Goldman Sachs’ legal woes could hurt business with China
Goldman Sachs could face global sanctions, tougher US regulations and hurdles to doing business in China — after Malaysian prosecutors filed criminal charges against the bank over its role in the 1MDB scandal, analysts and lawyers told The Post.
The Wall Street bank on Monday was accused of trying to “defraud” Malaysia through three bond sales in 2012 to 2013 that raised $6.5 billion — but largely ended up going to pay for bribes, embezzlement, and the extravagant lifestyle of playboy financier Jho Low.
“Having held themselves out as the preeminent global adviser/arranger for bonds, the highest standards are expected of Goldman Sachs,” Malaysian Attorney General Tommy Thomas said in a statement. ”They have fallen far short of any standard. In consequence, they have to be held accountable.”
The accusations are the first criminal charges to be filed against the Wall Street bank related to its role in the Malaysian sovereign wealth fund, 1MDB.
It’s unlikely that Malaysia would send any Goldman bankers to prison, but it could extract large penalties to resolve the case, legal experts said.
The country’s finance minister has demanded the $600 million it paid in fees for the bond sales, and earlier this month a UBS analyst estimated the bank could set aside as much as $2.5 billion in legal reserve funds to defend itself globally.
The bank will defend itself against the charges and maintains that they’ll have no effect on its ability to do business globally, a Goldman spokesperson said.
Goldman also claims that 1MDB and two of its bankers, including Southeast Asia head Tim Leissner, had lied to the company about the deals.
“Certain members of the former Malaysian government and 1MDB lied to Goldman Sachs, outside counsel and others about the use of proceeds from these transactions,” spokesman Michael DuVally said in a statement.
“1MDB, whose CEO and board reported directly to the prime minister at the time, also provided written assurances to Goldman Sachs for each transaction that no intermediaries were involved,” he added.
But that argument likely won’t get Goldman off the hook with US authorities.
“If they’re going to make that case [that Goldman was misled], then I think the argument is going to be ‘you should have known,’ ” Dick Bove, analyst at Rafferty Capital Markets, told The Post.
“The fact that you did not know, when we’re talking about that magnitude of theft, indicates that your systems are not acceptable,” he added.
Aside from the US, the bank faces tougher restrictions abroad, too.
Many countries have restrictions on how they do business with companies that are accused of crimes.
While Malaysia is not a big player in international finance, China could use the new accusations to pressure Goldman to clean up its act if it wants to do business in the Asian country, according to legal experts.
“China loves nothing better than to bust chops,” one former US securities regulator told The Post.
“A lot of regulators are not going to be comfortable with them being charged with a crime,” he added.