Paul Zimmerman died last week. To multiple generations of readers he was simply “Dr. Z”. He was the lead sports writer at Sports Illustrated from 1980 to the 1990s on all matters pro football. As was noted in his New York Times (NYT) obituary, “a pro football writer whose deep understanding of the game informed his work at Sports Illustrated and influenced the way other reporters covered the sport.” I was introduced to Zimmerman a decade earlier in the form of his 1970 book “A Thinking Man’s Guide to Pro Football”. In his review of the book, then NYT sports columnist “Robert Lipsyte praised Mr. Zimmerman for having a “clear and skeptical eye and the rare gift of being interesting and technical at the same time.”” Of all his columns perhaps the most well-loved were his pieces on Super Bowls. For some of Dr. Z’s greatest writing check out the si.com’s tribute column, entitled “Best of Dr. Z: Paul Zimmerman’s Greatest Sports Illustrated Stories”.

Last week we also saw several new and significant developments in the long-running 1Malaysia Development Berhad (1MDB) scandal as the US Department of Justice (DOJ) announced one guilty plea, one arrest and one indictment. The guilty plea came from former Goldman Sachs Group Inc. (Goldman Sachs) banker in Southeast Asia, Timothy Leissner, who was the client relationship manager for the Malaysian sovereign wealth fund, the country’s former Prime Minister Najib Razak and the person alleged to have looted the fund Jho Low. As was laid out in a two-count Criminal Indictment, Leissner pled guilty to both money laundering and violations of the Foreign Corrupt Practices Act (FCPA). He was ordered to forfeit $43.7 million in ill-gotten gain from his illegal activities.

In a three-count Indictment, another Goldman Sachs employee, Roger Ng, was charged with conspiracy to violate the FCPA and money-laundering. Ng was arrested in Singapore and will presumably be transported to the US to stand trial or more likely plead guilty. According to the FCPA Blog, “Ng circumvented Goldman’s internal accounting controls, the DOJ said. Goldman Sachs underwrote more than $6 billion in bonds issued by 1MDB in three separate bond offerings in 2012 and 2013 while Ng was a managing director.”

Also indicted was the alleged mastermind, Jho Low, who kept most of the proceeds from the looting of the 1MDB and shared with persons, literally around the world; most importantly the former Malaysian Prime Minister and his wife. The DOJ Press Release identified three major schemes which were literally the outright theft of monies from 1MDB, stating “between approximately 2009 and 2014, as 1MDB raised money to fund its projects, billions of dollars were misappropriated and fraudulently diverted from 1MDB, including funds 1MDB raised in 2012 and 2013 through three bond transactions that it executed with the Financial Institution.”

The first was Project Magnolia and the Press Release stated, “In early 2012, according to allegations in court filings, following a series of meetings in Malaysia and the United Kingdom, Low, Leissner, Ng and the co-conspirators agreed that, with the assistance of the Financial Institution, 1MDB would issue $1.75 billion in bonds guaranteed by an entity wholly-owned and controlled by the government of Abu Dhabi.” The ‘Financial Institution’ has been identified as Goldman Sachs. Thereafter, “After Project Magnolia closed on or about May 21, 2012, more than $500 million of the bond proceeds were allegedly misappropriated and diverted from 1MDB through numerous wire transfers to bank accounts in the name of shell companies beneficially owned and controlled by Low, Leissner, Ng, and” others.

The second and third were Projects Maximus and Catalyst, which were bond offerings in which Goldman handled the bond offering. The Press Release stated the “transactions generated substantial fees and revenues for the Financial Institution.  As alleged, although both transactions were designed to raise more than $4 billion for 1MDB’s investment and development projects, Low, Ng, Leissner, and other co-conspirators used the transactions to further the criminal scheme, ultimately laundering hundreds of millions of dollars of diverted funds from these transactions into bank accounts beneficially owned and controlled by” them. The FCPA Blog stated, “The DOJ said they conspired to launder the money in the United States by buying “luxury residential real estate in New York City and elsewhere, and artwork from a New York-based auction house, and by funding major Hollywood films,” including the Wolf of Wall Street.”

While the name Goldman Sachs was not explicitly stated in the indictments and guilty plea, it is clear the company is up to its Venice hip waders in this matter. Obviously when you have the head of Southeast Asia and a Managing Director plead guilty and be indicted it does not bode well for your organization. There is also the matter of the $600 million Goldman Sachs made on the bond offerings. In Leissner’s Criminal Information, it stated, “In the course of the scheme, the defendant TIM LEISSNER, together with Co-Conspirator #1, Co-Conspirator #2 and others, did obtain and retain 1MDB business for U.S. Financial Institution #1, including three bond offering transactions for 1MDB in 2012 and 2013. These three bond offerings and related transactions ultimately earned U.S. Financial Institution #1 approximately $600 million in fees and revenue and resulted in LEISSNER, Co-Conspirator #2 and others obtaining large bonuses from U.S. Financial Institution #1 and enhanced their professional reputations at U.S. Financial Institution #1.” It went on to state, “Although the stated purpose of the approximately $6.5 billion raised by the three bond transactions was to support 1MDB projects for the benefit of the Malaysian people, more than $2.7 billion was instead misappropriated by the defendant TIM LEISSNER and his co-conspirators.”

In a November 2, 2018 10Q filing Goldman Sachs tried to get ahead of the massive legal problem it finds itself in by using a variation of the rogue employee(s) defense. It stated, “The plea and charging documents indicate that Leissner and Ng knowingly and willfully circumvented the firm’s system of internal accounting controls, in part by repeatedly lying to control personnel and internal committees that reviewed these offerings. The indictment of Ng and Low alleges that 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 prioritized consummation of deals ahead of the proper operation of its compliance functions.”

In subsequent blog posts this week, I will be considering how these bribery schemes moved forward and what lessons might be drawn by the compliance practitioner.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2018

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