Goldman Resolves Remaining 1MDB Charges for $2.9bn

Under the coordinated resolution, Goldman will pay $606mn in disgorgement and more than $2.3bn in penalties to authorities in the US, UK, Hong Kong and Singapore. 

The Goldman Sachs Group has entered a deferred prosecution agreement with the US DOJ (Department of Justice), agreeing to pay criminal fines, penalties, and disgorgement of USD 2.92 billion to settle all remaining charges against the group and its subsidiaries in the 1MDB probe.

The penalties are part of a coordinated resolution with criminal and civil authorities in the US, the UK, Hong Kong and Singapore.

As part of the agreement, the Goldman Sachs Group and its Malaysian subsidiary each admitted to violating the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) by paying over USD 1 billion in bribes paid to Malaysian and Abu Dhabi officials to obtain lucrative business for Goldman.

The bribes helped to secure the bank’s role in underwriting three bond deals worth a total USD 6.5 billion for 1MDB in 2012 and 2013, for which Goldman earned approximately USD 600 million in fees.

Two Goldman executives have been charged for their roles in the scandal. Tim Leissner, the former chairman of Goldman’s Southeast Asia division, pleaded guilty to money laundering and violating the FCPA, while Roger Ng, another Goldman executive, will stand trial for the same charges in March 2021.

The DOJ has bought similar charges against Jho Low, a Malaysian national with ties to the then Malaysian ruling party who is said to be the mastermind behind the 1MDB fund. Low’s whereabouts are currently unknown.

The USD 2.92 billion in criminal fines, penalties, and disgorgement includes:

  • USD 606 million in disgorgement, to be paid to the Malaysian government pursuant to a parallel settlement agreement entered into by Goldman
  • USD 1.26 billion to be paid as a penalty to the US Treasury Department, including USD 500,000 to be paid as a criminal fine by Goldman Malaysia.
  • USD 400 million as a civil penalty for violating the anti-bribery, internal accounting controls, and books and records provisions of the US securities laws [See SEC Order].
  • USD 154 million as a fine imposed for a failure to maintain appropriate oversight, internal controls, and risk management as required under US banking laws. [See Fed Order]
  • USD 150 million as part of a consent order for “failure to detect or adequately address red flags suggesting wrongdoing” in connection with the 1MDB bond transactions, as well as failures that exposed Goldman Sachs Bank USA to “undue financial and reputational risk and caused unsafe and unsound conduct and reporting deficiencies”. [See DFS Order]
  • USD 126 million (GBP 96.6) imposed against Goldman Sachs International by the UK FCA (Financial Conduct Authority) and the Bank of England’s PRA (Prudential Regulation Authority) for “risk management failures” connected to 1MDB and the three bond deals. [See Statement]
  • USD 100 million of the USD 350 million (HKD 2.71 billion) imposed against Goldman Sachs (Asia) LLC by Hong Kong’s SFC (Securities and Futures Commission), which cited “serious lapses and deficiencies in its management supervisory, risk, compliance and anti-money laundering controls”. [See Statement of Disciplinary Action]
  • USD 122 million imposed on Goldman Sachs Singapore by the MAS (Monetary Authority of Singapore), AGC (Attorney-General’s Chambers) and CAD (Commercial Affairs Department), along with a 36-month conditional warning in lieu of prosecution for three counts of corruption offences. Goldman will be required to appoint an independent external party to review measures taken to remediate risk governance and control deficiencies uncovered during a 2016 MAS inspection. [See Statement]

Goldman said it would claw back, forfeit or reduce compensation worth a total USD 174 million from executives and employees, including retired boss Lloyd Blankfein, under whose watch the scandal occurred.

“The Board views the 1MDB matter as an institutional failure, inconsistent with the high expectations it has for the Firm,” reads a statement from the Goldman Sachs Group. “To this end, the Board has been and continues to be focused on ensuring the proper controls and oversight are in place, repairing the reputational damage that has been done, and reinforcing the values the Firm aspires to live by.”

The statement includes a presentation deck outlining the completed and ongoing enhancements Goldman has made to its compliance and internal controls since the 1MDB transactions.

The coordinated resolution follows an agreement Goldman reached in July with Malaysia, in which the bank promised to pay USD 2.5 billion to the country’s government and guarantee it receives an additional USD 1.4 billion in proceeds from 1MDB-related assets seized by authorities worldwide.

 

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