Malaysia should do a Lehman Brothers on Goldman Sachs

Malaysia should sue Goldman Sachs, the investment bank associated with 1MDB, to recover not only the US$600 million (RM2.5 billion) it had charged the company (and thus Malaysia), but also the associated financial loss from the ensuing criminal activities at 1MDB.

Malaysia should go beyond restitutive remedies and seek punitive damages so as to teach those bankers a lesson to never again collude or be complicit with Third World kleptocrats in robbing the world’s poor. In short, inflict a Lehman Brothers on Goldman Sachs through a lawsuit.

Malaysia would be doing the world a great favour by exposing the weaknesses and inadequacies of the current regulations and oversight agencies, both international and domestic. These agencies are impotent in curbing corrupt and illicit cross-border money flows because they are too beholden to the industry to effect any meaningful reforms despite the many attempts.

A successful lawsuit would be a far more effective remedy than any legislation or international treaty. Former Wall Street executives are key players in current and previous American administrations, Democrat as well as Republican. They are so used to calling the shots, quite apart from the hold their industry has on those agencies through powerful and lucrative lobbying.

Malaysia would have no difficulty finding a lawyer even on a contingency basis. This 1MDB mess could prove to be the most lucrative bonanza for American lawyers. Goldman Sachs is a deep-pocketed defendant. Already a few of the key players have pleaded guilty.

By way of background, Lehman Brothers was an old white-shoe Wall Street firm forced into bankruptcy in 2008 for its overexposure in the subprime spiral. The company’s leaders then considered themselves the new Masters of the Universe, the same hubris afflicting Goldman Sachs personnel in their dealings with corrupt Najib Abdul Razak.

Lehman was the most necessary and very effective lesson on Wall Street for the 2008 economic crisis that nearly took down Western capitalism. A decade later that sting has been forgotten. Wall Street needs to be taught that lesson again, and very forcefully too. And Malaysia is destined to be that strict teacher. Prime Minister Dr Mahathir Mohamad should not shy away from this unique and awesome responsibility. The world’s poor would thank him for that.

I sniffed this 1MDB skunk long before it hit the headlines in Malaysia. When a senior Bank Negara official was in America on a private visit, I showed him articles in leading American financial publications of the unusually attractive returns on the 1MDB bonds managed by Goldman Sachs, with rates in excess of 300 basis points of what I was paying for my unsecured line of credit at my local California bank. This was during the post-2008 recession when money was dirt cheap. Surely sovereign Malaysia was a better credit risk than me!

What stunned me was this official’s non-reaction. He knew nothing about it. Surely such mega deals should have been the talk at Bank Negara’s water coolers.

Meanwhile, the American press was featuring how a Malaysian boy related to Najib was making a splash in Hollywood and the local ultra-luxury real estate market. Nobody questioned how Najib’s stepson, whose father was but a retired junior army officer, acquired all that wealth. My suspicion deepened with firsthand knowledge of the super-lavish and gaudy shopping habits of Najib and his spouse on their frequent visits to America.

Then there was the extraordinary effort by the co-producers of the Oscar-winning film The Wolf Of Wall Street to excise Reza Aziz’s name off the credit list at the Academy Awards ceremony even though he had provided the film’s critical financing. Then in July 2016, America’s Department of Justice came down with its civil asset forfeiture lawsuits.

Despite all that, the tipping point occurred not in the major financial Western capitals or the courts in the West, rather in simple Malay kampungs. At the May 9 general election, those seemingly unsophisticated villagers booted Najib and his gang of plunderers out. With that, the rotten durian split; the stink was no longer containable. Since then Najib, his wife, and no fewer than half a dozen of his ministers have been criminally indicted. More coming!

America followed her civil suits with criminal indictments. Malaysia, too, should follow America’s example and initiate civil suits against Najib and the others, attaching their assets. Najib would have little need for those palatial mansions and ultra-luxury condos; likewise his wife and stepson. Their room and board would be provided for by the state for a very long time.

Najib’s elaborate corrupt schemes, obscene greed, and dedak-fed enablers have to be exposed, put behind bars, and with Malaysia recovering the loot.

Like those high-flying Wall Street financiers, Malaysian leaders too must be taught a very tough lesson.

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M BAKRI MUSA, a surgeon in California, is a frequent commentator on Malaysian affairs. - Mkini