THE sprawling, multibillion-dollar Malaysian development fraud scandal that has toppled a prime minister and stretched from Hollywood to Wall Street is threatening to implicate another major global financial institution: Deutsche Bank AG.
The U.S. Justice Department is investigating whether the German lender violated foreign corruption or anti-money-laundering laws in its work for the 1Malaysia Development Bhd. fund, which included helping the fund raise $1.2 billion in 2014 as concerns about the fund’s management and financials had begun to circulate, according to people familiar with the matter.
The investigation into Deutsche Bank has been helped in part by a former Goldman Sachs Group Inc. GS -0.87% executive, Tim Leissner, who is cooperating with authorities, according to the people familiar with the matter. Prosecutors have been investigating similar issues at Goldman, where Mr. Leissner, a former managing director, pleaded guilty last year and admitted to earlier helping siphon off billions of dollars from the fund.
A state economic-development fund, 1MDB turned into a major global scandal after billions of dollars were drained from it between 2009 and 2014, leading to multiple government investigations and the downfall of former Malaysian Prime Minister Najib Razak. The U.S. Justice Department has said the stolen money totals at least $4.5 billion and that it was used to pay bribes to government officials, pad a slush fund controlled by the former prime minister and purchase hundreds of millions of dollars in luxury goods including jewelry, artwork and real estate.
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Meanwhile, the Justice Department is set to begin negotiations with Goldman soon to try to resolve allegations through a possible criminal settlement, a senior official said. “We do anticipate getting into active discussions with Goldman, at this point, in the near future,” Assistant Attorney General Brian Benczkowski, who runs the agency’s criminal division, said in an interview. He declined to comment on any other aspect of the 1MDB investigation.
Prosecutors are focused, in particular, on the role of one of Mr. Leissner’s former colleagues, Tan Boon-Kee, who worked with Mr. Leissner on 1MDB-related business. She then left Goldman to become Asia Pacific head of banking for financial-institutions clients at Deutsche Bank, where she was involved with further 1MDB dealings, according to the people familiar with the matter. She was interviewed by Singaporean authorities last year, said a person familiar with the matter.
Ms. Tan left Deutsche Bank last year, after the bank discovered communications between her and Jho Low, the Malaysian financier described by the Justice Department as the central player in the 1MDB scandal, according to a person familiar with her exit. Neither she nor the bank have commented publicly about the reason for her departure.
“Deutsche Bank has cooperated fully with all regulatory and law-enforcement agencies that have made inquiries relating to 1MDB,” a spokesman for the bank said. He cited Justice Department documents saying 1MDB made “material misrepresentations and omissions to Deutsche Bank officials” in connection with 1MDB’s transactions with the bank. “This is consistent with the bank’s own findings in this matter,” he added.
A U.S. civil asset-forfeiture complaint repeatedly describes Deutsche Bank as being misled by 1MDB officers. For example, one such paragraph states: “1MDB officials secured approval of these two loans through material misrepresentations and omissions to Deutsche Bank, including that the proceeds of the loans would be paid to a legitimate affiliate…”
A Goldman spokeswoman said the firm continues to cooperate with investigations and declined to comment further.
A spokeswoman for Ms. Tan’s current employer, FWD Group, an insurer with operations in Singapore and Hong Kong, where Ms. Tan joined as group chief business officer in April, said Ms. Tan declined to comment. A lawyer for Mr. Leissner didn’t respond to requests for comment.
New details of the investigation come at a sensitive time for Deutsche Bank. Germany’s biggest bank is already contending with a criminal money-laundering probe in the U.S., congressional scrutiny of its relationship with President Trump and others in his circle, and a far-reaching global overhaul to shrink the bank and stabilize its dismal profits. It announced thousands of layoffs on Sunday. The bank has said it is cooperating with investigations and working on improving its processes for detecting and preventing illicit cash flows.
Years of costly compliance lapses led Deutsche Bank in recent years to shed risky clients and exit countries where executives said profits didn’t justify costs and risks. Bank officials prioritized settling big-ticket investigations, but new probes have surfaced, bringing fresh uncertainty.
Goldman Sachs has received the most attention in the 1MDB scandal for its involvement in helping the Malaysian fund raise $6.5 billion of bonds and the role of Mr. Leissner as a key co-conspirator in the scheme to steal money.
Mr. Leissner pleaded guilty last year to conspiring to violate the Foreign Corrupt Practices Act and commit money laundering, which could make Goldman liable for the same crimes. Roger Ng, a former Goldman managing director, agreed to be extradited to the U.S. from Malaysia. A lawyer for Mr. Ng said he was preparing to take the case to trial, after a judge in May said Mr. Ng had engaged in negotiations with the government. “Mr. Ng and I are preparing his defense. There have been no plea discussions,” the lawyer, Marc Agnifilo, said.
But Deutsche Bank, too, played a large role in a variety of transactions related to 1MDB. In the most recent version of the Justice Department’s civil asset-forfeiture complaint, in which it details the 1MDB scheme at length, Deutsche Bank is mentioned 167 times. Goldman Sachs is mentioned 56 times.
The complaint says Deutsche Bank was involved with 1MDB from its earliest days in 2009 as the bank facilitating financial transfers related to 1MDB’s first big deal, a joint venture with a little-known Swiss company called PetroSaudi. The Justice Department alleges that a group of conspirators led by Mr. Low, the Malaysian financier, stole some $1 billion from the $1.8 billion contribution by 1MDB, but it doesn’t describe any failing of Deutsche Bank in the complaint. PetroSaudi has denied any wrongdoing.
Deutsche Bank also arranged emergency loans for 1MDB in 2014 totaling $1.2 billion. The Justice Department said that money was also mostly stolen by Mr. Low and his co-conspirators. The bank called in the loan early, however, when it realized 1MDB’s collateral was impossible to verify, and 1MDB got an Abu Dhabi sovereign-wealth fund it often worked with to extend a $1 billion loan to replace Deutsche Bank, according to the complaint and Malaysian investigative documents.
The U.S. complaints often described Deutsche Bank as being misled by 1MDB representatives. Prosecutors similarly described Mr. Leissner, the former Goldman executive, as deliberately going around the bank’s internal controls, but also described Goldman in related court documents as having a business culture that was “highly focused on consummating deals,” at times at the expense of compliance.
The Justice Department’s investigation has to date resulted in civil lawsuits seeking to forfeit around $1.7 billion in allegedly stolen assets and criminal charges in the U.S. against the alleged mastermind and another former Goldman banker, among others. - WSJ
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