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Alex Kimani

Alex Kimani

Writer, Divergente Research LLC

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Divergente Research LLC and Safehaven.com. 

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Ex-Goldman Banker Caught In A Billion Dollar Fraud Scandal

Corruption

Every so often, embarrassing and alarming exposés unravel the extent of dodgy financial dealings and moral vacuum that exist in the banking sector. Big investment banks in particular seem to enjoy living down their reputations as greedy and avaricious institutions that will readily conjure up all manner of schemes to enrich themselves.

Case in point are shameless fee-for-no-service schemes, such as the ridiculous revelation by Australia’s Commonwealth Bank that it charged dead clients fees for advisory services. Or, closer home, Wall Street banks that were fined $5.6 billion by the CFTC in 2015 for rigging currency rates for their benefit.

It therefore hardly comes as a surprise when employees of these institutions, such as the Wolf of Wall Street, end up acquiring unethical traits from their masters. To wit, a former Goldman Sachs Group Inc. banker could face criminal charges for attempting to steal from the Malaysian government.

Tim Leissner, a one-time Goldman partner and Southeast Asia chairman, is alleged to have hatched a scheme to defraud billions of dollars from Malaysia’s 1MDB (1 Malaysia Development Berhad) a Malaysian state investment fund that’s wholly owned by the country’s Ministry of Finance.

Leissner has not been charged yet, but could plead guilty to criminal charges for his part in the scheme to steal from the Malaysian government.

Goldman Sachs and the 1MDB Scandal

Ultimately, it might turn out that Leissner was merely a pawn in a much bigger scheme. And it looks like none other than Goldman Sachs itself is in the thick of a giant  scandal that has been billed as one of the world’s biggest cases of white collar crime--one revolving around disgraced former Malaysian Prime Minister Najib Razak and at least 10 other countries.

In September 2009, Malaysia’s then-new prime minister, Najib Razak, set up 1MDB. The fund’s purpose was to borrow money to grow investment and stimulate Malaysia’s economy. Unlike most sovereign wealth funds, Malaysia didn’t start with a huge pile of cash. It had to raise money through things like bond sales and joint ventures.

It was through three of these business deals that the scandal unfolded. Tragically, several corrupt government officials used the public trust for their personal gain. Investigators say at least $4.5 billion was misappropriated from 1MDB, with the money landing in various Swiss and Singaporean bank accounts. Related: The Exorbitant Cost Of Getting Ahead In Life

The scandal allegedly involved celebrities, Las Vegas gambling, lots of diamond jewelry, rare artwork, and even The Wolf of Wall Street movie itself. The misappropriated 1MDB money moved through a complex network of global wealth centers before being used to buy other assets around the world, including real estate in New York and Beverley Hills.

It’s such a highly complex and elaborate labyrinth of money laundering on an epic scale that a Malaysian non-profit felt compelled to design a board game to help people come to grips with how the money was spent.

The extent of Goldman Sach’s, or Leissman’s, involvement is not clear at this point, though critics have accused Goldman of charging exorbitant fees when acting as 1MDB’s broker. In fact, the Malaysian government is contemplating negotiating with the DoJ to force Goldman Sachs to return nearly $600 million in fees that the bank charged 1MDB for the sale of $6.5 billion bonds in 2012-2013.

Banks normally charge 1-2 percent of bond proceeds as their fees, suggesting that Goldman should have charged no more than $130 million for its services. The giant bank though has defended itself by claiming that the outsized fees reflect the extra risk it took when it bought the un-rated bonds as it sought investors.

So maybe we might be hearing a lot more about this scandal as investigations progress.

By Alex Kimani for Safehaven.com

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