Goldman Sachs rattled by bribery allegations in Malaysia

The US Justice Department has implicated three senior bankers with money laundering of hundreds of dollars on behalf of the Malaysian state fund

A monitor displays Goldman Sachs Group Inc. signage on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Tuesday, May 29, 2018. Stocks declined, while Treasuries and the dollar rallied as the escalating political crisis in Italy engulfed markets. Photographer: Michael Nagle/Bloomberg
Beta V.1.0 - Powered by automated translation

A high-profile corruption probe that has spanned continents landed its first direct blow at Goldman Sachs.

At least three senior Goldman bankers were implicated by the US Department of Justice in a multi-year criminal enterprise that included bribing officials in Malaysia and elsewhere and laundering of hundreds of millions of dollars. Now that federal prosecutors have filed criminal charges against two of the bankers, one question is burning inside the Wall Street bank: Will others be next?

One of the company’s most senior bankers in Asia, Andrea Vella, was immediately placed on leave pending review of the allegations. He wasn’t charged with wrongdoing but matches the description of an unidentified co-conspirator in the Justice Department’s filings for charges unsealed Thursday.

The confession of one of the bank’s onetime Asia chiefs, Tim Leissner, may undercut Goldman’s take on what happened. In behind-the-scenes talks with authorities, the firm has presented information that isolates much of blame on Mr Leissner, according to two people with knowledge of the exchanges. In pleading guilty to conspiring to launder money and violate the Foreign Corrupt Practices Act by paying bribes, Mr Leissner agreed to a version of the events that’s potentially damaging to some of his former colleagues and even his old shop.

“The firm continues to cooperate with all authorities investigating this matter,” a Goldman Sachs Group spokesman said in an emailed statement.

Mr Vella led Goldman’s Asia investment-banking operations until about two weeks ago when new chief executive David Solomon stripped him of his management duties. Even then, Mr Vella stayed on as a senior banker at the firm with a mandate aimed at cultivating bigger clients. Goldman declined to comment on his behalf, and a call to Mr Vella wasn’t immediately returned.

Prosecutors assert that beyond Mr Leissner a number of employees at the firm knew about a bribery scheme but worked to hide it from Goldman’s compliance and legal departments as the bank won a lucrative assignment at the centre of the case. The firm would ultimately help raise more than $6 billion on behalf of 1MDB, a wealth fund that was then allegedly plundered in spectacular fashion.

More specifically, prosecutors said, “employees and agents” of the bank were aware that the deal involved controversial financier Low Taek Jho, who was indicted for allegedly masterminding the plan to siphon off billions of dollars.

Goldman Sachs has for years said it raised funds for 1MDB without knowing that it would be diverted from the development projects. Authorities have said cash instead went into yachts, luxury real estate, paintings and jewellery, as well as into private bank accounts.

Mr Leissner’s former deputy, Roger Ng, was arrested in Malaysia and is set to appear in a Malaysian court. Mr Low was charged in absentia. He is accused of conspiring with Mr Ng to launder billions of dollars embezzled from 1MDB.


Read more:

Quick take: Goldman's role in 1MBD scandal explained

Goldman earnings surge as Wells Fargo prepares for Brexit


Mr Low maintains his innocence. He “simply asks that the public keep an open mind regarding this case until all of the evidence comes to light, which he believes will vindicate him,” according to a statement issued by a spokesman for his legal team. It said Mr Low held no formal position at 1MDB, and that “the bond offerings detailed in the indictment were undertaken openly and lawfully between experienced, well-regulated financial institutions and government entities.”

While Mr Leissner and Mr Ng have been subjects of previous news reports, the unsealed charges pushed Vella into an unflattering spotlight. The unidentified co-conspirator who matches his description allegedly worked with Mr Leissner and Mr Ng to circumvent the firm’s corruption controls in connection with the three 1MDB bond transactions.

The bank had been telling US prosecutors it was deceived by Mr Leissner during the deals with 1MDB, the two people familiar with the matter said. That effort portrayed Mr Leissner as someone who repeatedly lied to the company and hid business investments, but also included even more salacious details, such as assertions that he failed to disclose romantic relationships with women who could help him win business.

Mr Leissner also admitted to enriching himself beyond what was publicly known, saying that more than $200 million in proceeds from 1MDB bonds flowed into accounts controlled by him and a relative. As part of his settlement, he will forfeit almost $44 million.

Bribes allegedly went beyond cash. A shell company controlled by Mr Low allegedly sent $27.3 million to pay a New York jeweller who designed a pink diamond necklace for the wife of Najib Razak, Malaysia’s then-prime minister. Mr Low and Mr Leissner also allegedly transferred $4.1 million to New York to pay for gold jewellery for Mr Najib’s wife.

The Justice Department’s filings leave Goldman Sachs with defences even as they raise uncomfortable questions. On the one hand, the company had compliance measures aimed at vetting the people it deals with and preventing illegal acts. But at the same time, a number of its employees allegedly knew about or took part in efforts that thwarted those controls, according to prosecutors.

While it’s not clear whether Mr Leissner is cooperating with prosecutors, the type of document unsealed by authorities Thursday is often a precursor to such an agreement. Assertions that he misled the bank could undercut his credibility as a witness against other employees. And for its own part, the firm could point to Mr Leissner’s alleged deceptions at critical junctions, arguing he hampered reasonable efforts to perform due diligence on the 1MDB deals.

Yet the involvement of other employees, as laid out Thursday, may hurt such a bad-apple defence.

Lloyd Blankfein, who stepped down as Goldman Sachs’s chief executive last month, told an audience in New York on Thursday that he’s not aware of senior managers missing red flags in the 1MDB dealings. Instead, he said, somebody lied and dodged controls.

Still, when asked what it means for the bank’s reputation, he deadpanned: “Well, it’s not good.”