Current Affairs

By now, it’s no secret that former Southeast Asia chairman for Goldman Sachs, Tim Leissner, has pleaded guilty after being indicted for offences relating to the 1MDB scandal.

What hasn’t been determined yet is the extent of Goldman Sachs’ knowledge around Leissner and fellow ex Goldman banker Roger Ng’s actions while employed by the bank, something the United States government is scrutinising in more detail as the investigation develops.

Despite this, it hasn’t stopped them from being embroiled in a lawsuit brought against them by Abu Dhabi’s International Petroleum Investment Company (IPIC) for conspiring to “bribe IPIC and Aabar’s former executives.” Goldman Sachs has said it will fight the lawsuit.

“We are in the process of assessing the details of allegations and fully expect to contest the claim vigorously,” a Goldman Sachs spokesman said in an emailed response to AFP.

In a securities filing from 2 November, Goldman Sachs noted the criminal documents released by the Department of Justice alleged “the firm’s system of internal accounting controls could be easily circumvented and that the firm’s business culture, particularly in Southeast Asia, at times prioritised consummation of deals ahead of the proper operation of its compliance functions.”

The bank said it was cooperating with federal prosecutors and other authorities, adding that it was “unable to predict the outcome” of the probe but that a resolution could result in “significant fines, penalties and other sanctions against the firm.”

Given Leissner’s decision to plead guilty, it certainly weakens other 1MDB’s players’ cries of innocence and denial. Here, we’ve broken down the most telling parts from Leissner’s court appearance.

The charges

THE COURT: Count 1 charges that between January 2009 and October 2014 you, and others, knowingly and willfully conspired to violate the Foreign Corrupt Practices Act. Count 2 charges that in or about January of 2009 and October of 2014 you, and others, knowingly and intentionally conspired to commit money laundering.

Again, you are not charged with a substantive crime of violating the Foreign Corrupt Practices Act, you are charged with conspiring to do so.

You are also charged with circumvention of internal controls, and to prove that, the Government would have to show that you somehow circumvented the issuer’s internal controls and caused transactions to be executed that were not authorized by the issuer or reported promptly, and you do so knowingly and willfully. Do you understand that?

THE DEFENDANT: Yes, Your Honor.

THE COURT: Okay. With regard to the money laundering count…the Government would have to prove at trial, they would have to show that you attempted to — or that you transported, transmitted, or transferred money instruments or funds to or through the United States for the purpose of promoting violations of the Foreign Corrupt Practices Act and also the Malaysian Penal Law.

What will happen to Leissner after he is sentenced?
Is there a possibility he will he be extradited to Malaysia to answer for his crimes on Malaysian soil? Would the German national serve his time in Germany if he is deported?

THE COURT: I understand that you are not a U.S. citizen. Is that correct?

THE DEFENDANT: That’s correct, Your Honor.

THE COURT: And do you understand that your plea of guilty may affect your residency and your status in the United States with immigration authorities?

THE DEFENDANT: Yes, Your Honor.

THE COURT: That you will likely be deported as a result of pleading guilty to these charges?

THE DEFENDANT: Yes, Your Honor, I understand.

THE COURT: Are you still willing to plead guilty despite these likely immigration consequences?

THE DEFENDANT: Yes, Your Honor.

The prison time that he is facing

THE COURT: As to Count 1, pursuant to violate the FCPA, the maximum term of imprisonment is five years with no minimum. You also face a maximum supervised release term of three years.

THE COURT: You also face a maximum fine of $250,000 or twice the gross gain or loss, whichever is greater. Do you understand?

THE DEFENDANT: Yes, Your Honor.

THE COURT: Restitution is mandatory for this count, and you will be required to repay the full amount of the victims’ losses as determined at sentencing. Do you understand that?

THE DEFENDANT: Yes, Your Honor.

THE COURT: You also agree to $43,700,000 in forfeiture as set forth in the agreement in Paragraphs 6 through 12…you have agreed to that amount in criminal forfeiture. Do you understand that?

THE DEFENDANT: Yes, Your Honor, I do.

THE COURT: With regard to Count 2, conspiracy to commit money laundering, there is a maximum term of imprisonment of 20 years, no minimum. You also face a maximum supervised release term of three years.

