Malaysia Files Criminal Fraud Charges Against Goldman Sachs

by Tyler Durden

Mon, 12/17/2018 - 06:24

 https://www.zerohedge.com/news/2018-12-17/malaysia-files-criminal-fraud-charges-against-goldman-sachs

 

In an unprecedented move that possibly foreshadows similar charges from the US DOJ - and lots of headaches for the "recently retired" Lloyd Blankfein - the Malaysian attorney general has filed criminal charges against Goldman Sachs - targeting two of the investment bank's Asian subsidiaries and two former Goldman bankers who have already been charged by the US (former Southeast Asia head Tim Leissner and banker Roger Ng), accusing the investment bank of violating the country's securities laws by lying in bond agreements for three deals that raised $6.5 billion for 1MDB, a Malaysian sovereign wealth fund formed under former Prime Minister Najib Razak that US authorities believe was looted for upwards of $4 billion by corrupt bankers and officials.
While authorities in Singapore, Switzerland and elsewhere had already filed criminal charges against various banks involved with the scandal last year, the first charges against Goldman and its employees over their involvement in the scandal materialized two months ago when the DOJ indicted Leissner and Ng.
Shortly after the indictments, media reports revealed that senior Goldman executives - most notably, former CEO Lloyd Blankfein - were involved with the transactions. Blankfein attended at least three meetings with either Razak or disgraced Malaysian financier Jho Low, the allegedly corrupt financier who was also indicted by Malaysian authorities on Monday, even inviting Low to a private sit down at Goldman's 200 West Street headquarters. While pursuing the deal, Goldman employees - including Blankfein - brushed aside concerns raised by the bank's compliance department, and allowed Low to function as an unofficial intermediary between the bank and the Malaysian government, despite the bank's compliance department warning that Low was not to be trusted. The DOJ is also reportedly looking into the role of other senior Goldman bankers.

The charges followed reports over the weekend claiming that former senior Goldman employees believe 1MDB could tarnish Blankfein's legacy for reviving the bank's reputation following a massive 2010 settlement for abuses related to its sales of mortgage bonds before the financial crisis. Commenting on the 1MDB deals, one executive said "something doesn't smell right" and questioned how they managed to get past compliance.

"We believe these charges are misdirected, will vigorously defend them and look forward to the opportunity to present our case. The firm continues to cooperate with all authorities investigating these matters," Goldman said in a statement to the Wall Street Journal.

In a statement to the Financial Times, Tommy Thomas, Malaysia’s attorney-general, alleged in a statement that Goldman received $600 million in fees for its role, a total that was "several times higher than the prevailing market rates and industry norms." Malaysia is demanding that Goldman forfeit all of the fees it was paid by the Malaysian government (which were paid at a higher-than-market rate to reflect certain "risks" related to the deal), as well as additional punitive money. While the DOJ has alleged that some $4.5 billion was stolen from 1MDB, Malaysian authorities are targeting $2.7 billion.

"Malaysia considers the allegations in the charges against the accused to be grave violations of our securities laws, and to reflect their severity, prosecutors will seek criminal fines against the accused well in excess of the $2.7 billion misappropriated from the bonds proceeds and $600 million in fees received by Goldman Sachs, and custodial sentences against each of the individual accused: the maximum term of imprisonment being 10 years," the attorney general’s statement said.

Malaysia's indictment alleged that statements in Goldman's bond-sale documents were "false and misleading," and that the Goldman employees who were involved personally profited and benefited from the deals.

Malaysia said the offering circulars and private placement memorandum issued by Goldman for the three bonds contained statements which were "false, misleading, or from which there were material omissions" because they said proceeds of the bonds would be used for legitimate purposes.
"Offering circulars and private placement memorandum are serious documents, intended to be relied on, and, in fact, were relied on, by purchasers of the bonds," it said..
Malaysia said the accused structured the bond issues for “ostensibly legitimate purposes when they knew that the proceeds thereof would be misappropriated and fraudulently diverted”.
"In addition to personally receiving part of the misappropriated bond funds, those employees and directors of Goldman Sachs received large bonuses and enhanced career prospects at Goldman Sachs and in the investment banking industry generally," the attorney-general’s office alleged.

Already the 1MDB controversy has inspired some Goldman clients to cut ties with the bank, particularly among the sovereign wealth fund set, which the bank had targeted as a "key growth area." One Abu Dhabi fund has sued Goldman over unspecified damages related to 1MDB.
Goldman executives who have so far evaded prosecution now have another reason to be anxious, because even if they avoid scrutiny by the DOJ, the US does have an extradition treaty with Malaysia.
This holiday season, 1MDB has truly become the gift that keeps on giving for Blankfein.

Danish banker turned whistleblower exposes the banking cartel

Bush Sr. Made a Killing – 50 Miners Buried Alive

December 10, 2018

Greg Palast

https://www.gregpalast.com/poppy-strikes-gold-bush-sr-made-a-killing-50-miners-buried-alive/

 

While pundits are falling all over themselves spewing about the “civility” of the patrician George H. W. Bush, l must honor the memory of those 50 men who were buried alive in a gold field in Africa so Bush Sr. could cash in.
To me, this is the most important story of my career — and almost ended it when Bush’s gold mining company (I bet you didn’t know he had one) sued my paper, The Guardian, threatening it with bankruptcy for telling the truth.
But ultimately, the truth was also buried alive, as US papers refused to cover the story, fearing the gold company’s wrath. (Salon.com was the exception.)
I dedicate this story to those miners, buried without pomp, buried by bulldozers while still alive. And to Tundu Lissu the Tanzanian lawyer, father of twins, who risked his life to provide me the corroborating evidence.
Tundu has taken twelve bullets, but survives.

I apologize if this photo of a burial is not as pretty as the one afforded 

George H. W. Bush. The corpse was pulled from the Bulyanhulu gold mine 

in Tanzania where 50 “jewelry” miners were buried alive to clear the gold 

field for sale to Barrick Gold. Barrick had hired Bush Sr. to help seal this 

deal and others. This photo and video was provided by Tanzanian lawyer 

Tundu Lissu who risked his life to get it to me and The Guardian.

Here is the story as originally published in the first U.S. edition of The Best Democracy Money Can Buy.

Poppy Strikes Gold

In the final days of the Bush (Senior) administration, the Interior Department made an extraordinary but little noticed change in procedures under the 1872 Mining Law, the gold rush–era act that permitted those whiskered small-time prospectors with their tin pans and mules to stake claims on their tiny plots. The department initiated an expedited procedure for mining companies that allowed Barrick to swiftly lay claim to the largest gold find in America. In the terminology of the law, Barrick could “perfect its patent” on the estimated $10 billion in ore — for which Barrick paid the U.S. Treasury a little under $10,000. Eureka!

