Goldman Sachs said it had agreed to pay $2.9 billion over its role in Malaysia's 1MDB corruption scandal, lifting a cloud that has hung over the bank for years.
The settlement with the US Department of Justice and other US and overseas regulators resolves a probe into the role Goldman Sachs bankers played in helping to steal cash, which Goldman helped raise, from the Malaysian state fund.
The scandal has proved a humbling and costly saga for the Wall Street giant.
But the long-awaited settlement should allow chief executive David Solomon to accelerate his plans to turn the bank around after a decade of under-performance, analysts said.
Under the terms of the deal, Goldman agreed to pay a $2.3 billion fine for breaking anti-bribery laws and to disgorge $600m of ill-gotten gains as part of a deferred prosecution agreement, which also requires it to improve its compliance controls.
The bank also agreed for its Malaysia subsidiary to plead guilty in a US federal court, in a victory for prosecutors who rarely extract criminal guilty pleas from corporate entities.
Brian Rabbitt, acting head of the Justice Department's criminal division, said the penalty was the largest ever levied for a breach of the Foreign Corrupt Practices Act.
He said the settlement reflected the "seriousness" of the bank's role "in a massive global scheme to loot billions of dollars" from 1MDB.
The scandal dates to the government of former Malaysian Prime Minister Najib Razak, which set up the 1MDB fund in 2009.
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Between 2009 and 2014, Goldman bankers paid more than $1.6 billion in bribes to foreign officials in Malaysia and Abu Dhabi to win 1MDB business, including underwriting $6.5 billion in bond sales, for which it earned $600m in fees.
But billions of the fund's money were later stolen by high-level fund officials and their associates to pay for real estate, art and other luxury items, with the help of the Goldman bankers, the US Justice Department said.
In 2018, the Justice Department filed criminal charges against two of the former Goldman bankers, Tim Leissner and Roger Ng. Leissner pleaded guilty to the charges last year, while Ng's case is pending in a New York court.
"While many good people worked on these transactions and tried to do the right thing, we recognize that we did not adequately address red flags and scrutinize the representations of certain members of the deal team," Solomon wrote in a memo to staff today, adding the bank had already made several compliance improvements.
He said that the bank would be clawing back compensation from the bankers involved, and its former executive team "in acknowledgement of the Firm's institutional failures."
He and other senior executives would also have their compensation for 2020 reduced, bringing the total of clawbacks and pay reductions to $174m.
The deal follows $3.9 billion the bank paid in Malaysia in July to settle charges there related to the matter.
Since 2019, Goldman had set aside $4.39 billion to cover legal and regulatory matters. Some $2 billion was for matters it already resolved with the Malaysian government.
The bank said yesterday it would increase its provisions for litigation and regulatory proceedings for the third quarter by $250m.
Despite the costs, analysts anticipated the deal should allow Solomon to accelerate his plan to reshape Goldman as a more conventional bank and be less reliant on volatile trading venues.
Some investors and analysts viewed the 1MDB probes as an obstacle to Goldman doing transformative deals, since US regulators will often bar banks from making big acquisitions while they are being probed for serious misconduct.
Analysts said that with clarity over how much the bank needs to pay and a clean slate with regulators, Goldman may be able to be more aggressive on that front,