Goldman Sachs and the 1MDB Criminal Prosecutions

Posted on November 8, 2018 at November 7, 2018 by Michael Volkov 301 0

Indictments and Other Developments

Following indictments unsealed last week, Michael Volkov revisits the 1MDB scandal, from the major players to the various wrongdoings.

The 1Malaysia Development Berhad scandal (1MDB scandal) has been making headlines for the past few years. The turning point for U.S. prosecutors was the cooperation of Malaysian law enforcement and the corruption allegations surrounding Malaysia’s former Prime Minister Najib Razak. At the center of this scandal is Goldman Sachs, which profited from $3 billion in bond issues on behalf of the 1MDB fund.

The interesting question, as can be seen from a review of the facts, is whether and to what extent the DOJ will hold Goldman Sachs accountable for the pervasive misconduct that occurred in relation to the 1MDB events. Goldman Sachs’ managers, employees and agents were involved in and many knew about the bribery. Just as troubling, Goldman Sachs’ internal controls and transaction review process was clearly circumvented and defective. Goldman Sachs is clearly cooperating with the ongoing investigation and prosecution, but we shall see how much, and if at all, they are held accountable.

The individual characters involved in the 1MDB scandal include Low Taek Jho (Jho Low), Ng Chong Hwa (Roger Ng) and Tim Leissner. Last week, a three-count criminal indictment was unsealed, charging Jho Low and Roger Ng with three counts: FCPA conspiracy (bribery), FCPA conspiracy (circumvention of controls) and conspiracy to money launder.

At the same time, the court unsealed a two-count information and guilty plea entered by Tim Leissner, charging Leissner with two counts of FCPA violations: bribery and circumvention of controls. Leissner agreed to forfeit $43 million. Leissner was the former Southeast Asia Chairman of Goldman Sachs. Ng was arrested in Malaysia. Low remains at large and is believed to reside in China.

1MDB was a state-owned investment company formed in 2009 (and the successor to a Malaysian sovereign wealth fund). 1MDB was focused on investments in energy, real estate, tourism and agribusiness.

After the 2018 election, newly-elected Prime Minister Mahathir Mohamed reopened the probe of the 1MDB scandal and barred former Prime Minister Najib Razak from leaving the country. The Malaysian government seized huge amounts of cash and other items from Razak’s premises and charged him with various criminal offenses. The Malaysian law enforcement authorities increased cooperation with the U.S. Department of Justice to investigate and prosecute responsible individuals.

Goldman Sachs played a central role in the funding and activities of the 1MDB fund. It arranged three separate bond offerings for approximately $6.5 billion. According to the indictment, $2.7 billion was misappropriated by Jho Low, Roger Ng and others and distributed as bribes and kickbacks to Malaysian and Abu Dhabi government officials and their families, including co-conspirator Tim Leissner.

Roger Ng conspired with other Goldman Sachs employees and agents to circumvent Goldman Sach’s internal controls. The indictment specifically explained that Goldman Sach’s internal accounting controls were overseen and enforced by its compliance function and part of the legal department. In reviewing and approving the corrupt transactions, Goldman Sach’s business culture was “highly focused on consummating deals, at time prioritizing this goal ahead of the proper operation of its compliance functions.”

The criminal scheme centered on Jho Low and his relationships with high-ranking Malaysian and Abu Dhabi government officials. Beginning in 2009 and continuing to 2014, Low, Ng, Leissner and others used Low’s relationships to secure business for Goldman Sachs and its role in the three bond offerings referred to as “Project Magnolia,” “Project Maximus” and “Project Catalyze.” Goldman Sachs earned approximately $600 million in fees for its role in the bond offerings.

Low, Ng and Leissner laundered their illegal proceeds through the U.S. financial system by purchasing luxury residential real estate in New York City and elsewhere and artwork from an auction house, as well as by funding major Hollywood films.

