FINAL NOTICE

1.
ACTION

1.1.
For the reasons given in this Final Notice, the Authority hereby imposes on Goldman

Sachs International (“GSI”) a financial penalty of £48,308,400 (equivalent to

US$63,000,000), pursuant to section 206 of the Act.

1.2.
GSI agreed to resolve this matter and qualified for a 30% (Stage 1) discount under

the Authority’s executive settlement procedures. Were it not for the discount, the

Authority would have imposed a financial penalty of £69,012,000 (equivalent to

US$90,000,000) on GSI.

2.
SUMMARY OF REASONS

2.1.
GSI is a global investment banking, securities and investment management firm

headquartered in London. The breaches of Principles 2 and 3 arose from GSI’s

involvement in three bond transactions for 1MDB that took place in 2012 and 2013.

2.2.
The Deal Team for these three bond transactions was principally based in Asia.

Individuals from various Goldman Sachs entities, including GSI, were involved in

the review and approval of the 1MDB Transactions. GSI, Goldman Sachs’ primary

booking entity for bond transactions underwritten and purchased by Goldman

Sachs outside of the USA, was the arranger, initial purchaser and underwriter of

the 1MDB Transactions. In total, these transactions raised approximately US$6.5

billion for 1MDB in an 11-month period. The profit initially booked into GSI from

these
transactions
was
considerable,
totalling
US$547million,
of
which

approximately US$91 million was ultimately attributed to GSI. Goldman Sachs as

a whole booked profit of US$567 million from the 1MDB Transactions.

2.3.
The 1MDB Transactions carried significant risk for GSI. They were high value,

complex deals, executed in compressed timescales over an 11-month period.

Further, they generated very significant revenue for GSI and involved clients and

counterparties in jurisdictions that GSI had identified as representing enhanced

legal, compliance and reputational risk. GSI was also aware of the risk that a third

party it had previously turned down as a client may be involved in the transactions.

As such, GSI’s management of the risks arising from these transactions, including

the potential involvement of a high-risk individual, needed to operate at an

appropriate standard given the high-risk profile of the transactions.

2.4.
Furthermore, after the 1MDB Transactions had closed, GSI senior personnel (and a

control function in the case of the information received in late 2015) received

information in mid-2013 about possible bribery related to one of the 1MDB

Transactions and in late 2015 regarding possible 1MDB-related misconduct.

a.
The information obtained in mid-2013 related to possible bribery between two

non-Goldman Sachs parties in connection with the joint venture which 1MDB

was funding using the proceeds of the third bond transaction, Project Catalyze.

Goldman Sachs received similar information at a similar time alleging that one

of the third parties had also delayed an earlier 1MDB transaction in order to

secure a bribe.

b.
The information received in late 2015 suggested that misconduct may have

been committed by a senior member of the Goldman Sachs Deal Team,

referred to below as “Senior Banker A”, in relation to 1MDB.

2.5.
The information received in mid-2013 and late 2015 could have been relevant to

GSI’s assessment of legal, compliance and reputational risks, including the risks

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arising out of historic, current and future dealings or transactions involving the

entities and individuals in question. It was therefore important that this information

was escalated to control functions to ensure that the credibility and significance

could be properly assessed, and appropriate action taken by GSI, including so that

relevant authorities could be informed if necessary.

2.6.
In relation to these matters GSI breached Principles 2 and 3 of the Authority’s

Principles for Businesses:

a.
Principle 2 requires a firm to conduct its business with due skill, care and

diligence.

b.
Principle 3 requires a firm to take reasonable care to organise and control its

affairs responsibly and effectively, with adequate risk management systems.

2.7.
GSI’s breach of Principle 2 fell into three broad categories of failings.

2.8.
First, GSI did not assess and manage the risk arising from the involvement of a

particular third party individual (referred to below as Third Party A) in the 1MDB

Transactions with due skill, care and diligence. Prior to the 1MDB Transactions, this

individual had previously been rejected by Goldman Sachs as a client, including due

to concerns about their unverified source of wealth. However, insufficient care was

taken in relation to assessing and managing the risk of this individual’s involvement

in the 1MDB Transactions. Instead, overreliance was placed on statements of the

Deal Team that this individual had no role, despite inconsistent accounts being

provided by a senior member of the Deal Team about the extent of the individual’s

involvement in the first 1MDB bond transaction. The risk of this individual’s

involvement was not raised in the documentation that went before the committees

assessing the 1MDB Transactions.

2.9.
Second, GSI failed to act with due skill, care and diligence when considering the

risk factors arising in each of the 1MDB Transactions. It was crucial that sufficient

consideration was given to all relevant risk factors both individually and holistically

and that the committees were presented with all relevant information to enable

such consideration. The manner in which some of the risks were presented to the

committees did not enable them to assess the risks fully, including the reputational

and financial crime risks arising from each of the 1MDB Transactions, holistically.

2.10. Third, GSI failed to deal with allegations of bribery and misconduct with due skill,

care and diligence. GSI failed to escalate the information received in mid-2013

about possible bribery by a third party in accordance with GSI internal policies,

which would have allowed GSI control functions to assess the information and take

appropriate action. Further, in respect of the allegation received in late 2015 that

a senior member of the Goldman Sachs Deal Team may have been involved in and

benefitted from 1MDB-related misconduct, GSI failed to record further escalation

of this information or how the control functions at GSI and Goldman Sachs assessed

this information. Timely action was not taken in response to the allegation.

2.11. Adequate record keeping is necessary to enable a firm to identify and manage risks

associated with its business. It is also required for the proper discharge of the

Authority’s supervisory responsibilities, including the monitoring of a firm’s

compliance with the requirements under the regulatory system.

2.12. GSI breached Principle 3 because it failed to take reasonable care to organise and

control its affairs responsibly and effectively in relation to appropriate record

keeping of how risks arising from these transactions had been assessed and

managed. In particular, the transaction committees who were responsible for

reviewing the risks associated with the 1MDB Transactions prior to approval did not

maintain adequate records to show how they had considered and dealt with the

risks holistically.

2.13. A failure to keep such records meant that it could not be fully demonstrated how

GSI’s governance and oversight arrangements fulfilled their obligations to assess,

challenge and approve the transactions. Neither could those arrangements be

scrutinised adequately when issues of possible financial crime arose.

2.14. The Authority views these failings as serious. Indicators of potential financial crime

and other risks were not properly challenged and assessed by governance

functions, escalated to control functions or actions recorded by the firm, or notified

to the Authority where appropriate. As set out in paragraph 2.11 above, adequate

record keeping and escalation is necessary to enable a firm to identify and manage

risks associated with its business. Failures in this regard can hide misconduct, make

misconduct harder to detect or indicate wider cultural tolerance of such issues.

GSI’s record keeping and escalation failings significantly undermined the ability of

the firm to mitigate those risks, particularly where some of the failures involved

individuals holding senior positions.

