US charges ex-Goldman bankers with crimes related to Malaysian investment fund scandal

San Francisco, CA, USAUpdated: Nov 02, 2018, 07:03 AM IST
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A sign is displayed in the reception of the Sydney offices of Goldman Sachs in Australia. Photograph:(Reuters)

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US officials unveiled criminal indictments Thursday against an intermediary to scandal-plagued Malaysian sovereign wealth fund 1MDB and a former Goldman Sachs banker involved in an elaborate alleged bribery scheme.

US officials unveiled criminal indictments Thursday against an intermediary to scandal-plagued Malaysian sovereign wealth fund 1MDB and a former Goldman Sachs banker involved in an elaborate alleged bribery scheme.

They are the first US criminal charges in the case which spawned investigations around the world.

The US Department of Justice arrested former Goldman Sachs banker Ng Chong Hwa in Malaysia on Thursday, while the 1MDB intermediary, Low Taek Jho, remains at large, officials said in a press release.

Another ex-Goldman official, Tim Leissner, pleaded guilty and agreed to pay $43.7 million in restitution of ill-gotten gains.

The 1MDB scandal has roiled politics in Malaysia, leading to criminal charges against former Prime Minister Najib Razak.

The men were charged with conspiring to launder billions of dollars from 1 Malaysia Development Berhad, a sovereign wealth fund set up for development of the country, and conspiring to bribe officials in Malaysia and Abu Dhabi, violating the Foreign Corrupt Practices Act.

Ng was also charged with conspiring to violate the internal controls at Goldman Sachs, which underwrote about $6.5 billion in bonds issued by 1MDB, the US government said.

The funds were intended "for the benefit of the Malaysian people" but more than $2.7 billion went to kickbacks and bribes, according to the charges.

Goldman Sachs, which garnered $600 million in fees and revenues from three 1MDB bond transactions detailed in the indictments, has said previously it is cooperating with the probe. A Goldman Sachs spokesman did not have immediate comment Thursday.

Goldman Sachs wasn't named in the DOJ criminal documents, but was referred to as "financial institution #1." The DOJ filings say Ng and Leissner repeatedly circumvented Goldman's oversight tools for countering fraud, adding that the "business culture" at the firm, "particularly in Southeast Asia, was highly focused on consummating deals, at times prioritizing this goal ahead of the proper operation of its compliance functions," according to the Low-Ng indictment.

Under one scheme involving a 2012 "Project Magnolia" bond offering by 1MDB, Low allegedly told the ex-Goldman bankers they needed to bribe officials in Malaysia and Abu Dhabi to guarantee that the transaction went through.

Hundreds of millions of dollars in bribes were subsequently paid to officials in Malaysia and Abu Dhabi. After the bond transaction was executed, more than $500 million of the bond proceeds were misappropriated into shell companies controlled by Low, Leissner, Ng and other co-conspirators, the government alleged.

Some of the funds went to finance the movie, "The Wolf of Wall Street," a 2013 Oscar-nominated film about Jordan Belfort, a corrupt stockbroker who was sent to prison for fraud, the government said.

Ng and Leissner's efforts in the scheme dated to 2009, when they began cultivating a relationship with Low, who allegedly "worked as an intermediary in relation to 1MDB and other foreign government officials" but did not hold a formal position at 1MDB and was never employed by the government. A DOJ press release refers to him as a "Malaysian financier."

Ng, a managing director at Goldman, and Leissner, who worked as Southeast Asia chairman and managing director at Goldman, sought on three occasions to make Low a formal client, but were rebuffed because officials in the compliance group had "concerns" about the source of the person's wealth and deemed he would not be a "suitable" client.

As the bond offerings proceeded, the two men concealed Low's involvement from officials in the compliance and intelligence groups at Goldman Sachs.

The transactions were structured as bond deals "rather than other forms of financing, because doing so generated much higher revenues and fees for (Goldman Sachs), improved the bank's reputational standing in both the Southeast Asian region and globally and provided Leissner and other bankers with increased remuneration and professional prestige, even though the bond financing was more expensive for 1MDB," the DOJ said in the criminal information document.

Leissner is free on a $20 million bond and pleaded guilty before a US judge in August, in Brooklyn Federal Court, a Justice Department spokesman said. He is cooperating with DOJ investigators, reported The Wall Street Journal, citing a person familiar with the matter. Lawyers representing Low and Leissner did not immediately respond to a request for comment.

Low is being represented by Marc Kasowitz, according to a DOJ spokesman. Kasowitz is an attorney who has long represented US President Donald Trump.