday by Swiss blog Gotham City.
Justo has been heralded as a whistleblower in the case and was awarded $2 million by a Malaysian tycoon for sharing the documents. He called the January ruling a victory for Swiss justice.
“Petrosaudi has tried to discredit me and has tried to have these files declared unacceptable in court,” Justo said in a message. “They have failed in both cases.”
Swiss lawyers for the two men, did not immediately return messages seeking comment. A lawyer at Baker & Hostetler, which represents Petrosaudi in the U.S. case, declined to comment.
Meanwhile in London, Petrosaudi is fighting to release more than $300 million it was awarded by a Paris arbitration court in July in its dispute with PDVSA. The money has been frozen since PDVSA unsuccessfully pushed for an asset freeze and authorities in the U.S. and Malaysia moved to seize it.
Judge Robert Miles in London said on Tuesday the funds should be routed from an escrow account held by London law firm Clyde & Co. to the U.K. court itself as he allowed a transfer of almost $440,000 to Petrosaudi to pay for legal expenses.
PDVSA had briefly secured a freeze of the assets, before it was overturned, because of what it said were allegations that the funds were linked to “money-laundering, bribery and corruption connected to the alleged fraud in Malaysia.”
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