Goldman Sachs: beyond the case, five takeaways

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Nicola Bonucci*
Paul Hastings, Paris
nicolabonucci@paulhastings.com

On 22 October 2020, Goldman Sachs Inc and its Malaysian subsidiary ‘admitted to conspiring to violate the Foreign Corrupt Practices Act (FCPA) in connection with a scheme to pay over USD 1bn in bribes to Malaysian and Abu Dhabi officials to obtain lucrative business for Goldman Sachs.’ Goldman Sachs Inc entered into a deferred prosecution agreement (DPA) whereas GS Malaysia pleaded guilty.

Earlier, one former Goldman Sachs partner, Tim Leissner, pleaded guilty in the United States to conspiring to launder money and violating foreign bribery laws. Another executive is awaiting trial on foreign bribery offences.^[1]

All in all, as of today, the bank is due to pay about USD 5bn in penalties – about two-thirds of its 2019 profits – to regulators around the world, to resolve cases related to what is known as the ‘1MDB’ case.

This aim of this article is not to revisit the case itself or to enter into a detailed analysis of the DPA but to draw some lessons from it in terms of policymaking and of future actions.

The ‘domino effect’ is alive and kicking

The Goldman Sachs case is a perfect illustration of the ‘domino effect’ in foreign bribery cases. A domino effect or chain reaction is ‘the situation in which one event causes a series of related events, one following another.’^[2]

We have seen this in the past over a number of foreign bribery cases and we continue to see it happening. Goldman Sachs is the perfect example: in its press release on 22 October the US Department of Justice (DOJ) mentioned the assistance of France, Guernsey, Luxembourg, Malaysia, Singapore, Switzerland and the United Kingdom. Moreover, Goldman Sachs had to pay fines in several of these countries.

In fact, in today’s world, the domino effect is amplified by the increased level of cooperation between law enforcement authorities but also by the incessant flow of information which makes it much easier for global media outlets to pick up on local news. Finally, yet importantly, civil society organisations are much better equipped and sophisticated in their analysis of suspicious cases, and whistleblowing is now widely accepted and recognised as a source of detection.

All these elements are present in the 1MDB case, just as they were in the Airbus case and other major foreign bribery cases before that.

The notion of ‘institutional failure’

An official statement by the Goldman Sachs Board, issued on the same day as the DPA, indicated that ‘the Board views the 1MDB matter as an institutional failure, inconsistent with the high expectations it has for the Firm.’^[3]

The notion of ‘institutional failure’ is interesting as it goes beyond the simple recognition of a deficient internal control and compliance framework, even though this is an important part of the equation as we can see by the remedial actions put in place by the company in this respect.^[4]

It remains somewhat disconcerting to see that major companies can still face this kind of situation more than 40 years after the enactment of the FCPA and 20 years after the entry into force of the Organisation for Economic Co-operation and Development (OECD) Anti Bribery Convention.

Beyond the institutional failure acknowledged by the Board of Goldman Sachs are we not facing a more collective failure in the fight against bribery, and in particular of states?

In its recent 2020 Exporting Corruption Report, Transparency International shared the alarming finding that ‘nearly half of the world export come from countries that fail to punish foreign bribery.’^[5] As of today, amongst the G20 countries, four are still not party to the OECD Anti-Bribery Convention (China, India, Indonesia, Saudi Arabia) and a country like India has yet to criminalise foreign bribery in spite of its international obligations under the United Nations Convention against Corruption (UNCAC). Moreover, an OECD report carried out in 2018 indicated that public officials (often referred to as the ‘demand side’ of a foreign bribery transaction) are known to have been sanctioned in only one-fifth of the cases in which the company or individual (supply side) had been sanctioned.^[6]

US versus non-US companies

The last few years have seen a growing concern that FCPA enforcement was mainly, if not exclusively, targeted against European companies. The Goldman Sachs resolution should put things in a somewhat different perspective. First, the resolution ranks second in the top ten ranking of FCPA corporate resolutions in terms of disgorgement amount, which features three US companies. Additionally, one quick look at the top 40 FCPA enforcements effectively debunks the perception that US actions are mainly focused towards non-US companies.

