Goldman Sachs Group, Inc. cut Chief Executive Officer (CEO) David Solomon's 2020 pay by 35% or over $10 million. The pay cut related to Goldman's offering bribes to foreign government officials to acquire bond underwriting business from Malaysia's IMDB Fund. The firm paid a $3 billion settlement in an agreement reached with the U.S. Department of Justice. This is the largest fine ever paid by a U.S. company. Many other countries are also investigating the bribery. Malaysian regulators reached a $3.9 billion settlement with Goldman in 2020. Two of the firm’s executives have been indicated for criminal charges alleging that they arranged the bribes.
In helping underwrite $6.5 billion of bonds sold to investors, the firm’s executives ignored many red flags related to the fraud and appeared only interested in securing the business. The top three executives at Goldman were not aware of illicit behavior, but the large bribes provide evidence of Goldman's failure to have an effective ethics and compliance program. The matter provides strong evidence of institutional failure. The Board of Directors was also unaware of the bribes, but blamed the oversight failure on the top three officers. This scandal provides a case for why ethics and compliance needs to be a top executive and board concern in any organization. Two other executives had their pay cut by $7 million and $6 million as a punishment for lack of proper oversight.
The U.S. Justice Department accused a Malaysian financier of masterminding the plot to channel money to the Malaysian Prime Minister's bank accounts. It is estimated over $4.5 billion was stolen. The Goldman executives involved in the scandal 'turned a blind eye' to the bribery and fraud in order to secure Goldman income for the bond placements. If Goldman had compliance audits in place, they should have detected the misconduct and taken action not to participate in criminal activities. There are many questions to consider in evaluating the integrity of Goldman's oversight and compliance. Top management's leadership failed to develop an ethical culture to address the issues that resulted in this scandal. How could such a large amount of money move freely without triggering some internal audit and detection?