Barrick, of course, had to put up cash for the initial property rights and the cost of digging out the booty (and the cost of donations, in smaller amounts, to support Nevada’s Democratic senator, Harry Reid). Still, the shift in rules paid off big time: According to experts at the Mineral Policy Center of Washington, DC, Barrick saved — and the U.S. taxpayer lost — a cool billion or so. Upon taking office, Bill Clinton’s new interior secretary, Bruce Babbitt, called Barrick’s claim the “biggest gold heist since the days of Butch Cassidy.” Nevertheless, because the company followed the fast-track process laid out for them under Bush, this corporate Goldfinger had Babbitt by the legal nuggets. Clinton had no choice but to give them the gold mine while the public got the shaft.

Barrick says it had no contact whatsoever with the president at the time of the rules change.[1] There was always a place in Barrick’s heart for the older Bush — and a place on its payroll. In 1995, Barrick hired the former president as Honorary Senior Advisor to the Toronto company’s International Advisory Board. Bush joined at the suggestion of former Canadian prime minister Brian Mulroney, who, like Bush, had been ignominiously booted from office. I was a bit surprised that the president had signed on. When Bush was voted out of the White House, he vowed never to lobby or join a corporate board. The chairman of Barrick openly boasts that granting the title “Senior Advisor” was a sly maneuver to help Bush tiptoe around this promise.

I was curious: What does one do with a used president? Barrick vehemently denies that it appointed Bush “in order to procure him to make contact with other world leaders whom he knows, or who could be of considerable assistance” to the company. Yet, in September 1996, Bush wrote a letter to help convince Indonesian dictator Suharto to give Barrick a new, hot gold-mining concession.

Bush’s letter seemed to do the trick. Suharto took away 68 percent of the world’s largest goldfield from the finder of the ore and handed it to Barrick. However, Bush’s lobbying magic isn’t invincible. Jim Bob Moffett, a tough old Louisiana swamp dog who heads Freeport-McMoRan, Barrick’s American rival, met privately with Suharto. When Suharto emerged from their meeting, the kleptocrat announced that Freeport would replace Bush’s Canadians. (Barrick lucked out: The huge ore deposit turned out to be a hoax. When the con was uncovered, Jim Bob’s associates invited geologist Mike de Guzman, who “discovered” the gold, to talk about the error of his ways. Unfortunately, on the way to the meeting, de Guzman fell out of a helicopter.)

Who is this “Barrick” to whom our former president would lease out the reflected prestige of the Oval Office? I could not find a Joe Barrick in the Canadian phone book. Rather, the company as it operates today was founded by one Peter Munk. The entrepreneur first came to public notice in Canada in the 1960s as a central figure in an insider trading scandal. Munk had dumped his stock in a stereo-making factory he controlled just before it went belly up, leaving other investors and government holding the bag. He was never charged, but, notes Canada’s Maclean’s magazine, the venture and stock sale “cost Munk his business and his reputation.” Yet today, Munk’s net worth is estimated at $350 million, including homes on two continents and his own island.

How did he go from busted stereo maker to demi-billionaire goldbug? The answer: Adnan Khashoggi, the Saudi arms dealer, the “bag man” in the Iran-Contra arms-for-hostage scandals. The man who sent guns to the ayatolla teamed up with Munk on hotel ventures and, ultimately, put up the cash to buy Barrick in 1983, then a tiny company with an “unperfected” claim on the Nevada mine. You may recall that Bush pardoned the coconspirators who helped Khashoggi arm the Axis of Evil, making charges against the sheik all but impossible. (Bush pardoned the conspirators not as a favor to Khashoggi, but to himself.)

Khashoggi got out of Barrick just after the Iran-Contra scandal broke, long before 1995, when Bush was invited in. By that time, Munk’s reputation was restored, at least in his own mind, in part by massive donations to the University of Toronto. Following this act of philanthropy, the university awarded Munk–adviser Bush an honorary degree. Several students were arrested protesting what appeared to them as a cash-for-honors deal.

Mr. Munk’s president-for-hire did not pay the cost of his rental in Indonesia. The return on Barrick’s investment in politicians would have to come from Africa.
Mobutu Sese Seko, the late dictator of the Congo (Zaire), was one of the undisputed master criminals of the last century having looted hundreds of millions of dollars from his national treasury — and a golfing buddy of the senior Bush. That old link from the links probably did not hurt Barrick in successfully seeking an eighty-thousand-acre gold-mining concession from the Congolese cutthroat. Bush himself did not lobby the deal for Barrick. It wasn’t that the former president was squeamish about using the authority of his former posts to cut deals with a despot. Rather, at the time Bush was reportedly helping Adolf Lundin, Barrick’s sometime industry rival. Africa specialist Patrick Smith of London disclosed that Bush called Mobutu in 1996 to help cinch a deal for Lundin for a mine distant from Barrick’s.

Rebellion against Mobutu made the mine site unusable, though not for the company’s lack of trying. In testimony in hearings convened by the minority leader of the House Foreign Affairs Subcommittee on Human Rights, expert Wayne Madsen alleged that Barrick, to curry favor with both sides, indirectly funded both and thereby inadvertently helped continue the bloody conflict. The allegation, by respected journalist Wayne Madsen, has not been substantiated: The truth is lost somewhere in the jungle, where congressional investigators will never tread.

Though Barrick struck out in Indonesia and the Congo, the big payoff came from the other side of the continent. The company’s president bragged to shareholders that the prestige of the Mulroney-Bush advisory board was instrumental in obtaining one of the biggest goldfields in East Africa at Bulyanhulu, Tanzania. Barrick, according to its president, had hungered for that concession — holding an estimated $3 billion in bullion—since the mid-1990s, when it first developed its contacts with managers at Sutton Resources, another Canadian company, which held digging rights from the government. [See footnote 1.] Enriched by the Nevada venture, Barrick could, and eventually would, buy up Sutton. But in 1996, there was a problem with any takeover of Sutton: Tens of thousands of small-time prospectors, “jewelry miners,” so called because of their minuscule finds, already lived and worked on the land. These poor African diggers held legal claim stakes to their tiny mine shafts on the property. If they stayed, the concession was worthless.

In August 1996, Sutton’s bulldozers, backed by military police firing weapons, rolled across the goldfield, smashing down worker housing, crushing their mining equipment and filling in their pits. Several thousand miners and their families were chased off the property. But not all of them. About fifty miners were still in their mine shafts, buried alive.

