The View | Goldman tested the limits of banking morality with huge fees from 1MDB

A successful criminal defence lawyer once told me his business secret: "My best clients are rich and scared because they'll pay anything to stay out of jail." Goldman Sachs must apply a modified version of this business model when seeking clients who don't desperately need money, but offer the right guarantees and credit rating to readily attract the big investments that generate fat fees.

The blow back from the bank's involvement in 1MDB was probably not anticipated. And unfortunately, it shows how the pursuit of huge fees can obliterate any consideration of reputation and conduct risk.

While Malaysians took to the streets to protest over the accusations against 1MDB and their prime minister, Goldman has earned legendary-level profits from its highly lucrative fundraising assignment. No one has accused or charged Goldman with any wrongdoing, but its self-serving rationale for doing this deal challenges today's principles-based conduct risk management regime.

This is not the first time Goldman has tested the limits of banking morality. While some defenders argue that banks are profit-making institutions, not moral creatures, international regulators are pushing banks to evolve a sense of right and wrong into their activities. It's not enough to rationalise that the deal did not hurt anyone at the time, but was the deal necessarily the right thing to do?

The 1MDB saga echoes the compliance and risk conduct issues that Goldman has faced - and ignored - before. Although the subsequent controversy has nothing to do with the bank's role, current compliance rules demand to ask if this entire transaction and client was the appropriate kind of business to conduct. It's no longer just about earning giant fees.

Goldman earned about US$500 million in fees for raising US$6.5 billion in a series of bond sales for 1MDB. At 7.69 per cent, this represents a huge commission for a fixed-income underwriting. It pulled in nearly US$300 million in fees for US$3 billion for 1MDB in 2013. Compare this to the average fees of 1.32 per cent earned by underwriters so far this year on US high-yield junk bonds rated below sovereign issues and to Goldman's overall record US$694 million of global bond underwriting fees in the first quarter, all according to data from Bloomberg.