Group 8 - Goldman Sachs & 1MDB Case Studies

Group 8 - Goldman Sachs & 1MDB.pptx

1. Goldman SACHS & 1MDB SCANDAL 

2. Table of Contents The CASE   Corporate Governance FlawS Lesson Learned 01 03 02

3. The CASE 01

4. The CASE 4 2012 - 2013 May 2012 – Mar 2013 Three bond offerings for 1MDB by GS, raising approximately $6.5 billion. 2009 1Malaysia Development Berhad (1MDB) Launched 4 Warnings and Red Flags Ignored

5. 5 Red Flags Excessive Fees and Profits: Goldman Sachs earned unusually high fees from the bond issuances—about $600 million from $6.5 billion raised. This amount was far above the standard banking fees and should have prompted an internal review of the deals’ appropriateness and integrity. Warnings from Compliance Department: Goldman’s own compliance officers raised concerns about the associates involved with 1MDB, particularly Jho Low, who was seen as a high risk due to unclear sources of wealth and potential connections to money laundering activities. Internal Concerns Over 1MDB’s Management and Business Plans: Several Goldman executives and personnel voiced concerns about the lack of experience and capabilities of 1MDB’s management in handling projects of such significant scale and complexity. Political Exposure and Corruption Risks: The close ties between 1MDB's projects and the Malaysian Prime Minister Najib Razak, along with the political nature of 1MDB’s intended projects, were clear indicators of high corruption risk, which typically warrant heightened scrutiny.

6. 6 Red Flags Ignoring of Internal and External Warnings: Despite multiple internal warnings and public accusations of corruption linked to 1MDB and its associates, Goldman Sachs proceeded with the bond issues. These actions indicated a possible neglect of standard due diligence processes. Quick Misappropriation of Funds: A large portion of the funds raised through bond offerings was quickly misappropriated, indicating that the funds were not used for their intended purposes. This rapid diversion of funds was a direct consequence of ignoring the initial red flags. Legal and Regulatory Warnings: The involvement of 1MDB in transactions and financial arrangements that were flagged by regulatory bodies in multiple countries should have served as a caution to Goldman Sachs about the legitimacy of the deals. Unusual Transaction Structures: The structuring of the bond deals, their non-competitive placement, and the involvement of obscure offshore entities were all atypical of standard sovereign wealth fund operations and added layers of unnecessary complexity and secrecy.

7. The CASE 7 2012 - 2013 May 2012 – Mar 2013 Three bond offerings for 1MDB by GS, raising approximately $6.5 billion. Public Exposure The scandal gains public attention with media reports outlining the misappropriation of funds from 1MDB. 2009 1Malaysia Development Berhad (1MDB) Launched 2014 2015 7 Warnings and Red Flags Ignored Years of investigation End of Goldman’s Direct Involvement  

8. 8 2019 Goldman Sachs’ Public Statements maintains that only rogue employees were involved, distancing the broader organization from the misconduct. 2018 Legal Actions Intensify Charges Against Former Executives Malaysia Files Criminal Complaint 2020 and Beyond 8 Settlements and Ongoing Litigation Settlement Efforts Continued Investigations The CASE Under the  $3.9bn deal, Goldman Sachs would make a $2.5bn cash payout and guarantee to return at least $1.4bn in assets linked to 1MDB bonds. In return, Kuala Lumpur agreed to  end all criminal proceedings against the bank.

9. CG FlawS 02

10. EVIDENCE OF CG PROBLEMS Jho Low (the faciliator ) profile ignored 1MDB profile ignored Multiple concerns from insiders ignored The destination of money ignored The compliance system had raised concern 2 times and Jho still could meet the Chairman of GS 2 famed auditors resigned, the 3rd auditor had been fined, 1 investment banking firm refused to value the asset' prices any higher 1 from a high level executive supervising Asia and 1 from a low level employee in Hongkong $3 billions was approved to be moved to a small Swiss bank and even they were suspicious of 1MDB purpose

11. COMPLIANCE WAS COMPLETELY INEFFECTIVE !

12. LESSONS 03

13. Lessons learned BETTER MONITORING METHODS The scandal involves a complex, carefully calculated money laundering scheme IMPROVED AML REGULATIONS All countries should collaborate in creating a stronger global AML regulatory framework STRONGER COMPLIANCE CULTURE Stakeholders and managers should not emphasize too much on profits while ignoring compliance

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