Backtracking & Bullied on IMDB
On Friday, October 23rd several countries and entities finally announced the details of the agreed settlement that their financial and regulatory authorities had reached over Goldman Sachs’ misconduct on reporting and regulatory infringements in these jurisdictions. Goldman Sachs had advised and profited immensely from IMDB-related matters in these jurisdictions, but not as infamously and as insidiously as in Malaysia.
In the UK the City of London had fined Goldman US$45 million, in the US the agreed settlement with the Department of Justice was for US$2 billion. In Singapore Goldman was required to pay US$122 million for its role in 1MDB bond offerings and the investment bank was required to observe certain conditions over a 36-month period. In Hong Kong Goldman Sachs was fined US$350 million by Hong Kong’s Securities and Futures Commission. These were negotiated settlements that Goldman Sachs voluntarily agreed and had the means to pay.
The pertinent point is that none of these jurisdictions experienced the kind of colossal financial losses, deception, reputational damage, collateral damage that was directly suffered by the government and people of Malaysia. The Infringements in these other jurisdictions related to the laws, norms, and the fine fintech language of their financial and banking regulations. They were seemingly and largely of a technical nature which is one reason these inappropriate actions did not trigger immediate detection.
In Malaysia, there was extensive and material damage to the confidence in the government, the management of the country’s financial affairs, and the country’s debt-servicing capacity. To date, there has been no mention of a ballpark amount of the losses suffered by the country. It is likely that when the final accounting is done with the high cost of raising money from the bond market Malaysia may be taking a hit of perhaps the US $15 to 20 billion dollars as a result of IMDB’s recklessness. Such recklessness was aided and abetted by Goldman Sachs, supposedly the most reputable international advisory and investment bank. The Financial Times in its November 14, 2018 edition carried an article by John Gapper which had a reference to a Goldman Sachs senior partner located in Southeast Asia who had “ helped channel (US) $2.7bn into bribes. “
Yet it is disdainful that the Malaysian officials charged with negotiating a settlement agreed to a paltry sum of less than US4 billion with Goldman Sachs. Malaysia was where the principal misrepresentation, deceit, egregious misconduct, and financial malfeasance took place. Functionaries associated with Goldman Sachs indulged in outright blandishments, outrageous bribery, and bullying to take gullible Malaysians for a ride. Goldman Sachs also earned a commission of several hundred million US dollars. How and why did the principal legal advisor to the Malaysian Government agree to a sharply reduced figure of US$ 3.9 billion when his predecessor had sought US$ 7.5 billion.?
With all the lead time that the principal legal advisor had had up to March 2020 could he not have sought a figure higher than US $7. 5 billion sought originally by his predecessor
The reason this is being mentioned is that Goldman Sachs was allowed to take advantage of a change of government in Kuala Lumpur to pare down considerably Malaysia’s logical, reasonable and legitimate claims. The Muhyiddin Government, if it attributed any significance to national pride and had some knowledge of how the US financial institutions function could have easily upped the ante to a US$20 billion demand. That would have been only a small multiple of the direct financial losses suffered by Malaysia.
The principal legal advisor who had been appointed last March did not seem to have the expertise, enthusiasm, and endurance needed to handle this important matter. The first principal legal advisor appointed in June 2018 had understandably the onerous task of sorting out the mess created by the dethroned government of the previous prime minister, Dato Sri Najib Abdul Razak. Najib has since been tried and convicted in one set of cases.
The new principal legal advisor did not have such pressing issues to handle and in effect mishandled the assignment he had inherited.
A cursory Google check would have shown the kind of fines US financial institutions have been subject to in recent years. BNP paid nearly US$8.9 billion, HSBC US$ 1.9 billion, Citigroup US$19 billion and the Bank of America paid a total of US$76.1 billion.
Malaysia’s principal legal official must realize that a claim by the country is a solemn, sovereign one. Malaysia had to be appropriately compensated so that the country’s national pride, integrity, and sovereignty is not only upheld but respected. Malaysia is by no means a tinpot country where a thousand Covid cases a day or a 10 billion ringgit shakeout would warrant the declaration of a state of national emergency.
The country’s principal legal advisor ought to have more acuity, alertness, and astuteness even if he or she did not possess the sophistication and aplomb with which HM the Yang dipertuan Agong handled this last approach for an Emergency.
Dato M Santhananaban
The writer is a retired ambassador with 45 years of public sector experience
October 27, 2020
This article was carried by the Independent Singapore on October 28th