The shocking scandal of Goldman Sachs’s secret agent

Wall Street is meant to bring transparency to emerging markets, not make corruption easier

Goldman Sachs has faced many crises in its time but none more shocking than the case of Tim Leissner, its former senior partner in southeast Asia. Wall Street is supposed to bring transparency to emerging markets, not to make corruption easier.

Mr Leissner, who has admitted to laundering money and bribery, was corrupted in spectacular fashion. He pleaded guilty to conspiring with Jho Low, a flamboyant deal fixer, to gain for Goldman a lead role in $6.5 billion (€5.7 billion) of bond financing for 1MDB, a Malaysian sovereign wealth fund. He also helped to channel $2.7 billion (€2.3 billion) into bribes, including $4 million (€3.5 million) of jewellery for an official's wife. Mr Low maintains his innocence.

Concealing facts from Goldman’s compliance and legal staff to prevent them from blocking deals was “very much in line with its culture”, he claimed in court. If that is true, Goldman has lost its honour. Even if false, it says little for the bank’s vaunted “federation” – its finance, risk management and legal groups – that he fooled them so easily.

There is a broader lesson from the 1MDB affair. Banks and professional services firms have expanded around the world in the past three decades, offering professionalism and probity to economies as they have liberalised and joined global markets. Advisers have also made a lot of money – Goldman raked in $600 million (€529 million) for its work on three 1MDB bond issues.


But Goldman's fiasco in Malaysia and McKinsey's 2016 humiliation over its dealings with a politically connected South African firm show how they miscalculated the risks of dealing with corrupt governments. Instead of raising the ethical bar, western providers have allowed their names to be tarnished by scrambling to strike deals with people they should have avoided at all costs.

Selling your soul

Selling advice should not involve selling your soul, yet that was the fate of Mr Leissner in Malaysia. Two other Goldman executives have been drawn into the affair, with one accused of involvement in bribes that were laundered into New York property, paintings and even financing for the Wolf of Wall Street film. You could not make it up.

This comes at a sensitive time for Goldman, as its advisory and investment banking side has risen to power under new chief executive David Solomon. That is a shift from the dominance of its bond and derivatives division under Lloyd Blankfein, who will soon step down as chairman.

Bond trading reached a climax shortly before the 2008 crisis, in which the perils of mortgage-backed securities emerged with a vengeance. The 1MDB affair suggests that today’s global boom in mergers and acquisitions and financing advice may also end with a reputational bust. Opaque clients can be just as damaging as opaque derivatives.

Advisers constantly hustle for new business, and Mr Leissner was a relentless seller of Goldman’s expertise, rising to be southeast Asia chairman.


Goldman has two safeguards against lawbreaking, both of which failed at 1MDB. One is its structure of accounting and oversight, a counterbalance to the eagerness of traders and bankers to attract revenues that will boost their year-end bonuses. The bank has always taken pride in having strong and independent controls.

In a limited sense, these worked – its “business intelligence group” told Mr Leissner not to deal with Mr Low because it could not account for the latter’s wealth. But the banker found it all too easy to ignore their instructions, meeting Mr Low secretly and using shell companies and personal bank accounts to furnish bribes.

Goldman's other safeguard is its culture, in which it takes equal pride. That was codified by John Whitehead, former joint senior partner, in 12 "business principles". The second of these notes that lost reputation is "the most difficult to restore" and promises: "We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us."

Not so Mr Leissner, who was dedicated to doing whatever it took to be a winner.

– Copyright The Financial Times Limited 2018