Financial scandals are not a thing of the past
The 1Malaysia Development Berhad (1MDB) scandal is one of the greatest financial frauds in history. The purpose of the 1MDB fund, set up by Malaysia’s prime minister Najib Razak in 2009, was to promote economic development in a country where the average income is around £300 per month. Instead, $4.5 billion was diverted to offshore bank accounts and shell companies. The funds were used to buy mansions in Los Angeles, a painting by Monet, a drawing by Van Gogh, a private jet, a superyacht, hotels, jewelry, and to finance a movie about financial fraud (of all things), namely the 2013 Hollywood film “The Wolf of Wall Street.” Worst of all, hundreds of millions were allegedly used to steal an election and keep the prime minister in power for five additional years, when his opponents were crushed, and at least one prosecutor was brutally murdered.
Innocent until proven guilty
For its role in helping 1MDB raise $6.5 billion in 2012 and 2013, Goldman Sachs earned more than $600M. For quite a long time, the bank blamed rogue employees for the scandal, stating it had no knowledge the money it helped raise would be diverted from planned development projects within Malaysia. However, in 2020 Goldman officials admitted that its Malaysian unit had “knowingly and willingly” paid bribes to foreign officials and ignored red flags that should have triggered an investigation. As a result, Goldman has agreed to return the $600M and to pay nearly $3B to regulators in the US, UK, Hong Kong, and Singapore to end a probe of its role in the 1MDB corruption scandal.
Could it have all been prevented?
The story came out when Swiss banker Xavier Justo handed British journalist Clare Rewcastle Brown thousands of documents, including 227,000 emails from the servers of his former employer, PetroSaudi, which appeared to reveal the alleged theft of hundreds of millions of dollars from the state-owned 1MDB.
The crimes, however, had been committed years earlier. So, the question is: could it have all been discovered earlier before the documents were leaked?
If we judge by all the red flags that point to then-prime minister Najib Razak, a politically exposed person (PEP) who was portrayed negatively in the media due to alleged corruption accusations, then the answer must be yes:
- 1MDB was state-owned, with Malaysia having a track record of being included in the world’s top 100 most corrupt countries.
- The fund was set up by Najib Razak, who had a history of corruption and acted as the 1MDB chairman of the board of advisors.
- When 1MDB was set up, one of the prime minister’s opponents described it as ‘Najib Razak’s slush fund.’
- While the Malaysian press is state-controlled, the prime minister had been publicly described by his opponents as being ‘institutionally corrupt.’
Better customer due diligence and a stronger adverse media screening solution would have helped Goldman Sachs identify and stop the crimes committed. Ultimately it would have saved billions in fines.
Government agencies Global FATF, European 6AMLD, United Kingdom FCA, APAC MAS, HKMA, and AUSTRAC all include adverse media screening in their AML guidance. Each requires financial institutions to deploy verifiable adverse media searches to build the client risk profile and understand the nature of the business in which they are engaged. Without financial institutions taking proper measures, regulators do not hesitate to issue significant fines, as we could see in the case of Goldman Sachs.
Learn more about how the SymphonyAI Sensa-NetReveal adverse media screening solution can help identify high-risk customers and relationships, safeguard your organization’s reputation, and minimize the risk of regulatory fines.
