1MDB Fraud Case: Goldman Sachs to pay $2.9 billion in settlement charges

Summary

• Goldman Sachs's Malaysian subsidiary has to pay $2.9 billion in settlement charges for the 1MDB fraud case
• Hollywood movie “The Wolf of the Wallstreet” apparently was funded with the siphoned money
• About $4.5 billion were siphoned off from the state-owned fund, which allegedly went to different government officials and even to Malaysia’s former prime minister Najib Razak. 

US multinational investment bank Goldman Sachs's Malaysian subsidiary has agreed to pay $2.9 billion in settlement charges for its alleged role in the 1MDB fraud case. A year-long scandal that has cast a shadow over one of the most recognisable names on Wall Street has finally come to an end after an in-depth investigation. Sources said about $1.3 billion of the total amount would go to the US Justice Department.

The Malaysian division also pleaded guilty for breaching foreign bribery laws that were linked to looting of the country’s sovereign wealth fund, 1MDB. The US-led investigation was well coordinated between the US Department of Justice along with regulators in the US, UK, Singapore and Hong Kong and the bank that covers criminal fines, penalties and disgorgement. This penalty would represent the largest ever penalty under the Foreign Corrupt Practices Act, a US law which bars companies from bribing foreign leaders.

1MDB is a Malaysian government investment arm, which was set up to encourage development and investment into Malaysia back in 2009. The whole idea was to attract foreign investment in Malaysia. However, what transpired tells a different story which led to a corruption scandal.

Also read: HSBC’s Ponzi Scam Return to Haunt with A Major Global Money-Laundering Scandal

1MDB ended up creating massive amounts of debt, bringing almost nil development in the country. Later it was learnt that a huge amount of money was misappropriated and diverted to elected officials and bankers at Goldman Sachs.

According to media reports, this money has flown to people across the globe with high level connections in China, Malaysia, and the United States. Besides, the popular Hollywood movie “The Wolf of the Wallstreet” was apparently funded with some of this money. The funds were also used to buy expensive items, such as yachts to artwork, according to the DoJ.

Sources said that Malaysia government has agreed to drop all criminal and regulatory proceedings in the country that involved Goldman as per the details of the settlement. This would include proceedings against the bank's subsidiaries and certain current and former directors.

Also read: Fresh Lawsuits Filed Against Metro Bank on Breach of CMA Regulations

US prosecutors had implicated top officials of Goldman Sachs, of which some have reportedly admitted to bribery. Notably, Goldman Sachs helped 1MDB to raise 6.5 billion in two bond offerings and earned $600 million in fees for helping raise the cash. Goldman Sachs could have acted more responsibly and raised alarms at the right time to avoid the corruption scandal. Notably Tim Leissner, former partner at Goldman Sachs in Asia, should have been scrutinised in time when the red flags were raised. Leissner pleaded guilty to money laundering and conspiracy to violate the Foreign Corrupt Practices Act in the US in August 2018.

The multinational bank has admitted that its top officials played a huge role in this scandal and conspired with others to steal wealth from the sovereign fund. These funds were used to bribe government officials and top executives. In addition, bank officials deliberately ignored the red flags and allowed the theft to happen. Notably, $1.6 billion was paid in bribes. Goldman Sachs now stated that it acknowledged the shortcomings on its part and was pleased to put these matters behind.

Goldman Sachs is not one-off case

According to media reports, Germany’s largest lender Deutsche Bank has been allegedly facilitating suspicious transactions. Apparently, the bank has facilitated nearly $2 trillion worth of suspicious transactions that are under scrutiny by the US government. However, the bank said that these incidents had been already investigated.

Previously, Deutsche Bank has been found violating US sanctions by facilitating certain financial transactions for doing business with the US-sanctioned countries. The German lender has reportedly paid fines worth $258 million in 2015, according to some media reports.

However, the US Department of Treasury’s Financial Crimes Enforcement Network, or FinCEN, documents reportedly suggested that the bank had continued to facilitate money laundering even after paying settlement charges in 2015.

Another US-based bank JPMorgan Chase used spoof trades to manipulate the prices of assets over a period of eight years (2008-2016) to deceive investors. A fine of $920 million was imposed on the bank as settlement charges for deploying manipulative and deceptive trade practices.

Also read: JPMorgan pays $920 Million to settle the US Justice Department and CFTC Probe

Financial and other white-collar crimes have been rising over the course of the past three decades. These crimes weigh down heavily on the economic health and security of the country. For transactions spanning across borders, there should be a stricter regulatory mechanism to check and control the flow of money. The countries might even have to enact new laws to curtail money laundering and check for the illegitimate source of money. If these crimes are not curbed, people’s trust in the financial sector could be lost.