1MDB: How did Leissner and other execs bypass Goldman’s compliance rules?

  • Nation
  • Friday, 02 Nov 2018

NEW YORK (Bloomberg): A high-profile corruption probe that has spanned continents landed its first direct blow at Goldman Sachs.

At least three senior Goldman bankers were implicated by the US Department of Justice (DOJ) in a multiyear criminal enterprise that included bribing officials in Malaysia and elsewhere and laundering of hundreds of millions of dollars.

Now that federal prosecutors have filed criminal charges against two of the bankers, one question is burning inside the Wall Street bank: Will others be next?

One of the company’s most senior bankers in Asia, Andrea Vella, was immediately placed on leave pending review of the allegations. He wasn’t charged with wrongdoing but matches the description of an unidentified co-conspirator in the Justice Department’s filings for charges unsealed Thursday (Nov 1).

The confession of one of the bank’s onetime Asia chiefs, Tim Leissner, may undercut Goldman’s take on what happened.

In behind-the-scenes talks with authorities, the firm has presented information that isolates much of the blame on Leissner, according to two people with knowledge of the exchanges.

In pleading guilty to conspiring to launder money and violate the Foreign Corrupt Practices Act by paying bribes, Leissner agreed to a version of the events that’s potentially damaging to some of his former colleagues and even his old shop.

“The firm continues to cooperate with all authorities investigating this matter,” a Goldman Sachs Group Inc spokesman said in an emailed statement.

Vella led Goldman’s Asia investment-banking operations until about two weeks ago when new chief executive officer David Solomon stripped him of his management duties.

Even then, Vella stayed on as a senior banker at the firm with a mandate aimed at cultivating bigger clients.

Goldman declined to comment on his behalf, and a call to Vella wasn’t immediately returned.

Implicating employees

Prosecutors assert that beyond Leissner a number of employees at the firm knew about a bribery scheme but worked to hide it from Goldman’s compliance and legal departments as the bank won a lucrative assignment at the centre of the case.

The firm would ultimately help raise more than US$6bil (RM25bil) on behalf of 1Malaysia Development Berhad (1MDB), a wealth fund that was then allegedly plundered in spectacular fashion.

More specifically, prosecutors said “employees and agents” of the bank were aware that the deal involved controversial financier Low Taek Jho, who was indicted for allegedly masterminding the plan to siphon off billions of dollars, according to documents unsealed Thursday.

Employees also allegedly knew bribes and kickbacks had been promised to Malaysian and Abu Dhabi government officials to ensure Goldman got 1MBD’s business.

But on both points, employees worked to hoodwink Goldman’s internal compliance system, prosecutors wrote in court filings.

The DOJ hasn’t publicly identified the other employees it described.

Goldman Sachs has for years said it raised money for 1MDB without knowing that it would be diverted from the development projects. Authorities have said cash instead went into yachts, luxury real estate, paintings and jewellery, as well as into private bank accounts.

Maintaining innocence

Leissner’s former deputy, Roger Ng, was arrested in Malaysia and is set to appear in a Malaysian court on Friday (Nov 2), according to a person with knowledge of the matter.

Low, also known as Jho Low, was charged in absentia. He is accused of conspiring with Ng to launder billions of dollars embezzled from 1MDB.

Low maintains his innocence. He “simply asks that the public keep an open mind regarding this case until all of the evidence comes to light, which he believes will vindicate him,” according to a statement issued by a spokesman for his legal team.

It said Low held no formal position at 1MDB, and that “the bond offerings detailed in the indictment were undertaken openly and lawfully between experienced, well-regulated financial institutions and government entities.”

While Leissner and Ng have been subjects of previous news reports, the unsealed charges pushed Vella into an unflattering spotlight.

The unidentified co-conspirator who matches his description allegedly worked with Leissner and Ng to circumvent the firm’s corruption controls in connection with the three 1MDB bond transactions.

Prosecutors said the conspirator traveled with Jho Low and Leissner to Abu Dhabi to firm up the deals.

The bank had been telling US prosecutors it was deceived by Leissner during the deals with 1MDB, the two people familiar with the matter said.

That effort portrayed Leissner as someone who repeatedly lied to the company and hid business investments, but also included even more salacious details, such as assertions that he failed to disclose romantic relationships with women who could help him win business.

The pink diamond

Leissner admitted in his plea that he bribed officials in two countries – Malaysia and the United Arab Emirates – to get bond deals for Goldman Sachs. He admitted that he and others arranged the 1MDB fundraising as bond offerings because it would generate higher fees for the bank.

Leissner also admitted to enriching himself beyond what was publicly known, saying that more than US$200mil (RM835mil) in proceeds from 1MDB bonds flowed into accounts controlled by him and a relative. As part of his settlement, he will forfeit almost US$44mil (RM184mil).

Bribes allegedly went beyond cash. A shell company controlled by Low allegedly sent US$27.3mil (RM114mil) to pay a New York jeweller who designed a pink diamond necklace for the wife of Datuk Seri Najib Tun Razak, Malaysia’s then-prime minister.

Low and Leissner also allegedly transferred US$4.1mil (RM17.1mil) to New York to pay for gold jewellery for Najib’s wife, Datin Seri Rosmah Mansor.

The Justice Department’s filings leave Goldman Sachs with defences even as they raise uncomfortable questions.

On the one hand, the company had compliance measures aimed at vetting the people it deals with and preventing illegal acts.

But at the same time, a number of its employees allegedly knew about or took part in efforts that thwarted those controls, according to prosecutors.

Bad-apple defence

While it’s not clear whether Leissner is cooperating with prosecutors, the type of document unsealed by authorities Thursday is often a precursor to such an agreement.

Assertions that he misled the bank could undercut his credibility as a witness against other employees. And for its own part, the firm could point to Leissner’s alleged deceptions at critical junctions, arguing he hampered reasonable efforts to perform due diligence on the 1MDB deals.

Yet the involvement of other employees, as laid out Thursday, may hurt such a bad-apple defence.

Lloyd Blankfein, who stepped down as Goldman Sachs’s CEO last month, told an audience in New York on Thursday that he’s not aware of senior managers missing red flags in the 1MDB dealings. Instead, he said, somebody lied and dodged controls.

Still, when asked what it means for the bank’s reputation, he deadpanned: “Well, it’s not good.” – Bloomberg

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