Finance

Goldman Sachs agrees to pay more than $2.9 billion to resolve probes into its 1MDB scandal

Key Points
  • Goldman Sachs agreed to pay more than $2.9 billion to regulators to resolve probes into its central role in an international scandal.
  • The bank's parent company entered a deferred prosecution agreement with the U.S. Justice Department that should allow it to avoid having to exit certain business operations.
  • The bank's Malaysian subsidiary formally pleaded guilty for its role in the 1MDB debacle, admitting to one count of conspiracy to violate the Foreign Corrupt Practices Act.
  • Goldman ignored red flags that came up during due diligence on the 1MDB deals in pursuit of fees, authorities said.
Goldman Sachs CEO David Michael Solomon attends a discussion on "Women Entrepreneurs Through Finance and Markets" at the World Bank on October 18, 2019 in Washington, DC.
Olivier Douliery | AFP | Getty Images

Goldman Sachs agreed to pay more than $2.9 billion to regulators around the world, including a record penalty for violating a U.S. anti-corruption law, to resolve probes into its role in an international finance scandal, authorities announced Thursday.

Under the deal, Goldman's parent company avoided a guilty plea in the United States.

The sum includes about $600 million in fee disgorgement that was included in an earlier settlement with the Malaysian government. The $2.9 billion includes individual deals with regulators in the U.S., the U.K., Singapore and elsewhere, the U.S. Justice Department said. Separately, Hong Kong fined the bank a record $350 million for its part in the episode, and most of that figure is excluded from the $2.9 billion total.

The bank's parent company entered a deferred prosecution agreement with the DOJ that should allow it to avoid having to exit certain business operations. Earlier Thursday, the bank's Malaysian subsidiary formally pleaded guilty for its role in the 1MDB debacle, admitting to one count of conspiracy to violate the Foreign Corrupt Practices Act.

"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," acting Assistant Attorney General Brian C. Rabbitt said in a statement. The announcement "requires Goldman Sachs to admit wrongdoing and pay nearly three billion dollars in penalties, fines, and disgorgement, holds the bank accountable for this criminal scheme."

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The deal resolves an issue that has weighed on CEO David Solomon since he took over from Lloyd Blankfein two years ago. Goldman was accused of helping a corrupt Malaysian financier steal billions of dollars from the $6.5 billion 1MDB development fund, money that was supposed to help build the country's economy.

Instead, the 1MDB funds were allegedly used by Malaysian financier Low Taek Jho to fund an epic spending spree, including a $250 million yacht, a stake in the Martin Scorsese film "The Wolf of Wall Street" and property around the world. At least $1 billion of the funds were used to bribe Malaysian and Abu Dhabi officials, U.S. officials said Thursday.

Goldman bankers reaped about $600 million in fees to facilitate bond deals in 2012 and 2013 that funded 1MDB, an amount that fixed-income professionals have said was unusually high.

Goldman admitted that it failed to take "reasonable steps" to make sure that Low, a known risk at the time, wasn't involved in the three bond deals, the Justice Department said. The bank also ignored red flags that came up during due diligence in pursuit of fees, authorities said.

Solomon, who is getting his 2020 pay reduced as a result of this scandal, acknowledged Thursday in a memo to employees that the bank fell short.

"While many good people worked on these transactions and tried to do the right thing, we recognize that we did not adequately address red flags and scrutinize the representations of certain members of the deal team, most notably Tim Leissner, and the outside parties as effectively as we should have," Solomon said.

From the start, Goldman has maintained that just a pair of rogue employees were responsible for the bank's part in the 1MDB scandal, Leissner and Roger Ng. Leissner plead guilty in 2018, while Ng has maintained his innocence.

A deal with U.S. agencies was expected since the start of 2020, but negotiations reportedly dragged on as the bank sought to avoid having to plead guilty.

In July, Goldman announced a $3.9 billion settlement with the Malaysian government to settle a criminal probe over the bank's role in the episode. That included a $2.5 billion cash payment and the bank's guarantee that Malaysia will receive at least $1.4 billion in proceeds from seized assets.

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