Could Blockchain have saved Goldman Sachs’ face?

Goldman Sachs is embroiled in the worst scandal in their long history, a multibillion-dollar international fraud that investigators are pinning on Malaysian Prime Minister Najib Razak, who used proceeds from the scandal to purchase luxury items and fund an extravagant lifestyle.

A guilty plea from a former Goldman Sachs banker was unveiled by federal prosecutors on Thursday while announcing bribery and money laundering charges against a second banker. Charges were also filed against a Malaysian business who the prosecutors believe stole a part of the loot: Jho Low, who spent millions of dollars gifting celebrities like the actor Leonardo DiCaprio and the model Miranda Kerr.

The Scandal

Razak created and oversaw a “sovereign wealth fund” and with the help of Goldman Sachs bankers routed a major part of the money that was to go into fund to his personal bank accounts and used the money to buy a Picasso painting, diamond necklaces and Birkin bags as well as to pay for the Hollywood blockbuster “The Wolf of Wall Street”. Najib Razak lost his re-election bid over the scandal, in which American prosecutors said $731 million of the missing money was deposited into his own bank accounts.

Though scandals such as this are not a new development in the current currency system, the matter that interests us is that a transparent and inherently fraud preventive system exists today in a state that is developed enough to take it online. An important passage from an NY Times article about the scandal reads: ‘The authorities said that at least one high-ranking executive in the bank’s Asian operations was aware of the scheme, which dodged Goldman’s systems to detect the payment of bribes. That person, unidentified in the court filings, has not been charged. According to three people familiar with the matter, the executive was Andrea Vella, who was the co-head of Goldman’s Asian investment banking business.’

This passage is important because it illustrates the lack of transparency that the traditional banking sector suffers from. Blockchain systems inherently have methods of preventing fraud and misuse of funds. Opaque practices and institutions always have and always will present the opportunity for fraud and abuse. The transparency that blockchain offers is the fundamental remedy to such situations. Essentially, the fraud conducted by 1Malaysia Development Berhad (1MDB) is basically impossible to get away with in a blockchain enabled ecosystem.

A Recurring Nightmare

Yet, it’s not like this is the first time Goldman Sachs has been ensnared in allegations of misconduct. The banking giant has spent years trying to rehabilitate a reputation that was severely tarnished during the financial crisis by allegations of misconduct and putting profits ahead of clients. The bank’s role in the sprawling Malaysian scandal could prove to be the undoing of all the pains that Goldman executives take to emphasize the good that their bank does in societies around the world.

Although Goldman Sachs knew that Tim Leissner, a former Goldman investment banker who spent years courting Mr. Low, was at the center of the investigation, the breadth of the charges appears to have caught Goldman off guard. The investment bank was not expecting a leader of its Asian investment bank to be implicated as well. Goldman has repeatedly downplayed its role in the scandal, stating it was unaware that the money from the fund was being used inappropriately.

Goldman’s chairman, Lloyd Blankfein, sought to frame the matter as the misdeeds of rogue employees. “These are guys who evaded our safeguards, and lie, stuff like that’s going to happen, Somebody’s going to use phones away from us, and personal this and personal that,” he said, referring to personal devices.

A Better Way Forward

Criminal elements will forever be in search of ways to break the system that tries to keep them honest, but getting away with it in a system governed by blockchain, long enough to steal three-quarters of a billion dollars is pretty unlikely. Artificial Intelligence (AI) powered by neural networks could be employed to keep an eye out for behavior that indicates fraud, and such disgraceful incidents would be less attractive to attempt.

After waiting two years for justice to be served, only one man beside Tim Leissner, the banker who has already plead guilty, has been arrested, implying that it could be a couple more years before the matter is finally resolved. The bottom line is: a conspiracy of such intricacy and such breadth is near impossible in Blockchain employed with delivery via multi-signature smart contracts and other crypto application.

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