Buried alive. It’s not on Bush’s resume, nor on Barrick’s Web site. You wouldn’t expect it to be. But then, you haven’t found it in America’s newspapers either.
There are two plausible explanations for this silence. First, it never happened; the tale of the live burials is a complete fabrication of a bunch of greedy, lying Black Africans trying to shake down Sutton Resources (since 1999, a Barrick subsidiary). That’s what Barrick says after conducting its own diligence investigation and relying on local and national investigations by the Tanzanian government. And the company’s view is backed by the World Bank. See Chapter 8 of my book The Best Democracy Money Can Buy for more on this.[2]
There’s another explanation: Barrick threatens and sues newspapers and human rights organizations that dare to breathe a word of the allegations — even if Barrick’s denials are expressed. I know: They sued my papers, The Observer and Guardian. Barrick even sent a letter to the internationally respected human rights lawyer Tundu Lissu, a fellow at the World Resources Institute in Washington, DC, outlining its suit against The Observer and warning that it would take “all necessary steps” to protect its reputation should the Institute repeat any of the allegations. Barrick’s threats are the least of Lissu’s problems. For supplying me with evidence — photos of a corpse of a man allegedly killed by police during the clearance of the mine site, notarized witness statements, even a police video of workers seeking bodies from the mine pits — and for Lissu’s demanding investigation of the killings, his law partners in Dar es Salaam have been arrested and Lissu charged by the Tanzanian government with sedition.

In 1997, while Bush was on the board (he quit in 1999), Mother Jones magazine named Barrick’s chairman Munk one of America’s “10 Little Piggies” — quite an honor for a Canadian — for allegedly poisoning the West’s water supply with the tons of cyanide Barrick uses to melt mountains of ore.

Notably, one of the first acts of the junior Bush’s Interior Department in 2001 was to indicate it would reverse Clinton administration rules requiring gold extractors to limit the size of waste dumps and to permit new mines even if they were likely to cause “substantial, irreparable harm.” The New York Times ran a long, front-page story on this rule-relaxing windfall for Nevada goldmining companies, but nowhere did The Times mention the name of the owner of the largest gold mine in Nevada, Barrick, nor its recent payroller, the president’s father.
For those who want to listen to the story, here’s my summary. (From my spoken word CD, Weapon of Mass Instruction, Alternative Tentacles.)
[1] Barrick has responded to every allegation reported in my first report on the company in a manner certain to get my attention: The company and its chairman sued my papers, The Guardian and Observer. While I have a distaste for retort by tort, I have incorporated their legitimate concerns to ensure their views are acknowledged in Chapter 8 of my book, The Best Democracy Money Can Buy.

[2] A bit of confusion here: Barrick swore to my paper that the alleged killings “related to a time years before [Barrick] had any connection whatsoever with the company to which the report referred.” Yet Barrick’s president and CEO, Randall Oliphant, told Barrick’s shareholders that prior to their acquisition of Sutton, “we followed the progress at Bully (i.e., Bulyanhulu) for five years, remaining in close contact with the senior management team.” That would connect them to the mine in 1994. The mining company wants me to report their version of events. Okay, here’s both of them.

BofE: Q&A with Deputy Governor Jon Cunliffe

Extract from BofE: Q&A with Deputy Governor Jon Cunliffe

https://bankofenglandfutureforum.co.uk/post/720090

stevegolf 3 days ago
Will independent currencies be allowed to coexist? For example cryptocurrencies.

Reply 5

Jon Cunliffe 22 hours ago
Over the centuries many things have been used as money in different societies and we have learned that for an economy to prosper it is vital that people have trust in the money they use - that it will be accepted when they us it to buy things, that they can store their wealth in it, and that its value is stable. Ensuring trust in the national currency is the core function of the Bank of England. We do this through monetary policy, which keeps the value of our money stable. We do it through our supervision of the banking and payment systems, which makes sure people's money is safe. And we do it through the cash we issue. Technology has changed the way we use money dramatically over the last 30 years and will continue to do so. We are constantly thinking about how technology has changed and will change the way we use money and how we can maintain trust in money and support innovation.

As I argued in my speech earlier this year that I think it’s unlikely that cryptoassets will become widely used alongside traditional currencies any time soon. Cryptocurrencies don't meet any of the tests above well. Nobody stands behind them. They’re not widely accepted in transactions and their value is very volatile so they are not a good store of value, which means that no-one uses them as a unit of account. There are also significant barriers to them becoming more widely used in the long term – for example, existing cryptoasset platforms have limited capacity and cannot handle more than a fraction of the payment volumes that are handled by traditional payment systems (such as Visa, Bacs or Faster Payments) every day.  

In terms of the regulation of cryptoassets, the Bank of England has been involved in a joint project with the Financial Conduct Authority and HM Treasury. You can see the final report of the Cryptoasset Taskforce at the link below (Chapter 5 covers the actions that the three authorities will be taking). But there are no plans to make cryptoassets illegal.
https://assets.publishing.service.gov.uk/gove...t_final_web.pdf

Users tagged:

rekindled_ai

Reply 1

Marco Saba 16 minutes ago
Translation: with the blockchain technology no bank will be allowed to create any more a deposit out of thin air, and the mismatch in bank accounting for money creation - i.e. the fact that new money is NOT accounted for as an inflow in the cash flow account of the bank BUT it is accounted as an outflow when we credit the customer A/c, thus hiding the profits from capital creation - can no more be hidden from the public. So we choose not to forbid outright the use of cryptocurrency but we do our best to discourage the public by boycotting the exchange between fiat and cryptos. Establishing a monetary cadastre visible to the public is not in our best interest because it will exposes all our shenanigans to transfer wealth from poor subjects to the sovereigns of our choice.

NYSE special side deal with Morgan Stanley

NYSE is ‘freaking out’ looking for leakers after Post exposé

By Kevin Dugan

December 7, 2018 https://nypost.com/2018/12/07/nyse-is-freaking-out-looking-for-leakers-after-post-expose/

The New York Stock Exchange scrambled to contain the fallout from The Post’s exclusive Friday report that revealed a special side deal allowing Morgan Stanley to trade large blocks of stock after the closing bell.
Exchange officials were on a witch hunt for leakers who spilled the beans on how a broker was able to make trades on the Big Board even after the markets were closed, a source told The Post.

see also

NYSE is accused of letting Morgan Stanley make after-hours trade

“NYSE is freaking out,” said one source. “They are going crazy looking for who told.”

The side deal, which prevented Morgan Stanley from either risking a trade in an after-hours auction with less price discovery or waiting until Monday morning facing the uncertainty of holding the trade over the G-20 meeting weekend.
The trades prompted accusations of unfairness from Wall Street insiders, who said smaller brokers wouldn’t have gotten such treatment.
“If this has occurred recurrently, it is a BIG story because it suggests systematic favoritism,” said John C. Coffee Jr., a Columbia law school professor and former member of NYSE’s legal advisory board.

