Malaysian law enforcement filed criminal charges today against 17 former and current Goldman Sachs executives, for the bank’s alleged role in the misappropriation of $4.5 billion from Malaysia’s state development fund, known as 1MDB. Attorney general Tommy Thomas said his department will seek prison sentences and fines against the accused, who include Goldman Sachs International CEO Richard Gnodde and two former vice chairs of Goldman Sachs Group, one of whom, Michael Evans, is now president of Alibaba.
The executives were charged under a Malaysian law that allows authorities to hold senior executives accountable for offenses committed by their employees. Richard Bistrong, a compliance consultant who was jailed by a Washington, DC, court for paying bribes as a defense industry executive, says punishing people at the top is a crucial element in deterring white collar crime. The C-suite, after all, sets the tone and devises the bonus structures that can sometimes incentivize lower-level employees to break the law.
“We’ve seen an evolution of companies traditionally saying, ‘We’ve had great compliance programs, this was a bad apple or rogue element.’ For years the government accepted that, saying… it’s not the company but the person,” Bistrong says. “Whereas, now regulators are looking up at the organization and saying, ‘How did this happen? What made that person think this was okay?'”
In the West, few top banking execs have personally been charged for their purported role in the subprime mortgage crisis, rate rigging, money laundering, and a host of other misdeeds.
Malaysia accuses three Goldman units of misleading investors while helping raise $6.5 billion in bonds for 1MDB, which were then allegedly embezzled and spent on diamonds, Picassos, and the production of The Wolf of Wall Street. Goldman, which earned $600 million in fees for the bond deals, denies any wrongdoing, saying 1MDB officials lied to them. Amid public outrage, then-prime minister Najib Razak was voted out of office last year and faces dozens of criminal criminal charges over the scandal. He denies any wrongdoing.
“We believe the charges announced today, along with those against three Goldman Sachs entities announced in December last year, are misdirected and will be vigorously defended,” a Goldman spokesperson said in a statement.
Those charged reportedly face up to 10 years in jail.