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Goldman Sachs will claw back millions from top executives over 1MDB scandal

Goldman Sachs has agreed to pay nearly $3 billion to settle a probe into its role in Malaysia’s 1MDB corruption scandal, and top executives will see millions in bonuses clawed back over the affair. 

The Department of Justice said on Thursday that Goldman Sachs will pay more than $2.9 billion as part of a deferred prosecution agreement over the bank’s role in underwriting bond offerings that raised $6.5 billion for Malaysia’s government – of which an estimated $4.5 billion was embezzled by top government officials. 

The Wall Street firm will also recoup millions in bonus payments from CEO David Solomon, his predecessor Lloyd Blankfein, and other current and former executives, people familiar with the matter told the Wall Street Journal

The exact sum of the executive clawbacks was unclear, but would total in the tens of millions of dollars, the sources said.

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Under the terms of the DOJ settlement, Goldman was slapped with a $2.3 billion penalty and will forfeit about $600 million in ill-gotten gains.

In total, Goldman Sachs will have to pay out more than $5 billion in fines in the scandal, in which former Malaysian Prime Minister Najib Razak and his cronies looted billions from 1Malaysia Development Berhad, a government investment fund under Goldman’s oversight. 

Former Goldman CEO Lloyd Blankfein also faces clawbacks

Goldman Sachs will recoup money from CEO David Solomon (left) his predecessor Lloyd Blankfein (right) and other top executives after reaching a settlement in the 1MDB scandal 

In total, Goldman Sachs will have to pay out more than $5 billion in fines in the scandal, in which former Malaysian Prime Minister Najib Razak (above) and his cronies looted billions from 1Malaysia Development Berhad, a supposed government investment fund

In total, Goldman Sachs will have to pay out more than $5 billion in fines in the scandal, in which former Malaysian Prime Minister Najib Razak (above) and his cronies looted billions from 1Malaysia Development Berhad, a supposed government investment fund

Justice Department prosecutors hold a press conference on Thursday announcing the deferred prosecution agreement with Goldman Sachs

Justice Department prosecutors hold a press conference on Thursday announcing the deferred prosecution agreement with Goldman Sachs

Thursday’s settlement did not require a guilty plea, but DOJ prosecutors defended it as a satisfactory resolution to the case. 

‘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 in a statement.

‘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,’ Rabbitt said.  

In a coordinated enforcement action, British regulators fined Goldman Sachs International £96.6 million ($126 million) on Thursday. 

‘There is no amnesty for firms that tackle financial crime poorly, and the size of GSI’s fine reflects that,’ Mark Steward, executive director of enforcement and market oversight at Britain’s Financial Conduct Authority, said in a statement. 

What is Malaysia's 1MDB scandal? Billions of dollars were looted from the sovereign wealth fund in a fraud that allegedly involved former prime minister Najib Razak and his associates

What is Malaysia’s 1MDB scandal? Billions of dollars were looted from the sovereign wealth fund in a fraud that allegedly involved former prime minister Najib Razak and his associates

Former Goldman partner Tim Leissner pleaded guilty in the US over his part in the controversy. Above, he is seen with wife Kimora Lee Simmons at a 2014 Weinstein Company event

Former Goldman partner Tim Leissner pleaded guilty in the US over his part in the controversy. Above, he is seen with wife Kimora Lee Simmons at a 2014 Weinstein Company event

Malaysia in September dropped criminal charges against three Goldman Sachs units after the bank agreed to pay $3.9 billion there to settle the probe.

Goldman Sachs had generated about $600 million in fees for its work with the Malaysian Sovereign wealth fund, which included three bond offerings in 2012 and 2013 that raised $6.5 billion. 

The 1MDB scandal has been a distraction for Goldman as new CEO Solomon tries to push the bank in profitable new directions. 

While the scandal surfaced in 2015, prior to Solomon’s tenure as CEO beginning in 2018, it was centered in a division that Solomon ran at the time. 

The scandal dates back to 2009, when Razak created the 1MDB fund. He and his associates are accused of looting some $4.5 billion from the fund to pay for a luxury lifestyle, as well as funneling the cash to steal an election and keep Razak in power. 

Investigators have alleged that $155 million was diverted from 1MDB to help finance the 2013 film The Wolf Of Wall Street (above)

Investigators have alleged that $155 million was diverted from 1MDB to help finance the 2013 film The Wolf Of Wall Street (above)

The scandal's alleged mastermind, jet-setting Malaysian financier Low Taek Jho (above), has been charged in Malaysia and the US but his whereabouts are currently unknown

The scandal’s alleged mastermind, jet-setting Malaysian financier Low Taek Jho (above), has been charged in Malaysia and the US but his whereabouts are currently unknown

In June 2017, the DOJ began actions to recover more than $1 billion from people close to Najib and 1MDB, seizing assets including high-end properties in Beverly Hills, Los Angeles, Manhattan, New York City and London.

Also seized were fine artwork, a private jet, a luxury yacht and royalties from the film The Wolf of Wall Street and its production company Red Granite Pictures.

Investigators have alleged that $155 million was diverted from 1MDB to help finance the 2013 film. 

Goldman’s position is that a ‘rogue’ banker lied and fooled the investment bank’s management and compliance teams. 

