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Daniel A. Zaheer (Bar No. 237118)
Robin Rathmell (admitted pro hac vice)
KOBRE & KIM LLP
150 California Street, 19
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Floor
San Francisco, California 94111
Telephone: +1 415 582 4800
Facsimile: +1 415 582 4811
E-mail: daniel.zaheer@kobrekim.com
E-mail: robin.rathmell@kobrekim.com
Aaron M. May (Bar No. 207751)
Grant B. Gelberg (Bar No. 229454)
HUANG YBARRA SINGER & MAY LLP
550 South Hope Street, Suite 1850
Los Angeles, California 90071-2604
Telephone: (213) 884-4900
Aaron.May@hysmlaw.com
Grant.Gelberg@hysmlaw.com
Attorneys for Claimants
Low Hock Peng, Goh Gaik Ewe,
Low Taek Szen and Low May Lin
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
UNITED STATES OF AMERICA,
Plaintiff,
v.
ANY RIGHTS TO PROFITS,
ROYALTIES AND DISTRIBUTION
PROCEEDS OWNED BY OR
OWED TO JW NILE (BVI) LTD.,
JCL MEDIA (EMI PUBLISHING
LTD), AND/OR JYNWEL CAPITAL
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Case No. CV 16-05364-DSF-PLA
CLAIMANTS LOW HOCK PENG,
GOH GAIK EWE, LOW TAEK
SZEN AND LOW MAY LIN’S
NOTICE OF MOTION AND
MOTION TO DISMISS;
MEMORANDUM OF POINTS AND
AUTHORITIES IN SUPPORT
THEREOF
Case 2:16-cv-05364-DSF-PLA Document 76 Filed 12/21/16 Page 1 of 36 Page ID #:578
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LTD, RELATING TO EMI MUSIC
PUBLISHING GROUP NORTH
AMERICA HOLDINGS, INC., AND
D.H. PUBLISHING L.P.,
Defendant.
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[Proposed order lodged
contemporaneously herewith]
Date: February 13, 2017
Time: 1:30 p.m.
Judge: Honorable Dale S. Fischer
Courtroom: 7D
Case 2:16-cv-05364-DSF-PLA Document 76 Filed 12/21/16 Page 2 of 36 Page ID #:579
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TABLE OF CONTENTS
TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
MEMORANDUM OF POINTS AND AUTHORITIES . . . . . . . . . . . . . . . . . . . . . 1
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
III. STANDARD OF REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
IV. ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
A. The Central District of California Lacks In Rem
Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1. The Alleged Conduct Did Not Occur in the Central District of
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. The Exercise of Jurisdiction Would Violate the Fifth
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
B. The Complaint Fails To State a Claim That A Specified Unlawful
Activity Occurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1. The Wire Fraud and Stolen Property SUAs Do Not Apply
Extraterritorially . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2. The Complaint Fails to Allege
Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
a. Failure to allege a misrepresentation . . . . . . . . . . . . . . 17
b. Failure to allege materiality . . . . . . . . . . . . . . . . . . . . . 23
V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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TABLE OF AUTHORITIES
FEDERAL CASES
Allstar Mktg. Grp., LLC v. Your Store Online, LLC,
666 F. Supp. 2d 1109 (C.D. Cal. 2009)…………………………………… 5
Ashcroft v. Iqbal,
556 U.S. 662 (2009)……………………………………………….……… 6
Cent. States, Se. & Sw. Areas Pension Fund v. Kroger Co.,
73 F.3d 727 (7th Cir. 1996) ……………………………………………… 21
Contents of Account No. 03001288 v. United States,
344 F.3d 399 (3d Cir. 2003)…………..…………………………………… 7
Data Disc, Inc. v. Sys. Tech. Assoc., Inc.,
557 F.2d 1280 (9th Cir. 1977)……………………………………………... 5
Doe v. Unocal Corp.,
248 F.3d 915 (9th Cir. 2001)…………………………………………….… 5
Harrods Ltd. v. Sixty Internet Domain Names,
302 F.3d 214 (4th Cir. 2002)…………………………………….……… ..11
In re Anthem, Inc. Data Breach Litig.,
162 F. Supp. 3d 953 (N.D. Cal. 2016) …………………………………… 21
In re Tuli,
172 F.3d 707 (9th Cir. 1999)…………….……………………………….. .8
Matusovsky v. Merrill Lynch,
186 F. Supp. 2d 397 (S.D.N.Y. 2002) …………………………………… 20
Morrison v. National Australia Bank Ltd.,
561 U.S. 247 (2010)……………………………………………………… 14
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Northstar Fin. Advisors Inc. v. Schwab Investments,
779 F.3d 1036 (9th Cir. 2015)……………………………………………… 3
Odom v. Microsoft Corp.,
486 F.3d 541 (9th Cir. 2007) …………………………………………….. 17
Papasan v. Allain,
478 U.S. 265 (1986)……..…………………………………………….…… 6
Parasoft Corp. v. ParaSoft, S.A.,
No. CV14-9166 DMG (PLAX), 2015 WL 12697625
(C.D. Cal. Jan. 29, 2015)……………………………………………….……8
Republic of Philippines v. Marcos,
818 F.2d 1473 (9th Cir. 1987)…………………………………………… 14
Roth v. Marquez,
942 F.2d 617 (9th Cir. 1991). …………………………………………….. 11
Semegen v. Weidner,
780 F.2d 727 (9th Cir. 1985)…………………………………………….. 17
Shaffer v. Heitner,
433 U.S. 186, 207 (1977). …………………………………...…………… 11
United States v. $50,900,
No. CV 15-14125-FDS, 2016 WL 4257328
(D. Mass. Aug. 11, 2016)…………………………………………………..10
United States v. Approximately $1.67 Million,
513 F.3d 991 (9th Cir. 2008)…………………………………………….. ..8
United States v. Awan,
459 F. Supp. 2d 167 (E.D.N.Y. 2006)………………………………...….. 16
Case 2:16-cv-05364-DSF-PLA Document 76 Filed 12/21/16 Page 5 of 36 Page ID #:582
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United States v. Batato,
833 F.3d 413 (4th Cir. 2016)……………………………………………… 11
United States v. Castellini,
392 F.3d 35 (1st Cir. 2004)…………………………………...………….. 12
United States v. Funds Held in the Name or for the Benefit of Wetterer,
210 F.3d 96 (2d Cir. 2000)……………..………………………………… 10
United States v. Jinian,
725 F.3d 954 (9th Cir. 2013)…………………………………………….. 14
United States v. Kennedy,
64 F.3d 1465 (10th Cir. 1995)…………………………………………… 12
United States v. Lindsey,
827 F.3d 865 (9th Cir. 2016)……………………………………........ 17, 23
United States v. Marbella,
73 F.3d 1508 (9th Cir. 1996)……………..……………………………….12
United States v. Mardirosian,
602 F.3d 1 (1st Cir. 2010)……………..………………………………….. 14
United States v. One 1978 Piper Cherokee Aircraft,
91 F.3d 1204 (9th Cir. 1996)……………..…………………………..…… 7
United States v. One Oil Painting Entitled Femme en Blanc,
362 F. Supp. 2d 1175 (C.D. Cal. 2005)……………………….......……...… 8
United States v. One White Crystal Covered Bad Tour Glove,
No. 11-3582, 2012 WL 8455336 (C.D. Cal. Apr. 12, 2012)………. . passim
United States v. Prevezon Holdings LTD.,
122 F. Supp. 3d 57 (S.D.N.Y. 2015)…………………………….. 14, 15, 16
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United States v. Ritchie,
342 F.3d 903 (9th Cir. 2003)………………………………………….…... 3
United States v. Rogers,
321 F.3d 1226 (9th Cir. 2003)……………………………………............12
United States v. Savage,
67 F.3d 1435 (9th Cir. 1995)………………………………….....……… 12
United States v. Sidorenko,
102 F. Supp. 3d 1124 (N.D. Cal. 2015)……………………………..…… 14
United States v. Ten Thousand Dollars,
860 F.2d 1511 (9th Cir. 1988)……………………………………......…… 11
FEDERAL STATUTES
18 U.S.C. § 1343……………………………………………………………....13,14
18 U.S.C. § 2314……………………………………………………………. 13, 14
18 U.S.C. § 2315……………………………………………………………. 13, 14
18 U.S.C. § 1956..……………………………………………………… 12, 13, 16
18 U.S.C. § 1957..…………………………………………………………….… 12
28 U.S.C. § 1355………………………………………………………...…..passim
28 U.S.C. § 1395………………………………………………………………. 6, 7
FEDERAL RULES
Supplemental Rules for Admiralty or Maritime Claims and
Asset Forfeiture Actions (A)……………………………………………… 5
Supplemental Rules for Admiralty or Maritime Claims and
Asset Forfeiture Actions (G)…………………………………………... …5
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NOTICE OF MOTION AND MOTION
TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD:
PLEASE TAKE NOTICE that on February 13, 2017, before the Honorable
Dale S. Fischer, in Courtroom 7, or as soon thereafter as the matter may be heard
in the above-entitled Court located at the First Street Courthouse, 350 West 1
st
St.,
Los Angeles, CA 90012, Claimants Low Hock Peng, Goh Gaik Ewe, Low Taek
Szen and Low May Lin (“Claimants”) will and hereby do respectfully move this
Court for an order dismissing this action.
This motion is made pursuant to Federal Rules of Civil Procedure 12(b)(2),
12(b)(3), and 12(b)(6) and Supplemental Rule G(2) on the grounds that: (1)
Jurisdiction and Venue are lacking under 28 U.S.C. § 1355(b)(2); and (2) the
Government has not alleged adequately detailed facts to support a reasonable belief
that it can meet its burden of proof at trial as required under Supplemental Rule
G(2). This motion is based on this Notice of Motion, Motion to Dismiss and the
Memorandum of Points and Authorities attached hereto and such other papers and
arguments as the Court may entertain.
This motion is made following the L.R. 7-3 counsel conference, which took
place on December 14, 2016.
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DATE: December 21, 2016 Respectfully Submitted,
KOBRE & KIM LLP
/s/Daniel A. Zaheer
Daniel A. Zaheer
Robin Rathmell
Attorneys for Claimants
Low Hock Peng, Goh Gaik Ewe,
Low Taek Szen and Low May Lin
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MEMORANDUM OF POINTS AND AUTHORITIES
I. INTRODUCTION1
On July 20, 2016 plaintiff the United States of America brought 16 related
forfeiture cases in this District alleging a vast international conspiracy to launder
money purportedly misappropriated from 1Malaysia Development Berhad
(“1MDB”), a Malaysian state-owned investment company. In its 145-page
Complaint, the Government outlines the alleged laundering of funds via banking
transactions and property purchases around the world. But the sprawling nature of
the Complaint—which is substantially identical to the complaints in each of the
other 15 cases—obscures that only a handful of allegations actually concern the
Defendant Asset in this case. And even those allegations that relate to the
Defendant Asset focus primarily on the alleged money laundering, not the original
alleged misappropriation without which there can be no case. The Government
provides sparse allegations regarding the alleged particular criminal acts that are
the essential predicate to transforming an otherwise lawful set of transfers into an
unlawful scheme. In addition, the Government provides effectively no basis at all
for why a complaint concerning the forfeiture of these assets which is the product
of purported crimes in Malaysia can be heard in the Central District of California.
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Claimants are filing motions to dismiss in Cases 16-CV-05364, 16-CV-05367, 16-CV-05368,
16-CV-05369, 16-CV-05370, 16-CV-05374, 16-CV-05375 and 16-CV-05378. The motions in
Cases 16-CV-05364, 16-CV-05374 and 16-CV-05375 argue for dismissal based on: (1) improper
venue and lack of jurisdiction; (2) failure to state a claim with regard to the alleged $700 million
transfer to the Good Star Account; and (3) failure to state a claim regarding the alleged $330
million Good Star transfer. The other motions make only a subset of these arguments, as
follows: Case 16-CV-05367, arguments (1) and (2); Cases 16-CV-5368 and 16-CV-5369,
argument (2); Case 16-CV-05370, argument (1); Case 16-CV-05378, arguments (2) and (3).
