Goldman Sachs has agreed to pay over $2.9bn (£2.3bn, €2.45bn) to end a probe of its role in the 1Malaysia Development Berhad (1MDB) corruption scandal.
The bank’s Malaysian subsidiary admitted in US court that it had paid more than $1bn in bribes to Malaysian and Abu Dhabi officials to win work raising money for the wealth fund.
This includes its role in underwriting approximately $6.5bn in three bond deals for 1MDB, for which the bank earned hundreds of millions in fees.
Goldman Sachs will pay more than $2.9bn as part of a coordinated resolution with criminal and civil authorities in the US, the UK, Singapore, and various jurisdictions around the world.
Criminal charges
The bank has entered into a deferred prosecution agreement, charging the company with conspiracy to violate anti-bribery rules in the US, while Goldman Sachs Malaysia pleaded guilty in the US District Court for the eastern district of New York and was charged with conspiracy to violate anti-bribery rules.
Previously, Tim Leissner, the former southeast Asia chairman and participating managing director of Goldman Sachs, pleaded guilty to conspiring to launder money and to violate bribery rules.
Ng Chong Hwa, also known as Roger Ng, a former managing director of the bank and head of investment banking for Goldman Sachs Malaysia, has been charged with conspiring to launder money and to violate bribery rules.
Ng was extradited from Malaysia to face these charges and is scheduled to stand trial in March 2021.
In addition to these criminal charges, the US Department of Justice (DoJ) has recovered, or assisted in the recovery of, in excess of $1bn in assets for Malaysia associated with and traceable to the 1MDB money laundering and bribery scheme.
Regulatory action
Seth DuCharme, acting US attorney of the eastern district of New York, said: “Over a period of five years, Goldman Sachs participated in a sweeping international corruption scheme, conspiring to avail itself of more than $1.6bn in bribes to multiple high-level government officials across several countries so that the company could reap hundreds of millions of dollars in fees, all to the detriment of the people of Malaysia and the reputation of American financial institutions operating abroad.
“Today’s resolution, which includes a criminal guilty plea by Goldman Sachs’ subsidiary in Malaysia, demonstrates that the department will hold accountable any institution that violates US law anywhere in the world by unfairly tilting the scales through corrupt practices.”
Mark Steward, the Financial Conduct Authority’s (FCA) executive director of enforcement and market oversight, said: “Firms have a crucial role to play in tackling financial crime, and in helping to maintain the integrity of the financial system.
“Goldman Sachs International’s failure to take appropriate action in this case shows that it did not take this responsibility seriously. When confronted with allegations of bribery and staff misconduct, the firm’s mishandling allowed severe misconduct to go unaddressed.”
Ashley Alder, chief executive of Hong Kong regulator Securities and Futures Commision (SFC), added: “This enforcement action is the result of a rigorous, independent investigation conducted by the SFC into whether Goldman Sachs Asia’s involvement with 1MDB in 2012 and 2013 contravened the standards expected of firms under Hong Kong regulations.
“The penalty in this case – assessed solely in accordance with Hong Kong’s own fining framework – reflects our findings that Goldman Sachs Asia failed to deal properly with numerous suspicious circumstances surrounding the 1MDB bond offerings.
“These failures led to multiple, serious breaches of the rules which set out the high standards of behaviour expected of all firms supervised by the SFC.”
Details
According to Goldman’s admissions and court documents, between approximately 2009 and 2014, it conspired with others to engage in a scheme to pay more than $1.6bn in bribes, directly and indirectly, to foreign officials in Malaysia and Abu Dhabi in order to obtain and retain business from 1MDB.
Specifically, the company admitted to engaging in the bribery scheme through its employees and agents, including Leissner, Ng, and a former unnamed executive who was a participating managing director and held leadership positions in Asia, in exchange for lucrative business and other advantages and opportunities.
These included, among other things, securing Goldman’s role as an adviser on energy acquisitions, as underwriter on three lucrative bond deals with a total value of $6.5bn, and a potential role in a highly anticipated and even more lucrative initial public offering for 1MDB’s energy assets.
Jho Low
Goldman has also admitted that, in order to effectuate the scheme, Leissner, Ng, the unnamed employee and others conspired with Low Taek Jho, known as Jho Low, to promise and pay over $1.6bn in bribes to officials.
The co-conspirators allegedly paid these bribes using more than $2.7bn in funds that Low, Leissner, and other members of the conspiracy diverted and misappropriated from the bond offerings underwritten by Goldman.
Leissner, Ng and Low also retained a portion of the misappropriated funds for themselves and other co-conspirators.
Goldman admitted that, through Leissner, Ng, Employee 1 and others, the bank used Low’s connections to advance and further the bribery scheme, ultimately ensuring that 1MDB awarded Goldman a role on three bond transactions between 2012 and 2013, known internally at Goldman as “Project Magnolia”, “Project Maximus”, and “Project Catalyze.”
The bank said that it knew that any transaction involving Low posed a significant risk, and although they were on notice that Low was involved in the transactions, they did not take reasonable steps to ensure that Low was not involved.
Low has also been indicted for conspiracy to commit money laundering and bribery violations, along with NG.
He remains a fugitive. The charges in the indictment in relation to Low and Ng are merely allegations, and those defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
BSI
Elswhere in the 1MDB scandal, the Swiss Financial Market Supervisory Authority (Finma) has reduced the profit clawback from now-defunct Swiss private bank Banca della Svizzera Italiana (BSI).
The financial regulator is knocking CHF25m (£21.1m, $28m, €23.3m) off a landmark 2016 enforcement against BSI, which dealt extensively with 1MBD, it said in a statement on 22 October.
The outcome is the result of a more than four-year-long court tussle between the bank and the regulator.
EFG, which had pursued BSI’s legal case after acquiring the bank in 2016 for $1.06bn, has acknowledged Finma’s decision to lower the profit clawback to CHF70m instead of CHF95m.