It remains that this perception dies hard, in particular in France, although the country operated a major policy shift in 2020. France indeed shifted from a posture of complaint to a more proactive approach to foreign bribery as it was made public through a Ministerial guidance issued on 2 June 2020.^[7]

Of particular interest is the fact that the Ministerial guidance invites the Parquet National Financier (the law enforcement authority in charge of foreign bribery) to ‘systematically check whether an economic operator that is suspected of being part of an international bribery scheme could fall within the scope of its jurisdiction.’ Indeed, following the adoption of the Law ‘Sapin II’, the French Criminal Code asserts jurisdiction on acts committed outside of France by persons ‘who habitually reside or who pursue all or part of [their] economic activity on French territory.’ The aforementioned circular expressly specifies that ‘as the legislators intended to adopt a broad definition of the pursuit of an economic activity, persons “who pursue all or part of [their] economic activity on French territory” should be understood to include, as a minimum, foreign legal entities which have a subsidiary, branches, sales offices or other establishments in France, even those that do not have legal personality in their own right.’^[8] [emphasis author’s own]

Will 2021 see a shift towards European-based investigations and prosecutions?

Guys and dolls (corporations and individuals)

This case raises our attention to the complex articulation between individual and corporate liability in foreign bribery cases. When does one stop and the other kicks in? How do they relate to one another?

The statement by Goldman Sachs’ Chief Executive Officer (CEO) indicates that ‘the Board’s announcement is an important reminder that we are all responsible for each other’s actions, including our collective failures.’ It is interesting to note, as the statement points out, that senior management (both former and current) ‘clawbacks, forfeitures and compensation reductions will total approximately $174 million in the aggregate’.^[9]

However, a collective or institutional failure does not exclude the liability of specific individuals and we already noted that in the 1MDB case such individual liabilities have been triggered.^[10] It should also be recalled that in the Airbus case, while the company has settled the matter, investigations and prosecutions of individuals are still possible.

But it is a fact that foreign bribery cases often put the coherence of judicial systems to the test, as shown by the Yara case.

This Norwegian company was accused of bribery of foreign public officials in India, Libya and Russia. The case against the company was resolved in 2014 when the company admitted guilt and accepted a penalty notice imposing a record-breaking corporate fine of NOK 270m (approximately EUR 27m). In addition, four executives were charged with foreign bribery. Although the District Court convicted all four executives (including the former CEO and the former Chief Financial Officer (CFO)), three were acquitted on appeal by the jury (which under Norwegian law was not required to provide its reasoning) and only the Chief Legal Officer was found guilty.^[11]

Without entering into the merit of the case, it is remarkable to note that while the company recognised its guilt both the CEO and the CFO were acquitted and only the Chief Legal Officer was found guilty.

It can be anticipated that this potential tension between the liability of the physical persons and the responsibility of the legal persons will persist, and possibly increase, in the future.

2020 – year of paradox

2020 will be remembered in the world as the ‘Covid-19 year’. Since Covid-19 entered in the arena, a lot has been said about the potential impact on investigations and prosecution, and beyond law enforcement officials it was also feared that chief compliance officers, internal auditors, internal lawyers and defence lawyers would be impacted.

However, as of today, such an impact is not so evident. Indeed, 2020 started with a high-profile resolution involving a major corporation (Airbus) and is heading to an end with another major resolution involving another major corporation (Goldman Sachs). In fact – and it may seem a paradox – 2020 will be, and by far, the year with the largest amount of financial penalties imposed for FCPA offences.

In this context, it is somewhat ironic to observe that the last year of the Trump administration may well be recalled as the FCPA enforcement year!^[12] However, it is worth noting that the resolutions of 2020 are linked to cases that have been initiated years ago. Therefore, it is only in a few years’ time that we will be able to assess if 2020 was somewhat a ‘lost’ year for enforcement.

It remains that, with the future change in the US administration, with Europe and Latin America quickly catching up and anticipating the first United Nations General Assembly Special Session in June 2021, it is an easy prediction to say that foreign bribery will stay high on the agenda next year and beyond.

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