Claimants respectfully suggest that the Court review the motion in Case 16-05374 first, as that
motion covers all of the arguments and the overlapping legal arguments in the other briefs are
substantively identical. For ease of reference, “Compl.” refers to the Verified Complaint for
Forfeiture In Rem in Case 16-05374 and all Complaint citations herein are to the paragraph
numbers of the Complaint in Case 16-05374.
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Accordingly, Claimants bring this motion to dismiss all causes of action in
the Complaint. First, the Complaint fails to plead a proper basis for venue or in
rem jurisdiction in this District. The Defendant Asset is not located in this District
and the Complaint demonstrates that the alleged predicate criminal acts
(principally violations of anti-fraud and anti-corruption laws in Malaysia) occurred
in Malaysia or other locations overseas, and that none of the subsequent alleged
laundering transactions occurred in California. Second, the Complaint fails to state
a claim upon which relief can be granted. Close scrutiny of the underlying
“specified unlawful activities” that concern this case yields just a handful of
alleged misstatements. When viewed in the context of the other allegations in the
Complaint, and the documents which it incorporates, those statements cannot
support any allegation of fraud or like violation because they were not false and
not material. For these and the other reasons identified herein, Claimants
respectfully submit that the Complaint should be dismissed in its entirety.
II. BACKGROUND
The Complaint alleges that the Defendant Asset is traceable to an
international conspiracy to launder money misappropriated from 1MDB, a
strategic investment and development company wholly owned by the Malaysian
Government. Compl.
¶ 5. The Government alleges that between 2009 and 2013,
large sums of money were improperly diverted from 1MDB in three “phases”: (1)
the “Good Star” phase; (2) the “Aabar-BVI” phase; and (3) the “Tanore” phase.
Id. ¶¶ 6-12. The Defendant Asset in this matter is alleged to have been purchased
with funds derived from the “Good Star” phase.
In September 2009, 1MDB entered into an agreement with PetroSaudi
International (“PetroSaudi”), a Saudi oil extraction company, to form a joint
venture called 1MDB PetroSaudi Ltd. (the “JV”). Id. ¶¶ 8, 40. Under the terms of
the agreement, 1MDB invested $1 billion in the JV and acquired one billion shares
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of the JV, or the equivalent to a 40% equity interest. Id. ¶ 52. PetroSaudi, in turn,
contributed energy concessions in Turkmenistan and Argentina, valued at
approximately $2.7 billion, in exchange for a 60% equity interest in the JV. Id. ¶¶
40, 52. The Joint Venture Agreement (“JVA”) reflects that PetroSaudi provided
the JV “with advances amounting to . . . USD700,000,000,” which was the subject
of a loan agreement dated September 25, 2009, and which was due for repayment
on September 30, 2009. Exh. 1 (JVA) at 1, 4, 7.
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According to the Complaint, both
1MDB’s Board of Directors and the Malaysian Central Bank approved the transfer
of $1 billion to the JV. Compl. ¶ 41.
Of the $1 billion representing 1MDB’s investment in the JV, the
Government claims $700 million was diverted on September 30, 2009 to an
account at RBS Coutts Bank in Zurich held in the name of Good Star Limited (the
“Good Star Account”). Id. According to the Government, 1MDB officials caused
this diversion in part by providing false information to banks that the Good Star
Account was beneficially owned by PetroSaudi or the JV, when in fact the account
was allegedly owned by Low Taek Jho (“LTJ”). Id. ¶ 8.
The Complaint also focuses on a second set of transfers to the Good Star
Account almost two years after the first and totaling $330 million. On or around
June 14, 2010, the JV entered into a financing agreement with 1MDB, under which
1MDB agreed to provide the JV with a loan at an 8.75% annual rate of return. Id.
¶ 92. On or about May 12, 2011, the JV issued a loan drawdown notice,
2
“Exh.” refers to the exhibits attached to the concurrently filed Declaration of Daniel Zaheer in
Support of Claimants’ Motion to Dismiss. The Court may consider the JVA, September 26,
2009 1MDB Board Minutes, and the October 10, 2009 1MDB Board Minutes on this motion to
dismiss because “plaintiff refers extensively to the document or the document forms the basis of
the plaintiff's claim.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). “The
defendant may offer such a document, and the district court may treat such a document as part of
the complaint, and thus may assume that its contents are true for purposes of a motion to dismiss
under Rule 12(b)(6).” Id.; see also Northstar Fin. Advisors Inc. v. Schwab Investments, 779 F.3d
1036, 1043 (9th Cir. 2015).
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authorized by PetroSaudi’s CEO, requesting that 1MDB wire $330 million to the
Good Star Account. Id. ¶ 93. Then, on May 20, 2011 and May 23, 2011 two wire
transfers totaling $95 million were allegedly sent to the Good Star account. Id. ¶
94. The Government asserts that on May 23, 2011, a 1MDB officer wrote a letter
to Bank Negara, Malaysia’s Central bank, in which he falsely represented that the
Good Star account was the “account of” the JV’s parent company, PetroSaudi. Id.
¶ 95. Thereafter two more wire transfers totaling $235 million were transmitted to
the Good Star Account, on May 27 and October 25, 2011, respectively. Id. ¶ 94.
Finally, the Complaint alleges that funds from the Good Star Account were
ultimately used to purchase the Defendant Asset. Specifically, in June 2012,
approximately $120 million was purportedly wired from the Good Star Account to
an account at BSI Bank in Singapore held in the name of Abu Dhabi Kuwait
Malaysia Investment Corp. (“ADKMIC BSI Account”). Id. ¶ 378. The
Government further contends that on June 8, 2012, approximately $118 million
was wired from the ADKMIC BSI Account to an account at BSI Bank held in the
name of Low Hock Peng (“LHP”), (the “LHP Account”), and approximately $115
million was then wired from the LHP Account to an account at BSI Bank held in
the name of LTJ. Id. ¶ 379. The Complaint alleges that, on or around the same
time, a wire of $115 million was sent from LTJ’s BSI Account to an account at
BSI Bank held in the name of Jynwel Capital. Id. ¶ 379. Approximately $115
million was then purportedly wired from this Jynwel Capital account to another
account at BSI Bank, also maintained by Jynwel Capital. Id. From this Jynwel
Capital account, a wire of $110 million was sent to an account at BSI Bank held in
the name of JW Nile (BVI) Ltd., a company alleged to be a wholly-owned
subsidiary of Jynwel. Id. ¶¶ 364, 379. On or about June 26, 2016, approximately
$106,666,667 was purportedly transferred from the JW Nile (BVI) Ltd.’s BSI
Account to an escrow account at the Bank of New York Mellon also maintained by
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JW Nile (BVI) Ltd. (“EMI Escrow Account”). Id. ¶¶ 380, 382. JW Nile (BVI)
Ltd. then purportedly used the funds in the EMI Escrow Account to purchase the
Defendant Asset for $106,666,667. Id. ¶¶ 372b, 382-83.
III. STANDARD OF REVIEW
This in rem civil forfeiture action is governed by the Supplemental Rules for
Admiralty or Maritime Claims and Asset Forfeiture Actions (hereinafter
“Supplemental Rules”). See Fed. R. Civ. P. Supp. R. A(1)(B). Under these rules a
claimant may move to dismiss a complaint under Federal Rule of Civil Procedure
(“Rule”) 12(b). Fed. R. Civ. P. Supp. R. G(8)(b).
Claimants move to dismiss pursuant to Rules 12(b)(2), 12(b)(3) and 28
U.S.C. § 1355(b)(2), because the Complaint does not set forth a viable basis for in
rem jurisdiction or venue in the Central District of California. In deciding a
motion to dismiss on these grounds, the Complaint’s factual allegations are taken
as true only if uncontroverted. See Allstar Mktg. Grp., LLC v. Your Store Online,
LLC, 666 F. Supp. 2d 1109, 1129 (C.D. Cal. 2009). Although the Ninth Circuit
has not opined on the particular pleading standard for a motion to dismiss for lack
of in rem jurisdiction, the standard for a motion to dismiss for lack of personal
jurisdiction is well established. Under that standard, the Government bears the
burden of demonstrating that geographic jurisdiction exists, though the court
accepts the well-pleaded allegations in the complaint as true. See Doe v. Unocal
Corp., 248 F.3d 915, 922 (9th Cir. 2001); Data Disc, Inc. v. Sys. Tech. Assocs.,
Inc., 557 F.2d 1280, 1285 (9th Cir. 1977).
Claimants also move to dismiss for failure to state a claim under Rule
12(b)(6). To avoid dismissal on that basis, the Government must satisfy both of
the two applicable pleading standards. See United States v. One White Crystal
Covered Bad Tour Glove, No. CV 11-3582, 2012 WL 8455336, at *2 (C.D. Cal.
Apr. 12, 2012). First, the Court applies the familiar Iqbal/Twombly standard: “To
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survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). The facts alleged must be non-speculative and
non-conclusory. Id. Although the Court accepts the well-pleaded facts as true and
draws all reasonable inferences in the non-moving party’s favor, the Court is “not
bound to accept as true a legal conclusion couched as a factual allegation.”
Papasan v. Allain, 478 U.S. 265, 286 (1986). Second, a civil forfeiture complaint
is subject to a heightened pleading standard and must state sufficiently detailed
facts to support a reasonable belief that the Government will be able to prove, by a
preponderance of the evidence, that the defendant asset is subject to forfeiture. See
One White Crystal Covered Bad Tour Glove, 2012 WL 8455336, at *2 (citing Fed.
R. Civ. P. Supp. R. G(2)(f)). The Government must “at minimum, plead specific
allegations that specific instances of criminal activity took place.”
3
Id at *3.
IV. ARGUMENT
A. The Central District of California Lacks In Rem Jurisdiction
1. The Alleged Conduct Did Not Occur in the Central District of California
The Government provides a single conclusory allegation regarding in rem
jurisdiction and venue:
Venue lies in this district pursuant to 28 U.S.C. §§ 1355(b)(1)(A) and
1355(b)(2) because acts and omissions giving rise to the forfeiture
took place in the Central District of California and/or pursuant to 28
U.S.C. § 1395(b), because the Defendant Asset is located in the
Central District of California.
Compl. ¶ 16. This boilerplate allegation is set forth in each of the 16 related civil
forfeiture cases pending before this Court, regardless of the location of the
3
Because each of the claims advanced in the Complaint is predicated upon alleged fraud, a third
overlapping standard—Federal Rule of Civil Procedure 9(b)’s particularity requirement—also
applies. The Ninth Circuit has not yet ruled on whether Rule 9(b) applies in forfeiture cases. In
any event, dismissal is warranted even on the more lenient Iqbal standard.
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particular asset at issue. In this case, however, the Defendant Asset is undisputedly
not located in this District or in a foreign country.
The Defendant Asset is the rights to profits, royalties, and distribution
proceeds owned by or to JW Nile (BVI) Ltd., JCL Media (EMI Publishing Ltd.),
and/or Jynwel Capital Ltd, relating to EMI Music Publishing Group North
America Holdings, Inc., and D.H. Publishing L.P. 16-CV-05364, Compl. ¶ 2. JCL
Media (EMI Publishing Ltd. is also known as JW Nile (BVI) Ltd. (“JW Nile”), and
is an entity formed in the British Virgin Islands. Id. ¶ 364. This entity is a
subsidiary of Jynwel Capital Ltd., a financial services firm based in Hong Kong.
Id. As such, any rights to profits held by JW Nile and/or Jynwel Capital Ltd, are
assets held in either the British Virgin Islands or Hong Kong. Therefore, the
Complaint’s allegations of venue as arising under section 1395(b) (asset located in
the district) simply does not apply. Moreover, although the Complaint cites
section 1355(b)(2) (asset located in a foreign nation), that provision only provides
an independent basis to bring suit in the U.S. District for the District of Columbia.
