In this episode, I visit with Susan Divers, Senior Advisor at LRN. It is part of my continuing series this year looking back over the past decade of Foreign Corrupt Practices Act enforcement and the evolution of compliance. Some of the topics we consider are:

  1. How the heavy emphasis on enforcement by the DOJ led to organizations investing in compliance.
  2. How did companies begin to evolve their compliance programs away from paper programs, written by lawyers for lawyers?
  3. How the first industry sweep through energy led to a pragmatic business solution to compliance throughout the energy ecosystem.
  4. The DOJ evolution in communicating information on its expectations on best practices compliance program.
  5. The change in ERM emphasis requiring each company to manage its risks.
  6. The use of data in compliance.
  7. Trends into the 2020s and beyond.

A resolution in the biggest Foreign Corrupt Practices (FCPA) corruption scandal was announced last week, involving The Goldman Sachs Group, Inc., (Goldman Sachs) and its subsidiary Goldman Sachs (Malaysia) Sdn. Bhd. (GS Malaysia). According to the Department of Justice Press Release, they “admitted to conspiring to violate the Foreign Corrupt Practices Act (FCPA) in connection with a scheme to pay over $1 billion in bribes to Malaysian and Abu Dhabi officials to obtain lucrative business for Goldman Sachs, including its role in underwriting approximately $6.5 billion in three bond deals for 1Malaysia Development Bhd. (1MDB), for which the bank earned hundreds of millions in fees. Goldman Sachs will pay more than $2.9 billion as part of a coordinated resolution with criminal and civil authorities in the United States, the United Kingdom, Singapore, and elsewhere.”

According to the New York Times (NYT)  DealBook, the resolution was a part of a series of global settlements, with “detailed accounts compiled by regulators around the world — the U.S. Justice DepartmentNew York’s financial regulator, the Federal Reserve, the S.E.C.British watchdogs, and securities regulators in Hong Kong and Singapore”. Acting Assistant Attorney General, Brian Rabbit, noted the monetary fines broke down as follows:

Country Regulatory Authority Amount Settlement Agreement
US Department of Justice (DOJ) $1,263bn in criminal penalty Deferred Prosecution Agreement (DPA)
US Securities and Exchange Commission (SEC) $400mm (credit for $606mm in disgorgement) Cease and Desist Order
US Federal Reserve System (Fed) $154mm Cease and Desist Order
UK Financial Conduct Authority (FCA) $63mm Final Notice
UK Bank of England Prudential Regulation Authority (PRA) $63mm Final Notice
Hong Kong Securities and Futures Commission (SFC) $350mm Statement of Disciplinary Action
Singapore Monetary Authority of Singapore $122mm Direction under Section 101 of the Securities and Futures Act
Singapore Commercial Affairs Department $61mm in disgorgement Conditional Order
State of New York Department of Financial Services (DFS) $150mm Consent Order

Goldman Sachs entered into a DPA with the DOJ in connection with a criminal information filed in the Eastern District of New York charging them with conspiracy to violate the anti-bribery provisions of the FCPA. GS Malaysia pleaded guilty in the US District Court for the Eastern District of New York to a one-count criminal information charging it with conspiracy to violate the anti-bribery provisions of the FCPA.

According to Acting US Attorney Seth D. DuCharme, of the Eastern District of New York, the conduct involved three bond offerings made by 1MDB over a period of five years, where “Goldman Sachs participated in a sweeping international corruption scheme, conspiring to avail itself of more than $1.6 billion in bribes to multiple high-level government officials across several countries so that the company could reap hundreds of millions of dollars in fees, all to the detriment of the people of Malaysia and the reputation of American financial institutions operating abroad.”

The first was Project Magnolia where in early 2012, Jho Low, Timothy Leissner and Roger Ng with the assistance of Goldman Sachs, assisted 1MDB in issuing $1.75 billion in bonds guaranteed by an entity wholly-owned and controlled by the government of Abu Dhabi. After Project Magnolia closed in May, 2012, more than $500 million of the bond proceeds were allegedly misappropriated and diverted from 1MDB through numerous wire transfers to bank accounts in the name of shell companies beneficially owned and controlled by Low, Leissner, Ng and others.

The second and third were Projects Maximus and Catalyst, which were bond offerings in which Goldman handled the bond offering. These transactions generated substantial fees and revenues for Goldman Sachs. As alleged, although both transactions were designed to raise more than $4 billion for 1MDB’s investment and development projects, Low, Ng, Leissner and others used the transactions to further the criminal scheme, ultimately laundering hundreds of millions of dollars of diverted funds into bank accounts beneficially owned and controlled by them. This included laundering money in the US by buying luxury residential real estate in New York City and elsewhere, and artwork from a New York-based auction house and by funding major Hollywood films, including the Wolf of Wall Street.

While Goldman Sachs originally claimed Leissner and Ng were the ubiquitous “rogue employees”; under the DPA and Information, “Goldman also admitted that, although employees serving as part of Goldman’s control functions knew that any transaction involving Low posed a significant risk, and although they were on notice that Low was involved in the transactions, they did not take reasonable steps to ensure that Low was not involved.  Goldman further admitted that there were significant red flags raised during the due diligence process and afterward — including but not limited to Low’s involvement — that either were ignored or only nominally addressed so that the transactions would be approved and Goldman could continue to do business with 1MDB. As a result of the scheme, Goldman received approximately $606 million in fees and revenue, and increased its stature and presence in Southeast Asia.”

Over the next several blog posts, I will be taking a deep dive into this matter. There is lots to digest but equally there are multiple lessons for every compliance practitioner.

In this episode, we discuss the rapidly expanding use of artificial intelligence, machine learning and robotic process automation to undertake trade surveillance and mitigate fraud. In this episode, we discuss the rapidly expanding use of artificial intelligence, machine learning and robotic process automation to undertake trade surveillance and mitigate fraud. Joining me today are two experts on the subject of Artificial intelligence from both the technical and legal and compliance perspectives.

Join us each week as we take a deep dive into the various forms of fraud across the world and discuss crime families, penny stock boiler rooms, international money launderers, narco-traffickers, oligarchs, dictators, war lords, kleptocrats and more.

Scott Moritz is a leading authority on white-collar crime, anti-corruption, and in the evaluation, design, remediation, implementation, and administration of corporate compliance programs, codes of conduct. He is also considered an authority in the establishment, training, and oversight of the investigative protocols carried out by financial intelligence, corporate security, and internal audit units.