Banking and Finance Law Daily Goldman Sachs must pay $2.9B in ‘historic’ FCPA criminal bribery action
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Friday, October 23, 2020

Goldman Sachs must pay $2.9B in ‘historic’ FCPA criminal bribery action

By John M. Jascob, J.D., LL.M.

The penalty, which represents the largest ever in a corporate foreign bribery action, resulted from a "massive" years-long scheme that defrauded a Malaysian development fund of approximately $2.7 billion.

The Goldman Sachs Group Inc. has agreed to pay a record $2.9 billion in disgorgement and penalties for criminal and civil violations of the Foreign Corrupt Practices Act (FCPA) in connection with the 1Malaysia Development Berhad (1MDB) bribery scheme. In the criminal action, the Department of Justice announced that the storied New York investment bank and its Malaysian subsidiary, Goldman Sachs (Malaysia) Sdn. Bhd. (GS Malaysia), have admitted to conspiring to violate the FCPA by scheming to pay over $1 billion in bribes to Malaysian and Abu Dhabi officials to obtain business, including underwriting approximately $6.5 billion in bond offerings by 1MDB intended to foster energy development. GS Malaysia has pleaded guilty in federal court in Brooklyn to one count of conspiracy to violate the anti-bribery provisions of the FCPA, while Goldman Sachs has entered into a deferred prosecution agreement with the government on the conspiracy charge (U.S. v. Goldman Sachs Group, Inc., October 22, 2020).

In a parallel administrative enforcement action, the SEC found that Goldman Sachs violated the anti-bribery, internal accounting controls, and books and records provisions of the federal securities laws. Goldman Sachs agreed to a cease-and-desist order and to pay approximately $606 million in disgorgement and a $400 million civil penalty, with the amount of disgorgement satisfied by amounts it paid to the Government of Malaysia and 1MDB in a related settlement (In the Matter of the Goldman Sachs Group, Inc.Release No. 34-90243, October 22, 2020).

The Federal Reserve Board also fined Goldman Sachs $154 million for the firm's failure to maintain appropriate oversight, internal controls, and risk management with respect to its involvement in the far-reaching scheme.

"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," said Acting Assistant Attorney General Brian C. Rabbitt of the DOJ’s Criminal Division. "Today’s resolution, which 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 and demonstrates the department’s continuing commitment to combatting corruption and protecting the U.S. financial system."

Acting U.S. Attorney Seth DuCharme added that Goldman Sachs had paid more than $1.6 billion in bribes to multiple high-level government officials across several countries to garner millions of dollars in fees while depriving the people of Malaysia of funds needed for local development efforts. "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," said DuCharme.

"Massive" corruption, "historic" penalty. 1MDB was a multi-billion-dollar investment fund created by the Malaysian government. According to the government, Goldman Sachs received approximately $600 million in fees for its work helping 1MDB raise $6.5 billion in international bond offerings in 2012 and 2013. Billions of dollars, however, were later stolen from 1MDB, some of which were then used to bribe corrupt officials from Malaysia and Abu Dhabi, with the criminal proceeds being laundered through U.S. and other financial institutions and used to make purchases of real estate, yachts, and other luxury goods.

Tim Leissner, the former Southeast Asia Chairman and a Participating Managing Director of Goldman Sachs, had previously pleaded guilty to conspiracy to violate the FCPA and conspiracy to commit money laundering. Ng Chong Hwa, also known as "Roger Ng," former Managing Director of Goldman and Head of Investment Banking for GS Malaysia, has been charged with conspiracy to violate the FCPA and conspiracy to commit money laundering. According to the government, Ng has been extradited from Malaysia and is scheduled for trial in March 2021. A third criminal defendant, Malaysian businessman Low Taek Jho, has been indicted for money laundering and FCPA violations but remains a fugitive.

"As the bank admitted today, senior Goldman bankers played a central role in this scheme, conspiring with others to siphon over $2.7 billion from 1MDB," Rabitt observed at the news conference where he was joined by representatives from the SEC and the FBI. "They used those funds to line their own pockets and to pay $1.6 billion in bribes. In addition to the involvement of several Goldman executives, other personnel at the bank allowed this scheme to proceed by overlooking or ignoring clear red flags."

Rabitt observed that the action was "historic" in several important respects:

  • The $1.6 billion in bribes paid by Goldman was the largest amount of bribes ever paid by a company to secure business in violation of the FCPA.
  • The bribes resulted in $2.7 billion in losses to 1MDB, which represents the greatest loss amount ever charged in an FCPA matter brought by the DOJ.
  • The bribes ensured that Goldman received approximately $600 million in fees, one of the largest profits ever secured by a company through foreign bribery.
  • The resolution involved the largest monetary penalty ever paid to the United States in a corporate criminal foreign bribery resolution.

Rabitt added that "the case is also significant because it involved a massive corruption scheme carried out by executives of a preeminent American bank that caused significant harm. That harm was borne principally by the people of Malaysia, who saw a fund created to benefit them—and for which they remain financially responsible—instead turned into a piggy bank for corrupt public officials and their cronies."

SEC Enforcement Director Stephanie Avakian said that the coordinated action, which also involved regulatory authorities from Malaysia, Singapore, the United Kingdom, Luxembourg, and Switzerland, highlights the need for companies to understand the persons with whom they are doing business. In a news release from the SEC, Charles Cain, who heads the Enforcement Division’s FCPA Unit, added: "Corruption risks can be posed by those at all levels of a company, including in the senior ranks. This case demonstrates how important it is for companies to have controls that are tailored to the risks presented by persons employed at all levels."

The matters are No. 20-437 (U.S. v. Goldman Sachs Group, Inc.) and Release No. 34-90243 (In the Matter of the Goldman Sachs Group, Inc.).

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