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UPDATE 3-Malaysia files criminal charges against 17 Goldman Sachs executives

A. Ananthalakshmi

(Adds details, Alibaba comment)

KUALA LUMPUR, Aug 9 (Reuters) - Malaysia filed criminal charges on Friday against 17 current and former directors at subsidiaries of Goldman Sachs Group Inc following an investigation into a multi-billion-dollar corruption scandal that led to the demise of state fund 1MDB.

Richard Gnodde, chief executive of Goldman Sachs International, Michael Evans, president of Alibaba Group Holding Ltd and former director at Goldman Sachs (Asia) LLC, and Michael Sherwood, former vice chairman of Goldman Sachs Group, were among those charged.

The U.S. bank has been under scrutiny for its role in helping to raise $6.5 billion through bond offerings for 1Malaysia Development Bhd (1MDB), the subject of corruption and money laundering investigations in at least six countries.

But Malaysian prosecutors have said $2.7 billion of the proceeds were diverted and the offering statements filed with the regulators contained statements that were false, misleading or with material omissions.

Last year, Malaysia filed criminal charges against three Goldman Sachs subsidiaries and two of the U.S. bank's former employees in connection with 1MDB.

Friday's charges were brought under a section of the Malaysian Capital Markets and Services Act that holds certain senior executives responsible for offences that may have been committed by the firm, Attorney General Tommy Thomas said.

"Custodial sentences and criminal fines will be sought against the accused ... given the severity of the scheme to defraud and fraudulent misappropriation of billions in bond proceeds," Thomas said in a statement.

Goldman Sachs said the charges were misdirected.

"We believe the charges announced today, along with those against three Goldman Sachs entities announced in December last year, are misdirected and will be vigorously defended," a Goldman Sachs spokesman in Hong Kong told Reuters.

An Alibaba spokeswoman said the company was aware of the charges against company president Evans and that it will continue to monitor the situation.

The Goldman executives charged on Friday are all from the three subsidiaries: Goldman Sachs International, Goldman Sachs (Asia) LLC and Goldman Sachs (Singapore) Pte.

Each charge carries a maximum jail-term of 10 years and a penalty of at least 1 million ringgit ($239,177.23).

Goldman Sachs has consistently denied wrongdoing and said certain members of the former Malaysian government and 1MDB lied to Goldman Sachs, outside counsel and others about the use of transaction proceeds.

The U.S. Department of Justice is investigating the bank for its role as underwriter and arranger of the bond offer.

An estimated $4.5 billion was misappropriated from 1MDB by fund officials and their associates between 2009 and 2014, according to the Justice Department, which had conducted a far-reaching probe under its anti-kleptocracy programme.

Tim Leissner, a former partner of Goldman Sachs in Asia, pleaded guilty last August to conspiracy to launder money and conspiracy to violate the Foreign Corrupt Practices Act and agreed to forfeit $43.7 million.

Malaysia has said it was seeking up to $7.5 billion in reparations from Goldman over its dealings with 1MDB, set up in 2009 by then prime minister Najib Razak.

Najib, ousted in an election last year, is facing dozens of criminal charges related to 1MDB. He has pleaded not guilty and denied wrongdoing. ($1 = 4.1810 ringgit) (Reporting by A. Ananthalakshmi; Additional reporting by Josh Horwitz in Shanghai and Jennifer Hughes in Hong Kong; Editing by Clarence Fernandez, Michael Perry & Simon Cameron-Moore)