The Government obviously did not do that here, thus the Government’s venue and
jurisdiction allegations reduce to a single basis: that “acts and omissions giving rise
to the forfeiture took place” here. As set forth below, the Complaint’s own
allegations belie this claim as well.
Section 1355 not only sets the rule for venue but it also circumscribes the
geographic jurisdiction of the court. See Contents of Account No. 03001288 v.
United States, 344 F.3d 399, 403 (3d Cir. 2003); United States v. One 1978 Piper
Cherokee Aircraft, 91 F.3d 1204, 1207 (9th Cir. 1996). It provides in pertinent
part that “[a] forfeiture action or proceeding may be brought in . . . the district
court for the district in which any of the acts or omissions giving rise to the
forfeiture occurred.” 28 U.S.C. § 1355(b)(1)(A). As is apparent from the plain
language of the statute, jurisdiction only lies if there is a specific geographical
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nexus between the venue in which the case was brought and the conduct giving
rise to the putative forfeiture of the Defendant Asset. The Government must allege
at least one criminal act or omission occurring in this District that resulted in the
purchase of the Defendant Asset.
In this Circuit, district courts “asserting jurisdiction on the basis of §
1355(b)” are instructed to “make clear findings of acts or omissions occurring in
the district upon which the court bases its jurisdiction.”
4
United States v.
Approximately $1.67 Million, 513 F.3d 991, 998 n.4 (9th Cir. 2008). Here,
however, the Complaint provides no basis for any such finding, and in fact no basis
at all for the Court to exercise jurisdiction in rem or to establish venue.
First, there is no allegation that any individual or entity engaged in any
criminal acts or omissions within the Central District of California. Cf. id. at 998
(finding allegations that the claimant attended meetings, stored cash and narcotics,
and mailed a false identification in the Northern District of California in
furtherance of a narcotics smuggling scheme constituted “acts” giving rise to
forfeiture in the district); United States v. One Oil Painting Entitled Femme en
Blanc, 362 F. Supp. 2d 1175, 1185 (C.D. Cal. 2005) (“Because the painting was
transported from this district to Illinois, and this transportation in interstate
commerce is the basis for the forfeiture action, at least one of the acts or omissions
giving rise to the action occurred in this district.”). None of the criminal conduct
that serves as the predicate for the Government’s claims—the alleged use of
fraudulent misrepresentations to divert funds from 1MDB—is alleged to have
occurred here. To the contrary, the relevant alleged statements were made to the
4
These findings would still be necessary even if this case were adjudicated by default judgment.
In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999) (“[W]hen a court is considering whether to enter a
default judgment, it may dismiss an action sua sponte for lack of personal jurisdiction.”); see
also Parasoft Corp. v. ParaSoft, S.A., No. CV14-9166 DMG (PLAX), 2015 WL 12697625, at *1
(C.D. Cal. Jan. 29, 2015) (explaining that a judgment without personal jurisdiction is void).
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1MDB Board at board meetings held in Malaysia, or were between 1MDB officials
and representatives of Deutsche Bank (Malaysia) Berhard, the Malaysian branch of
a German bank, (“Deutsche Bank”) or Bank Negara in Malaysia. See Compl. ¶¶
43, 60 (alleging that representations were made to “Deutsche Bank in Malaysia”);
id. ¶¶ 41, 65 (alleging Bank Negara is “Malaysia’s Central Bank”).
Second, not one cent of the purported funds used to purchase the Defendant
Asset is alleged to have flowed through the Central District of California. Rather,
according to the Complaint the funds flowed through Singapore, Switzerland, and
unspecified locations in the United States:
The Defendant Asset was purchased via wire transfer from the EMI Escrow
Account held at Bank of New York Mellon at some unspecified location in the
United States. See id. ¶¶ 372, 382.
$106,666,667 was wired to the EMI Escrow Account from JW Nile’s account at
BSI Bank in Singapore. See id. ¶ 382.
$110 million was wired to JW Nile’s BSI account from Jynwel Capital Ltd.’s
account at BSI Bank in Singapore. See id. ¶ 379.
$115 million was wired to one Jynwel Capital Ltd. BSI account from another
account at BSI Bank in Singapore also held in the name of Jynwel Capital. Id.
$115 million was wired to Jynwel Capital from LTJ’s account at BSI Bank in
Singapore. See id.
$115 million was wired to LTJ’s account from LHP’s account at BSI Bank in
Singapore. See id.
$118 million was wired to LHP from the ADKMIC BSI account held at BSI
Bank in Singapore. See id.
$120 million was wired to the ADKMIC BSI account from the Good Star
account held at RBS Coutts in Singapore. See id. ¶ 378.
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$700 million was wired to the Good Star account from 1MDB’s account at
Deutsche Bank. This account is not alleged to have been located in this
District. See id. ¶¶ 59, 70, 79.
In rem jurisdiction is lacking where, as here, there is no act or omission
giving rise to the putative forfeiture of the Defendant Asset that occurred in this
District. See United States v. $50,900, No. CV 15-14125, 2016 WL 4257328, at *3
(D. Mass. Aug. 11, 2016) (finding venue improper where “there are no . . . facts
alleged connecting any acts or omissions of claimants to this district.”). That the
Government has filed related actions seeking forfeiture of certain property located
in California is of no moment. See United States v. Funds Held in the Name or for
the Benefit of Wetterer, 210 F.3d 96, 104 (2d Cir. 2000) (rejecting Government’s
argument that independent assets “form a single ball of wax” for purposes of
forfeiture, and instead evaluating separately each asset for jurisdiction and venue).
Again, section 1355(b)(1)(A) provides for jurisdiction only in the district in which
acts “giving rise to the forfeiture” occurred. See 28 § 1355(b)(1)(A) (emphasis
added). Here, “the forfeiture” at issue is limited to the rights to profits, royalties,
and distribution proceeds owned by or to JW Nile, JCL Media (EMI Publishing
Ltd.), and/or Jynwel Capital Ltd, relating to EMI Music Publishing Group North
America Holdings, Inc., and D.H. Publishing L.P., entities located in the British
Virgin Islands and Hong Kong. No acts or omissions leading to the purchase of
this asset occurred in this District.
2. The Exercise of Jurisdiction Would Violate the Fifth Amendment
Section 1355 also cannot be interpreted to support jurisdiction and venue in
this District, which has no direct connection to the forfeiture of the Defendant
Asset at all, because such exercise would necessarily violate the Fifth Amendment
Due Process clause. Like in personam jurisdiction, a court’s exercise of in rem
jurisdiction is constitutionally circumscribed by traditional notions of “fair play
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and substantial justice.” United States v. Ten Thousand Dollars, 860 F.2d 1511,
1513 (9th Cir. 1988). Traditionally, of course, in rem jurisdiction could only lie if
the res was located within the court’s geographic jurisdiction, with the absence of
the res from that area fatal to such jurisdiction. Id. (“The general rule is that, in an
in rem action, removal of the res ends the jurisdiction of the court.”). Even if this
traditional limitation on in rem jurisdiction has been relaxed over time, there is no
basis in the case law or the Constitution to permit a court to exercise in rem
jurisdiction over a case in which most of the conduct related to the property
occurred overseas and none occurred in California.
Moreover, the Complaint is jurisdictionally defective because the individuals
and entities with ownership interests in the property also lack contacts with this
District. Because in rem proceedings ultimately concern the rights of persons, they
are subject to the same Due Process considerations as in personam actions. E.g.,
Shaffer v. Heitner, 433 U.S. 186, 207-08 (1977). The Supreme Court has “rejected
the narrow theory that in rem actions [are] strictly actions against property,
concluding that ‘in order to justify an exercise of jurisdiction in rem, the basis for
jurisdiction must be sufficient to justify exercising jurisdiction over the interests of
persons in a thing.’” United States v. Batato, 833 F.3d 413, 423 (4th Cir. 2016)
(quoting Shaffer, 433 U.S. at 207). Here, there has been no showing that either the
direct owner of the property (JW Nile (BVI) Ltd.) or the Claimants have purposely
availed themselves of the privileges of operating in California or that the claims
arise out of activities directed by those parties here. See Roth v. Marquez, 942 F.2d
617, 620 (9th Cir. 1991) (articulating minimum contacts test); see also Harrods
Ltd. v. Sixty Internet Domain Names, 302 F.3d 214, 224 (4th Cir. 2002) (explaining
the issue is whether the res has “sufficient contacts with the [forum state] to justify
the exercise of in rem jurisdiction.”). Absent any tangible connection to
California, this case must be dismissed.
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B. The Complaint Fails To State a Claim that A Specified Unlawful
Activity Occurred.
The Complaint alleges forfeiture to be appropriate under section 981
because the property is either “involved in” a money laundering transaction in
violation of 18 U.S.C. §§ 1956 and/or 1957, (Claims 2-4), or constitutes or is
derived from proceeds traceable to a money laundering transaction in violation of
18 U.S.C. § 1956 (Claim 1). Sections 1956 and 1957 each require the Government
to demonstrate that the Defendant Asset has a connection to the proceeds of a
predicate specified unlawful activity (“SUA”). See United States v. Marbella, 73
F.3d 1508, 1514 (9th Cir. 1996) (section 1956(a)(1));
5
United States v. Rogers, 321
F.3d 1226, 1229 (9th Cir. 2003) (section 1957). Failure to establish an actionable
predicate SUA is fatal to the Government’s claim for forfeiture under section 981.
Importantly, Congress intended for the SUAs generating the illicit proceeds
to be distinct crimes that must be established independently from the subsequent
money laundering transaction in order to support forfeiture. See United States v.
Savage, 67 F.3d 1435, 1441 (9th Cir. 1995) (explaining that “‘proceeds’ are funds
obtained from prior, separate criminal activity” and that Congress “considered
money laundering to be separate conduct occurring after completion” of the SUA
which generated the proceeds to be laundered); United States v. Castellini, 392
F.3d 35, 38 (1st Cir. 2004) (“the ‘proceeds’ used for money laundering must be
‘proceeds’ from a different illegal activity than the illegal activity of money
laundering itself.”). It is therefore vital to a money laundering claim to determine
when and where the predicate SUA is completed after which money laundering
can occur. See United States v. Kennedy, 64 F.3d 1465, 1477-78 (10th Cir. 1995).
5
Section 1956(a)(2)(B) proscribes the transport of funds from the United States outside of the
United States knowing that the funds involved in the transportation represent the proceeds of
“some form of unlawful activity.” Here, the unlawful activity identified by the Complaint is the
aforementioned four SUAs. Compl. ¶ 512.
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Moreover, in the forfeiture context, it is insufficient for the Government to point to
the structure of the subsequent transactions as purported proof that the initial act
was unlawful. See One White Crystal Covered Bad Tour Glove, 2012 WL
8455336, at *5 (“Nguema’s use of shell companies and corporations . . . to
purchase luxury items, are commonplace financial arrangements and do not
readily, without further allegations, support the reasonable belief that the
Government will be able to meet its burden of proof at trial . . . .”).
As such, each of the Complaint’s claims for relief rises and falls with the
predicate SUAs. Those four SUAs are: (1) an offense against a foreign nation
involving the misappropriation of public funds by or for the benefit of a public
official under 18 U.S.C. § 1956(c)(7)(B)(iv); (2) an offense against a foreign nation
involving fraud against a foreign bank under 18 U.S.C. § 1956(c)(7)(B)(iii); (3)
wire fraud in violation of 18 U.S.C. § 1343; and/or (4) international transportation
or receipt of stolen or fraudulently obtained property under 18 U.S.C. § 2314, and
receipt of stolen money in violation of 18 U.S.C. § 2315.
The Government has failed to state a claim for several reasons. First, wire
fraud and international transportation or receipt of stolen or fraudulently obtained
property or money cannot serve as a predicate SUA when (as here) the locus of the
conduct is outside of the United States. Second, each of the predicate SUAs is, at
its core, a fraud claim. But the Complaint’s allegations of falsity are belied by the
very documents upon which it relies. And, the Government has failed to allege a
plausible basis for concluding that the alleged misrepresentations were material or
that the requisite intent to defraud was present.
