The charges unsealed by the US Department of Justice (DoJ) around the 1MDB scandal on Thursday drag Goldman Sachs right back into the mire it has spent the past few years deftly escaping.
It’s not just the fact that two former Goldman Sachs bankers, Tim Leissner and Roger Ng, face charges. These charges were expected, both men have long since left the bank, and Goldman appears to have convinced many regulators that they were rogues acting alone – a version of events the Monetary Authority of Singapore, for example, seems to have accepted.
Further damage lies in point 10 of the filing against Leissner, where it refers to “co-conspirator #4”.
The line reads: “Co-Conspirator #4 was an Italian national who was employed as a Participating Managing Director and acted as an agent of US Financial Institution #1 from approximately 2007 to present.”
Andrea Vella, who until recently was co-head of investment banking for Asia at Goldman Sachs, is an Italian national who, according to his LinkedIn profile, joined Goldman in 2007.
Two weeks ago Vella was moved to a new, role as co-chairman of investment banking for Asia ex-Japan. Euromoney understands Vella has now been placed on leave.
Allegation of conspiracy
The issue for Goldman here is that it brings the allegation of conspiracy right back into the firm, to a current, serving employee at a very senior level.
Goldman itself still appears to be negotiating with the DoJ about its own culpability, and does not appear to be out of the woods yet. In a statement, Goldman said: “The firm continues to cooperate with all authorities investigating this matter.”
The charges also go into far more detail than the original DoJ complaint about the circumstances through which Goldman won the controversial bond mandates for 1MDB.
According to the DoJ, in 2012, notorious Malaysian financier Jho Low, Leissner, Ng and the co-conspirators – five are referred to in the Leissner filing – agreed 1MDB would issue $1.75 billion in bonds underwritten by Goldman Sachs and guaranteed by an Abu Dhabi government-controlled organization.
The clincher is in those words, 'other employees of the financial institution', because it leaves it open whether the DoJ believes the alleged crimes were committed by just two people who were also defrauding their own bank
“Low allegedly explained to Ng, Leissner and others at the time that, to complete the transaction, bribes would need to be paid to officials in Malaysia and Abu Dhabi,” the DoJ says, further alleging that hundreds of millions of dollars were used in this way.
“Low, Ng, Leissner and other co-conspirators also knew that Low intended to use funds misappropriated from the bond transaction to bribe and influence the officials to obtain the necessary approvals and any additional assistance needed to execute Project Magnolia [the bond issue] for the Financial Institution [Goldman] and to pay kickbacks to Ng, Leissner and others.”
The DoJ adds: “According to allegations in court documents, the fact that bribes and kickbacks were being paid in connection with Project Magnolia was known to Ng, Leissner and other employees of the Financial Institution.”
Similar language is used about Project Maximus and Project Catalyze, which refer to two further 1MDB bonds arranged by Goldman.
For example, on the second bond: “Leissner, [Low, Ng] and others knew [Low] would and did pay bribes and kickbacks to influence Malaysian and Abu Dhabi officials to obtain the necessary approvals to execute the bond offering.”
This is damning stuff, in unequivocal language.
And the clincher is in those words, “other employees of the financial institution”, because it leaves it open whether the DoJ believes the alleged crimes were committed by just two people who were also defrauding their own bank.
It also allows for the fact that current employees of Goldman may have been involved in illegal behaviour.
Perhaps better for Goldman’s reputation is the fact that the complaints against Leissner and Ng alleges that they began conspiring to circumvent Goldman’s internal controls as early as 2009 – something that supports Goldman’s contention that this was two people deceiving the bank, rather than a tolerated action of the bank.
The filing against Leissner also says that between 2009 and 2011, Leissner and Ng, among others, supported at least three attempts to make Low a formal client of Goldman Sachs, but failed because Goldman’s compliance and intelligence groups refused to approve, “based, in part, on concerns that they had about the source of … wealth.”
It also says that Leissner and Ng concealed Low’s involvement in the bonds from Goldman’s own compliance and intelligence groups.
Set against that, though, the Low/Ng indictment also says that Leissner and Ng “selectively disclosed to other employees” of Goldman “that they were working with Low as an intermediary to secure the deal, because they knew that disclosure more widely could have triggered steps to be taken by certain personnel within the Compliance Group and the Intelligence Group to investigate the business relationship with LOW and possibly jeopardize the deal.”
Some other revelations in the charge sheets:
- In an online chat between Low and Leissner in June 2014, they discussed the need to send “cakes” to a person believed to be Rosmah Mansor, the wife of former Malaysian prime minister Najib Razak. A few months later, a bank account owned by Leissner and a relative was used to transfer $4.1 million to a New York jeweller, partly to pay for gold jewellery for Mansor, the filings allege.
- In Project Magnolia, the first bond deal, within three months $24 million of the proceeds was transferred to a bank account beneficially owned by a relative of Ng. More than $4 million from the third bond, Project Catalyze, went the same way.
The task facing Todd Leland, who joined Goldman’s Asia operations last year as co-president and has now taken on the additional role of head of investment banking for the region, will be to take the bank forward while continuing the work on rebuilding its reputation that has taken place since Leissner left in 2016. But there is going to be plenty more to digest from the 1MDB scandal before he can do so.
In a nutshell
- On November 1, a three-count criminal indictment was unsealed in federal court in the Eastern District of New York. It charges Low Taek Jho (Jho Low) and Ng Chong Hwa (Roger Ng) with conspiring to launder billions of dollars embezzled from 1MDB, the investment development fund of Malaysia, and conspiring to violate the Foreign Corrupt Practices Act (FCPA) by paying bribes to officials in Malaysia and Abu Dhabi. Ng is also charged with conspiring to violate the FCPA by circumventing the internal accounting controls of “a major New York-headquartered financial institution” – Goldman Sachs.
- In a separate charge, Tim Leissner, the former southeast Asia chairman of Goldman Sachs, pled guilty to two counts: conspiring to launder money and conspiring to violate the FCPA by paying bribes to officials and by circumventing internal accounting controls at Goldman. He has been ordered to forfeit $43.7 billion.
- Goldman underwrote bonds worth more than $6 billion for 1MDB in three transactions in 2012 and 2013. It is alleged to have made as much as $600 million from its work for 1MDB.
- The heart of the 1MDB scandal is that much of the money raised by 1MDB to fund projects, through these bonds and various other raisings, was diverted and laundered through, among other things, luxury real estate in New York and Beverly Hills, artwork by Monet and Van Gogh, a yacht, and by funding films including The Wolf of Wall Street. It is one of the largest and most complicated white-collar crime scandals in history.