Wednesday, March 09, 2016

The AG and IGP must expedite investigations on 1MDB's US$6.5 billion bond deals with Goldman Sachs

Bloomberg has reported yesterday that the former Chief of Goldman Sach’ s Southeast Asian operations,  Tim  Leissner  has  been  subpoenaed  by  the  Federal Bureau  of  Investigations (FBI) of the United States last month.

Prosecutors  in  the  Justice  Department’ s  kleptocracy  asset-recovery  unit  are  investigating whether  funds  were  embezzled  from  1Malaysia  Development  Bhd.,  known  as  1MDB,  by politically  connected  people  in  Malaysia,  the  people  said.  The  FBI’ s  New  York  office  is leading the investigation and is trying to determine if any U.S. laws were broken, according to one of the people briefed on the subpoena issued to Leissner.

Critics  of  the  1MDB  mega-scandal,  including  myself,  have  long  been  calling  for  the  bond issuance exercise carried out by Goldman Sachs for 1MDB to raise a total of US$6.5 billion to be investigated.

1MDB had via 3 international bond issuance exercise, raised US$1.75 billion, US$1.75 billion and US$3 billion in May 2012, October 2012 and March 2013 respectively.  The investment bank which also acted as the underwriter of the bonds was Goldman Sachs.

The above bond issuance stunk to high heavens because of the abnormal and exorbitant “certain commissions, fees and expenses” which were paid to Goldman.

For  example,  1MDB  paid  US$196  million  and  US$283  million  for the “certain  commissions, fees  and  expenses”  to  raise  US$1.75  billion  and US$3  billion  respectively.   These  amounts worked out to a staggering 11.2% and 9.4% of the funds raised.

How  is  it  that  Tenaga  Nasional  and  Penerbangan  Malaysia  Bhd  were  able  to  raise  US$350 million and US$1 billion by paying only 2% and 0.5% in fees and expenses?

What  is  more  interesting  is  the  fact  that  other  Goldman Sachs fund-raising  exercises  were substantially   cheaper  as  well.   For  example,   Goldman  charged  Sarawak   government subsidiary, Equisar International Inc only 1.3% in fees.

For  similarly-sized  issues,  the  Mexican  and  Uruguayan  governments  successfully  issued bonds amounting to US$3.9 billion and US$2.0 billion by deducting only 0.2% and 0.1% for fees and expenses respectively.

How could it be possible that Malaysia as a country is 100 times less credit worthy than the Uruguayan government?

Questions asked previously have not been answered in full and Malaysians have remained in the dark. Goldman  Sachs  insisted  that  other  than  fees  paid  to  the  professional  legal advisors and accountants, the entire fees were due to the investment bank.

1MDB  and  the  Minister  of  Finance  however,  contradicted  Goldman  Sachs  by  telling  the Malaysian  parliament  that  part  of  the ‘ fees’   to  Goldman  was  actually  a  discount  given  to bond  subscribers.    They  however,  refused  to  disclose  the “discount”  which  was  given  and the investors who subscribed to the bond.

Despite the fact that the Malaysian government and taxpayers are the biggest victims to the astronomical fee paid to Goldman Sachs, it is the US investigators who have found basis to investigate  the  above  transactions  for  possible  scam,  conspiracy  and  international  money laundering.

It is a disgrace that the Royal Malaysian Police has completely failed to carry any extensive investigations  on  the  above  incredulous  transactions. The  Attorney-General  and  the Inspector General  of  Police  must  expedite  investigations  on  1MDB’ s  US$6.5  billion  bond deals with Goldman Sachs in the light of Tim Leissner being subpoenaed by the FBI.

The  failure  of  the  Attorney-General  and  the  Inspector  General  Police  to  take  quick  and effective action against such crimes have led to the Government carrying out a multi-billion bailout of  1MDB  with  emergency  loans,  cheap  land  sales  and preferred  contracts  at  the expense of the tax-payers.
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