Advertisement

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

In this Wednesday, July 8, 2015 photo, a 1MDB (1 Malaysia Development Berhad) logo is set against the Petronas Twin Towers at the flagship development site, Tun Razak Exchange in Kuala Lumpur, Malaysia. An indebted Malaysian state investment fund says it will cooperate with Swiss prosecutors whose investigation indicated that $4 billion may have been misappropriated from Malaysian state-owned companies. (AP Photo/Joshua Paul)
(PHOTO: AP Photo/Joshua Paul)

By Elffie Chew, Yantoultra Ngui and Cathy Chan

(Bloomberg) -- Goldman Sachs Group Inc. 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, according to people familiar with the matter.

The deal includes a cash settlement of US$2.5 billion paid to Malaysia, the people said, asking not to be identified as the discussions are private. Another US$1.4 billion will come from seized 1MDB assets being returned with the help of the U.S. Justice Department and Goldman Sachs, the finance ministry said in a statement.

It’s unclear how the settlement with Malaysia will impact discussions between Goldman Sachs and the U.S. Justice Department. The bank is close to an agreement in the U.S. 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 settlement is a major milestone for Prime Minister Muhyiddin Yassin, a step toward ending Malaysia’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 Muhyiddin counts on the backing of United Malays National Organisation, the former ruling party once led by Najib.

© 2020 Bloomberg L.P.