International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Friday, October 23, 2020

Goldman Sachs Charged in Foreign Bribery Case and Agrees to Pay Over $2.9 Billion

The Goldman Sachs Group Inc. (Goldman Sachs or the Company), a global financial institution headquartered in New York, New York, and Goldman Sachs (Malaysia) Sdn. Bhd. (GS Malaysia), its Malaysian subsidiary, have admitted to conspiring to violate the Foreign Corrupt Practices Act (FCPA) in connection with a scheme to pay over $1 billion in bribes to Malaysian and Abu Dhabi officials to obtain lucrative business for Goldman Sachs, including its role in underwriting approximately $6.5 billion in three bond deals for 1Malaysia Development Bhd. (1MDB), for which the bank earned hundreds of millions in fees.  Goldman Sachs will pay more than $2.9 billion as part of a coordinated resolution with criminal and civil authorities in the United States, the United Kingdom, Singapore, and elsewhere. 

Goldman Sachs entered into a deferred prosecution agreement with the department in connection with a criminal information filed today 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 these criminal charges, the department has recovered, or assisted in the recovery of, in excess of $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.”

“Over a period of five years, Goldman Sachs participated in a sweeping international corruption scheme, conspiring to avail itself of more than $1.6 billion in bribes to multiple high-level government officials across several countries so that the company could reap hundreds of millions of dollars in fees, all to the detriment of the people of Malaysia and the reputation of American financial institutions operating abroad,” said Acting U.S. Attorney Seth D. DuCharme of the Eastern District of New York.  “Today’s resolution, which includes a criminal guilty plea by Goldman Sachs’ subsidiary in Malaysia, demonstrates that the department will hold accountable any institution that violates U.S. law anywhere in the world by unfairly tilting the scales through corrupt practices.”

“When government officials and business executives secretly work together behind the scenes for their own illegal benefit, and not that of their citizens and shareholders, their behavior lends credibility to the narrative that businesses don’t succeed based on the quality of their products, but rather their willingness to play dirty,” said Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office.  “Greed eventually exacts an immense cost on society, and unchecked corrupt behavior erodes trust in public institutions and government entities alike.  This case represents the largest ever penalty paid to U.S. authorities in an FCPA case.  Our investigation into the looting of funds from 1MDB remains ongoing. If anyone has information that could assist the case, call us at 1-800-CALLFBI.”

“1MDB was established to drive strategic initiatives for the long-term economic development of Malaysia. Goldman Sachs admitted today that one billion dollars of the money earmarked to help the people of Malaysia was actually diverted and used to pay bribes to Malaysian and Abu Dhabi officials to obtain their business,” said Special Agent in Charge Ryan L. Korner of IRS Criminal Investigation’s (IRS-CI) Los Angeles Field Office.  “Today’s guilty pleas demonstrate that the law applies to everyone, including large investment banks like Goldman Sachs.  IRS Criminal Investigation will work tirelessly alongside our law enforcement partners to identify and bring to justice those who engage in fraud and deceit around the globe.  When the American financial system is misused for corruption, the IRS will take notice and we will take action.”

According to Goldman’s admissions and court documents, between approximately 2009 and 2014, Goldman conspired with others to violate the FCPA by engaging in a scheme to pay more than $1.6 billion in bribes, directly and indirectly, to foreign officials in Malaysia and Abu Dhabi in order to obtain and retain business for Goldman from 1MDB, a Malaysian state-owned and state-controlled fund created to pursue investment and development projects for the economic benefit of Malaysia and its people.  Specifically, the Company admitted to engaging in the bribery scheme through certain of its employees and agents, including Leissner, Ng, and a former executive who was a participating managing director and held leadership positions in Asia (Employee 1), in exchange for lucrative business and other advantages and opportunities.  These included, among other things, securing Goldman’s role as an advisor on energy acquisitions, as underwriter on three lucrative bond deals with a total value of $6.5 billion, and a potential role in a highly anticipated and even more lucrative initial public offering for 1MDB’s energy assets.  As Goldman admitted — and as alleged in the indictment pending in the Eastern District of New York against Ng and Low — in furtherance of the scheme, Leissner, Ng, Employee 1, and others conspired to pay bribes to numerous foreign officials, including high-ranking officials in the Malaysian government, 1MDB, Abu Dhabi’s state-owned and state-controlled sovereign wealth fund, International Petroleum Investment Company (IPIC), and Abu Dhabi’s state-owned and state-controlled joint stock company, Aabar Investments PJS (Aabar). 

