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Malaysia Files Criminal Charges Against Goldman Sachs



Following months of investigation into the 1MDB scandal in Malaysia, the country’s attorney general Tommy Thomas has filed criminal charges against Goldman Sachs International and two of its Asian subsidiaries alongside former Goldman Partner Tim Leissner, alleged scam mastermind Jho Low and former 1MDB counsel Jasmine Loo. The Wall Street Journal reports that Malaysian authorities earlier today released a statement confirming the prosecution for omitting material information and publishing untrue statements, which are offenses under Malaysia’s securities laws.

Attorney General’s Statement and Goldman Sachs Response

In the statement, the attorney general revealed that the offenses in question were in relation to documents for international bond sale offering in 2012 and 2013 by Malaysia’s state-run investment ehicle 1Malaysia Development Bhd., also known as 1MDB. According to the prosecution, of $6.5 billion worth of bonds that were arranged by Goldman Sachs in that period, about $2,7 billion was embezzled, with the bank making profits of over $600 million in the process.

Since that time, 1MDB has become a political and legal black hole, bringing down the government of former prime minister Najib Razak and becoming the focus of a vast international investigation led by the United States Justice Department alongside authorities across Southeast Asia and Europe. Goldman Sachs is front and centre of the investigation, with former executive Roger Ng currently fighting extradition to the U.S.to face charges by the Justice Department.

An excerpt from the statement reads:

Malaysia considers the allegations in the charges against the accused to be grave violations of our securities laws, and to reflect their severity, prosecutors will seek criminal fines against the accused well in excess of the $2.7 billion misappropriated from the bonds proceeds and $600 million in fees received by Goldman Sachs, and custodial sentences against each of the individual accused: the maximum term of imprisonment being 10 years.

Leissner on his part has already pleaded guilty in a separate case brought against him by the U.S. Justice Department last month on charges of embezzling public money and bribing public officials in Malaysia and Abu Dhabi. While he awaits sentencing fixed for next year, Low and Loo have been charged in absentia with money laundering and a host of other charges, but their whereabouts are unknown for the time being.

Responding to the charges in a statement quoted by the Wall Street Journal, Goldman Sachs said:

We believe these charges are misdirected, will vigorously defend them and look forward to the opportunity to present our case. The firm continues to cooperate with all authorities investigating these matters.

Cryptocurrency’s Significance

At a time when some are calling for aggressive regulation of cryptocurrencies, this case illustrates the potential that exists for blockchain technology and cryptocurrency systems to create a positive disruption within the existing banking paradigm which permits or even encourages theft and inefficiency through opaque processes and practices.

The complete transparency offered by cryptocurrencies makes it very unlikely that a single sticky-fingered public official would realistically get away with diverting the better part of a billion dollars, aided and abetted by private bankers whose only real interest is in their fees – $600 million in this case. The use of smart contracts for example, in carrying out large, high-level financial operations like 1MDB would make them substantially more efficient and much less prone to corrupt siphoning of public funds as in this case.

Images from Shutterstock.

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