SFC reprimands and fines Goldman Sachs (Asia) L.L.C. US$350 Million for Serious Regulatory Failures over 1Malaysia Development Berhad’s Bond Offering
As you might be aware, the Securities and Futures Commission (the “SFC”) has reprimanded and fined Goldman Sachs (Asia) L.L.C. (“Goldman Sachs Asia”) US$350 million (HK$2.71 billion) for serious lapses and deficiencies in its management supervisory, risk, compliance and anti-money laundering controls that contributed to the misappropriation of US$2.6 billion from US$6.5 billion that 1Malaysia Development Berhad (1MDB) raised in three bond offerings in 2012 and 2013.
Summary of Facts
Goldman Sachs Asia is licensed under the Securities and Futures Ordinance (the “SFO”) to carry on Type 1 (dealing in securities), Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities. 1MDB is a strategic investment and development company wholly-owned and controlled by the Government of Malaysia.
The 1MDB bond offerings were arranged and underwritten by Goldman Sachs International, an affiliate of Goldman Sachs Asia based in the United Kingdom and is not licensed by the SFC. However, the actual work was conducted by deal team members in multiple jurisdictions, and revenue generated from the transactions was shared among Goldman Sachs entities in different jurisdictions.
In particular, Goldman Sachs Asia, the compliance and control hub of Goldman Sachs in Asia and based in Hong Kong, had significant involvement in the origination, approval, execution and sales process of the three 1MDB bond offerings. Ultimately, Goldman Sachs Asia received 37% of the total revenue of US$567 million generated from the bond offerings, in the sum of US$210 million, the largest share among the various Goldman Sachs entities.
1. Lack of Internal Control
The SFC considers that Goldman Sachs Asia lacked adequate controls in place to monitor staff and detect misconduct in its day-to-day operation, and allowed the 1MDB bond offerings to proceed when numerous red flags surrounding the offerings had not been properly scrutinised and satisfactory answers to such red flags had not been obtained.
Mr. Ashley Alder, the SFC’s Chief Executive Officer, said: “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.”
“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 behaviour expected of all firms supervised by the SFC,” Mr. Alder added.
Mr. Thomas Atkinson, the SFC’s Executive Director of Enforcement said: “The 1MDB fraud is a stark reminder to financial intermediaries involved in multi-jurisdiction transactions of the importance of having robust internal controls in place and taking all reasonable steps to protect the integrity of their operations and their clients from frauds and other dishonest acts. Goldman Sachs Asia fell far short of the standards expected of a licensed intermediary in the 1MDB case and suffered not only reputational damage from its own failures, but also brought the securities industry into disrepute.”
2. Failed to Supervise Diligently on Senior Personnel
The 1MDB bond deals were obtained for Goldman Sachs by Mr.Tim Leissner, a responsible officer accredited to Goldman Sachs Asia for Type 4, 6, and 9 regulated activities from 1 April 1998 to 24 February 2016. He was also a participating managing director of the investment banking division at the material time. In August 2018, Leissner pleaded guilty to criminal charges brought by the United States Department of Justice (US DOJ) against him for conspiring to commit money laundering and to violate the Foreign Corrupt Practices Act. Leissner admitted that he had conspired with a Malaysian financier, Mr. Low Taek Jho, also known as Jho Low, and others to pay bribes and kickbacks to Malaysian and Abu Dhabi officials to obtain and retain the business from 1MDB for Goldman Sachs, including the bond offerings. On 3 July 2019, Leissner has been banned from re-entering the industry for life by the SFC.
The SFC’s investigation found that Leissner was essentially given a free rein in the execution of the 1MDB bond offerings, enabling him to provide misleading information to – or conceal information from – Goldman Sachs without being adequately challenged.
In particular, despite:
? Evidence pointing to the involvement of Low in bringing about the first bond offering;
? Goldman Sachs’s knowledge that Low and Leissner were acquaintances and Low was very close to 1MDB and government officials in Malaysia and Abu Dhabi; and
? Low having been twice rejected as a private wealth management client as his source of wealth could not be verified, resulting in a potential money laundering risk,
Goldman Sachs’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.
