Goldman Sachs hit with record $350m fine for 1MDB failings

Goldman Sachs ignored a series of ‘red flags’ in connection with 1MDB, according to the Hong Kong markets watchdog.
Short Url
Updated 23 October 2020

Goldman Sachs hit with record $350m fine for 1MDB failings

  • Hong Kong watchdog accuses investment bank of ‘serious lapses and deficiencies’ over $2.6bn wealth fund scandal

HONG KONG: Hong Kong’s markets watchdog on Thursday fined Goldman Sachs’s Asian business $350 million for its role in Malaysia’s multibillion-dollar 1MDB scandal, the largest single fine ever levied by the regulator in the Asian financial hub.

The Securities and Futures Commission (SFC) said serious lapses and deficiencies in management controls at Goldman Sachs (Asia) had contributed to the misappropriation of $2.6 billion raised by the Malaysian sovereign wealth fund.

1Malaysia Development Berhad (1MDB) raised the funds in three bond offerings in 2012 and 2013.

A Goldman Sachs spokesman said the Wall Street bank would issue a statement in due course.

The 1MDB scandal has been a costly and long-running sore for the US investment bank.

In July, Goldman agreed to pay $3.9 billion to settle Malaysia’s criminal probe and this week it is expected to agree to pay more than $2 billion to settle US charges over its role in the scandal.

FASTFACT

$4.5 Billion

Malaysian and US authorities estimate $4.5 billion was stolen from 1MDB in an elaborate scheme that spanned the globe.

Malaysian and US authorities estimate $4.5 billion was stolen from 1MDB in an elaborate scheme that spanned the globe and implicated high-level officials in the fund, former Malaysian Prime Minister Najib Razak, Goldman staff and others.

The three bond offerings, which raised a combined $6.5 billion, were arranged and underwritten by UK-based Goldman Sachs International, with work conducted by deal team members in multiple jurisdictions, who shared the revenue generated.

The SFC said Goldman Sachs Asia, the bank’s Hong Kong-based compliance and control hub for the region, had significant involvement in the origination, approval, execution and sales process of the three bond offerings.

The bank’s Asia hub had earned $210 million from the offerings, the largest share among the various Goldman entities.

“This enforcement action is the result of a rigorous, independent investigation conducted by the SFC,” said Ashley Alder, the SFC’s CEO.

The 1MDB bond deals were obtained for Goldman by its banker Tim Leissner, who in August 2018 admitted that he had conspired with Malaysian financier Jho Low and others to pay bribes and kickbacks to Malaysian and Abu Dhabi officials to obtain and retain the business from 1MDB for the bank.

US court documents show Low was rejected as a private wealth management client on several occasions as his source of wealth could not be verified, resulting in a potential money laundering risk.

Nonetheless, Goldman’s regional and firm-wide committees that vetted the bond offerings accepted Leissner’s false assertions that Low had no roles in the bond offerings without making further inquiries, the SFC said.

“Apart from the involvement of Low, there were a number of red flags present in the bond transactions which should have called for a closer examination of the corruption and money laundering risks involved,” its statement of disciplinary action said.

These included the fact that the amount raised far exceeded the actual needs of 1MDB, and the sovereign wealth fund’s willingness to pay high fees and repeated emphasis on confidentiality and speed of execution, the SFC said.


Economic boost tipped after UAE company ‘game-changer’

Updated 25 November 2020

Economic boost tipped after UAE company ‘game-changer’

  • Dramatic overhaul of corporate ownership laws follows accelerated reforms to shrug off pandemic slowdown

DUBAI: Radical changes to corporate ownership and investment laws could provide a significant boost to the UAE as it seeks to emerge from the ravages of the coronavirus pandemic lockdowns, business experts told Arab News.

The Emirati authorities have announced a raft of changes that relax restrictions on foreign ownership and make it easier for international businesses to set up and operate in the UAE, as well as new rules that will allow more shares to be listed on the country’s stock exchanges.

Economics expert Nasser Saidi said: “The liberalization of foreign ownership laws breaks down major barriers to the right of establishment. The reform is a game-changer.”

Tarek Fadlallah, CEO of Nomura Asset Management in the Middle East, said: “I would like to see some more detail, but if the deal is that you can leave London or New York and set up easily in the UAE, it’s revolutionary in regional terms.”

The changes were announced in the form of a presidential decree. “Maybe it’s pandemic related, but everything the UAE authorities have done this year has been extremely positive for the business and financial environment,” Fadlallah added.

Under the changes, companies seeking to quote shares on UAE markets will be able to list up to 70 percent of their shares, a big jump from the previous 30 percent limit, in a move that could reinvigorate local stock markets.

“It will encourage foreign direct investment, but also lead to a recapitalization of jointly owned companies and encourage entrepreneurs to invest in businesses and new ventures. Importantly, it will encourage the retention of savings in the UAE,” Saidi added.

The most eye-catching of the planned changes is the move to allow foreign firms to set up outside free zones without the requirement for a majority Emirati shareholder or agent.

The new set-up will in theory open the way for full foreign ownership throughout the UAE, although the Emirati authorities have been pragmatic in the past in their efforts to attract big-name foreigners. Apple was allowed full foreign ownership when it set up its first store in the country five years ago. 

Pandemic restrictions have hit an already sluggish UAE economy. (AFP)

More foreign firms setting up onshore could be seen as a threat for the free-zone model that has been one of the driving forces behind the UAE’s rise to become the regional business hub.

Habib Al-Mulla, executive chairman of Baker & McKenzie Habib Al-Mulla law firm, said: “Free zones will now face a real challenge. They either come up with a new package of incentives or their role ends.”

Other proposed changes also represent a break from the traditional business culture in the region. Rules that required a company chairperson to be an Emirati national, and for company boards to have an Emirati majority, have also been removed.

In addition, the decree allows for the dismissal of a chairman or any other board member if a judicial judgment is issued against them for committing fraud or misuse of power, while enabling stakeholders to sue a company in civil court over any failure of duty that results in damages.

Electronic voting will also be allowed at shareholder meetings, in a departure from the requirement for a physical show of hands.

“The decree is reflective of the UAE’s forward-looking vision to open up its economy by creating a favorable legislative environment that will keep pace with the changes taking place across the global economy and supporting companies operating in the country,” the official UAE news agency, WAM, said.

Some sectors regarded as of strategic importance — such as energy, utilities, and government-owned businesses — will be exempt from the new rules, and there is a certain amount of discretion given to local authorities in setting rules regarding Emirati directors and determining fees and charges payable under the new regulations.

This week’s changes are the latest in a series of reforms that have been accelerated in the UAE since the COVID-19 pandemic recession struck an already sluggish business scene.

New rules on residency visas have been introduced to alleviate problems in the real estate market, especially in Dubai, as well as a range of changes to social and lifestyle reforms.

“Along with the change in visa regulations, the new reforms will boost the UAE’s growth prospects,” Saidi said.

Ziad Daoud, Dubai-based chief emerging markets economist at Bloomberg, said: “Diversifying stock markets away from oil requires attracting foreign investment as well as fixing the distorted labor market. Most other measures are cosmetic. We’ll see how they are implemented, but the initial assessment of the new regulations is positive.”