56 Finance & economics The EconomistAugust 17th 2019
2 tospendvaluabletimeplanning.Between
November 2018 and January2019,nearly
three-quarters of bosses putaside time
eachweektoprepareforvariousoutcomes.
Butuncertaintyhasalsobeena biggerbur-
denonexporters,whichtendtobemore
productivethanfirmscateringtothehome
market.Alltold,productivityis2-5%lower
thanit wouldhavebeenwithouttheuncer-
tainty. Brexit still carries plenty of un-
knowns.TheeffectonBritain’seconomy,
though,isbecomingeverclearer. 7Certaindoom
Britain,BrexitUncertaintyIndex
%ofexecutivessayingBrexitis oneofthetopthree
sourcesofuncertaintyfacingtheirbusinessSource:“TheimpactofBrexitonUKfirms”byN.Bloom,P. Bunn,
S.Chen,P. Mizen,P. SmietankaandG.Thwaites,NBER 20192016 17 18 1950
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060T
he surprisestung. On August 9th Ma-
laysia’s attorney-general filed criminal
charges against 17 current and former exec-
utives at Goldman Sachs, an investment
bank. The move marks an escalation in Ma-
laysia’s efforts to deal with a scandal un-
covered at 1mdb, a state investment vehicle
set up more than a decade ago by Najib Ra-
zak, then Malaysia’s prime minister. As
much as $4.5bn of public money vanished
from the fund between 2009 and 2015, ac-
cording to America’s Department of Justice
(doj). The cash was funnelled through
shell companies around the world and frit-
tered away on yachts, artworks, diamonds
and other fripperies. Investigations have
spanned America, Luxembourg, Malaysia,
Singapore, Switzerland and the United
Arab Emirates.
The 17 executives occupied senior posi-
tions at three subsidiaries of Goldman be-
tween May 2012 and March 2013. Five still
work at the bank: among them is Richard
Gnodde, the chief executive of its London-
based subsidiary. During that time Gold-
man underwrote three bond offerings thatraised $6.5bn for 1mdb, of which, according
to the doj, $2.7bn later disappeared. Even
so, the bank earned a whopping $600m in
fees—a figure that Malaysia’s authorities
claim was above the market rate. In 2013
one of the bank’s former executives, who
has been charged, was paid a bonus exceed-
ing that of its chief executive at the time.
Malaysia’s prime minister, Mahathir Mo-
hamad, who booted Mr Najib out of office 15
months ago with a rallying cry against cor-
ruption, has called the fees “a huge killing”.
His finance minister wants $7.5bn in repa-
rations from Goldman.
The bank’s former chairman for South-
East Asia, Tim Leissner, helped win the
work. He and Roger Ng, another former
Goldman banker, already face charges in
America and Malaysia. Mr Leissner, who
last year pleaded guilty to the American
charges of bribery and money-laundering,
awaits sentencing. But Mr Ng protested his
innocence in a court in New York in May
after being extradited from Malaysia.
The alleged mastermind of the scheme,
Jho Low, a Malaysian financier, remains at
large. Mr Najib, meanwhile, must contend
with four trials related to 1mdbin Malaysia,
the first of which is under way. Both men
deny wrongdoing.
Goldman has painted Mr Leissner as a
rogue employee. The bank’s chief executive
has even apologised to Malaysians for Mr
Leissner’s role in the mess. But the former
executive has said his cover-ups were in
line with the bank’s culture. The decision
to charge another 17 executives under Ma-
laysia’s Capital Markets and Services Act
(cmsa), which allows top employees to be
held responsible for the offences of their
organisations, suggests authorities take a
broad view of the matter. In December, un-
der another section of the cmsa, Malaysia
filed criminal charges against the firm.
The bank denies wrongdoing. Edward
Naylor, its head of corporate communica-
tions in the Asia-Pacific region, said thatthe charges against the 17 are “misdirect-
ed”. “Certain members of the former Malay-
sian government and 1mdblied to Gold-
man Sachs,” he added. As those accused
had no opportunity to argue their case be-
fore the charges were filed, the attorney-
general’s move increases pressure on the
bank in its dealings with the Malaysian au-
thorities. It also signals Malaysia’s deter-
mination to make an example of Goldman.
The big question is how America’s
crime-busters respond. Goldman is likely
to be punished for the actions of Mr
Leissner and others. But the size of a poten-
tial fine could depend on the extent to
which they are judged to have acted in their
employer’s interest. One tricky legal issue
is whether Goldman is liable for the $2.7bn
that was stolen from the bond-sale pro-
ceeds. The bank is thought to have set aside
somewhere between $1bn and $2bn to cov-
er legal costs related to 1mdb. Analysts
reckon the size of any American fine could
be based either on the fees Goldman earned
on the bond issuance, or on the larger sum
that disappeared from the fund. With
$76bn of core capital, the bank can absorb
the potential hit to its balance-sheet. Its
reputation for being both nimble and as-
tute may take longer to recover. 7SINGAPORE
Malaysia files criminal charges against
a host of Goldman Sachs executives1MDB
And then there
were seventeen
O
n august 8th two subsidiaries of
mbia, an American insurer, sued nine
Wall Street firms, alleging misconduct in
underwriting bonds issued by Puerto Rico
and “wrapped”, or guaranteed, by mbia.
Lawsuits accusing banks of peddling iffy
securities are not rare these days. However,
this one is a reminder that “monoline”
bond insurers, which briefly played a star-
ring role in the financial crisis of 2008, are,
though hardly full of life, still kicking.
Monoline insurers (so called because
they focus solely on providing financial
guarantees) charge a premium to cover in-
terest and principal payments should
bonds default. The industry sprang up in
the 1970s, first focusing on municipal debt
and later branching out into structured
products like mortgage securities. That ex-
pansion backfired spectacularly when
American house prices crashed. For a few
weeks in 2008 the previously obscure mo-
nolines—the biggest of which were mbia
and New York-based Ambac—became
front-page news as fears spread that they
might be unable to pay claims on hundredsBurned by mortgage debt, insurers
turned back to muni bonds. OuchBond insurersBad wrap
1