You also face on this count a maximum fine of $500,000 or twice the value of the monetary instrument or funds involved in the transfer, whichever is greater. You face restitution also on this count, and the criminal forfeiture agreement is consistent with your criminal forfeiture on the other count. Do you understand that?

THE DEFENDANT: Yes, Your Honor.

THE COURT: And I do want to make sure that you understand that because you are pleading guilty to two separate counts, the sentences could be linked to run consecutive so that you can be sentenced to time on one count and the time sentenced on the second count could be made to run in addition to. Do you understand that?

THE DEFENDANT: Yes, Your Honor.

The inevitability of jail time?

THE COURT: Parole has been abolished, and so to the extent you are sentenced to any jail time, you will have to serve that time. Do you understand that?

THE DEFENDANT: Yes, Your Honor.

The basis of Leissner’s sentence
The sentence guidelines don’t determine his sentence (this is dependent on the judge’s ruling) but exist to establish uniformity and consistency when sentences are handed out (in Federal cases). The levels are calculated using the Sentencing Table and the Guidelines Manual.

THE COURT: Do the parties have an estimate — at least the Government has an estimate as to what the guideline range would be in this case?

MR. ROLLE (Assistant United States Attorney): Yes, Your Honor. The guideline estimate as calculated by the Government is a range of life…and the basis for that is the base offense level pursuant to 2S1.1(a)(1) is the offense level applicable to the underlying crime here, violations of the FCPA, and that level is 48. That is based on the base offense level of 12, increased by the value of the bribe in this case is more than $550 million, which increases the base offense level by 30. There is more than one bribe in this case, which increases it by 2. There is an involvement of high level officials, which then increases it by 4, resulting in 48. Turning to the money laundering, because the defendant was convicted under Section 1956, the offense level then increases by 2. Since this involved sophisticated laundering, use of shell companies, so then it also increased again by 2, resulting in a total offense level of 52. And at a criminal history category of 1 resulting in guidelines range of life.

Counsel, Mr O’Neill, do you agree with the Government’s estimate of the guideline range?

MR. O’NEILL: That is potentially possible. It’s a potential life sentence if all charges were brought upon Mr Leissner.

THE COURT: Okay. And, Mr Leissner, do you understand that these estimates could be wrong?

THE DEFENDANT: Yes, Your Honor, they could be wrong.

THE COURT: Okay. And do you understand that there is no guarantee as to the guidelines range for sentencing?

THE DEFENDANT: Yes, Your Honor, I understand.

THE COURT: Do you also understand that I have to determine the range and that I am not required to sentence you within the range?

THE DEFENDANT: Yes, Your Honor, I understand.

Leissner pleads guilty
Given the severity of Leissner’s penalties so far, we have to wonder about the likelihood of whether Leissner accepted a plea deal in return for his cooperation with authorities and for pleading guilty. Portions of the transcript relating to bail were redacted so we can only speculate.

THE COURT: Are you ready to plead guilty?

THE DEFENDANT: Yes, Your Honor.

THE COURT: Mr O’Neill, do you know of any reason why your client should not plead guilty?

MR. O’NEILL: No, Your Honor.

THE COURT: Are you aware of any viable defenses?

MR. O’NEILL: None, Your Honor.

THE COURT: Mr Leissner, what is your plea to Count 1 of the indictment charging you with conspiracy to violate the Foreign Corrupt Practices Act, guilty or not guilty?

THE DEFENDANT: Guilty.

THE COURT: What is your plea to Count 2 of the information charging you with conspiracy to commit money laundering, guilty or not guilty?

THE DEFENDANT: Guilty.

THE COURT: Okay. So I need you to tell me in your own words what you did to make you guilty of Counts 1 and 2, keeping in mind the elements of both crimes as we discussed earlier in the proceeding.

THE DEFENDANT: Your Honor, I wrote a statement.

THE COURT: Okay.

THE DEFENDANT: May I read that?

THE COURT: You may.

Leissner’s statement

THE DEFENDANT: I have read the information filed by the Government. As described in the information, I was an employee of Goldman Sachs – Asia, LLC between approximately 2011 and 2016, as well as of other public subsidiaries of Goldman Sachs, which is identified as U.S. Financial Institution Number 1 in the information. At all times, I was an agent of Goldman Sachs and was a participating managing director of Goldman Sachs.