1. The Wire Fraud and Stolen Property SUAs Do Not Apply
Extraterritorially
Each claim for relief asserts wire fraud under 18 U.S.C. § 1343, international
transportation or receipt of stolen or fraudulently obtained property under 18
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U.S.C. § 2314, and receipt of stolen money under 18 U.S.C. § 2315 as predicate
SUAs supporting forfeiture. Wire fraud occurs upon the use of a United States
wire in furtherance of a scheme or artifice to defraud with the specific intent to
defraud. See United States v. Jinian, 725 F.3d 954, 960 (9th Cir. 2013). The
transportation of stolen property and/or receipt of stolen money under sections
2314 and 2315 occurs when stolen property or money is transferred between states,
i.e., in interstate commerce, or between a foreign country and any state, i.e., in
foreign commerce. None of these offenses is cognizable as a basis for forfeiture
because the relevant conduct occurred outside of the United States.
In Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), the
Supreme Court articulated a presumption against the extraterritorial application of
a statute unless there is the affirmative intention of Congress clearly expressed to
give the statute such effect. See Morrison, 561 U.S. 247, 255. Wire fraud (section
1343), transportation of stolen property (section 2314), and the receipt of stolen
property (section 2315), do not apply to entirely extraterritorial activity because
these statutes do not contain a clear indication of such an extraterritorial effect.
See United States v. Sidorenko, 102 F. Supp. 3d 1124, 1129 (N.D. Cal. 2015)
(“Under Morrison, without a ‘clear’ and ‘affirmative indication’ of Congress's
intent to have the . . . wire fraud statute[] apply extraterritorially, the presumption
is that [it] do[es] not.”); United States v. Prevezon Holdings LTD., 122 F. Supp. 3d
57, 70 (S.D.N.Y. 2015); United States v. Mardirosian, 602 F.3d 1, 6 (1st Cir.
2010) (noting that the district court dismissed section 2314 count because “foreign
commerce” does not include commerce between two foreign countries and
explaining that section 2315 requires that the stolen money “crossed a United
States boundary”); Republic of Philippines v. Marcos, 818 F.2d 1473, 1478 (9th
Cir. 1987) (noting that conduct violating sections 2314 and 2315 that took place
entirely abroad “quite probably . . . cannot be reached by U.S. law”).
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Consequently, wire fraud and the transportation or receipt of stolen property
or money cannot serve as a predicate SUA when, like here, “the alleged scheme is
not sufficiently domestic and is therefore not actionable under U.S. law.” Prevezon
Holdings, 122 F. Supp. 3d at 70. The purported fraudulent scheme described in the
Complaint was not formed in the United States and there is no allegation that any
of the elements of wire fraud was conducted in the United States. See id. at 71.
(holding foreign conspiracy involving a foreign victim conducted by foreign
defendants participating in a foreign enterprise could not form the predicate SUA
for forfeiture and collecting cases). Likewise, there are no allegations that any of
the “stolen funds” were transported between a foreign country and the United
States independent and distinct from the money laundering transactions.
In fact, the Complaint contains no allegations of any independent SUAs that
occurred, even in part, in the United States. To the contrary, the purported scheme
allegedly consisted of misstatements made by Malaysian officials to banks in
Malaysia and subsequent fund flows between Singapore, Malaysia, and
Switzerland.
6
Thereafter, the proceeds were allegedly laundered, in part, through
the purchase of the Defendant Asset in the United States. Accordingly, by the time
any funds flowing from the alleged SUAs came onshore, the predicate SUAs of
wire fraud or transportation or receipt of the funds had already been completed.
Those predicate crimes did not occur, in whole or in part, in the United States. The
only link to the United States is not the wire fraud SUA, or the transportation or
receipt of the “stolen” funds, but instead the subsequent alleged money laundering
6
To the extent the Government contends that the alleged processing of transfers between
Singaporean, Malaysian, and Swiss banks by a U.S. correspondent bank account at J.P. Morgan
constitutes a sufficient U.S. nexus, courts have rejected this exact argument. See Prevezon
Holdings, 122 F. Supp. 3d at 71 (“In an otherwise wholly foreign wire fraud scheme, the only
domestic contact is a single wire transfer directed from [one offshore bank account to another],
with the transfer routed through New York. . . . [T]he court cannot conclude that this single
transfer is sufficient to overcome the presumption against” extraterritoriality.).
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which is insufficient standing alone to support forfeiture. See id. at 72 (rejecting
Government’s argument that the scheme was “sufficiently domestic because the
actual money laundering by Prevezon took place in Manhattan, and the funds at
issue remain invested in Manhattan real estate [because] this argument confuses
the underlying SUA . . . with the later alleged money laundering”). Because these
predicate act statutes have no extraterritorial application, and because all of the
conduct giving rise to the alleged SUAs happened abroad, the Government cannot
rely upon these statutes as the requisite SUA for any of its claims.
2. The Complaint Fails to Allege Fraud
In addition to the U.S. law based SUAs, the Government’s forfeiture
complaint rests on two “offenses against a foreign nation”: (1) an offense against a
foreign nation involving the misappropriation of public funds by or for the benefit
of a public official under 18 U.S.C. § 1956(c)(7)(B)(iv); (2) an offense against a
foreign nation involving fraud against a foreign bank under 18 U.S.C. §
1956(c)(7)(B)(iii). An “offense against a foreign nation” is defined as an offense
that is “prohibited under the law of the foreign nation in which it is committed.”
United States v. Awan, 459 F. Supp. 2d 167, 183 (E.D.N.Y. 2006). Therefore, to
serve as actionable predicate offenses, plaintiff must plead sufficient facts to show
that a crime under the laws of the relevant foreign nation, here Malaysia, has
occurred. The Government has identified several Malaysian laws
7
that it asserts
were violated as part of the purported SUAs of misappropriation of public funds by
or for the benefit of a public official or fraud against a foreign bank. As pled in the
7
In particular, Malaysia Penal Code sections: 403 (dishonest misappropriation of property), 405
(criminal breach of trust), 409 (criminal breach of trust by public servant or agent), 166 (Public
servant disobeying a direction of the law, with intent to cause injury), 415 (cheating), 418
(cheating with knowledge that wrongful loss may be thereby caused to a person whose interest
the offender is bound to protect), and 420 (cheating and dishonestly inducing delivery of
property); and sections 16, 17, and 23 Malaysian Anti-Corruption Act.
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Complaint, each of those foreign crimes—like the wire fraud and transportation or
receipt of stolen fund SUAs—is, at its core, a fraud claim.
8
Here, the Government identifies three alleged representations that, in
relation to the Defendant Asset, are claimed to be materially false and which form
the bases for each of the SUAs: (1) that a $700 million loan from PetroSaudi to the
JV existed, see Compl. ¶ 83(c); (2) that the $700 million wire repayment of that
loan was transmitted to PetroSaudi, see id. ¶ 83(a); and (3) that a $330 million wire
payment was transmitted to PetroSaudi, see id. ¶¶ 94-95. As a procedural matter,
to state a fraud claim the Government must allege factual circumstances regarding
the fraud itself, (Odom v. Microsoft Corp. 486 F.3d 541, 554 (9th Cir. 2007)),
including the “specific content of the false representations.” See Semegen v.
Weidner, 780 F.2d 727, 731 (9th Cir. 1985). Fraud also requires that the
misrepresentations be “material” such that they had “a natural tendency to
influence, or were capable of influencing, the decision of the decision-making
body to which [they were] addressed.” See United States v. Lindsey, 827 F.3d 865,
869 (9th Cir. 2016). The Government fails to meet its burden on both fronts
because its allegations do not support a reasonable belief that the Government will
be able to prove at trial that any such fraud has occurred. See One White Crystal
Covered Bad Tour Glove, 2012 WL 8455336, at *2 (C.D. Cal. Apr. 12, 2012)
a. Failure to allege a misrepresentation
(1) Existence of the $700 million loan from PetroSaudi to the JV.
According to the Complaint, the first purported misrepresentation with
respect to the JV was a representation (though it is unclear to whom) that
8
See, e.g., Malaysia Penal Code §§ 405 (acts include that the defendant “dishonestly
misappropriates” property); 415 (acts include that the defendant “fraudulently or dishonestly
induces a person so deceived to deliver any property”). Certain other Malaysian laws pled in the
Complaint (e.g., “using office or position for gratification”) do not apply to the Defendant Asset,
which according to the Complaint is the product of misappropriation based upon false statements
made to banks and/or other parties.
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PetroSaudi had made a $700 million loan to the JV. Compl. ¶¶ 56, 83(c). But the
documents relied upon in the Complaint reflect that such a loan did, in fact, exist.
The JVA states that pursuant to a “PSI Loan Agreement” “dated 25 September
2009” PetroSaudi provided the JV $700 million in “advances” at its inception.
Exh. 1 (JVA) at 1, 4. The nature of these “advances” is evident from the plain
terms of the JVA which reflect that PetroSaudi had transferred energy assets
valued at $2.7 billion to the JV while receiving only $1.5 billion worth of shares in
return. See Compl. ¶ 52; Exh. 1 (JVA) at Recitals A, B. The JVA contemplates
that this over-contribution resulted in PetroSaudi having made a $700 million loan
to the JV to be paid by the JV. Exh. 1 (JVA) at 4, Recital B, § 4.5, Schedule 2 ¶
I(4). The JVA further states that the $700 million loan would be repaid from
1MDB’s $1 billion contribution to the JV. Id. at Recital D, § 4.5. By structuring
the transaction in this manner, the JV was able to acquire energy assets valued at
$2.7 billion and obtain cash on hand of $300 million.
Despite this structure, the Government contends that it “appears” PetroSaudi
never made such a loan because: (1) there is no “apparent” commercial purpose for
this loan; (2) the JV’s bank account was not opened until September 30, 2009; (3)
PetroSaudi’s account was opened in June 2009 and inactive until December 2009;
(4) the Malaysian Public Accounts Committee could not verify the existence of
such a loan; and (5) the $700 million went into an account controlled by LTJ, not
by PetroSaudi. Compl. ¶¶ 56, 83. None of these bases constitutes sufficiently
detailed facts to support a reasonable belief that the Government will be able to
prove, by a preponderance of the evidence, that a fraud occurred. See Fed. R. Civ.
P. Supp. R. G(2)(f).
The JVA’s terms discussed above demonstrate that the $700 million loan
had a substantial commercial purpose—to allow the JV to obtain exploitable
energy assets. Further, the JVA itself recognizes that the JV was not an
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exclusively commercial transaction, providing that one of its purposes was “to
enhance, strengthen and promote the future prosperity and economic development
of Malaysia.” Exh. 1 (JVA) § 2(b). Moreover, the JVA included safeguards to
ensure 1MDB did not overpay for the one billion in shares it received. 1MDB was
entitled to procure a valuation report by independent experts of the energy assets,
and if the valuation report was below the target valuation of $2.7 billion, 1MDB
had the option of terminating the agreement and its obligations (including its
payment obligations) thereunder. Exh. 1 (JVA) § 5.2.
Nor is a fraud demonstrated by the allegation that the JV’s bank account was
opened on September 30, 2009, the same day that the $700 million loan was to be
repaid. See Compl. ¶¶ 55-56. The parties agreed that once the subscription was
completed, “the [JV] shall repay all outstanding indebtedness under the PSI Loan
Agreement to PSI in full, and in accordance with the terms thereof, on or before
September 30, 2009.” Exh. 1 (JVA) § 4.5. The subscription would be complete
upon 1MDB obtaining its independent valuation report by September 30, 2009.
Exh. 1 (JVA) § 5.1. In other words, the agreement reflects that, subject to
valuation, on September 30 the shares would be issued, the assets would be
transferred and the loan repaid upon 1MDB’s $1 billion contribution to the JV.
