The business writers at The New York Times promise a bump in white-collar crime news in 2020. At the same time, a series of reports raise concerns about oversight of the accounting industry.
From The Times:
Goldman Sachs is negotiating with the Justice Department to pay a penalty of about $2 billion for its role in the 1Malaysia Development Berhad scandal, known as 1MDB.
Accounting fraud became a particular focus of the Justice Department toward the end of 2019. In December, federal prosecutors indicted executives from Outcome Health and MiMed, and opened an investigation into whether BMW, the German automaker, manipulated its sales figures.
The 1MDB case involves 17 Goldman Sachs executives accused by Malaysia of taking $2.7 billion of the $6.5 billion raised for the 1MDB fund.
How that case will be resolved is an open question because the Malaysian authorities are looking to recoup all of the money raised on behalf of 1MDB.
In the United States, federal prosecutors are looking at possible money-laundering and Foreign Corrupt Practices Act violations by Goldman.
The Times reports the money raised by the fund was to finance infrastructure and other public development projects in Malaysia. But instead, it went to pay bribes and “fuel the lavish lifestyle” of a local financier involved in the case, according to charges.
The story also reports a bump in accounting fraud cases.
Criminal prosecutions for accounting fraud are uncommon, but late last year, prosecutors took a much more aggressive position in accusing senior executives of violating accounting rules.
In December, federal prosecutors indicted a co-founder of Outcome Health, Rishi Shah; the company’s former president, Shradha Agarwal; and its chief financial officer, Brad Purdy, of money laundering and mail and wire fraud for making false statements to a bank to obtain almost $1 billion in loans and equity investments.
An ongoing series of reports on the lax regulation of accounting fraud puts some of this in perspective. It focuses on the Public Company Accounting Oversight Board (PCAOB). From POGO, the Project on Government Oversight:
POGO has documented, the accounting oversight board has a weak record of disciplining Big Four auditors for apparent violations identified by its own staff. When it does take disciplinary action, it has shielded auditors and their clients from public scrutiny by withholding key information from public records.
Though Congress empowered the oversight board to write new rules for auditors, the PCAOB has to a significant extent preserved the industry-written rules it inherited—rules that can make it difficult to hold auditors accountable. Recently, it has watered down rules meant to keep auditors relatively independent from the companies they audit.
Read the entire series here.