Malaysian Wealth Fund In Laundering Scandal

The Malaysian sovereign wealth fund 1Malaysia Development Bhd. (1MDB) is currently tied up in a multibillion-dollar, decades-long, international money-laundering scandal.

Hundreds of millions of dollars were allegedly passed through law firm–pooled accounts in the U.S., federal prosecutors said in lawsuits filed in July. The Justice Department reported that from 2009 through 2015, more than $3.5 billion in funds belonging to 1MDB were allegedly misappropriated by high-level officials of 1MDB and associates. Many pooled accounts are mandated by many state courts or legislatures as a means to generate interest to fund legal aid.

The Justice Department has said that law firms holding money in their pooled accounts had authorized transfers used to pay for luxury U.S. real estate, jewelry, and yacht and jet rentals. Additionally, current lawsuits allege money was sent to Las Vegas casinos and personal bank accounts of individuals linked to the global 1MDB scandal.

While cross-border payments for banks and other financial firms are required to report suspicious activity, U.S. law firms use attorney-client privilege to keep account information confidential, says the Wall Street Journal. Elise Bean, former counsel chief to a Senate investigating subcommittee that analyzed vulnerabilities in the banking system, was quoted as saying that law firm bank accounts amount to “a way of getting money into the U.S. system without going through the anti-money-laundering safeguards.”

“The Department of Justice will not allow the American financial system to be used as a conduit for corruption,” said Attorney General Loretta E. Lynch. “With this action, we are seeking to forfeit and recover funds that were intended to grow the Malaysian economy and support the Malaysian people. Instead, they were stolen, laundered through American financial institutions and used to enrich a few officials and their associates. Corrupt officials around the world should make no mistake that we will be relentless in our efforts to deny them the proceeds of their crimes. ”

Each year, billions of dollars reportedly move through law firm bank accounts taking advantage of a loophole to get around money-laundering defenses in the U.S. ABA figures suggest that if money sat in the accounts for an average of three months, roughly $146 billion would pass through in a year. If money turned over every month, the total passing through would exceed $400 billion. Law firms’ clients can request that funds can be sent from pooled accounts to other parties with little transparency.