The Government’s second, third and fourth reasons also fail because, as
described above, the loan was not a cash loan (which may have made the status of
PetroSaudi’s bank account marginally relevant) but instead a debt stake in the JV
due to PetroSaudi’s over-contribution of the energy assets. Finally, as discussed
below, the Government’s last reason is inapplicable because the amended JVA
provided that the loan would be repaid to an account nominated by PetroSaudi, not
PetroSaudi’s own account.
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(2) The $700 million wire repayment was transmitted pursuant to
PetroSaudi’s instructions.
The Government asserts that 1MDB officers falsely represented to Bank
Negara, Deutsche Bank and the 1MDB Board that PetroSaudi was the recipient of
the $700 million wire transfer when, in fact, the funds were wired to the Good Star
Account. Compl. ¶¶ 59, 65, 72, 79, 83(a). This conclusory allegation cannot be
sustained because it conflicts with the Complaint’s other allegations and the
documents incorporated therein. See Matusovsky v. Merrill Lynch, 186 F. Supp. 2d
397, 400 (S.D.N.Y. 2002) (“If a plaintiff's allegations are contradicted by [an
incorporated] document, those allegations are insufficient to defeat a motion to
dismiss.”).
First, the Government alleges that 1MDB Officer 1 “falsely represented that
the beneficiary of the $700 million wire was PetroSaudi” to a Deutsche Bank
representative when in truth it was Good Star. Compl. ¶ 67. In fact, the recorded
conversation that is the basis for this allegation reveals that the 1MDB Officer
never said the money was going directly to PetroSaudi but rather told the bank that
the money was going to an account pursuant to PetroSaudi’s instructions:
Deutsche Bank employee: But just one question as to why is it going to
[PetroSaudi] itself? Is there any particular reason?
. . . .
1MDB OFFICER 1: – for us, we don’t care. Because 700 million I mean
it’s a[n] advance [that’s] owed to them. . . They give us instructions, . . .
[t]his is where they want to send, they want to send to Timbuktu also, we
don’t care.
Id. (emphasis added).
9
Second, the Government asserts that 1MDB Officers 1 and 2 did not disclose
to the 1MDB Board, prior to October 3, 2009, that the JVA required the JV to
9
The ensuing allegations (¶¶ 68-75) claim purported misrepresentations between bank officials
and not attributable to the conversation between 1MDB Official 1 and the Deutsche Bank
employee.
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repay PetroSaudi a $700 million debt. Id. ¶ 83(d). The Complaint alleges no facts
to substantiate this assertion. In fact, the October 3, 2009 1MDB Board minutes
reflect that “[t]he 1MDB Board’s understanding was . . . [that] the Joint Venture’s
board of directors makes the decision to remit US$700 million to PetroSaudi.” Id.
¶ 84. Accordingly, the 1MDB Board (1) knew that $700 million was owed to
PetroSaudi; and (2) knew about the terms of the JVA, which directed 1MDB to
issue the full $1 billion payment to the JV, which would in turn remit payment of
$700 million from that $ 1 billion to PetroSaudi as repayment of the loan.
However, as detailed below, 1MDB covenanted in the JVA Amendment
10
to
issue the $1 billion payment in two tranches—$300 million to the JV and $700
million to PetroSaudi. Specifically, the JVA, as later amended and executed by
PetroSaudi, 1MDB, and the JV, reflects that 1MDB covenanted to subscribe for
one billion JV shares in consideration for payment in two tranches: (1) $300
million to an account held in the name of, and nominated by, the JV; and (2) $700
million to a bank account “nominated by” PetroSaudi:
Subject to the provisions of Clause 5 (Valuation Report), 1MDB covenants
and undertakes to subscribe, on or before 30 September 2009, for one billion
(1,000,000) Shares (the “Subscription Shares”), credited as fully paid up, in
consideration for the payment:
(i) of three hundred million (300,000,000) US Dollars in immediately
available cleared funds to a bank account in the name of, and
10
The JVA is relied upon in the Complaint and therefore may be considered even though it was
not attached to the Complaint. See supra note 2. The JVA and JVA Amendment are a single
contract and, as such, both may be considered because the JVA Amendment incorporates the
JVA. See In re Anthem, Inc. Data Breach Litig., 162 F. Supp. 3d 953, 1007 n.10 (N.D. Cal.
2016); Cent. States, Se. & Sw. Areas Pension Fund v. Kroger Co., 73 F.3d 727, 731 (7th Cir.
1996) (“Rather than two agreements, the Master Agreement and the Local Supplement form a
single, unitary contract . . . [as the parties] clearly set forth their intent that the Local Supplement
be incorporated into the Master Agreement and be made a part of it . . . [and] related documents
must be read together.”).
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nominated by, the Company with JP Morgan (the “Company
Account”); and
(ii) (on behalf of the Company) of seven hundred million (700,000,000)
US Dollars in immediately available cleared funds to a bank account
nominated by [PetroSaudi], in full and final discharge of all
outstanding indebtedness of the Company under the PSI Loan
Agreement.
Exh. 2 (JVA Amendment) § (c) (emphasis added).
Nowhere does the Complaint allege that PetroSaudi did not nominate the
Good Star Account as the recipient of the $700 million loan payment.
(3) PetroSaudi was the recipient of the $330 million wire transfer.
On May 12, 2011, the JV issued a notice of drawing, signed by PetroSaudi’s
CEO, requesting that 1MDB “transmit $330 million to the Good Star Account.”
Compl. ¶ 93. The Government claims that the transfer of $330 million was
fraudulent because on May 23, 2011, after $95 million of the $330 million had
already been transferred to Good Star in accordance with the May 12, 2011
drawing, 1MDB’s CFO wrote to Bank Negara thanking the Bank for having
approved the transactions. Id. ¶ 95. In so doing, the 1MDB CFO allegedly stated
that the JV requested the funds be sent to its parent company, PetroSaudi, when
(according to the Complaint) the funds were sent to Good Star. Id. Just two days
later, before an additional $135 million was wired, PetroSaudi’s CEO wrote to
1MDB clarifying, as indicated by the drawing notice, that the recipient of the funds
was the Good Star Account. Id. ¶ 96. Perplexingly, the Government contends that
PetroSaudi’s CEO’s statement in May of 2011 was “materially inconsistent” with a
representation made by 1MDB Officer 2 nearly two years prior thereby rendering
the 2011 transfers fraudulent. Id. ¶ 97. But as explained below, the recipient of
the 2011 transfers was immaterial to the banks as Good Star was always
contemplated by all parties as the recipient of the $330 million.
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b. Failure to Allege Materiality
The Government fails to plausibly allege that any fraudulent statement was
made to Deutsche Bank, Bank Negara, or the 1MDB Board, much less that those
statements induced any entity to transmit funds. In order to prove a “scheme to
defraud,” the plaintiff must demonstrate that defendant employed “material
falsehoods.” See Lindsey, 827 F.3d at 869 (emphasis in original). A falsehood is
material if “it has a natural tendency to influence, or is capable of influencing, the
decision of the decision-making body to which it was addressed.” Id. (internal
alteration omitted).
First, the Government’s contention that the repayment of the $700 million
loan to an account nominated by PetroSaudi (Good Star) directly from 1MDB’s $1
billion was not sufficiently disclosed to the 1MDB Board fails because any such
omission was not material. On September 26, 2009, before 1MDB entered into the
JVA, the 1MDB Board empowered 1MDB management with the authority to
“execute the JVA [and] any agreements and documents in relation thereto (as may
be amended from time to time by further agreement between the parties).” Exh. 3
(9/26 BOD Minutes), at 4 (emphasis added). Having granted 1MDB’s
management the right to amend the JV, the subsequent decision of 1MDB
management to alter the repayment structure was expressly contemplated by
1MDB. Moreover, it is also immaterial that the Board may not have been
expressly informed of the specific method of payment of the debt (directly to the
account nominated by PetroSaudi rather than first to the JV and then to the
PetroSaudi-selected account) because, as 1MDB’s counsel advised it: “Legally, it
makes no difference whether: US $1 billion went directly to the JVCo. (and the
JVCo. takes US$700 million to pay PSI); or 1MDB remits US$300 million to
JVCo. and US$700 million to PSI.” Exh. 4 (10/10 BOD Minutes) App. A at 1. As
such, there is no basis in the Complaint from which to conclude that the change in
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structure of the repayment was material such that it would have influenced
1MDB’s decision to contribute $ 1 billion to the JV when 1MDB was aware all
along that $700 million of that $ 1 billion would be used to repay the loan. And, as
the Complaint itself recognizes, 1MDB’s interest was in obtaining the one billion
shares, not in the technical logistics of paying the debt to PetroSaudi. Compl. ¶ 67
(“‘[F]or us what we care about making sure they have issue us one billion dollar
[shares] . . . [T]his is where they want to send, they want to send to Timbuktu also,
we don’t care.’”).
Second, the only allegation in the Complaint suggesting that a bank’s
authorization of a wire transfer was influenced by the provision of a particular
piece of information is RBS Coutts’ statement that “[w]e are not in a position to
credit the funds without full beneficiary details (full name, address, account no.).”
Compl ¶ 74. 1MDB Officer 2 allegedly told Deutsche Bank that the beneficiary of
the $700 million wire was Good Star, and Deutsche Bank in turn submitted to RBS
Coutts a SWIFT instruction identifying “Good Star Limited” as the beneficiary,
along with Good Star’s Seychelles address.
11
Id. ¶¶ 76, 77.
The Complaint suggests that Bank Negara was misled as to the identity of
the beneficiary of the $700 million wire transfer based on its letter to 1MDB
Officer 1, acknowledging that “the funds for the approved investment will be
remitted to PetroJV’s account.” Id. ¶ 65. But the Complaint makes clear that later
the same day, prior to the transfer, Bank Negara was informed that PetroSaudi, and
not the JV, was to receive the $700 million payment. See id. ¶ 67. This exchange
is consistent with the JVA Amendment, which reflected PetroSaudi, 1MDB, and
11
Notably, RBS Coutts did not identify any other information, such as the relationship between
the beneficiary and the transferring parties, as material to the transaction. And, the Deutsche
Bank employee only asked for authorization to disclose that the beneficiary was Good Star and
did not seek any information about the relationship between Good Star and PetroSaudi. Compl.
¶ 76. This further supports the conclusion that the fact the $700 million was sent to Good Star as
opposed to any other entity was not material.
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the JV’s “business decision” to amend the terms of consideration for 1MDB’s 1
billion JV shares to require 1MDB to issue $300 million to the JV and $700
million to PetroSaudi. And Deutsche Bank, like Bank Negara, understood this to
be 1MDB’s business decision.
On September 30, 2009, Deutsche Bank explained to Bank Negara 1MDB’s
business decision to send the $700 million wire to an account of PetroSaudi’s
choosing, stating: “‘in terms of account it’s basically a business decision for the
[client] [now].’” Id. ¶ 68. Bank Negara replied “‘the crediting of the account and
so on, is this their business decision, [], so long as it does not deviate from the
original intention and that is not for Bank Negara to say.’” Id. (emphasis added).
Here, Bank Negara makes clear that destination of the $700 million payment did
not influence Bank Negara’s authorization, so long as the payment complied with
1MDB’s business decision. And it was 1MDB’s business decision to direct the
funds to the account nominated by PetroSaudi—the Good Star Account.
12
Similarly, with respect to the $330 million in wire transfers, $95 million in
wire transfers were made to Good Star prior to the purported May 23, 2011
misrepresentation, which was promptly corrected. Id. ¶ 95. And, the two
subsequent transactions on May 27 and October 25, 2011 were conducted after
PetroSaudi’s CEO sent a letter requesting a SWIFT Clarification be sent to RBS
Coutts explaining that the beneficiary of the transfers was Good Star.
13
CONCLUSION
For the foregoing reasons, the Motion to Dismiss should be granted.
12
The Government’s assertion that 1MDB Officer 2’s statement that Good Star is owned 100%
by PetroSaudi is misleading, (see Compl. ¶ 76), is also immaterial for this reason.
