NILE BOWIE. 1MDB dragnet closes in on Najib, Goldman Sachs (Asian Times, 14.12.18)

Legal wheels are turning fast in Malaysia and US to jail the ex-premier and hold the American investment bank responsible for money laundering and fraud worth billions of dollars

Former Malaysian Prime Minister Najib Razak talks to media at Kuala Lumpur’s High Court after a hearing in the 1MDB financial fraud case on October 25, 2018. Photo: AFP via Andalou Agency/Adli Ghazali

Prosecutors in Malaysia filed yet another round of new graft charges against disgraced former prime minister Najib Razak this week after investigators questioned him and Arul Kanda Kandasamy, a former chief executive at 1Malaysia Development Berhad (1MDB), over allegations of tampering with a 2016 government audit of the graft-linked state fund.

Malaysian officials say Najib ordered amendments to the audit report that removed a mention of fugitive Malaysian financier Low Taek Jho’s presence at a 1MDB board meeting, a figure both Malaysian and US authorities regard as a central player in the alleged theft of an estimated US$4.5 billion from 1MDB between 2009 and 2014.

By amending the audit report before it was finalized, Najib had “secured protection from disciplinary, civil or criminal action related to 1MDB,” according to the charge-sheet read in court on December 12. He pled not guilty to an abuse of power charge, while Arul pled not guilty to abetting and engaging in a criminal conspiracy with the former premier.

Najib, 66, who was ousted in May after a coalition led by Prime Minister Mahathir Mohamad clinched a shock election victory, faces charges of graft, abuse of power and criminal breach of trust related to 1MDB. He has consistently denied wrongdoing and could spend the rest of his life behind bars if found guilty in a trial due to begin next year.

Low, or Jho Low, as he is popularly known, is said to have leveraged high-level business contacts in the United Arab Emirates and Saudi Arabia to persuade Najib to allow him to effectively run 1MDB’s operations, culminating in a multi-billion dollar heist that saw pilfered proceeds from Malaysia spill across the Middle East, Wall Street and Hollywood.

Malaysian police issued arrest warrants and filed fresh criminal charges against Low and four others on December 5. Also charged was Low’s aide, Eric Tan Kim Loong, 1MDB’s former general counsel Jasmine Loo Ai Swan, its ex-business development director Casey Tang Keng Chee, and former finance executive director Terence Geh Choh Heng.

All remain at large with their whereabouts unknown. Low has been on the run since 2016 and some have speculated that the 37-year-old fugitive financier has been able to find safe haven in China, with witnesses and reports recently sighting him in Macau and Hong Kong. He continues to elude capture despite an Interpol red notice in force for his arrest.

A spokesperson for Low issued a statement through his attorneys characterizing the latest charges as “no more than a continuation of the trial by media and political reprisals by the Mahathir regime.” It also stated that Low “will not submit to any jurisdiction where guilt has been predetermined by politics and there is no independent legal process.”

Investigations into scandal-plagued institutions like 1MDB were a key campaign promise of Mahathir’s coalition, which has vowed to recover the billions of dollars that were embezzled from the fund and funneled through the global financial system using a complex web of intermediaries and shell companies in the Middle East, Seychelles, Caribbean and the US.

Malaysia, however, isn’t the only jurisdiction to bring charges against Low. A three-count indictment against him and two former Goldman Sachs bankers was unsealed in the Eastern District of New York’s federal court on November 1 on charges of conspiring to violate the Foreign Corrupt Practices Act and launder some US$6 billion allegedly misappropriated from 1MDB.

Tim Leissner, an ex-managing director at Goldman, and Ng Chong Hwa, a former employee of the same investment bank, were named along with Low as the first defendants to face criminal charges brought by the United States Department of Justice (DoJ) for their roles as architects, enablers and organizers of the multi-billion dollar scam.

Leissner, who the bank promoted to the position of Southeast Asia chairman in 2014, already pleaded guilty in August to a separate two-count criminal indictment for laundering money embezzled from 1MDB and other charges. He has agreed to forfeit US$43.7 million. Ng was arrested in Malaysia and is awaiting extradition to face trial in the US.

Prosecutors have described the two Goldman bankers as playing a crucial role in enabling Low’s plunder of the Malaysian fund, fueling bottomless spending on a mega-yacht and private jet, luxury property, fine art purchases, movie production investments and extravagant parties attended by supermodels and actors such as Leonardo DiCaprio.

