"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 FCA and PRA fines are part of a US$2.9 billion globally coordinated resolution reached with The Goldman Sachs Group and its subsidiaries.
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 that raised a total of US$6.5 billion for 1MDB. The 1MDB transactions were approved by global GSG committees that GSI participated in, and were booked to GSI.
The 1MDB transactions involved clients and counterparties in jurisdictions with higher financial crime risk. The investigation found that GSI was also aware of the risk of involvement of a third party that it had serious concerns about.
The FCA says 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". The firm also failed to address allegations of bribery in 2013 and failed to manage allegations of misconduct in connection with 1MDB in 2015.
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.
Mark Steward, executive director of enforcement and market oversight at the FCA, 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, 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.”
