SWF Thwarts Bold Scam

Ashby Monk

A couple of weeks ago, a reader sent me a hard to believe story about an attempt to scam Timor Leste’s Petroleum Fund out of $1.2 billion. At the time, I was too busy to pay much attention, but I’ve now had an opportunity to go through some of the materials, and it really is a fascinating case study of the importance of good governance.

Here’s the premise for the scam as I understand it: Back in September of 2009, the MoF of Timor-Leste received an investment proposal from “Asian Champ Investment Ltd”. ACI offered the Minister the opportunity to deposit $1.2 billion in cash from the SWF into a totally “blocked” account in HSBC, which (according to the proposal) would prevent ACI from having any access to the funds in the account. In return, ACI promised to pay the Petroleum Fund 7.5% in advance and then return the money a year later. ACI gave the MoF 15 days to decide.

Too good to be true? Actually, yeah, it was. But, thankfully, while the Minister was clearly interested (due to the fact that there were some credible people, such as Datuk Edward Ong, involved on ACI’s behalf), she first asked the Petroleum Fund’s Investment Advisory Board for advice on the matter. And what they found was pretty startling:

  • “The Board has been unable to verify the existence of Asia Champ Investments Ltd in the Singapore online companies registry, and ACI has no internet presence of any kind.”
  • “Although a specific branch of HSBC is mentioned as the depository, the ACI proposal contains no evidence to suggest that HSBC has agreed to be party to the proposed arrangement or to underwrite the risks associated with it.”
  • “…the time frame of the proposal (15 days), would normally not be sufficient to conduct a due diligence process on that firm in accordance with acceptable international standards of operational management.”
  • “…the Board infers that the proposed account mandate may be drafted in a manner that permits the deposit to be used as collateral for third party business arrangements. Should this be the case, the Board believes that such an arrangement would place an encumbrance on the assets in contravention of Article 20 of the Petroleum Fund law.”
  • “The Board notes, without making any inference about the motives of the parties involved in the ACI proposal, that worldwide there have been a number of reported cases where institutional investors have fallen prey to fraudulent schemes under arrangements involving apparently secure deposits in “blocked accounts” at reputable banks, higher than market interest rates, a rapid decision-making process, and little if any documentation concerning the parties making the offer.”

Based on this advice, the deal was rejected. And so there you have it, the Timor-Leste Petroleum Fund successfully defended itself against a bold scam. In the end, good governance prevailed:

“Timor-Leste’s successful defense against this attempt to steal one-fourth of our Petroleum Fund shows the importance of strong laws and institutions, clear processes, defined criteria, and professional decision-making.”

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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