ATTORNEY-GENERAL Tommy Thomas’ announcement today that charges have been filed against Goldman Sachs’ subsidiaries and two of its former employees over the alleged theft of billions of dollars are sure to leave investment bankers more than a little ruffled, Bloomberg reported today.

Goldman subsidiaries and ex-bankers Tim Leissner and Ng Chong Hwa are accused of misappropriating US$2.7 billion (RM11.2 billion), bribing officials and giving false statements in relation to bond issues they arranged for state fund 1MDB.

Low Taek Jho, a fugitive Malaysian financier accused of masterminding the fraud, was also hit with new charges, as well as former 1MDB employee Jasmine Loo Ai Swan.

Jho Low is said to have met Goldman’s then chief executive officer Lloyd Blankfein in 2012.

Goldman may now have to cough up what could run into billions of dollars after the investment bank was accused of misdirecting investors by telling them the bond-sale proceeds would be used for legitimate purposes, knowing it would instead go into private hands. 

While making money from state-sponsored deals – as Goldman did in Malaysia – is more the exception rather than the rule, today’s development will still send shivers down the spines of the banking and advisory industry in emerging markets, where working on government mandates is often a ticket to prominence, the report said. 

Cases in point: in South Africa, global firms have paid a big price for unethical conduct during Jacob Zuma’s nine-year rule.

In Libya, its wealth fund failed in a 2016 legal challenge to claw back US$1.2 billion lost in equity derivatives sold to it by Goldman during Muammar Ghaddafi’s regime. This stemmed from the bank’s secret 2001 loan to Greece, which helped the country hide its true financial position when seeking to join the euro area.

In 2016, Singapore sent two Swiss private banks – Falcon Private Bank and BSI SA – packing over their role in laundering billions of dollars stolen from sovereign wealth fund 1Malaysia Development Bhd, while also fining Credit Suisse Group AG, UBS Group AG, Standard Chartered Plc, Coutts & Co and DBS Group Holdings Ltd millions, the report read. 

Investors, too, are making their displeasure known in a far more direct manner: Goldman shares are down 32% so far this year.

Most of that decline has occurred since May, when Prime Minister Dr Mahathir Mohamad unseated Najib Razak to take the helm in Putrajaya. Najib and many others – including his wife, Rosmah Mansor – have since had charges filed against them in connection to the 1MDB scandal.

It has yet to be seen what implications Malaysia’s actions against Goldman will have on the banking and advisory industry as a whole. It remains unclear whether past lessons are being learned, but if a New York Times report detailing the involvement of US management consulting firm McKinsey in the creation of an an internment camp holding thousands of ethnic Uighur Muslims in Kashgar, a city in China’s restive far west, is anything to go by, then at the very least, banks and advisory firms should now expect far more public scrutiny over where they do business. – December 17, 2018.