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Goldman Sachs and 1MDB

Published 19 Apr 2021
Reference 6657
Industry Banking
Region Asia
Summary

The case focuses on bribery and corruption in wholesale international capital markets with an emphasis on infrastructure finance – notably the theft of $4.5 billion in proceeds from bond issues by the 1 Malaysia Development Berhad (IMDB) totalling $6.5 billion. The scandal ensnared the Malaysian Prime Minister, an Abu Dhabi Sovereign Wealth Fund, major institutional investors and the Goldman Sachs Group in one of the largest financial frauds in recent history. The scope of the case spans a host of issues from public finance to due diligence, corporate culture, executive conduct and reputational risk.

Teaching objectives

The case describes the Goldman Sachs Group – its history and culture, notably the evolving business model with the transition from a partnership structure to a public corporation and subsequently a U.S. Bank Holding Company (BHC). It focuses on the successive rebalancing of trading and positioning alongside corporate financial services, and the endemic issue of the firm’s role as principal and agent, while striving to maintain a peerless reputation and a cohesive corporate culture. These strands are interwoven in the 1MDB scandal, which ended with a Goldman unit pleading guilty to charges of criminal fraud and the firm being fined $6.5 billion by the U.S. Department of Justice, Malaysia, Hong Kong and other regulators. Students explore the pathology of the scandal, the damage, the victims, the failures of governance and management on the part of Goldman Sachs, the role played by corporate culture, and the consequences for the business franchise going forward.

Keywords
  • Development finance
  • Sovereign wealth funds
  • Infrastructure finance
  • Financial fraud
  • Corruption in public finance
  • Corporate culture
  • Compliance
  • Regulatory oversight
  • Deferred prosecution
  • Reputational risk
  • Due diligence
  • Financial transparency
  • Bribery
  • Fraud safeguards
  • Security Brokers & Dealers
  • Commercial Banks
  • Q22021