A former Goldman partner, Tim Leissner, has previously pleaded guilty in the US over his part in the controversy.

Alleged mastermind Low Taek Jo denies any wrongdoing, and his current whereabouts are unknown. Above, he is seen with Gigi Hadid at the 2014 Angel Ball at Cipriani Wall Street

Alleged mastermind Low Taek Jo denies any wrongdoing, and his current whereabouts are unknown. Above, he is seen with Gigi Hadid at the 2014 Angel Ball at Cipriani Wall Street

A Malaysian former managing director at the bank, Low Taek Jho, has also been charged in the US and Malaysia over the scandal.

Low, the scandal’s alleged mastermind, is a jet-setting Malaysian financier. He denies any wrongdoing, and his current whereabouts are unknown. 

Malaysian law enforcement officials believe Low is moving freely in mainland China, despite an Interpol Red Notice for his arrest. 

The US Department of Justice, which is investigating the fraud as huge sums were allegedly laundered through the US financial system, says that about $4.5 billion was looted from 1MDB. 

What was Goldman Sachs’ role in 1MDB scandal? 

Goldman Sachs on Thursday reached a deal to settle a probe into the bank’s role in Malaysia’s 1MDB corruption scandal, which included total penalties of $2.9 billion.

The bank was investigated for its role in raising $6.5 billion in three bond sales between 2012 and 2013 for the 1Malaysia Development Berhad (1MDB) state fund.

WHAT IS 1MDB?

1MDB is a state fund launched in 2009 by former Malaysian prime minister Najib Razak to promote economic development.

HOW DID BILLIONS GO MISSING?

1MDB raised billions of dollars in bonds, ostensibly for investment projects and joint ventures between 2009 and 2013.

Malaysian and U.S. authorities say $4.5 billion, including some of the money Goldman helped raise, was stolen from 1MDB in an elaborate scheme that spanned the globe and implicated high-level officials of the fund, Najib and others.

The siphoned funds were used to buy luxury assets and real estate, including hotels, a private jet, art by Picasso and Monet, and to finance Hollywood films, U.S. lawsuits said.

The U.S. Department of Justice has sought to recover about $2.1 billion in assets linked to diverted 1MDB funds – the largest ever asset recovery action brought by the agency.

HOW IS GOLDMAN SACHS INVOLVED?

Goldman has been investigated by regulators in at least 14 countries for its role in underwriting the 1MDB bond issues.

The work earned the bank $600 million in fees and led to large bonuses for some of its executives, officials have said, although the bank has disputed that figure.

The Justice Department said on Thursday that Goldman violated the U.S. Foreign Corrupt Practices Act, which bans U.S. companies from paying foreign government officials for help in getting or keeping business. Malaysian prosecutors also said bank misled investors over the bond sales.

Goldman has in the past said that certain members of the former Malaysian government and 1MDB officials lied to it about how proceeds from the bond sales would be used.

On Thursday, Goldman’s Malaysian unit pleaded guilty to violating U.S. foreign bribery rules.

HOW MUCH WILL GOLDMAN PAY?

Goldman will pay a $2.3 billion fine to the Justice Department and other regulators, and a further $600 million in disgorgement of ill-gotten gains to settle the U.S. probe and avoid a criminal conviction at the group level.

This is in addition to the $3.9 billion that Goldman has agreed to pay Malaysia in exchange for dropping all criminal charges against the bank.

On Thursday, Hong Kong’s markets watchdog also fined Goldman’s Asia unit $350 million for serious lapses and deficiencies in its management controls that contributed to the misappropriation of $2.6 billion in funds it helped raise for 1MDB.

ARE THERE ANY OTHER CASES AGAINST GOLDMAN?

The Justice Department has filed criminal charges against two former Goldman bankers tied to the scandal, Tim Leissner and Roger Ng.

Leissner plead guilty to the charges last year, while Ng’s case is pending in a New York court. Ng is expected to face separate charges in Malaysia after his U.S. trial concludes.

This week, Abu Dhabi’s International Petroleum Investment Co (IPIC) dropped a lawsuit against Goldman to recover losses suffered from the bank’s dealings with 1MDB.

The lawsuit alleged that Goldman conspired with unidentified people from Malaysia to bribe two former IPIC executives to further their business at its expense.

HOW MUCH MORE IS BEING SOUGHT?

The Justice Department has recovered or assisted Malaysia in recovering nearly $1.1 billion in 1MDB-linked assets.

Malaysian authorities say at least $4.3 billion more are still unaccounted for.

WHO ELSE HAS BEEN IMPLICATED?

After losing an election in 2018, Najib has been charged with 42 criminal offences in Malaysia, mostly linked to losses at 1MDB and other state entities.

In July, he was found guilty of corruption and money laundering for illegally receiving $10 million from a former 1MDB unit and sentenced to 12 years in prison. Najib denies wrongdoing and has filed an appeal.

Elliott Broidy, a former fund-raiser for U.S. President Donald Trump, pleaded guilty this week to a charge that he illegally lobbied Trump to drop an investigation into 1MDB.

Malaysian and U.S. authorities have also filed charges against Malaysian financier Jho Low for his alleged central role in the 1MDB fraud. Low has denied wrongdoing and his whereabouts is unknown.


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