2.15. The Authority hereby imposes a financial penalty on GSI of £48,308,400

(equivalent to US$63,000,000) pursuant to section 206 of the Act for breaches of

Principles for Businesses 2 and 3.

2.16. GSI agreed to resolve this matter and qualified for a 30% (Stage 1) discount under

the Authority’s executive settlement procedures. Were it not for this discount the

Authority would have imposed a financial penalty of £69,012,000 (equivalent to

US$90,000,000) in respect of these breaches.

3.
DEFINITIONS

The definitions below are used in this Notice:

“1MDB” means 1Malaysia Development Berhad, a strategic investment and

development company wholly-owned by the Malaysian government through its

Ministry of Finance;

“1MDB Transactions” means Project Magnolia, Project Maximus and Project Catalyze;

“Act” means the Financial Services and Markets Act 2000;

“Authority” means the body corporate previously known as the Financial Services

Authority and renamed on 1 April 2013 as the Financial Conduct Authority;

“BIG” means the Business Intelligence Group;

“Compliance” means the Compliance Division of Goldman Sachs;

“Conflicts” means the Business Selection and Conflicts Resolutions Group of Goldman

Sachs;

“Deal Memos” means the memoranda prepared and submitted by the Deal Team to

committees in advance of the committees’ consideration of the 1MDB Transactions;

“Deal Team” means the principally Asia-based team of Goldman Sachs bankers who

originated the 1MDB Transactions and undertook the day-to-day work on executing

the 1MDB Transactions;

“FWCC” means the Firmwide Capital Committee of Goldman Sachs;

“FWSC” means the Firmwide Suitability Committee of Goldman Sachs;

“Goldman Sachs” means the Goldman Sachs group of companies;

“GSI” means Goldman Sachs International;

“Legal” means the Legal department of Goldman Sachs;

“the March 2012 Meeting” means the meeting in March 2012 relating to Project

Magnolia between Senior Banker A and a high-ranking official of Sovereign Wealth

Fund A;

“Project Catalyze” means the third 1MDB bond transaction;

“Project Magnolia” means the first 1MDB bond transaction;

“Project Maximus” means the second 1MDB bond transaction;

“Relevant Period” means the period from 1 February 2012 to 3 February 2016;

“Senior Banker A” means a senior Asia-based member of the Deal Team;

“Sovereign Wealth Fund A” means an investment fund that was wholly owned and

controlled by a foreign government;

“Sovereign Wealth Fund A Subsidiary” means a subsidiary of Sovereign Wealth Fund

A;

“Third Party A” means an individual who had connections to high-ranking officials of

1MDB, Sovereign Wealth Fund A and Sovereign Wealth Fund A Subsidiary; and

“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber).

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4.
FACTS AND MATTERS

4.1. The following facts and matters are set out below:

Background facts and matters

Relevant participants involved in the 1MDB Transactions

paras 4.2 – 4.8

The 1MDB Transactions





paras 4.9 – 4.12

How GSI managed transaction risk




paras 4.13 – 4.20

Facts and matters giving rise to breaches

Risk relating to Third Party A




paras 4.21 – 4.38

Assessment and management of risk



paras 4.39 – 4.46

Allegations of bribery and misconduct



paras 4.47 – 4.53

Subsequent criminal and regulatory action


paras 4.54 – 4.55

BACKGROUND FACTS AND MATTERS

RELEVANT PARTICIPANTS INVOLVED IN THE 1MDB TRANSACTIONS

4.2. Goldman Sachs is a global investment banking, securities and investment

management group headquartered in New York.

4.3. GSI is an investment banking, securities and investment management firm

headquartered in London. GSI is an indirect, wholly owned subsidiary of The

Goldman Sachs Group, Inc. GSI acts as the main booking entity for bond transactions

underwritten and purchased by Goldman Sachs outside the USA.

4.4. GSI operates and has representation within a group framework of firmwide, regional,

divisional and legal entity management, governance and oversight structures. As a

result, the governance and oversight of GSI is aligned with the governance principles

and risk management systems and controls operated by Goldman Sachs.

4.5. 1MDB was a strategic investment and development company wholly-owned by the

Malaysian government through its Ministry of Finance. 1MDB performed a

government function on behalf of Malaysia, with the mandate to pursue long-term

investment and development projects for the economic benefit of Malaysia and its

people.

4.6. Sovereign Wealth Fund A was an investment fund wholly-owned and controlled by a

foreign government and performed a government function. Goldman Sachs had

entered into a number of transactions with or for Sovereign Wealth Fund A prior to

the 1MDB Transactions.

4.7. Sovereign Wealth Fund A Subsidiary was an investment company. Goldman Sachs

had entered into a number of transactions with or for Sovereign Wealth Fund A

Subsidiary prior to the 1MDB Transactions.

4.8. Third Party A is an individual who had some involvement in certain proposed or actual

transactions involving Goldman Sachs between 2009 and 2013. Third Party A had

connections to high-ranking officials of 1MDB, Sovereign Wealth Fund A and

Sovereign Wealth Fund A Subsidiary.

THE 1MDB TRANSACTIONS

4.9. In 2012 and 2013, GSI was the arranger, initial purchaser and underwriter of the

1MDB Transactions for subsidiaries of 1MDB. A total of US$6.5 billion was raised

from the 1MDB Transactions in an 11-month period.

a.
the first transaction was a US$1.75bn bond issuance, known internally within

Goldman Sachs as Project Magnolia. Work on the transaction commenced in

February 2012 and closed in May 2012. Approximately half of the proceeds of

the bond issuance was to be used to partially fund the acquisition of a power

plant and the remainder was to be used for general corporate purposes,

including potential future acquisitions. The bonds were jointly guaranteed by

1MDB and Sovereign Wealth Fund A, in return for which Sovereign Wealth Fund

A Subsidiary was granted an option to acquire up to 49% of the subsidiary of

1MDB acquiring the power plant. The foreign government which owned

Sovereign Wealth Fund A and Malaysia had a history of cooperation and the

transaction was expected to cement their strategic partnership. The bond

transaction was also seen as the first of a number of future business

opportunities with 1MDB, which was seen as a key client for Goldman Sachs in

the Asia region;

b.
the second transaction was a US$1.75bn bond issuance, known internally

within Goldman Sachs as Project Maximus. Work on the transaction

commenced in July 2012 and closed in October 2012. Approximately half of the

proceeds of the bond issuance were to be used to purchase certain power

assets, with the remainder to be used to fund transaction costs and interest

payments and for general corporate purposes, including potential acquisitions.

The bonds were deposited into a special purpose vehicle which issued

collateralised linked loans (“CLLs”) and collateralised linked notes (“CLNs”) and

which were sold to investors. The CLLs and CLNs benefitted from a guarantee

by Sovereign Wealth Fund A, in return for which Sovereign Wealth Fund A

Subsidiary was granted an option to acquire a 49% interest in the subsidiary

of 1MDB acquiring the power assets; and

c.
the third transaction was a US$3bn bond issuance, known internally within

Goldman Sachs as Project Catalyze. Work on the transaction commenced in

January 2013 and closed in March 2013. The proceeds were to be used by

1MDB to fund its contribution to a US$6bn strategic government to government

backed joint venture between 1MDB and Sovereign Wealth Fund A Subsidiary.

