U.S. government officials say they have shown a clear connection between the perpetrator of a $1 billion 1MDB fraud, his companies, and the proceeds of a Venezuelan drilling project, warranting the seizure of a $380 million arbitral award.
In an opposition brief filed Tuesday in California federal court, the U.S. government said its fourth complaint has addressed any outstanding doubts about the possible separation between PetroSaudi Venezuela and a billion-dollar theft from Malaysia’s sovereign development fund, or its potential innocence as a third-party operator, urging the court to reject the company’s latest motion to dismiss.
According to the U.S., PetroSaudi co-founder Tarek Obaid funded an offshore drilling project in Venezuela through one company he controlled, using $179 million in stolen 1MDB funds — and then engaged in money laundering by operating the project through another company he entirely controlled, PetroSaudi Venezuela.
The $380 million arbitration award is traceable to the money laundering transactions, according to Tuesday’s brief, and meets the standards for seizure under federal rules of civil forfeiture. The government argued its lawsuit “fits squarely into the case law holding that proceeds of a venture are forfeitable when the venture is funded with illicit money. Obaid’s use of multiple entities to effectuate the venture does not defeat forfeitability, particularly when Obaid was the controlling figure at the misappropriation, funding, and operation stages.”
“If bad actors could use captive companies to operate their business ventures, they could easily avoid the rule that proceeds of fraudulently-funded ventures are forfeitable,” the brief stated.
In a related forfeiture action against Obaid, the Ninth Circuit recognized that using stolen 1MDB money to finance a film company was part of the 1MDB conspiracy, the government argued Monday — and “if running a motion-picture business knowingly funded with stolen 1MDB money is part of the conspiracy, then running a drilling business knowingly funded with stolen 1MDB money is also part of the conspiracy.”
It isn’t necessary to pierce the corporate veil between Obaid and the company under his dominion and control, because the lawsuit is directed against the award itself, according to the brief.
“To survive a motion to dismiss, the third amended complaint must only allege a reasonable basis to believe that the arbitration award is proceeds of a venture funded with illicit money. This does not require establishing personal liability against Obaid and thus does not require piercing the veil between PetroSaudi Oil Services Venezuela and Obaid,” the brief stated.
Even so, the government said it made a strong case for holding Obaid personally liable by showing that Obaid had complete dominion over his company and that he used this dominion to perpetrate fraud, injuring the U.S. Obaid also co-mingled business and personal funds, the brief added.
Obaid’s bid to dismiss the claims on the basis of international comity — that is, respect for the governmental interests of other nations — is “meritless,” according to the brief, since the governments of Malaysia and the U.K. have both provided statements of non-objection to the forfeiture suit.
According to the U.S., between September 2009 and January 2010, Obaid funneled $300 million he fraudulently obtained through the 1MDB venture “through bank accounts that he controlled, titled in the name of various PetroSaudi companies for which he was a director.” By January 2010, the government said, $185 million of these funds rested in a PetroSaudi subsidiary for which Obaid was the sole authorized signatory and beneficiary. The U.S. said Obaid used this money to fund the Mariscal Sucre gas project, including the purchase of a drillship. Later the same year, the brief explained, Obaid and his subsidiary “inserted a new PetroSaudi subsidiary company” to take over the drillship contract, and then leveraged this operation to obtain a second ship and drilling contract.
Earlier this month, the U.S. Department of Justice announced it has returned $452 million stolen from Malaysia’s sovereign wealth fund that was squirreled away in luxury homes, fine art and a super yacht, bringing the total repatriated in the wake of the 1Malaysia Development Berhad scandal to more than $1.2 billion.
Last year, Goldman Sachs agreed to pay $2.9 billion to U.S. and foreign regulators for its role in funneling $1.6 billion in bribes to officials in Malaysia and Abu Dhabi.
The U.S. is represented by Deborah Connor of the U.S. Department of Justice’s Money Laundering and Asset Recovery Section and Joshua Sohn, Jonathan Baum and Barbara Levy of the department’s Criminal Division.
PetroSaudi is represented by Scott Fishwick, David B. Rivkin Jr., Lee A. Casey, Mark W. DeLaquil, Jonathan Barr, Elizabeth Price Foley, Kendall E. Wangsgard and Jonathan B. New of BakerHostetler.
The case is U.S. v. All Funds Held in Escrow by Clyde & Co. in the United Kingdom as Damages or Restitution in PetroSaudi v. PDVSA Uncitral Arbitration, case number 2:20-cv-08466, in the U.S. District Court for the Central District of California.
–Additional reporting by Max Jaeger. Editing by Bruce Goldman.
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