The DOJ and SEC Thursday imposed $3.3 billion in financial penalties against Goldman Sachs Group Inc. and a Malaysia subsidiary to resolve FCPA charges related to Malaysian sovereign wealth fund 1Malaysia Development Berhad.
As part of the deferred prosecution agreement, the DOJ imposed a total criminal penalty of $2.3 billion.
The DOJ said the case involved $1.6 billion in bribes. The SEC said beginning in 2012, “former senior employees of Goldman Sachs used a third-party intermediary to bribe high-ranking government officials in Malaysia and the Emirate of Abu Dhabi.”
Goldman Sachs (Malaysia) Sdn. Bhd. agreed to plead guilty in federal court to one count of conspiracy to violate the FCPA anti-bribery provisions.
In a parallel enforcement action, the SEC ordered Goldman Sachs Group to pay a civil penalty of $400 million and disgorgement of $606.3 million to settle charges that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA.
The SEC said the company will receive a dollar-for-dollar disgorgement credit of $606.3 million based on the U.S. dollar value of similar payments made to the Government of Malaysia and 1MDB as part of the company’s July settlement with Malaysia authorities.
In the deferred prosecution agreement, the DOJ said Goldman Sachs’ obligation to pay the $2.3 billion criminal fine will be complete upon the total payment of about $1.27 billion, so long as “the remaining amount” is paid to the SEC and other enforcement authorities in the U.S., UK, Singapore, and Hong Kong within a year.
In the UK, the Financial Conduct Authority and the Bank of England Thursday fined Goldman Sachs International a total of £96.6 million ($126 million) for risk management failures connected to 1MDB. In Singapore, the Attorney General imposed a penalty of $122 million on Goldman Sachs and required a payment of $61 million to 1MDB as disgorgement.
Earlier Thursday, Hong Kong’s Securities and Futures Commission fined a local unit of Goldman Sachs $350 million. The regulator cited Goldman’s “serious lapses and deficiencies in its management supervisory, risk, compliance and anti-money laundering controls.”
The Hong Kong SFC said Goldman Sachs’ fees from 1MDB were “more than double the total revenue it generated from acting as an arranger and/or underwriter in 213 other Asia ex-Japan bond offerings in the five years between 2011 and 2015.” 1MDB’s willingness to pay such high fees “without going through a competitive process should have raised questions about how the business was obtained from 1MDB, the reasonableness of the mandates, and whether the circumstances leading to such business raised any suspicions of bribery or other illicit conduct,” the SFC said.
The U.S. resolution Thursday is the biggest FCPA case ever, topping Airbus SE’s $2.09 billion settlement in January. Goldman replaces KBR as the only American company on the FCPA Blog’s top ten list.
Goldman Sachs units acted as arrangers or purchasers of $6.5 billion of debt securities of 1MDB. The DOJ said Goldman received $600 million in fees and revenue related to the debt offerings.
In July, Goldman Sachs Group Inc. agreed to pay the Malaysian government $2.5 billion for its alleged fraud connected to 1MDB. As part of the settlement, Malaysian authorities agreed to withdraw pending criminal charges against Goldman Sachs and 17 current and former Goldman executives.
Former Prime Minister Najib Razak, 67, was convicted in July by a court in Malaysia on seven counts for looting 1MDB and related charges. The judge sentenced Najib to 12 years in prison but suspended the sentence during any appeals.
The DOJ has alleged in court filings that more than $4.5 billion was looted from 1MDB from 2009 through 2015 “by high-level officials” of the fund and their associates. Najib wasn’t named. He was chairman of 1MDB while he was prime minister.
In November 2018, the former chairman of Goldman Sachs in Southeast Asia, Tim Leissner, pleaded guilty in the United States to two counts of conspiring to launder money and violate the FCPA for his role in the 1MDB scandal. He forfeited nearly $44 million as part of his plea. He’s cooperating with the DOJ and hasn’t been sentenced yet.
In July 2018, the Malaysian government issued a warrant for the arrest of alleged 1MDB mastermind Low Taek Jho. Low has denied breaking any laws and said he had an informal consulting role at 1MDB.
In the U.S., the DOJ indicted Low in October 2018 for conspiracy to violate the FCPA’s anti-bribery and internal controls provisions, and conspiracy to commit money laundering. The criminal indictment said Goldman’s system of internal accounting controls could be easily circumvented and that the firm’s business culture in Southeast Asia was “highly focused on consummating deals, at times prioritizing this goal ahead of the proper operation of its compliance functions.”
The DOJ reached a $700 million civil forfeiture agreement in 2019 for assets Low allegedly acquired with money stolen from 1MDB.
Low hasn’t appeared in U.S. court to answer the criminal charges. He is currently a fugitive and his whereabouts are unknown.
Goldman Sachs first disclosed the 1MDB investigation in February 2017, according to data from FCPA Tracker. In Thursday’s deferred prosecution agreement, lawyers from Sullivan & Cromwell, Kirkland & Ellis, and Paul Hastings appeared for Goldman Sachs.
In 2016, Goldman Sachs paid about $5 billion to resolve various civil charges related to its marketing and sale of residential mortgage-backed securities. The DOJ imposed a $2.38 billion civil penalty for “predicate offenses, including wire and mail fraud.”
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