Goldman, Malaysia reach US$3.9b settlement over 1MDB

[KUALA LUMPUR] Goldman Sachs Group has reached a deal that would see Malaysia drop all criminal charges against the bank in exchange for US$3.9 billion of reparations for its role in raising money for the troubled sovereign wealth fund 1MDB.

The deal includes a cash settlement of US$2.5 billion paid to Malaysia, the ministry of finance said on Friday. At least another US$1.4 billion will come from seized 1MDB assets being returned with the help of the US Department of Justice and Goldman Sachs, it said in a statement.

The deal amount along with monies Malaysia has received from the Justice Department would amount to more than US$4.5 billion, the finance ministry said. It's unclear how the settlement with Malaysia will impact discussions between Goldman Sachs and the Justice Department. The bank is close to an agreement in the US after tussling over a potential guilty plea, Bloomberg News reported earlier this month.

The deal moves Goldman closer to ending its biggest legal threat since the darkest days of the 2008 financial crisis. Goldman helped the Malaysian government raise US$6.5 billion for the 1MDB fund, collecting some US$600 million in fees from bond sales in 2012 and 2013, according to court filings. Prosecutors allege that part of that money was diverted to 1MDB officials and their associates.

Malaysian prosecutors brought charges against three units of the bank in 2018, then followed with additional accusations against Goldman's 17 current and former executives last year. The bank has consistently denied wrongdoing, saying that former Malaysian officials lied about how proceeds from the bond sales would be used.

The deal won't affect charges against fugitive financier Low Taek Jho or other parties, Malaysia's finance ministry said.

Goldman's former Southeast Asia Chairman Tim Leissner has pleaded guilty to US charges including conspiracy to launder money and has admitted to bribing officials in Malaysia and the United Arab Emirates to get bond deals for the bank. Former Goldman banker Roger Ng has been extradited from Malaysia to the US to face similar charges.

"This settlement represents Goldman's acknowledgment of the misconduct of two of its former employees in the broader 1MDB fraudulent and corruption scheme," Malaysia's finance ministry said.

The settlement is a major milestone for Prime Minister Muhyiddin Yassin, a step toward ending the nation's years-long effort to recover billions of dollars lost through the scandal. In 2018, the affair led to the country's first change of government since its independence, when Mahathir Mohamad took over as prime minister from Najib Razak, who now faces multiple charges related to 1MDB.

The Mahathir government demanded as much as US$7.5 billion from Goldman Sachs, while its negotiators had touted figures of around US$2 billion to US$3 billion in private discussions.

The state fund remains a sore political point even after another power shift this February, as Malaysia's current government under Mr Muhyiddin counts on the backing of United Malays National Organisation, the former ruling party once led by Mr Najib.

BLOOMBERG