Goldman Sachs to pay $2.9 billion in penalties in the 1MDB Malaysian bribery scandal
Goldman Sachs has agreed to pay $2.9 billion in penalties to settle criminal charges in the 1MDB Malaysian bribery scandal after being fined by Hong Kong's markets watchdog – the Securities and Futures Commission (SFC).
The SFC said serious lapses and deficiencies in management controls at Goldman Sachs (Asia) L.L.C. had contributed to the misappropriation of $2.6 billion raised by the Malaysian sovereign wealth fund.
The US Justice Department said that Goldman Sachs helped raise $6.5 billion for the Malaysian government's sovereign wealth fund when more than $4.5 billion was stolen from 1MDB by high-level officials at the fund and their associates between 2009 and 2015.
In a first for Goldman Sachs, the company's Malaysian unit pleaded guilty in a US court for violations of American bribery law as part of a deal to end the criminal probe in the sweeping case that involved authorities in nine countries.
The three bond offerings, which raised a combined $6.5 billion, were arranged and underwritten by UK-based Goldman Sachs International, with work conducted by deal team members in multiple jurisdictions, who shared the revenue generated.
According to the SFC, Goldman Sachs Asia – the bank's Hong Kong-based compliance and control hub for the region – had significant involvement in the origination, approval, execution and sales process of the three bond offerings.
The bank's Asia hub had earned $210 million from the offerings, the largest share among the various Goldman entities.
The parent company pleaded not guilty in US court and agreed to "deferred prosecution" for three-and-a-half years, during which time the firm will face increased monitoring by regulators.
The Justice Department has charged three individuals in the case including two former Goldman executives. Tim Leissner, the former Southeast Asia chairman, has pleaded guilty, while Ng Chong Hwa, also known as "Roger Ng," former head of investment banking for GS Malaysia, is awaiting trial, and Low Taek Jho remains a fugitive.
Solomon said in a statement "it is abundantly clear that certain former employees broke the law, lied to our colleagues and circumvented firm controls," adding, "we recognize that we did not adequately address red flags."
Goldman Sachs has to pay a penalty of $400 fine to the SEC and repay $600 million in earnings, and pay a $154 million fine to the Federal Reserve, which also will require the company to improve its risk management and internal oversight.
The 1MDB bond deals were obtained for Goldman by its banker Tim Leissner, who in August 2018 admitted that he had conspired with Malaysian financier Jho Low and others to pay bribes and kickbacks to Malaysian and Abu Dhabi officials to obtain and retain the business from 1MDB for the bank.