13
Moreover, the alleged misstatement could not be material to any of the transfers because Bank
Negara had previously been informed that the Good Star Account was not held by the JV or
PetroSaudi (id. ¶¶ 65, 67).
Case 2:16-cv-05364-DSF-PLA Document 76 Filed 12/21/16 Page 34 of 36 Page ID #:611
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DATE: December 21, 2016 Respectfully Submitted,
KOBRE & KIM LLP
/s/Daniel A. Zaheer
Daniel A. Zaheer
Robin Rathmell
Attorneys for Claimants
Low Hock Peng, Goh Gaik Ewe,
Low Taek Szen and Low May Lin
Case 2:16-cv-05364-DSF-PLA Document 76 Filed 12/21/16 Page 35 of 36 Page ID #:612
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CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing was
electronically filed on December 21, 2016 with the Clerk of the Court using the
CM/ECF system thereby sending a notice of electronic filing to Assistant U.S.
Attorney Woo S. Lee, Deputy Chief, Asset Forfeiture and Money Laundering
Section, Assistant U.S. Attorney John J. Kucera, and Assistant U.S. Attorney
Christen A. Sproule. In addition, I hereby certify that a true and correct copy of
the foregoing was served by e-mail on Assistant U.S. Attorney Woo S. Lee,
Deputy Chief, Asset Forfeiture and Money Laundering Section, Assistant U.S.
Attorney John J. Kucera, and Assistant U.S. Attorney Christen A. Sproule.
DATE: December 21, 2016 KOBRE & KIM LLP
/s/Daniel A. Zaheer
DANIEL A. ZAHEER
Case 2:16-cv-05364-DSF-PLA Document 76 Filed 12/21/16 Page 36 of 36 Page ID #:613
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Daniel A. Zaheer (Bar No. 237118)
Robin Rathmell (admitted pro hac vice)
KOBRE & KIM LLP
150 California Street, 19
th
Floor
San Francisco, California 94111
Telephone: (415) 582-4800
Facsimile: (415) 582-4811
daniel.zaheer@kobrekim.com
robin.rathmell@kobrekim.com
Aaron M. May (Bar No. 207751)
Grant B. Gelberg (Bar No. 229454)
HUANG YBARRA SINGER & MAY LLP
550 South Hope Street, Suite 1850
Los Angeles, California 90071-2604
Telephone: (213) 884-4900
Aaron.May@hysmlaw.com
Grant.Gelberg@hysmlaw.com
Attorneys for Claimants
Low Hock Peng, Goh Gaik Ewe,
Low Taek Szen and Low May Lin
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
UNITED STATES OF AMERICA,
Plaintiff,
v.
ANY RIGHTS TO PROFITS,
ROYALTIES AND DISTRIBUTION
PROCEEDS OWNED BY OR
OWED TO JW NILE (BVI) LTD.,
JCL MEDIA (EMI PUBLISHING
LTD), AND/OR JYNWEL CAPITAL
LTD, RELATING TO EMI MUSIC
PUBLISHING GROUP NORTH
AMERICA HOLDINGS, INC., AND
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No. CV 16-05364-DSF-PLA
DECLARATION OF DANIEL A.
ZAHEER IN SUPPORT OF
CLAIMANTS LOW HOCK PENG,
GOH GAIK EWE, LOW TAEK
SZEN AND LOW MAY LIN’S
MOTION TO DISMISS
Date: February 13, 2016
Time: 1:30 p.m.
Judge: Honorable Dale S. Fischer
Courtroom: 7D
Case 2:16-cv-05364-DSF-PLA Document 76-1 Filed 12/21/16 Page 1 of 3 Page ID #:614
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D.H. PUBLISHING L.P.,
Defendant.
)
)
)
)
)
Case 2:16-cv-05364-DSF-PLA Document 76-1 Filed 12/21/16 Page 2 of 3 Page ID #:615
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DECLARATION OF DANIEL ZAHEER
I, Daniel Zaheer, declare as follows:
1. I am a member of the bar of the State of California and of this
4 Court and an attorney at Kobre & Kim, LLP, attorneys for Claimants Low Hock
5 Peng, Goh Gaik Ewe, Low Taek Szen and Low May Lin. Other than matters
6 stated on information and belief, I make this declaration upon personal knowledge
7 about which I could and would testify competently.
8 2. Attached hereto as Exhibit 1 is, upon information and belief,
9 the document referred to in the Government's Complaint as the Joint Venture
10 Agreement ("JV A") between IMDB and PetroSaudi, executed on or about
11 September 28, 2009.
12 3. Attached hereto as Exhibit 2 is, upon information and belief,
13 the Letter of agreement to amend the document referred to in the Government's
14 Complaint as the JVA between IMDB and PetroSaudi, executed on or about
15 September 30,2009.
16 4. Attached hereto as Exhibit 3 are, upon information and belief,
17 excerpts from the document referred to in the Government's Complaint as the
18 minutes to the IMDB Board meeting held on September 26,2009.
19 5. Attached hereto as Exhibit 4 are, upon information and belief,
20 excerpts from the document referred to in the Government's Complaint as the
21 minutes to the IMDB Board meeting held on October 10,2009.
22 I declare under penalty of perjury under the laws of the United State
23 of America that the foregoing is true and correct.
24 DATE: December 21,2016
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Respectfully Submitted,
~D2 r2- )
Daniel A. Zaheer
Case 2:16-cv-05364-DSF-PLA Document 76-1 Filed 12/21/16 Page 3 of 3 Page ID #:616
Exhibit 1
Case 2:16-cv-05364-DSF-PLA Document 76-2 Filed 12/21/16 Page 1 of 31 Page ID #:617
EXECUTION VERSION
28 September 2009
BETWEEN
PETROSAUDI HOLDINGS (CAYMAN) LIMITED
AND
IMALAYSIA DEVELOPMENT BERHAD
AND
IMDB PETROSAUDI LIMITED
JOINT VENTURE AGREEMENT
)
Case 2:16-cv-05364-DSF-PLA Document 76-2 Filed 12/21/16 Page 2 of 31 Page ID #:618
TABLE OF CONTENTS
1. DEFINITIONS AND INTERPRET A TION .............................................................. 2
2. OBJECTIVES .............................................................................................................. 5
3. MUTUAL UNDERTAKINGS ...................................... .............................................. 6
4. CAPITALISATION AND FURTHER FUNDING ................................................... 6
6. BOARD OF DIRECTORS .......................................................................................... 7
7. SHAREHOLDERS' MEETINGS ............................................................................ 10
8. RESERVED MATTERS ........................................................................................... 10
9. SHARE TRANSFERS ............................................................................................... 12
10. WARRANTIES .......................................................................................................... 13
11. FINANCIAL MATTERS .......................................................................................... 13
1.2. SHAREHOLDER INVESTMENTS ........................................................................ 14
13. CONSTITUTIONAL DOCUl\fENTS ...................................................................... 14
1.4. INFORMATION RIGHTS ....................................................................................... 15
15. CONFIDENTIALITY ............................................................................................... 15
16. ANNOUNCEMENTS ................................................................................................ 1.6
17. NOTICES .................................................................................................................... 16
18. GENERAL .................................................................................................................. 17
19. TERM AND TERMINATION ................................................................................. 18
20. DISSOLUTION OF THE COMPANY .................................................................... 18
21. . DISPUTE RESOI,UTJON ........................................................................................ 20
22. GOVERNING LAW .................................................................................................. 21
SCHEDULE 1. DEED OF ADHERENCE .......................................................................... 23
SCHEDULE 2 WARRANTIES ........................................................................................... 24
SCHEDULE 3 BOARD MATTERS ................................................................................... 26
Case 2:16-cv-05364-DSF-PLA Document 76-2 Filed 12/21/16 Page 3 of 31 Page ID #:619
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT is made the 28th day of September 2009.
BETWEEN:
I. PETROSAUDI HOLDINGS (CAYMAN) LIMITED (Company No.: MC-231027) (a wholly
owned subsidiary ofPetl'oSaudi International Limited, a company incorporated in the Kingdom of
Saudi Arabia), incorporated and validly existing under the laws of the Cayman Islands with its
registered office at PO Box 309, Ugland House, Grand Cayman, KYI-II04, Cayman Islands
(hereinafter referred to as "PSI");
2. IMALAYSIA DEVELOPMENT BERHAD (formerly known as Terengganu Investment
Authority Berhad) (Company No.: 848230-V), a company incorporated and validly existing under
the laws of Malaysia with its registered office at Level 21, Suite 2].01, The Gardens South Tower,
Mid Valley City, Lingkaran Syed Putra, 59200, Kuala Lumpur, Malaysia (hereinafter refen'ed to
as "I MDB"); and
3. IMDB PETROSAUDI LIMITED (Company No.: 1548553), a company incorporated and
validly existing under the laws of the British Virgin Islands with its registered office at Kingston
Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands (hereinafter referred to as the
"Company").
RECITALS
A. The Company is a wholly owned subsidiary of PSI and was incorporated on 18 September 2009.
As at the date of this Agreement, PSI had transferred the whole of the issued share capital of
PetroSaudi International, a company incorporated in the Cayman Islands ("PetroSaudi
International Cayman") which owns all the legal and beneficial interest in the PSI Assets
(which have an estimated value of approximately two billion, seven hundred million US Dollars
(USD2, 700,000,000»,' to the Company.
B. PSI is the legal and beneficial shareholder of one billion five hundred million (1,500,000,000)
Shares (as defined below) and has provided the Company with advances amounting to seven
hundred million US Dollars (USD700,000,OOO).
C. PSI and 1 MDB are desirous of seeking, exploring, entering into and participating in business and
economic opportunities within and outside of Malaysia towards the enhancement of and
promotion ofthe future prosperity and long-term sustainable economic development of Malaysia.
D. In pursuit of the said objectives, I MDB has agreed to subscribe for and the Company has agreed
to issue one billion (1,000,000,000) ordinary shares of one US dollar (USDI.OO) each in the
Company so that the Company will be owned sixty per cent (60%) and forty per cent (40%) by
PSI and I MDB respectively.
E. PSI and I MDB intend to further the best interests of the Company in the spirit of mutual
cooperation and in accordance with the terms of this Agreement.
