- The SFC believes that Goldman Sachs Asia lacks adequate monitoring measures to monitor staff and detect misconduct in its daily operations.
- According to the SFC, the 1MDB bond transaction was obtained for Goldman Sachs by Tim Leissner, who was in charge of Goldman Sachs Asia.
- Leissner was essentially free to control the execution of these 1MDB bond offerings.
The Hong Kong Securities and Futures Commission fined Goldman Sachs (Asia) Co., Ltd. a record $350 million (HK$2.71 billion) on Thursday, saying they made “serious lapses and deficiencies in its management supervisory, risk, compliance and anti-money-laundering controls.”
The SFC said Goldman Sachs misappropriated $2.6 billion, raised through three bond offerings in 2012 and 2013, which raised $6.5 billion from 1Malaysia Development Berhad. (1MDB). The SFC condemned the acts.
The SFC pointed out that Goldman Sachs Asia, as the compliance and monitoring center of Goldman Sachs in Asia, was very involved in the initiation, approval, execution and sale of the three 1MDB bond sales.
Goldman Sachs Asia finally received 37% (amount $210 million) from the total revenue of $567 million from the bond sale, which accounted for the largest share of all Goldman Sachs entities.
The SFC believes that Goldman Sachs Asia lacks adequate monitoring measures to monitor staff and detect misconduct in its daily operations.
It has not been properly reviewed for many early warning signs related to the 1MDB bond sale, and has not yet responded to relevant warning signs. When a satisfactory answer is obtained, the sale is allowed to proceed.
According to the SFC, the 1MDB bond transaction was obtained for Goldman Sachs by Tim Leissner, who was in charge of Goldman Sachs Asia, and the partner managing director of the investment banking department at a critical time.
Leissner pleaded guilty to criminal charges brought by the U.S. Department of Justice in August 2018 against him for conspiracy to launder money and violate the FCPA.
Leissner admitted that he had conspired with Malaysian financier Low Tejo and others to pay bribes and kickbacks to officials in Malaysia and Abu Dhabi to obtain and maintain business from 1MDB for Goldman Sachs, including the bond sale.
“This enforcement action is the result of a rigorous, independent investigation conducted by the SFC into whether Goldman Sachs (Asia)’s involvement with 1MDB in 2012 and 2013 contravened the standards expected of firms under Hong Kong regulations,” said Ashley Alder, the SFC’s chief executive.
“The penalty in this case – assessed solely in accordance with Hong Kong’s own fining framework – reflects our findings that Goldman Sachs Asia failed to deal properly with numerous suspicious circumstances surrounding the 1MDB bond offerings. These failures led to multiple, serious breaches of the rules which set out the high standards of behavior expected of all firms supervised by the SFC.”
An investigation by the SFC found that Leissner was essentially free to control the execution of these 1MDB bond offerings, which allowed him to provide Goldman Sachs with misleading information or withhold information from it without sufficient inquiry.
However, the regional and even group-level committees of Goldman Sachs, which was responsible for reviewing the bond sales, accepted Leissner’s false statement that Liu had no role in the bond sales without further inquiry.
In addition, the Hong Kong Securities Regulatory Commission pointed out that there are a number of early warning signs that have raised questions about the commercial justifications for the bond sale and the serious risks of money laundering and bribery.
However, the various regional and even group-level committees of Goldman Sachs have not taken these early warning signs. Strict review allows Leissner and his accomplices to avoid surveillance.
The Hong Kong Securities Regulatory Commission believes that Goldman Sachs Asia did not diligently supervise the senior management involved in the implementation of the bond sale, nor did it ensure that they uphold appropriate standards of conduct.
The second is the failure to identify and adequately deal with concerns about money laundering and bribery when there are multiple warning signs.
Third, when reviewing and approving the relevant bond offering, failing to act with appropriate skills, prudence and diligence, and to safeguard the best interests of customers and ensure that the market is clean and stable.
The fourth is the failure to implement adequate and effective internal control procedures to prevent customers from incurring financial losses due to fraud and other dishonest acts or professional misconduct.