(Bloomberg) — Goldman Sachs Group Inc. admitted its role in the biggest foreign bribery case in U.S. enforcement history, conceding that its officers helped spread $1.6 billion in illicit payments across Malaysia and the Middle East in a scheme that diverted money from a development fund into an international spending spree on mansions and lavish parties.
A small Malaysian unit of the U.S. bank pleaded guilty to a single conspiracy charge on Thursday. Goldman agreed to billions of dollars in new payments to authorities in the U.S., U.K., Hong Kong and Singapore, bringing its overall tab to more than $5 billion to resolve probes into its fundraising for the Malaysian vehicle known as 1MDB.
Goldman’s parent company avoided a criminal conviction to resolve the investigations, as part a deal that allows the bank to put off any prosecution as long as it cooperates with ongoing U.S. investigations and submits compliance reports. The deferred-prosecution agreement is a win for Goldman Sachs, because a conviction might have risked losing some institutional clients that are restricted from working with financial firms with criminal records. The bank’s shares were up 1.3% for the day at 2:27 p.m.
The Wall Street giant will cut the pay of Chief Executive Officer David Solomon and other current leaders and claw back compensation from his predecessor Lloyd Blankfein and several other former executives, the bank said Thursday.
The global resolutions announced Thursday conclude more than a half decade of investigations into Goldman’s role in raising $6.5 billion for 1MDB in three bond offerings. To smooth the way for those bond deals, Goldman officials conspired with a 1MDB official to bribe Malaysian officials and officials of a sovereign wealth vehicle in Abu Dhabi, the U.S. Justice Department said.
U.S. authorities said that Goldman’s scheme rose to the bank’s highest ranks, despite its insistence for years that rogue employees were responsible. “The scheme was principally carried out by senior officials in Goldman,” Acting U.S. Attorney Seth DuCharme said.
In all, some $2.7 billion of the money raised for 1MDB was stolen by people connected to the country’s former prime minister and diverted for bribes, a luxury yacht, fine art and even funding for the Hollywood movie “The Wolf of Wall Street.”
The Justice Department settlement concludes one of the biggest bank probes inherited by the Trump administration. The bank will pay more than $2.3 billion in the plea deal, U.S. prosecutor Alixandra Smith said, the largest penalty in U.S. history for a violation of the Foreign Corrupt Practices Act. Airbus SE paid $2.09 billion earlier this year to settle global bribery probes.
The U.S. penalty credits more than $1 billion in fines paid to other U.S. agencies and foreign authorities. That includes $400 million to the Securities and Exchange Commission, $150 million to New York’s Department of Financial Services and $154 million to the Federal Reserve. After disgorgements of Malaysia profits, the Justice Department places the total U.S. penalty at roughly $2.9 billion.
Goldman Sachs units will also pay $350 million to Hong Kong’s financial regulator, $122 million to Singapore’s government and 96.6 million pounds ($126 million) to the U.K.’s Financial Conduct Authority, those bodies announced Thursday.
Goldman reached a settlement in July with Malaysia, which included a payment of $2.5 billion and an unusual provision that the bank would guarantee that the Asian nation would recoup an additional $1.4 billion from 1MDB assets seized around the world. Malaysia dropped criminal charges against the bank as part of that deal.
The case against the Wall Street firm focused on its fundraising work in 2012 and 2013 for the state-owned 1MDB, formally known as 1Malaysia Development Bhd. From about 2009 to 2014, the bank’s Malaysia unit “knowingly and willfully agreed to violate the Foreign Corrupt Practices Act by corruptly promising, and paying bribes to foreign officials in order to obtain and retain business for Goldman Sachs,” the bank’s general counsel, Karen Seymour, told U.S. District Judge Margo Brodie in Brooklyn in a video hearing on Thursday.
Goldman’s investment-banking group, led at the time by Solomon, collected $600 million from the bond sales.
Much of the case centered on Jho Low, a Malaysian financier whom prosecutors accused of orchestrating the theft. Low, who has professed his innocence, remains at large.
But the probes drew in several Goldman Sachs employees. The bank’s former Southeast Asia Chairman Tim Leissner pleaded guilty in the U.S. to conspiring to launder money. He told a judge he bribed foreign officials to get bond deals and conspired with “several other employees of Goldman Sachs” to hide the theft, bribe payments and money-laundering from others at the bank. He’ll be sentenced in January.
A Leissner subordinate, Roger Ng, was charged with conspiring with Low to launder money. He has denied wrongdoing.
U.S. documents referred to other top Goldman officials, though not by name. At least one top Goldman executive met with Low after the bank’s compliance department had raised flags about him, according to the U.S. government.
Another executive, Leissner’s boss in Asia at the time, was briefed on a plan to pay bribes and kickbacks to ensure 1MDB’s fundraising proceeded, according to previous government filings. That executive matches the description of Andrea Vella, who has since left the bank. Vella agreed to a lifetime ban from banking by the Federal Reserve without admitting or denying wrongdoing.
Goldman Sachs will seek U.S. Labor Department permission before the Malaysia unit’s December sentencing to continue handling retirement funds for Americans, its lawyers said. Banks must secure a waiver from the department to continue handling such funds after an admission of criminal conduct.
The 1MDB saga devolved into a plot to pressure the U.S. to go easy on some of the alleged looters, casting a wider web that has embroiled a prominent Republican fundraiser, an official in the Justice Department and even a former Fugees rap star.
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(Updates with U.S. penalties totaling $2.9 billion)
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