The Financial Conduct Authority and Prudential Regulation Authority have fined Goldman Sachs International £96.6m for risk management failures associated with Malaysia Development Berhad and its role in three fund raising transactions for 1MDB.

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 which raised a total of US$6.5bn for 1MDB. The 1MDB transactions were approved by global GSG committees that GSI participated in, and were booked to GSI.

According to the watchdog, 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."

GSI was found to have breached a number of FCA and PRA principles and rules. Specifically, the firm 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; and exercise due skill, care and diligence when managing allegations of bribery and misconduct in connection with 1MDB and the third 1MDB bond transaction. It also failed to record in sufficient detail the assessment and management of risk associated with the 1MDB bond transactions.

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 which the FCA and PRA would have imposed a financial penalty of £69,012,000 (US$90,000,000) each on GSI.

Share Story: