Goldman Sachs to pay $3bn over 1MDB scandal

Updated: Oct 26, 2020

Goldman Sachs has agreed to pay nearly $3bn (£2.3bn) to end a US-led investigation into its role in the 1MDB scandal.

The settlement is expected to draw a line under a years-long saga and Goldman Sachs’ Malaysia division has agreed to plead guilty to violating foreign bribery laws linked to the alleged looting of the country’s sovereign wealth fund, 1MDB.

The investment bank is due to pay about $5bn overall in penalties - about two thirds of its 2019 profits - to regulators around the world, including in the UK, to resolve cases that have cast a shadow over one of Wall Street's most recognisable firm's.

Goldman Sachs allegedly failed to act while an estimated $4.5bn was siphoned from the state-owned fund.Authorities in Asia, the US and Europe have spent years tracking down cash and assets paid for with money stolen from the Malaysian fund, including property, jewellery and art.

Goldman Sachs underwrote and arranged bond sales for the fund totalling $6.5bn and earned $600m in fees for helping raise the cash, according to the Department of Justice (DoJ).

The fraud was said to have involved Malaysia’s former prime minister Najib Razak, the Malaysian financier Jho Low and his associates.

The bank has entered into a deferred prosecution agreement with the DoJ and is not subject to a criminal conviction.

Announcing the settlement on Thursday, US Department of Justice officials said Goldman Sachs had enabled a scheme that caused "significant harm".

Brian Rabbitt, acting assistant attorney general of the Justice Department's criminal division said: "That harm was borne principally and in the first instance by the people of Malaysia, who saw a fund created to benefit them... instead turned into a piggybank for corrupt public officials and their cronies."

Goldman had long blamed rogue employees, asserting it had no idea the money it helped raise would be diverted from planned development projects within Malaysia.

Earlier, one former Goldman Sachs partner, Tim Leissner, pleaded guilty in the US to conspiring to launder money and violating foreign bribery laws. Another executive is awaiting trial on foreign bribery offences.

David Solomon, Goldman Sachs’ chairman and chief executive said on Thursday that the bank was pleased to be putting these matters behind them.

He said: “We have to acknowledge where our firm fell short. While many good people worked on these transactions and tried to do the right thing, we recognise that we did not adequately address red flags and scrutinise the representations of certain members of the deal team, most notably Tim Leissner, and the outside parties as effectively as we should have.”

Three months ago, Goldman Sachs reached a $3.9bn settlement with the Malaysian government for its role in the corruption scandal.

The settlement included a $2.5bn cash payout by Goldman, while the investment bank said it would guarantee that the government would receive at least $1.4bn from money recovered from the scheme.