He added that the side deal with Morgan Stanley could be a “misdemeanor level in terms of securities violations” in isolation.
The NYSE’s internal regulators are looking into the incident, according to a source briefed on the investigation.

It’s unclear if federal regulators have started to probe the incident. Kristen Kaus, an NYSE spokeswoman, didn’t return a call seeking comment.
The incident, which occurred on Nov. 30, has brought up bad memories for Wall Street over recent allegedly unfair treatment by exchanges.
Earlier this year, the Securities and Exchange Commission fined NYSE $14 million for five separate investigations — including one around a secret electronic order that gave some investors data about what other traders were doing.

Investors said that exchanges bend or break rules to keep their largest clients happy — because they know that competition is fierce.
“If this exchange doesn’t do it, the exchange down the block will do it,” said Joe Saluzzi, co-founder and co-head of equity trading at Themis Trading.
“Are there other special deals? Based on history, I’d say so,” he added.

Pentagon: massive accounting fraud against the public

Exclusive: The Pentagon’s Massive Accounting Fraud Exposed

How US military spending keeps rising even as the Pentagon flunks its audit.

By Dave Lindorff

November 27, 2018

Source: https://www.thenation.com/article/pentagon-audit-budget-fraud/

An aerial view of the Pentagon building in Washington. (Reuters / Jason Reed)

On November 15, Ernst & Young and other private firms that were hired to audit the Pentagon announced that they could not complete the job. Congress had ordered an independent audit of the Department of Defense, the government’s largest discretionary cost center—the Pentagon receives 54 cents out of every dollar in federal appropriations—after the Pentagon failed for decades to audit itself. The firms concluded, however, that the DoD’s financial records were riddled with so many bookkeeping deficiencies, irregularities, and errors that a reliable audit was simply impossible.

Deputy Secretary of Defense Patrick Shanahan tried to put the best face on things, telling reporters, “We failed the audit, but we never expected to pass it.” Shanahan suggested that the DoD should get credit for attempting an audit, saying, “It was an audit on a $2.7 trillion organization, so the fact that we did the audit is substantial.” The truth, though, is that the DoD was dragged kicking and screaming to this audit by bipartisan frustration in Congress, and the result, had this been a major corporation, likely would have been a crashed stock.
As Republican Senator Charles Grassley of Iowa, a frequent critic of the DoD’s financial practices, said on the Senate floor in September 2017, the Pentagon’s long-standing failure to conduct a proper audit reflects “twenty-six years of hard-core foot-dragging” on the part of the DoD, where “internal resistance to auditing the books runs deep.” In 1990, Congress passed the Chief Financial Officers Act, which required all departments and agencies of the federal government to develop auditable accounting systems and submit to annual audits. Since then, every department and agency has come into compliance—except the Pentagon.

Now, a Nation investigation has uncovered an explanation for the Pentagon’s foot-dragging: For decades, the DoD’s leaders and accountants have been perpetrating a gigantic, unconstitutional accounting fraud, deliberately cooking the books to mislead the Congress and drive the DoD’s budgets ever higher, regardless of military necessity. DoD has literally been making up numbers in its annual financial reports to Congress—representing trillions of dollars’ worth of seemingly nonexistent transactions—knowing that Congress would rely on those misleading reports when deciding how much money to give the DoD the following year, according to government records and interviews with current and former DoD officials, congressional sources, and independent experts.
“If the DOD were being honest, they would go to Congress and say, ‘All these proposed budgets we’ve been presenting to you are a bunch of garbage,’ ” said Jack Armstrong, who spent more than five years in the Defense Department’s Office of Inspector General as a supervisory director of audits before retiring in 2011.

The fraud works like this. When the DoD submits its annual budget requests to Congress, it sends along the prior year’s financial reports, which contain fabricated numbers. The fabricated numbers disguise the fact that the DoD does not always spend all of the money Congress allocates in a given year. However, instead of returning such unspent funds to the US Treasury, as the law requires, the Pentagon sometimes launders and shifts such moneys to other parts of the DoD’s budget.

Veteran Pentagon staffers say that this practice violates Article I Section 9 of the US Constitution, which stipulates that

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

Among the laundering tactics the Pentagon uses: So-called “one-year money”—funds that Congress intends to be spent in a single fiscal year—gets shifted into a pool of five-year money. This maneuver exploits the fact that federal law does not require the return of unspent “five-year money” during that five-year allocation period.

The phony numbers are referred to inside the Pentagon as “plugs,” as in plugging a hole, said current and former officials. “Nippering,” a reference to a sharp-nosed tool used to snip off bits of wire or metal, is Pentagon slang for shifting money from its congressionally authorized purpose to a different purpose. Such nippering can be repeated multiple times “until the funds become virtually untraceable,” says one Pentagon-budgeting veteran who insisted on anonymity in order to keep his job as a lobbyist at the Pentagon.

The plugs can be staggering in size. In fiscal year 2015, for example, Congress appropriated $122 billion for the US Army. Yet DoD financial records for the Army’s 2015 budget included a whopping $6.5 trillion (yes, trillion) in plugs. Most of these plugs “lack[ed] supporting documentation,” in the bland phrasing of the department’s internal watchdog, the Office of Inspector General. In other words, there were no ledger entries or receipts to back up how that $6.5 trillion supposedly was spent. Indeed, more than 16,000 records that might reveal either the source or the destination of some of that $6.5 trillion had been “removed,” the inspector general’s office reported.

 

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In this way, the DoD propels US military spending higher year after year, even when the country is not fighting any major wars, says Franklin “Chuck” Spinney, a former Pentagon whistle-blower. Spinney’s revelations to Congress and the news media about wildly inflated Pentagon spending helped spark public outrage in the 1980s. “They’re making up the numbers and then just asking for more money each year,” Spinney told The Nation. The funds the Pentagon has been amassing over the years through its bogus bookkeeping maneuvers “could easily be as much as $100 billion,” Spinney estimated.

Indeed, Congress appropriated a record amount—$716 billion—for the DoD in the current fiscal year of 2019. That was up $24 billion from fiscal year 2018’s $692 billion, which itself was up $6 billion from fiscal year 2017’s $686 billion. Such largesse is what drives US military spending higher than the next ten highest-spending countries combined, added Spinney. Meanwhile, the closest thing to a full-scale war the United States is currently fighting is in Afghanistan, where approximately 15,000 US troops are deployed—only 2.8 percent as many as were in Vietnam at the height of that war.

The DoD’s accounting practices appear to be an intentional effort to avoid accountability, says Armstrong. “A lot of the plugs—not all, but a substantial portion—are used to force general-ledger receipts to agree with the general budget reports, so what’s in the budget reports is basically left up to people’s imagination,” Armstrong says, adding, “Did the DoD improperly spend funds from one appropriated purpose on another? Who can tell?”

