Goldman Sachs admitted that its Malaysian subsidiary "knowingly and willingly" conspired to violate the Foreign Corrupt Practices Act because some former employees paid bribes to officials in connection with the looting of a sovereign wealth fund, a scandal that toppled that country's leader and triggered criminal cases that spanned the globe.
The subsidiary pleaded guilty to a conspiracy charge Thursday in federal court in Brooklyn, N.Y., and the bank itself entered into a three-year deferred prosecution agreement to resolve one of the biggest scandals in the Wall Street giant's long history.
Separate from the penalties the bank will pay, the board of Goldman Sachs said it was taking steps to withhold or recoup $174 million in compensation from current and former executives -- including its chief executive, David Solomon, and his predecessor, Lloyd Blankfein -- either in lost pay or the return of money already paid.
In a statement, Solomon said Goldman "fell short" in overseeing its employees.
"While it is abundantly clear that certain former employees broke the law, lied to our colleagues and circumvented firm controls, this fact does not relieve me or anyone else at the firm of our responsibility to recognize two critical realities," Solomon said.
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Blankfein declined to comment.
All told, Goldman will pay billions in penalties and disgorgement in Malaysia, the United States and Hong Kong for its role in the looting of the 1Malaysia Development Berhad fund. The scandal ultimately brought down the government of Malaysia's prime minister at the time, Najib Razak, and turned a financier with expensive tastes named Jho Low into an international fugitive.
As part of the plea deal, Goldman has agreed to a statement of facts compiled by federal authorities that it will not be able to dispute. That document outlines a number of internal control failings at Goldman that authorities said should have detected the wrongdoing by its former employees, as well as the involvement of Low in helping to arrange the deals and pay more than $1 billion in bribes to officials in Malaysia.
"Other personnel at the bank allowed this scheme to proceed by overlooking or ignoring a number of clear red flags," said Brian Rabbitt, acting assistant attorney general for the Justice Department's criminal division.
More than $2.7 billion raised for the fund in bond offerings arranged by Goldman financed lavish lifestyles for powerful Malaysians, including friends and family of Najib. The money bought paintings by Vincent van Gogh and Claude Monet, a megayacht docked in Bali, a grand piano made of clear acrylic that was given to a supermodel as a gift, and a king's ransom in jewelry. Pilfered money also financed a boutique hotel in Beverly Hills, Calif., a share of the EMI music publishing portfolio and the Hollywood movie "The Wolf of Wall Street."
Goldman Sachs earned $600 million in fees arranging the bond sales.
Federal prosecutors had already brought charges against two Goldman bankers and Low, who is believed to be living in China. One of the bankers, Tim Leissner, husband of fashion designer and model Kimora Lee Simmons, has pleaded guilty and agreed to forfeit up to $43.7 million.
Malaysian prosecutors also filed criminal charges against Goldman and more than a dozen executives, but the bank agreed in July to pay $2.5 billion to resolve that investigation. Goldman also pledged to cover any shortfall from the sale of $1.4 billion in assets that have been seized by prosecutors in the United States and Malaysia.
Much of the property seized belonged to Low, who has never appeared in court to face charges in the case. He has denied wrongdoing through representatives in the United States but agreed last year to give up all claims to seized assets worth as much as $900 million.
While the legal saga is essentially over for Goldman, it will continue for some individuals: Leissner still awaits sentencing, and the other banker charged in the United States, Roger Ng, has pleaded not guilty and awaits trial. Another former Goldman executive, Andrea Vella, has been barred from the financial industry by the Federal Reserve. (Goldman's board said it was taking steps to recoup tens of millions of dollars in compensation from them as well.)
In Malaysia, Najib was convicted in a corruption case in July and sentenced to up to 12 years in prison, but the sentence was stayed on appeal.
Low's whereabouts remain a mystery.