Goldman Sachs Asia has been slapped with a record fine of USD 350 million by a securities watchdog of Hong Kong. Securities and Futures Commission (SFC) of Hong Kong has fined the regional unit of the US investment bank for its role in a scandal that toppled a government in Malaysia. The global financial titan was involved in the massive 1Malaysia Development Berhad bribery scandal. According to the watchdog, serious lapses and deficiencies on part of the Hong Kong-based compliance and control hub of the Wall Street bank contributed to the misappropriation of USD 2.6 billion. The SFC said in a statement that serious lapses and deficiencies resulted in the misappropriation of USD 2.6 billion from the 1Malaysia Development Berhad fund.
According to the regulator, an early resolution of the disciplinary action is the result of Goldman accepting the findings of the Securities and Futures Commission. Because of the failures, 1MDB raised USD 6.5 billion from three bond offerings. These bonds were issued in 2012 and 2013. The bank had significant involvement in 1MDB bond offerings. It was paid USD 581.5 from 1MDB as fees. This included USD 567 million in commission from the sales of bonds. The Hong Kong unit of Goldman Sachs alone received 37 percent of the total fees or USD 210 million.
The bank failed to put in place adequate control to inspect staff and discover misconduct in its day-to-day operations. Because of this laxity, bonds of 1MDB were allowed to proceed despite several red flags being raised around the offerings, and they were not scrutinized properly. No one bothered to find satisfactory answers to such red flags. The bank is expected to issue a statement in this regard soon. Earlier in August, it settled criminal proceedings with the Malaysian government. Chief executive of the SFC Ashley Alder said the action is the result of an independent investigation conducted by the security watchdog. The penalty has been imposed in accordance with the fining framework of Hong Kong. In July last year, Tim Leissner – former partner of Goldman Sachs in Asia – was banned from working as a financial adviser in Hong Kong. Leissner accepted paying bribes and kickbacks to Abu Dhabi and Malaysian officials to obtain business from 1MDB. He pleaded guilty in August 2018 to criminal charges pressed against him. According to the US Department of Justice, USD 4.5 billion was siphoned from 1MDB. This happened during the period when Leissner was licensed by the watchdog. The money was used for buying everything, be it a custom build yacht or paintings by Van Gogh and Monet.