“The United States government collects trillions of dollars each year for the purpose of funding essential functions, including national-security efforts at the Defense Department,” Senator Grassley told The Nation. “When unelected bureaucrats misuse, mismanage and misallocate taxpayer funds, it not only takes resources away from vital government functions, it weakens citizens’ faith and trust in their government.”

This Pentagon accounting fraud is déjà vu all over again for Spinney. Back in the 1980s, he and a handful of other reform-minded colleagues exposed how the DoD used a similar accounting trick to inflate Pentagon spending—and to accumulate money for “off-the-books” programs. “DoD routinely over-estimated inflation rates for weapons systems,” Spinney recalled. “When actual inflation turned out to be lower than the estimates, they did not return the excess funds to the Treasury, as required by law, but slipped them into something called a ‘Merged Surplus Account,'” he said.

“In that way, the Pentagon was able to build up a slush fund of almost $50 billion” (about $120 billion in today’s money), Spinney added. He believes that similar tricks are being used today to fund secret programs, possibly including US Special Forces activity in Niger. That program appears to have been undertaken without Congress’s knowledge of its true nature, which only came to light when a Special Forces unit was ambushed there last year, resulting in the deaths of four US soldiers.

“Because of the plugs, there is no auditable way to track Pentagon funding and spending,” explains Asif Khan of the Government Accountability Office, the Congress’s watchdog on the federal bureaucracy. “It’s crucial in auditing to have a reliable financial record for prior years in order to audit the books for a current year,” notes Khan, the head of the National Security Asset Management unit at GAO. Plugs and other irregularities help explain why the Pentagon has long been at or near the top of the GAO’s list of “high risk” agencies prone to significant fraud, waste, and abuse, he adds.

The Nation submitted detailed written questions and requested interviews with senior officials in the Defense Department before publishing this article. Only public-affairs staff would speak on the record. In an e-mailed response, Christopher Sherwood of the DoD’s Public Affairs office denied any accounting impropriety. Any transfer of funds between one budgetary account and another “requires a reprogramming action” by Congress, Sherwood wrote, adding that any such transfers amounting to more than 1 percent of the official DoD budget would require approval by “all four defense congressional committees.”

The scale and workings of the Pentagon’s accounting fraud began to be ferreted out last year by a dogged research team led by Mark Skidmore, a professor of economics specializing in state and local government finance at Michigan State University. Skidmore and two graduate students spent months poring over DoD financial statement reviews done by the department’s Office of Inspector General. Digging deep into the OIG’s report on the Army’s 2015 financial statement, the researchers found some peculiar information. Appendix C, page 27, reported that Congress had appropriated $122 billion for the US Army that year. But the appendix also seems to report that the Army had received a cash deposit from the US Treasury of $794.8 billion. That sum was more than six times larger than Congress had appropriated—indeed, it was larger than the entire Pentagon budget for the year. The same appendix showed that the Army had accounts payable (accounting lingo for bills due) totaling $929.3 billion.

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“I wondered how you could possibly get those kinds of adjustments out of a $122 billion budget,” Skidmore recalled. “I thought, initially, ‘This is absurd!’ And yet all the [Office of Inspector General] seemed to do was say, ‘Here are these plugs.’ Then, nothing. Even though this kind of thing should be a red flag, it just died. So we decided to look further into it.”

To make sure that fiscal year 2015 was not an anomaly, Skidmore and his graduate students expanded their inquiry, examining OIG reports on Pentagon financial records stretching back to 1998. Time and again, they found that the amounts of money reported as having flowed into and out of the Defense Department were gargantuan, often dwarfing the amounts Congress had appropriated: $1.7 trillion in 1998, $2.3 trillion in 1999, $1.1 trillion in 2000, $1.1 trillion in 2007, $875 billion in 2010, and $1.7 trillion in 2012, plus amounts in the hundreds of billions in other years.

In all, at least a mind-boggling $21 trillion of Pentagon financial transactions between 1998 and 2015 could not be traced, documented, or explained, concluded Skidmore. To convey the vastness of that sum, $21 trillion is roughly five times more than the entire federal government spends in a year. It is greater than the US Gross National Product, the world’s largest at an estimated $18.8 trillion. And that $21 trillion includes only plugs that were disclosed in reports by the Office of Inspector General, which does not review all of the Pentagon’s spending.

To be clear, Skidmore, in a report coauthored with Catherine Austin Fitts, a former assistant secretary of the Department of Housing and Urban Development who complained about similar plugs in HUD financial statements, does not contend that all of this $21 trillion was secret or misused funding. And indeed, the plugs are found on both the positive and the negative sides of the ledger, thus potentially netting each other out. But the Pentagon’s bookkeeping is so obtuse, Skidmore and Fitts added, that it is impossible to trace the actual sources and destinations of the $21 trillion. The disappearance of thousands of records adds further uncertainty. The upshot is that no one can know for sure how much of that $21 trillion was, or was not, being spent legitimately.

The cost of our endless wars

America’s Post-9/11 Wars Have Cost $5.9 Trillion

William D. Hartung

That may even apply to the Pentagon’s senior leadership. A good example of this was Donald Rumsfeld, the notorious micromanaging secretary of defense during the Bush/Cheney administration. On September 10, 2001 Rumsfeld called a dramatic press conference at the Pentagon to make a startling announcement. Referring to the huge military budget that was his official responsibility, he said, “According to some estimates we cannot track $2.3 trillion in transactions.” This shocking news that an amount more than five times as large as the Pentagon’s FY 2001 budget of an estimated $313 billion was lost or even just “untrackable” was—at least for one 24-hour news cycle—a big national story, as was Secretary Rumsfeld’s comment that America’s adversary was not China or Russia, but rather was “closer to home: It’s the Pentagon bureaucracy.” Equally stunning was Rumsfeld’s warning that the tracking down of those missing transactions “could be…a matter of life and death.” No Pentagon leader had ever before said such a thing, nor has anyone done so since then. But Rumsfeld’s exposé died quickly as, the following morning on September 11, four hijacked commercial jet planes plowed full speed into the two World Trade Center towers, the Pentagon, and a field in Pennsylvania. Since that time, there has been no follow-up and no effort made to find the missing money, either.

Recalling his decades inside the Pentagon, Spinney emphasized that the slippery bookkeeping and resulting fraudulent financial statements are not a result of lazy DoD accountants. “You can’t look at this as an aberration,” he said. “It’s business as usual. The goal is to paralyze Congress.”