The bonds benefitted from a letter of support from the government of Malaysia.

4.10. The 1MDB Transactions were originated by a team of bankers based in Asia (the

“Deal Team”) who handled the day-to-day work on the 1MDB Transactions.

Individuals from various Goldman Sachs entities, including Authority-registered

and/or UK-based GSI employees, were involved in the review, approval and aspects

of the execution of the 1MDB Transactions, including as part of the firmwide

transaction committee review process.

4.11. Other than US$250 million of the Project Catalyze issuance (which was purchased

by another Goldman Sachs entity), GSI effectively purchased the entirety of the

issuance of the 1MDB bonds at a discount to par, this discount amounting to

US$558.25 million, to reflect, amongst other factors, the market and other risks

assumed by Goldman Sachs in purchasing the entirety of the bonds as a principal.

4.12. Goldman Sachs then managed the risk of holding the bonds (e.g. through hedging

and funding arrangements) whilst they were sold to investors. Goldman Sachs’

profits from the 1MDB Transactions were driven by the difference between the price

at which the bonds were initially purchased and the price at which they or the related

CLLs and CLNs were sold to investors (less hedging/funding costs and adding any

interest earned on the bonds whilst held). Including the interest it earned whilst

holding the 1MDB bonds (but excluding funding/hedging costs), GSI sold the bonds

or notes for US$644 million more than it paid for the bonds. After including funding

and hedging costs, Goldman Sachs as a whole earned profits of approximately

US$567million from the 1MDB Transactions. The profit initially booked into GSI was

US$547million, of which approximately US$91 million was ultimately attributed to

GSI, with the remainder allocated to other Goldman Sachs entities in accordance

with the firm’s transfer pricing methodologies.

HOW GSI MANAGED TRANSACTION RISK

4.13. The 1MDB Transactions were reviewed and approved using Goldman Sachs’ global

transaction review framework, which utilised a combination of GSI and broader

Goldman Sachs resources and personnel.

4.14. In particular, the 1MDB Transactions were subject to:

a.
due diligence by business and control functions; and

b.
review and approval by the relevant transaction committees.

Due diligence by the business and control functions

4.15. GSI considered that both Malaysia and the jurisdiction in which Sovereign Wealth

Fund A and Sovereign Wealth Fund A Subsidiary were based were at the higher end

of risk in relation to jurisdictions in which GSI undertook business, given their higher

level of legal, compliance and other reputational risks. In addition, the use of third

parties and intermediaries was widely known within GSI to be common practice in

these jurisdictions. Transactions with parties in such jurisdictions were therefore

required to undergo a commensurately higher level of due diligence.

4.16. The due diligence review of the 1MDB Transactions involved various business and

control functions, including the Deal Team, Conflicts, Legal (including BIG, a sub-

function within Legal which conducted research and due diligence on legal, regulatory

and reputational risk matters) and Compliance. The process included: financial and

management due diligence; auditor due diligence; due diligence in relation to

underlying acquisitions; identification and management of potential conflicts of

interest; and review of legal and compliance issues and reputational risks.

Transaction committee review and approval process

4.17. The 1MDB Transactions were also subject to a regional and firmwide transaction

committee review and approval process. Due to the 1MDB Transactions’ size and

nature, they were each reviewed and approved by the FWCC and FWSC:

a.
the FWCC was responsible for providing global approval and oversight of certain

debt-related transactions; and

b.
the FWSC was responsible for overseeing standards and policies for client,

product and transaction suitability.

4.18. For the 1MDB Transactions to proceed, they had to be approved by both the FWCC

and FWSC.

4.19. In advance of a committee meeting, the Deal Team typically provided a

memorandum (or a supplement to an earlier memorandum) to the committee

members to facilitate their review of the proposed transaction (known as “Deal

Memos”). The Deal Memos generally included key factual information (including a

background to and overview of the transaction, including principal transaction

terms), a summary of the due diligence undertaken and key discussion points or

transaction concerns (i.e. risks) arising, including the work done to address or

mitigate the concerns identified. At each meeting, the committee was expected to

discuss the proposed transaction and ask questions of the Deal Team where relevant

or appropriate, after which the committee could reject or approve the transaction or

require “follow ups” to be completed, either prior to further committee review or as

part of a conditional approval.

4.20. The FWCC and FWSC minutes were maintained in standardised form as mandated in

their respective Charters. The FWCC minutes identified at a high level the outcome

of the committee’s consideration, including any agreed action items or follow ups,

which were required to be completed before the transaction could proceed. The

FWSC minutes briefly identified the areas of focus and inquiry and the outcome of

the committee’s consideration, including any agreed action items or follow ups, which

again were required to be completed before the transaction could proceed.

FACTS AND MATTERS GIVING RISE TO BREACHES

RISK RELATING TO THIRD PARTY A

4.21. The identification and assessment of risks posed by third parties involved in

transactions was an important area of legal and compliance risk for GSI, particularly

where transactions involved parties in jurisdictions that posed higher levels of legal,

compliance and other reputational risks to GSI.

4.22. As detailed further below, GSI:

a.
was aware that Third Party A’s application to open a private wealth account

with Goldman Sachs had been declined due to concerns over the source of their

wealth;

b.
had knowledge of Third Party A’s pre-existing relationships with 1MDB,

Sovereign Wealth Fund A and Sovereign Wealth Fund A Subsidiary; and

c.
was on notice of Third Party A’s role in relation to the March 2012 Meeting and

thereby the possibility of their broader involvement at least in Project Magnolia.

GSI’s knowledge of Third Party A prior to the 1MDB Transactions

4.23. Prior to GSI’s involvement in the 1MDB Transactions, it was known within GSI that

Third Party A had links to the institutions that were central to the 1MDB Transactions.

Furthermore, GSI had concerns about the unverified source of Third Party A’s wealth

and was aware of media reports of opposition political party calls for an anti-

corruption investigation into Third Party A due to concerns about their source of

wealth and connections to senior Malaysian government officials.

4.24. As detailed further below, this knowledge arose from previous projects and Goldman

Sachs’ two previous refusals to onboard Third Party A as a client.

Knowledge arising from prior on-boarding attempts

4.25. Between 2009 and 2011, two Asia-based Goldman Sachs bankers, one of whom

would later lead the Deal Team on the 1MDB Transactions (“Senior Banker A”), made

two unsuccessful attempts to refer Third Party A for a Goldman Sachs private wealth

account and proposed to have Goldman Sachs act for Third Party A in relation to an

acquisition. These attempts were unsuccessful because BIG and Compliance had

concerns about (i) an inability to verify the sources of Third Party A’s wealth and (ii)

media reports of opposition political party calls for an anti-corruption investigation

into Third Party A due to concerns about their source of wealth and connections to

senior Malaysian government officials. In 2011, Compliance stated that it had “…

pretty much zero appetite for a relationship with this individual”, a view that was

supported by BIG which stated that “… this [Third Party A] is a name to be avoided”.

