Bribery, grand corruption, graft, state embezzlement; whatever you choose to call it, is never too far from the headlines. In our latest report, we take a look at some recent high-profile examples of the global problem of corruption and discuss how the issue might be better tackled, from a firm-level perspective.
Recent cases
Godwin Emefiele, former Governor of the Central Bank of Nigeria
Godwin Emefiele, the former Governor of the Central Bank of Nigeria, was accused of 20 counts of procurement fraud in August this year. He was charged alongside an employee at the Bank, Sa’adatu Yaro, plus a private financial advisory company, April1616 Investment Ltd.
Before moving to his role at the Central Bank in 2014, Emefiele had worked in commercial banking for more than 18 years, rising to the role of CEO and group managing director of Nigeria-based Zenith Bank.
Some had doubted the case would come to any real conclusion. “If the past is anything to go by, the case is likely to be a long drawn-out affair with plenty of drama that will eventually fizzle out without much resolution,” said Nduka Orjinmo, reporting for BBC News in August. But, according to latest reports, Emefiele finalised a plea agreement at the end of September which requires him to resign from his role as CBN governor and forfeit the N50billion he is accused of falsely amassing from state funds.
The ex-governor has sparked controversy in the past. In 2022 he caused public outrage when he attempted to pursue a career in politics, intending to run for president in the 2023 elections when the law dictates he must remain non-partisan whilst working as bank governor. Emefiele was also charged with possession of an illegal firearm in July and has been accused of financing terrorism due to his links with the IPOB (Indigenous People of Biafra); an organisation that has been designated as a terrorist group by the Nigerian government. This designation is contested by many Nigerians and international jurisdictions including the EU and the US. The investigation into these charges is still ongoing.
Riad Salameh, former Governor of the Central Bank of Lebanon
In another example involving a central bank governor, Riad Salameh, former Governor of the Central Bank of Lebanon, has been embroiled in a corruption scandal that many believe has been responsible for bringing the country’s economy to the brink of collapse. “Salameh abused his position of power, likely in violation of Lebanese law, to enrich himself and his associates by funnelling hundreds of millions of dollars through layered shell companies to invest in European real estate,” said the US Treasury.
Salameh and three of his associates have been sanctioned by several countries, including the US, the UK, Switzerland and Canada. The four individuals are accused of diverting more than US$300m of the Central Bank’s funds for their own personal gain. Salameh has denied the allegations.
The US Department of Treasury has said that Salameh’s actions have contributed to “the breakdown of the rule of law in Lebanon.” He has also been widely blamed for the country’s economic crisis, which has witnessed soaring inflation and a 98% decrease in the Lebanese pound.
Salameh was charged in Lebanon in February with money laundering, embezzlement and illicit enrichment. His brother, Raja, and his assistant, Marianne Howayek, were also charged.
Tuna bonds
In December 2018, the US Justice Department filed charges against the former finance minister of Mozambique, Manuel Chang, and several other government officials, business executives and investment bankers for their involvement in an alleged US$2bn fraudulent scheme known as the “tuna bond” scandal.
US authorities claim more than US$200m in bribes and kickbacks were paid to Mozambican government officials and investment bankers in relation to corrupt maritime loans for Mozambique.
US$2bn in secret bank loans and bond issues from Credit Suisse (now part of UBS) and Russian bank VTB were allegedly taken out by Mozambican state-owned companies, backed by hidden government guarantees, without being approved by the Mozambique Parliament.
In October 2021, Credit Suisse was fined a total of US$500m by global financial regulators after pleading guilty to wire fraud in relation to the scheme. In July 2022, Credit Suisse also agreed to pay US$22.6m in restitution to investors. UBS also settled a separate case brought by the Mozambique government against Credit Suisse on 1st October 2023, which claimed that Credit Suisse and other defendants ignored the looting of hundreds of millions of dollars from the tuna bond loans in bribes and kickbacks. The case was settled out of court.
“The largest kleptocracy case to date” – the 1MDB scandal
Perhaps the most notable case of corruption in recent years – and one from which details are still unravelling – is the 1MDB scandal. An estimated US$4.5bn was stolen from the state-run 1MDB (1Malaysia Development Berhad) fund between 2009 and 2014. It was launched in 2009 by Malaysia’s then-Prime Minister, Najib Razak, to make investments designed to combat poverty and benefit the economic advancement of Malaysia. But Najib, with the help of associates including now-infamous businessman Jho Low, allegedly channelled more than US$700m from 1MDB to his personal accounts. Najib is currently serving a 12-year jail sentence, but Jho Low remains a fugitive.
