Goldman Sachs to pay $3bn to settle charges over role in 1MDB scandal
Goldman Sachs has agreed to pay nearly $3bn (£2.3bn) to settle a probe into its role in Malaysia’s 1MDB corruption scandal, drawing a line under a saga that has dogged the bank for years.
The settlement resolves a probe led by US authorities into the bank’s role in underwriting three bond offerings in 2012 and 2013 that raised $6.5bn for Malaysia’s government.
Read more: Goldman Sachs ‘to pay $2bn fine’ in US Justice Department 1MDB probe
Under the terms of the agreement, Goldman Sachs has been slapped with a $2.3bn penalty and about $600m of disgorgement. The case involved civil and criminal authorities in the US, UK, Singapore, and other jurisdictions.
In a court hearing earlier today, Goldman Sachs Malaysia said it would plead guilty to violating the Foreign Corrupt Practices Act in relation to the scandal.
‘Conspiracy to bribe foreign officials’
“Goldman Sachs today accepted responsibility for its role in a conspiracy to bribe high-ranking foreign officials to obtain lucrative underwriting and other business relating to 1MDB,” said Brian Rabbitt of the US Department of Justice (DOJ).
In a memo to all employees, chief executive David Solomon said: “we have to acknowledge where our firm fell short”.
“There are consequences for not getting it right and this settlement is an important acceptance of this fact,” he said.
Following the DOJ settlement, he bank’s board announced plans to claw back around $174m from former Goldman employees implicated in the scheme, as well as from current and former senior executives “in acknowledgement of the firm’s institutional failures” related to 1MDB.
Solomon, alongside chief executive officer John Waldron, chief financial officer Stephen Scherr, and Goldman Sachs International chief executive Richard Gnodde will have their overall compensation reduced by $31 million in 2020, the board said.
Malaysian and US authorities estimate $4.5bn was siphoned off from 1MDB in an elaborate scheme that spanned the globe and implicated high-level officials in the fund, former Malaysian Prime Minister Najib Razak, Goldman staff and others.
The offerings were arranged and underwritten by UK-based Goldman Sachs International, with work conducted by and revenue shared between deal team members in multiple jurisdictions.
Goldman Sachs had generated about $600m in fees for its work for 1MDB, according to the DOJ.
The bank has been investigated by regulators in at least 14 countries over its work for 1MDB.
UK regulators fine Goldman £97m over 1MDB
The settlement reached today includes a £96.6m fine for Goldman Sachs International (GSI) from the UK’s Financial Conduct Authority (FCA) and Bank of England’s Prudential Regulation Authority over risk management breaches.
“There is no amnesty for firms that tackle financial crime poorly, and the size of GSI’s fine reflects that,” said FCA enforcement director Mark Steward.
“Firms have a crucial role to play in tackling financial crime, and in helping to maintain the integrity of the financial system. GSI’s failure to take appropriate action in this case shows that it did not take this responsibility seriously,” Steward said.
The DOJ filed criminal charges against two former Goldman Sachs bankers tied to the scandal, Tim Leissner and Roger Ng, in November 2018.
Record fine by Hong Kong regulator
News of the US settlement comes after Hong Kong’s markets watchdog fined Goldman Sachs’s Asian division $350m (£267m) for its role in the 1MDB scandal, the largest penalty ever issued by the regulator.
The financial hub’s Securities and Futures Commission (SFC) said “serious lapses and deficiencies” in management controls at Goldman Sachs Asia had contributed to the misappropriation of $2.6bn raised by the Malaysian sovereign wealth fund.
The SFC said Goldman Sachs Asia, the bank’s Hong Kong-based regional compliance and control hub had significant involvement in the origination, approval, execution and sales process of the three bond offerings.
The bank’s Asia hub had earned $210m from the offerings, the largest share among the various Goldman entities.
Read more: Malaysia drops charges against Goldman Sachs over 1MDB scandal
Last month Malaysia dropped criminal charges against three Goldman Sachs units after the bank agreed to pay $3.9bn to settle the probe.
The units – based in London, Hong Kong and Singapore – had pleaded not guilty in February and the bank has consistently denied wrongdoing.