Wall Street titan Goldman Sachs Group is in talks to pay a $2bn fine, admit guilt and agree to continued oversight of its compliance procedures to settle a criminal investigation into its role in the 1MDB scandal, the Wall Street Journal reports.
United States authorities accuse Goldman of ignoring signals that billions of dollars were being pillaged from its client, a Malaysian government investment fund called 1Malaysia Development Berhad, known as the 1MBD fund. Goldman had raised $6.5bn for the fund.
Citing people familiar with the matter, the Wall Street Journal said Goldman and the US Department of Justice have largely agreed on the multibillion-dollar fine to settle the probe, and that the talks have also broached the possibility of a Goldman Asian subsidiary – not the parent company – pleading guilty to violating US bribery laws. The settlement could also include Goldman installing an independent monitor to oversee its compliance procedures and recommend changes.
While the WSJ reports that the talks are continuing and the outlines of a settlement could be reached early next near, the parameters could still change. The deal also will not resolve a separate investigation by Malaysian authorities, who are also seeking billions of dollars from Goldman.
“It’s true that Malaysia has its own independent investigation [into Goldman] and the US settlement would not prevent that from going forward. But Malaysia, of course, is a huge beneficiary when there is a vigorous US investigation, and it is conceivable that a significant portion of the potential $2bn fine that some of that might even go to Malaysia,” former federal regulator William Black told Al Jazeera.
“So the two cases are inter-related and what you don’t want is a premature give-up by the US, in which they announce a settlement and the stock rises, because people know it should’ve been much worse,” said Black, who is currently professor of economics and law at the University of Missouri – Kansas City.
The government of former Malaysian Prime Minister Najib Razak set up the 1MDB fund in 2009, and the US Department of Justice estimated that $4.5bn was misappropriated by high-level fund officials and their associates between 2009 and 2014.
Goldman has been investigated by regulators in at least 14 countries – including the US, Malaysia and Singapore – for its leadership and for what it did and did not know about the transactions.
On Monday, the US Securities and Exchange Commission (SEC) settled foreign corruption charges against former Goldman Sachs Group Inc executive Tim Leissner for his involvement the 1MDB scandal.
The SEC has permanently barred Leissner from the securities industry for violating the Foreign Corrupt Practices Act by allegedly receiving more than $43m in illicit payments for helping to facilitate a bribery scheme involving high-ranking government officials in Malaysia and Abu Dhabi.
As part of the settlement, Leissner consented to the SEC’s conclusion that he violated anti-bribery, internal accounting controls, and books and records provisions of federal securities laws.
The settlement also requires Leissner to give up ill-gotten gains of $43.7m.
That amount will be offset by money paid as part of an action by the US Department of Justice, which in November 2018 filed criminal charges against Leissner and fellow former Goldman banker Roger Ng, who is also known as Ng Chong Hwa.
According to the US Department of Justice, the bank earned $600m in fees for its work with 1MDB. Leissner, Ng and others received large bonuses in connection with that revenue.
Goldman has consistently tried to distance itself from the scandal, saying Leissner and Ng worked to conceal their criminal activities from the bank’s management.
Both bankers have already been sanctioned by the US central bank, the Federal Reserve, for their roles in the scandal.
But whether Goldman receives a criminal conviction and pleads guilty will be a real test for the US justice system, as prosecution and fines of elite white-collar entities have reached a 34-year-low under US President Donald Trump’s administration, said Black.
“We call, in the US, Goldman Sachs ‘Government Sachs’, because it is so powerful in terms of US institutions,” Black said.
“Under US law, normally when a company pleads guilty to a felony, there are huge implications – for example, they are not allowed to function working with the government. But Goldman Sachs’ business in large part is working with government,” he said.
Despite having denounced then-political rival Hillary Clinton for accepting money from Goldman for giving speeches Trump hired five senior officials, including two cabinet-level officials, from Goldman Sachs, Black pointed out.
“And the head of our Securities and Exchange Commission was a fancy Wall Street lawyer whose primary client was Goldman Sachs,” he added.