The DoJ 1MDB complaint analysed: how the named banks fare

By:
Chris Wright
Published on:

Who comes out best and worst from the DoJ report into 1MDB?

The US Department of Justice’s complaint seeking the recovery of assets related to the Malaysian sovereign wealth fund, 1MDB, is compelling reading. In a 136-page filing, a remarkable web of money transfers and illicit purchases is exposed. Several banks are involved in it and three more have since been rebuked by the Monetary Authority of Singapore for failing to implement proper money laundering checks.

So who comes out of it in the best and worst shape? Here is a quick guide:

•  Goldman Sachs. Mentioned extensively in the document, but that is no surprise, and the complaint does not tell us anything we did not already know. It confirms Goldman’s eye-watering fees and commissions. Of the $1.75 billion raised through bonds in May 2012, known internally as Project Magnolia, Goldman took $192.5 million, equating to 11% of the principal; and of the $1.75 billion it raised in October that year, known as Project Maximus, Goldman appears to have taken $113.74 million.

Goldman is further embarrassed by the publication of emails between employees and a 1MDB officer: among them the odd revelation that Jho Low, a Malaysian national who advised on the creation of TIA, 1MDB’s predecessor, and one of the central figures of the scandal, addressed his Goldman contact – believed to be Tim Leissner, the former southeast Asia chairman, who left the bank in February – as 'bro’. Crucially, however, Goldman is not accused of any wrong-doing in the complaint. It is alleged that, among other things, $577 million of the first bond deal was diverted to a Swiss bank account, which had nothing to do with 1MDB’s supposed purpose, but it is not alleged that Goldman knew that was going to happen. Nevertheless, Goldman’s problems are not over, as it is being investigated separately by the DoJ about whether it violated the Bank Secrecy Act in its work for 1MDB in 2012 and 2013.

•  AmBank. Of all Malaysian banks, this is by far the most closely linked to the scandal, since it was at AmBank that the person referred to as "Malaysian Official 1" – understood to be prime minister Najib Razak, who has consistently denied any wrongdoing – held his accounts. The complaint says that between March 21 and 25, 2013, $681 million was sent to one of these accounts, which had earlier received $50 million of other payments from accounts linked to diverted bond proceeds. Using a different AmBank account, just over $620 million was then sent back again in the other direction in August that year. These are the sums that the Malaysian attorney general notoriously described as a personal donation from the Saudi royal family, concluding that there was no case for Najib to answer.

AmBank was also the originating bank for a number of transfers in 2011 from 1MDB to an account known as Good Star, which was beneficially owned by Jho Low and which the DoJ allege was used to launder more than $400 million of funds into the US: "after which these funds were used for the personal gratification of Low and his associates."

•  DBS, Standard Chartered and UBS. Although none are mentioned in the DoJ complaint, a day after its release the Monetary Authority of Singapore announced its own findings into 1MDB-related fund flows through Singapore. It announced "instances of control failings" in all three banks and in some cases "weaknesses in the processes for accepting clients and monitoring transactions. There was also undue delay in detecting and reporting suspicious transactions." The MAS says there were lapses in specific processes and by individual officers: "The lapses were serious in their own right, and will be met by firm regulatory actions against the banks."

All three banks say they notified MAS with concerns about fund flows, so the MAS’s objection seems to be around the pace and detail with which these notifications happened and indeed that clients were accepted in the first place.

•  BSI Bank was thrown out of Singapore in May by the MAS "in view of its serious breaches of AML requirements and poor management oversight, and gross misconduct by some of the bank’s staff."

•  Falcon Private Bank’s Singapore branch has also been under constant MAS scrutiny. The MAS’s latest announcement speaks of "substantial breaches of AML regulations, including failure to adequately assess irregularities in activities pertaining to customers’ accounts and to file suspicious transaction reports." MAS says it is still examining information on Falcon from the bank’s Switzerland head office.

•  Deutsche Bank also makes a significant appearance in the DoJ complaint. Deutsche handled a $1 billion-equivalent foreign exchange transfer from 1MDB into the bank account of a joint venture between 1MDB and PetroSaudi, of which $700 million was eventually diverted to the Good Star account. However the complaint does not explicitly criticize Deutsche here, instead accusing 1MDB senior management of making "material misrepresentations and omissions to Deutsche Bank officials".