Project Magnolia resulted in issuance of $1.75 billion in bonds guaranteed by an Abu Dhabi entity. To accomplish the offering, Low, Ng and Leissner (and others) knew they would have to pay bribes to Malaysian and Abu Dhabi officials. Goldman Sachs was selected as the sole bookrunner and arranger for the bond offering. Approximately $500 million of the bond proceeds were diverted from 1MDB through wire transfers to bank accounts in the name of shell companies owned and controlled by Low, Leissner, Ng and other co-conspirators.

Project Maximus and Project Catalyze occurred during 2012 and 2013. Both projects were designed to raise more than $4 billion for 1MDB. Again, Low, Ng, Leissner and others diverted proceeds to pay bribes and kickbacks to themselves.

Low, Ng, Leissner and other co-conspirators again used wire transfers to shell companies to launder billions of dollars of misappropriated funds from Project Maximus and Project Catalyze. Low acquired a $35 million condominium in New York City using a portion of the proceeds. Also, Low spent approximately $137 million to purchase works of art at high-end auction houses in New York City.

This article was republished with permission from Michael Volkov’s blog, Corruption, Crime & Compliance.

Michael Volkov

Michael Volkov is the CEO of The Volkov Law Group LLC, where he provides compliance, internal investigation and white collar defense services. He can be reached at [email protected]. His practice focuses on white collar defense, corporate compliance, internal investigations, and regulatory enforcement matters. He is a former federal prosecutor with almost 30 years of experience in a variety of government positions and private practice.

Michael maintains a well-known blog: Corruption Crime & Compliance which is frequently cited by anti-corruption professionals and professionals in the compliance industry.Michael has extensive experience representing clients on matters involving the Foreign Corrupt Practices Act, the UK Bribery Act, money laundering, Office of Foreign Asset Control (OFAC), export controls, sanctions and International Traffic in Arms, False Claims Act, Congressional investigations, online gambling and regulatory enforcement issues.

Michael has assisted clients with design and implementation of compliance programs to reduce risk and respond to global and US enforcement programs.

Michael has built a strong reputation for his practical and comprehensive compliance strategies.Michael served for more than 17 years as a federal prosecutor in the U.S. Attorney’s Office in the District of Columbia; for 5 years as the Chief Crime and Terrorism Counsel for the Senate Judiciary Committee, and Chief Crime, Terrorism and Homeland Security Counsel for the Senate and House Judiciary Committees; and as a Trial Attorney in the Antitrust Division of the U.S. Department of Justice.

Michael also has extensive trial experience and has been lead attorney in more than 75 jury trials, including some lasting more than six months. His clients have included corporations, officers, directors and professionals in, internal investigations and criminal and civil trials. He has handled a number of high-profile criminal cases involving a wide‐range of issues, including the FCPA and compliance matters, environmental crimes, and antitrust cartel investigations in countries all around the world.

Representative Engagements

Successfully represented three officers of a multinational company in two separate criminal antitrust investigations involving a criminal antitrust investigation in the District of Columbia and the Southern District of New York.

Defended pharmaceutical company before the Food and Drug Administration and Senate Finance Committee relating to application for approval of generic drug.

Conducted internal investigation which exonerated company against allegations of false statements in submissions to the FDA and against improper conduct alleged by Senate Finance Committee.

Represented company before the US State Department on alleged violations of ITAR which lead to voluntary disclosure and imposition of no civil or criminal penalties.

Advised several multinational companies on compliance with anti‐corruption laws, and design and implementation of anti‐corruption and anti‐money laundering compliance programs.

Advised hospitals, pharmaceutical companies and medical device companies on compliance issues relating to Stark law and Anti‐Kickback law and regulations.

Conducted due diligence investigations for large multinational companies for anti‐corruption compliance of: potential third party agents, joint venture partners and acquisition targets in Europe, Africa, Asia and Latin America.

Represented individual in white collar fraud case in Alexandria, Virginia and secured dismissal of criminal charges and expungement of criminal record.