That has certainly been the effect. As one congressional staffer with long experience investigating Pentagon budgets, speaking on background because of the need to continue working with DoD officials, told The Nation, “We don’t know how the Pentagon’s money is being spent. We know what the total appropriated funding is for each year, but we don’t know how much of that funding gets spent on the intended programs, what things actually cost, whether payments are going to the proper accounts. If this kind of stuff were happening in the private sector, people would be fired and prosecuted.”

DoD officials have long insisted that their accounting and financial practices are proper. For example, the Office of Inspector General has attempted to explain away the absurdly huge plugs in DoD’s financial statements as being a common, widely accepted accounting practice in the private sector.

When this reporter asked Bridget Serchak, at the time a press spokesperson for the inspector general’s office, about the Army’s $6.5 trillion in plugs for fiscal year 2015, she replied, “Adjustments are made to the Army General Fund financial statement data…for various reasons such as correcting errors, reclassifying amounts and reconciling balances between systems…. For example, there was a net unsupported adjustment of $99.8 billion made to the $0.2 billion balance reported for Accounts Receivable.”

There is a grain of truth in Serchak’s explanation, but only a grain.
As an expert in government budgeting, Skidmore confirmed that it is accepted practice to insert adjustments into budget reports to make both sides of a ledger agree. Such adjustments can be deployed in cases where receipts have been lost—in a fire, for example—or where funds were incorrectly classified as belonging to one division within a company rather than another. “But those kinds of adjustments should be the exception, not the rule, and should amount to only a small percentage of the overall budget,” Skidmore said.

For its part, the inspector general’s office has blamed the fake numbers found in many DoD financial statements on the Defense Finance and Accounting Service (DFAS), a huge DoD accounting operation based in Indianapolis, Indiana. In review after review, the inspector general’s office has charged that DFAS has been making up “unsupported” figures to plug into DoD’s financial statements, inventing ledger entries to back up those invented numbers, and sometimes even “removing” transaction records that could document such entries. Nevertheless, the inspector general has never advocated punitive steps against DFAS officials—a failure that suggests DoD higher-ups tacitly approve of the deceptions.

Skidmore repeatedly requested explanations for these bookkeeping practices, he says, but the Pentagon response was stonewalling and concealment. Even the inspector general’s office, whose publicly available reports had been criticizing these practices for years, refused to answer the professor’s questions. Instead, that office began removing archived reports from its website. (Skidmore and his grad students, anticipating that possibility, had already downloaded the documents, which eventually were restored to public access under different URLs.)

Click to open the heavily redacted DoD OIG report on a US Navy financial statement for FY 2017. 

Nation inquiries have met with similar resistance. Case in point: A recent DoD OIG report on a US Navy financial statement for FY 2017. Although OIG audit reports in previous years were always made available online without restriction or censorship, this particular report suddenly appeared in heavily redacted form—not just the numbers it contained, but even its title! Only bureaucratic sloppiness enabled one to see that the report concerned Navy finances: Censors missed some of the references to the Navy in the body of the report, as shown in the passages reproduced here.

A request to the Office of Inspector General to have the document uncensored was met with the response: “It was the Navy’s decision to censor it, and we can’t do anything about that.” At The Nation’s request, Senator Grassley’s office also asked the OIG to uncensor the report. Again, the OIG refused. A Freedom Of Information Act request by The Nation to obtain the uncensored document awaits a response.

The GAO’s Khan was not surprised by the failure of this year’s independent audit of the Pentagon. Success, he points out, would have required “a good-faith effort from DoD officials, but to date that has not been forthcoming.” He added, “As a result of partial audits that were done in 2016, the Army, Navy, Air Force, and Marines have over 1,000 findings from auditors about things requiring remediation. The partial audits of the 2017 budget were pretty much a repeat. So far, hardly anything has been fixed.”
Let that sink in for a moment: As things stand, no one knows for sure how the biggest single-line item in the US federal budget is actually being spent. What’s more, Congress as a whole has shown little interest in investigating this epic scandal. The absurdly huge plugs never even get asked about at Armed Services and Budget Committee hearings.

One interested party has taken action—but it is action that’s likely to perpetuate the fraud. The normally obscure Federal Accounting Standards Advisory Board sets the accounting standards for all federal agencies. Earlier this year, the board proposed a new guideline saying that agencies that operate classified programs should be permitted to falsify figures in financial statements and shift the accounting of funds to conceal the agency’s classified operations. (No government agency operates more classified programs than the Department of Defense, which includes the National Security Agency.) The new guideline became effective on October 4, just in time for this year’s end-of-year financial statements.

special investigation

Special Investigation: The Dirty Secret Behind Warren Buffett’s Billions

David Dayen

So here’s the situation: We have a Pentagon budget that a former DOD internal-audit supervisor, Jack Armstrong, bluntly labels “garbage.” We have a Congress unable to evaluate each new fiscal year’s proposed Pentagon budget because it cannot know how much money was actually spent during prior years. And we have a Department of Defense that gives only lip service to fixing any of this. Why should it? The status quo has been generating ever-higher DoD budgets for decades, not to mention bigger profits for Boeing, Lockheed, and other military contractors.

The losers in this situation are everyone else. The Pentagon’s accounting fraud diverts many billions of dollars that could be devoted to other national needs: health care, education, job creation, climate action, infrastructure modernization, and more. Indeed, the Pentagon’s accounting fraud amounts to theft on a grand scale—theft not only from America’s taxpayers, but also from the nation’s well-being and its future.

As President Dwight D. Eisenhower, who retired from the military as a five-star general after leading Allied forces to victory in World War II, said in a 1953 speech, “Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.” What would Eisenhower say today about a Pentagon that deliberately misleads the people’s representatives in Congress in order to grab more money for itself while hunger, want, climate breakdown, and other ills increasingly afflict the nation?

Correction: An earlier version of this article included a mention of $6.5 billion in plugs in 2015. In fact, as cited elsewhere in the story, the correct figure is $6.5 trillion. The article also cited an inaccurate figure for the percentage of federal tax dollars received by the Pentagon. In fact, the Pentagon receives more than half of every dollar of federal discretionary spending, not two out of every three federal tax dollars. The text has been corrected.

 

Dave Lindorff Nation contributor Dave Lindorff also writes for Salon, London Review of Books, and Tarbell.org. Author of four books, he was a 1990s Hong Kong/China correspondent for Business Week.

