Current Event Research: Goldman Sachs’ Violation of FCPA

Goldman Sachs’ Violation of FCPA
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Goldman Sachs’ Violation of FCPA
The Goldman Sachs Group Inc. commonly known as Goldman Sachs is a renowned American multinational financial and investment bank. The company headquarters are in New York, the United States of America (USA). Marcus Goldman, a German immigrant, founded Goldman Sachs in 1869 after moving to New York. Goldman started the company in a one-room office in the basement of an apartment at 30 Pine Street, Lower Manhattan. The person offered an alternative to local merchants by buying their promissory notes and selling them to commercial banks in New York. He was the pioneer of what is called the commercial paper business today. Over the years, Goldman Sachs has grown to become one of the largest corporations worldwide. Based on the 2021 Fortune 500 ranking, the company is ranked number 59. Goldman Sachs has encountered numerous challenges, some of which stand a chance of damaging its reputation. Indeed, it has been criticized for its unethical business dealings and its relationship with the federal government has dwindled in the recent past. The paper focuses on how Goldman Sachs was charged with over $2.9 billion for violating the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) in the USA, Singapore, the United Kingdom (UK), and Malaysia.
Goldman Sachs is an international financial company with subsidiaries in different parts of the world. In particular, its Malaysian subsidiary admitted to conspiring and infringing the FCPA. Goldman Sachs is connected with a scheme that paid more than $1 billion in bribes to Abu Dhabi and Malaysian officials so that the financial institution would get lucrative business deals. The company also played a significant role in underwriting of three bond deals involving 1Malyasia Development Bhd. (1MDB) for approximately $6.5 billion (The United States Department of Justice, 2020). Goldman Sachs’ target was to earn hundreds of millions from these fraudulent activities, which explains why the bank was ready to part with billions in bribery. Goldman Sachs participated in a global corruption scheme, which is unexpected for a multinational financial company that has developed a good reputation for many decades. For instance, 1MDB was created to enhance strategic initiatives for Malaysia’s long-term economic growth and development. However, Goldman Sachs said that it used around $1 billion of the money meant to help Malaysians in bribing officials for its selfish financial gains. Despite the primary objective of any business is to maximize its profits, it does not mean that an enterprise should engage in illegal dealings to generate more revenues. Goldman Sachs engaged in bribery by using its agents, former executives, and managing director, such as Tim Leissner Ng, and employees. One of Goldman Sachs' illegal business dealings was to facilitate 1MDB’s initial public offering (IPO) in energy assets. The company conspired with high-ranking officials from the International Petroleum Investment Company (IPIC), the Malaysian government, and Aabar Investments PJS, Abu Dhabi’s state-controlled and state-owned sovereign wealth fund (The United States Department of Justice, 2020). As a result, Goldman Sachs did not deny these allegations since it had participated directly or indirectly so that it could benefit financially.
Goldman Sachs effectuated the bribery scheme by using Leissner and Low Taek Jho, popularly known as Jho Low. These co-conspirators promised to pay more than $1.6 billion to 1MDB, Aabar, Malaysian, and IPIC officials. They paid bribes of over $2.7 billion using the money from misappropriated bond offerings that Goldman Sachs underwrote (The United States Department of Justice, 2020). In addition, Low and Leissner retained a significant percentage of the misappropriated funds to pay themselves and other individuals involved in these illegal dealings. The bank used high-ranking officials’ connections to catalyze its bribery scheme to ensure that it met its objectives. The ultimate goal was to make sure that 1MDB awarded Goldman Sachs three bond transactions from 2012 to 2013, called “Project Magnolia,” “Project Catalyze,” and “Project Maximus” (The United States Department of Justice, 2020). To make the matter worse, some employees already knew about the fraudulent scheme but remained silent. Any transaction that involved Low posed significant risks for Goldman Sachs, but nobody took the step of reporting the issue to the Securities and Exchange Commission (SEC) so that proper investigations would be carried out and the company charged accordingly. The primary reason Goldman Sachs ignored Low’s involvement risk was that it wanted its illegal business deals to be approved within a short period and without raising red flags. Besides, Goldman Sachs said that it received about $606 million in revenues and fees from its increased presence and stature in Southeast Asia (The United States Department of Justice, 2020). Low is a fugitive and was indicted for committing money laundering, conspiracy, and violating the FCPA. However, all the defendants, in this case, are presumed innocent until proper evidence is gathered to prove they are guilty in court.
