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Leissner's loss is not necessarily Goldman's gain

Singapore's investigations into the 1MDB scandal continue to claim more big-name scalps

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DBS, UBS, Standard Chartered, Coutts, Falcon, BSI. One by one, the banks involved in the 1MDB scandal are learning their fates from the Monetary Authority of Singapore: modest fines and public dressing-downs for the big guys, outright bans for the smaller Swiss outposts. But what about the bank more intrinsically linked to the scandal than any other: Goldman Sachs?

December’s statement from the MAS – whose headline is about the S$5.2 million ($3.65 million) fine levied on Standard Chartered and S$2.4 million on Coutts for breaches of anti-money laundering requirements – is interesting for what it does and does not say about Goldman.

What it explicitly does show is just how deeply Tim Leissner is in the ordure. Leissner, who was sacked by Goldman earlier this year, is widely understood to be the “Goldman employee” repeatedly referred to in the Department of Justice complaint around 1MDB (and the man that Low Taek Jho (Jho Low), the Malaysian at the heart of the scandal, addressed in emails as “Bro”), and was by far-and-away the Goldman figure closest to the 1MDB bonds the bank underwrote in 2012 and 2013. 

The MAS announcement involves a prohibition order against Leissner, effectively banning him from the country’s securities markets for 10 years, after finding that he issued an unauthorized reference letter to a financial institution based in Luxembourg in June 2015, using the letterhead of Goldman Sachs (Asia) LLC. 

“The letter stated that Goldman Sachs had conducted due diligence on Mr Low Taek Jho and his family, and had not detected any money laundering concerns with respect to Mr Low or his family,” the MAS statement says. These statements were untrue, the regulator says.

The MAS statement goes to some lengths to clarify that an action against Leissner is not an action against Goldman. It explicitly states, in fact, that: “These statements were untrue and were made by Mr Leissner without Goldman Sachs’ knowledge or consent.”

But that does not mean it is the end of Goldman’s problems in Singapore. A spokesman confirms that Goldman is not in any way restricted in the work it does in Singapore. But the bank is awaiting the outcome of the MAS’s investigations both into Goldman’s role on the 1MDB transactions and a broader supervisory examination of financial institutions through which 1MDB-related fund flows took place. An update is expected in early 2017.

What might the MAS do to Goldman?

A strange thing happened in December: a private banking business was bought by a bank that is not Singaporean. ABN Amro, in selling its Asian wealth management business, selected neither DBS nor OCBC’s Bank of Singapore, but LGT Bank. 

Interesting. Both ABN Amro and LGT knew that they did not have enough assets to make their business workable: $25 billion for LGT, $20 billion for ABN Amro. Putting them together gets them towards the $50 billion increasingly seen as a minimum in Asia for a viable business in an era of ever-escalating compliance costs. 

We should not read too much into the rare absence of the Singaporeans. DBS was out because it is buying ANZ’s wealth businesses; Bank of Singapore did not bid because it is still bedding down the Barclays acquisition, which was only formally completed on November 29. 

Only $13 billion of Barclays’ $17.5 billion came across and fewer bankers than had been expected opted to make the move. There is still a sense of some snobbery among a few western private bankers who think OCBC, BOS’s parent, an inferior name. 

But Bank of Singapore’s assets under management are now over $75 billion with almost 400 bankers, making it very much a player in regional private wealth. 

It could be nothing. The MAS’s actions to date have been against private banks, or the private wealth arms of multinationals, that have been involved in the 1MDB fund flows. Goldman’s involvement in 1MDB was in underwriting the bond deals themselves from whose proceeds the misappropriation then took place. Yes, Goldman made an ugly fortune from the Malaysian taxpayer in those deals, but that is not illegal, that is just banking. For Goldman to incur penalty and censure it would need to be demonstrated that the bank knew the funds were going to be misappropriated when it helped raise them. To date, that has not been inferred.

Furthermore, the MAS says that the Goldman team for the three bond issues, led by Leissner, was: “mainly from Hong Kong, but also from Singapore, Malaysia and the United Arab Emirates”, while being underwritten by Goldman Sachs International, which is legally based in London. The bonds themselves do not really have much to do with Singapore.

Still, the statement also tells us something about the renewed vigour of the MAS. Leissner was not actually in Singapore when he wrote that letter; he moved to Hong Kong in November 2011. But he maintained his representative status with Goldman Singapore up until his “resignation”, to use the precise legal term, in February 2016. The MAS used this in order to ban him and appears willing – US Department of Justice style – to use any connection to exercise its jurisdiction to investigate and penalize. Goldman should expect that attitude to extend to it, too.

What happens next for Goldman is likely to depend on how successful it has been in convincing the MAS that Leissner was behaving as a lone wolf, beyond his authority and without the knowledge of the bank. So far, it appears to have argued that case convincingly.

Meanwhile, StanChart comes out of the whole thing bruised and embarrassed, having incurred a bigger fine than DBS, UBS or Coutts. The 1MDB case keeps claiming big-name scalps. And it is not done yet.

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