Euromoney, October 23 2020
Eight years after Goldman Sachs first arranged a bond for 1MDB, it has finally concluded its settlements worldwide. Overall, it is more than $5 billion poorer for the experience, with an unquantifiable hit to its reputation. Here are the details.
What was settled this week?
Goldman Sachs agreed a settlement worth a combined $2.9 billion with four regulators in four jurisdictions worldwide. Numerous regulators are involved: the US Department of Justice (DoJ), US Securities and Exchange Commission, US Federal Reserve, New York’s Department of Financial Services, the UK’s Financial Conduct Authority and Prudential Regulation Authority, the Hong Kong Securities and Futures Commission (SFC) and various regulatory arms of Singapore.
The settlement follows a $3.9 billion agreement with Malaysia in July, which involves $2.5 billion of payments to the Malaysian government, and a commitment to recover and return $1.4 billion of assets.
How important are these numbers?
It depends how you look at it. Numerous unwelcome records were set. The $350 million fine levied by the HK SFC was the largest ever. So was the $122 million in Singapore.
Brian Rabbitt, the DoJ’s acting assistant attorney general, said the settlement includes the largest monetary penalty ever paid to the US government in a corporate criminal foreign bribery case.
Looked at another way, if Goldman ends up paying or forfeiting $5.4 billion, that is equivalent to 63.8% of 2019’s net earnings of $8.47 billion, or around eight months of profit.
The share price barely flickered on the news.
Did Goldman admit to criminal wrongdoing?
Yes, through its Malaysian unit, Goldman Sachs (Malaysia) Sdn Bhd. It is the first criminal settlement in Goldman’s history.
Specifically, the DoJ says Goldman and its Malaysia unit “have admitted to conspiring to violate the Foreign Corrupt Practices Act in connection with a scheme to pay over $1 billion in bribes to Malaysia and Abu Dhabi officials to obtain lucrative business for Goldman Sachs.”
Karen Seymour, Goldman’s general counsel, entered the guilty plea in federal court in New York.
However, part of the deal appears to be that the bank will avoid prosecution on the same charge. So, it’s a criminal settlement without a separate criminal prosecution for the bank; instead there is a series of deferred prosecution agreements around the world, discussed below.
How much did Goldman actually make from 1MDB?
The precise figure depends on what exactly you’re looking at: just the fees on the three bonds in 2012/13, or any related business?
For example, the HK SFC speaks of $581.5 million in fees, and the US DoJ $606 million.
Either way, the absurdity of those fees was problematic for Goldman throughout.
HK’s SFC said that the revenue the bank made from the fees was “more than double the total revenue it generated from acting as an arranger and/or underwriter in 213 other Asia ex-Japan bond offerings in the five years between 2011 and 2015”.
This, and the fact that Goldman was appointed three times in a row without any sort of beauty parade – except one instance where Goldman asked for one – is what HK SFC head Ashley Alder is talking about when he says: “The penalty in this case … reflects our findings that Goldman Sachs Asia failed to deal properly with numerous suspicious circumstances surrounding the 1MDB bond offerings.”
So, is that it? Is 1MDB over for Goldman?
In headline terms, yes: settlements have been reached with all five affected jurisdictions and their regulators (US, UK, Malaysia, Singapore, Hong Kong).
The DoJ thanked a host of others for their assistance, from France to Guernsey to Luxembourg, but none of those is thought to be seeking redress in its own right.
However, some hangovers remain. The most obvious is that Goldman Sachs Group, at the parent level, has entered into a three-year deferred prosecution agreement with the DoJ.
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