Financial Conduct Authority
FCA and PRA fine Goldman Sachs International £96.6m for risk management failures in connection with 1MDB
The FCA and PRA have fined Goldman Sachs International (GSI) a total of £96.6 million (US$126 million) for risk management failures connected to 1Malaysia Development Berhad (1MDB) and its role in three fund raising transactions for 1MDB. The FCA and PRA fines are part of a US$2.9 billion globally coordinated resolution reached with the Goldman Sachs Group Inc. (GSG) and its subsidiaries.
1MDB is a Malaysian state-owned development company that has been at the centre of billion-dollar embezzlement allegations. GSI underwrote, purchased and arranged three bond transactions for 1MDB in 2012 and 2013 that raised a total of US$6.5 billion for 1MDB. The 1MDB transactions were approved by global GSG committees that GSI participated in, and were booked to GSI.
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.
Mark Steward, FCA Executive Director of Enforcement and Market Oversight, said: ‘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.’
Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of the PRA, said: ‘Failure to manage financial crime risk can have a significant adverse impact on a firm’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. The seriousness of the case and of GSI’s failures in connection with 1MDB are reflected in the size of the PRA’s fine.’
The investigation found that GSI breached a number of FCA and PRA principles and rules. Specifically, GSI failed to:
- assess with due skill, care and diligence the risk factors that arose in each of the 1MDB bond transactions on a sufficiently holistic basis
- assess and manage the risk of the involvement in the 1MDB bond transactions of a third party that GSI had serious concerns about
- exercise due skill, care and diligence when managing allegations of bribery and misconduct in connection with 1MDB and the third 1MDB bond transaction
- record in sufficient detail the assessment and management of risk associated with the 1MDB bond transactions
The US$2.9 billion global resolution included, in addition to the FCA and PRA, 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 Office, Singapore, and the Commercial Affairs Department of the Singapore Police Force. The global resolution is separate to the US$3.9 billion settlement reached between GSG and the Government of Malaysia in August 2020. The FCA and PRA took this settlement into account in determining their financial penalties.
GSI agreed to resolve this case with the FCA and PRA, qualifying it for a 30% discount in the overall penalty imposed by both regulators. Without this discount, the FCA and PRA would have imposed a financial penalty of £69,012,000 (US$90,000,000) each on GSI.
Notes to editors
- FCA Final Notice
- PRA Final Notice
- GSI is an investment banking, securities and investment management firm headquartered in London, authorised and regulated by the FCA and the PRA. GSI is an indirect wholly owned subsidiary of the Goldman Sachs Group, Inc. GSI acts as a material booking entity for bond transactions underwritten and purchased by Goldman Sachs outside the USA.
- 1MDB is a Malaysian state-owned and controlled development company created to pursue investment and development projects for the economic benefit of Malaysia and its people. As alleged in US court filings, between approximately 2009 and 2014, as 1MDB raised money to fund its projects billions of dollars were misappropriated and fraudulently diverted from 1MDB, including from funds raised from the US$6.5 billion 1MDB bond transactions.
- PRA Principles for Businesses
- FCA Principles for Businesses
- PRA Fundamental Rules
- PRA Dear CEO letter dated 5 September 2019: Money Laundering/Terrorist Financing risks in prudential regulation
Latest News from
Financial Conduct Authority
FCA charges Richard Jonathan Faithfull with one offence of money laundering27/11/2020 10:25:00
Following a joint investigation by the Financial Conduct Authority and City of London Police, the FCA has charged Richard Jonathan Faithfull with one offence of money laundering, contrary to Section 327 of the Proceeds of Crime Act.
Stephen Allen pleads not guilty to conspiracy to pervert the course of justice26/11/2020 10:25:00
Stephen Allen has pleaded not guilty by video link at Southwark Crown Court to the FCA’s charge that he conspired with Renwick Haddow to pervert the course of justice.
FCA fines TFS-ICAP £3.44 million for market misconduct24/11/2020 10:25:00
The Financial Conduct Authority (FCA) has fined TFS-ICAP Ltd, an FX options broker, £3.44m for communicating misleading information to clients.
Treasury, Bank of England and FCA convene working group to facilitate investment in productive finance20/11/2020 15:05:00
The Treasury, the Bank of England (Bank) and the FCA will be convening an industry working group to facilitate investment in productive finance.
FCA confirms support for consumer credit customers impacted by coronavirus20/11/2020 14:05:00
The FCA has confirmed updated guidance to firms setting out enhanced support that should be available to consumer credit customers experiencing payment difficulties as a result of coronavirus (Covid-19).
FCA confirms support for mortgage borrowers impacted by coronavirus18/11/2020 10:25:00
On 2 November, the Financial Conduct Authority (FCA) announced proposals to enhance support for borrowers affected by coronavirus (Covid-19).
FCA commences High Court proceedings over unauthorised collective investment schemes12/11/2020 10:25:00
The FCA has commenced High Court proceedings against Mr Robin Forster, Fortem Global Limited and Mr Richard Tasker, over alleged links to investments in care homes in which investors appear to have lost at least £30 million.
FCA bans three individuals from working in the financial services industry for non-financial misconduct06/11/2020 10:25:00
The Financial Conduct Authority (FCA) has prohibited Russell David Jameson, Mark Horsey, and Frank Cochran from working in the financial services industry following findings that they are not fit and proper. Each of them had been convicted of serious non-financial indictable offences while working in the financial services industry.