The next time a CEO or board member questions the value of internal audit and compliance, just point to the colossal sum of cash that Goldman Sachs is shelling out to settle bribery and corruption charges.
The investment bank agreed to pay a whopping $2.9 billion, with a “B,” to settle charges of violating the Foreign Corrupt Practices Act. The charges stem from bribes the bank allegedly paid to senior government officials in Malaysia and Abu Dhabi to win business worth an estimated $6.5 billion.
According to the SEC’s order, beginning in 2012, former senior employees of Goldman Sachs used a third-party intermediary to bribe high-ranking government officials in Malaysia and the Emirate of Abu Dhabi, in violation of the FCPA. The order finds that these bribes enabled Goldman Sachs to obtain lucrative business from 1MDB, a Malaysian government-owned investment fund, including underwriting approximately $6.5 billion in bond offerings.
“Corruption risks can be posed by those at all levels of a company, including in the senior ranks. This case demonstrates how important it is for companies to have controls that are tailored to the risks presented by persons employed at all levels,” said Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit.
The SEC’s order finds that Goldman Sachs violated the anti-bribery and books and records provisions of the federal securities laws. Goldman Sachs agreed to a cease-and-desist order and to pay $606.3 million in disgorgement and a $400 million civil penalty, with the amount of disgorgement satisfied by amounts it paid to the Government of Malaysia and 1MDB in a related settlement.
The SEC also faulted Goldman Sachs for failure to maintain adequate internal accounting controls. “Goldman Sachs failed to maintain a sufficient system of internal accounting controls between 2012 and 2015 with respect to the process by which it reviewed and approved the commitment of firm capital in large, significant and complex transactions, such as the Bond Deals. This resulted in Goldman Sachs’s failing to reasonably assure adequate documentation of the GS Capital Committee’s processes, including follow-up, oversight and documentation regarding due diligence of concerns raised by the GS Capital Committee regarding the Bond Deals,” the SEC said in its order.
Charges from the DoJ Too
Goldman Sachs also settled charges with U.S. Department of Justice this week. In a statement, the agency said, “Goldman Sachs entered into a deferred prosecution agreement with the department in connection with a criminal information filed in the Eastern District of New York charging the Company with conspiracy to violate the anti-bribery provisions of the FCPA. GS Malaysia pleaded guilty in the U.S. District Court for the Eastern District of New York to a one-count criminal information charging it with conspiracy to violate the anti-bribery provisions of the FCPA.”
Previously, Tim Leissner, the former Southeast Asia Chairman and participating managing director of Goldman Sachs, pleaded guilty to conspiring to launder money and to violate the FCPA. Ng Chong Hwa, also known as “Roger Ng,” former managing director of Goldman and head of investment banking for GS Malaysia, has been charged with conspiring to launder money and to violate the FCPA. Ng was extradited from Malaysia to face these charges and is scheduled to stand trial in March 2021. The cases are assigned to U.S. District Judge Margo K. Brodie of the Eastern District of New York.
In addition to the criminal charges, the department has recovered more than $1 billion in assets for Malaysia associated with and traceable to the 1MDB money laundering and bribery scheme.
“Goldman Sachs today accepted responsibility for its role in a conspiracy to bribe high-ranking foreign officials to obtain lucrative underwriting and other business relating to 1MDB,” said Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division. “Today’s resolution, which requires Goldman Sachs to admit wrongdoing and pay nearly three billion dollars in penalties, fines, and disgorgement, holds the bank accountable for this criminal scheme and demonstrates the department’s continuing commitment to combatting corruption and protecting the U.S. financial system.”
Under the terms of the agreements, Goldman will pay a criminal penalty and disgorgement of over $2.9 billion. Goldman also has reached separate parallel resolutions with foreign authorities in the United Kingdom, Singapore, Malaysia, and elsewhere, along with domestic authorities in the United States. The department will credit over $1.6 billion in payments with respect to those resolutions. 