Goldman admitted today that, in order to effectuate the scheme, Leissner, Ng, Employee 1, and others conspired with Low Taek Jho, aka Jho Low, to promise and pay over $1.6 billion in bribes to Malaysian, 1MDB, IPIC, and Aabar officials.  The co-conspirators allegedly paid these bribes using more than $2.7 billion in funds that Low, Leissner, and other members of the conspiracy diverted and misappropriated from the bond offerings underwritten by Goldman.  Leissner, Ng and Low also retained a portion of the misappropriated funds for themselves and other co-conspirators.  Goldman admitted that, through Leissner, Ng, Employee 1 and others, the bank used Low’s connections to advance and further the bribery scheme, ultimately ensuring that 1MDB awarded Goldman a role on three bond transactions between 2012 and 2013, known internally at Goldman as “Project Magnolia,” “Project Maximus,” and “Project Catalyze.” 

Goldman also admitted that, although employees serving as part of Goldman’s control functions knew that any transaction involving Low posed a significant risk, and although they were on notice that Low was involved in the transactions, they did not take reasonable steps to ensure that Low was not involved.  Goldman further admitted that there were significant red flags raised during the due diligence process and afterward — including but not limited to Low’s involvement — that either were ignored or only nominally addressed so that the transactions would be approved and Goldman could continue to do business with 1MDB. As a result of the scheme, Goldman received approximately $606 million in fees and revenue, and increased its stature and presence in Southeast Asia.

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.

The department reached this resolution with Goldman based on a number of factors, including the Company’s failure to voluntarily disclose the conduct to the department; the nature and seriousness of the offense, which included the involvement of high-level employees within the Company’s investment bank and others who ignored significant red flags; the involvement of various Goldman subsidiaries across the world; the amount of the bribes, which totaled over $1.6 billion; the number and high-level nature of the bribe recipients, which included at least 11 foreign officials, including high-ranking officials of the Malaysian government; and the significant amount of actual loss incurred by 1MDB as a result of the co-conspirators’ conduct.  Goldman received partial credit for its cooperation with the department’s investigation, but did not receive full credit for cooperation because it significantly delayed producing relevant evidence, including recorded phone calls in which the Company’s bankers, executives, and control function personnel discussed allegations of bribery and misconduct relating to the conduct in the statement of facts.  Accordingly, the total criminal penalty reflects a 10 percent reduction off the bottom of the applicable U.S. sentencing guidelines fine range. 

Low has also been indicted for conspiracy to commit money laundering and violate the FCPA, along with Ng, E.D.N.Y. Docket No. 18-CR-538 (MKB).  Low remains a fugitive.  The charges in the indictment as to Low and Ng are merely allegations, and those defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The investigation was conducted by the FBI’s International Corruption Unit and IRS-CI.  The prosecution is being handled by the Criminal Division’s Fraud Section and the Money Laundering and Asset Recovery Section (MLARS), and the Business and Securities Fraud Section of the U.S. Attorney’s Office for the Eastern District of New York.  Trial Attorneys Katherine Nielsen, Nikhila Raj, Jennifer E. Ambuehl, Woo S. Lee, Mary Ann McCarthy, Leo Tsao, and David Last of the Criminal Division, and Assistant U.S. Attorneys Jacquelyn M. Kasulis, Alixandra Smith and Drew Rolle of the Eastern District of New York are prosecuting the case.  Additional Criminal Division Trial Attorneys and Assistant U.S. Attorneys within U.S. Attorney’s Offices for the Eastern District of New York and Central District of California have provided valuable assistance with various aspects of this investigation, including with civil and criminal forfeitures.  The Justice Department’s Office of International Affairs of the Criminal Division provided critical assistance in this case. 

