Goldman Sachs is being investigated in the U.S. in connection with Malaysia state fund 1MDB, including dealings with Swiss bank BSI, which was shut down by Swiss and Singapore regulators over money-laundering and corruption allegations.
Investigators believe that more than $6 billion of funds of 1MDB, which is being investigated in at least seven countries, is unaccounted for. Malaysian Prime Minister Najib Razak and his family are believed to have used hundreds of 1MDB millions towards an election campaign but also real estate, clothing, jewelry, and to finance «The Wolf of Wall Street».
The scandal ended 143-year-old BSI, or Banca Svizzera Italiana, and has reverberated widely in Singapore, where it is a proof point for regulatory tolerance of illicit offshore dealings.
«The Wall Street Journal» has laid out how authorities are probing Goldman's role in 1MDB's alleged wrong-doing by delving into a $3 billion bond deal which ultimately – after a series of complex, opaque transactions involving Swiss private bank BSI and a shell company in the British Virgin Islands – ended up partly in Najib's pocket.
Suspicious $3 Billion Bond Sale
U.S. officials are probing whether Goldman Sachs failed to alert authorities to a suspicious transaction: a $3 billion Goldman-run bond issue for 1MDB, according to the WSJ report. After Goldman transferred the proceeds to an account controlled by 1MDB, half the funds disappeared offshore, only to surface later in the account of Malaysia's prime minister, the WSJ reports, citing people who have reviewed bank-transfer information.
The proceeds of the bond sale were originally intended to fund a Kuala Lumpur real estate project to bolster Malaysia's economy, and Goldman may have reason to suspect the money wasn't being used towards that, according to the WSJ report.
Some of the money ultimately landed with Devonshire Funds, which sent $210 million to a British Virgin Islands shell company called Tanore which is now defunct. Tanore later transferred $681 million into Najib's personal bank account, the «WSJ» reports.
From Goldman to BSI
In particular, 1MDB's desire to transfer the $3 billion in bond proceeds to miniscule BSI – instead of a large global bank – should have raised alarm for Goldman. Another factor is the bond's hurried nature and its timing – March 2013, shortly after Najib approached several Goldman bankers at the World Economic Forum (WEF) in Davos, and shortly before a tough election campaign where Najib used personal cash to partially finance, the WSJ reports.
Najib and Malaysia's attorney general have said that funds received in personal accounts were a legitimate political donation from Saudi Arabia, and that most of the fund were returned. 1MDB has said that the $3 billion in bond proceeds were moved offshore because they weren't immediately needed. The WSJ has previously reported on fault lines in Malaysia's investigation of 1MDB.
U.S. officials have sought to interview executives of Goldman Sachs, which hasn't been accused of wrong-doing. Goldman's top banker in the region, Tim Leissner, left the bank in February and was and later subpoenaed by U.S. officials.
Leissner had maintained close ties to Malaysia, was involved in conceiving 1MDB's predecessor, underwriting bond deals, and advising on acquisitions for the fund.
Lucrative Goldman Fees
For the $3 billion bond deal, Goldman was paid $300 million in fees – a top fee that year and above what similar bond issues would reap – after it bought the entire issue, gave 1MDB the proceeds, and held the bonds on its balance sheet until it could offload them to investors. 1MDB later accused Goldman overcharging and asked for a partial refund, which the bank rejected.
Investigators are also looking into concerns raised by Goldman's legal counsel on the deal, Kevin Wong, a Linklaters partner in Singapore, who alerted the bank to the fact that the bond proceeds would be sent to a private bank in Singapore.
