Goldman admits subsidiary guilty of bribery

Goldman Sachs played a starring role in the dubious financial engineering that helped spark a global financial crisis last decade, and its 151-year history is dotted with scandals that ended in fines or governmental scoldings. But never before had it had to go before a U.S. judge and admit it was guilty of a crime.

The bank, one of Wall Street’s most powerful firms, admitted criminal wrongdoing by its Malaysian subsidiary Thursday in a Brooklyn federal courtroom, bringing to a close a globe-spanning foreign bribery case that is the worst black eye in Goldman’s long history.

Goldman employees, the bank said, took part in a scheme to pay $1 billion in bribes to foreign officials. The bank, in turn, arranged the sale of bonds to raise $6.5 billion that was intended to benefit the people of Malaysia but was instead looted by the country’s leaders and their associates.

In the end, the scandal, which netted the bank a relatively paltry $600 million in fees, will cost Goldman and its current and formerexecutives dearly. The bank itself will pay more than $5 billion in penalties to regulators around the world, more than it had to pay for peddling bonds backed by risky mortgages a decade ago. Andit has moved to recoup or withhold more than $100 million in executive compensation, a rare move for a Wall Street bank.

Goldman’s chief executive, David Solomon, and other current and former executives — including the bank’s former chief executive Lloyd Blankfein — will lose a total of $174 million over the leadership failures that took place in connection with the 1Malaysia Development Berhad fund, known as 1MDB.

More than $2.7 billion was looted from the fund by powerful figures in Malaysia, including the family of the country’s prime minister at the time, Najib Razak, and Jho Low, a financier with expensive tastes whowas the heist’s mastermind and remains an international fugitive. The money taken from1mdb funded lavish lifestyles for powerful Malaysians, including friends and family of Najib.

Karen Seymour, the bank’s general counsel, officially entered the guilty plea for Goldman’s Malaysian subsidiary, which admitted it had “knowingly and willingly” conspired to violate the Foreign Corrupt Practices Act.

All told, Goldman will have to shell out billions in penalties and returned money in Malaysia, the United States and Hong Kong.