Goldman Sachs To Pay Record Fine to Resolve Bribery Investigation

Goldman Sachs Group Inc. will pay $2.9 billion as part of a coordinated resolution with criminal and civil authorities in the United States, the United Kingdom, Singapore, and elsewhere over bribes it paid to Malaysian and Abu Dhabi officials to secure business deals. The settlement is the largest monetary penalty ever paid to the U.S. government for a corporate foreign bribery case, and just a portion of the $5 billion the financial institution will pay to resolve the matter.

The U.S. Department of Justice (DOJ) announced the fine, part of a deferred prosecution agreement, on Thursday. Goldman Sachs was charged with conspiring to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA), and Goldman Sachs Malaysia pleaded guilty to one count of conspiring to violate the anti-bribery provisions of the FCPA.

“Over a period of five years, Goldman Sachs participated in a sweeping international corruption scheme, conspiring to avail itself of more than $1.6 billion 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,” said Acting U.S. Attorney Seth D. DuCharme of the Eastern District of New York. “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 U.S. law anywhere in the world by unfairly tilting the scales through corrupt practices.”

The DOJ said the scheme went on from 2009 to 2014, and that Goldman admitted to engaging in bribery through its employees and agents—former Southeast Asia Chairman and Participating Managing Director Tim Leissner, former Managing Director of Goldman and Head of Investment Banking for GS Malaysia Ng Chong Hwa, a third former executive known as Employee 1, and Low Take Jho—to secure deals with 1MDB, a Malaysian state-owned and state-controlled fund to pursue investment and development projects. The bribes were paid for a variety of business initiatives, including Goldman’s role as an advisor on energy acquisitions, underwriter on three bond deals valued at $6.5 billion, and a potential role in a “highly anticipated and even more lucrative initial public offering for 1MDB’s energy assets,” according to the DOJ.

“Goldman also admitted that, although employees serving as part of Goldman’s control functions 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,” the DOJ added. “Goldman further admitted that there were significant red flags raised during the due diligence process and afterward—including but not limited to Low’s involvement—that either were ignored or only nominally addressed so that the transactions would be approved and Goldman could continued to do business with 1MDB. As a result of the scheme, Goldman received approximately $606 million in fees and revenue, and increased its stature and presence in Southeast Asia.”

The DOJ reached the $2.9 billion figure with Goldman based on several factors, including its failure to voluntarily disclose its conduct; the nature and seriousness of the offense; the amount tof the bribes; the number and high-level nature of the bribe recipients; and more.

“Goldman received partial credit for its cooperation with the department’s investigation, but did not receive full credit for cooperation because it significantly delayed producing relevant evidence, including recorded phone calls in which the company’s bankers, executives, and control function personnel discussed allegations of bribery and misconduct relating to the conduct in the statement of the facts,” the DOJ said. “Accordingly, the total criminal penalty reflects a 10 percent reduction off the bottom of the applicable U.S. sentencing guidelines fine range.”

In a rare move, Goldman’s Board of Directors also required executives to forfeit $100 million in compensation and reduced current overall compensation for the executive leadership by $31 million for 2020 for what it viewed as an “institutional failure, inconsistent with the high expectations it has for the firm,” according to a statement.

The board explained that “while none of the past or current members of senior management were involved in or aware of the firm’s participation in any illicit activity at the time the firm arranged the bond transactions, the board has determined that it is appropriate in light of the findings of the government and regulatory investigations and the magnitude of the total 1MDB settlement that compensation for certain past and current members of senior management be impacted.”

Goldman Sachs CEO David M. Solomon said the board’s actions were appropriate and that the resolution of the criminal probe has brought forth the need for the firm to recognize two realities.

“First, as an organization that seeks to live up to a common set of ideals and values, we are responsible for each other’s actions,” Solomon said in a statement. “We all share in the benefits when our colleagues perform well for our clients. The opposite must be true as well. When a colleague knowingly violates a firm policy, or much worse, the law, we—as a firm, have to accept responsibility and recognize the broader failure that individual behavior represents for our firm.

“Second, we have to acknowledge where our firm 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 also added that since the scheme ended, Goldman has made changes to its compliance and internal controls. These measures include redesigning its framework for addressing reputational risk, doubling its global compliance division, imposing additional conditions for sovereign-related financings, creating a compliance forensics program, and establishing an insider threat program to leverage enhanced surveillance analytics to prevent and detect potentially harmful action by employees.

“Over the past several years, we have materially changed our focus to put reputational risk at the center of our decision-making,” Solomon added. “We must always remain open to improvement, learn from our mistakes, and accept the consequences when we fail.”