Remarks as Prepared for Delivery

Good Afternoon.  I am Brian Rabbitt, Acting Assistant Attorney General for the Department of Justice’s Criminal Division.  I am joined today by Acting U.S. Attorney Seth DuCharme of the Eastern District of New York, Assistant Director in Charge Bill Sweeney of the FBI, Stephanie Avakian, Director of the Enforcement Division at the Securities and Exchange Commission, and Assistant General Counsel for Enforcement Jason Gonzalez of the Federal Reserve Board.  We are here today to announce enforcement actions of historic significance.

This morning, the department filed criminal charges in New York against The Goldman Sachs Group and its Malaysian subsidiary, charging each with conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act.  These charges stem from Goldman’s central role in a massive global scheme to loot billions of dollars from the government-run Malaysian investment fund known as “1MDB” and the subsequent use of those funds by senior Goldman bankers and their co-conspirators to pay billions of dollars in bribes to senior government officials and others around the world.

Goldman Sachs (Malaysia) pleaded guilty to those charges just a short while ago, and its parent entity, The Goldman Sachs Group, has entered into an agreement with the department deferring prosecution for three years provided the bank meets certain conditions.  In a reflection of the seriousness of the bank’s conduct, today’s resolution includes the largest monetary penalty ever paid to the United States in a corporate criminal foreign bribery resolution and requires the bank to pay a total of over 2.9 billion dollars in criminal fines, penalties, and disgorgement. 

1MDB was a multi-billion-dollar investment fund created by the Malaysian government to promote economic development.  In 2012 and 2013, Goldman received approximately $600 million in fees — an unusually large amount — for its work helping 1MDB raise $6.5 billion by issuing and selling bonds on international markets, and for other services.

However, billions of dollars were later stolen from 1MDB, some of which was then used to bribe corrupt officials from Malaysia and Abu Dhabi.   These criminal proceeds were laundered through U.S. and other financial institutions and used to make extravagant purchases around the world, including high-end real estate, yachts, art, and other luxury goods.

As the bank admitted today, senior Goldman bankers played a central role in this scheme, conspiring with others to siphon over $2.7 billion from 1MDB.  They used those funds to line their own pockets and to pay $1.6 billion in bribes.  In addition to the involvement of several Goldman executives, other personnel at the bank allowed this scheme to proceed by overlooking or ignoring clear red flags.

Today’s resolution is significant.  It includes criminal charges against the bank and a guilty plea by its Malaysian subsidiary.  It also requires Goldman to disgorge the entirety of its 600 million dollars in fees, pay a $2.3 billion penalty, and admit wrongdoing.  In short, it imposes serious consequences that reflect the central role that Goldman and its employees played in this serious criminal scheme.

Today’s charges and plea are the culmination of years of work by the department’s Criminal Division, the U.S. Attorney’s Office for the Eastern District of New York, the FBI’s International Corruption Unit, and the Internal Revenue Service – Criminal Investigation. 

This resolution marks a major milestone in our efforts to fight foreign corruption involving U.S. businesses. 

As I mentioned, it involves $1.6 billion in bribes — the largest amount of bribes ever paid by a company to secure business in violation of the FCPA. 

Those bribes, in turn, resulted in $2.7 billion in losses to 1MDB which is the greatest loss amount ever charged in an FCPA matter brought by the department.

Those bribes also ensured that Goldman received approximately $600 million in fees, which is one of the largest profits ever secured by a company through foreign bribery. 

And as I mentioned, in recognition of the seriousness of this misconduct, today’s resolution involves the largest monetary penalty ever paid to the United States in a corporate criminal foreign bribery resolution.

Beyond numbers, this case is also significant because it involved a massive corruption scheme carried out by executives of a preeminent American bank that caused significant harm.  That harm was borne principally by the people of Malaysia, who saw a fund created to benefit them — and for which they remain financially responsible — instead turned into a piggy bank for corrupt public officials and their cronies.  

