One of the country’s largest financial institutions has been drawn into what many consider the world’s biggest fraud this week when investigators revealed a guilty plea with a former employee and detailed the outlandish lifestyle of an alleged mastermind with a penchant for hobnobbing with celebrities, making movies and laundering vast sums of money.
Federal prosecutors Thursday released details of a guilty plea by former Goldman Sachs banker Tim Leissner for conspiring to launder money and violate the U.S. Foreign Corrupt Practices Act (FCPA) related to the pilfering of billions of dollars from a Malaysian sovereign wealth fund, 1Malaysia Development Berhad (1MDB), and greasing of global palms.
To read the full DOJ release and links to the criminal information documents for Leissner and reputed puppet master, Low Taek Jho, click here.
Authorities also charged another former managing director at Goldman – which is the fifth largest bank in the U.S. with nearly $1 trillion in assets – Ng Chong Hwa, and the now infamous Low, or “Jho Low,” who allegedly used stolen funds to throw legendary parties in places like Las Vegas with music, movie and reality television stars.
The news is yet another black mark against Goldman and will no doubt increase the pressure on newly minted Chief Executive, David Solomon, who took over last month.
He is being tasked with bolstering a flagging trading division while seeking new sources of revenue, all the while ensuring the bank’s financial crime compliance countermeasures are not left behind.
In recent years, the bank has been tied to investigations alleging Goldman Sachs bankers paid for prostitutes, private jets and five-star hotels and held business meetings on yachts to win business from a Libyan investment fund set up under the Gaddafi regime.
The U.S. Securities Exchange Commission also expanded probes of bank hiring practices in Asia to include Goldman, reviewing if Goldman hired the sons and daughters of top officials to woo business.
The documents also reveal weak counter-corruption controls at Goldman that were easily circumvented by alleged conspirators, say prosecutors.
In the same vein, depending on how investigators view the counter-corruption controls at Goldman, the investigation of the company could mushroom to include federal regulators scrutinizing overall anti-money laundering (AML) controls to ensure the institution didn’t fail in any of its risk assessment, monitoring and reporting duties.
Prosecutors say Ng evaded internal accounting controls at the New York-based Wall Street institution, which underwrote more than $6 billion in bonds issued by 1MDB in 2012 and 2013 – resulting in $600 million in fee revenues for Goldman.
As part of the plea deal, Leissner also had to forfeit nearly $44 million.
Countering compliance safeguards
Court documents state the duo moved dollars from the investment development fund and tried to give related projects a veneer of legitimacy by bribing government officials in Malaysia and Abu Dhabi. Authorities arrested Ng this week while Low is still on the run.
The court filings reveal that Leissner and other Goldman execs actively thwarted compliance systems crafted to uncover bribe payments.
The case has spawned high-profile investigations in Malaysia and elsewhere and tainted the country’s financial sector and top officials.
The sprawling corruption scheme has jolted many of the jurisdictions where money flowed to scrutinize the banks and individuals involved, with some banks and officials penalized or sanctioned.
The United States, Switzerland, Hong Kong, Luxembourg, Singapore and Malaysia have all undertaken formal investigations.
Banks used by the group or connected to the case include, Deutsche Bank, AmBank, Wells Fargo, Bank Negara, RBS Coutts, DBS, UBS, BSI, Credit Suisse and a JPMorgan Chase correspondent account.
The tendrils of corruption snaked as high as Najib Razak, the country’s prime minister, who created the 1MDB fund to supposedly spur development in Malaysia and entice foreign investors.
But with the scandal spiraling ever higher, Razak lost a campaign to be re-elected with U.S. investigators stating more than $700 million looted from the fund made its way to Razak’s own bank accounts.
Case made for the silver screen
The case has also captured worldwide attention for its celebrity ties.
Funds stolen from 1MDB helped finance several major motion pictures, including Hollywood A-lister Leonardo DiCaprio’s “The Wolf of Wall Street.”
As a result of the investigations, DiCaprio has turned over items given to him by a conspirator in the scheme, including a Picasso and Marlon Brando’s Oscar statuette, to US federal prosecutors.
The brazen nature of the individuals involved and insatiable greed that spanned many of the world’s largest financial centers was given a U.S. angle in June 2017, with the release of a hefty, 251-page, $540 million forfeiture complaint.
