The White Collar Appeal: Second Circuit Affirms Conviction of Goldman Sachs Managing Director in 1MDB Scandal

• The Second Circuit recently rejected a number of arguments from Roger Ng, the former Goldman Sachs managing director convicted in connection with the 1MDB Malaysian investment fund scandal.
• Most significantly, the court rejected Ng’s arguments that (1) the Rule of Specialty forbade the government from obtaining a superseding indictment after Ng’s extradition from Malaysia and (2) the $35 million forfeiture order was unconstitutionally excessive under the Eighth Amendment.
• The court’s resolution of these arguments sheds light on two issues that regularly arise in cross-border white-collar cases.  In particular, the decision provides practical guidance for defendants negotiating extradition and for framing challenges to excessive forfeiture orders.

Background

Ng Chong Hwa, better known as Roger Ng, is a Malaysian national who ran Goldman Sachs’ operations in Malaysia from 2012 to 2014.  According to his former Goldman colleague Timothy Leissner’s trial testimony, between 2012 and 2013, Ng and Leissner conspired with Jho Low to embezzle more than $2.5 billion from the Malaysian sovereign wealth fund known as 1MDB.  The scheme involved three bond offerings that generated $6.5 billion, with nearly half of the net proceeds diverted for bribes to government officials and kickbacks to other coconspirators.  US prosecutors alleged that Ng personally received $35.1 million in purloined 1MDB funds. 

After the US government obtained an indictment, Ng spent six months in a Malaysian jail while he negotiated the terms of his extradition.  In particular, Ng obtained a letter from US prosecutors stating that if Ng waived extradition, he would “not be detained, tried or punished” for any offenses other than those charged in the original indictment.  That representation tracked the Rule of Specialty, a principle of international law under which a country that obtains the extradition of a defendant may not add new charges after the defendant has been extradited.  Here, however, US prosecutors obtained two superseding indictments after Ng arrived in the United States, which Ng argued violated the Rule of Specialty.  The district court disagreed, holding that the superseders merely added factual details and thus were “substantially the same” as the original indictment, and thus violated neither the Rule of Specialty nor the pre-extradition agreement.

A jury convicted Ng at trial, and the district court imposed a sentence that included a forfeiture order of $35.1 million—the amount of embezzled money that Ng received.  Ng argued that this amount was improperly duplicative of the amount a Malaysian court had ordered him to pay in connection with his prosecution in that country and that, in any event, the amount violated the Eighth Amendment prohibition of excessive fines.

Holdings

The Second Circuit rejected these arguments and the others Ng raised on appeal.

Rule of Specialty.  The court held that, because it “did not alter the nature of the conduct alleged or of the charged offenses,” the superseding indictment did not violate either the Rule of Specialty or the government’s pre-extradition agreement.  The court explained that each indictment (1) charged the same three violations and (2) alleged that Ng and his coconspirators committed those violations through the same scheme—causing Goldman Sachs to participate in three specified 1MDB bond offerings and then causing a 1MDB subsidiary to send nearly half the net proceeds to the coconspirators to be used for bribes to government officials in two specific countries and kickbacks to themselves and other participants in the scheme. 

Notably, however, the court found that Ng had no claim under the Rule of Specialty on the premise that a defendant lacks standing to invoke it unless the extraditing country has protested the filing of a superseding indictment.  Here, because the Malaysian government had not protested, the court considered only Ng’s argument that government had breached the agreement memorialized in its pre-extradition letter.

Excessive Forfeiture Amount.  The court also rejected Ng’s Eighth Amendment challenge, holding that the $35.1 million forfeiture was not “grossly disproportional to the gravity of” Ng’s offense.  Ng’s principal argument on appeal was that a $35 million forfeiture would deprive him of his future ability to earn a living.  The court found that unavailing because Ng focused on his present inability to earn a living—not that he will be unable to earn a living in the future. 

The court also noted that Ng’s disproportionality analysis focused only on a comparison between himself and others involved in the scheme.  But, the court explained, the relevant comparison is between the forfeiture amount and the gravity of the offense—not the defendant and his coconspirators.  And given that Ng participated in “one of the largest financial crimes of all time,” resulting in the theft of $3 billion and causing “intangible harm to the public’s confidence in democracy and government,” a $35 million forfeiture was not “grossly disproportional.”

Finally, the court rejected Ng’s argument that his forfeiture of $35 million to the Malaysian government pursuant to a Malaysian court order precluded a duplicative forfeiture imposed in the United States.  That court held “that the fact that the defendant has been ordered by another sovereign to forfeit assets for the same offense of which he is convicted in a United States court cannot be the basis for reducing the requested amount of a mandated criminal forfeiture.”

Key Takeaways

Defendants should obtain an express agreement from the government tracking the Rule of Specialty.  Regardless of the merits of Ng’s Rule of Specialty argument, it would have been a nonstarter without the government’s pre-extradition letter agreeing not to add new charges.  Although the Rule of Specialty informs all extradition negotiations and the broader defense strategy in cross-border cases, prosecutors may be willing to roll the dice by adding new post-extradition charges and waiting to see if the extraditing country actually protests.  That may be especially true where the defendant is not a citizen of the extraditing country.  Defendants should follow Ng’s lead and obtain an explicit agreement from prosecutors so that they have a breach-of-contract argument in case their Rule of Specialty argument falls through.

And defendants should seek a representation that extends beyond the Rule of Specialty.  Here, Ng’s argument failed because the superseder “did not alter the nature of the conduct alleged or of the charged offenses.”  Had Ng obtained an agreement that the government would not supersede at all, his contractual argument might have prevailed.  Defendants negotiating extradition should seek to obtain the most robust language possible to box the government into the existing indictment. 

Ng further entrenches the Second Circuit’s minority position on standing and the Rule of Specialty.  Bear in mind, however, that the Second and Seventh Circuits are outliers with respect to this standing issue.  By contrast, the Sixth, Eighth, Ninth, Tenth, and Eleventh Circuits permit defendants to invoke the Rule of Specialty even if the extraditing country has not protested. Defendants in the Second and Seventh Circuits thus may wish to continue to advance arguments under the Rule of Specialty to preserve them for a potential cert petition.

Ng provides a clear framework for excessive-forfeiture challenges.  The court explained that its review of forfeitures under the Eighth Amendment is “solely to examine them for gross disproportionality.”  That requires consideration of the four “Bajakajian factors,” which include:  (1) the essence of the crime of the defendant and its relation to other criminal activity, (2) whether the defendant fits into the class of persons for whom the statute was principally designed, (3) the maximum sentence and fine that could have been imposed, and (4) the nature of the harm caused by the defendant's conduct.  Future ability to earn a living, the court explained, is relevant to the extent that it informs this proportionality inquiry. Defendants thus should frame their arguments accordingly, and in particular, they should address the relevant comparison:  the amount of the forfeiture versus the gravity of the offense—not the conduct and punishment of coconspirators versus those of the defendant.

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