This post highlighted recent criminal charges against former Goldman Sachs employees Roger Ng and Tim Leissner for paying bribes to various Malaysian and Abu Dhabi officials in connection with 1Malaysia Development Berhad (1MDB), Malaysia’s state-owned and state-controlled investment development company.
The question thus arises: what does this mean for Goldman?
In both the Ng indictment and Leissner information the DOJ clearly asserts, on several occasions, respondeat superior allegations. In other words, that Ng and Leissner (as well as certain other unindicted co-conspirators at Goldman) were employees and agents of Goldman and while acting within the scope of their employment with the intent, to at least in part, benefit Goldman engaged in various conduct. Moreover, as a result of the conduct, the DOJ alleged that Goldman earned approximately $600 million in fees and revenue.
On the other hand, per the DOJ’s own allegations, Ng and Leissner knowingly and willfully circumvented Goldman’s internal FCPA and accounting controls and took various steps to conceal their conduct from others at Goldman including the compliance department.
Specifically, the DOJ alleged:
“[Goldman’s] various internal FCPA and accounting controls were overseen and enforced by its compliance function (the “Compliance Group”) and its legal department (the “Intelligence Group”). These groups worked in conjunction with, and as part of, various committees in reviewing transactions, including the three 1MDB bond deals, for approval. Leissner, [Ng], Co-Conspirator #4 [an Italian national who was employed as a Participating Managing Director at Goldman from 2007 to the present] and other employees and agents of [Goldman] knew that [Low] played a central role in the bond transactions, including by acting as an intermediary between [Goldman], 1MDB and other Malaysian and Abu Dhabi government officials. Leissner, Co-Conspirator #2 and other employees and agents of [Goldman] also knew that [Low] promised to pay bribes and kickbacks to these officials to secure 1MDB business for [Goldman]. Despite this knowledge, Leissner, Co-Conspirator #2 and other employees and agents of [Goldman] conspired to conceal that and other information from [Goldman’s] Compliance Group and Intelligence Group in order to prevent them from attempting to stop [Goldman’s] from participating in the lucrative transactions.
While working on [the various bond offerings], Leissner and Co-Conspirator #2 selectively disclosed to other employees of [Goldman] that they were working with [Low] as an intermediary to secure the deal, because they knew that such disclosure could have triggered steps to be taken by certain personnel within the Compliance Group and Intelligence Group to investigate the business relationship with [Low] and possibly jeopardize the deal.
Between in or around September 2009 and in or around March 2011, Leissner and others, including Co-Conspirator #2, supported at least three attempts to make [Low] a formal client of [Goldman]. Leissner and Co-Conspirator #2 supported these efforts because, in part, they believed that [Low] would work to deliver lucrative business deals, including from 1MDB, for the ultimate benefit of [Goldman], Leissner, Co-Conspirator #2 and others. These attempts were unsuccessful because certain personnel within [Goldman’s] Compliance Group and Intelligence Group refused to approve the business relationship with [Low] based, in part, on concerns that they had about the source of [Low’s] wealth. Personnel within the Compliance Group and the Intelligence Group communicated the rejection of [Low’s] application to Leissner, Co-Conspirator #2 and others. Notwithstanding their knowledge of the concerns that had been raised about [Low] not being a suitable client for [Goldman], Leissner and other employees and agents of [Goldman], including Co-Conspirator #2, continued to conspire with [Low] based upon their belief that [Low] would help ensure that government officials within 1MDB, the Malaysian government and Abu Dhabi would deliver lucrative business deals to [Goldman].”
Moreover, the DOJ alleged that Leissner and Ng failed to follow other internal Goldman policies and used a portion of the bond proceeds “for their personal use and enjoyment” and otherwise ensured that certain proceeds “would be illegally diverted to themselves.”
The above DOJ allegations should matter, both as a matter of law and policy, when it comes to any potential enforcement action against Goldman.
But then again, there have been several FCPA enforcement actions (see here and here for instance) against companies based on the conduct of employees who circumvent existing internal controls, conceal their conduct from others at the company, and personally enrich themselves.
In its most recent quarterly filing Goldman stated:
“The firm has received subpoenas and requests for documents and information from various governmental and regulatory bodies and self-regulatory organizations as part of investigations and reviews relating to financing transactions and other matters involving 1MDB, a sovereign wealth fund in Malaysia. Subsidiaries of the firm acted as arrangers or purchasers of approximately $6.5 billion of debt securities of 1MDB.
On November 1, 2018, the U.S. Department of Justice (DOJ) unsealed a criminal information and guilty plea by Tim Leissner, a former participating managing director of the firm, and an indictment against Ng Chong Hwa, a former managing director of the firm, and Low Taek Jho. Leissner pleaded guilty to a two-count criminal information charging him with conspiring to launder money and conspiring to violate the U.S. Foreign Corrupt Practices Act’s (FCPA) anti-bribery and internal accounting controls provisions. Low and Ng were charged in a three-count indictment with conspiring to launder money and conspiring to violate the FCPA’s anti-bribery provisions. Ng was also charged in this indictment with conspiring to violate the FCPA’s internal accounting controls provisions. The charging documents state, among other things, that Leissner and Ng participated in a conspiracy to misappropriate proceeds of the 1MDB offerings for themselves and to pay bribes to various government officials to obtain and retain 1MDB business for the firm. The plea and charging documents indicate that Leissner and Ng knowingly and willfully circumvented the firm’s system of internal accounting controls, in part by repeatedly lying to control personnel and internal committees that reviewed these offerings. The indictment of Ng and Low alleges that the firm’s system of internal accounting controls could be easily circumvented and that the firm’s business culture, particularly in Southeast Asia, at times prioritized consummation of deals ahead of the proper operation of its compliance functions. In addition, an unnamed participating managing director of the firm is alleged to have been aware of the bribery scheme and to have agreed not to disclose this information to the firm’s compliance and control personnel. That employee, who was identified as a co-conspirator, has been put on leave.
The firm is cooperating with the DOJ and all other governmental and regulatory investigations relating to 1MDB. The firm is unable to predict the outcome of the DOJ’s investigation. However, any proceedings by the DOJ or other governmental or regulatory authorities could result in the imposition of significant fines, penalties and other sanctions against the firm.”
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