Described by the FBI as “the largest kleptocracy case to date,” the illegal scheme was wide reaching, involving individuals in politics, banking and entertainment from around the globe.
Goldman Sachs’ role in the 1MDB scandal
Goldman Sachs acted as the main underwriter on more than US$6.5bn worth of bond deals linked to 1MDB. Goldman’s Malaysian subsidiary pled guilty to charges of foreign bribery in 2020 and paid US$5bn in fines for its part in the scheme. The parent company of the bank also entered into a deferred prosecution agreement over the charges.
Najib allegedly received hundreds of millions of dollars in bribes to select Goldman as the main underwriter for the 1MDB bond deals.
Roger Ng
Roger Ng, a former banker at Goldman Sachs, was convicted of bribery and money laundering in April 2022 and sentenced to 10 years in prison. “Roger Ng was a central player in a brazen and audacious scheme that not only victimised the people of Malaysia, but also risked undermining the public’s confidence in governments, markets, businesses and other institutions on a global scale,” said Breon Peace, US attorney for the Eastern District of New York.
Ng was the managing director for Goldman Asia at the time of the alleged bribery. He is the only individual to have stood trial in the US for crimes linked to the 1MDB scandal. He denied any wrongdoing, claiming that his colleague at Goldman, Tim Leissner (see below), threw him under the bus in order to secure a more lenient sentence for himself. Ng’s attorney made several attacks against Leissner’s character during the trial, including calling him a “double bigamist.”
Tim Leissner
Leissner was Southeast Asia Chairman and Participating Managing Director at Goldman Sachs when he became involved in the 1MDB scheme. According to US prosecutors, Leissner colluded with Jho Low to bribe officials in Malaysia and Abu Dhabi in order to facilitate the US$6.5bn in bond deals. He admitted during Roger Ng’s trial that he lied to the bank on several occasions about Low’s intentions of paying bribes and kickbacks to secure deals that earned Goldman US$600m.
Leissner has been free on US$20m bail since he was arrested in June 2018. He is yet to be sentenced for his role in the scheme, but will forfeit US$43.7m in cash and 3.3m shares in Celsius Holdings after pleading guilty to conspiring to launder money and conspiring to violate the Foreign Corrupt Practices Act. He has been a key witness for US prosecutors in the cases against Ng and Low, meaning he is likely to get a reduced jail sentence.
Jho Low
Jho Low, a businessman with links to the entertainment industry and several other industries, is widely believed to be the main orchestrator of the 1MDB scheme. Low acted as an intermediary on deals for Goldman, paying US$1.6bn in bribes syphoned from the 1MDB fund to several government officials. Hundreds of millions of dollars from the fund were also used to fund Low’s lavish lifestyle.
According to US prosecutors, Ng received US$35m in proceeds from the 1MDB fraud and Low US$1bn. Low has also been indicted, but is believed to be on the run in China.
The auditors
As the third line of defence in preventing money laundering, the auditors of the 1MDB fund did not escape the scandal scott-free. Ernst & Young was the original auditor of the fund, but only for a year, until it refused to sign off on the fund’s 2010 financial statements. KPMG took over, but was removed by Najib in 2013 and replaced by Deloitte KassimChan. PwC was then appointed in 2018.
Deloitte paid an out-of-court settlement of US$80m in 2022 to the Malaysian government to resolve all claims related to its auditing for 1MDB and 1MDB-funded unit, SRC International. “The successful out-of-court settlement with Deloitte will expedite the payment of monies to fulfil 1MDB and SRC’s outstanding obligations, which would otherwise be delayed by potentially protracted and costly court battles,” the finance ministry of Malaysia said in a statement.
AmBank
Malaysian banking group AmBank paid US$700m in February 2021 to settle claims linking it to the 1MDB scandal, including allowing Malaysian prime minister Najib Razak to transfer millions of dollars linked to a 1MDB unit into his Ambank accounts between 2014 and 2015. AmBank was also ordered to take certain corrective measures, including putting in place systems and processes to strengthen its due diligence framework, as part of the settlement.