3. Improper handling of Red Flags
There were also numerous red flags which raised questions as to the commercial rationale of the bond offerings and serious money laundering and bribery risks, but they were not critically examined by various regional and firm-wide committees of Goldman Sachs, thus enabling Leissner and his conspirators to escape scrutiny. These included the following:
? Despite being in a weak financial position with questionable ability to service existing debts, 1MDB raised US$6.5 billion within a short period of 10 months but the amounts raised far exceeded the actual needs of 1MDB. Less than 50% of the funds raised in the first two bond offerings were intended to be used for the acquisition of power assets that had been identified. In just four months after the second offering, 1MDB raised another US$3 billion to finance a joint venture that did not yet have concrete investment plans. At that time, over US$1.6 billion of the proceeds from the first two transactions were still not utilised.
? Goldman Sachs received around US$581.5 million in fees from 1MDB, about 9% of the funds raised in these offerings. The revenue Goldman Sachs earned from these three offerings alone was more than double the total revenue it generated from acting as an arranger and/or underwriter in 213 other Asia ex-Japan bond offerings in the five years between 2011 and 2015.
? 1MDB’s willingness to pay such high fees to Goldman Sachs as sole arranger and underwriter, and the engagement of Goldman Sachs for all three offerings without going through a competitive process should have raised questions about how the business was obtained from 1MDB, the reasonableness of the mandates, and whether the circumstances leading to such business raised any suspicions of bribery or other illicit conduct.
? 1MDB’s repeated emphasis on confidentiality and speed of execution, and its use of foreign private banks rather than Malaysian commercial banks to deposit the bond proceeds are other red flags present in all three bond offerings.
? In the course of reviewing the bond offerings, Goldman Sachs Asia had found plenty of negative media reports which indicated high corruption risks associated with 1MDB and which raised questions about the integrity of 1MDB and the transactions it had entered into.
The SFC’s investigation also found that although the deal team and control functions took note of many of the red flags and appeared to have taken some steps to discuss and address them, Goldman Sachs adopted a piecemeal approach in resolving the issues and had not properly considered the wider and “bigger picture” concerns about the commercial rationale of the bond offerings and satisfied itself that such concerns have been satisfactorily addressed.
The SFC considers that Goldman Sachs Asia had failed to:
? Supervise diligently its senior personnel who were involved in the execution of the bond offerings and to ensure that they maintained appropriate standards of conduct;
? Identify and adequately address money laundering and bribery concerns when there were numerous red flags;
? Exercise due skill, care and diligence, and act in the best interest of its clients and the integrity of the market when vetting and approving the bond offerings; and
? Put in place adequate and effective internal control procedures to protect its clients from financial losses arising from frauds and other dishonest acts or professional misconduct.
Disciplinary Actions
In deciding the disciplinary sanctions, the SFC took into account all relevant circumstances, including:
? Goldman Sachs Asia had extensive involvement in the 1MDB bond offerings and received more than one third of the total revenue generated from the three bond offerings;
? There were serious lapses and deficiencies in Goldman Sachs Asia’s risk, compliance and anti-money laundering controls and management oversight which allowed Leissner’s bribery of foreign government officials to completely escape scrutiny;
? Goldman Sachs Asia allowed the bond offerings to proceed when numerous red flags suggesting money laundering and/or bribery had not been properly addressed;
? Goldman Sachs International, Goldman Sachs Asia and Goldman Sachs (Singapore) PTE were charged in Malaysia for making false and misleading statements in the offering documents for the bond offerings. In August 2020, Goldman Sachs settled the criminal proceedings with the Malaysian government for US$2.5 billion plus a US$1.4 billion guarantee.
? Since the securities industry is of fundamental importance to Hong Kong’s role as an international financial centre, it is essential to maintain among members of the investing public a well-founded confidence in the securities industry as well as in the integrity and professional competence of those who are employed in the industry;
? A strong message needs to be sent to the market to deter other market participants from allowing similar failures to occur;
? Goldman Sachs Asia’s acceptance of the SFC’s findings and disciplinary action facilitated an early resolution of the matter; and
? Goldman Sachs Asia undertook to provide the SFC with annual reports prepared by its internal audit function for three consecutive years confirming, among others, that effective remedial measures have been implemented to address the regulatory concerns identified by the SFC in this matter.
For further details, please refer to: https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=20PR103
Should you have any inquiries, please do not hesitate to contact us.
