This Week in Compliance

This Week in Compliance: Goldman Sachs Faces ‘Full Refund’ Demands from Malaysia in 1MDB Scandal

Business

  • Malaysia now seeking ‘full refund’ of Goldman Sachs fees over 1MDB scandal: Several senior Malaysian government figures stepped up pressure on investment bank Goldman Sachs this week over its role in the 1MDB scandal. Leader-in-waiting Anwar Ibrahim called this week for “more aggressive” claims against Goldman Sachs as Prime Minister Mahathir Mohamad said that the bank had “cheated” Malaysia and that the country is considering banning the bank from operating in the country. Finance Minister Lim Guan Eng indicated that he is counting on U.S. laws against kleptocracy and the bank’s “indirect admission” of wrongdoing in a bid to recoup the nearly USD 600 million in fees the country paid for three 1MDB bond sales. It is alleged that nearly USD 4.5 billion was misappropriated from the fund. One of Goldman Sachs’ bankers, Tim Leissner pled guilty last week over his role in the scandal. The bank has not publicly admitted wrongdoing and says it is cooperating with authorities. The bank’s stock lost 7.5% in value during trading on Monday after news of Malaysia’s new demands broke.
  • Pennsylvania-based consultant loses appeal against five-year FCPA sentence: The consultant who bribed an official at the European Bank for Reconstruction and Development (EBRD) lost the appeal against his 60-month prison sentence for violating a key provision of the FCPA. Arguing against his sentence, consultant Dmitrij Harder said that the bribes he paid to secure financing for two Russian energy projects provided economic benefits that should be considered as mitigating factors in his sentencing. The projects created 6,500 jobs and boosted “the entire economy of the region” according to Harder. The consultant paid USD 3.5 million in bribes to a senior banker at the EBRD in 2008 and 2009 in exchange for loan approvals for his clients. The appeal judge writing for the Third Circuit ruled this week the trial judge had correctly rejected the “economic benefit” argument.
  • Employee morale at Facebook takes a dive following scandal-heavy year: The Wall Street Journal reported this week that an internal biannual survey at the social media giant Facebook found a precipitous drop among employee morale. Whereas 84 percent of employees indicated last year that they were optimistic about the company’s future, only 52 percent of employees agreed with that sentiment this year. In the same vein, only 70 percent of employees indicated they are proud to work at Facebook, down from 87 percent a year ago. These findings come after a tough year for the company, which has become embroiled in multiple user data scandals, including the Cambridge Analytica case earlier this year, a fight to curtail misinformation on the network, as well as a wider executive exodus and flat, even declining, user growth in key markets.
  • Tesla employee indicted for embezzling USD 9.3 million: Salil Parulekar, a former employee of Tesla’s global supply management group, was indicted by a federal grand jury for allegedly engaging in a USD 9.3 million embezzlement scheme. Parulekar used this role, in which he oversaw the company’s relationship with certain suppliers, to send money owed to one supplier, Schwäbische, to another supplier, Hota, in a sophisticated scheme in which he managed to trick Tesla’s accounting division into switching the bank information of the two suppliers. It is not immediately clear from the indictment how Parulekar personally benefited from the scheme. Parulekar is facing nine counts of wire fraud and one count of aggravated identity theft.

Government

  • Poland probes bank regulator’s chairman after reports of misconductPoland’s Prime Minister announced an investigation into the chairman of the country’s financial sector regulator this week after reports emerged of an improper offermade to the owner of a distressed bank. A newspaper report suggested that chairman Marek Chrzanowski instructed Leszek Czarnecki, owner of Getin Noble Bank SA, how he may be able to obtain favorable treatment from the regulator by hiring a specific lawyer. Chrzanowski further suggested that the fee paid to the lawyer should be equivalent to 1 percent of the bank’s market capitalization, which is roughly USD 10.5 million. The regulator said in a statement the lawyer had indeed been recommended, but it denied that specific proposals with regard to fees or promises of special treatment had been made.
  • Colombia investigates death of key witness in Odebrecht corruption case: Colombia’s Attorney General opened an inquiry into the death of key witness Jorge Enrique Pizano this week. Pizano died last week from what was originally deemed a heart attack. However, Pizano’s son died three days later of cyanide poisoning after drinking from a bottle left in his father’s home; arising suspicions from investigators. Pizano worked as an auditor for Colombia’s “Ruta del Sol” infrastructure project, which had been awarded to Odebrecht, the construction firm at the center of Brazil’s sprawling Operation Car Wash investigation. In 2013, three years after Pizano was hired as an auditor on the Ruta del Sol project, the auditor started denouncing the suspicious payments made by Odebrecht and Colombia’s largest banking group, Grupo Aval. The possibility that Pizano was poisoned has caused a stir in Colombia with many speculating about who may have wanted to silence the engineer.
  • Another guilty plea in ‘Fat Leonard’ scandal: Jeffrey Breslau, a retired U.S. Navy captain pled guilty in federal court in San Diego this week. Breslau admitted to secretly editing documents and writing emails for defense contractor Leonard Glenn Francis, known as “Fat Leonard”, who was defrauding the Navy. In his position as the spokesman for the U.S. Pacific Fleet, Breslau accepted USD 65,000 in “consulting fees” from the contractor. Breslau provided dozens of documents and emails with advice for Fat Leonard in relation to issues including “the unauthorized dumping of waste, disputes with competitors, and issues with Pacific Fleet and contracting personnel”. Up until today, 33 defendants have been charged in the scandal and 22 have pled guilty.
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