1MDB Fraudsters Convicted by Swiss Over $1.8 Billion Scam

(Bloomberg) — A pair of Geneva businessmen were found guilty of fraud by a Swiss court for their roles in a $1.8 billion scam to defraud Malaysia’s 1MDB economic development fund. 

Tarek Obaid was sentenced to seven years in prison and his colleague Patrick Mahony six years, after they were also convicted on charges of criminal mismanagement and aggravated money laundering, a spokeswoman for the Switzerland’s Federal Criminal Court said Wednesday. 

The multi-year prison sentences were justified, the court said in a statement released later, given “the very high amounts involved, the intensity of the criminal activity,” and the defendants’ “selfish motive.” The court also ordered the men to compensate 1MDB for the funds that were diverted, return part of the assets under seizure, and to have some of their assets confiscated. 

The court said after the ruling that it had rejected the prosecutors’ request for the pair to be immediately detained, saying there wasn’t enough concrete evidence to determine they were a flight risk. 

Both men can appeal the verdicts and the sentences before they come into force. Myriam Fehr-Alaoui, Obaid’s lawyer, said that they would appeal. “Many essential elements presented by the defense were not taken into consideration and we deplore that,” she said.  

The verdict is “shocking” and Mahony will also appeal, his lawyer Laurent Baeriswyl said. The court refused to hear all the witnesses for the defense without providing justification, and rendered a decision that “took no account” of evidence that exonerates him. 

Still, the decision is a win for Swiss prosecutors, who secured a criminal conviction against Credit Suisse in 2022, and want to demonstrate that Switzerland is not a soft touch on white-collar crime. Jho Low, the alleged mastermind behind the broader $4.5 billion defrauding of 1MDB, remains at large. Two Goldman Sachs Group Inc. bankers were embroiled in the scandal and the bank paid $2.5 billion as part of a 2020 settlement with the Malaysian government over its role.  

The board of 1MDB issued a statement saying that it welcomes the decision as it means the pair “will face justice for their role in embezzling and defrauding the people of Malaysia.”

“We will continue to pursue those responsible for the looting of 1MDB and recover our nation’s rightful assets, wherever they may be,” it said. 

Mahony and Obaid, classmates from a Geneva private school, were accused of creating a sham oil exploration company as early as 2009 through which they stole more than $1.8 billion in 1MDB funds. Working with Low, they managed to hoodwink 1MDB executives into believing that their company Petrosaudi had a mandate to negotiate on behalf of a Saudi king which they never had, while claiming the rights to a Caspian Sea oil field that they never controlled, prosecutors alleged. 

 

(Updates with responses from defendants in fifth and sixth paragraphs)

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