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UK regulators fine Goldman Sachs as part of $2.9bn 1MDB settlement

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
FILE - In this Dec. 13, 2016, file photo, the logo for Goldman Sachs appears above a trading post on the floor of the New York Stock Exchange. The Goldman Sachs Group Inc. The Goldman Sachs Group Inc.  (AP Photo/Richard Drew, File)
The logo for Goldman Sachs appears above a trading post on the floor of the New York Stock Exchange. Photo: AP Photo/Richard Drew, File

Goldman Sachs (GS) has been hit with a £97m fine from UK regulators for its role in the multibillion dollar 1MDB Malaysian embezzlement scandal.

The Financial Conduct Authority (FCA) and the Bank of England’s Prudential Regulation Authority (PRA) on Thursday evening said they had fined Goldman Sachs for risk management failures connected to the scandal. The fine forms part of a $2.9bn global settlement with regulators in the US, Hong Kong, Singapore, and Britain.

“Goldman Sachs participated in a sweeping international corruption scheme,” said Seth D. DuCharmee, acting US Attorney of the Eastern District of New York.

1MDB was the Malaysian state development corporation. Goldman helped 1MDB raise $6.5bn through bond sales between 2012 and 2013.

However, Malaysian authorities said at least $2.7bn of the funds were subsequently embezzled. The scandal brought down Malaysia’s former prime minister Najib Razak, who has since been sentenced to jail time in connection with the case.

Authorities alleged that Goldman Sachs staff were involved in the embezzlement and at least one former banker involved in the case has pleaded guilty to charges. Goldman admitted to criminal charges in the US as part of its settlement.

UK regulators said the bank failed to adequately investigate allegations of misconduct when they first came to light.

“When confronted with allegations of bribery and staff misconduct, the firm’s mishandling allowed severe misconduct to go unaddressed,” Mark Steward, the FCA executive director of enforcement and market oversight said in a statement.

“There is no amnesty for firms that tackle financial crime poorly, and the size of GSI’s [Goldman Sachs International] fine reflects that.”

Sam Woods, the Bank of England’s deputy governor for prudential regulation and chief executive officer 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.”

In a separate statement on Thursday, the US Department of Justice said Goldman Sachs had admitted to conspiring to pay bribes of $1bn to Malaysian and Abu Dhabi officials as part of the case.

Earlier this year, Goldman reached a $3.9bn settlement with Malaysian authorities.

Goldman Sachs chief executive David Solomon said in a lengthy statement on Thursday that it was “abundantly clear that certain former employees broke the law, lied to our colleagues and circumvented firm controls”.

“We recognize that we did not adequately address red flags and scrutinize the representations of certain members of the deal team, most notably Tim Leissner, and the outside parties as effectively as we should have,” he said.

He said the bank had made “significant enhancements to our compliance and internal controls” since the 1MDB scandal came to light.

In a statement, Goldman’s board said the saga had been an “institutional failure” and said it was seeking to clawback $76m in compensation paid to former staff connected to the case. The board are also axing long-term share deals for former executives and is cutting the pay of current executives by $31m.