Swiss court convicts two executives over $1.8 billion 1MDB fraud

Swiss-British national Patrick Mahony and Swiss-Saudi Tarek Obaid were also ordered to pay back more than $1.75 billion to the fund, which was at the centre of an international kleptocracy scandal.

The difference between the two amounts was interest payments the fraudsters paid back to 1MDB during the scam.

The verdict was the latest episode in the 1MDB affair, a complex tale of international corruption that has buffeted a slew of financial institutions and individuals across the globe since allegations of wrongdoing first surfaced in 2015.

Prosecutors alleged that Mahony and Obaid had helped to set up a joint venture with 1MDB by creating the impression that their company, PetroSaudi, was backed by the Saudi government.

This was not in fact the case, but the accused managed to persuade 1MDB's board into signing up to the scheme in 2009 before going on to defraud the fund, prosecutors said

"The accused deceived the members of the 1MDB board of directors into believing that Petrosaudi had links with the Saudi Arabian government and that PetroSaudi would contribute significant oil assets to the joint venture," the court said.

"These statements were false, and the accused knew this very well."

According to the indictment, the two executives defrauded the wealth fund of $1.8 billion to enrich themselves, with Obaid getting at least $805 million and Mahony at least $37 million

They were both convicted of fraud, criminal mismanagement and money laundering by the court in the southern Swiss city of Bellinzona.

Obaid was sentenced to seven years in prison, while Mahony received a sentence of six years. The court said the sentences differed because Obaid had enriched himself more than Mahony.

"The court took into account the very high amounts involved, the intensity of the criminal activity, (and) the selfish motive," it said.

The two men had denied any wrongdoing. Obaid's lawyer said his client had immediately filed an appeal against the verdict.

"Mr. Obaid has always contested the commission of any offense," said Daniel Zappelli. "The reasoning of the court has not taken into consideration very numerous factual and legal aspects that we had brought before it."

Mahony's lawyer did not respond to a request for comment.

Prosecutors said the two men created the fraudulent scheme with fugitive Malaysian financier Jho Low, an adviser to former Malaysian prime minister Najib Razak, who is already in prison over his role in the multi-billion dollar scandal.

Initially extracting $1 billion from 1MDB so it could buy a stake in their venture, the accused took a further $830 million from the fund between 2010 and 2011 as part of an Islamic loan that followed on from their tie-up, prosecutors said.

Between September 2009 and at least July 2015 the accused arranged for bank accounts to be opened in Switzerland to help launder the millions, prosecutors said.

They used the money to buy real estate in Switzerland and London, jewellery and private equity, as well as to develop the PetroSaudi business from which they received a sizeable income, and to maintain "a lavish lifestyle", prosecutors said.

Malaysian and U.S. investigators estimate a total of $4.5 billion was siphoned away from 1MDB following its inception in 2009, implicating figures including Razak, Goldman Sachs staff and high-level officials elsewhere.

1MDB, the former sovereign wealth fund which is currently trying to recover its stolen assets, welcomed the judgment.

"We welcome today's verdict.... which means that Patrick Mahony and Tarek Obaid will face justice for their role in embezzling and defrauding the people of Malaysia," a spokesperson said.