Civilizations start to decay when the cultural elite turns parasitic

2018 Thanksgiving Newsletter In the United States, the fourth Thursday in November is designated as Thanksgiving Day, a national holiday. Days of thanksgiving were variously celebrated in the colonies from very early times, but the national holiday we celebrate today was proclaimed in1863, in the midst of the Civil War, by President Abraham Lincoln. It is fitting that we take time to remember the many blessings that each of us enjoys, even in the most dire circumstances. What we consistently fail to do is to recognize the misery that our actions may be causing for others. While individually, the way we live our lives may be exemplary, our collective circumstances often derive from less than benevolent actions take on our behalf by political and economic leaders. One need not look very deeply to see the absurdity of the present world order that is based on perpetual war and struggles for dominance among national and supra-national elites. When one considers the marvelous technological advances and the vast amounts of material wealth that humans have been able to produce, it is clear that no one in this world should need to live in squalor. Yet, vast numbers of our brothers and sisters around the world lack the barest necessities to live a dignified life, much less the resources needed to realize their full potential. Still others are being terrorized, bombed, detained and persecuted through no fault of their own. The hard question for me is, “How am I complicit in all of this, and what can I do about it?” While driving in my car I often have the radio tuned to the local NPR station. A couple days ago I happened to hear an episode (Ep. 356) of the popular Freakonomics program, this one titled, America’s Hidden Duopoly. The discussion was about the American two party political system, which is in essence a duopoly of political power. Many Americans have long lamented the fact that they are often required to make a choice between “the lesser of two evils.” Third parties come and go by none has ever gained enough support to offer anything but “a wasted vote.” Is there some other way in which the problem can be addressed? One initiative mentioned in the interview that seems to hold some promise is Unite America. Their motto is Country Over Party and their focus is on “building a movement to elect common-sense, independent candidates to office who can represent We, the People – not the party bosses or special interests.” The way they propose to achieve that is through their “Fulcrum Strategy,” that is “focused on electing independent candidates to narrowly divided legislatures, like the US Senate, where they can deny both parties an outright majority and use their enormous leverage to forge common ground solutions.” The argue that it would take only 4 or 5 independent Senators to swing the balance of power. Hmmm, that itself is a tall order, but it just might work. Another initiative that looks promising is World Beyond War. ______________ David Brooks is a familiar figure on the PBS News Hour, where he has for years been providing political commentary alongside Mark Shields. I can’t say that I’ve been all that impressed with him, but after a friend referred me to a presentation he gave at the 2018 Pacific Summit earlier this year I came away with a different opinion. I find Brooks much more impressive and insightful as a social philosopher and historian. He articulately and entertainingly provides an assessment of our present sociopolitical predicament. I recommend that you can view that presentation on YouTube. Still, I have a little different take on the situation, something that no one else seems to be seeing. Arnold Toynbee is quoted as having said, "Civilizations start to decay when they lose their moral fiber and the cultural elite turns parasitic." That is the situation we find ourselves in today. Our political leadership has let us down. When the power elite works to dominate and exploit us, when they can no longer be trusted to tell us the truth,  when they fail to act on behalf of peace and the common good, what is there but to revert to tribal identities and find common cause with those whom we know and trust? While pundits and politicos decry the rise of “populism,” I see it as a natural response to the failure of the power elite. Populist actions are not always tainted by racism, sexism, and scapegoating. We need to rebuild society from the bottom up, starting with the people around us, then branching out to form alliances and coalitions. But if we are to end up with something better than what we wish to replace, our actions need to be open-hearted and beneficent. With good will toward all, perhaps it is possible to have a populist revolution that is peaceful and advances the causes of social justice, economic equity, individual liberty and human unity. ______________ The American Economy Is Rigged In a recent article, Joseph E. Stiglitz, former chief economist of the World Bank, argues that the American economy is rigged and outlines a few things that we can do about it. Stiglitz begins his article by saying: “Americans are used to thinking that their nation is special. In many ways, it is: the U.S. has by far the most Nobel Prize winners, the largest defense expenditures (almost equal to the next 10 or so countries put together) and the most billionaires (twice as many as China, the closest competitor). But some examples of American Exceptionalism should not make us proud. By most accounts, the U.S. has the highest level of economic inequality among developed countries. It has the world's greatest per capita health expenditures yet the lowest life expectancy among comparable countries. It is also one of a few developed countries jostling for the dubious distinction of having the lowest measures of equality of opportunity.” He then explains how economic inequality and political inequality are mutually reinforcing, each growing in response to growth in the other. When the super-rich are able to make the rules, they can rig the game to become ever richer. He concedes that “There is no magic bullet to remedy a problem as deep-rooted as America's inequality. Its origins are largely political, so it is hard to imagine meaningful change without a concerted effort to take money out of politics.” Stiglitz outlines a number of measures that could achieve that but all of them require legislative action. That seems like a “catch 22.” If the political machinery is so thoroughly in the hands of the economic and political elite, how is it possible to use the political process to change the status quo? I have long argued that, in view of that political reality, the only viable strategy is to design and deploy innovative monetary and financial systems that enable us reclaim “the credit commons.” By decentralizing the control of credit, it is possible to reduce our dependence upon bank borrowing and political forms of money. This is not so far-fetched as it might first appear. For details of how it can be, and is being done, see my article, Confronting the power elite.

Let’s experiment full-reserve banking again

by Patrizio Lainà (Guest Author) | Nov 19, 2018

http://www.positivemoney.eu/2018/11/full-reserve-banking/

Full-reserve banking was tried out in the UK and US in the 19th century. It is assuring that macroeconomic indicators pointed mainly upwards after the reforms were implemented. Although it is hard to associate the positive developments directly with full-reserve banking experiments, at least it should be clear that they did not have a destabilizing impact on the economy.

This article summarizes some of the key points made in my Ph.D. dissertation “Full-Reserve Banking: Separating Money Creation from Bank Lending” (University of Helsinki). 

Full-reserve banking was tried out in the 19th century. At the time, private bank-issued notes were the prevailing means of payment. Today, it is hard to imagine that each bank would issue their own notes, but that was the case two centuries ago. In the UK, the Bank Charter Act of 1844 prohibited private money creation by requiring that bank-issued notes should be fully backed by government money or gold. The National Acts of 1863 and 1864 implemented full-reserve banking in the US. The experiments were never actually abandoned, but banks were able to circumvent regulation by issuing deposits instead of notes. This effectively undermined the reform, and this is how we ended up to our current monetary system. Nevertheless, the government (including also the central bank) has maintained a monopoly on issuing notes ever since. 

Now is the time to experiment full-reserve banking with electronic money as well. The reform would prohibit private money creation, at least in the sense that the government would not guarantee repayment or par clearance of private monies or money-like assets. This would mean that there would be no more deposit guarantee and the central bank would not act as the lender of last resort for private actors. Consequently, banks could not create new money simultaneously when making loans, but they would have to acquire their funding before lending it out. In other words, banks would simply function as any other financial institution functions today.