Knowledge arising from previous transactions

4.26. Prior to the 1MDB Transactions, between 2009 and 2012, certain Goldman Sachs

and GSI personnel had contact with Third Party A in relation to certain proposed or

actual transactions. In these transactions, Third Party A was not Goldman Sachs’ or

GSI’s client or otherwise advised by Goldman Sachs or GSI, but had some other

involvement (e.g. acting as an adviser for clients of Goldman Sachs or GSI or to

other parties involved).

4.27. Through this, it was known within Goldman Sachs and GSI that Third Party A had

connections to high-ranking officials of 1MDB, Sovereign Wealth Fund A and

Sovereign Wealth Fund A Subsidiary.

Notice of involvement of Third Party A in Project Magnolia

4.28. At the outset of Project Magnolia, Conflicts instructed the Deal Team to disclose to

Conflicts any intermediary working on the deal. The Deal Team did not indicate that

any intermediary was involved.

The March 2012 Meeting

4.29. Prior to the first regional transaction review committee meeting for Project Magnolia,

BIG asked Senior Banker A whether Third Party A was involved in Project Magnolia.

Senior Banker A said that Third Party A was not. On 29 March 2012, BIG repeated

its question to Senior Banker A at the first regional transaction review committee

meeting for Project Magnolia. Senior Banker A again responded that Third Party A

had no involvement.

4.30. Prior to the first FWCC meeting, BIG learned that Third Party A (whom BIG knew had

connections to 1MDB and to Sovereign Wealth Fund A) had attended a meeting

earlier in March between Senior Banker A and a high-ranking official of Sovereign

Wealth Fund A (“the March 2012 Meeting”). In response, BIG took a number of steps:

a.
BIG conducted some due diligence into the issue, including media searches

(which did not identify evidence of Third Party A’s involvement) and asking

questions of other Deal Team members who confirmed that they had no

knowledge of Third Party A having any role. BIG discussed the matter again

with Senior Banker A and reported that Senior Banker A had told BIG that Third

Party A was present at the March 2012 Meeting, but was not involved at all in

Project Magnolia.

b.
On 4 April 2012, during the first FWCC meeting to discuss Project Magnolia,

BIG raised that Third Party A had attended the March 2012 Meeting. Senior

Banker A told the committee that Third Party A had arranged the March 2012

Meeting, but stated that Third Party A had not attended it.

c.
After the 4 April 2012 FWCC meeting, BIG emailed Senior Banker A. BIG noted

that its earlier understanding that Third Party A had attended the March 2012

Meeting was incorrect, but went on to note that Third Party A had clearly had

a role in arranging the March 2012 Meeting at which a letter from a high-

ranking official of 1MDB was delivered. After noting that GSI personnel had

historically been unable to secure such a meeting with the high-ranking official

of Sovereign Wealth Fund A, BIG stated to Senior Banker A that “[it is]

important we have no role on our side for [Third Party A] …” and “… we should

ask that any payments from any of participants to any intermediaries are

declared and transparent”. Senior Banker A said that they agreed.

d.
BIG required and Goldman Sachs received written representations from both

1MDB and Sovereign Wealth Fund A that no intermediary was involved in the

transaction.

e.
After Project Magnolia closed, BIG instructed Compliance to conduct email

surveillance of the Deal Team, including to identify any potential indications of

bribery or favours in connection with obtaining the Project Magnolia business.

No issues of concern were identified.

Project Maximus and Project Catalyze

4.31. Goldman Sachs took the following steps during Project Maximus and Project

a.
Conflicts again instructed the Deal Team to inform Conflicts and BIG if any

party became involved in the transactions who could be deemed an

intermediary or consultant. The Deal Team did not indicate that any

intermediary was involved.

b.
BIG required and Goldman Sachs received representations from 1MDB,

Sovereign Wealth Fund A and the Malaysian government that no intermediary

was involved in the transactions.

c.
BIG and, in the case of Project Maximus, Legal asked the Deal Team whether

any finders or intermediaries were involved in the transactions. In relation to

both transactions, the Deal Team responded that there were none. In respect

of Project Maximus, BIG also asked the Deal Team specifically whether Third

Party A was involved The Deal Team responded that Third Party A was not

involved.

d.
BIG conducted further background checks and assessed relevant media reports

during Project Maximus.

e.
Whilst Project Maximus was ongoing, as part of routine deal-compliance

surveillance, Compliance reviewed the emails of Senior Banker A and another

senior member of the Deal Team, including looking for any reference to 1MDB

or an intermediary. No issues of concern were identified.


Insufficient steps taken in relation to Third Party A

4.32. Given Third Party A’s involvement in prior transactions involving 1MDB, Sovereign

Wealth Fund A and/or Sovereign Wealth Fund A Subsidiary; their connections to

high-ranking officials in Malaysia and the foreign government of Sovereign Wealth

Fund A; and the concerns Goldman Sachs had previously had regarding Third Party

A’s unverified source of wealth, it was important that the risk of Third Party A’s

involvement in the 1MDB Transactions was thoroughly scrutinised and considered by

the transaction review committees.

4.33. Although, as noted above, steps were taken by BIG, Legal, Compliance and others

to scrutinise the issue, further steps should have been taken to assess and mitigate

the risk of Third Party A’s involvement, in particular by ensuring that the committees

carefully scrutinised and assessed the risk.

4.34. There was also an overreliance placed on the representations of Senior Banker A and

the rest of the Deal Team. Senior Banker A was not challenged about (i) why they

had said initially to BIG and the regional transaction review committee that Third

Party A had no role in Project Magnolia when it became clear that Third Party A had

arranged the March 2012 Meeting, and (ii) why Third Party A was involved in

arranging the March 2012 Meeting at which Senior Banker A delivered a letter from

a high-ranking official of 1MDB to a high-ranking official of Sovereign Wealth Fund

A and what Third Party A stood to benefit from doing so.

4.35. Whilst GSI required that the executed agreements for each of the 1MDB Transactions

contained representations from 1MDB, Sovereign Wealth Fund A and the Malaysian

government that no intermediary was involved in the 1MDB Transactions (which

were provided), more specific questions should have been asked of 1MDB, Sovereign

Wealth Fund A and the Malaysian government during the due diligence process as to

whether Third Party A was involved in the 1MDB Transactions and, if so, in what

capacity.

4.36. In addition, the name of “Third Party A” was not used in the email searches that

GSI’s control functions conducted after Project Magnolia and during Project Maximus

(although it is unclear whether such searches would have raised additional issues of

concern beyond Third Party A’s role in arranging the March 2012 Meeting).