中文版本：
高盛（亞洲）有限責任公司（“高盛亞洲”）因在管理層監督、風險、合規及打擊洗錢等監控方面犯有嚴重失誤和缺失，令1Malaysia Development Berhad（“1MDB”）於2012年及2013年透過三次債券發售籌得的65億美元中有26億美元被挪用，因而遭證券及期貨事務監察委員會（“證監會”）譴責及罰款3.5億美元(27.1億港元)。
事情摘要
高盛亞洲根據《證券及期貨條例》獲發牌進行第1類（證券交易）、第4類（就證券提供意見）、第5類（就期貨合約提供意見）、第6類（就機構融資提供意見）及第9類（提供資產管理）受規管活動。1MDB是一家由馬來西亞政府全資擁有及控制的策略性投資發展公司。
上述1MDB的債券發售由高盛亞洲在英國的聯屬公司，並無持有證監會牌照的Goldman Sachs International安排及包銷，但實際工作是由身處多個司法管轄區的交易團隊成員進行。有關交易所產生的收入由高盛位於不同司法管轄區的實體分享。
值得注意的是，以香港為基地的高盛亞洲作為高盛在亞洲的合規及監控中心，於該三宗1MDB的債券發售的發起、批准、執行及銷售過程中的參與程度非常高。高盛亞洲最終自有關債券發售所產生的5.67億美元總收入中獲得37%（金額為2.1億美元），在高盛的各個實體中佔最大的份額。
欠缺內部監控措施
證監會認為，高盛亞洲欠缺充分的監控措施，以在其日常運作中監察職員和偵測失當行為，並在與1MDB債券發售有關的多項預警跡象未獲適當審查，及尚未就有關預警跡象得到令人滿意的答案時，便容許該等發售繼續進行。
證監會行政總裁歐達禮先生（Mr. Ashley Alder）表示：“證監會就高盛亞洲在2012年及2013年於1MDB事件中的參與有否違反持牌人在香港法規下所應達到的標準，進行了嚴謹及獨立的調查，而這次的執法行動正是上述工作的成果。＂
歐達禮先生續說：“這宗個案的罰則純粹按照香港自身的罰則框架進行評估，反映了本會認為高盛亞洲沒有適當處理圍繞1MDB的債券發售的多個可疑情況。這些缺失導致高盛亞洲多次嚴重地違反證監會的規則，當中訂明了所有受證監會監督的商號理應達致的嚴格行為標準。＂
證監會法規執行部執行董事魏建新先生（Mr. Thomas Atkinson）表示：“這宗1MDB的欺詐事件明確地提醒金融中介人，若參與橫跨多個司法管轄區的交易，必須設立嚴謹的內部監控措施及採取所有合理步驟，以維護其業務的誠信，和避免客戶遭遇欺詐及其他不誠實的行為。在1MDB的個案中，高盛亞洲遠遠落後於持牌中介人理應達到的標準，結果不僅因自身的缺失導致聲譽受損，同時還令證券業蒙羞。＂
沒有勤勉盡責地監督高級管理人員
有關1MDB的債券交易是由在關鍵時間擔任高盛亞洲的負責人員兼投資銀行部合夥董事總經理的Tim Leissner（男）為高盛所取得的。Leissner曾根據《證券及期貨條例》獲發牌進行第4類（就證券提供意見）、第6類（就機構融資提供意見）及第9類（提供資產管理）受規管活動，於1998年4月1日至2016年2月24日期間隸屬高盛亞洲。Leissner於2018年8月承認美國司法部所提出、針對他串謀洗錢及違反《反海外腐敗法》的刑事控罪。Leissner承認，他曾與馬來西亞籍金融家劉特佐（Low Taek Jho，又名Jho Low）（男）及其他人士串謀，向馬來西亞及阿布札比的官員支付賄款和回扣，為高盛取得及保持來自1MDB的業務，包括該等債券發售。Leissner被證監會終身禁止重投業界。
證監會的調查發現，Leissner實質上可自由掌控該等1MDB 債券發售的執行，因而令他得以在未經充分質詢的情況下，向高盛提供具誤導性的資料或向其隱瞞資料。
具體而言，儘管：
? 證據指向劉曾參與推動首次債券發售；
? 高盛知悉劉與Leissner互相認識，且劉與1MDB及馬來西亞和阿布札比的政府官員關係非常密切；及
? 劉曾兩度被拒絕成為私人財富管理客戶，原因是他的財富來源無法被核實，故將帶來潛在的洗錢風險，
但負責審議該等債券發售的高盛的地區性以至集團層面的委員會在沒有進一步查問的情況下，接納了Leissner指劉在該等債券發售中沒有任何角色的虛假說法。
不當地處理預警
