Goldman Sachs cuts US$174 million of pay for current and former executives, taking them to task for bank’s role in 1MDB fraud

Enoch Yiu
·5-min read

Goldman Sachs will cut or claw back US$174 million of pay from a dozen of its most senior current and former executives, holding them personally accountable for the Wall Street bank’s role in the 1MDB fraud, after the bank’s Asia unit was slapped with a record fine by Hong Kong’s regulator.

The bank will cut the compensation for chief executive David Solomon and his team of senior executives, and claw back the financial awards allocated to the former CEO Lloyd Blankfein, according to a statement by Goldman Sachs.

“Today, our board of directors announced action with respect to past and current senior management compensation, among other areas of focus,” Solomon said in the statement. “This action is entirely appropriate under the circumstances. The board’s announcement is an important reminder that we are all responsible for each other’s actions, including our collective failures.”

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The latest action would recoup some money for the bank, which has paid more than US$5 billion of fines and financial penalties in Hong Kong, Singapore, Malaysia, Britain and the United States for its role in helping 1Malaysia Development Berhad (1MDB) raise US$6.5 billion in three bond offerings in 2012 and 2013.

Much of that money raised, initially meant for rural and industrial development in Malaysia, was stolen by people associated with the Southeast Asian nation’s former prime minister Najib Razak, funnelled to all kinds of luxury purchases including Manhattan apartments, Monet art, a superyacht and even a Hollywood movie.

Goldman Sachs' Chairman and CEO David Solomon at the 50th World Economic Forum (WEF) annual meeting in Davos, Switzerland on January 21, 2020. Photo: Reuters
Goldman Sachs' Chairman and CEO David Solomon at the 50th World Economic Forum (WEF) annual meeting in Davos, Switzerland on January 21, 2020. Photo: Reuters

Hong Kong’s Securities and Futures Commission (SFC) yesterday fined Goldman Sachs (Asia), the bank’s Hong Kong unit, US$350 million for its role in arranging three bond sales by 1MDB.

Najib was thrown out of government in 2018, and was sentenced to 12 years in jail and fined 210 million ringgit (US$50.6 million) after being found guilty on seven counts of money laundering, criminal breach of trust and abuse of power related to 1MDB. He is currently out on bail, pending an appeal to the Malaysian court’s verdict and sentencing. Goldman Sachs settled in July with Malaysia’s new government to return US$2.5 billion to the nation’s treasury.

In a deal with the US Justice Department, the bank admitted executives and other staff conspired to pay more than US$1.6 billion in bribes to win business in Malaysia. That settlement includes the highest penalty ever under the Foreign Corrupt Practices Act involving in three bond offerings for 1MDB.

Goldman Sachs’ former chairman and chief executive Lloyd Blankfein at The New York Times DealBook conference on November 1, 2018 in New York. Photo: Agence France-Presse
Goldman Sachs’ former chairman and chief executive Lloyd Blankfein at The New York Times DealBook conference on November 1, 2018 in New York. Photo: Agence France-Presse

The board of directors of Goldman Sachs – including the steel magnate Lakshmi Mittal – said they view the 1MDB scandal as “an institutional failure, inconsistent with the high expectations it has for the firm” and hence decided to cut or claw back pay from top executives, according to a statement.

The bank said it would cut US$31 million of combined 2020 pay for chief executive David Solomon, chief operating officer John Waldron, chief financial officer Stephen Scherr, and chief executive of Goldman Sachs International Richard Gnodde, without divulging the share of the reductions. Solomon was granted US$27.5 million in compensation in March.

Goldman Sachs will also claw back or forfeit US$67 million in performance awards given to five former officials, including former CEO Blankfein and former chief operating officer Gary Cohn. They were not involved in the misconducts, but they were the top management in 2012 and 2013 when the 1MDB bond offerings took place, the bank said.

Tim Leissner at the 2014 Golden Globes After Party organised by The Weinstein Company & Netflix on January 12, 2014 in Beverly Hills, California. Photo: Getty Images for The Weinstein Company/Agence France-Presse
Tim Leissner at the 2014 Golden Globes After Party organised by The Weinstein Company & Netflix on January 12, 2014 in Beverly Hills, California. Photo: Getty Images for The Weinstein Company/Agence France-Presse

Goldman is also seeking to claw back US$76 million of all pay and bonuses from three former bankers connected to the fraud. Former Goldman Sachs (Asia) partner Tim Leissner and his deputy Roger Ng Chong Hwa coordinated the 1MDB bond offerings, while Andrea Vella was former co-head of Goldman’s Asia investment banking division excluding Japan.

Leissner pleaded guilty in August 2018 to criminal charges brought against him by the US Department of Justice for money laundering and corruption. The former banker admitted that he had conspired with fugitive Malaysian financier Low Taek Jho, also known as Jho Low, and others to pay bribes and kickbacks to Malaysian and Abu Dhabi officials, to obtain business from 1MDB for Goldman Sachs, including the bond offerings, according to Hong Kong’s SFC. Low, whose whereabouts cannot be ascertained, could not be reached for comment, but his lawyer and publicist stated that their client “maintains his innocence and denies any wrongdoing.”

Goldman Sachs earned US$581.5 million for its work with 1MDB in 2012 and 2013, leading to massive bonuses for Leissner, Ng, and others.

Jho Low, Director of the Jynwel Foundation, at the launch of the Global Daily website in Washington DC on April 23, 2015. Low is wanted by the Malaysian police for his role in the 1MDB fraud. Photo: AP
Jho Low, Director of the Jynwel Foundation, at the launch of the Global Daily website in Washington DC on April 23, 2015. Low is wanted by the Malaysian police for his role in the 1MDB fraud. Photo: AP

“Goldman Sachs‘ decision to force current and former bankers to pay for their mismanagement sets a good example for the industry,” said Christopher Cheung Wah-fung, a Hong Kong lawmaker for the financial services sector who is also chief executive of Hong Kong-based broker Christfund Securities. “Investment bankers should not only focus on businesses and bonuses, but also pay attention to risk control and compliance.”

Goldman Sachs had doubled its compliance staff since the 1MDB fraud eight years ago, Solomon said. The firm has also added stipulations in helping governments with their fundraising, including requiring government bodies to certify how they use the proceeds within six months of a transaction closing.

“Over the past several years, we have materially changed our focus to put reputational risk at the centre of our decision-making,” Solomon said. “We must always remain open to improvement, learn from our mistakes, and accept the consequences when we fail.”

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