Goldman Sachs Group Inc. is in talks with the U.S. government to pay a multibillion-dollar fine, admit guilt and agree to ongoing oversight of its compliance procedures in order to resolve a criminal investigation into its role in a Malaysian corruption scandal.
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Goldman and the Justice Department have largely agreed on a fine of just under $2 billion to settle allegations that the Wall Street firm ignored red flags while billions of dollars were looted from its client, a Malaysian government fund known as 1MDB, people familiar with the matter said.
The bank and U.S. officials have discussed a deal in which a Goldman subsidiary in Asia--not the parent company--would plead guilty to violating U.S. bribery laws, some of the people said. The discussions also involve Goldman installing an independent monitor to oversee and recommend changes to its compliance procedures, the people said.
Talks are ongoing and the outlines of a deal, which could be reached early next year, may change.
The settlement wouldn't resolve an investigation by authorities in Malaysia, which is seeking billions of dollars from Goldman. It couldn't be determined whether other U.S. regulators would join the settlement or pursue their own.
"Resolution discussions are ongoing, and it is irresponsible to speculate on an outcome," a Goldman spokeswoman said.
Last week, Goldman President John Waldron told CNBC: "We don't control the outcome, obviously. We're one party. We have a number of people to talk to...we're working as hard as we can to try to get it resolved sensibly."
Representatives of the Justice Department declined to comment.
Settling with the Justice Department would clear a matter that has weighed on Goldman's stock price. But new, tighter oversight would keep the bank under the shadow of a scandal that its chief executive, David Solomon, is eager to move past.
Goldman raised $6.5 billion for 1MDB, the abbreviation for 1Malaysia Development Bhd., much of which U.S. authorities say was stolen by a Malaysian government adviser, Jho Low, and two Goldman bankers. Prosecutors say the bank ignored warning signs about Low and the fund in pursuit of fees that eventually reached about $600 million.
One of the bankers, Tim Leissner, pleaded guilty to stealing more than $200 million from 1MDB and this week agreed to a lifetime ban from the securities industry. Leissner is cooperating with investigators, The Wall Street Journal has previously reported, and is scheduled to be sentenced next year.
The other banker, a Malaysian national named Roger Ng, has pleaded not guilty in a New York court and also faces charges in Malaysia.
Low agreed in October to forfeit more than $700 million in assets to U.S. authorities but hasn't admitted to wrongdoing and remains a fugitive from the U.S. criminal justice system.
Goldman has said that Leissner and Ng, who are no longer with the bank, were rogue actors who intentionally misled their bosses and siphoned money through personal accounts out of view of the bank.
A third executive, previously reported by the Journal to be a Hong Kong-based banker named Andrea Vella, is alleged by U.S. authorities to have known about the scheme. He hasn't been charged and remains on administrative leave from Goldman. A lawyer for Vella couldn't be reached for comment.
At $2 billion, a 1MDB-related fine would be one of the largest levied by the Justice Department against a bank since the mortgage settlements following the financial crisis. It is money Goldman can ill-afford as it struggles to boost revenue and is spending heavily on growth initiatives. The bank doesn't disclose its legal reserves.
Bloomberg earlier reported the possibility of a settlement of around $2 billion.
The resolution of the 1MDB matter may also hit compensation for Goldman executives. The bank's board reserved the right to claw back pay from Solomon and his predecessor, Lloyd Blankfein, as well as other top officials, pending the outcome of 1MDB investigations.
Independent monitors, often hired from law or consulting firms, are used to ensure that companies comply with settlement terms. They were widely required, for example, in the wake of the subprime-mortgage crisis to track banks' progress in forgiving loans to struggling homeowners.
Monitors can be expensive-- HSBC Holdings PLC hired thousands of staffers to clean up its money-laundering controls after a government settlement in 2012--and could make it harder for Goldman to make acquisitions or other moves that require approval from Washington.
Still unresolved is whether Goldman would receive credit offsetting any penalty paid to the Justice Department if the bank were to pay any fine to Malaysia, the people familiar with the matter said. That country's prime minister was swept into power on an anticorruption platform after the 1MDB scandal, for which his predecessor faces criminal charges. The former prime minister, Najib Razak, has pleaded not guilty.
Malaysia has filed criminal charges against Goldman itself, plus 17 current and former employees in its Asia offices. A Goldman spokeswoman at the time said the charges were "misdirected."