Preventing corruption: dealing with impunity
Examples of political corruption, state embezzlement and kleptocracy are plentiful. But shouldn’t regulators be getting better at preventing this type of fraud as surveillance systems become more robust and anti-money laundering regulations tighten?
Transparency International, a global movement working in more than 100 countries to fight corruption and bribery, says that the problem with current anti-corruption measures is that they rely upon the integrity of those enforcing them. “The international community has already established key obligations and recommendations for countering corruption and protecting human rights. However, these are contained in instruments directed at states. Where high-level officials control the state and work with powerful elites to illicitly abuse state power, the international prescriptions have little effect,” it says.
In a paper published in September entitled Tackling Grand Corruption Impunity, the organisation makes several proposals for how jurisdictions can up their game when it comes to tackling the issue of state-level corruption and the impunity that allows it to flourish. The paper focuses on how jurisdictions “with stronger rule of law” could help to enforce criminal charges against perpetrators of grand corruption “including through assisting weaker jurisdictions.”
The paper also looks at the potential role of non-state actors and of collective action at the international level, through proposed agreements and structures. “While national measures in some countries could help reduce impunity for grand corruption, its complex, networked, cross-border nature means that action to prevent and combat it will be more effective within a comprehensive and coordinated international approach with agreed-upon national measures and international mechanisms,” it says. “International cooperation in enforcement faces numerous obstacles, including differences in legal systems, capacity, resources, prioritisation of assistance, and willingness to cooperate. The need for a high level of trust between law enforcement agencies in sensitive cross-border cases may also hinder cooperation.”
Enablers
Grand corruption and kleptocracy could not happen without the involvement of a cross-border network of institutions and individuals who – knowingly or unknowingly – help to launder illicit funds, often by taking advantage of inadequate AML processes and loopholes in existing legislation. “These networks include companies, financial institutions, lawyers, accountants, real estate agents, trust and company service providers, and company formation agents,” says Transparency International. All of the individual components within these networks have the opportunity and responsibility to stop illicit funds from passing through their system.
Looking at this from a firm-level perspective, if we refer once again to the case of Goldman Sachs’ involvement in the 1MDB scandal, the UK’s FCA found that the firm failed to achieve the following specific measures to prevent illegal activity:
- assess with due skill, care and diligence the risk factors that arose in each of the 1MDB bond transactions on a sufficiently holistic basis
- assess and manage the risk of the involvement in the 1MDB bond transactions of a third party that Goldman Sachs had serious concerns about (namely, Jho Low)
- exercise due skill, care and diligence when managing allegations of bribery and misconduct in connection with 1MDB and the third 1MDB bond transaction
- record in sufficient detail the assessment and management of risk associated with the 1MDB bond transactions.
Unwillingness to challenge big clients: Jho Low’s hold over Goldman Sachs
Due diligence measures are an essential component in preventing illicit funds from being laundered via banks. Ensuring all individuals are treated with the same stringent measures is vital, but does not always happen, as details from the trial of Goldman banker Roger Ng in 2022, reveal: “A central theme at the trial in federal court in Brooklyn, New York, was the tension between Goldman bankers in Southeast Asia seeking big deals after the financial crisis and the compliance and legal employees vetting their transactions,” reported Bloomberg. “Also at issue was the power that Goldman executives had to steer deal money into places it wasn’t supposed to go.”
The due diligence carried out on Jho Low and how it impacted his treatment by the bank was a major failure for Goldman. In the trial, the prosecution presented witnesses from Goldman’s compliance team who said they had highlighted the issues surrounding his links to politically exposed persons in Malaysia and Abu Dhabi.
“Ng knew Low well and had worked with him on a previous deal,” says Bloomberg. “But Ng also urged caution, saying compliance shouldn’t accept Low’s claims at face value…Patrick Kidney, a member of Goldman’s anti-money laundering team in London, described a PowerPoint summary of Low’s red flags from 2010. It said Low ‘has not generated sufficient personal earnings to cover his expenses. He appears to be backed by undisclosed, potentially politically exposed funders.’ Kidney told jurors that he couldn’t see ‘that relationship ever being onboarded.’” After this presentation, Goldman rejected working with Low in 2010. However, Leissner continued to recommend him and his requests were met with the following response from Kidney: “To be clear, we have pretty much zero appetite for a relationship with this individual.” Another compliance employee reportedly described Low as “a name to be avoided.” And yet, billions of dollars worth of bond deals were still brokered via Low.
