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Global investment bank Goldman Sachs agreed Thursday to pay nearly $3 billion and admit enabling a massive embezzlement from Malaysian state-fund 1MDB to settle a raft of civil and criminal charges in the U.S. and overseas.

The historic case, which also saw Goldman’s affiliate in Malaysia admit to paying bribes linked to the fraud, ends a 5-year investigation by several jurisdictions, including the U.S, Malaysia and Hong Kong, into the theft of $4.5 billion dollars from 1MDB, that had already triggered proceedings against a fugitive financier and at least three of the bank’s former senior managers.

Tim Leissner, ex-chair for Southeast Asia, Roger Ng, who headed Goldman’s investment branch in Malaysia, and other bank executives conspired with the financier, Malaysian national Low Taek Jho, also known as Jho Low, to misappropriate at least $2.7 billion from 1MDB, while other bank staff enabled their wrongdoing by disregarding signs that something was amiss, federal prosecutors said Thursday.

The stolen funds covered lavish personal purchases and roughly $1.6 billion in bribes that Goldman paid in Malaysia, Abu Dhabi and elsewhere to win the right to arrange three 1MDB bond offerings that ultimately netted the bank $600 million in fees, according to a 74-page deferred prosecution agreement, or DPA, and 66-page plea filed in New York.

The $1.2 billion penalty that the Justice Department alone imposed against Goldman on Thursday is the largest ever assessed in response to criminal violations of the 1977 Foreign Corrupt Practices Act, or FCPA, America’s preeminent law against bribing overseas officials, Acting Assistant Attorney General Brian Rabbitt said in a press conference.

The bank also agreed to disgorge all of the $600 million in fees from its relationship with 1MDB.

“Not only was there criminal conduct by a number of Goldman Sachs executives, but also a number of red flags that were raised over the course of the years that should have allowed Goldman Sachs to either identify this conduct and follow up on it, or stop it altogether,” Rabbitt said.

Thursday’s settlements confirm that banks and other firms must show that their corporate compliance programs not only work “on paper, but are also adequately resourced, can function properly, are tested, and can actually identify, stop and mitigate [this] kind of conduct,” he said.

In November 2018, 2 years after resigning his position as chair of Goldman’s operations in Southeast Asia, Leissner pleaded guilty in New York to violating the FCPA and laundering funds embezzled from 1MDB. Ng is scheduled to face trial in March 2021 following his February 2019 arrest and extradition from Malaysia.

Leissner, Ng and Andrea Vella, who led Goldman Sachs’ investment branch in Asia until two years ago, also received lifetime industry bans from the U.S. Federal Reserve. Vella, whom the Fed accused in January of failing to escalate internal warnings of Goldman’s suspicious ties to Low, has not been criminally charged.

The Malaysian financier established a relationship with Goldman Sachs on behalf of 1MDB shortly after the fund’s inception in 2009.

Goldman followed by brokering three critical bond offerings—”Project Magnolia,” “Project Maximus” and “Project Catalyze”—which occurred in March 2012, October 2012 and March 2013, respectively, and together raised a staggering $6.5 billion for 1MDB.

‘Glaring red flag’

During this time, Goldman failed to adequately investigate the “glaring red flag” that was Low, an intermediary with a “colorful and questionable public profile” whose earlier attempts to open a personal account at the bank had been turned down amid his reluctance to explain the origin of his wealth, New York’s Department of Financial Services claimed in a 16-page consent order.

“Goldman Sachs instead relied on statements by [Ng] and written representations and warranties from 1MDB … that there were no intermediaries in the 1MDB bond transactions, which statements were later shown to be false,” DFS found in the consent order, which carries a $150 million fine against the investment bank.

The state regulator’s penalty runs concurrently with the DPA and guilty plea, a cease-and-desist order and $154 million penalty from the Federal Reserve, civil charges and a $400 million levy from the Securities and Exchange Commission, or SEC, and similar enforcement actions by regulators in the U.K. and Hong Kong.

Over the years, Goldman Sachs failed to act upon multiple indicia of corruption in its dealings with 1MDB, DFS also found.

In May 2013, for instance, an unidentified managing director at the bank warned a superior that a state-run investment fund in Abu Dhabi, the International Petroleum Investment Company, had delayed a joint venture with 1MDB because one of his executives wanted “something on the side.”

“What’s disturbing about that?” the superior allegedly responded. “It’s nothing new, is it?”

Nearly two years later, senior compliance staff at the bank reviewed communications from February 2013 in which their colleagues questioned the necessity of Goldman arranging the third bond, Project Catalyze, “given the amount of “unused proceeds from the prior bond transactions.”

Catalyze, which went forward in March 2013 despite the concerns of compliance staff, raised $3 billion in capital for 1MDB and $186 million in fees for Goldman.

On Thursday, the Federal Reserve issued a cease-and-desist order that requires Goldman Sachs to bolster oversight of large, cross-border transactions, after finding that the bank’s corporate compliance policies and procedures failed to produce an accurate assessment and effective mitigation of the “legal, reputational, operational” risks stemming from the 1MDB relationship.

Certain staff at Goldman produced “false, misleading or inadequate information,” the regulator found, while senior personnel at the bank failed to challenge business staff, address red flags … insist on adequate data and records, and “effectively supervise a senior business employee about whom certain personnel had expressed integrity concerns in the past.”

The money that Low, Lessner, Ng and their alleged co-conspirators stole from 1MDB flowed through shell companies in the British Virgin Islands that held secret bank accounts in Switzerland and Hong Kong, ultimately financing their acquisition of luxury yachts, priceless works of art, jewelry and other extravagant goods and services in the U.S. and around the world.

Federal prosecutors have over the past three years moved to forfeit $1.5 billion in assets linked to the 1MDB theft and have successfully returned more than $600 million to Malaysia.

DBS Bank in Singapore, and BSI Bank, UBS and Falcon Bank in Switzerland, have had to pay large penalties, take corrective action or seen their operating licenses revoked after handling varying amounts of the embezzled funds.

In a 13-page cease-and-desist order Thursday, the SEC also claimed that Goldman Sachs did not keep proper documentation of its relationship with 1MDB and violated its own internal policies against bribery.

“Goldman Sachs failed to maintain a sufficient system of internal accounting controls between 2012 and 2015 with respect to the process by which it reviewed and approved the commitment of firm capital in large, significant and complex transactions, such as the Bond Deals,” the SEC found.

The multifold criminal and civil actions against Goldman Sachs and its Malaysian subsidiary focus on breaches of the FCPA and their internal, enterprise-wide controls but do not allege violations of money laundering statutes or the Bank Secrecy Act.

Many large financial institutions, however, handle FCPA compliance, including monitoring of employees for misconduct, jointly with meeting their AML obligations as part of their broader efforts against financial crime, a New York-based compliance officer for a securities firm told ACAMS moneylaundering.com.

“They [Goldman Sachs compliance] certainly did the due diligence, yet that advice was circumvented,” the compliance officer said on condition of anonymity. “You’re always going to see that highlighted. It’s something that regulators and prosecutors seem to look for, because it goes to intent.”

Thursday’s resolutions come three months after Goldman Sachs agreed to pay a $2.5 billion fine in Malaysia and help recover an additional $1.4 billion in losses from the fraud in exchange for the country’s agreement to dismiss criminal charges against the lender.

Jho Low remains at large.

Contact Valentina Pasquali at vpasquali@acams.org and Daniel Bethencourt at dbethencourt@acams.org