4.37. Further, GSI failed to ensure that the committees carefully scrutinised and assessed

the risk of Third Party A’s involvement in the 1MDB Transactions. Although (i) the

issue of whether Third Party A was involved in Project Magnolia was raised orally by

BIG at the first regional transaction review committee meeting on 29 March 2012

and the first FWCC meeting on 4 April 2012; and (ii) the Deal Team noted in the

Project Maximus Deal Memos that representations as to the absence of

intermediaries had been or would be provided, the risk of Third Party A’s involvement

was not highlighted by the Deal Team as a compliance issue, concern or risk indicator

in any of the Deal Memos for the 1MDB Transactions. In respect of Project Magnolia,

the minutes of the FWCC meeting on 4 April 2012 did not record the basis on which

the committee was comfortable that the risk of Third Party A’s possible involvement

had been appropriately mitigated. Similarly, there is no record of how the

committees considered the specific risk of Third Party A’s involvement in the Project

Maximus and Project Catalyze transactions.

Involvement of Third Party A between and post the 1MDB Transactions

4.38. Between and after the completion of the 1MDB Transactions, Third Party A and/or

connected entities were involved in various other circumstances pertaining to GSI

and/or Goldman Sachs, including acting as an adviser and co-investor in a

transaction in which Goldman Sachs was advising another investor.

ASSESSMENT AND MANAGEMENT OF RISKS

4.39. The transaction committees were responsible for the assessment of legal, regulatory

and capital risks and the management of reputational risks referred to them as part

of the approval of transactions.

4.40. The Deal Memos were prepared by the Deal Team with input from a range of control

functions, including BIG, Legal, Compliance and the Debt Underwriting Group. The

Debt Underwriting Group had a quality control function, whose responsibilities

included ensuring that FWCC memoranda conformed with the process requirements

and met certain standards, minuting meetings, liaising between deal teams and the

FWCC and tracking follow-up items. The Deal Memos were required to highlight any

key risks (referred to in the Deal Memos as key discussion points and areas of

concern) which a committee might be interested in discussing.

4.41. The Deal Memos set out a number of key risks relevant to proper consideration of

the reputational, suitability and financial crime risks arising in the 1MDB Transactions

and mitigants in relation to these risks. The identified risks included:

a.
Negative media coverage of 1MDB and the 1MDB Transactions which

questioned the purpose, commerciality and overall appropriateness of the

deals. In addition, 1MDB had received public criticism from political and

business leaders within Malaysia, including allegations of corruption.

b.
The choice of transaction structure as private placements using GSI as sole

arranger and underwriter and the reasons why 1MDB had a preference in each

of the transactions for a principal financing (each time the quickest and most

expensive option but with more confidentiality) in preference to other lower-

cost financing alternatives.

c.
The planned use of proceeds for Project Catalyze, given the absence of a stated

investment plan and specific asset purchases for the joint venture.

d.
The reasons for 1MDB wishing to raise the amount of funds proposed in Project

Maximus when some of the funds raised through Project Magnolia remained

unused. The Deal Memo for Project Catalyze also summarised the earlier

Project Magnolia and Project Maximus transactions, the fact that US$1.6billion

of the proceeds had not yet been used and indicated the planned investment

activities to which those unused funds were to be used.

e.
The financing structures chosen by 1MDB for Catalyze would result in “negative

carry” (i.e., that 1MDB would be paying interest on the funds raised through

the transaction whilst they were unused).

f.
The Committees considered the amount of overall profits Goldman Sachs could

potentially earn from the transactions, and required presentations to be made

to 1MDB and Sovereign Wealth Fund A on the potential profits or losses it might

earn or incur, depending on how long it took to sell the bonds to third parties,

at what price, and what market exposures and associated hedging/funding

costs it would incur whilst doing so. The Deal Memos did not, however, contain

clear reasoning as to why the size of potential profits were considered suitable.

g.
Whether, in light of approvals by senior executives of Sovereign Wealth Fund

A, and other factors, there was sufficient evidence that the guarantees given

by Sovereign Wealth Fund A for Project Magnolia and Project Maximus had

been duly authorised, notwithstanding the absence of a board resolution

authorising the guarantees (as had originally been requested in Project

Magnolia).

h.
The timing of Project Catalyze in relation to the Malaysian 2013 general

election.

4.42. The Deal Memos set out a number of mitigants that had been taken in relation to

several of these risks. The minutes of the committee meetings also highlighted

several follow up actions relevant to these risks, which the committees required

the Deal Team and control functions to take before the transactions would be

approved.

4.43. However, as noted at paragraph 4.37 above, and unlike the risks set out at

paragraphs 4.41.a. – h., the Deal Memos for the 1MDB Transactions did not

highlight the risk of Third Party A’s involvement.

4.44. Further:

a.
given the heightened financial crime and reputational risks associated with the

1MDB Transactions and that not all of the risks (e.g. reputational risks arising

out of negative media/political coverage) were capable of being fully mitigated,

it was crucial that sufficient consideration was given to all relevant risk factors

both individually and holistically and that the committees were presented with

all relevant information to enable such consideration; and

b.
in relation to the risks which were highlighted in the Deal Memos, the manner

in which some of these risks and the steps taken to address them were

presented and conveyed to the committees meant that the committees did not

have adequate information to enable them to assess the risks fully, including

the reputational and financial crime risks arising from each of the 1MDB

Transactions, holistically.

Record keeping

4.45. The minutes of the FWCC and FWSC meetings were maintained in a standardised

format, whereby the minutes only recorded briefly the key decisions made,

including any follow up actions which the committee required to be completed. The

minutes did not contain details of how the committees had considered risks, the

rationale for the action points identified or the rationale for the committees’ decision

to approve the transactions.

4.46. As a result, insufficient records were retained to show how the committees had

assessed the risks arising out of the 1MDB Transactions, or the reasons the

committees were comfortable approving, or conditionally approving the

transactions. Given the size and risk profile of the 1MDB Transactions, the failure

to document the committees’ consideration of these matters more fully is

significant.

ALLEGATIONS OF BRIBERY AND MISCONDUCT IN 2013 AND 2015

2013 information about potential bribery

4.47. In mid-2013, shortly after Project Catalyze closed, GSI senior personnel were

provided with information about possible bribery relating to the joint venture the

Catalyze bonds were issued to finance. The information indicated that an official at

Sovereign Wealth Fund A may have been delaying funding the Sovereign Wealth

Fund A Subsidiary/1MDB joint venture in order to attempt to secure a bribe (from a

non-Goldman Sachs party) and also that this Sovereign Wealth Fund A official had

connections to Third Party A.

4.48. The information was received amidst media and political criticism about the 1MDB

Transactions and the fees Goldman Sachs received for them, and at a time when, as

set out at paragraphs 4.21 to 4.38, GSI was on notice of the risk of Third Party A’s

involvement in the 1MDB Transactions. As such, the information could have been

relevant to GSI’s assessment of ongoing legal, compliance or ethical risks,

particularly the risks arising out of historic, current and future dealings or

transactions involving 1MDB, Sovereign Wealth Fund A, Sovereign Wealth Fund A

Subsidiary and the Sovereign Wealth Fund A official.

