By Sianny Rooney, Founder and Editor of Indonesia Merdeka
In 2012 and 2013, the Malaysian government was raising $6.5 billion from investors to establish a sovereign wealth fund and finance various domestic infrastructure investment projects. And the cut for Goldman Sachs – the most prestigious investment bank in the world – for arranging the fundraising from the global capital markets? Ten per cent, or $600m.
Malaysian authorities were so insouciant about those extortionate fundraising costs: because they themselves were, apparently, going to loot the pot.
Based on the report from the US Department of Justice: Malaysian Financier Low Taek Jho, also known As “Jho Low,” and former banker Ng Chong Hwa, also known as “Roger Ng,” indicted for conspiring to launder billions of dollars in illegal proceeds and to pay hundreds of millions of dollars in bribes. Former Banker Tim Leissner pleaded guilty to conspiring to launder Money and to violate the Foreign Corrupt Practices Act Related to 1MDB (1Malaysia Development Berhad).
1MDB is a Malaysian state-owned and controlled fund created to pursue investment and development projects for the economic benefit of Malaysia and its people. As alleged in court filings, between approximately 2009 and 2014, as 1MDB raised money to fund its projects, billions of dollars were misappropriated and fraudulently diverted from 1MDB, including funds 1MDB raised in 2012 and 2013 through three bond transactions that it executed with the Financial Institution. As part of the scheme, and as alleged in court filings, Low, Ng, Leissner, and others conspired to bribe government officials in Malaysia, including at 1MDB, and Abu Dhabi to obtain and retain lucrative business for the Financial Institution, including the 2012 and 2013 bond deals.
Around half of the fund has gone missing. A fair amount has been pumped into luxury American real estate and shady art auction bids. Appropriately, some went into investing in Martin Scorsese’s The Wolf of Wall Street (what an irony of film choice).
At one stage $680m mysteriously appeared in the bank account of the former Malaysian prime minister, Najib Razak, who chaired the 1MDB advisory board, and who is now charged in his own country with corruption.
Malaysian politicians, officials and financiers had effectively bought Goldman Sachs’ blue chip reputation to con naive investors to the “1MDB” state investment fund.
What’s even more problematic for the bank is that Leissner told the court there was a “culture” at Goldman Sachs of bypassing internal compliance. That’s backed up by US prosecutors, who say Goldman’s business culture in the region was “highly focused on consummating deals, at times prioritising this goal ahead of the proper operation of its compliance functions”.
We found out in 2010 that Goldman Sachs financiers constructed derivatives to help the Greek government deceive the outside world about the true state of its finances prior to the country joining the single currency.
It was revealed in 2013 that, before the financial crisis, the bank had been deliberately designing mortgage-backed investment products to fail and then selling them to unwitting clients. There have been some large fines from regulators for malfeasance over the years but no senior resignations. The top brass have at every stage deplored the bad behaviour of underlings, but insisted they personally had no idea what was going on.
Lloyd Blankfein, chairman and former CEO of Goldman Sachs, survive right through the financial crisis, collecting bonuses all the way. In 2008 financial crisis, Lehman Brothers had to go and Goldman Sachs was saved. Blankfein’s total remuneration in 2007 was $100m. His compensation in 2017: $22m. Clearly an austerity while millions of Americans lost their homes and tax payers money got screwed to bailout banks in the 2008 financial crisis.
Malaysian Finance Minister Lim Guan Eng and the incoming Malaysian prime minister Anwar Ibrahim, accuses Goldman Sachs the bank, not just corrupt individuals who worked for it, of being “complicit” in the looting. And they expect that Goldman Sachs would return those $600m in fees.
We are going to see whether the world’s most politically-connected investment bank – the former employer of dozens of senior civil servants, from US treasury secretaries to the governors of the Bank of England and the European Central Bank can evade this financial fraud allegation once again.
The answer will tell whether there has been reform in the banking and financial industry since a decade of financial crash, which I doubt very much.
Meanwhile Goldman Sachs stock is plunging.
Even though most US Financial Stocks are lower post Mid-Terms, ‘Too Big Too Fail’ Goldman Sachs is definitely underperforming compared to the market.