1MDB: Goldman Sachs reaches $3.9 billion settlement with Malaysia
Monday 3rd August 2020
On the 24th July, U.S. investment bank Goldman Sachs reached a $3.9 billion (£3 billion) settlement with the Malaysia government, to resolve criminal charges over the multibillion-dollar 1MDB scandal. This comes after Malaysian prosecutors filed charges against three Goldman Sachs units in December 2018, for misleading investors over bond sales which totalled over $6.5 billion.
Goldman Sachs, between 2012 and 2013, arranged bond sales to raise money for the state fund 1MDB (1 Malaysia Development Berhad), which intended to fuel economic development projects for Malaysia. However, U.S. and Malaysian investigators have said roughly $4.5 billion was misappropriated from 1MDB. The funds were instead used to launder money, funding expensive homes, art, private jets, yachts and according to prosecutors, even helped finance the film "Wolf of Wall Street".
The scandal prompted worldwide investigations and even contributed to the election defeat of Najib Razak, the former prime minister of Malaysia, who, from the fund he set up, was accused of pocketing $700m (£517m). Najib Razak has denied any wrongdoing although on the 28th July he was found guilty of his involvement in the scandal and sentenced to 12 years in jail.
Goldman Sachs has consistently denied any wrongdoing from the bond sales, which earnt them more than $600 million in fees. They pleaded not guilty to the charges, instead maintaining that former members of 1MDB and the Malaysian government lied about how proceeds would be used from the bond sales. Nevertheless, the scandal has seriously clouded their reputation, with Malaysian authorities also claiming Goldman secured the work by utilising bribes arranged by two former bank employees as well as others.
As part of the settlement, the Malaysian government will drop its regulatory and criminal investigations into the bank. Goldman Sachs will have to pay $2.5 billion to the Malaysian government, with the firm also guaranteeing the nation another $1.4 billion from the proceeds of assets seized by other nations that 1MDB owned.
Goldman Sachs, in 2019, saw more than a dozen of its executives charged in Malaysia for their handling of the matter. Whilst the $3.9 billion settlement does resolve any claims against Goldman Sachs and protects them from any further charges in Malaysia, the firm could still face charges in the U.S. from the Department of Justice as a result of the scandal. If previous major foreign corrupt practice cases are anything to go on, the Department of Justice settlement could wipe out most of the great second quarter Goldman just reported ($13.30 billion, with net earnings of $2.42 billion). Dennis M. Kelleher, president of Better Markets, has been critical of the bank's part in the case, making it apparent that Goldman Sachs should receive a stiff U.S. penalty that requires them to plead guilty. Mr Kelleher has said that anything less will exhibit how Wall Street's wealthiest, biggest and most politically-connected banks are too big for jail.
Goldman Sachs has said it has learned significant lessons and that the settlement was an important step to putting the matter behind them. The bank said in a statement that the settlement “will help enable the Malaysian government to move forward with additional recovery efforts and to execute on its economic priorities”.