4.49. This information presented an issue that might raise legal, compliance and ethical

concerns requiring immediate escalation to control functions in accordance with GSI

internal policies. Irrespective of how the information was viewed by the individuals

who received it, it was important that the control functions were given the

opportunity to assess the credibility and significance of this information, and, if

deemed necessary, act on this information. However, GSI senior personnel did not

escalate the information to GSI’s control functions for assessment and, if

appropriate, action. This was particularly important as Goldman Sachs separately

received similar information at a similar time alleging that the same Sovereign

Wealth Fund A official had delayed an earlier 1MDB transaction in order to secure a

bribe from a non-Goldman Sachs party.

2015 1MDB misconduct allegation

4.50. Prior to late 2015, there were a number of known risk indicators within GSI

concerning 1MDB and the 1MDB Transactions, including:

a.
GSI was aware of criticisms reported in the media of 1MDB’s transaction

history, including the 1MDB Transactions, and also Third Party A’s connections

to high-ranking officials of 1MDB; and

b.
GSI was aware of Senior Banker A’s relationship with Third Party A, both

before, during and after the 1MDB Transactions.

4.51. In late 2015, GSI senior personnel and a control function received information about

a third party’s suspicion that Senior Banker A had been involved in, and potentially

benefitted from, misconduct relating to 1MDB. The information suggested that Third

Party A may also have been involved.

4.52. There are no records of further escalation of this information or of how control

functions at GSI and Goldman Sachs assessed this information. Furthermore, no

action was taken in response to this information in the weeks that followed.

4.53. A few weeks after control functions learned from GSI of this allegation concerning

Senior Banker A, a separate concern arose unrelated to the 1MDB Transactions

involving Senior Banker A. Whilst investigating that matter, Goldman Sachs’ control

functions discovered in January 2016 that Senior Banker A may have been involved

in additional misconduct by providing an unauthorised reference for Third Party A.

Whilst GSI informed the Authority about the unauthorised reference matter in early

February 2016, it did not inform the Authority about the information it had received

suggesting possible misconduct by Senior Banker A related to 1MDB.

SUBSEQUENT CRIMINAL AND REGULATORY ACTION

4.54. Since 2015, Goldman Sachs entities (including GSI), Third Party A, Senior Banker A,

other current and former employees of Goldman Sachs (including GSI) and

individuals at 1MDB, Sovereign Wealth Fund A and Sovereign Wealth Fund A

Subsidiary have been the subject of criminal and/or regulatory investigations and

actions in various jurisdictions relating to political corruption, bribery and

international money laundering in connection with the 1MDB bond transactions.

4.55. In particular, the U.S. Department of Justice has alleged that between 2009 and

2014 billions of dollars were misappropriated and fraudulently diverted from 1MDB

to individuals complicit in the scheme. It is alleged that members of the conspiracy

included officials at 1MDB, their relatives and other associates, including Third Party

A. The diverted funds allegedly included approximately US$2.7 billion of the US$6.5

billion in capital raised through the 1MDB Transactions.

5.
FAILINGS

5.1. The regulatory provisions relevant to this Notice are referred to in Annex A.

5.2. As described in further detail below, GSI breached Principles 2 and 3 of the

Authority’s Principles for Businesses.

PRINCIPLE 2 FAILINGS

5.3. Principle 2 requires a firm to conduct its business with due skill, care and diligence.

In breach of Principle 2, GSI failed with due skill, care and diligence to:

a.
assess and manage sufficiently the risks surrounding the involvement of Third

Party A in the 1MDB Transactions;

b.
ensure that the transaction committees had adequate information to assess

the risks associated with the 1MDB Transactions holistically; and

c.
manage allegations of bribery and misconduct relating to individuals and/or

entities involved in or associated with the 1MDB Transactions.

Risk relating to Third Party A

5.4. As set out in more detail below, insufficient steps were taken to scrutinise the risk of

Third Party A’s involvement in the 1MDB Transactions.

5.5. Given (i) Third Party A’s involvement in prior transactions involving Senior Banker

A, 1MDB, Sovereign Wealth Fund A and/or Sovereign Wealth Fund A Subsidiary;(ii)

Third Party A’s connections to high-ranking officials in Malaysia and the foreign

government of Sovereign Wealth Fund A; and (iii) the concerns Goldman Sachs

previously had regarding Third Party A’s unverified source of wealth and media

reports of opposition political party calls for an anti-corruption investigation into

Third Party A and their links to the Malaysian government, it was important that the

risk of Third Party A’s involvement in the 1MDB Transactions was thoroughly

scrutinised and considered by GSI’s control and support functions.

5.6. However, GSI failed to take sufficient steps to ensure that the committees scrutinised

and assessed fully the risk of Third Party A being involved in the 1MDB Transactions.

Although steps were taken by BIG, Legal, Compliance and others to scrutinise the

issue, the Deal Memos for the 1MDB Transactions did not highlight the risk of Third

Party A’s involvement. Whilst there is evidence of the Deal Team reporting on the

fact that representations as to the absence of intermediaries had been or would be

provided, there is no record of the committees considering the specific risk of Third

Party A’s involvement in the 1MDB Transactions subsequent to the FWCC meeting

on 4 April 2012. Further, the minutes of the FWCC meeting on 4 April 2012 did not

record the basis upon which the committee was comfortable that the risk of Third

Party A’s involvement had been subject to appropriate due diligence and mitigation.

5.7. Furthermore, overreliance was placed on the representations of the Deal Team and

the transaction parties during the due diligence process to assess the possible

involvement of Third Party A in the 1MDB Transactions. The inconsistent accounts

given by Senior Banker A regarding the possible involvement of Third Party A in

Project Magnolia should have led to further investigation of the situation.

Notwithstanding the breadth of the contractual ‘no-intermediary’ representations

received from 1MDB, Sovereign Wealth Fund A and the Malaysian government, more

specific questions should have been asked of 1MDB, Sovereign Wealth Fund A and

the Malaysian government during the due diligence process for the 1MDB

Transactions about the possible involvement of Third Party A. In addition, the name

of “Third Party A” was not used in the email searches that GSI’s control functions

conducted after Project Magnolia and during Project Maximus.

Approach to risk assessment

5.8. The 1MDB Transactions gave rise to a series of risks, several of which were inter-

related. Save for the risk of the involvement of Third Party A, information about the

risks and the mitigants taken or being taken were presented to the FWCC and FWSC

for consideration. However, GSI failed to take sufficient steps to ensure that the risks

identified in relation to the 1MDB Transactions were presented and conveyed to the

committees in a manner which provided the committees with adequate information

to enable them to assess the risks fully, including the reputational and financial crime

risks arising from each transaction holistically.

5.9. The absence of information in relation to the risk of the involvement of Third Party

A in the 1MDB Transactions undermined the ability of the committees to assess this

risk in the round with the other attendant risks.