此外，有多項預警跡象引起了對該等債券發售的商業理據和嚴重的洗錢及賄賂風險的質疑，但高盛的各個地區性以至集團層面的委員會卻沒有對這些預警跡象進行嚴格審查，讓Leissner及其同謀者得以避過監察。該等預警跡象包括以下各項：
? 儘管1MDB的財政狀況疲弱，其償還現有債務的能力令人置疑，但1MDB在短短10個月內便籌集了65億美元，而所籌得的金額亦遠超其實際所需。在首兩次債券發售所籌得的資金中，有不足50%的資金擬用於收購已物色的電力資產。在第二次發售後僅四個月內，1MDB再籌得30億美元，為一家仍沒有具體投資計劃的合資公司提供資金。當時，在首兩次交易的所得款項中有逾16億美元仍未被動用。
? 高盛向1MDB所收取的費用約為5.815億美元，相等於在該等發售中籌得的資金約9%。高盛單單從該三次發售所賺取的收入，較其在2011年至2015年止五年內從擔任213個其他亞洲區（日本除外）債券發售項目的安排人及／或包銷商所獲取的總收入高出一倍有多。
? 1MDB願意向高盛支付如此高昂的費用，作為其擔任獨家安排人及包銷商的報酬，及高盛未經競逐程序而獲委聘安排這三次發售，理應令人質疑其如何從1MDB獲取該等業務、有關委託是否合理，以及促成該等業務的情況有沒有令人懷疑當中涉及任何賄賂或其他不法行為。
? 1MDB一再強調保密及執行速度，並採用了境外私人銀行而非馬來西亞的商業銀行，以存放債券的所得款項，這些都是在全部三次的債券發售中出現的其他預警跡象。
? 在檢視該等債券發售的過程中，高盛亞洲發現大量的負面媒體報道，當中顯示1MDB涉及高度的貪污風險，並令人對1MDB的誠信及其所訂立的交易有所質疑。
證監會的調查亦發現，雖然交易團隊及監控部門留意到許多預警跡象，並看來採取了某些行動以商討及處理有關事宜，但高盛在解決相關問題方面採取了零碎的解決方法，未能從更宏觀和“綜觀全局”的角度充分地考慮與債券發售的商業理據有關的關注事項，以及無法令自身信納有關問題已獲適當處理。
證監會認為高盛亞洲：
? 沒有勤勉盡責地監督參與執行有關債券發售的高級管理人員，亦無確保他們秉持適當的操守標準；
? 在有多項預警跡象的情況下，沒有識別及充分地處理有關洗錢及賄賂的關注事項；
? 在審核及批准有關債券發售時，沒有以適當的技能、小心審慎和勤勉盡責的態度行事，及維護客戶的最佳利益和確保市場廉潔穩健；及
? 沒有實施充足且有效的內部監控程序，以免客戶因欺詐及其他不誠實的行為或專業上的失當行為而蒙受財政損失。
相關紀律處分
證監會在決定上述紀律處分時，已考慮到所有相關情況，包括：
? 高盛亞洲廣泛地參與1MDB的債券發售，並收取了該三次債券發售所產生的總收入當中逾三分一款額；
? 高盛亞洲在風險、合規及反洗錢監控措施和管理層監督工作方面犯有嚴重失誤及缺失，令Leissner得以在完全避過監察的情況下賄賂外國政府官員；
? 高盛亞洲在未有妥善處理多項顯示有洗錢及／或賄賂行為的預警跡象的情況下，容許有關債券發售繼續進行；
? Goldman Sachs International、高盛亞洲及Goldman Sachs (Singapore) PTE於馬來西亞被控在有關債券發售的要約文件中作出虛假及具誤導性的陳述。2020年8月，高盛以支付25億美元加上歸還14億美元資產的保證，就有關刑事法律程序與馬來西亞政府達成和解；
? 證券業對香港作為國際金融中心而言尤關重要，故有需要確保投資大眾對證券業，以至行內從業人士的誠信和專業勝任能力保持充分的信心；
? 證監會需要向市場傳達強而有力的訊息，以免其他市場參與者容許同類缺失發生；
? 高盛亞洲接受證監會的調查結果和紀律行動，有助及早解決相關事宜；及
? 高盛亞洲承諾連續三年向證監會提供由其內部審計部門編製的年度報告，藉以確認（其中包括）已落實有效的補救措施，以解決證監會在事件中所識別出的監管關注事項。
有關此通訊的更多資訊, 請參閱：https://apps.sfc.hk/edistributionWeb/gateway/TC/news-and-announcements/news/doc?refNo=20PR103
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