Following mounting pressure, Goldman Sachs Group Inc. has moved to put an end to one of the worst scandals in its history by settling its 1MDB dispute with Malaysia. The Wall Street bank agreed to pay $2.5 billion to the Malaysian government for its role as banker in the alleged theft of billions of dollars from a government investment fund. In settling, Goldman also guaranteed the recovery of $1.4 billion in assets allegedly stolen from the fund.
Goldman was the main banker for the 1Malaysia Development Bhd. fund (1MDB), which has raised billions of dollars since its creation in 2009. Much of that money has allegedly since been stolen by employees, government officials, and senior bankers. Fund advisor Jho Low sold $6.5 billion in three bond deals, investing it in power plants and oil-drilling ventures, with more than $4.5 billion going to fraudulent shell companies in Malaysia and Abu Dhabi. Other cash was stolen for Najib Razak’s re-election campaign as he strove to become Malaysia’s government head again. The fund was designed to use profits from its deals to pay back the bonds but corrupt officials made that impossible.
The U.S. Justice Department has accused Low of siphoning off cash from the fund with help from associates in the Middle East and two Goldman bankers, seizing some of his assets and returning the cash to Malaysia. Prosecutors claim Goldman ignored clear warning signs about Low as it pursued additional fees. Low agreed to forfeit more than $700 million in assets to U.S. authorities but hasn’t admitted wrongdoing as his whereabouts remain unknown. The scandal also led to the downfall of former Malaysian Prime Minister Najib Razak, who is on trial for money laundering and abuse-of-power charges, although he denies wrongdoing.
Last year, the Malaysian government filed criminal charges against 17 current and former Goldman executives for mishandling the 1MDB scandal. The Malaysian government sought a $7 billion penalty and charged overseas units of Goldman with violating securities laws over the bond deals. The bank says it was misled by two bankers who worked on the deals, Southeast Asia chairman Timothy Leissner and managing director Roger Ng. Leissner pled guilty to charges of conspiracy to launder money and violate anti-bribery laws, whereas Ng has been indicted on bribery and money-laundering charges.
This deal with Malaysia could lead to a quick settlement with the U.S. that effectively resolves the two investigations together. Goldman said, “Today’s settlement is an important step towards putting the 1MDB matter behind us and will help enable the Malaysian government to move forward.” The settlement resolved all criminal and regulatory proceedings in Malaysia related to 1MDB, including pending criminal proceedings for subsidiaries and certain of their current and former directors–excluding Leissner and Ng.