Malaysia Files Criminal Charges Against Key Individuals, Goldman Sachs Subsidiaries in 1MDB Cases

In December, the Malaysian government, in close succession, filed three sets of criminal charges against a number of key individuals and entities, including subsidiaries of global financial services firm Goldman Sachs, that pertain to the scandal surrounding sovereign wealth fund 1Malaysia Development Berhad (1MDB).

First, on December 4, Today Online reported that charges were filed against the key figure in the 1MDB scandal, financier Low Taek Jho (also known as Jho Low), and four other individuals described in that report as Low’s four “lieutenants,” including former 1MDB general counsel Jasmine Loo Ai Swan.  The charges stem from unsuccessful efforts by the Malaysian Anti-Corruption Commission (MACC) this summer to locate the four individuals for questioning concerning the massive alleged embezzlement from 1MDB.

Second, on December 11, Bloomberg reported that charges were filed against former Malaysian Prime Minister Najib Razak and former 1MDB President Arul Kanda for their alleged roles in tampering with a state audit report into 1MDB.  Earlier in 2018, Razak had already been the subject of nearly 40 criminal charges of abuse of power, breach of trust, and money laundering relating to 1MDB.   In the audit-tampering case, according to charging records, Razak allegedly altered the report on the government audit into 1MDB “to protect himself from criminal, civil or regulatory action, while Arul is accused of abetting him.”

Third, on December 17, Malaysian Attorney General Tommy Thomas announced that criminal charges under Malaysian securities laws had been filed against subsidiaries of Goldman Sachs, former Goldman Southeast Asia Chairman Tim Leissner, former Goldman managing director and Leissner deputy Roger Ng Chong Hwa, Jasmine Loo, and Low.  Thomas stated that these charges arose from the commission and abetment of false or misleading statements by all of the defendants in order to dishonestly misappropriate $2.7 billion from the proceeds of three bonds that 1MBD subsidiaries issued, “which were arranged and underwritten by Goldman Sachs.”  He also stated that Leissner and Ng conspired with Low, Loo, and others to bribe Malaysian public officials in order to procure the selection, involvement, and participation of Goldman Sachs in those bond issuances.

Thomas also made clear that prosecutors would seek severe sentences under Malaysia law for the defendants upon conviction:

Malaysia considers the allegations in the charges against all 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 USD2.7 billion misappropriated from the Bonds proceeds and USD600 million in fees received by Goldman Sachs, and custodial sentences against each of the individual accused: the maximum term of imprisonment being 10 years. Their fraud goes to the heart of our capital markets, and if no criminal proceedings are instituted against the accused, their undermining of our financial system and market integrity will go unpunished.

Ng in fact was not charged until December 19, owing to a misunderstanding by Malaysian prosecutors about the need for Ng’s presence at a December 19 hearing concerning his extradition to the United States.  On November 1, the United States Department of Justice announced the unsealing of an indictment charging Ng and Low with money laundering- and Foreign Corrupt Practices Act (FCPA)- offenses pertaining to the alleged laundering of billions of dollars embezzled from 1MDB, and the guilty plea of Leissner to an information charging him with conspiring to launder money and to violate the FCPA by paying bribes to Malaysian and Abu Dhabi officials and circumventing Goldman’s internal accounting controls during his employment there.  Accordingly, the Justice Department has been seeking Ng’s extradition to stand trial in the United States.  To date, Low remains at large.

Note: One media report speculated that Ng “could be stuck in the middle of a tug-of-war” between the United States and Malaysia, because both countries have charged him relating to the same conduct, and  commented that “[i]t is unclear how prosecutors on both sides will cooperate on charges relating to Ng and others.” That speculation is open to question, on two grounds.

First, when the Justice Department announced the charges against Low and Ng and Leissner’s plea in November, it specifically stated that it “also appreciates the significant assistance provided by the Attorney General’s Chambers of Malaysia, the Royal Malaysian Police, the Malaysian Anti-Corruption Commission,” and other prosecutive and police authorities in Singapore, Switzerland, and Luxembourg.  As a matter of agency practice, the Department does not credit foreign law enforcement or regulatory agencies with “significant assistance” unless that assistance was, in fact, significant.  “Significant assistance” can also signify active coordination and cooperation between the Department and the named foreign authorities in parallel investigations.

Second, because Low remains at large, at the moment both Malaysia and the United States must pursue their respective cases with the defendants they have in custody.  One possible sequence of actions on which the Justice Department and Malaysian authorities could have reached broad agreement would be as follows:

  • On January 7, the Kuala Lumpur Sessions Court rejected Ng’s application for bail pending his extradition proceeding. Ng’s extradition process therefore will continue, further efforts to resist extradition to the United States will likely fail, and thereafter he will be promptly extradited to the United States.  There, Justice Department prosecutors will confront him with the reality that his former superior, Leissner, is already cooperating with them, and that Ng’s conviction at trial in the United States would subject Ng to dozens of years of imprisonment.
  • If Ng agrees to cooperate with both the United States and Malaysia, he too will plead guilty to FCPA and money laundering charges in the United States, and provide testimony and information that Malaysia could use in its case against Goldman’s subsidiaries (and other individual defendants if available) and that both countries could use against Low should he be apprehended.

If anyone is likely to become the basis for a tug of war between Malaysian and U.S. prosecutors at some point, it would be Low.  That tug of war, however, is not likely to arise for some time.

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