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New Insights on Malaysia’s 1MDB Settlement with Goldman Sachs

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New information has emerged regarding the financial settlement between Malaysia and Goldman Sachs related to the 1Malaysia Development Berhad (1MDB) scandal. This follows a comprehensive investigation revealing how the Malaysian government negotiated significantly different terms than initially proposed. The details, uncovered by Channel News Asia (CNA) through interviews with numerous officials and legal experts, highlight the complexities behind the settlement reached in August 2020.

At the time of the agreement, the Malaysian government was under the leadership of Prime Minister Muhyiddin Yassin. His administration altered the settlement framework set by his predecessor, Mahathir Mohamad. While Mahathir’s government was pursuing fines exceeding US$6.3 billion against Goldman Sachs, Muhyiddin’s terms led to a reduced settlement of US$3.9 billion. This included significant concessions, including immunity from criminal and civil actions for 17 directors of Goldman Sachs.

The 1MDB fund, established in 2009 by then-Prime Minister Najib Razak, was intended to foster economic development. However, it later became embroiled in a massive corruption scandal that implicated numerous high-profile individuals, including Najib himself, who is currently serving a prison sentence related to 1MDB.

Goldman Sachs raised US$6.5 billion through bonds for 1MDB and earned over US$600 million in fees. Alongside Malaysia’s settlement, the bank agreed to pay US$2.9 billion to settle a related investigation led by the United States in 2020.

Settlement Under Scrutiny

Malaysia received an upfront payment of US$2.5 billion when the settlement was finalized on August 18, 2020. The remaining US$1.4 billion was scheduled for payment last month but is currently in limbo due to a London arbitration case initiated by Goldman Sachs. This ongoing dispute has reignited discussions around the settlement, which is classified under the Official Secrets Act, preventing public scrutiny.

A senior finance ministry official expressed concerns, stating, “The settlement with Goldman Sachs is a black spot in our recovery campaign.” Meanwhile, asset recovery initiatives elsewhere have yielded more than expected, including a recent agreement with JPMorgan Chase for US$330 million related to 1MDB.

The current government led by Prime Minister Anwar Ibrahim has signaled intentions to reassess the settlement with Goldman Sachs, which Anwar characterized as “done hastily” and “too small.” In April 2023, he stated, “I agree (with a review) because from the start, I felt the settlement agreement was done hastily which led to many questions being raised.”

Calls for Transparency

The lack of transparency surrounding the Goldman Sachs settlement has prompted calls for a review from various legal experts and lawmakers. Former Law Minister Zaid Ibrahim criticized the government’s secretive approach, stating, “Why can’t we be transparent about all these dealings? It’s about time the government is not permitted to enter into secret settlements.”

The fallout from the 1MDB scandal is widely viewed as a catalyst for the downfall of the Barisan Nasional government in the 2018 elections, fueling public outrage over corruption. Consequently, Najib has faced numerous corruption charges stemming from the scandal.

Malaysian authorities have reportedly recovered US$7.07 billion, or approximately 75 percent of the debts accrued by 1MDB, through a multi-jurisdictional campaign aimed at tracing illicit funds. Nevertheless, this figure pales in comparison to the over RM43.8 billion (approximately US$9.2 billion) the government has expended on servicing 1MDB debts, according to official disclosures.

The negotiations with Goldman Sachs began in September 2019 under then-Attorney General Tommy Thomas. Initial discussions included private meetings with key financial figures, but progress stalled when Mahathir unexpectedly resigned in early 2020. Negotiations resumed under Muhyiddin’s administration, culminating in the August 2020 settlement.

As the arbitration in London continues, it remains to be seen how Malaysia will navigate its relationship with Goldman Sachs and address the complexities of the 1MDB scandal. The outcome of these proceedings will undoubtedly have significant implications for the country’s ongoing recovery efforts.

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