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NOW IT IS HEREBY AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Agreement unless the context othenvise requires, the following terms and expressions
Wure-the-fellewms-meaniu8s:
"Affiliate"
"Board"
"Board Reserved Matters"
"Business"
"Business Day"
"BSl Bank;'
"Companies Act"
"Deadlock"
"Director"
means, in relation to a company, a SubsidialY or
Holding Company of that company, or any other
SubsidialY of any such Holding Company, in each
case for the time being;
means the board of directors of the Company from
time to time in accordance with the Memonmdllm
and Articles (Shareholders Meetings);
means the matters set out in Clause 8.2(b) (Board
Reserved Matters)
has the meaning defined in Clause 2 (Objectives);
means a day (other than a Saturday and Sunday) on
which commercial banks in Kuala Lumpur, Malaysia
and London, England are open for business;
means BSI SA, 8 Boulevard du Theatre - 1204
Geneva;
means the BVI Business Companies Act (No. 16 of
2004) of the British Virgin Islands, as amended,
consolidated or replaced from time to time;
means:
(a) where any resolution relating to a Disposal
proposed at a meeting of the Board or of the
Shareholders (as the case may be) fails to be
passed due to a failure to achieve the
required votes for the resolution at three
consecutive meetings of the Board or the
Shareholders (as the case may be); or
(b) where a quorum cannot be achieved at three
successive proposed meetings of the Board
or of the Shareholders (as the case may be)
to be convened for the purpose of voting on
a resolution to make any Disposal, of which
not less than one week's notice has been
given;
means any director for the time being of the
Company, including, where applicable, any alternate
Director;
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"Disposal"
"Encumbrance"
"Holding Company"
"I nvestment"
"Memorandum and Articles"
"Parties"
"Party"
means any sale, transfer or divestment of any asset or
business of the Company having a value in excess of
twenty-five per cent (25%) of the value of issued and
allotted share capital ofthe Company;
means any interest or equity of any person (including
without prejudice to the generality of the foregoing,
any right to acquire an option or right of pre-emption)
or any mortgage, charge, pledge, lien or assignment
or any other encumbrance, priority or security
interest or arrangement of whatsoever nature over or
in the relevant property;
of any other person, means a person in respect of
whom that other person is a Subsidiary;
means any strategic or financial investment,
acquisition or financing proposal or other
opportunity, whether relating to any Affiliate of any
Shareholder or any other person, in any territory and
in any sector;
means memorandum of association and articles of
association of the Company, as amended from time
to time;
means any Party to this Agreement from time to time;
means anyone of them, as the case may be;
"PetroSaudi International Cayman" has the meaning given in Recital A. to this
Agreement;
"Petro Saudi Panama"
"Petro Saudi Turkmenistan"
"PSI Assets"
has the meaning given in Clause 1.1 (Definitions) in
the definition of PSI Assets;
has the meaning given in Clause 1.1 (Definitions) in
the definition of PSI Assets;
means:
(a) one hundred per cent (100%) of the share capital
of Petro Saudi Turkmenistan 1 Limited ("Petro
Saudi Turkmenistan"), a Jersey Company
holding energy interests in the Turkmenistan
sector of the Caspian Sea (the production licence
relating to Block III area); and
(b) one hundred per cent (JOO%) of the share capital
of Petro Saudi Ltd. Inc., ("Petro Saudi
Panama") a Panamanian company holding
energy interests in the Argentinean provinces of
Rio Negro (Laguna EI Loro) and Chubut
(Confluencia, Pampa Salamanca, San Bernardo,
Rio Senguerr, Buen Pasto, Sierra Cuadrada,
Laguna EI Loro);
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"PSI Loan Agreement"
"Related Party"
"Shareholders"
"Shareholder Reserved Matters"
"Shareholding Proportions"
"Shares"
"Su bscription"
"Subscription Shares"
"Subsidiary"
"Surviving Provisions"
"Target Valuation"
means the loan agreement dated 25 September 2009
entered into between the Company (as borrower) and
PSI (as Lender) in respect of a principal amount of
seven hundred million US Dollars (USD700,000,000)
and under which the interest rate is zero per cent
(0%);
means an individual who is or was, in the twelve (12)
director or shadow director of any Shareholder or
any other company which is (and, ifhe has ceased to
be such, was while he was a director or shadow
director of such other company) its Subsidiary or
Holding Company or a Subsidiary of its Holding
Company; and such individual's spouse, civil partner,
minor child, stepchild, or any employee or partner of
lh~ individual;
means shareholders of the Company for the time
being and "Sha.oeholder" means anyone of them, as
the case may be;
means the matters set out in Clause 8.1(b)
(Shareholder Reserved Matters);
has the meaning given in Clause 4.2(a)
(Shareholding Proportions);
means any issued or allotted shares in the equity
capital ofthe Company;
means the subscription of IMDB to the Subscription
Shares in accordance with Clause 4.1 (lMDB
Subscription);
has the meaning given to it in Clause 4.1 (lMDB
Subscription);
means an entity of which a person has direct or
indirect control and owns directly or indirectly (or
together with any other Shareholder and its Affiliates)
one hundred per cent (100%) of the voting capital or
similar right of ownership;
means Clause 1 (Definitions and Intelpretation),
Clause 15 (Confidentiality), Clause 16,
(Announcements), Clause 17 (Notices), Clause 18.2
(Waiver), Clause 18.3 (l!,ntire Agreement),
Clause 18.9 (Third Party Rights), Clause 20
(Dissolution of the Company) Clause 21.3
(Arbitration) and Clause 22 (Governing Law),;
means two billion, seven hundred million US Dollars
(USD2,700,000,000);
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"USD" or "US$"
"Valuation Report"
1.2 r nterpretation
means the lawful currency of the United States of
America; and
has the meaning described in Clause 5 (Valuation
Report).
In this Agreement, unless there is something in the subject or context inconsistent with such
construction or unless it is otherwise expressly provided:
(a) the expression "this Agreement" or any similar expression shall mean this joint
venture agreement and any supplemental agreement as may be in force from time to
time or at any time;
(b) references to "Recitals", "Clauses", and "Schedules" are references to, respectively,
any recital, clause and schedule of this Agreement and any reference to this
Agreement or any of, the provisions hereof includes all amendments and
modifications made to this Agreement from time to time in force;
(c) words denoting the singular number only shall include the plural number and vice
versa;
(d) words denoting one gender include all other genders and words denoting the singular
include the plural and vice versa;
(e) any reference to a statutory provision includes any modification, consolidation or
re-enactment thereof, for the time being in force, and all statutory instruments or
orders made pursuant thereto;
(t) references to "include" or "including" are to be construed without limitation;
(g) words denoting persons include corporations, and vice versa and also include their
respective estate, personal representatives, successors in title or permitted assigns, as
the case may be;
(h) headings in this Agreement are for convenience only and shall have no legal effect;
and
(i) if any period of time is specified from a given day, or the day of a given act or event,
it is to be calculated exclusive of that day and if any period of time falls on a day
which is not a Business Day, then that period is to be deemed to only expire on the
next Business Day.
2. OBJECTIVES
It is the Shareholders' intention that the objectives of,the Company are:
(a) to seek, explore, enter into and participate in business and economic opportunities
within and outside of Malaysia; and
(b) to enhance, strengthen and promote the future prosperity and economic development
of Malaysia,
to the extent that achievement of above-mentioned objectives would maximise the profits of
the Company.
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3. MUTUAL UNDERTAKINGS
PSI and I MOB undertake to each other to:
(a) co-operate and use their respective reasonable endeavours with a view to ensuring
that the Company successfully conducts its business in a manner consistent with
Clause 2 (Objectives);
('"
which is required of them; and
(c) use all means reasonably available to them (including their voting power, direct or
indirect, in relation to the Company) to ensure that the Company and any Oirector of
the Company nominated or appointed by them (and ally alternate to such Director)
shall implement all the terms, conditions and stipulations of this Agreement relating
to the Company.
4. CAPITALISATION AND FURTHER FUNDING
4.1 lMDB Subscription
(a) Subject to the provisions of Clause 5 (Valuation Report), IMDB covenants and
undertakes to subscribe, on or before 30 September 2009, for one billion
(1,000,000,000) Shares (the "Subscription Shares"), credited as fLilly paid up, in
consideration for the payment of one billion (I,OOO,OOO~OOO) US Dollars in
immediately available c1eared funds to a bank account in the name of. and nominated
by. the Company with BS) Bank (the "Company Accounf').
(b) On or before the Subscription, the Company shall deliver to lMDB evidence, in the
name of BS! Bank, establishing that the t MOB Directors are joint signatories of the
Company Account (together with the PSI signatories).
(c) As soon as practicable following the Subscription (and in any event no later than the
first Business Day following the Subscription) the Company shall:
(i) fulfil those actions listed in Part 1 of Schedule 3 (Board Maller.s): and
(ii) deliver to IMOB evidence, in the name ofBSI Bank, establishing 111at IMOB
is a joint beneficial owner of the Company Account (together with the PSI
beneficial owners).
4.2 Shareholding Proportions
(a) Immediately upon the issue ofthe Subscription Shares by the Company to 1 MOB, the
issued share capital of the Company shall be held in the folIowing manner and
proportions ("Shareholding Proportions") by the following Shareholders, subject to
agreed variations in accordance with Clause 4.2(b):
;1 Nome Proportion NumbuofShilres
PSI 60% 1,50Q,OOO,OOO
IMOB 40% 1,000,000,000
(b) The issued and paid-up share capital of the Company shall be held by the
Shareholders in the Shareholding Proportions unless the SharehoJding Proportion is:
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(i) varied to comply with any law or regulation of any government or other
relevant authority; or
(ii) varied in accordance with the tenns of this Agreement or in such other
manner as may be mutually agreed between the Shareholders.
4.3 Further Funding
(a) The Shareholders intend to make further contributions to the Company in the form of
cash and assets of up to a total amount of five billion US Dollars
(USD5,OOO,000,000) at a level and on terms to be agreed by 1 MDB and PSI in their
respective Shareholding Proportions.
(b) The price payable for each new issued Share shall be at no less than its par value but
subject to this, will be detennined by the Board at the time of approval of the share
issuance.
4.4 Pre-emption Rights
Unless otherwise agreed by the Shareholders, any Shares for the time being unissued and any
new Shares from time to time created shall, before they are issued. be offered to each of the
Shareholders jn the ratio that is reflective of $eir respective Shareholding Proportions,
provided always that if any Shareholder does not accept or only accepts a portion of its pro-
rata entitlement in relation to any new Share to be issued within 10 days of its receipt of the
offer, then such unaccepted Shares shaH be offered to the other Shareholder if such
Shareholder bas accepted its respective entjtlement under such issue.
4.5 Repayment of Advances
Conditional only upon the completion of the Subscription, the C(Jlllpany shall repay all
outstanditlg indebtedness under the PSI Loan Agreement to PSI in full. and in accOrdance
with the terms thereof, on or before 30 September 2009.
S. VALUATION REPORT
5.1 IMDB shall engage independent valuation experts to prepare a report specifYing a valuation
range for the PSI Assets (the "Valuation Report"). I MPH shall procure delivery of the
Valuation Report on or before 30 September 2009 (and the Company shall provide all
reasonable assistance requested by the independent valuation expert for the purposes of such
delivery). For the avoidance of doubt, the professional fees for such independent valuation
expert shall be borne by the Company.
5.2 In the event that the Valuation Report values the PSI Assets, in all modelled scenarios, at an
amount below the Target Valuation, IMDB may, on or before 30 September 2009, tenninate
this Agreement with immediate effect upon the delivery of written notiee of its exercise of
such right to both PSI and (he Company. For the avoidance of doubt, the obligations of
1 MDB shall continue in full force and effect in the event that it does not exercise this right.
6. BOARD OF DIRECTORS
6.1 General Management
The Board shall be responsible for and decide on the general policies of the Company.
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6.2 Board Composition
(a) The Board shall comprise initially four (4) directors, of which PSI shall be entitled to
appoint two (2) Directors and IMDB shall be entitled to appoint two (2) Directors.
(b) Each of the Shareholders shall take all necessary action including the passing of the
necessary resolutions of the Board or the Shareholders to appoint the directors
nominated bx the PSI and I MDa.ab. e
(c) Notwithstanding Clause 6.2(a), the Shareholders may, together, decide to increase the
number of directors in which case each Shareholder shall be entitled to appoint equal
numbers of additional directors.
6.3 Appointment and Removal of Directol'
(a) PSI and IMDB shall each have the right to appoint, remove, replace or substitute a
Director appointed by it fTom ti me to time in accordance with the provis ions in this
Agreement.
(b) The right of nomination, determination of period of office or removal of a Director
pursuant to this Clause 6 shall be exercised by the Shareholder(s) entitled to exercise
such right by notice in writing signed for or on behalf of the Shareholder(s) entitled to
exercise such right and addressed to the Company at its registered office. Such
nomination, detennination or removal shall take effect from the date of such notice or
on such later date as is specified therein, whichever is applicable and the Shareholders
shall vote accordingly to give effect to such change.
6.4 Alternate Directors
Each Director may appoint or remove from time to time any person (who, for the avoidance
of doubt, need not be another Director) to act as his alternate in accordance with the
Memorandum and Articles. One person may act as alternate director to more than one
Director and while he is so acting he shall be entitled to a separate vote for each Director he is
representing and if he is himself a Director, his vote or votes as an alternate director shall be
in addition to his own vote. Ifa Director ceases to hold the office of Director, the appointment
of his alternate shall thereupon cease.
6.5 Chairman
(a) The Chainnan shall chair the meetings of the Board and of the Shareholders. The
secretary of the Company shall be responsible for preparing the minutes of each
meeting and shall keep all the official records of the Company.
