Goldman Sachs fined by FCA and PRA over 1MDB in $2.9bn global resolution

Firm to clawback $174m from executives

James Baxter-Derrington
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GSI "failed to assess and manage risk to the standard that was required", according to the FCA
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GSI "failed to assess and manage risk to the standard that was required", according to the FCA

Goldman Sachs International (GSI) has been fined £96.6m by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) for risk management failures in connection with 1Malaysia Development Berhad (1MDB).

In a statement, the FCA and PRA said GSI had "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", and that GSI had also "failed to address allegations of bribery in 2013 and failed to manage allegations of misconduct in connection with 1MBD in 2015".

It also said the firm had failed to record "in sufficient detail the assessment and management of risk associated with the 1MDB bond transactions".

GSI's failure to take appropriate action in this case shows that it did not take this responsibility seriously"

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 CEO of the PRA, added: "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."

These fines are part of a $2.9bn global resolution, which comes following GSI's Malaysian subsidiary pleading guilty to a bribery charge and marks the first criminal settlement in Goldman's history as a public company.

In addition to the FCA and PRA, the resolution sees GSI fined by 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 Department of the Singapore Police Force.

This resolution is separate to the $3.9bn settlement reached between Goldman Sachs Group (GSG) and the Government of Malaysia in August 2020.

The firm has also been reprimanded by Hong Kong's Securities and Futures Commission for "serious lapses and deficiencies" in its compliance controls and was fined a record $350m.

US officials said Goldman played a "central roles" in the 1MDB affair and could have prevented at least part of the theft of $2.7bn from the fund, adding that the $1.6bn in bribes paid to loot 1MDB was the largest amount ever in a US foreign bribery case.

Executive clawbacks

The board of directors of GSG will also take action against much of its own executive staff, with total clawback forfeitures and compensation reductions totalling $174m.

Meanwhile, the firm will seize approximately $76m from Tim Leissner, who pleaded guilty to criminal charges, Ng Chong Hwa, who has been charged with the same crimes, and Andrea Valla, who has been prohibited by the US Federal Reserve from participating in the banking industry.

A former chief executive officer, chief operating officer, chief financial officer, vice chairman and CEO of GSI, and vice chairman and global head of growth markets, will all forfeit their outstanding long-term performance incentive plan awards that were granted in 2011 and have a performance period including 2012 and 2013, during which the 1MDB bond underwritings took place.

The pre-tax amount of these forfeitures is approximately $67m.

Additionally, the firm will reduce the overall compensation of the current chief executive, operating and financial officers of the group, and the current CEO of GSI, by $31m for 2020.

 

This article was first published by our sister title Investment Week

Update: FCA to end temporarily postponed deadlines for fund reports and accounts