What lessons does the Billion Dollar Whale have for Vietnam
/I just finished a recent book about a con man (alleged con man, I should say) titled Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World.
First, it is an amazing story and book. There was an extract from the book in the Wall Street Journal worth reading to get a sense of it (here, sub req’d, although you get a few free articles, and this should be one of them this month). It really shows the machinations behind the scenes of this massive con that extracted billions of dollars from Malaysia, and mostly to pay for what appeared to be really crazy parties and sick gambling. When I say billions of dollars, I mean that the main guy, Jho Low, allegedly stole $4.5 billion (!) from a Malaysian sovereign wealth fund (1MDB). Some of that money was allegedly kicked back to politicians in Malaysia and higher ups in the Middle East and elsewhere.
Of course, it wasn’t just one person allegedly doing it. Lots of bankers (from Goldman Sachs, Falcon Private Bank and others), wealth managers and accountants (KPMG and Deloitte) helped out. Low appears to have been very good at pushing legitimate institutions into illegitimacy and also using their names to deflect questions from others. And sometimes the venality of these other actors worked to his advantage.
But there were a few things that would have prevented the fraud sooner:
Increase transparency of government accounts. This is a problem all over the world. Governments spend huge sums of money and act as guarantors of even bigger pots of money. Some of this can easily get into the wrong hands or be misused. This is not just an emerging market problem; developed countries have the same issues. Look at the US Department of Defense. There are always scandals (the first one that I was able to find with a quick search is this “Fat Leonard” scandal, also perpetrated by a Malaysia and also someone with “Fat” as a title. It was “Fat” Eric in the Billion Dollar Whale.) But the more transparency there is, the harder it is to hide the money flows. This can mean multiple bids for projects, public tenders, etc.
Don’t allow people to remain in power for too long. An example from my old work, investment banking: Regulators have long asked investment banks to require two weeks vacation for employees. After a trader at SocGen (Societe General) run up €5bn in losses, most investment banks started doing so. The reasoning is that it is easy to hide something if you are already there to keep it hidden. Like if you are sitting on your bed at all times, no one can find the Playboys under your mattress. For Malaysia, former Prime Minister Najib Razak (who has been charged with corruption for his role in the 1MDB affair) was allegedly able to hide the losses and money transfers because of his hold on power.
Support a rigorous press. This is a difficult one for politicians, because the press can make their lives hell. And not always fairly. We see this in the US, which was (in my opinion) very unfair to Hillary Clinton with the focus on her emails (something that was not that important). And is even sometimes unfair to Trump, a person that I generally feel deserves the opprobrium he receives. But the press was extremely important in ferreting out details of the alleged crime in this case. Specifically, the WSJ (the authors of the book are WSJ reporters), The Edge Malaysia, and The Sarawak Report.
Be careful of institutions that have concentrated clients. What I mean by this is that sometimes institutions will make the wrong decisions because they need to please their client too much. I read a book about Enron (I wrote about it below, look at the Jan. 14, 2019 post), and it turns out that Arthur Andersen needed Enron just as much as Enron needed Arthur Andersen. The accounting firm was making so much money from Enron, it was willing to let Enron dictate terms. Banks were in similar situations. We saw that with private bankers for Jho Low, and even Goldman. Of course, Arthur Andersen paid a crazy price (it went under), and Goldman is still paying the price and may pay a lot more.
Don’t trust people who went to Wharton. Example 1: Donald Trump. Example 2: Ivanka Trump (actually transferred in because she didn’t get in on her own at first). Example 3: Jho Low, who was the allegedly masterminded of this whole thing and is now a fugitive. Example 4: Your humble author [yes, really. You would think this blog would be more professional because of that, but…you would be wrong].
Vietnam does not generally have a strong free press, government transparency is just okay, and the party has maintained power for years. It is ripe for this sort of corruption. However, it would really pay for Vietnamese politicians to look at what happens when corruption gets out of control and people are fed up. In Malaysia, it led to the downfall of Razak in elections. In the Middle East, it led to the Arab Spring. The price can be extremely high, so it behooves the state to clean up its act. I see the recent push against corruption in Vietnam as a response to public opinion (at least in part) that should help limit some of the most egregious corruption. That is a positive signal, in my view. Let’s just hope it is enough.