// by Abdelmounaim MESBAHI //
Goldman Sachs faces multiple charges against its top executives in Malaysia and the United States, and it is suspected of money laundering1 and misappropriating2 public funds. It is implicated in the very large financial scandal of 1MDB with ongoing investigations in at least four countries around the world. So how this came to occur and threaten the reputation and wealth of one of the biggest banks in the US?
It all started in 2009 when former Malaysian Prime Minister Mr. Najib Razak created a sovereign wealth fund3 called 1 Malaysia Development Bread (1MDB) in order to promote economic development in the country and finance infrastructure projects. But in 2015, Xavier Justo, a Swiss banker and former employee of PetroSaudi – a London-based oil services company – released thousands of documents and emails revealing that the Malaysian sovereign fund has diverted at least $3.5bn in favour of Malaysian officials including the Prime Minister Razak – who took nearly $700m – and the billionaire and businessman Jho Low. All this money was used for spending across the world, to purchase luxury apartments and mansions in Manhattan and Los Angeles, expensive paintings and to buy gifts to public figures and finance the Hollywood movie The Wolf of Wall Street. The fraud was so large, and the systems used so complex that investigations are ongoing since 2015 in multiple countries among which Malaysia, the United States, Switzerland and Singapore.
Goldman Sachs has participated to 1MDB activities by raising $6.5bn in bond issue4 for the fund and received an impressive $600m in commissions. The Wall Street bank is also suspected of helping misappropriate and divert $2.7bn to Swiss and Singaporean accounts. Two former Goldman executives – Tim Leissner, the then Southeast Asian Chairman, and Roger Ng Chong Hwa, a CFO – were charged by the US Department of Justice with money laundering and violation the Foreign Corrupt Practices Act (FCPA). Tim Leissner pleaded guilty for these charges5. But at the same time, three Goldman Sachs subsidiaries in Malaysia were directly hit with criminal charges by Malaysian authorities.
Goldman Sachs has been suffering a lot these last months from this case. Even though it faces no direct charges in the US and it tries to roll away from Leissner and Roger Ng’s actions. Talking to Bloomberg in an interview last November, the new Goldman Sachs CEO David Solomon said that the people involved went “around our policies and [broke] the law”. Beyond the charges, Goldman Sachs worries are about the confidence clients and shareholders have on the company. The questioning of this trust has already been felt on the markets considering that Goldman’s share price has dropped by more than 30% since November when the charges were filed. The 1MDB scandal has also forced the company to change its CEO and Chairman Lloyd Blankfein who has retired and has been succeeded by David Solomon in October 1st. The next weeks will tell if and how Goldman Sachs will manage to bring back investor’s confidence.
- Money laundering1 (blanchiment d’argent) : “the crime of moving money that has been obtained illegally through banks and other businesses to make it seem as if the money has been obtained legally” – Cambridge Dictionary
- Misappropriation2 (détournement) : “the act of steeling something that you have been trusted to take care of and using it for yourself” – Cambridge Dictionary
- Sovereign wealth fund3 (fond souverain) : “SWFs are government-owned investment funds, set up for a variety of macroeconomic purposes.” – International Monetary Fund
- Bond issue4 (émission obligataire) : “an official paper given by the government or a company to show that you have lent them money that they will pay back to you at a particular interest rate” – Cambridge Dictionary
- Charges5 (inculpations) : “formally accuse (someone) of something, especially an offence under law” – Oxford Dictionaries
- 1MDB: The inside story of the worlds biggest financial scandal, The Guardian – https://www.theguardian.com/world/2016/jul/28/1mdb-inside-story-worlds-biggest-financial-scandal-malaysia
- Malaysian taskforce investigates allegations $700m paid to PM Najib, The Guardian – https://www.theguardian.com/world/2015/jul/06/malaysian-task-force-investigates-allegations-700m-paid-to-pm-najib
- 1MDB scandal: the Malaysian fraud explained, video from Financial Times – https://www.youtube.com/watch?v=2WV3sIcWNxE
- Goldman Sachs pris dans le tourbillon du scandal 1MDB, Les Echos – https://www.lesechos.fr/finance-marches/banque-assurances/0600359992041-scandale-1mdb-la-malaisie-porte-plainte-contre-goldman-sachs-2230587.php
- Goldman’s Solomon Says 1MDB Scandal Was « Distressing », interview of David Solomon from Bloomberg – https://www.youtube.com/watch?v=jG3o2LUwyNk&index=126&t=0s&list=WL
- 1MDB scandal: Malaysia files charges against Goldman Sachs, The Guardian – https://www.theguardian.com/world/2018/dec/17/1mdb-scandal-malaysia-files-charges-against-goldman-sachs
- US justice department charges former Goldman bankers in 1MDB Scandal, The Guardian – https://www.theguardian.com/world/2018/nov/01/malaysia-1mdb-scandal-us-justice-department-charges-former-goldman-bankers