NEW YORK: Several United States law enforcement agencies, not just the Department of Justice, are investigating Goldman Sachs’ role in the 1MDB scandal.
A report in the Financial Times said the office of the US attorney for the Eastern District of New York is also investigating Goldman’s role in advising the Malaysian fund.
It said federal prosecutors in Los Angeles were also investigating aspects of the sprawling 1Malaysia Development Bhd affair – including potential misappropriation involving Malaysian officials associated with the fund.
In addition to this, regulators at the Securities and Exchange Commission and the Federal Reserve are also scrutinising Goldman’s conduct.
No charges have been filed against Goldman or its executives and none appears imminent, according to an insider.
According to the FT report, US prosecutors are focusing on Goldman’s role in advising on three bond deals for 1MDB between 2012 and 2013, in which the fund raised about USD6.5 billion. Goldman earned an unusually large USD593 million in fees along the way.
In a deal in March 2013, Goldman bought bonds with a face value of USD3 billion for USD2.71 billion — then asked Standard & Poor’s to provide a rating, so it could sell them on to investors over the following months.
At the time, a Goldman spokesperson declined to comment on the transaction but told the FT that the bank had conducted “the same consistently high global standards of due diligence and business selection in connection with all securities offerings”.
“Any time you have illicit activity going through international banks, you’ve got — potentially — exposure by those banks for failing to do a good enough job of figuring out the purpose of those transfers,” an unnamed former federal prosecutor is quoted as saying.
At issue, said the FT report, was Goldman’s compliance with the Bank Secrecy Act, a 1970 law that gained teeth with passage of the Patriot Act following the 2001 terrorist attacks.
Under the Act, all financial institutions are required to maintain programmes to prevent money laundering, including notifying authorities of suspicious customer transactions. Banks are required to have robust internal controls, independent testing, a compliance officer responsible for daily monitoring and adequate training for employees.
“In the 1MDB case, Goldman employees had an obligation to be especially careful when dealing with Prime Minister Najib Razak — who set up the fund in 2009 — his relatives, or other senior Malaysian government officials. The law requires enhanced due diligence when handling transactions connected to a ‘politically exposed person’”.
That provision requires the bank to ask additional questions and seek independent verification about funds passing through it and to regularly monitor any account associated with such senior government officials.
Normally, the report said, the institution, if found guilty, would be penalised, usually with a fine. But since last year the Department of Justice has been under pressure to hold individuals too responsible for corporate misdeeds.