Goldman Sachs, Malaysia agree to S$5.41 billion settlement over 1MDB

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The deal includes a US$2.5 billion cash payout by Goldman and a guarantee by the bank to return at least US$1.4 billion in assets linked to 1MDB bonds. PHOTO: REUTERS

KUALA LUMPUR (REUTERS, BLOOMBERG) - Malaysia on Friday (July 24) said US investment bank Goldman Sachs has agreed to a US$3.9 billion (S$5.41 billion) settlement with the government over the multi-billion dollar 1MDB scandal.

The deal includes a US$2.5 billion cash payout by Goldman and a guarantee by the bank to return at least US$1.4 billion in assets linked to 1MDB bonds, Malaysia's finance ministry said in a statement.

Malaysian prosecutors filed charges in December 2018 against three Goldman Sachs units for misleading investors over bond sales totalling US$6.5 billion that the bank helped raise for sovereign wealth fund 1Malaysia Development Bhd (1MDB).

Goldman Sachs has consistently denied wrongdoing, saying that certain members of the former Malaysian government and 1MDB lied to it about how proceeds from the bond sales would be used.

The units of Goldman Sachs have pleaded not guilty to the charges.

The US Department of Justice has said around US$4.5 billion was misappropriated from 1MDB.

It's unclear how the settlement with Malaysia will impact discussions between Goldman Sachs and the US 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 had 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 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 Tun Dr 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 Tan Sri Muhyiddin counts on the backing of Umno, the former ruling party once led by Najib.

PM Muhyiddin on Friday evening said he welcomed the Goldman Sachs' settlement.

"The government is committed in its efforts to recover other assets involving 1MDB by continuing to claim from individuals and relevant parties involved in the 1MDB scandal," he said in a statement. "This is a success in our efforts to return the rights and assets of the people of Malaysia."

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