Goldman Sachs was fined $2.9 Billion while pleading guilty to bribery charges involving the Malaysian government, breaking a record for the largest penalty under the Foreign Corrupt Practices Act. Under US law it is illegal to bribe foreign leaders, as reported by CNN. They quoted Goldman’s CEO who is “pleased to be putting the matter behind us.” Widely recognized as one of the most important financial institutions in the world, Goldman will survive, as the firm has approximately $153 Billion in cash and will likely claw back executive bonuses.
It could have been worse, considering the case centers around $4.5 Billion that was stolen from Malaysia’s Sovereign Wealth Fund, in which:
The money was used to buy New York condos, hotels, yachts and a jet, and to fund movies such as "The Wolf of Wall Street."
The fine is less than the money allegedly stolen! Even more serendipitous for shareholders, Forbes notes:
The settlement amount is lower than the $3.2 billion Goldman set aside for ongoing regulatory and legal matters as of Sept. 30 and was largely accounted for in its 2020 financial results.
As far as continual compliance is concerned:
Goldman is not mandated to hire a compliance monitor… which would be costly and could have been long-term.
Is this an isolated incident? Or does it reflect systemic issues of power, corruption and theft? And what, if anything, does this have to do with the Federal Reserve?
On Thursday the Fed announced a fine:
$154 million for the firm's failure to maintain appropriate oversight, internal controls, and risk management with respect to Goldman's involvement in a far-reaching scheme to defraud a Malaysian state-owned investment and development company…
We know the Fed “conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates,” but there are additional functions beyond what the central bank is charged, including regulation and supervision of financial institutions. Per the 10th edition of The Federal Reserve System Purposes & Functions:
Regulation entails establishing the rules within which financial institutions must operate… Once the rules and regulations are established, supervision… seeks to ensure that an institution complies with those rules and regulations, and that it operates in a safe and sound manner.
The Federal Reserve is one of the few, or only, regulators who literally pays the entity which it regulates! Under section 7 of the Federal Reserve Act:
Dividend Amount. After all necessary expenses of a Federal reserve bank have been paid or provided for, the stockholders of the bank shall be entitled to receive an annual dividend on paid-in capital stock…
Typically when an entity is mandated to be regulated by the government, that entity must pay the government (or its agency) an annual fee to cover the costs associated with the regulatory burden on the taxpayers. This is not true for the Fed. Despite having free reign on money creation, it is also funded via paid-in capital stock. The list of stockholders remains an elusive find, but it is well understood to be the very banks in which the Fed regulates. There is no secret nor conspiracy to this, as seen on the 2019 KPMG annual audit report, showing “Dividends on Capital Stock” was $999 million for 2018 and $714 million for 2019. Per the Act, this dividend is cumulative and paid out before the US Treasury receives its surplus payout. Perhaps an act of Congress will one day change the payment structure of the Fed. Until then, it’s the Fed’s world, taxpayers are just footing the bill.
…As for Goldman Sachs, they’ll be okay. Luck for them, it appears no jail time will be served for what could be a billion dollar theft.