At all times concerning the 1MDB business that Goldman Sachs conducted with 1MDB between 2009 and 2014, and which is described in the information, including the negotiation and execution of three bond deals and other transactions, I acted on behalf of, and within the scope of my employment and agency of, Goldman Sachs to acquire and execute the 1MDB transaction in business —

1MDB was a strategic investment and development company wholly owned and controlled by the Government of Malaysia. As I understood, 1MDB was created to pursue investment and development projects for the economic benefit of Malaysia and its people.

While acting within the scope of my employment and with the intent to benefit Goldman Sachs and myself, as an employee and agent of Goldman Sachs, I entered into a conspiracy with those individuals identified in the Government’s information to pay bribes and kickbacks to obtain and then retain business from 1MDB for Goldman Sachs.

THE COURT: Including the person identified as the intermediary who you dealt with who then dealt with —

THE DEFENDANT: Yes.

THE COURT: — this entity?

THE DEFENDANT: Yes, that’s correct.

THE COURT: Okay.

Leissner implicates Jho Low in his statement

THE DEFENDANT: That individual would be Jho Low that you’re referring to, I think, as Conspirator Number 1, Co-Conspirator Number 1 in the information.

Leissner lays bare the duplicitous web

THE DEFENDANT: The goal of paying bribes and kickbacks was to influence the government officials to take official action so that Goldman Sachs would receive business from 1MDB. I took part in the process of paying some of these bribes and kickbacks. I also knew that some of the funds that would be used to pay bribes and kickbacks to government officials would move through the U.S. banking system.

For instance, I knew that funds derived from Project Magnolia, specifically mentioned in the information, would be diverted to me and others, including government officials, through shell companies beneficially owned and controlled by myself and others in U.S. dollars, and those financial transactions would be processed through the United States.

I knew that the use of shell companies in these fund — these fund transfers was designed, at least in part, to conceal and disguise the nature, location, source, ownership, and control of the diverted and the stolen funds.

Was this US$4.1 million used for that infamous ring?

The following is one specific instance involving the movement of funds: On or about October 10, 2014, I caused approximately $4.1 million to be wire transferred from a foreign bank account controlled by myself and another individual to the U.S. bank account of a New York jeweler in part to pay for jewelry for the wife of a Malaysian government official. I understood that this payment to the New York jeweler was intended to benefit the Malaysian government official and his wife in order to influence the government official to take official acts that would help provide 1MDB business to Goldman Sachs, for the benefit of Goldman Sachs and myself.

Goldman Sachs and Jho Low further implicated

During the course of the conspiracy, I conspired with other employees and agents of Goldman Sachs very much in line of its culture of Goldman Sachs to conceal facts from certain compliance and legal employees of Goldman Sachs, including the fact that Jho Low, who is identified as Co-Conspirator Number 1 in the information, was acting as a intermediary for on behalf of Goldman Sachs, 1MDB, and Malaysian and Abu Dhabi officials.

As stated in the information, on one occasion in 2012, I told a committee at Goldman Sachs that Jho Low was not involved in one of the bond transactions. This was not true. I knew that concealing Jho Low’s involvement as an intermediary was contrary to Goldman Sachs’s stated internal policies and procedures.

I and several other employees of Goldman Sachs at the time also concealed that we knew that Jho Low was promising and paying bribes and kickbacks to foreign officials to obtain and retain 1MDB business for Goldman Sachs, for the benefit of Goldman Sachs and myself, and using some of the proceeds of the 1MDB bonds to do so.

I knew that this was contrary to Goldman Sachs’s stated policies and procedures. As a result of these bribes and kickbacks, and in movement of the funds through the bribes and kickbacks, Goldman Sachs received substantial business from 1MDB (US$593 million, to be exact). The three bond deals and related transactions resulted in substantial fees and revenues for Goldman Sachs, of which and in many cases, it was very proud of at the time.

In addition, I received large year-end bonuses as an employee and agent of Goldman Sachs. That concludes my statement, Your Honor.

Leissner is due to be sentenced 17 January 2019.

Source: AFP, South China Morning Post, Bloomberg

Related: How One of the World’s Biggest Banks Got Tied Up in 1MDB