In late October, the United States Department of Justice announced a major settlement with the global investment bank Goldman Sachs for its involvement in the 1MDB scandal, an international bribery scheme in which high-level Malaysian officials embezzled an estimated $4.5 billion from a fund designed to finance infrastructure and other economic development projects. Between 2012 and 2013, Goldman Sachs helped raise $6.5 billion for 1MDB in three bond sales, and at least two Goldman bankers aided Jho Low, an advisor to the fund, in embezzling much of the capital. As part of the settlement with DOJ, Goldman agreed to pay over $2.9 billion to authorities in the US, Hong Kong, UK, and Singapore. Of the nearly $3 billion in fines, approximately $1.85 billion will go to the United States, over $600 million to Malaysia (on top of a $3.9 billion settlement the Malaysian branch of Goldman reached with the country in July), and $440 million to financial regulators in other nations.

Despite these eye-popping numbers—including what appears to be the largest fine to date levied under the U.S. Foreign Corrupt Practices Act—some experts have characterized the $2.9 billion penalty as “surprisingly small” or even “virtually meaningless” for a company that made $3.6 billion this last quarter alone. And, in what has become a common refrain among critics of these sorts of settlements with big firms, many complain that no senior Goldman Sachs executives were held personally, criminally liable for the bank’s role in the 1MDB fiasco.

Yet an assessment of the punishment must also include the penalties that extend beyond these government-imposed fines. Indeed, while some regard Goldman Sachs’ settlement as a slap on the wrist for a global corporation that’s a glutton for punishment, the implications of the settlement reveal a more just outcome than appears at first blush.

• For one thing, the financial penalties really are quite large. A $2.9 billion penalty is substantial, even for a firm with revenues as high as Goldman’s. Goldman made $600 million from the 1MDB bond sales (an unusually high fee), but ended up paying a penalty nearly five times as large. And the total costs Goldman incurred from the scandal are much higher, more than $5 billion, about two-thirds of a year’s profits.
• Additionally, while the parent corporation and top-level executives will avoid criminal liability, Goldman Sachs still begrudgingly took an unprecedent step: An Asian subsidiary of the company pled guilty to criminal wrongdoing, tarnishing the legacy of the 151-year-old bank that had never before admitted guilt in a federal investigation. Even the parent company, while avoiding the potentially crippling effects of a guilty plea, had to admit mistakes in its handling of 1MDB transactions.
• This admission doesn’t just have reputational consequences; it may have financial consequences as well, insofar as it bolsters the case for shareholder-plaintiffs who filed a derivative suit in late 2018 against the bank’s directors. According to the complaint, these directors “conducted the ‘extremely suspicious’ offerings and didn’t act as ‘numerous red flags’ arose in the ensuing years.” The defendants moved to dismiss the case last January on the grounds that misconduct by employees was insufficient to establish that the directors failed to establish sufficient controls. But the bank’s settlement with the US government, in which the bank “admitt[ed], accept[ed], and acknowledge[d] that it is responsible under United States law for the acts of its officers, directors, employees, and agents as charged,” appears to contradict the defendants’ core argument. Indeed, on October 28^th, the plaintiffs filed the terms of the settlement and the agreed-to facts associated with the deal as evidence that the motion to dismiss should be denied.
• The bank itself has also sought to impose financial accountability on the senior executives who failed to detect and prevent the bank’s improper role in criminal wrongdoing. After admitting to breaking US corruption laws, Goldman announced it would cut bonuses for the company’s CEO, CFO, president, and the head of Goldman’s international business, while clawing back millions in past bonuses from the former CEO, CFO, and three other former executives. All told, Goldman will recover $174 million in executive compensation, with the four current executives forfeiting $31 million in pay this year (roughly one-third of what they made in 2019). While forfeiting such funds will hardly bankrupt the executives, the sting will be felt not only on their wallets, but also on their reputations.
• Finally, while none of Goldman’s senior executives faced criminal charges, this was not one of those cases where no individuals were punished. The government indicted two Goldman employees who arranged bribes and laundered money in their work related to 1MDB. Of course, the bank served up banker-turned-scapegoat Tim Leissner on a platter to regulators by painting an image of a rogue employee, a “master con man” who had fooled the bank’s trained compliance officers; the bank similarly distanced itself from co-conspirator Roger Ng. Yet it does appear that the government did prosecute the most culpable Goldman employees, even as it left the higher-ups to the shareholders and the court of public opinion.

The lack of prosecutions of the senior executives continues to strike many as troublesome, but it was probably the right choice in this case. Not only is there a serious question whether the government would have been able to prove (beyond a reasonable doubt) that these senior executives had engaged in criminal wrongdoing, but indicting executives and directors on the theory that they’re criminally responsible for conduct that they didn’t actually know about would deter talented individuals from serving in these capacities. As for the failure of the government to pursue criminal liability for the parent firm—as the government had initially threatened—this would have had significant collateral consequences that would have been borne largely by innocent shareholders.

Moreover, the reputational impact of the scandal should not be underestimated or dismissed. After the 2008 financial crisis, Goldman executives received seven-figure bonuses, leading to public outrage. After 1MDB, the bank instead clawed back bonuses from top executives. Goldman Sachs has spent the past twenty years trying to reinvent itself as a “softer place” after the market crash: The firm launched a Main Street bank, created an institute to support small businesses, and when the pandemic led to market volatility triggering thousands of margin calls this past spring, the bank ordered traders to take a more forgiving approach with clients. While the financial crisis led to more outward-facing efforts at rebranding, the 1MDB scandal seems to be driving more internal reforms. Goldman has doubled its compliance department since the 1MDB transactions, developed a program to conduct in-depth reviews of senior employees, and will force executives to take on a more personal role in oversight. While the scandal dredges up memories of Goldman’s role in the financial crisis and highlights all the areas where corporate culture remains toxic, it also demonstrates lessons Goldman has learned that the public won’t soon let them forget.

In sum, the skeptical/cynical view that the Goldman settlement is just another example of wealthy firms treating corruption penalties as an acceptable “cost of doing business” seems misguided. The most culpable individuals face prison. Other senior executives, though not criminally liable, are taking a big hit to both their bank accounts and their reputations. (How big a hit depends in part on what happens with the pending shareholder derivative suit.) The bank itself also had to swallow both a substantial financial penalty and significant reputational harm, and partly as a result seems to be taking meaningful steps to change its culture. So while Goldman Sachs involvement may not have ended with a made-for-Hollywood “Wolf of Wall Street”-style takedown (a movie financed in part by embezzled 1MDB funds), the resolution of this case was, in fact, just and appropriate.