Goldman Sachs glossed over too many red flags in its dealings with a now disgraced Malaysian sovereign fund. Awkward details relating to the US investment bank's lucrative work for 1Malaysia Development Berhad continue to emerge. Now it turns out that Goldman wired the entire proceeds from a $3-billion bond issue in 2013 into a small Swiss private bank.
The Wall Street bank helped 1MDB raise $6.5 billion between 2012 and 2013. The indebted fund has since been at the centre of a political scandal that has engulfed Malaysian Prime Minister Najib Razak. In January, the country's attorney general said that $681 million deposited into Najib's personal bank account in 2013 was a gift from the royal family in Saudi Arabia.
That year the Malaysian fund asked Goldman to transfer bond proceeds to an account at a private bank, the Wall Street Journal reported on March 21, citing people familiar with the matter.
That should have raised alarm bells - normally, corporate and sovereign clients ask for funds to be deposited into accounts at larger commercial banks. A lawyer at Linklaters, Goldman's legal counsel on the deal, even reportedly flagged the issue to the bank.
The latest twist is just one of several unusual factors about Goldman's relationship with 1MDB. In the case of the $3-billion bond, the investment bank raised a large sum of money quickly for 1MDB to capitalise a 50-50 joint venture with Abu Dhabi that had no specific investment under consideration and subsequently never got off the ground.
What's more, because 1MDB lacked a credit rating, Goldman could charge high fees for taking the risk onto its books before selling it on. In total, fees, expenses and commission on the $3-billion issuance amounted to $283 million or 9.4 per cent. The bond now trades at just 88 cents on the dollar.
The transfer is another sign of shortcomings in the much-vaunted, post-financial crisis controls that Goldman put in place in 2011 to vet sensitive deals. As time passes and more information comes to light, Goldman's ties to 1MDB are becoming more damaging for the bank.