The US investment bank has come under scrutiny from the DoJ for its role in helping raise funds through bond offerings for 1MDB, totaling US$6.5 billion for three bond issuances in 2012 and 2013. Goldman collected fees for its work topping US$600 million, or about 10% of the deal’s value, returns that US prosecutors have flagged as “above average.”

Those profits were far in excess of the normal 1% to 2% a bank could ordinarily expect for helping to sell bonds, an opportunity that the Malaysian fund had offered to Goldman exclusively. Outsized earnings and an unusual no-bid contract arrangement did raise red flags among some at the bank, leading to compliance team warnings.

The 1MDB bond sales were, however, vetted by internal committees made up of senior Goldman executives – including Stephen Scherr, now the bank’s chief financial officer – and ultimately approved. Evidence gathered by US prosecutors suggests that Leissner mislead those executives about how the proceeds of the 1MDB bond sales would be used.

Although Low held no formal position at 1MDB, nor was he ever employed by Goldman, Leissner admitted in his recent plea deal that the Malaysian financier was a key intermediary in negotiating the transaction with the investment bank. He also admitted lying to Goldman officials when he had earlier denied Low’s involvement.

Goldman has consistently denied any institutional wrongdoing and is said to be preparing for potential penalties related to its dealings with 1MDB. The investment bank has thus far escaped direct consequences of its alleged role in the scandal, though it admitted last month that it could face “significant fines” related to fraud at the Malaysian sovereign fund.

As US prosecutors continue their criminal investigation into the bank, Goldman has argued that misconduct was limited to a small number of “rogue employees.” Low’s presence at a private meeting between an Abu Dhabi fund executive and Goldman’s then chief executive Lloyd Blankfein in 2012, however, could suggest otherwise.

Investigators are working to determine whether the meeting points to Blankfein having a direct role in facilitating the bank’s relationship with Low, one that had raised compliance concerns among the bank’s own regulators, a determination that would undercut Goldman’s argument of complicity being solely limited to rogue employees like Leissner and Ng.

Malaysia’s Finance Minister Lim Guan Eng, meanwhile, has said his country intends to seek a “full refund” of an estimated US$600 million in fees Goldman earned from helping 1MDB raise money, as well as resulting losses suffered. Preparations for legal action are now underway, though Malaysia has yet to specify the amount in damages it will claim.

Asia Times published an exclusive report last month claiming that Malaysia’s Attorney General Tommy Thomas would soon be filing a civil suit against Goldman in a US court that will seek US$4.5 billion in damages, citing official sources familiar with the ongoing preparations. Thomas soon refuted the report, calling it “premature and untrue,” according to local media.

However, Mahathir himself has set a goal of recouping US$4.5 billion, an amount representing the DoJ’s total estimate of misappropriated 1MDB funds. “Once we are convinced we can win, then we’ll take action,” the premier told reporters earlier this week in reference to legal action now being prepared against the US investment bank.

Sources told Asia Times that Thomas will justify the new case against Goldman as an institution by arguing that knowledge of the fraud reached the highest levels of the bank’s management. Those to be accused will include senior Goldman executives yet to be charged in a recently filed US Department of Justice (DoJ) criminal case, the same sources said.

Should Malaysia seek to recover the whole of the US$4.5 billion by targeting Goldman in US courts, the amount in damages sought would be substantially higher than existing expectations of potential fines and penalties – which range from US$600 million up to US$2.5 billion – that analysts believe the bank could face for its alleged role in 1MDB fund losses.

Goldman’s problems have continued to mount since Abu Dhabi’s International Petroleum Investment Company (IPIC), a state energy investment company, sued the bank in a New York State Court on November 21 over 1MDB-linked accusations that its employees conspired with Low to bribe and mislead executives of IPIC and its subsidiary, Aabar Investments.

Malaysia is also attempting to contest a separate settlement with Abu Dhabi that saw it pay US$1.2 billion to IPIC under a London arbitration award and assume responsibility for future principal and interest payments on 1MDB bonds valued at US$3.5 billion which IPIC had guaranteed as a result of its senior executives accepting bribes.

Goldman finds itself in the middle as Malaysia now seeks to set aside that award, while IPIC says it will fight that action and take steps to reaffirm the validity of the settlement. Analysts believe the damages sought by Abu Dhabi and Malaysia could exceed US$5.4 billion, equivalent to Goldman’s average annual net profit over the past three years.

As the scope of the scandal widens, analysts say the investment bank may need to boost its legal reserves by as much as US$1 billion to prepare for potential penalties. While many of 1MDB’s main architects remain at large, an institution that has become synonymous with ethical lapses and a byword for Wall Street greed is unlikely to emerge unscathed.

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