Goldman Sachs. Picture: REUTERS
Goldman Sachs. Picture: REUTERS

Kuala Lumpur — Malaysia filed criminal charges on Friday against 17 current and former directors at subsidiaries of Goldman Sachs following an investigation into a multibillion-dollar corruption scandal that led to the demise of state fund 1MDB.

The US bank has been under scrutiny for its role in helping to raise $6.5bn through bond offerings for 1Malaysia Development Berhad (1MDB), the subject of corruption and money-laundering investigations in at least six countries.

But Malaysian prosecutors have said $2.7bn of the proceeds were diverted and the offering statements filed with the regulators contained statements that were false, misleading or involved material omissions.

Friday’s charges were brought under a section of the Malaysian Capital Markets and Services Act that holds certain senior executives responsible for offences that may have been committed by the firm, attorney-general Tommy Thomas said.

“Custodial sentences and criminal fines will be sought against the accused… given the severity of the scheme to defraud and fraudulent misappropriation of billions in bond proceeds,” Thomas said.

Goldman Sachs said the charges are misdirected.

“We believe the charges announced today, along with those against three Goldman Sachs entities announced in December [2018], are misdirected and will be vigorously defended,” a Goldman Sachs spokesperson in Hong Kong said.

“Under the Malaysian legal process, the firm and the individual entity directors were not afforded an opportunity to be heard prior to the filing of these charges, which do not affect our ability to conduct our current business globally.”

Richard Gnodde

Those charged on Friday include Richard Gnodde, CEO of Goldman Sachs International, Michael Evans, president of Alibaba Group Holding and a former director at Goldman Sachs (Asia), and Michael Sherwood, former vice-chairman of Goldman Sachs Group.

An Alibaba spokesperson said the company is aware of the charges against Evans and will continue to monitor the situation.

Each charge carries a maximum jail term of 10 years and a penalty of at least 1-million ringgit ($239,000).

The charges read the Goldman Sachs units omitted material facts in the bond offerings, among them that Malaysian financier Low Taek Jho was the operator and key intermediary for 1MDB.

Low has been described by Malaysian and US authorities as the central player in the 1MDB scandal. He has denied wrongdoing and his whereabouts are unknown.

Goldman said on Friday that 1MDB provided written assurances to the bank for each transaction that no intermediaries were involved.

In 2018, Malaysia filed criminal charges against three Goldman Sachs subsidiaries and two of the US bank’s former employees in connection with 1MDB.

Goldman Sachs has consistently denied wrongdoing and said certain members of the former Malaysian government and 1MDB lied to Goldman Sachs, outside counsel and others about the use of transaction proceeds.

The US department of justice is investigating the bank for its role as underwriter and arranger of the bond offer.

An estimated $4.5bn was misappropriated from 1MDB by fund officials and their associates between 2009 and 2014, according to the justice department.

Tim Leissner, a former partner of Goldman Sachs in Asia, pleaded guilty in August 2018 to conspiracy to launder money and conspiracy to violate the Foreign Corrupt Practices Act and agreed to forfeit $43.7m.

Malaysia has said it was seeking up to $7.5bn in reparations from Goldman over its dealings with 1MDB, set up in 2009 by then prime minister Najib Razak.

Najib, ousted in an election in 2018, is facing dozens of criminal charges related to 1MDB. He has pleaded not guilty and denied wrongdoing.