This scheme also undercut confidence in the Malaysian government and allowed billions of dollars in tainted funds to move through the U.S. and global financial systems.  The United States is home to many of the world’s preeminent financial institutions.  As today’s charges and guilty plea show, the department will not hesitate to hold them accountable for harm they cause here and abroad.  

In fact, today’s resolution is just the latest action the department has taken to hold wrongdoers accountable for, and to assist victims of, the 1MDB corruption scheme. 

In addition to today’s charges and plea, the department has announced charges against three individuals in connection with this corruption scheme, including two Goldman executives.  One of those executives — a former participating managing director and chairman of the bank’s Southeast Asia operations — has pleaded guilty.  The other — a former managing director and head of investment banking for Goldman Malaysia — awaits trial.  The third, a foreign national, remains a fugitive.

The allegations against these latter two individuals are, of course, just allegations unless and until they are proven beyond a reasonable doubt.  But these individual prosecutions, together with the significant resolution we are announcing today, demonstrate the department’s steadfast commitment to punishing corporate misconduct by prosecuting not only corporations, but also culpable executives where appropriate. 

I would also like to note that the department’s involvement in the 1MDB matter has not been limited to criminal prosecutions.  It began more than four years ago when, in the largest collections of forfeiture actions ever brought by the department, we filed civil suits that collectively sought to recover more than $1.5 billion in assets connected with this scheme. 

The department’s work has led to the identification and forfeiture of over $1.1 billion in assets traceable to 1MDB.  Of that, the department has already returned, or assisted Malaysia in recovering, more than $620 million — and we expect that many millions of dollars more will be returned in the future. 

These forfeiture efforts were led by the Criminal Division’s Money Laundering and Asset Recovery Section, in partnership with our colleagues in the U.S. Attorney’s Office for the Central District of California, the FBI, and the IRS.  They were also made possible through cooperation with partners in Switzerland, Singapore, Luxembourg, Malaysia, and the United Kingdom.   

This case is also historic because of the unprecedented coordination that made it possible.  Today’s resolution includes crediting of Goldman’s parallel resolutions with no fewer than nine other U.S. and foreign authorities — the largest number ever in a foreign corruption case. 

Beyond sheer numbers, this unprecedented coordination is notable for two additional reasons.

First, it shows criminals cannot escape responsibility simply because their misconduct spans jurisdictions and law enforcement authorities.  The Department of Justice and its partners — in the U.S. and abroad — will work in parallel to investigate and prosecute fraud and corruption, no matter where it occurs. 

Second, it demonstrates that the department will ensure that fraud and corrupt conduct is punished appropriately, but not unfairly.  Where companies work in good faith to facilitate a coordinated resolution, we will do our part by providing appropriate crediting and not “piling on” or imposing duplicative penalties. 

Finally, I would like to note that this case was investigated and prosecuted in part during a global pandemic.  It is a tribute to our team and our partners that they overcame that challenge and worked diligently to resolve this case.  As this resolution shows, the Criminal Division and the rest of the department remain “open for business.”

Let me end by returning to an earlier point: American financial institutions, and the U.S. financial system, are the envy of the world.  We have a duty to ensure that they remain free from corruption and that their considerable influence and power is used for good, not to harm others. 

The 1MDB fund held tremendous promise for the Malaysian people.  But instead of realizing that promise, it was looted by corrupt officials and their co-conspirators, including senior Goldman bankers.  This criminal conduct is antithetical to good government.  It hurts free markets, undermines the rule of law, creates an unlevel playing field, and puts our national security at risk by enabling corrupt regimes.  It also erodes global confidence in our American financial institutions and the U.S. financial system. 

Today’s resolution, coupled with other actions the department has taken over the last five years, represents a major step towards restoring that confidence and making the people of Malaysia whole.   It imposes serious consequences on Goldman for the bank’s serious misconduct.    

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