The FCPA was enacted in 1977 and has been amended in numerous ways. The law prohibits individuals and entities from bribing or making any payments to foreign government officials with the aim of retaining or obtaining lucrative business deals. The FCPA’s anti-bribery provisions forbid willful use of any means of interstate commerce corruptly by offering payment, authorizing payment, or promising to pay anything of value directly or indirectly to foreign officials to influence their capacities that violate lawful duties (U.S. Securities and Exchange Commission, 2017). In addition, companies are prohibited to make payments to foreign officials to facilitate securing of illegal business dealings. Moreover, they are required to meet the established accounting provisions, which work in tandem with the FCPA’s anti-bribery provisions. In that light, corporations are obliged to keep proper financial records and to refrain from altering financial statements. The accounting books should accurately and fairly the corporation’s transactions. Companies are also needed to maintain effective internal control systems (The United States Department of Justice, 2017). The payment of bribes is forbidden and any company that engages in such fraudulent activities is investigated and penalized accordingly. The FCPA’s anti-bribery provisions cover corporations and their executive leaders, directors, officers, stockholders, agents, and employees. In particular, agents include distributors, third-party agents, joint-venture partners, and consultants among others. As can be witnessed in the case at hand involving Goldman Sachs, the sanctions for violating the FCPA regulations can be significant. Besides, the SEC is responsible for bringing civil enforcement actions and lawsuits against the companies, directors, agents, stockholders, officers, and employees involved (U.S. Securities and Exchange Commission, 2017). Individuals and corporations that violate the FCPA might be required to disgorge their financial gains from corrupt business dealings, pay significant civil penalties, and prejudgment interest. Moreover, they might be subjected to an independent consultant oversight.
Goldman Sachs violated the FCPA regulations by bribing high-ranking foreign officials in 1MDB, Aabar, IPIC, and the Malaysian government. The criminal information involving Goldman Sachs was filed in New York’s Eastern District for the conspiracy to infringe the FCPA’s anti-bribery provisions. The multinational corporation did not try to defend itself since all the allegations made were true and accompanying evidence was provided to the court. Goldman Sachs accepted its responsibility for engaging in money laundering and violating the FCPA. Specifically, the company pleaded guilty in New York’s Eastern District Court (The United States Department of Justice, 2020). All individuals involved in the bribery scheme will be charged accordingly after the trial in the court. Based on Brian Rabbitt, the Justice Department’s Acting Assistant Attorney General, Goldman Sachs would be required to pay a penalty of approximately $3 billion since it was accountable for playing a significant role in a corruption scheme (The United States Department of Justice, 2020). Additionally, William Sweeney Jr., the Federal Bureau of Investigation’s (FBI) Assistant Director from the New York Field Office, said that companies’ executives and government officials should not collude in defrauding shareholders and citizens by engaging in fraudulent activities (The United States Department of Justice, 2020). These individuals should not use their positions of power for selfish financial gains from illegal business dealings since they destroy the reputation of corporations, promote corruption in society, and erodes the trust of government entities and public institutions. Goldman Sachs entered a plea agreement by accepting to pay more than $2.9 billion in disgorgement and penalty (Bogage, 2020). Moreover, Goldman Sachs has reached out to foreign authorities in Singapore, the UK, Malaysia, and other countries with separate parallel resolutions.
Goldman Sachs' story is significant in the financial industry. In particular, it portrays the importance of adhering to the law, such as FCPA and other regulations established by the SEC. The government enacts such laws to ensure transparency, credibility, and trustworthiness of business dealings. Financial institutions, such as Goldman Sachs, should be on the frontline in protecting the welfare of citizens, shareholders, employees, and other stakeholders. Goldman Sachs started as a small firm and has grown to become one of the largest banks worldwide. Were it not for the laws that govern the financial services, it might not be an operation today. In that light, it should not go against the laws that have contributed to its growth and expansion since that is not setting a good example. Although the bank should look for all avenues to maximize its profits, it should not use its resources to bribe or corrupt foreign and government officials to obtain or retain specific businesses (Son, 2020). If nothing is done to deal with bribery and corruption, the financial sector cannot be trusted, meaning that individuals would no longer be interested to transact or invest. Due to these consequences, the economy would not grow due to the lack of transparency in the financial institutions. Notably, dealing with money is sensitive, which is why proper monitoring of transactions is required by relevant government agencies. Organizations, individuals, and countries would hesitate to transact with corrupt banks since they are unreliable. That is why anti-bribery provisions were established to make sure that companies, such as Goldman Sachs, would be accountable for their actions to retain dignity in the financial sector.
The financial industry is highly controlled and regulated by various laws, policies, provisions, and regulations. Every time a specific firm violates such established laws, it should be held responsible and proper actions taken against it. For example, if Goldman Sachs bribery allegations were not investigated and judgment delivered, it would trigger other financial institutions to engage in corruption, bribery, and other fraudulent activities. Nevertheless, penalizing Goldman Sachs a substantial amount, such as $2.9 billion, deter bribery and corruption in the financial sector (Bogage, 2020). That way, the government contributes to setting a stable environment and level playing ground for all banks. The only way sanity can be retained in the money industry is through strict adherence to established policies. Besides, many financial institutions must have been following the Goldman Sachs case to see what would happen so that they can decide whether it was profitable to engage in such illegal business dealings. However, high fines and penalties make those with intentions of being involved in fraudulent activities fear and avoid falling into such traps. For sure, the existence and functioning of the financial sector involve a high level of complexity that can only be monitored and regulated by appropriate laws. For instance, the SEC requires all companies to comply with the set accounting rules and keep accurate and credible financial statements. If such regulations are infringed, it...