Hong Kong's markets watchdog on Thursday fined Goldman Sachs's Asian business $350m for its role in Malaysia's multibillion-dollar 1MDB scandal, the highest fine ever imposed by Hong Kong's Securities and Futures Commission (SFC).
Goldman Sachs ignored multiple red flags over the multibillion-dollar fundraisings it arranged for state fund 1Malaysia Development Berhad, a financial scandal that stretched to Hollywood from Southeast Asia, and toppled a government in Malaysia.
The SFC said serious lapses and deficiencies in management controls at Goldman Sachs (Asia) L.L.C. had contributed to the misappropriation of $2.6bn raised by the Malaysian sovereign wealth fund.
These failures led to multiple, serious breaches of the rules which set out the high standards of behaviour expected of all firms supervised by the SFC"
1Malaysia Development Berhad (1MDB) raised the funds in three bond offerings in 2012 and 2013.
The penalty from Hong Kong's Securities and Futures Commission is the first in more than $2bn set to be announced, as regulators from the US to the UK and Singapore penalise Goldman for its alleged role in the scandal.
The US bank lacked adequate controls in place to monitor staff and detect misconduct in its day-to-day operations, and allowed the 1MDB bond offerings to proceed when numerous red flags surrounding the offerings had not been properly scrutinised and satisfactory answers to such red flags had not been obtained.
"This enforcement action is the result of a rigorous, independent investigation conducted by the SFC into whether Goldman Sachs (Asia)'s involvement with 1MDB in 2012 and 2013 contravened the standards expected of firms under Hong Kong regulations," said Ashley Alder, the SFC's chief executive.
"The penalty in this case - assessed solely in accordance with Hong Kong's own fining framework - reflects our findings that Goldman Sachs (Asia) failed to deal properly with numerous suspicious circumstances surrounding the 1MDB bond offerings. These failures led to multiple, serious breaches of the rules which set out the high standards of behaviour expected of all firms supervised by the SFC," Alder added.
Tim Leissner, the former Goldman banker who executed the 1MDB bond deals and has pleaded guilty to US money laundering charges, was given "free rein" and not "adequately challenged" by Goldman, the SFC added.
The bank, which settled the criminal proceedings with the Malaysian governmentin August for $2.5bn plus a $1.4bn guarantee, would issue a statement soon, according to a spokesman.