Goldman CEO apologises to Malaysia over ex-banker's role in 1MDB scandal

Goldman Sachs CEO David Solomon said the firm conducted considerable due diligence on the bond deals for 1MDB.
Goldman Sachs CEO David Solomon said the firm conducted considerable due diligence on the bond deals for 1MDB.

NEW YORK • Goldman Sachs chief executive officer David Solomon has apologised to the Malaysian people for the role that a senior banker at the firm, Tim Leissner, played in the 1MDB scandal.

Malaysia was "defrauded by many individuals", Mr Solomon said in a conference call with analysts after the investment bank reported fourth-quarter earnings on Wednesday. Leissner "was one of those people".

"It is very clear that the people of Malaysia were defrauded by many individuals, including the highest members of the prior government," Mr Solomon said.

Malaysia has filed criminal charges against the Wall Street firm over a relationship that spawned one of the biggest scandals in the country's history.

Singapore expanded a criminal probe into fund flows linked to 1Malaysia Development Berhad (1MDB) to include Goldman Sachs, and is coordinating closely with the United States Justice Department, people with knowledge of the matter said last month.

The Singapore authorities are trying to determine whether some of the roughly US$600 million (S$814 million) in fees from the three bond deals Goldman arranged for 1MDB from 2012 to 2013 flowed to the Singapore subsidiary, the people said.

Mr Solomon reiterated that the firm conducted considerable due diligence on the deals and was lied to by Leissner, who pleaded guilty last year to charges including conspiring to launder money. Appearing on his first earnings call since becoming CEO last October, Mr Solomon said the firm is cooperating with the Justice Department, and the investigation is still open.

 
 
 

Malaysia alleges that Goldman misled investors in the three bond sales it arranged for 1MDB while knowing the money raised would be misappropriated.

Goldman has said it will vigorously defend against the charges. The bond sales were arranged by Goldman Sachs International, a London-based unit.

That division, along with the Singapore entity, was among three units named in Malaysia's criminal charges against the company, which seek fines in excess of the US$2.7 billion of funds allegedly misappropriated and US$600 million of fees Goldman reaped.

US prosecutors say that more than US$4.5 billion flowed from 1MDB, through a complex web of opaque transactions and fraudulent shell companies, to finance spending sprees by corrupt officials and their associates.

Leissner, who oversaw the relationship with 1MDB, is in the US.

His former deputy Roger Ng was arrested last November in Malaysia and is fighting extradition to the US. He has also pleaded not guilty to the charges that the Malaysian authorities levelled against him.

Meanwhile, former prime minister Najib Razak said yesterday that Goldman should take responsibility if it failed to take care of the interests of 1MDB, according to the Malaysiakini news site.

"We put up a system and it was there to take care of our interests," Najib told reporters in Pahang state. "So, if they failed, then they have to take responsibility because they were appointed and paid by 1MDB to take care of our interests."

Najib was Malaysia's finance minister and headed the advisory board of 1MDB, which is a unit under the Finance Ministry.

The 1MDB scandal erupted into public view in 2015, and led to last year's electoral defeat of Najib, ending his near decade-long stint as premier. It also spelt the downfall of Umno, the party that had led every government since Malaysia emerged from colonial rule.

Malaysian investigations into 1MDB were relaunched by the new government led by Prime Minister Mahathir Mohamad, and Najib is facing multiple charges for financial crimes, though he has consistently denied any wrongdoing.

Meanwhile, The New York Times reported that in recent presentations to US regulators and the law enforcement authorities, according to people familiar with their contents, Goldman executives and their lawyers have depicted Leissner as a master conman.

The tactics, especially against someone who had been a star banker, reflect just how worried Goldman is about the criminal investigations into its role in the theft of at least US$2.7 billion from 1MDB.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on January 18, 2019, with the headline 'Goldman CEO apologises to Malaysia over ex-banker's role in 1MDB scandal'. Print Edition | Subscribe