Swiss court convicts two executives of embezzling $1.8bn from 1MDB

Court sentences PetroSaudi executives to six and seven years in Malaysia investment fund fraud case.

The Swiss Federal Criminal Court has convicted two executives from an oil exploration company for embezzling more than $1.8bn from Malaysia’s state investment fund 1MDB.

The verdict on Wednesday was the latest episode in the 1MDB scandal, a complex tale of international corruption that has buffeted a slew of financial institutions and individuals across the globe since allegations of wrongdoing first surfaced in 2015.

Prosecutors alleged that Swiss-British national Patrick Mahony and Swiss-Saudi Tarek Obaid had helped set up a joint venture with 1MDB by creating the impression that their company, PetroSaudi, was backed by Saudi Arabia’s government.

This was not the case, but the accused managed to persuade 1MDB’s board into signing up to the scheme in 2009 before going on to defraud the fund, prosecutors said.

According to the indictment, the two executives defrauded the wealth fund of $1.8bn to enrich themselves with Obaid getting at least $805m and Mahony at least $37m.

Obaid was sentenced to seven years in prison while Mahony received a sentence of six years.

Lawyers for the two men, who had denied wrongdoing, could not immediately be reached for comment by the Reuters news agency.

Prosecutors said the two men created the fraudulent scheme with fugitive Malaysian financier Jho Low, an adviser to former Malaysian Prime Minister Najib Razak, who is in prison over his role in the multibillion-dollar scandal.

Initially extracting $1bn from 1MDB so it could buy a stake in their venture, the accused took a further $830m from the fund from 2010 to 2011 as part of an Islamic loan that followed on from their tie-up, prosecutors said.

From September 2009 to at least July 2015, the accused arranged for bank accounts to be opened in Switzerland to help launder the money, prosecutors said.

They used it to buy real estate in Switzerland and London, jewellery and private equity as well as to develop the PetroSaudi business, from which they received a sizeable income, and to maintain “a lavish lifestyle”, prosecutors said.

This year, 1MDB filed a lawsuit against Mahony seeking the return of the $1.83bn.

The 1MDB board lauded the convictions. “We welcome today’s verdict in Switzerland’s Federal Criminal Court, which means that Patrick Mahony and Tarek Obaid will face justice for their role in embezzling and defrauding the people of Malaysia,” a 1MDB spokesperson said on Wednesday.

Malaysian and US investigators estimated a total of $4.5bn was syphoned away from 1MDB after its inception in 2009, implicating figures ranging from Razak, Goldman Sachs staff and high-level officials elsewhere.

Last year, a US court sentenced Ng Chong Hwa – known as “Roger Ng” – a Malaysian citizen and former manager at Goldman Sachs to 10 years in jail “for conspiring to launder billions of dollars embezzled” from 1MDB.

In June, the US Department of Justice said it helped recover an additional $156m in 1MDB funds for Malaysia, bringing the total money returned to Kuala Lumpur to about $1.4bn.

US prosecutors say 1MDB officials and their associates embezzled the money and spent it on a “variety of extravagant items, including luxury homes” and fine art.