Goldman Sachs has said it will be clawing back certain executives’ remuneration as it has agreed to pay a US$2.9 billion penalty over its role in Malaysia’s 1MDB corruption scandal.
The investment bank entered into the settlement with the US Department of Justice and other US and offshore regulators across the UK, Singapore and elsewhere on Thursday.
Goldman Sachs and its Malaysian subsidiary admitted to violating the Foreign Corrupt Practices Act (FCPA), by paying more than US$1.6 billion in bribes to Malaysian and Abu Dhabi officials to obtain lucrative business. Such business included Goldman Sachs’ role in underwriting around US$6.5 billion in three bond deals for Malaysian sovereign fund 1Malaysia Development Berhad (1MDB).
The scheme saw billions of dollars illegally diverted to other accounts and Goldman Sachs was reported to have earned around US$606 million in fees and revenue.
The Goldman Sachs board also indicated it would be undertaking clawback actions paid to past and current executives, with forfeitures and compensation reductions to total around US$174 million.
The firm is seeking to forfeit around US$76 million in total from three individuals who were involved with the scheme: Tim Leissner, who has plead guilty to criminal charges, Roger Ng Chong Hwa (Roger Ng), who has been charged with the same crimes and Andrea Vella, who has been prohibited by the Federal Reserve from participating in the banking industry.
Goldman Sachs is currently holding around US$24 million of the US$76 million target.
Separately, five former senior executive officers, including a past chief executive, chief operating officer, chief financial officer, vice-chairman who was also a CEO of Goldman Sachs International and a vice-chairman who was the global head of growth markets will be forced to forfeit all or the majority of their outstanding long-term bonuses that were granted in 2011 and which have a performance period that includes 2012 and 2013 when the 1MDB bond underwritings took place.
One of the retired execs who already received the 2011 award has voluntarily agreed to return the majority of it, as Goldman Sachs is in talks with others to follow suit.
The amount that could be gained back from the five retired executives totals around US$67 million.
In addition, the current executive leadership team, CEO David Solomon, the CFO and the current CEO of Goldman Sachs International will have their overall compensation reduced by US$31 million for 2020.
In a note to all employees, Mr Solomon said the company would have to acknowledge where it fell short.
“There are consequences for not getting it right and this settlement is an important acceptance of this fact,” he said.
“The board’s announcement is an important reminder that we are all responsible for each other’s actions, including our collective failures.”
In March last year, the US Federal Reserve banned former senior investment bankers Mr Leissner and Mr Ng from the banking industry for their participation in the scheme, after it found they had coordinated bond offerings arranged by Goldman for 1MDB in 2012 and 2013.
The funds diverted from 1MDB were then used for the conspirators’ personal benefit and to bribe government officials in Malaysia and Abu Dhabi.
Mr Leissner pleaded guilty to criminal charges brought by the Department of Justice in the Eastern District of New York in August 2018, for conspiring to violate the Foreign Corrupt Practices Act and to commit money laundering.
Mr Ng was indicted in October 2018 for similar charges. He was extradited from Malaysia to face the charges and is set to stand trial in March next year.
In addition to the criminal charges, the US department has moved to recover in excess of US$1 billion in assets for Malaysia, associated with the money laundering scheme.
Speaking on the new admissions, acting assistant attorney-general Brian Rabbitt from the US Justice Department’s criminal division commented Goldman Sachs “accepted responsibility” for its role in a conspiracy to bribe high-ranking foreign officials.
“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 US financial system,” Mr Rabbitt said.
The penalty will the largest paid to US authorities in an FCPA case, assistant director in charge William Sweeny Junior of the FBI’s New York field office said. Meanwhile, the FBI’s investigation into the looting of funds from 1MDB remains ongoing.
Other lucrative business gained by Goldman according to admissions and court docments, included securing the company’s role as an adviser on energy acquisitions and a potential role in a highly anticipated and even more lucrative initial public offering for 1MDB’s energy assets.
Mr Leissner, Mr Ng, and others conspired to pay bribes to numerous foreign officials, including high-ranking officials in the Malaysian government, 1MDB, Abu Dhabi’s state-owned and state-controlled sovereign wealth fund, International Petroleum Investment Company (IPIC), and Abu Dhabi’s state-owned and state-controlled joint-stock company, Aabar Investments PJS (Aabar).
Goldman has also admitted that in order to effectuate the scheme, Mr Leissner, Mr Ng and others conspired with Malaysian businessman and fugitive Low Taek Jho (also referred to as Jho Low) to promise and pay the bribes to Malaysian and Abu Dhabi officials.
The co-conspirators allegedly paid these bribes using more than US$2.7 billion in funds that Mr Low, Leissner, and other members of the conspiracy diverted and misappropriated from the bond offerings underwritten by Goldman. Mr Leissner, Mr Ng and Mr Low were also said to have retained a portion of the misappropriated funds for themselves and other co-conspirators.
Goldman also admitted that, through Mr Leissner, Mr Ng, and others, the bank used Mr Low’s connections to advance and further the bribery scheme, ultimately ensuring that 1MDB awarded Goldman a role on three bond transactions between 2012 and 2013, known internally at the company as “Project Magnolia,” “Project Maximus,” and “Project Catalyze.”
It also confessed that although employees serving as part of Goldman’s control functions knew that any transaction involving Mr Low posed a significant risk, and although they were on notice that Mr Low was involved in the transactions, they did not take reasonable steps to ensure that Mr Low was not involved.
Goldman further admitted that there were significant red flags raised during the due diligence process and afterward – including but not limited to Mr Low’s involvement – that either were ignored or only nominally addressed so that the transactions would be approved and Goldman could continue to do business with 1MDB. As a result of the scheme, the US Department of Justice reported, Goldman received approximately US$606 million in fees and revenue, and increased its stature and presence in South-east Asia.
Since the 1MDB transactions eight years ago, Goldman has doubled its compliance staff.
In July, Goldman Sachs agreed to a US$3.9 billion settlement with the Malaysian government for its involvement in the 1MDB scheme.
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Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].