5.10. The above failures were particularly serious given the size of the 1MDB Transactions

and the heightened financial crime risks associated with the jurisdictions in which

the parties involved in the 1MDB Transactions were based.

Bribery and misconduct allegations

5.11. GSI failed to escalate in accordance with GSI internal policies or otherwise

adequately deal with information received regarding possible bribery in mid-2013,

after the 1MDB Transactions had closed. The information received was sufficiently

important that it should have been escalated to control functions, assessed and any

required action taken. The failure to undertake this assessment was particularly

acute because (i) there were concerns about the 1MDB Transactions reported in the

media; (ii) GSI was on notice of the risk of Third Party A’s possible involvement in

the 1MDB Transactions; (iii) Goldman Sachs separately received similar information

at a similar time alleging that the Sovereign Wealth Fund A official had delayed an

earlier 1MDB transaction to secure a bribe from a non-Goldman Sachs party; and

(iv) the information could have been relevant to GSI’s assessment of the risks arising

out of historic, current and future dealings or transactions involving the entities and

individuals in question.

5.12. GSI also failed to adequately respond in a timely manner to an allegation of

misconduct on the part of Senior Banker A in 2015. While GSI escalated this

information to a control function, there is no record of how the control functions at

GSI and Goldman Sachs assessed this information, or of further escalation of the

information. No action was taken in response to the allegation in the weeks that

followed. It was several weeks before Senior Banker A was placed under heightened

surveillance following the discovery of other misconduct. When GSI later notified the

Authority of Senior Banker A’s non-1MDB related misconduct in February 2016, the

allegation GSI had received of 1MDB-related misconduct by Senior Banker A was not

notified to the Authority.

PRINCIPLE 3 FAILINGS

5.13. Principle 3 requires a firm to take reasonable care to organise and control its affairs

responsibly and effectively, with adequate risk management systems.

5.14. GSI failed to retain sufficient records to show how the committees had assessed the

risks arising out of the 1MDB Transactions, or the reasons the committees were

comfortable approving or conditionally approving the 1MDB Transactions. The

minutes of the FWCC and FWSC meetings were in a standardised format which only

recorded briefly the key decisions made, including any follow up actions which the

committee required to be completed. The minutes did not contain details of how the

committees had considered the risks, the rationale for the action points identified or

the rationale for the committee’s decision to approve the 1MDB Transactions.

5.15. The deficiencies in record keeping by the committees was a serious breach because

it meant the risk approach to the transactions could not be properly reviewed at the

time of the transactions, nor could it be adequately scrutinised post the transactions

when issues of possible financial crime arose. The maintenance of accurate and

sufficiently detailed records of a firm’s business and internal organisation,

particularly in respect of its senior decision-making committees, is necessary for the

proper discharge of the Authority’s supervisory responsibilities. Deficiencies in record

keeping hinder both the Authority’s and the firm’s ability to identify and manage

risks associated with the firm’s business prudently. The lack of detailed minutes of

committees’ scrutiny and approval to execute the 1MDB Transactions does not meet

the standard required of firms, particularly given the higher risk profile of these

transactions.

6.
SANCTION

6.1. The Authority considers that a financial penalty is the appropriate sanction in the

circumstances of this case.

6.2. The Authority’s policy on the imposition of financial penalties is set out in Chapter 6

of the Authority’s Decision Procedure & Penalties Manual (“DEPP”). In respect of

conduct occurring on or after 6 March 2010, the Authority applies a five-step

framework to determine the appropriate level of financial penalty. DEPP 6.5A sets

out the details of the five-step framework that applies in respect of financial penalties

imposed on firms.

6.3. Pursuant to DEPP 6.5A.1G, at Step 1 the Authority seeks to deprive a firm of the

financial benefit derived directly from the breach where it is practicable to quantify

this.

6.4. The Authority notes that, in relation to Goldman Sachs’ role in the 1MDB

Transactions, GSI’s ultimate parent company, The Goldman Sachs Group, Inc., has

paid US$2.5 billion to the government of Malaysia and guaranteed the recovery of

at least US$1.4 billion in asset proceeds. As such, the Authority considers that it

does not need to separately address the question of disgorgement.

6.5. The Step 1 figure is therefore £0.

Step 2: the seriousness of the breach

6.6. Pursuant to DEPP 6.5A.2G, at Step 2 the Authority determines a figure that reflects

the seriousness of the breach. Where the amount of revenue generated by a firm

from a particular product line or business area is indicative of the harm or potential

harm that its breach may cause, that figure will be based on a percentage of the

firm’s revenue from the relevant products or business area.

6.7. The Authority considers that the annual revenue generated by GSI in total or from a

relevant business area would not be an appropriate indicator of the harm or the

potential harm caused by its breaches. Given the nature of GSI’s breaches and their

potential impact on the 1MDB Transactions and those involved in them, the Authority

has determined that the appropriate metric which reflects the harm or potential harm

GSI’s breaches may have caused is the difference between the price at which GSI

purchased the bonds issued through the 1MBD Transactions and the price at which

it sold them (plus interest earned on the bonds whilst they were held by GSI). The

relevant indicator of harm is therefore US$643,871,222.

6.8. In deciding on the percentage that forms the basis of the Step 2 figure, the Authority

considers the seriousness of the breach and chooses a percentage between 0% and

20%. This range is divided into five fixed levels which represent, on a sliding scale,

the seriousness of the breach; the more serious the breach, the higher the level. For

penalties imposed on firms there are the following five levels:

Level 1 – 0%

Level 2 – 5%

Level 3 – 10%

Level 5 – 20%

6.9. In assessing the seriousness level for the purposes of Step 2, the Authority has taken

into account the following factors set out in DEPP:

a.
DEPP 6.5A.2G (6-9) which lists factors the Authority will generally take into

account in deciding which level of penalty best indicates the seriousness of the

breach;

b.
DEPP 6.5A.2G (11) which lists factors likely to be considered ‘level 4 or 5

factors’; and

c.
DEPP 6.5A.2G (12) which lists factors likely to be considered ‘level 1, 2, or 3

factors’.

6.10. Of these, the Authority considers the following factors to be most relevant to the

assessment of seriousness:

a.
How a firm counters the risk that it might be used to further financial crime is

the responsibility of UK financial institutions. This was particularly important in

this instance given the enhanced risk profile of the 1MDB Transactions.

b.
Failures by GSI relating to its ability to assess and record risks undermined its

ability to manage those risks. An essential plank of protection against financial

crime is risk assessment and management. Such failings are particularly

serious in relation to high value transactions with higher-risk profiles such as

the 1MDB Transactions.

c.
The Principle 2 breaches that relate directly to the 1MDB Transactions persisted

across three transactions executed over the course of 11 months and involved

individuals at senior positions within GSI.

d.
The further breaches that occurred in 2013 and 2015, when there was a failure

to act appropriately after receiving information relating to possible bribery and

misconduct in relation to the third 1MDB transaction and 1MDB, directly

involved senior GSI personnel.

e.
The shortcoming in the firm’s internal procedures and controls around record

keeping was serious because it related directly to the assessment and

management of risk by the firm’s transaction approving committees.

f.
GSI’s breaches were not deliberate or reckless.

