Goldman Sachs and Malaysia’s corruption scandal

15 October 2015 7:41 pm

During the week we saw former Malaysian Prime Minister Mahathir Mohamad wading into the corruption scandal involving current Prime Minister Najib Razak, ratcheting up pressure on the PM to resign.

The allegation is that Malaysia’s leader had taken $700 million from a state investment fund, the 1Malaysia Development Berhad, and deposited them into his personal bank accounts. Najib denied taking the fund’s money for personal use; and in August, the country’s anti-corruption commission cleared him of those charges, saying the money had actually come from foreign donors.

Protesters have continued to demand the PM’s resignation, while the sultans of Malaysia’s states have called for an investigation into a scandal that they said had wrought a “crisis of confidence” in the country. Mahathir has also said that the scandal created political uncertainty and hurt investment prospects in Malaysia.

And wherever there’s scandal, you’ll find Goldman Sachs. The Wall Street Journal reports that investigators at the Federal Bureau of Investigation and the Justice Department have begun examining Goldman Sachs’s role in a series of transactions at 1Malaysia Development Bhd. Basically, questions are now being raised about Goldman’s role in the alleged money laundering and corruption.

Investigators believe almost $US700 million in cash moved through state agencies, banks, and companies linked to 1MDB before eventually finding its way into the PM’s personal accounts. The money reportedly included two transactions – one worth $US620 million; another, $US61 million – made in March 2013, two months before a general election returned Najib to power as part of the Barisan Nasional, or National Front, coalition.

And Goldman Sachs made a fortune out of it. For example, from 2012 to 2013, the bank arranged three bond sales for the company, totaling $US6.5 billion. Fees, commissions, and expenses for Goldman totalled $US593 million – about 9.1 per cent of the money raised.

It’s funny how scandal always seems to follow Goldman Sachs around.

A few years before the Malaysia deals, Goldman did a number of transactions with the Libyan Investment Authority that also brought unwelcome attention. The Libyan sovereign-wealth fund claimed in a lawsuit filed in 2014 in London that the bank took advantage of its unsophisticated executives to sell them complicated and ultimately money-losing investments. Goldman has said the claims are without merit. A trial in the suit is scheduled to begin next year.

Malaysia just seems to be part of the same pattern.