Goldman Guilty: A Record Fine For 1MDB Scandal

Goldman Sachs has admitted its role in one of the biggest foreign bribery cases, leading it to pay over $2.9 billion to settle charges against the leading global investment banking.

Pleading guilty

The Goldman Sachs’s Malaysian subsidiary has pleaded guilty in connection with a scheme to pay over $1 billion in bribes to Malaysian and Abu Dhabi officials to obtain lucrative business for the bank in bond deals for 1Malaysia Development Bhd (1MDB), for which Goldman Sachs earned hundreds of millions in fees.

The bank will pay more than $2.9 billion as part of a coordinated resolution with criminal and civil authorities in the United States, the United Kingdom, Singapore, Hong Kong, and elsewhere, the U.S. Department of Justice (DoJ) said. The Justice Department has charged former Goldman executives in the case.

The bank’s Malaysian Unit has been pleaded guilty in the U.S. court whereas its parent group pleaded not guilty.

1MDB Scandal

The 1Malaysian Development Berhad Corruption Scandal is one of the biggest white-collar crimes known. The investigation of the same has been going on since 2015 and the actions against the involved parties have taken place after five years in 2020.

It all started after Malaysia’s then-Prime Minister Najib Razak set up sovereign wealth fund ‘1MDB’ in 2009 to develop the country’s economy. After a year, 1MDB entered into a joint venture with a private Saudi oil company. It was alleged that the state fund was diverting billions of dollars in a Swiss bank account controlled by Jho Low a Malaysian financier. The money was used for buying Beverly hills hotel, private jet, and millions for casinos.

The charges stem from bond sales that Goldman Sachs arranged for raising money for the Malaysian state fund. In 2012 and 2013, Goldman helped 1MDB raise $6.5 billion in bond offerings, half of which was diverted into Swiss accounts. The funding was said to have been used for real estate and buying arts. Malaysian investigation documents suggested that a part of the funds was diverted to Najib Razak’s personal account.

The activities of 1MBD came into question when it missed payments owed to banks and bondholders in 2015. As the investigations were on, Malaysia had filed criminal charges against Goldman Sachs in relation to the 1MDB bond sale. Though, a $3.9bn settlement was reached between the country and the U.S. investment bank, agreeing to drop its criminal investigation into the bank’s role in the scandal.

In July 2020, a court in Malaysia sentenced former PM Najib Razak to 12 years in jail for abuse of power, money laundering, and breach of trust. And now, on October 22, Goldman Sachs confirmed its role in the bribery scandal and has been charged the penalty for the same.

Responding to the settlement,

The company has said that the overall compensation of the current executive leadership team will be reduced by millions for 2020. For those former employees implicated in the criminal scheme, the firm has undertaken clawback actions to the full extent and is seeking to forfeit from these individuals, it said. This is to help the bank cover the bill for the settlement.

Goldman had posted stronger-than-expected earnings for the third quarter of 2020 as it reported $3.5 billion in profits. However, the firm had notified that it set aside $3.1 billion for litigation and regulatory proceedings during the first nine months of 2020.

This just shows how such huge settlements may not impact such big banks profitability much, however, Goldman’s image may be stained for a while as long as the case is remembered.

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