By Aruna Viswanatha, Bradley Hope and Jenny Strasburg
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 11, 2019).
The sprawling, multibillion-dollar Malaysian development fraud
scandal that has toppled a prime minister and stretched from
Hollywood to Wall Street is threatening to implicate another major
global financial institution: Deutsche Bank AG.
The U.S. Justice Department is investigating whether the German
lender violated foreign corruption or anti-money-laundering laws in
its work for the 1Malaysia Development Bhd. fund, which included
helping the fund raise $1.2 billion in 2014 as concerns about the
fund's management and financials had begun to circulate, according
to people familiar with the matter.
The investigation into Deutsche Bank has been helped in part by
a former Goldman Sachs Group Inc. executive, Tim Leissner, who is
cooperating with authorities, according to the people familiar with
the matter. Prosecutors have been investigating similar issues at
Goldman, where Mr. Leissner, a former managing director, pleaded
guilty last year and admitted to earlier helping siphon off
billions of dollars from the fund.
A state economic-development fund, 1MDB turned into a major
global scandal after billions of dollars were drained from it
between 2009 and 2014, leading to multiple government
investigations and the downfall of former Malaysian Prime Minister
Najib Razak. The U.S. Justice Department has said the stolen money
totals at least $4.5 billion and that it was used to pay bribes to
government officials, pad a slush fund controlled by the former
prime minister and purchase hundreds of millions of dollars in
luxury goods including jewelry, artwork and real estate.
Meanwhile, the Justice Department is set to begin negotiations
with Goldman soon to try to resolve allegations through a possible
criminal settlement, a senior official said. "We do anticipate
getting into active discussions with Goldman, at this point, in the
near future," Assistant Attorney General Brian Benczkowski, who
runs the agency's criminal division, said in an interview. He
declined to comment on any other aspect of the 1MDB
investigation.
Prosecutors are focused, in particular, on the role of one of
Mr. Leissner's former colleagues, Tan Boon-Kee, who worked with Mr.
Leissner on 1MDB-related business. She then left Goldman to become
Asia Pacific head of banking for financial-institutions clients at
Deutsche Bank, where she was involved with further 1MDB dealings,
according to the people familiar with the matter. She was
interviewed by Singaporean authorities last year, said a person
familiar with the matter.
Ms. Tan left Deutsche Bank last year, after the bank discovered
communications between her and Jho Low, the Malaysian financier
described by the Justice Department as the central player in the
1MDB scandal, according to a person familiar with her exit. Neither
she nor the bank have commented publicly about the reason for her
departure.
"Deutsche Bank has cooperated fully with all regulatory and
law-enforcement agencies that have made inquiries relating to
1MDB," a spokesman for the bank said. He cited Justice Department
documents saying 1MDB made "material misrepresentations and
omissions to Deutsche Bank officials" in connection with 1MDB's
transactions with the bank. "This is consistent with the bank's own
findings in this matter," he added.
A U.S. civil asset-forfeiture complaint repeatedly describes
Deutsche Bank as being misled by 1MDB officers. For example, one
such paragraph states: "1MDB officials secured approval of these
two loans through material misrepresentations and omissions to
Deutsche Bank, including that the proceeds of the loans would be
paid to a legitimate affiliate..."
A Goldman spokeswoman said the firm continues to cooperate with
investigations and declined to comment further.
A spokeswoman for Ms. Tan's current employer, FWD Group, an
insurer with operations in Singapore and Hong Kong, where Ms. Tan
joined as group chief business officer in April, said Ms. Tan
declined to comment. A lawyer for Mr. Leissner didn't respond to
requests for comment.
New details of the investigation come at a sensitive time for
Deutsche Bank. Germany's biggest bank is already contending with a
criminal money-laundering probe in the U.S., congressional scrutiny
of its relationship with President Trump and others in his circle,
and a far-reaching global overhaul to shrink the bank and stabilize
its dismal profits. It announced thousands of layoffs on Sunday.
The bank has said it is cooperating with investigations and working
on improving its processes for detecting and preventing illicit
cash flows.
Years of costly compliance lapses led Deutsche Bank in recent
years to shed risky clients and exit countries where executives
said profits didn't justify costs and risks. Bank officials
prioritized settling big-ticket investigations, but new probes have
surfaced, bringing fresh uncertainty.
Goldman Sachs has received the most attention in the 1MDB
scandal for its involvement in helping the Malaysian fund raise
$6.5 billion of bonds and the role of Mr. Leissner as a key
co-conspirator in the scheme to steal money.
Mr. Leissner pleaded guilty last year to conspiring to violate
the Foreign Corrupt Practices Act and commit money laundering,
which could make Goldman liable for the same crimes. Roger Ng, a
former Goldman managing director, agreed to be extradited to the
U.S. from Malaysia. A lawyer for Mr. Ng said he was preparing to
take the case to trial, after a judge in May said Mr. Ng had
engaged in negotiations with the government. "Mr. Ng and I are
preparing his defense. There have been no plea discussions," the
lawyer, Marc Agnifilo, said.
But Deutsche Bank, too, played a large role in a variety of
transactions related to 1MDB. In the most recent version of the
Justice Department's civil asset-forfeiture complaint, in which it
details the 1MDB scheme at length, Deutsche Bank is mentioned 167
times. Goldman Sachs is mentioned 56 times.
The complaint says Deutsche Bank was involved with 1MDB from its
earliest days in 2009 as the bank facilitating financial transfers
related to 1MDB's first big deal, a joint venture with a
little-known Swiss company called PetroSaudi. The Justice
Department alleges that a group of conspirators led by Mr. Low, the
Malaysian financier, stole some $1 billion from the $1.8 billion
contribution by 1MDB, but it doesn't describe any failing of
Deutsche Bank in the complaint. PetroSaudi has denied any
wrongdoing.
Deutsche Bank also arranged emergency loans for 1MDB in 2014
totaling $1.2 billion. The Justice Department said that money was
also mostly stolen by Mr. Low and his co-conspirators. The bank
called in the loan early, however, when it realized 1MDB's
collateral was impossible to verify, and 1MDB got an Abu Dhabi
sovereign-wealth fund it often worked with to extend a $1 billion
loan to replace Deutsche Bank, according to the complaint and
Malaysian investigative documents.
The U.S. complaints often described Deutsche Bank as being
misled by 1MDB representatives. Prosecutors similarly described Mr.
Leissner, the former Goldman executive, as deliberately going
around the bank's internal controls, but also described Goldman in
related court documents as having a business culture that was
"highly focused on consummating deals," at times at the expense of
compliance.
The Justice Department's investigation has to date resulted in
civil lawsuits seeking to forfeit around $1.7 billion in allegedly
stolen assets and criminal charges in the U.S. against the alleged
mastermind and another former Goldman banker, among others.
--Tom Wright contributed to this article.
Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com, Bradley
Hope at bradley.hope@wsj.com and Jenny Strasburg at
jenny.strasburg@wsj.com
(END) Dow Jones Newswires
July 11, 2019 02:47 ET (06:47 GMT)
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