The tome detailed the financial crime compliance vulnerabilities and tactics – including evasion by customers, support by corrupt insiders and dishonest senior management – that allowed a small cabal of individuals to pilfer $4.5 billion from 1MDB.
In the forfeiture orders released last year, federal investigators say the group used the funds for more movies, two comedies: “Dumb and Dumber To,” with the rubber-faced Jim Carrey, and “Daddy’s Home,” with Will Ferrell and Mark Wahlberg.
The order also seeks to forfeit one lithograph poster created by German artist Heinz Schulz-Neudamm for the 1927 silent film “Metropolis” and the 300-foot mega-yacht, the Equanimity, which is worth north of $250 million.
Over a five-year period, between 2009 and 2014, “multiple individuals, including public officials and their associates, conspired to fraudulently divert billions of dollars from 1MDB through various means,” including by defrauding foreign banks and sending foreign wires to launder the proceeds through U.S. financial institutions, usually behind opaque shell companies.
“Using fraudulent documents and representations, the co-conspirators allegedly laundered the funds through a series of complex transactions and shell companies with bank accounts located in the U.S. and abroad,” according to the complaint.
“These transactions allegedly served to conceal the origin, source and ownership of the funds, and ultimately passed through U.S. financial institutions to then be used to acquire and invest in assets located in the U.S. and overseas.”
What’s in a name? A lot when it comes to shell companies
Critical to the scheme was outwitting bank financial crime compliance officers so the group could get the money out of 1MDB as quickly as possible using high-dollar wire transfers.
At the outset, the group created shell companies with names very similar to large, well known energy and investment firms so they could make it appear the massive wires were normal.
But in actuality, the firms were controlled by the group and had no relation to the real, more prominent companies.
The most glaring example of this tactic occurred in 2012.
That was when 1MDB officials and others “misappropriated a substantial portion of the proceeds that 1MDB raised through two separate bond offerings arranged and underwritten by Goldman Sachs International.”
The bonds were guaranteed by both 1MDB and the International Petroleum Investment Company (IPIC), an investment fund wholly-owned by the government of Abu Dhabi, in the United Arab Emirates (UAE).
But “beginning almost immediately after 1MDB received the proceeds of each of these two bond issues, 1MDB officials caused a substantial portion of the proceeds – approximately $1.367 billion, a sum equivalent to more than forty percent of the total net proceeds raised – to be wire transferred to a Swiss bank account belonging to a British Virgin Islands entity called Aabar Investments PJS Limited (Aabar-BVI).”
However, the name was given quite a bit of thought by the group, according to the complaint.
“Aabar-BVI was created and named to give the impression that it was associated with Aabar Investments PJS,” a subsidiary of the Abu Dhabi investment fund IPIC.
But “in reality, Aabar-BVI has no genuine affiliation with Aabar or IPIC, and the Swiss bank account belonging to Aabar-BVI was used to siphon off proceeds of the 2012 bond sales for the personal benefit of officials at IPIC, Aabar, and 1MDB and their associates.”
The group also created a company called Blackstone, to make it appear linked to billion-dollar real estate giant Blackstone.
“The practice of utilizing a bank account held by an entity with a name that mimics a well-known commercial enterprise is a technique commonly employed to lend the appearance of legitimacy to transactions that might otherwise be subject to additional scrutiny by the financial institutions involved,” according to the complaint.
Finra gets tough on local connection to foreign 1MDB fraud
But without the alleged help from Goldman, the scheme could not have continued. Not surprisingly, other regulators with purview over trading have been quick to sanction Leissner.
In an action from September 2017, the Financial Industry Regulatory Authority (Finra), the country’s chief securities self-regulatory body, banned Leissner after he refused to cooperate with a related investigation, according to media reports.
At the time, he was one of eight individuals Singapore authorities accused of being facilitators of the looting of 1MDB. To read ACFCS coverage of the fraud, and what compliance officers can learn and look out for, please click here.
Leissner allegedly abused his position as former chief of Goldman Sachs (Southeast Asia) to issue an unauthorized reference letter to a bank in Luxembourg in June 2015 using Goldman Sachs’ letterhead, vouching for and endorsing Low.
Leissner resigned in February 2016 with the Monetary Authority of Singapore in March 2017 banning him for 10 years from any work in the sector. Finra’s Letter of Acceptance, Waiver and Consent with Leissner can be found here.