6.11. The Authority considers the seriousness of the breach to be level 4 (15%).

6.12. The Step 2 figure is therefore US$96,580,683.

Step 3: mitigating and aggravating factors

6.13. Pursuant to DEPP 6.5A.3G, at Step 3 the Authority may increase or decrease the

amount of the financial penalty arrived at after Step 2 to take into account factors

which aggravate or mitigate the breach.

6.14. The Authority considers the following factors are relevant:

a.
GSI has cooperated during the Authority’s investigation.

b.
Since 2013, GSI has made changes to its governance and control

arrangements, as is to be properly expected of an authorised firm in the

circumstances. In particular, GSI has made changes to its compliance and

surveillance programmes with the aim of improving the identification of

instances of corruption or fraud, and at group level, Goldman Sachs has

introduced a “Firmwide Reputational Risk Committee”. GSI has also changed

its record-keeping arrangements by requiring that more detailed records of

transaction committee meetings are maintained.

c.
The firm’s previous disciplinary history. In September 2010, the FSA imposed

a financial penalty on GSI of £17.5 million for breaches of Principles 2, 3 and

11 (including a failure to conduct its business with due skill, care and diligence

with respect to its regulatory reporting obligations).

Together the above factors should reduce the Step 2 figure by 5%.

6.15. The Authority considers that the PRA’s decision to impose a financial penalty on GSI

in respect of misconduct by GSI arising from broadly the same facts and matters is

also a relevant factor. This should reduce the Step 2 figure by a further 50%.

6.16. Having taken into account the above factors, the Authority considers that the Step

2 figure should be reduced by 55%.

6.17. The Step 3 figure is therefore US$43,461,307.

Step 4: adjustment for deterrence

6.18. Pursuant to DEPP 6.5A.4G, if the Authority considers the figure arrived at after Step

3 is insufficient to deter the firm who committed the breach, or others, from

committing further similar breaches, then the Authority may increase the penalty.

In doing so, it has also considered the financial penalty imposed by the PRA in respect

of misconduct by GSI arising from broadly the same facts and matters.

6.19. Without
an
adjustment
for
deterrence,
the
financial
penalty
would
be

US$43,461,307. The Authority considers that a penalty of this size would not serve

as a sufficient deterrent to GSI or other firms from committing similar breaches.

Given the size and stature of GSI, and the nature of the misconduct, it is necessary

for the Authority to increase the Step 3 figure to achieve such deterrence. Having

taken into account the factors outlined at DEPP 6.5A.4G, the Authority considers that

the Step 3 figure should be increased to US$90,000,000.

6.20. Step 4 is therefore US$90,000,000 (equivalent to £69,012,000).

Step 5: settlement discount

6.21. Pursuant to DEPP 6.5A.5G, if the Authority and the firm to whom the penalty is to

be imposed agree the amount of financial penalty and other terms, DEPP 6.7 provides

that the amount of financial penalty which might otherwise have been payable will

be reduced to reflect the stage at which the Authority and the firm reached

agreement.

6.22. The Authority and GSI reached agreement at Stage 1 and so a 30% discount applies

to the Step 4 figure. Step 5 is therefore US$63,000,000 (equivalent to £48,308,400).

6.23. The Authority thereby imposes on GSI a financial penalty of £48,308,400 (equivalent

to US$63,000,000).

7.
PROCEDURAL MATTERS

7.1. This Notice is given to GSI under, and in accordance with, section 390 of the Act.

The following statutory rights are important.

Decision maker

7.2. The decision which gave rise to the obligation to give this Notice was made by the

Settlement Decision Makers.

Manner and time for payment

7.3. The Financial penalty must be paid in full by GSI to the Authority no later than 4

If the financial penalty is not paid

7.4. If all or any of the financial penalty is outstanding on 5 November 2020, the Authority

may recover the outstanding amount as a debt owed by GSI and due to the

Authority.

7.5. Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of information

about the matter to which this notice relates. Under those provisions, the Authority

must publish such information about the matter to which this notice relates as the

Authority considers appropriate. The information may be published in such manner

as the Authority considers appropriate. However, the Authority may not publish

information if such publication would, in the opinion of the Authority, be unfair to

GSI or prejudicial to the interests of consumers or detrimental to the stability of the

UK financial system.

Authority contacts

7.6. For more information concerning this matter generally, contact Stephen Robinson at

the Authority (direct line: 020 7066 1338/ email: stephen.robinson@fca.org.uk), or

Eden
Legesse
at
the
Authority
(direct
line:
020
7066
6710/
email:

eden.legesse@fca.org.uk).

Financial Conduct Authority, Enforcement and Market Oversight Division

ANNEX A

RELEVANT STATUTORY AND REGULATORY PROVISIONS AND GUIDANCE

1.
RELEVANT STATUTORY PROVISIONS

Financial Services and Markets Act 2000

1.1
The Authority’s general duties established in section 1B of the Act include the

strategic objective of ensuring that the relevant markets function well and the

operational objectives of protecting and enhancing the integrity of the UK financial

system and securing an appropriate degree of protection for consumers.

1.2
Section 206 of the Act gives the Authority the power to impose a penalty on an

authorised firm if that firm has contravened a requirement imposed on it by or under

the Act.

1.3
DEPP, which forms part of the Authority’s Handbook, sets out the Authority’s

statement of policy with respect to the imposition and amount of financial penalties

under the Act. In particular, DEPP 6.5A sets out the five steps for penalties imposed

on firms in respect of conduct taking place on or after 6 March 2010.

2.
RELEVANT REGULATORY PROVISIONS AND GUIDANCE

2.1
In exercising its powers to impose a financial penalty, the Authority has had regard

to the relevant regulatory provisions published in the Authority’s handbook. The main

provisions that the Authority considers relevant are set out below.

Principles for Business (PRIN)

2.2
The Principles are general statements of the fundamental obligations of firms under

the regulatory system and are set out in the Authority’s handbook. They derive their

authority from the Authority’s statutory objectives.

2.3
Principle 2 provides that a firm must conduct its business with due skill, are and

diligence.

2.4
Principle 3 provides that a firm must take reasonable care to organise and control its

affairs responsibly and effectively, with adequate risk management systems.

Decision Procedures and Penalties Manual (DEPP)

2.5
Chapter 6 of DEPP, which forms part of the Authority’s handbook, sets out the

Authority’s statement of policy with respect to the imposition and amount of financial

penalties under the Act. In particular, DEPP 6.5A sets out the five steps for penalties

imposed on firms in respect of conduct taking place on or after 6 March 2010.

The Enforcement Guide (EG)

2.6
EG sets out the Authority’s approach to exercising its main enforcement powers

under the Act.

2.7
Chapter 7 of EG sets out the Authority’s approach to exercising its power to impose

a financial penalty.