Fiscal capacity expanded significantly

I argue that full-reserve banking could also significantly expand the government’s’ fiscal capacity. Assuming the M1 money supply continues its historical growth rate, I have calculated that full-reserve banking would generate over 400 billion euros each year, on average, in the euro area, . The seigniorage revenue is 4 % of euro area GDP or over 20 % of central government budgets of the euro area member states. It is hard to imagine that such a hike in government’s fiscal capacity could be achieved with any other reform.

Figure 1. Average annual seigniorage revenue from full-reserve banking
Similar findings are also supported by simulations with a Stock-Flow Consistent macroeconomic model. I find that under full-reserve banking, unlike in other cases, money creation leads to a permanent reduction in consolidated government debt, thus increasing the fiscal space of the government.

Towards a partial implementation of full-reserve banking

Fears that full-reserve banking would cause credit crunches or excessively volatile interest rates (e.g. Mitchell 2015b; Kregel 2012; Independent Commission on Banking 2011; Bossone 2001; 2002; Goodhart 1993) are not well justified. Indeed, most detailed proposals based on public money – such as sovereign money – include flexible elements that would make it relatively easy to avoid them. The observation is also supported by simulations with the Stock-Flow Consistent macroeconomic model. 

Perhaps the most convincing critique against full-reserve banking is that near-monies (non-cash assets that are highly liquid) could undermine the reform, as happened in the 19th century. That is, it is possible that people would prefer private money-like assets rather than sovereign money as the former might offer a positive return — despite not being guaranteed by the government. Personally, I don’t believe it would happen, but, of course, it is a possibility. 

Only a new experiment with full-reserve banking could provide an answer to that question. Nevertheless, complete adoption of full-reserve banking seems unlikely in any country in the near future as the Prime Minister of Iceland is not anymore actively supporting it and the reform was recently turned down in a referendum in Switzerland. 

Due to technological progress and technocratic developments, however, partial adoption of full-reserve banking in the form of “digital cash” (a.k.a. deposited currency or central bank digital currency) seems quite likely. Obviously, the benefits would not be as big as with complete adoption, but also the risks of failure are clearly smaller. Who knows, perhaps small steps will eventually lead to a complete transition to a full-reserve banking system. 

Patrizio Lainà’s Ph.D. thesis is freely available here.

Goldman Sachs is implicated in history’s largest financial con

Goldman Sachs is implicated in history’s largest financial con – but will it be held accountable?

Even if it is unproven that top Goldman executives knew what was going on, what does it say about the culture of the bank that individuals like Tim Leissner were employed there? Who is accountable for that culture?
https://www.independent.co.uk/voices/goldman-sachs-malaysia-money-laundering-1mdb-state-fund-bank-financial-crisis-a8631856.html

• Ben Chu @Benchu_
• 2 days ago

The Independent Voices

Tim Leissner (right), the senior Goldman banker on the ground in Malaysia pleaded guilty in New York to financial crimes related to 1MDB last week ( Getty )

Even by Wall Street standards of gouging customers this was one hell of a skim.
In 2012 and 2013, the Malaysian government was raising $6.5bn (£5bn) from investors to establish a sovereign wealth fund and finance various domestic infrastructure investment projects. And the cut for Goldman Sachs – the most prestigious investment bank in the world – for arranging the fundraising from the global capital markets? Ten per cent, or $600m.
Now we can have a guess as to why the Malaysian authorities were so insouciant about those extortionate fundraising costs: because they themselves were, apparently, going to loot the pot in one of the biggest frauds in history.

Around half of the fund has gone missing. According to the US Justice Department a fair amount has been pumped into luxury American real estate and shady art auction bids. Appropriately, some went into investing in Martin Scorsese’s The Wolf of Wall Street.

At one stage $680m mysteriously appeared in the bank account of the former Malaysian prime minister, Najib Razak, who chaired the 1MDB advisory board, and who is now charged in his own country with corruption.

Malaysian Prime Minister Mahathir Mohamad: Former PM Najib Razak 'totally responsible' for 1MDB corruption

Malaysian politicians, officials and financiers had effectively bought Goldman Sachs’ blue chip reputation to pull in naive investors to the “1MDB” state investment fund. Ten per cent probably seemed a reasonable cut in the circumstances.

The question is: what did Goldman know about the theft?

The bank claims today that it was completely oblivious. But the senior Goldman banker on the ground in Malaysia, Tim Leissner, certainly knew. He pleaded guilty in New York to financial crimes related to 1MDB last week, including bribery of officials to ensure Goldman was the sole fundraiser.

What’s even more problematic for the bank is that Leissner told the court there was a “culture” at Goldman Sachs of bypassing internal compliance. That’s backed up by US prosecutors, who say Goldman’s business culture in the region was “highly focused on consummating deals, at times prioritising this goal ahead of the proper operation of its compliance functions”.
Goldman has been a Teflon bank over the past decade. Scandals have slithered off it and nothing has really stuck. We found out in 2010 that Goldman Sachs financiers constructed derivatives to help the Greek government deceive the outside world about the true state of its finances prior to the country joining the single currency.

It was revealed in 2013 that, before the financial crisis, the bank had been deliberately designing mortgage-backed investment products to fail and then selling them to unwitting clients. There have been some large fines from regulators for malfeasance over the years but no senior resignations. The top brass have at every stage deplored the bad behaviour of underlings, but insisted they personally had no idea what was going on.

Lloyd Blankfein was one of the few Wall Street chief executives, along with Jamie Dimon at JP Morgan, to survive right through the financial crisis, collecting bonuses all the way. In 2007 Blankfein’s total remuneration was $100m. His compensation in 2017: $22m. Clearly austerity in action.
But now Blankfein is implicated in 1MDB scandal. Reports say he personally met the Malaysian prime minister and Jho Low, the Malaysian financier accused of masterminding the theft, in New York in 2009.

Low was notorious in New York for his copious and ostentatious nightclub partying and outrageous spending. At the time, the New York Post quoted one person as saying: “Nobody spends their own money like that. It’s just weird.”
Is it really credible to say that this was all just a local problem, perpetrated by local rogue operatives? Did it really never occur to senior Goldman Sachs managers to wonder why the fees on the fundraising deal were so enormous?
Even if it is unproven that top Goldman executives knew what was going on, what does it say about the culture of the bank that individuals like Leissner were employed there? Who is accountable for that culture?

The incoming Malaysian prime minister, Anwar Ibrahim, accuses Goldman Sachs the bank, not just corrupt individuals who worked for it, of being “complicit” in the looting. And he says Goldman Sachs should return those $600m in fees.

We are about to discover whether the world’s most politically-connected investment bank – the former employer of dozens of senior civil servants, from US treasury secretaries to the governors of the Bank of England and the European Central Bank  – can brush off being close to the heart of the world’s largest financial con.

The answer will tell us something – one way or another – about how much reform there has been in finance in the decade since the crash.