Malaysia pursues Goldman Sachs across borders in 1MDB criminal probe

Court orders being sought in three foreign countries

Goldman earns about 14 per cent of its net revenue from Asia, according to its latest quarterly results, compared with about 60 per cent for its core US business.

Goldman earns about 14 per cent of its net revenue from Asia, according to its latest quarterly results, compared with about 60 per cent for its core US business.


Malaysia is to pursue criminal charges against Goldman Sachs units based in the UK, Singapore and Hong Kong in connection with $6.5 billion (€5.7 billion) worth of bonds the investment bank arranged for 1Malaysia Development Berhad, the state investment fund at the centre of the biggest financial scandal in the country’s history.

The move by Malaysia to target a trio of Goldman’s businesses outside its borders suggests prosecutors seeking redress for the debacle will face tortuous legal proceedings in pressing their case, as they seek to serve court orders in three foreign countries according to charge sheets published by Malaysia’s attorney-general.


The charges also cast a wider net over Goldman and its global business, which market experts said could threaten the US bank’s reputation if the charges were to result in prosecution.

Goldman Sachs International, based in London, Goldman Sachs (Singapore) PTE, and Goldman Sachs (Asia) LLC, which is registered in Delaware but based in Hong Kong, were all named in the charge sheets, which were published on Tuesday.

The bank said that none of the three entities had yet been served with a legal summons for the case, a court date for which has been set in March.

Nizam Ismael, a Singapore-based partner at RHTLaw Taylor Wessing said: “You might hear of banks having issues with regulators in terms of not meeting regulatory requirements; that happens frequently. But for an investment bank to face charges, and criminal charges for that matter?.?.?.?do suggest that there was some collusion to perpetrate fraud, these are very serious allegations.”

A corporate lawyer, who asked not to be named because of the sensitivity of the case, said: “If convicted, they would receive the penalty of a fine, but more significant is that by having a criminal record, it would make it difficult to get a licence to operate or keep existing licences.”

Malaysia’s attorney-general announced the charges on Monday, saying he would seek to impose steep fines and jail sentences of up to 10 years against the bank and two former Goldman employees, Tim Leissner, and Roger Ng Chong Hwa, alleging they conspired with two 1MDB officials to bribe public officials to secure the bond mandates. However, no indictment was published against Mr Ng as of Tuesday afternoon.


Prosecutors also alleged that Goldman’s underwriting and arranging fees of about $600m were “several times higher than the prevailing market rates and industry norms”. They said they would seek the imposition of criminal fines “well in excess” of the amount they allege was stolen from 1MDB and the $600m Goldman received.

Goldman hit back at the accusations, alleging that members of former Malaysian prime minister Najib Razak’s government and 1MDB lied to the bank, lawyers and others about the use of proceeds from the bonds.

“1MDB, whose CEO and board reported directly to the prime minister at the time, also provided written assurances for Goldman Sachs for each transaction that no intermediaries were involved,” said a Goldman spokesman. “Under the Malaysian legal process, the firm was not afforded an opportunity to be heard prior to the filing of these charges against certain Goldman Sachs entities, which we intend to vigorously contest.”

The bank said the criminal charges “do not affect our ability to conduct our current business globally”.

A spate of criminal charges against international banks in recent years has reduced fears that such a step would prove highly damaging or even fatal to an institution’s ability to operate.

A spokesman for the Federal Reserve, Goldman’s primary regulator, could not immediately say what local implications a foreign conviction would carry for a US company. If Goldman were convicted of a crime by US courts, it could face restrictions on working with certain institutional investors, such as pension funds, though companies have gotten around these in the past by obtaining waivers from the US Department of Labor.

However, Asia-based analysts said a successful criminal prosecution could affect its business.


“Goldman is trying to increase its presence in China, and as is the case for most jurisdictions when you try to apply for licences, regulators say you have to satisfy capital requirements, but also the entity applying needs to have not been sanctioned or convicted in the past five or so years,” said a consultant in the industry. “So by suing three entities, that’s a wide net, that’s really going to hurt Goldman.”

Goldman earns about 14 per cent of its net revenue from Asia, according to its latest quarterly results, compared with about 60 per cent for its core US business.

The Malaysian case announced on Monday is the latest twist in the 1MDB scandal, which saw Mr Leissner strike a deal with US prosecutors last month in which he pleaded guilty to money laundering and bribing foreign officials and agreed to forfeit $43.7 million. However, it represents the first time Goldman has been charged with a crime abroad. – Copyright The Financial Times Limited 2018