International investment bank Goldman Sachs Thursday admitted criminal wrongdoing by a Malaysian subsidiary of the bank in a settlement with the Securities and Exchange Commission filed in New York.
The SEC settlement agreement summarizes the bank’s wrongdoing as “a scheme perpetrated by now former senior employees of Goldman Sachs who authorized and paid bribes and kickbacks to government officials in Malaysia and the Emirate of Abu Dhabi (“Abu Dhabi”) in order to secure lucrative business for the Company and benefits for themselves.” In doing so, “Goldman Sachs violated the antibribery, books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act.”
The criminal activity begin in 2009, with the formation of 1MDB, “a strategic investment and development company wholly-owned by the Malaysian government.” Goldman Sachs became the underwriter or bonds that 1MDB would issue to fund “investment projects for the economic benefit of Malaysia and its people.”
Though Goldman Sachs’s compliance department raised corruption concerns about one of the Malaysian government officials who would play a central role in the transactions, Goldman Sachs employees ignored these concerns. Instead, employees cooperated with this official to misappropriate more than $2.7 billion of the approximately $6.5 billion raised by the bond transactions, using this money to pay bribes and kickbacks to members of the Malaysian government and of foreign governments whose investment they wanted to attract, particularly Abu Dhabi.
Goldman Sachs has had a level of notoriety in the public consciousness since its involvement in the 2008 financial crisis; a famous article in Rolling Stone magazine called the firm “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” But this is the first time that Goldman Sachs has ever admitted criminal wrongdoing in a US court.
The settlement agreement calls for the bank to pay over $1 billion: a disgorgement of over $600 million to the Government of Malaysia and 1MDB and a civil penalty of $400 million to the SEC.
Goldman Sachs has also faced regulatory penalties from other governments over the 1MDB scandal. Earlier this week, Hong Kong fined the bank $350 million. Goldman Sachs is also in a deferred prosecution agreement with the Department of Justice and some of the former employees involved are awaiting trial on criminal charges.
