US: Goldman Sachs, Malaysian Subsidiary to Pay $2.9B for 1MDB Bribes

Wall Street investment bank Goldman Sachs and its Malaysian subsidiary agreed to pay more than U.S. $2.9 billion after pleading guilty to federal charges here tied to a series of bribes linked to the looting of billions from Malaysia state fund 1MDB, officials in Washington said Thursday.

The bank admitted to conspiring to violate the Foreign Corrupt Practices Act (FCPA). U.S. Department of Justice officials said Goldman Sachs paid more than $1 billion in bribes to Malaysian and Abu Dhabi officials and, in return, had a role in underwriting about $6.5 billion in three bond deals for 1Malaysia Development Berhad.

“1MDB was established to drive strategic initiatives for the long-term economic development of Malaysia. Goldman Sachs admitted today that $1 billion of the money earmarked to help the people of Malaysia was actually diverted and used to pay bribes to Malaysian and Abu Dhabi officials to obtain their business,” Special Agent in Charge Ryan L. Korner of the IRS Criminal Investigation’s Los Angeles Field Office said in a news release.

“Today’s guilty pleas demonstrate that the law applies to everyone, including large investment banks like Goldman Sachs.”

Goldman Sachs subsidiary GS Malaysia pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA, DoJ officials said.

U.S. officials noted that the banker did not practice due diligence involving 1MDB.

“Goldman further admitted that there were significant red flags raised during the due diligence process and afterward – including but not limited to 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,” the DoJ said in a news release. “As a result of the scheme, Goldman received approximately $606 million in fees and revenue, and increased its stature and presence in Southeast Asia.”

The statement was referring to fugitive financier Low Taek Jho, better known as Jho Low. The subject of an international manhunt, Low faces criminal charges in Malaysia for his role in allegedly embezzling billions of dollars from 1MDB as a financial adviser for former Prime Minister Najib Razak.

In October 2018, the U.S. government unsealed indictments against Goldman Sachs bankers Ng Chong Hwa (also known as Roger Ng) and Tim Leissner, alleging they hid their partnership with Low from their employer. Leissner pleaded guilty to two charges related to money laundering while Ng was arrested in Malaysia and faces criminal charges there and in the U.S. where officials said he is to stand trial in March 2021.

Najib, who established 1MDB in 2009 when he was prime minister and finance minister ostensibly to benefit the Malaysian people, was convicted in July and sentenced to 12 years on charges that he illegally received 42 million ringgit (U.S. $9.67 million) from a 1MDB subsidiary.

Malaysian and U.S. prosecutors allege that at least $4.5 billion (18.8 billion ringgit) was stolen from 1MDB and diverted through acquisitions of real estate, artwork and luxury properties by Najib and his associates, including Low. The DoJ described 1MDB as the “worst kleptocracy scandal in recent times.”

The former prime minister, who faces a total of 42 criminal charges, is standing trial on charges specifically linked to 1MDB. That trial has been delayed until Oct. 27 because of the COVID-19 pandemic and he could face two more trials on the other 1MDB charges.

Days before Najib’s July 28 conviction, Goldman Sachs and the Malaysian government announced a settlement valued at $3.9 billion (16.6 billion ringgit) that resulted in the dismissal of Malaysian criminal charges against the Wall Street firm.

On Thursday, U.S. officials said the $2.9 billion payment is part of a coordinated resolution with authorities in the U.S., United Kingdom, Singapore and other nations.

The head of Goldman Sachs later on Thursday sent a message to all employees of the New York-based bank, which has offices across the globe.

“This has been a long process and we are pleased to be putting these matters behind us. But, we are not putting the lessons learned from this experience behind us,” David M. Solomon, the firm’s chairman and CEO, said in the message posted on its website.

“I have thought a lot about our role in the 1MDB transactions and have weighed carefully the findings of the investigations. Nearly two years ago, I said to all of you that our obligation is to be self-reflective and self-critical. That is more important than ever today.”