Goldman Sachs has agreed to a US$3.9 billion ($5.4 billion) settlement with the Malaysian government for its involvement in the 1MDB corruption and fraud scheme.
The settlement regarded outstanding charges and claims related to three bond transactions the company had structured and arranged for the country’s sovereign fund 1Malaysia Development Berhad (1MDB), which saw billions of dollars illegally diverted to other accounts.
Under the settlement, the Malaysian government has withdrawn its criminal proceedings against Goldman Sachs subsidiaries and a number of former and current directors, including former senior investment bankers Tim Leissner and Roger Ng.
In March last year, the US Federal Reserve banned the two men from the banking industry for their participation in the scheme, after it found they had coordinated bond offerings arranged by Goldman for 1MDB in 2012 and 2013.
The funds diverted from 1MDB were then used for the conspirators’ personal benefit and to bribe government officials in Malaysia and Abu Dhabi.
Mr Leissner pleaded guilty to criminal charges brought by the Department of Justice in the Eastern District of New York in August 2018, for conspiring to violate the Foreign Corrupt Practices Act and to commit money laundering. Mr Ng was indicted in October 2018 for similar charges.
The Malaysian Ministry of Finance stated the recent settlement with Goldman Sachs represents the bank’s acknowledgement of the “misconduct of two of its former employees”.
With the Goldman Sachs settlement and money received from the US Department of Justice, Malaysia is expecting that more than US$4.5 billion will be returned to its nation. The government is still seeking to recover other outstanding assets.
The settlement has included a cash payment of US$2.5 billion and a guarantee of a full recovery value of at least US$1.4 billion in assets traceable to the diverted proceeds from the three bond transactions.
Goldman Sachs will also be held footing the bill for the appointment of an asset recovery specialist to assist the Malaysian government in recovering other related assets currently lying outside the country.
The investment bank’s settlement is more than double its previous US$1.75 billion offer made to the previous Malaysian administration last year.
Malaysian Minister for Finance Tengku Dato’ Sri Zafrul Aziz said the settlement represents assets that “rightfully belong to the Malaysian people”.
“We are confident that we are securing more money from Goldman Sachs compared to previous attempts, which were far below expectations,” he said.
“We are also glad to be able to resolve this outside the court system, which would have cost a lot of time, money and resources. With this settlement, we will have the return of the monies expedited, and not held up by lengthy and costly court battles and legal process.”
Goldman Sachs signalled it expects to materially increase its litigation and regulatory proceedings provisions for the second quarter.
The settlement has not resolved other pending governmental and regulatory investigations against the firm in relation to 1MDB.
The Malaysian government stated the settlement will not affect the country’s claims against businessman Jho Low, a fugitive connected to the scandal, and other related parties.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].