Friday, May 29, 2020

Book #8: Billion Dollar Whale's Life Lessons

This is a continuation of the previous post.

In the last post discussing Billion Dollar Whale, the book depicting fully the 1MDB scandal and Jho Low's craziness, we learnt a few lessons on fraud detection. Today, we would discuss the last simple trick he used - putting in slight discrepancy in names of bank accounts and incorporated entities.

In order to fool people, Jho Low created shell companies which he controlled in Cayman Islands and other jurisdictions with very relaxed rules and regulations. These jurisdictions are happy to simply collect fees, without doing too many checks, including the previously discussed blatant oversight on lack of beneficiary name during bank transfer.

Jho used an ingenious trick which was to create shell companies with names that were very similar to the real beneficiaries. So it would be like 1MDB Investment Corp Ltd, which have nothing to do with the real 1MDB because the actual entity was 1Malaysia Development Berhad Ltd. Okay, I simply created these names without referring back to the book. But you get the idea.

The book introduced half a dozen of these examples used by Jho Low to wire money illegal to himself or his cronies. This allowed him to siphoned off a few billion dollars from Malaysia. He used the money to party, buy luxury yacht and financed his crazy lifestyle.

Google screenshot of Jho's various party photos

There are two lessons here: always double check when names are similar but not a 100% match and when there is something fishy, make sure we figure the whole damn thing out. The second lesson is that we cannot rely others to do the checks. The 1MDB saga showed that a lot of international wire transfers are simply done unchecked or even if checks were done and questions were asked, those not involved tend to let things slip through. So it ties back to the point made in the previous post. When there is no oversight, then chances are that things will go wrong.

Here's the summary of the three financial lessons:

1. Be careful when there is no transparency
2. Be very vigilant when there is a lack of independent oversight
3. Look out for the small discrepancies and figure things out when the parts doesn't gel

The life lessons from Billion Dollar Whale were more interesting, in my opinion. It is also related to what Warren Buffett referred to as people's inner scorecard as opposed to outer scorecards. According to the book, Jho Low lived by other people's scorecards of himself. It was this desire to prove himself that led him down the dark path. Well, that's Billion Dollar Whale's authors interpretation, we will never know for sure, but it's important to understand this scorecard concept.

People who live by how others score them will forever be chasing other people's dreams. Outer scorecard matters, if someone whom you trust and respect gives a realistic scorecard of you and would like you to improve. It then helps to compare our own inner scorecards to these important outer scorecards. So not all outer scorecards are bad, but when all outer scorecards matter more than inner scorecards, then the balance is upset and things can go wrong. 

In the book, Jho Low was being describe as an Asian boy who wasn't in this place during his school years in UK's top elite schools. This planted the seed of desire to prove himself and impress others. He wanted it so badly to the extent that he borrowed his friend's bungalow and put his own family photos to trick visitors that the big house was his. There were other episodes mentioned to put forth the story as well. If true, then Jho Low's story really is the cautionary tale to remind ourselves how living by outer scorecards can screw up everything.

His balance was totally upset. 

The other big life lesson was how Jho Low failed to get himself out of trouble when he had the chance. This was at the time of the so-called "third heist" of USD 3 billion dollars which Goldman Sachs helped 1MDB raised by selling bonds to gullible investors. After jumping several hoops and hurdles, this ridiculously went through all the checks and Jho Low got the money. All 3,000,000,000 US dollars! At that point, he could have used part of the 3 billion to plug his previous holes, which amounted to a billion or so (if I recall correctly). That way, he could have bought time to finally invest and claw back his losses. But he didn't and spent it on luxury yacht, pointless stuff and parties again. So here's the last lesson.

Once we do something wrong, it is very hard to turn back from black to white. It's a slippery slope down, like joining the dark side. Jho Low couldn't stop himself. It was akin to an addiction. Once you crossed the line, your mind tells you just keep going. It's been crossed, no point turning back. I stole a billion, why not steal three? Who's counting anyways? It takes a lot to redeem oneself. It is also very difficult for people from the other side to help. It is almost has to be one's own journey back. We have real life, fictional and historical examples of this: Benny Teo, founder of 18 Chef in Singapore, Darth Vader and St Paul from the Bible. Yes, only one real life example. Such redemptions are truly far and few in between.

So, don't cross the line. 

Circuit Breaker Ending! Huat Ah!

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