Goldman Sachs to pay nearly US$3b to settle charges over 1MDB saga

Published Thu, Oct 22, 2020 · 09:50 PM

Washington

GOLDMAN Sachs on Thursday agreed to pay nearly US$3 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.

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

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

In a court hearing, Goldman Sachs Malaysia said it would plead guilty to violating the Foreign Corrupt Practices Act in relation to the scandal.

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

The scandal dates back 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.

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 US, Malaysia, Singapore and others, for what its leadership did and did not know about the transactions.

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.

Earlier Hong Kong's markets watchdog on Thursday fined Goldman Sachs's Asian business US$350 million for its role in Malaysia's multi-billion-dollar 1MDB 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) LLC had contributed to the misappropriation of US$2.6 billion raised by the Malaysian sovereign wealth fund.

The SFC said Goldman Sachs Asia, the bank's Hong Kong-based compliance and control hub for the region, had significant involvement in the origination, approval, execution and sales process of the three bond offerings.

The bank's Asia hub had earned US$210 million from the offerings, the largest share among the various Goldman entities.

"This enforcement action is the result of a rigorous, independent investigation conducted by the SFC," said Ashley Alder, the SFC's chief executive.

The 1MDB bond deals were obtained for Goldman by Leissner, who in August 2018 admitted that he had conspired with Malaysian financier Jho Low and others to pay bribes and kickbacks to Malaysian and Abu Dhabi officials to obtain and retain the business from 1MDB for the bank.

US court documents show Low was rejected as a private wealth management client on several occasions as his source of wealth could not be verified, resulting in a potential money laundering risk.

Nonetheless, Goldman's regional and firm-wide committees that vetted the bond offerings accepted Leissner's false assertions that Low had no roles in the bond offerings without making further inquiries, the SFC said. REUTERS

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