The future: tightening regulation
Recent developments in anti-corruption regulation include a new framework proposed by the European Commission in May 2023. The proposals aim to combat the issue via criminalising certain activities linked to corruption, updating the current legislation which focuses more heavily on bribery specifically. “Bribery remains at the core of the new legislation, but there are many other forms of corruption threatening citizens and weakening our societies,” said the Commission. The framework aims to:
- Step up corruption prevention by raising awareness of the negative impact of corruption on citizens and our societies to address corruption risks before they emerge or deepen and stimulate a culture of integrity.
- Extend the definitions of criminal corruption offences beyond the more classic bribery offences, including for example also misappropriation, trading in influence, abuse of functions, as well as obstruction of justice and illicit enrichment related to corruption offences.
- Introduce minimum criminal penalties and sanctions for different offences to ensure a level playing field in all Member States.
- Extend the statute of limitation to prosecute corruption in courts.
- Ensure that law enforcement and prosecutors have appropriate investigative tools and resources at hand to fight corruption.
The proposals are aimed at creating parity in how Member States identify and define corrupt activity and address some of the issues in cross-border cases, says law firm Osbourne Clarke. “Most Member States have in their national legislation offences on bribery in the public and private sector, embezzlement, misappropriation, obstruction of justice and abuse of functions. However, some of the definitions differ significantly from one jurisdiction to the other. Differences in the definition of offences and the lack of criminalisation of some corrupt conducts, for example illicit enrichment, causes problems in cross-border cases and that is why the new proposal seeks to harmonise these definitions.”
Are banks doing enough to combat corruption?
As cases such as the 1MDB scandal demonstrate, the role of financial institutions in allowing corruption to flourish is considerable. But banks continue to fail in their efforts to adhere to anti-money laundering legislation and in their dealings with sanctioned individuals. A global survey by Comply Advantage asked 800 C-suite and senior compliance decision-makers across North America, Europe, and Asia Pacific if they regularly consider the risk of and/or choose to incur anti-money laundering (AML) fines and violations with respect to their business decisions and compliance investment. “For the third consecutive year, there was a pronounced rise in the number of firms telling us they choose to incur AML fines and make violations ‘all the time.’ This number, 61% in 2020, had risen to 79% by 2022,” said the survey.
According to Comply Advantage, bank AML fines in 2022 totalled more than US$2bn. “In one of the largest fines of 2022, a European bank was found to have insufficient transaction monitoring of high-risk customers and inadequate enhanced due diligence (EDD) measures. The bank also made fraudulent representations to other international banks, claiming their deficient AML systems were actually effective,” it said.
The Russia-Ukraine war highlighted just how cosy many banks had been getting with politically exposed persons. The Magnitsky Act is a piece of legislation launched in 2016 which allows for the US sanctioning of foreign government officials who violate human rights. A study carried out by the University of Cambridge and the University of Texas at Austin in 2022 (before Russia invaded Ukraine) found that one in 30 banks did not comply with international regulations relating to the Magnitsky Act and other rules designed to combat money laundering, the financing of terrorism and tax evasion. “The researchers set up 12 shell companies in countries recognised as a low risk for corruption including the UK and the US, and a high risk including Papua New Guinea and Pakistan, as well as in offshore jurisdictions, such as the British Virgin Islands,” reported The Guardian. Researchers then posed as representatives of those companies and requested to open bank accounts on their behalf. They impersonated individuals from high-risk countries, “including several Russians named on Magnitsky sanctions lists,” and asked intermediary firms to set up shell companies on their behalf “to limit liability, save tax and maintain their privacy.” Jason Sharman, a professor of international relations at Cambridge, told The Guardian: “It will take you one day to break these sanctions. You don’t have to break a sweat too much to send out 20 emails. And this is without hiding your identity as a high-risk individual. So even when the bad guys are incredibly obvious, incredibly stupid and open, this is still a proposition.”
The research was carried out again after Russia invaded Ukraine and found that sanctioned individuals were far less likely to receive this type of response the second time around. This demonstrates that it takes extreme circumstances, such as war, for sanctions lists to be taken seriously by financial institutions. Until banks can improve their ability to resist the pressures placed on them by influential figures and are able to prioritise good banking conduct over profit and growth, corruption will remain a problem indefinitely.
Download a PDF version of this report here.