(b) The Chairman of the Board shall be appointed by PSI from among the members of
the Board. If the Chairman is not present at any meeting fifteen (15) minutes after the
stipulated time for the meeting, his alternate shall act as the Chairman. If neither the
Chairman nor his alternate is present, the Directors so present at such meeting shall
be entitled to appoint a Director that is a PSI appointee from amongst their numbers
by way of a simple majority vote to act as Chairman of the meeting.
(c) The Chainnan (whether the Chairman of the Board or the duly appointed Chainnan
of any board meeting) shal1 have a second or casting vote at any meeting of the
Board.
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6.6 Quorum
(a) No business shall be transacted at any meeting of the Board unless a quorum is
present at the beginning of and throughout each meeting.
(b) The quorum for meetings of the Board is four (4) Directors present in person or by
their alternates, of which there shall be at least two (2) Directors appointed by PSI
and two (2) Directors appointed by 1 MDB.
6.7 Adjournment of Meetings
If a quorum is not present within thirty (30) minutes of the time appointed for a meeting, that
meeting will be adjourned until the same time and place on the same day in the next week
unless the Directors agree otherwise.
6.8 Resolutions
Save in respect of a Board Reserved Matter and subject to ihe C..<>mpanies Act, all resolutions
of the Board may only be passed by a majority vote of the Directors present in person or by
their alternates at the relevant meeting.
6.9 Frequency of Meetings
Each of the Parties agree to cause a meeting of the Board of Directors to be convened at least
once every 3 months and whenever Jlecessaryand whenever requested by any Director.
6;1 0 Notice of Meetings
At least twenty one (21) days' notice in writing of each meeting of the Board specifying the
date, time and place of the meeting sball be given to each Director and alternate Director both
at the address from time to time provided by him to the Company for such purpose and at the
address of the Shareholders and each .such notice shall be accompanied by an agenda of the
matters to be considered, the nature of the business to be transacted at the meeting and all
relevant documents relating thereto. Np decision shall be taken on any matter at a meeting of
the Board unless notice of such matter shall have been given as afc)resaid or waiver of such
notice has been given in respect of stich matter by aU of the Directon; present at the meeting.
6.1 I Conduct of Meetings
(a) The Board shall be responsible for supervising the activities of the Company and for
determining the overall polici¢S and objectives of the Company. subject always to the
tenns of this Agreement and the provisions of the Companies Act.
(b) If the Board so authorises or requests, auditors, consultants, advisers and employees
(or any other persons, at the discretion of the Board) shall be permitted to attend and
speak at meetings of the Board, but not to vote.
(c) Directors or their a]temst¢s may participate in Board meetings by means of
conference telephone, video or other similar commWlications equipment where all
Directors participating ill that meeting can hear and commWlicate with each other.
Such participation is deemed to be presence in persoll. The matters resolved during
such meetings shall be subject to confirmation by the signatures of the partidpating
Directors on the minutes taken of such meeting provided that if no objc.ction is
received by the company secretary mth respect to the contents of the minutes within
three (3) days of the receipt by the participating Directors of the same, the
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participating Directors will be deemed to have endorsed the minutes despite not
having signed the same.
6.12 Written Resolutions
Any resolution in writing signed by at least four (4) Directors then in office, including two
(2) Directors nominated by PSI and two (2) Directors nominated by I MDB, shall be as
effective as a resolution passed at a meeting of the Directors duly convened and held, and
may consist of several docoments in the like form, eaeh si~ned by one or more of O1e
Directors.
6.13 Initial Operational Meeting
The Parties agree that the Board shall meet within three (3) months of the date of this
Agreement in order to consider the matters listed in Part 2 of Schedule 3 (Board Matters).
7. SHAREHULOEKS' MEETINGS
7.1 Ouorum
(a) No business of the Company shall be transacted at any Shareholders' meeting unless
a quorum is present at the beginning and throughout each meeting.
(b) The quorum for meetings of the Shareholders shall be PSI and I MDB present in
person or by proxy, by their duly authorised agents or representatives.
(c) If a quorum is not present within 30 minutes of the time appointed for a meeting, that
meeting will be adjourned until the same time and place on the same day in the next
week.
7.2 Notice of Meetings
At least fourteen (14) days' prior written notice of all Shareholders' meetings specifYing the
place, the day and the time of the meeting, shall be given to all Shareholders, unless all the
Shareholders IInanimollsly agree to shorten or wflive the notice.
7.3 Procedures at Meetings and Written Resolutions
Save as othelwise required by the Companies Act in relation to special resolutions or by the
provisions herein and save in respect of any Shareholder Reserved Matter, all questions
arising at any and all Shareholders' meetings shall be decided by poll. A resolution in writing
signed by or on behalf of all the Shareholders, shall be as effective as a resolution passed at a
meeting of the Shareholders duly convened and held, and may consist of several documents in
the like form each signed by one or more Shareholders.
8. RESERVED MATTERS
8.1 Shareholder Reserved Matters
(a) The Parties agree that notwithstanding any provision herein contained, no resolution
of the Company in respect of the Shareholder Reserved Matters shall be passed
unless:
(i) such resolution receives the affirmative votes of PSI and 1 MDB respectively;
and
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(ii) notice of intention to propose such resolution has been given to the
Shareholders in accordance with the provisions of the Memorandum and
Articles or unless waived by the Shareholders.
(b) Shareholder Reserved Matters are the following:
(i) any material change in the nature of the Business, including any proposal to
restructure the Business or to enter into a new business;
(ii) any change in the name ofthe Company;
(iii) any appointment and/or removal of the company secretary;
(iv) any alteration in the extent or structure of the authorised capital of the
Company including any increase or decrease thereof or the issue or allotment
of shares therein;
(v) the creation or conferment on any person of any new equity interest in the
Company;
(vi) any alteration to or amendment of the Memorandum and Articles;
(vii) the sale, transfer, conveyance, charge, mortgage, issue, licence, exchange,
creation of any fixed or floating charge, lien (other than a lien arising by
operation of law) or other encumbrance over or other disposition of any
material part of the Company's undertaking, property or assets or of any
immovable property of the Company exceeding an amount equal to
twenty-five per cent (25%) of the value of the issued share capital of the
Company whether in a single transaction or in a series of related transactions;
(viii) the acquisition by purchase, lease, licence or otherwise of any immovable
property or any other fixed assets or any other capital expenditure exceeding
an amount equal to twenty-five per cent (25%) of the value of issued share
capital of the Company whether in a single transaction or in a series of related
transactions;
(ix) the reconstruction, consolidation, merger or amalgamation, or the
engagement in a partnership of the Company with any other company, firm,
person or persons;
(x) the dissolution of the Company except on the grounds of insolvency or in
accordance with the provisions of Clause 20 (Dissolution of the Company)
and any proposal to be put to the Shareholders in general meeting in respect
thereof;
(xi) the entry by the Company into any contract or transaction with a Related
Party (or any material amendment of any such contract or transaction);
(xii) appointment and removal ofthe Company's auditors;
(xiii) declaring or paying dividends or adopting any dividend policy for the dealing
with the profits of the Company;
(xiv) the issuance of any debentures or other securities convertible into shares or
debentures;
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(xv) any change of the financial year or registered office of the Company; and
(xvi) commencing, defending or settling any litigation, arbitration or other
proceedings which are material in the context of the Company's business
having a potential value often million US Dollars (US010,000,000) or more.
8.2 Board Reserved Matters
(a) The Parties agree 1hat notwithstanding any provision herein contained, no resolution
of the Board in respect of any of the Board Reserved Matters shall be passed unless :
(i) the passing of such resolutions shall be by a majority vote of the Directors
including the affirmative votes of at least one (I) PSI Director and one (I)
I MDB Director; and
(ii) notice of intention to propose such resolution has been given to all the
DirecLors in accuf(]allc~ wiLh Lh~ pruvisiulls oftlle Memorandulll and Articles
or unless waived by all the Directors.
(b) Board Reserved Matters are the following:
(i) the granting of any guarantee or indemnity or other security by the Company
other than in the normal course of business or as approved in the annual
business plan;
(ii) the establishment of a joint venture between the Company and any other
company, finn, person or persons;
(iii) the lending of moneys, making of loans or advances by the Company or the
giving of credit other than to a wholly owned subsidiary of the Company;
(iv) the borrowing of any monies, incurring of debts or acceptance of any credit
facilities by the Company (with or without the issuance of mortgages,
debentures or upon security of any part of the Company's assets);
(v) effecting changes in the accounting policies and methods of the Company;
(vi) disposal of its interest, directly or indirectly, in: (I) any subsidiary or; (II) any
loan receivable, to a person who is not an Affiliate of the Company;
(vii) granting any power ofattomey or delegating the Directors' powers; and
(viii) the adoption and approval of the annual business plan, annual policies, annual
budgets of the Company and any reports or statements accompanying the
same.
9. SHARE TRANSFERS
9.1 Restriction on Transfers
(a) Save with the written consent of the other Shareholder, no transfer of any Share shall
be made by a Shareholder otherwise than in accordance with Clause 9.2 (Permitted
Transfers) and no Shareholder shall otherwise sell, mortgage, charge, pledge or grant
options over or otherwise dispose of any Shares or any interest therein.
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(b) Any restriction in the Memorandum and Articles to the effect that the Directors shall
have the right to accept or refuse registration on transfer of Sltares shall not be
applicable in respect of the transfer of any Shares which are made in accordance with
the provisions of this Agreement and in accordance with all applicable laws and
regulations and each Shareholder agrees to cause the Directors nominated by it to so
cast their votes in favour of accepting such registration or transfer of Shares.
(c) No transfer of any Shares to a person who is not a Shareholder shall be valid unless
and until the proposed transferee has first entered into a Deed of Adherence
substantially in the fonn set out in Schedule I (Deed of Adherence).
9.2 Permitted Transfers
Notwithstanding Clause 9.1 (Restriction on Transfers), any Shareholder may transfer any of
its shares to any of its Affiliates, provided that:
(a) the transferor transfers all (but not some only) of its Shares (and rigbts and
obligations under this Agreement) to such Affiliate;
(b) the transferee shall have first entered into a Deed of Adherence substantially in the
form set out in SchedUle I (Deed of Adherence);
(c) the obligations of the transferor under this Agreement shaH remain unaffected by the
proposed transfer and the transferor shall not be in any way relieved from any of its
obligations and liabiHties under this Agreement;
(d) the Shares shall be rc-transferred to the transferor or another Affiliate immediately
upon the transferee ceasing to be an Affiliate.
lO~ WARRANTIES
10.1 PSI warrants to I MBD that the matters contained in Part 1 of Schedule 2 (Warranties of PSI)
are true and correct as at the date of this Agreement.
10.2 1 MDB warrants to PSI that the m,atters contained in Part 2 of Schedule 2 (Warranties of
JMDB) are true and correct as atthe date of this Agreement.
11. FINANCIAL MAITERS
Il.t Dividend Policy
(a) The policy for the distribution of profits by the Company by way of dividend shall be
agreed upon by a unanimous decision of the Board based upon principles of prudent
financial management and the Board shall have regard to Imer alia. the need to
maintain adequate working capital for both the present needs of the Company and the
future expansion of the Company.
(b) The manner of distribution of dividends to PSI and tMDB shall be in accordance
with the rights conferred upon the Shares held by PSI and 1 MDB respectively.
11 .2 Accounts
(a) The Company shaH at all times maintain true and complete accounting and other
financial records, in the English Language, in accordance with the requirements of all
applicable laws and International Financial Reporting Standards. Such records shall
be kept at the principal office of the Company and shall be made available for
inspection by any of the Shareholders upon reasonable notice by the relevant
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Shareholder and each Shareholder shall be entitled at its own expense to have an
independent audit of the accounts of the Company in addition to the audit carried out
by the auditors of the Company provided that the Shareholder shall give reasonable
notice of any intended audit and it is carried out in a manner to ensure minimum
disruption to the Company's business operations.
(b) The annual financial statements and accounts and the conduct of business of the
Company~1I be audited annually at the %Jlens.
