Failures in oversight, internal controls, and risk management that prevented Goldman Sachs Group, Inc., from detecting a “far-reaching” fraud scheme among its own employees and others against its client 1Malaysia Development Berhad (1MDB) drew a civil money penalty assessment of $154 million from the Federal Reserve Board Thursday, the Fed announced.
The Fed, in a release, said that in 2012 and 2013, Goldman arranged and underwrote three bond offerings that raised $6.5 billion for 1MDB, a Malaysian state-owned investment and development company. It said certain former Goldman bankers in Asia participated in a scheme with Malaysian businessman Low Taek Jho and others to divert substantial portions of the proceeds from the 1MDB offerings for their personal benefit and to pay bribes to certain foreign government officials. Goldman’s transaction approval processes and internal controls failed to detect or prevent the scheme or to address obvious red flags around the 1MDB offerings, it said.
The Fed also said that under Thursday’s consent order, it is requiring Goldman to improve its risk management and oversight of significant and complex transactions, enhance its due diligence related to these transactions, and improve its anti-bribery compliance program.
The Fed Board’s action is being taken in conjunction with actions by other authorities, including the U.S. Department of Justice, the Securities and Exchange Commission, the New York Department of Financial Services, the U.K. Financial Conduct Authority, the Bank of England Prudential Regulation Authority, and other foreign authorities, the Fed said. It said the penalties and disgorgement announced by all of the agencies total approximately $2.9 billion.
The Fed Board has previously prohibited from banking three former Goldman employees in connection with the 1MDB offerings. In March 2019, it noted, the board prohibited former Goldman employees Tim Leissner and Roger Ng for their roles in the scheme to divert bond proceeds. Leissner was also fined $1.42 million. In January 2020, it said, the board prohibited former Goldman employee Andrea Vella for unsafe and unsound practices in connection with the bond offerings.
RR: Former Goldman Sachs exec barred permanently over financing of defrauded Malaysian sovereign wealth fund (Feb. 4, 2020)
RR: Two former Goldman Sachs execs banned permanently from banking for alleged scheme to divert billions (March 12, 2019)