US discussing Goldman 1MDB settlement of below US$2 bil

Goldman Sachs made about US$600 million from US$6.5 billion in bond sales for 1MDB in 2012 and 2013. (Reuters pic)

WASHINGTON: Goldman Sachs Group Inc could end up paying less than US$2 billion (RM8.32 billion) to resolve US criminal and regulatory probes over its role in raising money for 1MDB, said three people familiar with the negotiations.

The Justice Department and other federal agencies, in internal discussions held in recent weeks, have weighed seeking penalties of between US$1.5 billion and US$2 billion, the people said.

That is less than what some analysts have signalled Goldman might have to pay. While a settlement could be announced as soon as next month, the terms could change before a deal is finalised, said the people who asked not to be named in discussing private negotiations.

The bulk of the penalties would be paid to the Justice Department.

Attorney General William Barr has directly immersed himself in the case, according to  another person familiar with the matter. Earlier this year, Barr obtained a waiver to let him oversee the investigation, even though his former law firm, Kirkland & Ellis LLP, is representing Goldman. It is unclear whether the Justice Department is seeking a guilty plea from the bank.

A Justice Department spokesman declined to comment, as did spokesmen for the Federal Reserve and Securities and Exchange Commission, which have been pursuing civil investigations into Goldman. The bank reiterated its previous statements that it continues to cooperate with authorities.

Goldman Sachs shares climbed as much as 3.1% on the discussions, the biggest intraday gain in almost two months. The bank’s stock is up 33% this year.

Reputation blow

Goldman’s involvement with 1MDB has triggered one of the biggest blows to its reputation in recent years, leading to a litany of investigations and embarrassing revelations of a former banker bribing government officials.

The Wall Street firm has been eager to move past the scandal, and a US settlement below US$2 billion would put it on track to avoid the worst-case scenario that some analysts pegged at as much as US$9 billion in global fines.

Goldman is separately negotiating a settlement with Malaysian authorities, who have in recent discussions floated much lower figures than their public stance of wanting to recover US$7.5 billion. Goldman is still privately seeking to reduce its sanctions, arguing that the crimes were committed by a rogue employee and that the bank was not aware of the misconduct.

If it pays anywhere close to US$2 billion, Goldman would join other banks that have been subjected to massive US penalties this decade. In 2012, HSBC Holdings Plc set a new bar when it agreed to pay more than US$1.9 billion to settle allegations that it violated sanctions and enabled money laundering. BNP Paribas SA was then hit with the largest financial penalty ever in a US criminal case when it paid US$9 billion over sanctions violations.

In previous international corruption cases, the US has sometimes credited penalties paid to other countries for the same conduct. For example, a US$1.3 billion US settlement last year with Societe Generale SA included a credit of almost US$300 million that was paid to French authorities.

1MDB became the hub of a global corruption and embezzlement scandal in which a massive amount of cash was allegedly diverted to corrupt officials and financiers. Goldman helped the state investment fund raise cash, with the Wall Street bank making about US$600 million from US$6.5 billion in bond sales in 2012 and 2013.

Yacht and movies

Tim Leissner, a former senior Goldman banker in Southeast Asia, admitted last year to bribery and pleaded guilty to US charges that he conspired to launder money.

Money diverted from 1MDB was allegedly spent around the world, including on a superyacht, the Hollywood movie “The Wolf of Wall Street” and high-end real estate. Authorities in several countries have been working to recoup some of the missing billions and punish those involved.

There are signs that Goldman has made progress in its negotiations with US agencies and may also have a sense of how much it might pay to settle the investigations.

For instance, Goldman stopped buying back its stock in the third quarter as it began discussions with US authorities on 1MDB. Goldman later restarted its buybacks as talks with the government progressed and the firm added US$300 million to its estimate of possible legal losses, Chief Financial Officer Stephen Scherr said in an October conference call with analysts and investors.

Compliance failures

Goldman has previously blamed Leissner for concealing his wrongdoing from the firm’s compliance efforts. Leissner has countered that the bank’s culture of secrecy led him to bypass compliance.

US authorities allege that in addition to Leissner, two other bankers were aware of the scheme, including one who went on to become the bank’s top dealmaker in the region.

Earlier this year, the Fed banned Leissner and his former deputy, Roger Ng, from the banking industry. Ng faces US accusations of money laundering and bribery, and also Malaysian charges of aiding the bank’s efforts to mislead investors.