City watchdogs, the Financial Conduct Authority and the Prudential Regulation Authority, today fined Goldman Sachs International in London £96.6 million over the Malaysian 1MDB scandal as part of a $2.9 billion global settlement against the investment bank.
Goldman Sachs underwrote and arranged three bond transactions for the Malaysian state-owned development company 1MDB that raised $6.5 billion.
While the transactions in 2012 and 2013 were carried out by Goldman's overseas divisions, the London arm took part in them and the deals were booked here, the FCA ruled.
GSI knew the trades were in a high financial crime risk area and were concerned about the risks of one party in particular, yet it "failed to assess and manage risk to the standard that was required" given those concerns, the FCA said.
"GSI also failed to address allegations of bribery in 2013 and failed to manage allegations of misconduct with 1MDB in 2015.
Mark Steward, FCA director of enforcement, 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, chief executive of the PRA, said: "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."
Today's fine in London came as part of a far bigger series of settlements totalling $2.9 billion from regulators in the US and Singapore. It comes on top of the $3.9 billion settlement reached in August with the Malaysian government.
The FCA said it took the other settlements into consideration when setting its fines.
The huge corruption scandal around 1MDB sent shockwaves through the political and business worlds in Malaysia before spreading to the US and London as the extent of Goldman Sachs' involvement became clear.
Prosecutors in Malaysia say billions of dollars from the 1MDB fund were stolen from what should have been the Malaysian people's money. Authorities say the embezzled money went on ar, property, a private jet and superyacht.
Part of it funded Leonardo Di Caprio's movie, the Wolf of Wall Street.
It has cast a long shadow over the reputation of Goldman Sachs, and led to the election defeat of Malaysian prime minister Najib Razak.
Razak was handed down a 12-year jail sentence in July after being found guilty of seven counts of corruption over the scandal. The charges centred on the £7.7 million transferred from the fund into his private accounts when he was prime minister.
The FCA's notice on Goldman's transgressions states that Goldman Sachs made a profit of $567 million from 1MDB, of which $91 million was booked to the London-based GSI division.
It said GSI was aware it carried compliance risks due to Malaysia's poor record on corruption, and that it was aware that a person might be involved which it had previously turned down as a client due to concerns about where their wealth had come from.
Senior Goldman staff had also been told in 2013 about possible bribery around one of the deals and again in 2015. The second of those suggested a senior Goldman banker on the deal team could have committed misconduct.
The FCA said GSI failed to manage the risk around the third party's involvement, instead placing too much reliance on the bank's deal team's claims that he was not involved. GSI, the FCA said, had trusted the team's statements even though they provided inconsistent accounts of the person's actions.
GSI also failed to take enough care to consider the corruption risks in general, "holistically".
It failed to deal properly with the allegations of bribery and misconduct, in particular failing to escalate the information it received in 2013 about possible bribery or in 2015 about claims a senior Goldman deal team member could have personally benefited from the misconduct.
The bank's committees overlooking the transaction failed to keep proper records to show they had properly considered the corruption risks.