As Goldman Sachs continues to navigate its way through the 1MDB investigation and prosecution, there is no question that the media is beginning to focus on who at Goldman Sachs knew about the bribery activity (or should have known) and what liability, if any, Goldman Sachs will incur as a result.

At the outset, it is important to remember what facts have been disclosed so far in the criminal proceedings.  Criminal charges have been lodged against Roger Ng and Tim Leissner, who were both former Goldman Sachs employees.  Leissner plead guilty to an information and is cooperating with the investigation.

From the Ng indictment and the Leissner information, it is clear that the two actors, as well as other co-conspirators at Goldman, acting as agents or employees of Goldman Sachs, engaged in misconduct with the intent to benefit, in part, Goldman Sachs.  Remember, Goldman Sachs earned approximately $600 million from their criminal scheme.

As recounted by DOJ, Ng and Leissner circumvented internal FCPA and financial controls to carry out their scheme.  What is not known is whether co-conspirators also engaged in circumvention conduct.

At a minimum, however, we know that various Goldman Sachs managers and employees in the compliance and legal functions appear to have not known that Ng and Leissner were relying on Low Taek Jho to pay bribes to facilitate the various transactions.  Ng and Leissner selectively disclosed Low’s participation in the transactions in order to avoid compliance and/or legal scrutiny of the deals.  In fact, Ng and Leissner knew that the compliance and legal departments were well aware of Low’s reputation and corrupt sources of wealth, leading them to reject prior attempts to make Low a client of Goldman Sachs.

Unfortunately, for Goldman Sachs, the government has the benefit of the well-established doctrine of respondeat superior, which is used by prosecutors to attribute individual misconduct to a corporation if the actor was carrying out duties within the scope of his/her employment and for the benefit, in part, of the corporation.

Goldman Sachs’ fate will depend on several key considerations – while the law technically can hold them liable, government prosecutors have entertained and appropriately considered the extent to which others in the organization knew or should have known about the misconduct (or whether they had their respective heads’ in the sand), and the extent to which the bad actors were able to disguise or hide their activities from detection.  Such a perspective seems reasonable and it will be interesting to follow how successful Goldman Sachs is in making this argument to the Justice Department.

The indictment named an “Italian national,” at Goldman Sachs as a con-conspirator who allegedly helped to keep Mr. Low’s involvement in the 1MDB scheme hidden from compliance and legal.  That person has been identified as Andrea Vella, who was placed on leave recently, pending a review of his conduct related to the 1MDB scandal.  Vella was the co-head of investment banking in Asia. 

Recent media reports have suggested that Leissner and Ng were not alone in either carrying out the illegal scheme and that others may have known about the extent of their activities.  Such reports should be viewed with a grain of salt since the legal standard has to be met – arguing that Goldman’s culture lead to these violations is not sufficient to hold Goldman Sachs’ leadership accountable in a criminal prosecution.  Nor is it sufficient to say that others regularly failed to disclose relevant facts to compliance and legal as part of standard transaction reviews.

Another press report noted that former Goldman Sachs CEO Lloyd Blankfein attended meetings with for the former Malaysian Prime Minister on two occasions where the 1MDB issue was discussed.  It is not known if Mr. Low was present at the meetings.  Mr. Blankfein is reported to have praised the work of Leissner and Ng within Goldman Sachs.