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A Closer Look Inside the 1MDB Scandal

A recent article in the Wall Street Journal shone a spotlight on the role of auditors and banks involved in the U.S. Department of Justice’s investigation of 1Malaysia Development Berhad, or 1MDB. While 1MDB has been exposed and widely covered by the media for corruption and embezzlement, it is also necessary to examine its interactions with major accounting firms and banks in order to understand the broader implications of this scandal for international business.

Financial institutions such as Goldman Sachs, Deutsche Bank AG, and Standard Chartered PLC conducted business with 1MDB by providing underwriting services or facilitating money transfers. Goldman Sachs claims it had “no visibility” into 1MDB’s handling of the approximately $3 billion the bank raised for it, raising the question of how much responsibility falls upon institutions who work with corrupt businesses and fail to report suspicious transactions. To begin with, international business law gets murky when it comes to identifying violations by third parties, or those who are only indirectly linked to a case. Furthermore, even if these laws were clearly defined, they would be difficult to enforce, as international laws often are.

For example, both times when 1MDB ran into obstacles with accounting firms during the audit process, it simply fired its auditors, Ernst & Young and KPMG, and turned to Deloitte, who ultimately approved the company’s funds. This further underscores how a company can practically evade international regulatory laws when it is overseen by a corrupt political leader.

International business law should emphasize greater enforcement of transparency in global financial transactions, so that banks cannot be pressured into turning a blind eye and keeping quiet regarding clients’ suspicious financial activity. Banks are critical for identifying and reporting cases of money laundering, often involving amounts that exceed the billions. Without their cooperation, companies like 1MDB and the financiers associated with them are able to successfully avoid scrutiny and hide money trails for years.
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By |2023-03-11T16:36:38+00:00September 15th, 2016|Blog|0 Comments
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