A case of ‘Goldman Sachs should 
have known better’

Goldman must explain if it had conducted adequate due diligence, says lawyer


Goldman Sachs Group Inc could not simply brush off the charges filed by Malaysian prosecutors with the excuse that it was cheated by former Malaysian authorities and ex-employees of 1Malaysia Development Bhd (1MDB).

The world’s second-most profitable investment bank — which is in the centre of criminal and civil charges by Malaysian prosecutors — alleged that key figures involved in 1MDB had “lied” to the bank on how the proceeds of three separate bonds totalling US$6.5 billion (RM27.17 billion) would be used.

The New York-based bank had responded to Malaysia’s action to file criminal charges against Goldman’s subsidiaries, its two former executives and fugitive businessman Low Taek Jho, or Jho Low, on the siphoning of billions of ringgit from 1MDB.

Lawyer Lim Wei Jiet said although Goldman is entitled to raise its defence, the company would also have to explain whether it had sufficiently conducted adequate due diligence — despite the alleged lies and written assurances offered by the previous administration and 1MDB officials.

“In my view, such argument can only hold water if Goldman’s own employees — including former banker Tim Leissner — were not complicit in orchestrating the entire transaction, and merely relied on the representations of the former government and 1MDB.

“Leissner’s guilty plea (revealed) in the US last month, at the very least raises doubts as to whether this is the case. Generally, a company is liable for any offence of its directors or servants acting under its actual or apparent authority,” Lim told The Malaysian Reserve (TMR).

Goldman has vowed to fight the criminal case.

Meanwhile, Asian Strategy and Leadership Institute’s Centre for Public Policy Studies chairman Tan Sri Dr Ramon Navaratnam (picture) said Goldman’s statement is to be expected as the bank has denied any wrongdoing.

“They will try (many) ways and means, using all kinds of technicalities to avoid or minimise the charges. We should overcome their resistance because they know they are in a weak spot,” he told TMR.

Ramon, who once served as deputy secretary general under the Finance Ministry, said Goldman’s claim that it was lied to fell short of its towering figure as a leading global investment bank.

“Crooked borrowers always lie to banks and if you listen to every crooked borrower and lender, the bankers will become bankrupt. I would expect Goldman, which is supposed to be a top banker, to be able to have the intelligence to outwit the crooks,” he said.

Leissner, who was the former South-East Asia chairman and participating MD, has pleaded guilty to two charges of money laundering and
conspiring to corrupt foreign officials.

In his guilty plea in August to a federal court in New York, which was unsealed on Nov 10, Leissner said his actions to conceal wrongdoing from the company’s compliance staff was “very much in line” with the company’s culture of secrecy.

On another note, Ramon said the woes at the Wall Street firm could lead to falling confidence in the international banking system.

“The central bankers should all get involved in trying to find a solution to solve this problem because it is an international problem when so-called top-class bankers can become the worst crooks.

“Failure in a whole system of checks and balances point to some major weaknesses in the banking system, which may have gone unnoticed or ignored until it blew up. We cannot carry on like this. Confidence is a very vital issue,” Ramon said.

Malaysia’s criminal indictments named Leissner, former Goldman executive Roger Ng Chong Hwa and ex-1MDB employee Jasmine Loo Ai Swan. Prosecutors are seeking “well in excess” of the US$2.7 billion allegedly misappropriated from 1MDB’s three separate bond issuances and the US$600 million fee pocketed by Goldman.

The criminal indictments are also seeking custodial sentences against each of the individuals accused, with a maximum imprisonment of 10 years for abetting in the fraud — which has been dubbed one of the largest financial scandals in the world.

In the meantime, Reuters reported that Singapore’s central bank yesterday issued a lifetime prohibition order (PO) against Leissner.

The ban is an upgrade of the Monetary Authority of Singapore’s (MAS) 10-year PO against Leissner issued last year.

The order — among other things — prevents him from performing any regulated activity under the Securities and Futures Act, according to the report.

“After careful consideration of Leissner’s admission to participation in the conspiracy, as well as the US Department of Justice’s criminal actions against him, MAS has decided to vary the PO against him,” the authority said in a statement.