Goldman Sachs International (GSI), the London-headquartered indirect wholly owned subsidiary of American investment bank Goldman Sachs Group (GSG), has been slapped with a £96.6 million fine by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) in the UK.
The financial penalty relates to risk management failures connected to 1Malaysia Development Berhad (1MDB) and GSI’s role in three fundraising transactions for the Malaysian state-owned development company. In a release, the FCA said the amount is part of a US$2.9 billion globally coordinated resolution reached with GSG and its subsidiaries.
In addition to the FCA and PRA, the wider resolution involves the US Department of Justice, the US Securities and Exchange Commission, the US Federal Reserve Board of Governors, the New York Department of Financial Services, the Monetary Authority of Singapore, the Attorney-General’s Chambers in Singapore, and the Commercial Affairs Department of the Singapore Police Force.
The global figure is separate to the US$3.9 billion settlement reached between GSG and the Malaysian government two months ago.
As alleged in court filings in the US, billions of dollars were misappropriated and fraudulently diverted from 1MDB – including from funds raised from bond transactions – between 2009 and 2014. In 2012 and 2013, GSI underwrote, purchased, and arranged three bond transactions that raised US$6.5 billion for 1MDB.
The FCA noted: “The 1MDB transactions involved clients and counterparties in jurisdictions with higher financial crime risk. GSI was also aware of the risk of involvement of a third party that GSI had serious concerns about.
“GSI failed to assess and manage risk to the standard that was required given the high risk profile of the 1MDB transactions, and failed to assess risk factors on a sufficiently holistic basis. GSI also failed to address allegations of bribery in 2013 and failed to manage allegations of misconduct in connection with 1MDB in 2015.”
PRA chief executive Sam Woods said failure to manage financial crime risk can have a significant adverse impact on a company’s safety and soundness.
“We expect firms to manage risk, including financial crime risk, prudently and holistically and for allegations of bribery and misconduct to be taken very seriously,” stated Woods. “The seriousness of the case and of GSI’s failures in connection with 1MDB are reflected in the size of the PRA’s fine.”
GSI would have been meted with a combined fine of more than £138 million (or over £69 million each by the FCA and PRA) had it not agreed to resolve the case with the British regulators. Its cooperation meant a 30% discount in the penalty.
FCA enforcement and market oversight executive director Mark Steward commented: “Firms have a crucial role to play in tackling financial crime, and in helping to maintain the integrity of the financial system. GSI’s failure to take appropriate action in this case shows that it did not take this responsibility seriously.
“When confronted with allegations of bribery and staff misconduct, the firm’s mishandling allowed severe misconduct to go unaddressed. There is no amnesty for firms that tackle financial crime poorly, and the size of GSI’s fine reflects that.”
