Goldman Sachs Group Inc. will pay a record foreign bribery penalty in the U.S. and will enter a guilty plea for the first time ever for its role in the plundering of Malaysia’s 1MDB investment fund.
A Goldman subsidiary in Malaysia pleaded guilty to a single charge for its role in a scheme to divert billions of dollars raised for economic development in Malaysia.
The Wall Street giant will also force Chief Executive Officer David Solomon and his predecessor Lloyd Blankfein to return some of their compensation, according to a person briefed on the matter.
The parent company avoided conviction in a deal known as a deferred-prosecution agreement, according to a court proceeding in Brooklyn, New York, on Thursday.
That designation is a win for Goldman Sachs, because a conviction might have risked losing some institutional clients that are restricted from working with financial firms with criminal records.
The bank will pay more than $2.3 billion in the plea deal, U.S. prosecutor Alixandra Smith said, the largest penalty in U.S. history for a violation of the Foreign Corrupt Practices Act. In all, Goldman’s penalties will exceed $5 billion globally.
The U.S. penalty credits more than $1 billion in fines paid to other U.S. agencies and foreign authorities. In the U.S., that includes $400 million to the Securities and Exchange Commission, $150 million to New York’s Department of Financial Services and $154 million to the Federal Reserve.
After disgorgements of Malaysia profits, the Justice Department places the total U.S. penalty at roughly $2.9 billion.
History of the 1MDB Saga
From about 2009 to 2014, the bank’s Malaysia unit “knowingly and willfully agreed to violate the Foreign Corrupt Practices Act by corruptly promising, and paying bribes to foreign officials in order to obtain and retain business for Goldman Sachs,” the bank’s general counsel, Karen Seymour, told U.S. District Judge Margo Brodie in a video hearing on Thursday.
The deal, which was expected, concludes one of the biggest bank probes inherited by the Trump administration.
It holds Goldman Sachs to account for its role in raising $6.5 billion for 1MDB, much of which U.S. authorities say was stolen by people connected to the country’s former prime minister and diverted into high-end art and real estate, a super yacht and the Hollywood movie “The Wolf of Wall Street.”
In July, Goldman Sachs agreed to a settlement with Malaysia that included a payment of $2.5 billion and an unusual provision that the bank would guarantee that the Asian nation would recoup an additional $1.4 billion from 1MDB assets seized around the world. Malaysia dropped criminal charges against the bank as part of that deal.