Goldman Sachs agrees to pay greater than $ 2.9 billion to resolve investigations into its 1MDB scandal

David Michael Solomon, CEO of Goldman Sachs, attends a discussion on "Women Entrepreneurs Through Finance and Markets" at the World Bank on October 18, 2019 in Washington, DC.

Olivier Douliery | AFP | Getty Images

Goldman Sachs agreed to pay more than $ 2.9 billion to regulators around the world, including a record fine for violating a U.S. anti-corruption law, in order to resolve an investigation into its role in an international financial scandal.

That total includes approximately $ 600 million in fees that were included in an earlier settlement with the Malaysian government. The US $ 2.9 billion also includes individual transactions with regulators in the US, UK, Singapore and other countries, the US Department of Justice said on Thursday. Regardless, Hong Kong fined the bank $ 350 million for their portion of the episode, and most of that figure is excluded from the $ 2.9 billion grand total.

The bank's parent company has a deferred law enforcement arrangement with the DOJ designed to enable it to avoid leaving certain areas of its business. Earlier Thursday, the bank's Malaysian subsidiary officially pleaded guilty to its role in the 1MDB debacle, admitting that a conspiracy had violated the Foreign Corrupt Practices Act.

"Goldman Sachs today assumed responsibility for its role in a conspiracy to bribe senior foreign officials to obtain lucrative underwriting and other 1MDB-related business," Acting Assistant Attorney General Brian C. Rabbitt said in a statement. The announcement "requires Goldman Sachs to admit wrongdoing and pay nearly three billion dollars in penalties, fines and disgorgations, blaming the bank for this criminal system."

The deal solves an issue that has weighed on CEO David Solomon since taking over Lloyd Blankfein two years ago. Goldman has been accused of helping a corrupt Malaysian financier steal billions of dollars from the $ 6MB 1MDB Development Fund, money that was supposed to help build the country's economy.

Instead, the 1MDB funds were reportedly used by Malaysian financier Low Taek Jho to fund an epic buying spree, including a $ 250 million yacht, a stake in the Martin Scorsese film "The Wolf of Wall Street," and real estate the whole world. At least $ 1 billion of the funds have been used to bribe officials from Malaysia and Abu Dhabi, US officials said Thursday.

Goldman bankers earned approximately $ 600 million in fees in 2012 and 2013 to facilitate bond deals that were used to fund 1MDB. That amount was unusually high, according to fixed income experts.

Goldman admitted it did not take "reasonable steps" to ensure that Low, a known risk at the time, was not involved in the three bond deals, the Justice Department said. The bank also ignored red flags that surfaced during due diligence in tracking charges, authorities said.

Solomon, whose salary will be cut for 2020 as a result of this scandal, admitted in a memo to employees on Thursday that the bank had come up short.

"While many good people worked on these transactions and tried to do the right thing, we realized that we were not addressing the red flags adequately and that representing certain members of the deal team, particularly Tim Leissner, and the outside parties were just as effective checked how we should have done it, "said Solomon.

From the start, Goldman has claimed that only two rogue employees were responsible for the bank's part in the 1MDB scandal, Leissner and Roger Ng. Leissner pleaded guilty in 2018, while Ng maintained his innocence.

A deal with U.S. authorities has been expected since early 2020, but negotiations reportedly dragged on as the bank tried not to plead guilty.

In July, Goldman announced a $ 3.9 billion deal with the Malaysian government to conduct a criminal investigation into the bank's role in the aftermath. This included a cash payment of $ 2.5 billion and a guarantee from the bank that Malaysia will receive at least $ 1.4 billion in revenue from seized assets.

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