1MDB: Goldman Sachs to pay over RM20b

The Wall Street titan is looking at over a RM20b tab to clean up the mess caused by its 1MDB dealings across the globe

by RAHIMI YUNUS / pic by BLOOMBERG

GOLDMAN Sachs Group Inc will have to pay over US$5 billion (RM20.8 billion) to global authorities and take about US$174 million from current and former executives to put 1Malaysia Development Bhd (1MDB) matters behind the firm.

In the latest settlement, the Wall Street titan has agreed to pay over US$2.9 billion in criminal penalty and disgorgement as part of a coordinated resolution with criminal and civil authorities in the US, UK, Singapore and elsewhere, the US Department of Justice (DoJ) said last week.

Earlier last week, the Securities and Futures Commission (SFC) in Hong Kong reprimanded and fined Goldman Sachs (Asia) LLC about US$350 million (HK$2.71 billion/RM1.46 billion) for serious lapses and deficiencies in its management supervisory, risk, compliance and anti-money laundering controls, according to a statement.

The global resolution led by DoJ and action by the Hong Kong authorities against Goldman Sachs entities followed the US$2.5 billion payout plus US$1.4 billion guarantee agreement between the New York-headquartered investment banking firm and Malaysian government sealed in July — a US$3.9 billion settlement for all the criminal and regulatory proceedings in Malaysia concerning 1MDB.

All in, Goldman Sachs is looking at over a US$5 billion tab to clean up the mess caused by its 1MDB dealings across the globe, tantamount to two-thirds of a year’s profits.

Separately, the board of directors of Goldman Sachs said the company is set to take about US$174 million in the aggregate among its senior former executive officers and current executive leadership team through clawbacks, forfeitures and compensation reductions in acknowledgment of the firm’s institutional failures, according to a statement last week.

1MDB deals have dragged Goldman Sachs’ 151 years of reputable name through the mud, implicating the global investment bank in what many dubbed as the world’s biggest financial scandal.

In 2012 and 2013, Goldman Sachs received about US$600 million in fees for helping 1MDB raise US$6.5 billion through three bond sales.

Billions of dollars were stolen from the proceeds to bribe officials in Malaysia, Abu Dhabi in the United Arab Emirates and elsewhere.

The ill-gotten money was also used to purchase extravagant properties, artworks, yachts, luxury goods and fund a Hollywood movie.

Tim Leissner, the former chairman of Goldman Sachs in SouthEast Asia, pleaded guilty to conspiring to money laundering and violating the Foreign Corrupt Practices Act (FCPA).

He admitted conspiring with Low Taek Jho, also known as Jho Low, and others to pay bribes and kickbacks to Malaysian and Abu Dhabi officials in exchange for business from 1MDB for Goldman Sachs, including the bond sales.

In Malaysia, 1MDB-related trials are ongoing involving former Prime Minister Datuk Seri Mohd Najib Razak as the accused.

The US

Goldman Sachs entered into a deferred prosecution agreement with the DoJ in connection with criminal information filed in the Eastern District of New York charging the company with conspiracy to violate the anti-bribery provisions of the FCPA.

Under the terms of the agreement, DoJ said Goldman Sachs will pay a criminal penalty and disgorgement of over US$2.9 billion — the largest ever penalty paid to US authorities in an FCPA case.

The US authority said it will credit over US$1.6 billion in payments with respect to those resolutions.

“Goldman Sachs today (Oct 22) accepted responsibility for its role in a conspiracy to bribe high-ranking foreign officials to obtain lucrative underwriting and other business relating to 1MDB,” acting assistant Attorney General Brian C Rabbitt of DoJ’s criminal division said in a statement last week.

“Today’s resolution, which requires Goldman Sachs to admit wrongdoing and pay nearly US$3 billion in penalties, fines, and disgorgement, holds the bank accountable for this criminal scheme and demonstrates the department’s continuing commitment to combating corruption and protecting the US financial system,” he added.

DoJ said Goldman Sachs and its Malaysian subsidiary Goldman Sachs (M) Sdn Bhd have admitted to conspiring to violate the FCPA in connection with a scheme to pay over US$1 billion in bribes to Malaysian and Abu Dhabi officials to obtain lucrative business for the company, including its role in underwriting approximately US$6.5 billion in three bond deals for 1MDB between 2012 and 2013.

