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Malaysia in transition

Malaysia charges Goldman Sachs and individuals over 1MDB fraud

'Former government and 1MDB lied' says the bank

Goldman Sachs faces charges related to the sale of bonds by Malaysian state fund 1MDB.   © Kyodo

KUALA LUMPUR -- Malaysian prosecutors on Monday filed criminal charges against investment bank Goldman Sachs and four individuals involved in the issuance of $6.5 billion in bonds by state fund 1Malaysia Development Berhad, as attempts are made to retrieve some $3.3 billion that was allegedly swindled.

The Attorney General's Chamber named Goldman Sachs International, the lender's U.K. incorporated unit which acted as the arranger and underwriter of three bond sales between 2012 and 2013, for offenses under Malaysia's Capital Markets and Services Act 2007. 

Goldman's subsidiaries in Singapore and the U.S. were also named in the charge sheet for abetting the U.K. unit in the offences.

"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," Goldman spokesman Michael DuVally said in a statement Monday.

"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," DuVally said.

The bank has consistently denied wrongdoing.

Also charged were Tim Leissner, a former partner at the lender, his colleague in Malaysia Roger Ng and financier Low Taek Jho, who acted as a key intermediary. 1MDB legal officer Jasmine Loo was also indicted.

Attorney General Tommy Thomas said the accused had misappropriated $2.7 billion in proceeds from the three bonds sales issued by units of 1MDB, funds that were supposed to finance energy projects.

Prosecutors are also seeking the return of some $600 million paid to Goldman Sachs in underwriting fees, which they have deemed to be several times higher than the prevailing market rates and industry norms. 

"In additional to personally receiving part of the misappropriated bond proceeds, those employees and directors of Goldman Sachs received large bonuses and enhanced career prospects at Goldman Sachs and in the investment banking industry generally," read the statement from the Attorney General.

Leissner was the investment bank's relationship manager for 1MDB for the bond issuance, but was later promoted to chairman of the Southeast Asia division in 2014, according to reports.

Monday's indictment comes one month after the U.S. Department of Justice filed criminal charges against Leissner, Low and Ng in relation to the bond issuance. Leissner, a German national, pleaded guilty to charges of money laundering and bribery of overseas government officials and has been ordered to forfeit $43.7 million. Ng is in Malaysian police custody awaiting extradition to the U.S., while the whereabouts of Low, also known as Jho Low, are unknown.

Low maintained his innocence and said he will not submit to any jurisdiction where guilt has been predetermined by politics, according to a statement issued by his spokesperson.

The alleged fraud has undermined Malaysia's financial system and market integrity, the country's Attorney General said. Thomas is seeking a maximum of 10 years' imprisonment and a fine of at least one million ringgit ($240,000) for each of the accused. The repayment of the bonds and their interest have become a fiscal burden for Malaysia, Finance Minister Lim Guan Eng said, impacting on the country's financial planning. 

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