Three developments last week indicated that the U.S. Department of Justice’s investigation into possible crimes relating to the Malaysian state-owned and state-controlled investment development company, 1Malaysia Development Berhad (1MDB), has made substantial progress and is entering a new phase.
First, on November 1, the U.S. Department of Justice stated that a federal indictment was unsealed in the U.S. District Court for the Eastern District of New York, charging wealthy Malaysian businessman Low Taek Jho (also known as “Jho Low”) and Ng Chong Hwa (also known as “Roger Ng”) with conspiring to launder billions of dollars embezzled from 1MDB and conspiring to violate the Foreign Corrupt Practices Act (FCPA) by paying bribes to various Malaysian and Abu Dhabi officials. As part of the three-count indictment, Ng is also charged with conspiring to violate the FCPA by circumventing the internal accounting controls of Goldman Sachs, which reportedly underwrote more than $6 billion in bonds issued by 1MDB in three separate bond offerings in 2012 and 2013, while Ng was employed at Goldman Sachs as a managing director.
Second, on November 1, a guilty plea relating to 1MDB was also unsealed in the Eastern District of New York. According to the Justice Department, the former Southeast Asia Chairman and participating managing director of Goldman Sachs, Tim Leissner, pleaded guilty to a two-count criminal information, charging him with conspiring to launder money and conspiring to violate the FCPA by both paying bribes to various Malaysian and Abu Dhabi officials and circumventing Goldman Sachs’s internal accounting controls while he was employed there. According to court filings, Leissner has also been ordered to forfeit $43.7 million as a result of his crimes.
The information to which Leissner pleaded guilty stated that Leissner,
- “while acting within the scope of his employment as an agent of [Goldman Sachs], with the intent, at least in part, to benefit [Goldman Sachs], conspired with others, including certain individuals and entities . . . , to obtain and retain business from IMDB for ‘[Goldman Sachs] through the promise and payment of bribes and kickbacks to government officials in Malaysia and Abu Dhabi, and by embezzling funds from, 1MDB for himself and others”; and
- “together with others, also conspired to launder those bribes, kickbacks and other embezzled funds from IMDB through financial systems in the U.S. and elsewhere.”
The Justice Department press release concerning the indictment and the information stated that
[a]s alleged in court filings, between approximately 2009 and 2014, as 1MDB raised money to fund its projects, billions of dollars were misappropriated and fraudulently diverted from 1MDB, including funds 1MDB raised in 2012 and 2013 through three bond transactions that it executed with [Goldman Sachs]. As part of the scheme, and as alleged in court filings, Low, Ng, Leissner, and others conspired to bribe government officials in Malaysia, including at 1MDB, and Abu Dhabi to obtain and retain lucrative business for [Goldman Sachs], including the 2012 and 2013 bond deals. They also allegedly conspired to launder the proceeds of their criminal conduct through the U.S. financial system by purchasing, among other things, luxury residential real estate in New York City and elsewhere, and artwork from a New York-based auction house, and by funding major Hollywood films.
According to the Justice Department, Ng was arrested on November 1 in Malaysia, pursuant to a provisional arrest warrant issued at the United States’ request of the United States, while Low remains at large. In July 2018, Low reportedly had fled Hong Kong for Macau, then China, though an unnamed Chinese official disputed Low’s entry into China.
Third, on November 2, Goldman Sachs filed its Quarterly Report for the Third Quarter of 2018 with the Securities and Exchange Commission. With respect to the 1MDB investigation, the report briefly mentioned the firm’s receipt of “subpoenas and requests for documents and information from various governmental and regulatory bodies and self-regulatory organizations” as part of their respective 1MDB-related investigations and reviews. It also summarized the Leissner plea and the Ng and Low indictment, and made a noteworthy set of statements that, in certain respects, acknowledge serious deficiencies in its anti-corruption compliance program:
- “[T]he plea and charging documents indicate that Leissner and Ng knowingly and willfully circumvented the firm’s system of internal accounting controls, in part by repeatedly lying to control personnel and internal committees that reviewed these offerings.
- “The indictment of Ng and Low alleges that the firm’s system of internal accounting controls could be easily circumvented and that the firm’s business culture, particularly in Southeast Asia, at times prioritized consummation of deals ahead of the proper operation of its compliance functions.
- “In addition, an unnamed participating managing director of the firm is alleged to have been aware of the bribery scheme and to have agreed not to disclose this information to the firm’s compliance and control personnel. That employee, who was identified as a co-conspirator, has been put on leave.”
The report further stated that the firm “is cooperating with the DOJ and all other governmental and regulatory investigations relating to 1MDB. The firm is unable to predict the outcome of the DOJ’s investigation. However, any proceedings by the DOJ or other governmental or regulatory authorities could result in the imposition of significant fines, penalties and other sanctions against the firm.”
Note: The U.S. Department of Justice has been intensively engaged in investigating the 1MDB embezzlement and laundering scheme since at least 2016, when it filed civil forfeiture complaints seeking the forfeiture and recovery of more than $1 billion in assets associated with the conspiracy to launder funds misappropriated from 1MDB. These latest actions by the Department, however, intensify the search for Low, who is the alleged mastermind of the 1MDB embezzlement and laundering scheme.
In announcing the Low-Ng indictment, the Justice Department specifically thanked the Attorney General’s Chambers of Malaysia, the Royal Malaysian Police, and the Malaysian Anti-Corruption Commission, as well as other named authorities in Singapore, Switzerland, and Luxembourg for their assistance in the case. Malaysia’s active cooperation is to be expected, given its prosecution of former Malaysian Prime Minister Najib Razak on 32 money laundering, graft, and breach of trust charges over transactions linked to 1MDB, and of Razak and former Treasury Secretary-General Irwan Serigar Abdullah on criminal breach of trust charges. The latter three countries retain an active interest in the various 1MDB investigations, in part because the funds embezzled from 1MDB were allegedly laundered through a series of complex transactions and fraudulent shell companies with bank accounts located in those three jurisdictions.