Specifically, DoJ said Goldman Sachs admitted to engaging in the bribery scheme through certain of its employees and agents, including Leissner, Ng Chong Hwa also known as Roger Ng, and a former executive who was a participating MD and held leadership positions in Asia (Employee 1).

In a separate statement, the US Securities and Exchange Commission (SEC) said Goldman Sachs has agreed to pay more than US$1 billion to settle the SEC’s charges for violations of the FCPA, as part of the US$2.9 billion coordinated resolutions.

SEC said Goldman Sachs agreed to a cease-and-desist order and to pay US$606.3 million in disgorgement and a US$400 million civil penalty, with the amount of disgorgement satisfied by amounts it paid to the Malaysian government and 1MDB in a related settlement.

The UK

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have fined Goldman Sachs International (GSI) a total of £96.6 million (RM525.2 million) for risk management failures connected to 1MDB and its role in three fundraising transactions for 1MDB, part of the US$2.9 billion globally coordinated resolution, according to a statement.

The statement said the FCA and PRA took the settlement between Goldman Sachs and the Malaysian government into account in determining their financial penalties.

It said GSI agreed to resolve this case with the FCA and PRA, qualifying it for a 30% discount in the overall penalty imposed by both regulators.

Without this discount, the FCA and PRA would have imposed a financial penalty of £69 million each on GSI.

Singapore

Singapore authorities said Goldman Sachs Singapore Pte Ltd will pay US$122 million to the Singapore government for its role in the 1MDB bond offerings, also part of the global resolution led by DoJ and discussed with, inter alia, Singapore, according to a statement.

Besides the US$122 million, Goldman Sachs Singapore has also agreed to disgorge a sum of US$61 million to the Malaysian authorities, which brought the total amount paid or to be paid by the Goldman Sachs entity in Singapore to US$183 million.

Hong Kong

SFC has fined Goldman Sachs Asia US$350 million for the company’s failures in 1MDB transactions that contributed to the misappropriation of the US$2.6 billion from US$6.5 billion raised by 1MDB in 2012 and 2013, according to a statement.

SFC said, in particular, Goldman Sachs Asia, the compliance and control hub of Goldman Sachs in Asia and based in Hong Kong, had significant involvement in the origination, approval, execution and sales process of the three 1MDB bond offerings.

It said Goldman Sachs Asia received 37% of the total revenue of US$567 million generated from the bond offerings, or US$210 million, the largest share among the various Goldman Sachs entities.

“Goldman Sachs Asia fell far short of the standards expected of a licensed intermediary in the 1MDB case and suffered not only reputational damage from its own failures, but also brought the securities industry into disrepute,” SFC’s ED of enforcement Thomas Atkinson said in the statement.

Repairing Reputation

Goldman Sachs’ board of directors said for those former employees implicated in the criminal scheme, the firm has undertaken clawback actions to the full extent of its contractual entitlements for three individuals — Leissner, who has pleaded guilty to criminal charges; Ng, who has been charged with the same crimes; and Andrea Vella, who has been prohibited by the US Federal Reserve from participating in the banking industry.

The board said the firm is seeking to forfeit from these individuals approximately US$76 million, of which the firm is currently holding about US$24 million.

Besides that, it said five of the firm’s former senior executive officers, former CEO, former COO, a former CFO, the former vice chairman who was a CEO of GSI and the former vice chairman who was the global head of growth markets, will, to the extent not already paid, forfeit all or the majority of their outstanding Long-Term Performance Incentive Plan Awards that were granted in 2011 and which have a performance period that includes 2012 and 2013 when the 1MDB bond underwritings took place, and forfeit a portion of other previously awarded compensation, if applicable.

The board said the amounts for these five individuals represent a portion of the pretax value of these awards granted or paid, and total approximately U$67 million.

Additionally, the board said it is appropriate that the current executive leadership team, the CEO, the COO and the CFO, as well as the current CEO of GSI, have their overall compensation reduced by US$31 million for 2020.

These clawbacks, forfeitures and compensation reductions will total approximately US$174 million in the aggregate, the board added.

Meanwhile, Goldman Sachs chairman and CEO David Solomon said the company has to acknowledge where it fell short.

“There are consequences for not getting it right and this settlement is an important acceptance of this fact,” Solomon said in a memo to all employees globally following the resolutions with DoJ along with regulators in the US, UK, Singapore and Hong Kong.