The 1Malaysia Development Berhad scandal (1MDB) saga has taken a step closer to resolution with the arrest of Rosmah Mansor, the wife of former president of Malaysia Najib Razak last Wednesday.
Rosmah was formally presented with 17 charges, including money laundering after her arrest at the headquarters of the Malaysian Anti Corruption Committee (MACC) in Malaysia’s administrative capital Putrajaya, and although the specificity of the charges was not made explicit, they are rumoured to be connected with monies misappropriated from 1MDB.
We will have to wait until early next year for the details surrounding the case to be revealed, as Najib’s trial is scheduled for February, although they are likely to be fulsomely lurid.
The big question after the arrest of two of the supposed key players in the 1MDB debacle, which allegedly involved the siphoning of US$4.5 billion from the state-owned fund – according to the US Department of Justice (DoJ), which is pursuing a criminal case against the key alleged 1MDB miscreants – is quite how Goldman Sachs will emerge as the case moves with greater urgency.
The US investment bank raised almost US$6.5 billion via three bond deals six years ago, and according to my calculations – I have followed the case closely and written about it since I first uncovered misgivings from the Malaysian banking community about those deals in 2013 – based on fees and the resale of the bonds from the mandated to the final Treasury spread level, Goldman booked around US$700 million from its work with 1MDB.
According to onshore sources in Malaysia, the country’s government is seeking to recover under the auspices of the DoJ something close to that figure from Goldman. Good luck with that but you never know.
A few key Goldman bankers involved in the 1MDB paper, much of which was privately placed, are in the spotlight including former Malaysian country head Roger Ng and the bank’s South-East Asian chairman, Tim Leissner. An arrest warrant is said to have been prepared for the former, while Leissner is said to have been cooperating with the DoJ in its enquiries into 1MDB.
The big question hanging over this investigation which should be answered is quite how those extortionate fees never raised a red flag within Goldman’s diligence machinery.
Just how those fees were arrived at and by whom they were negotiated seems likely to emerge as the trials of Najib and his wife kick off next year. Another possibility is that we might well know more if the Malaysian authorities arrest the supposed mastermind of the 1MDB larceny, Jho Low, who was apparently last spotted hiding out in mainland China.
Bigger questions raised by the 1MDB case are issues of corporate governance, stewardship codes and fiduciary duty within South-East Asia. Goldman had a strategic push into Asia as chairman Lloyd Blankfein sought to diversify the bank’s sources of income into emerging markets.
They certainly hit pay-dirt with 1MDB, but the broader issue is simply the risk to reputation banks face when doing business with government-linked corporations in Asia. The kind of cosy, under-the-radar modus operandi which allowed Goldman to cash-in with 1MDB is something of the norm in the region, nowhere more so than in China.
1MDB might well be regarded as an idiosyncratic one-off heist; the reality is that it should force banks in the region, particularly those headquartered on foreign soil, to rethink their internal diligence mechanics and their basic business models for regional expansion.
Beyond that, the 1MDB case should usher in a fast-tracking of corporate governance codes of the most stringent variety in a region which has been notoriously lacking in relation to its counterparts across the Pacific.
– https://www.theasset.com
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