(Dec 20): Goldman Sachs Group Inc. is about to learn a whole lot more about the Malaysian legal system. Three units of the U.S. investment bank and two former employees face criminal charges in the Southeast Asian country relating to their role in raising $6.5 billion for the scandal-plagued state investment fund 1MDB. Malaysia alleges that Goldman misled investors in three bond sales it arranged for 1MDB while knowing the money raised would be misappropriated. Goldman says it will vigorously defend against the charges.
1. How long will this take?
Not necessarily that long. Trials in Malaysia are directed to start within 90 days of the charges being filed, though that can slip. Former Malaysia Prime Minister Najib Razak’s trial on 1MDB-related corruption charges will begin in February, seven months after charges were first laid. For Goldman, there’ll first be a pre-trial meeting between prosecutors and defense lawyers and then -- within 60 days of charges being filed -- the judge will decide the trial’s duration and start date, according to the country’s Criminal Procedure Code.
2. What would a trial look like?
Criminal court proceedings are public and open to all, barring exceptions made by a judge or a court gag order. (Najib’s lawyers have sought such an order for his case to prevent a “trial by media.”) Malaysia’s legal system won’t be altogether alien to western companies and lawyers, since it’s fashioned on English common law. (Malaysia gained independence from Britain in the 1950s.) So there’s a presumption of innocence for defendants and a requirement by prosecutors to prove a case beyond reasonable doubt. Goldman’s cases would be tried by a judge, highlighting one difference from English law: Malaysia scrapped juries in 1995. The seriousness of the charges -- which carry fines for businesses and jail terms of up to 10 years and fines for individuals -- means defendants are required to attend. A trial might be delayed or lengthened if the prosecution attempts to subpoena overseas-based personnel. "We want Goldman Sachs here," said Malaysia’s prosecutor M Kurup.
3. How will Goldman respond?
Goldman said the charges came without a chance for the firm to provide its view. “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,” the bank 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.” According to Nizam Ismail, a partner at RHTLaw Taylor Wessing LLP in Singapore, a criminal conviction against one or more Goldman units could “affect their status as fit and proper persons” and impact their standings as licensed entities. “Regulators that are regulating Goldman entities worldwide will be watching developments in Malaysia closely,” he said. In the U.S., criminal convictions against banks used to be considered a death sentence, but they’ve become common-place after a flurry of currency-rigging cases.
4. What are the charges and who filed them?
The defendants were all charged under the Capital Markets and Services Act 2007. Goldman’s units were charged with making false statements and the individuals with abetting the firm to make those statements. Attorney General Tommy Thomas, who filed the charges, was appointed the nation’s top prosecutor in June, weeks after Prime Minister Mahathir Mohamad’s shock election victory over Najib. Thomas replaced Mohamed Apandi Ali, who had cleared Najib of criminal wrongdoing in one of several Malaysian 1MDB investigations that came to nothing.
5. Where are the ex-employees who got charged?
Former Goldman partner Tim Leissner is in the U.S., where he has pleaded guilty to bribery charges. His former deputy, Roger Ng, had already been arrested in Malaysia in November and is fighting extradition to the U.S. He has pleaded not guilty to the criminal charges in Malaysia. Criminal charges were also filed against Malaysian fugitive financier Low Taek Jho -- the alleged central figure in the scandal -- and an ex-1MDB employee. Leissner confessed to bribing officials to get Goldman hired for the bonds deals, and that he and others arranged the fundraising as debt offerings because that would generate higher fees for the bank. Goldman has blamed rogue employees for any wrongdoing in relation to 1MDB, telling U.S. prosecutors it was deceived by Leissner. The whereabouts of Low and the ex-1MDB official who was charged -- Loo Ai Swan -- remain unknown. Court proceedings can go ahead in a defendant’s absence if he or she absconds before or during the trial.
6. How robust is Malaysia’s legal system?
According to the non-profit World Justice Project, Malaysia ranks 53rd out of 113 countries assessed in its rule of law index. Within those rankings, Malaysia’s handling of criminal justice ranks just outside the top third of countries -- above the likes of Greece, South Africa and China. Data showing conviction rates of criminal prosecutions is not available.
7. Has Malaysia seen a case like this before?
Nothing as international on this scale. There’ve been plenty of corporate scandals, but mostly domestic-based. Malaysia is seeking fines in excess of $3.3 billion from Goldman. U.S. prosecutors allege that $2.7 billion was misappropriated by a small coterie of Malaysians led by Low from the 2012 and 2013 bond sales. Malaysia’s also trying to recoup Goldman’s $600 million fees.
8. Why is Malaysia doing this?
It’s another effort in the new government’s bid to retrieve some of the billions of dollars allegedly pilfered under Najib’s watch. Such was the furor over 1MDB, Malaysia’s voters in May threw out Najib’s ruling coalition for the first time in 61 years. (Najib denies wrongdoing.) If Malaysia won a trial on home soil, it may face a challenge to enforce any ruling, since the Goldman units are incorporated in the U.K., Singapore and the U.S. Malaysia may also be entitled to money from any settlement or conviction by prosecutors in the U.S., Singapore, Switzerland and beyond, though it’s unclear how the different inquiries affect each other. “Malaysia’s charges suggest it may be operating on a different timetable than U.S. authorities, possibly making a joint resolution more difficult,” wrote Alison Williams, a Bloomberg Intelligence senior analyst, in a note. Where there are criminal prosecutions in several jurisdictions, says Nizam, law enforcement agencies “could discuss with one another on the more appropriate jurisdiction for the case to proceed first.” - Bloomberg