Goldman Sachs to pay nearly $4b to settle charges over Malaysia's 1MDB scandal role

Goldman Sachs on Thursday agreed to pay nearly $3 billion to settle a probe into its role in Malaysia’s 1MDB corruption scandal.
The 1MDB scandal has been a costly and long-running sore for the US investment bank.
The 1MDB scandal has been a costly and long-running sore for the US investment bank.PHOTO: REUTERS

WASHINGTON (AGENCIES) - Goldman Sachs on Thursday (Oct 22) agreed to pay nearly US$3 billion (S$4.07 billion) to settle a probe into its role in Malaysia’s 1MDB corruption scandal, and its Malaysia unit agreed to plead guilty to violating foreign bribery laws, drawing a line under a saga that has dogged the bank for years.

The settlement resolves a probe by US authorities into the bank’s role in underwriting three bond offerings in 2012 and 2013 that raised US$6.5 billion for Malaysia’s government, Reuters reported.

Under the terms, Goldman has been slapped with a US$2.3 billion penalty and about US$600 million in disgorgement of ill-gotten gains.

The US Department of Justice said the deal was the largest penalty ever levied on a US firm for breaching the Foreign Corrupt Practices Act and involved an unprecedented number of regulators across the globe.

Brian Rabbitt, acting head of the Justice Department’s criminal division, said the settlement reflected the bank’s central role “in a massive global scheme to loot billions of dollars” from the state Malaysian fund.”

Between roughly 2009 and 2014, Goldman paid more than US$1.6 billion in bribes to foreign officials in Malaysia and Abu Dhabi to win 1MDB business, prosecutors said.

While the saga has proved a humbling and reputationally damaging episode for Wall Street’s powerhouse investment bank, the settlement will allow Chief Executive Officer David Solomon to accelerate his plan to reshape Goldman as a more conventional bank, analysts said.

The move follows a US$3.9 billion settlement the bank reached with Malaysia in July to settle all charges against the bank there related to the matter.

The scandal dates to the government of former Malaysian Prime Minister Najib Razak, which set up the 1MDB fund in 2009.

The Justice Department estimated US$4.5 billion was misappropriated by high-level fund officials and their associates between 2009 and 2014 to pay for real estate, art and other luxury items.

In November 2018, the US Justice Department filed criminal charges against two former Goldman Sachs bankers tied to the scandal, Tim Leissner and Roger Ng.

Goldman has been investigated by regulators in at least 14 countries, including the United States, Malaysia, Singapore and others. 

British regulators fined Goldman 96.6 million pounds (S$171.4 million) as part of global action.

Earlier on Thursday, Hong Kong's markets watchdog also fined Goldman Sachs' Asian business US$350 million for its role in the scandal, the largest single fine ever levied by the regulator in the Asian financial hub.

The Securities and Futures Commission (SFC) said serious lapses and deficiencies in management controls at Goldman Sachs (Asia) had contributed to the misappropriation of US$2.6 billion raised by the Malaysian sovereign wealth fund.

Goldman Sachs Singapore also had to pay a US$122 million settlement penalty to the Singapore authorities for its role in the 1MDB bond offerings.

The country's Commercial Affairs Department has served the bank with a 36-month conditional warning, in lieu of prosecution for three counts of corruption offences under the Prevention of Corruption Act.

The Monetary Authority of Singapore has issued Goldman Sachs Singapore a direction under the Securities and Futures Act to appoint an independent external party to conduct a review of its remedial measures.

According to the Justice Department, Goldman earned US$600 million in fees for its work with 1MDB. Leissner, Ng and others received large bonuses in connection with that revenue.

“We recognise that we did not adequately address red flags and scrutinise the representations of certain members of the deal team,” Solomon wrote in a memo to staff on Thursday, adding the bank had already made several compliance improvements.

The Goldman group has entered into an agreement with the department deferring prosecution for three years provided the bank meets certain conditions, including beefing up its compliance measures, the agency said.

The guilty plea by the bank’s Malaysia subsidiary at a court hearing in Brooklyn was a major victory for prosecutors who rarely extract such concessions from corporate entities.

Since 2019, Goldman had set aside US$4.39 billion to cover legal and regulatory matters. Some US$2 billion was for matters it already resolved with the Malaysian government.

Goldman’s shares were up 1 per cent on the news, as investors anticipated that Thursday’s deal should allow Solomon to accelerate his plan to reshape Goldman as a more conventional bank, less reliant on volatile trading venues, analysts said.

“Getting this overhang off the back of management and the company in general is a very big win,” said Marty Mosby, an analyst at boutique brokerage Vining Sparks.

The settlement may also boost the bank’s share price long term by removing pressure related to the probe, said Mosby.

Goldman’s stock lags its rivals, trading at just 0.8 times the value of its assets.

Correction note: This article has been edited for clarity.