We have another instalment in the investigation into the mind-boggling level of corruption at 1MDB, (1Malaysia Development Berhad), the Malaysian state-owned investment fund. Members of the Singapore police’s economic crime unit have interviewed current and former Goldman employees with respect to the 1MDB bond offerings arranged by the bank.
By way of a recap into this messy saga, the fund was set up in 2009 by Prime Minister Najib Razak who headed its advisory board. The aim of the fund was to promote economic development through global partnerships and attracting foreign investment. Instead, the fund built up $12 billion of debt, while a Malaysian parliamentary committee identified more than $4.2 billion of “irregular” transactions. Investigations into embezzlement and money laundering have been taking place in ten countries as investigators try to trace just how much money was illegally diverted into personal accounts.
Aside from Najib, a central figure in the 1MDB scandal is the “party boy” (he dated Paris Hilton) and Malaysian financier, Low Taek Jho. Low acted as a consultant for 1MDB and set up shell companies to collect proceeds from the fund. He has been identified as a “key person of interest” by the Singapore authorities.
Turning to Goldman Sach’s role, the bank earned a staggering $593 million from managing three incredibly lucrative (for Goldman) bond sales in 2012-13, which raised $6.5 billion.
As we asked in “US To Seize $1 billion In Embezzled Malaysian Assets Which Goldman Sachs Helped Buy”, considering that a typical fee for an emerging market sovereign or quasi-sovereign bond offering between $1bn-$5bn would be between 0.1 per cent and 0.3 per cent, according to Dealogic, this is nothing short of kickback to Goldman, and raises questions about why Goldman wilfully accepted such an overblown fee for a deal which any of its competitor banks would have done for a fraction of the cost.
Last year, Tim Leissner, Goldman’s Southeast Asia chairman resigned from the bank after writing a reference letter for Low on the bank’s letterhead. He was subsequently banned from the securities industry in Singapore (for 10 years) and US (indefinitely). As we noted here, Leissner had become irritated.
Irritated that Goldman wouldn’t support his move to Los Angeles to be with his famous wife Kimora Lee, irritated that the firm wouldn’t let him give an internship to the son of a shadowy, as-yet-unnamed go-between in a deal to finance a controlling stake in an Indonesian copper mine, and especially irritated that the bank seemed to be looking a lot harder at the deals he was working on in Southeast Asia in the wake of the 1MDB scandal. And why shouldn't he be frustrated? After all, Leissner built Goldman’s SE Asia operation…And as far as 1MDB goes, Leissner didn’t recall anyone in New York complaining when the bank raked in hundreds of millions in underwriting fees for the deals that helped finance Najib’s slush fund. “It’s not my fault Najib messed the whole thing up,” Leissner must have been thinking. In any case, Goldman had seen enough by the start of 2016, and sensing that the tide was shifting, decided to pull a Fabrice Tourre and prepare Leissner for the proverbial sacrifical offering.
Fast forwarding to today and Singaporean prosecutors and police are probing more deeply into Goldman’s relationship with 1MDB. As Bloomberg reports...
The Commercial Affairs Department, the police’s economic crime unit, and city prosecutors have interviewed current and former Goldman Sachs executives who worked on bond offerings from 1Malaysia Development Bhd., said the people, who asked not to be named because the queries are confidential.
Investigators are also looking into the firm’s links with Malaysian financier Low Taek Jho, who the U.S. has alleged controlled a plot to siphon billions of dollars from the bond proceeds, the people said…
The interviews, which took place as recently as October, add to the scrutiny the New York-based bank faces over its role in raising almost $6 billion for 1MDB in 2012 and 2013. The money was meant for development projects but U.S. prosecutors allege that the bulk of it was diverted by high-level 1MDB officials and their associates. Investigators in Singapore have asked for details about specific meetings involving Goldman Sachs officials concerning the bond deals, the people said. They’ve also quizzed the current and former bank employees about the nature of the firm’s relationship with Low, and whether he was considered a client, according to the people.
While the investigators told Bloomberg that the bank itself is not the focus of the investigation, it’s clear that there is renewed scrutiny on the outsize fees which Goldman earned from the bond issues. Bloomberg continues...
It’s not clear whether Singapore’s investigation will result in any charges, and if so, against whom.
Goldman Sachs’s work with 1MDB has also drawn scrutiny from U.S. authorities, including the Justice Department and New York’s banking regulator. Goldman Sachs earned some $593 million in fees and commissions for arranging the 1MDB bond deals -- a sum that drew scrutiny from Malaysian politicians.
Investigators in Singapore have asked the current and former employees about the fees the bank received, as well as if any fees were due to the Abu Dhabi government-owned fund International Petroleum Investment Co. for guaranteeing two of the bonds, the people said.
In July 2016, a US lawsuit alleged that the offering circulars related to the bond issues contained “material misrepresentations and omissions”. These included how the proceeds would be used and whether officials from 1MDB and other related entities would benefit personally.
We expect that Goldman will stick to its previous defence that its fees somehow reflected the underwriting risks and market conditions at the time, however nonsensical that sounds.