Why Goldman Sachs paid half its annual profits to settle corruption charges in Malaysia

Goldman Sachs has agreed to pay the Malaysian government $3.9 billion over the role it played in the country’s 1MDB corruption scandal. This vast sum accounts for almost half of Goldman Sachs’s profits of $8.66 billion in 2019.

In theory, 1MDB was a strategic development company established and wholly owned by the Malaysian government. In practice it seems to have served as a vast political slush fund for Malaysia’s ruling government.

Still, the vast amounts of money flowing through – for whatever purpose – seems to have been too much to resist for Goldman Sachs. Hungry to expand its Asian business, Goldman ignored internal warnings about the nature of the fund and helped it raise $6.5 billion in bonds, making some $600 million in the process.

Under the agreement, Goldman Sachs will pay the Malaysian government $2.5 billion in cash, and has guaranteed that it will also receive at least $1.4 billion in proceeds from assets seized by various governments around the world in connection to the scandal.

Yet, as vast as the sum is, Goldman Sachs might almost be counting itself lucky. In December 2019 then Prime Minister Mahathir Mohamad was demanding $7.5 billion in compensation and threatening to sue if no settlement was reached. The settlement also apparently secured the Malaysian government’s agreement to drop all criminal charges against three subsidiaries of the company and the seventeen current and former senior executives at the firm.

Even now Goldman Sachs is not out of hot water as the US Department of Justice’s investigation into the 1MDB scandal rumbles on.

Two employees have already pleaded guilty last year to charges the DoJ brought against them. Meanwhile, a behind the scenes tussle is going on as to whether the DoJ will level its toughest possible sanction against Goldman Sachs – requiring a guilty plea to charges brought against it at a parent company level in return for settling the case.

Such a plea can carry explosive consequences. A guilty plea by Big Five accounting firm Arthur Andersen in the wake of the Enron scandal lead to its collapse and the loss of 28,000 jobs.

Still, such dramatic consequences should not be surprising given that 1MDB is one of the largest corruption scandals in history. The DoJ estimates some $4.5 billion was misappropriated from the eponymous 1MDB development fund.

Meanwhile, other trials also loom. Most prominent are those of the former Malaysian Prime Minister Najib Razak. Razak was linked to bank accounts containing vast amounts of the misappropriated cash which it is alleged served as both a political slush fund and a piggy bank to fund his luxurious lifestyle. Notably, his wife, Rosmah Mansor, was famed for her collection of 284 Hermes Birkin designer bags.

On Wednesday, Razak was ordered to pay $397.41 million in income tax by a Malaysian court on and is facing five corruption trials. Still, while he lost the election in large part due to the scandal, it remains to be seen if Malaysia’s turbulent political system may yet allow him to avoid charges.

Meanwhile, Jho Low, Najib Razak’s bag man and Hollywood socialite, thought to have helped launder money via funding the film The Wolf of Wall Street, remains at large. The Malaysian government has filed criminal charges against him but, despite a long man hunt, this former playboy, socialite, and collector of art remains elusive.