Malaysia and Goldman Sachs Face Continued Dispute Over 1MDB Settlement

New revelations regarding the financial settlement between Malaysia and Goldman Sachs have emerged, highlighting the ongoing complexities stemming from the 1Malaysia Development Berhad (1MDB) scandal. The investigation by Channel News Asia (CNA) sheds light on the terms of the confidential settlement, which was finalized in August 2020, as arbitration proceedings continue to unfold.

In August 2020, under the leadership of then-Prime Minister Muhyiddin Yassin, Malaysia entered a settlement agreement with Goldman Sachs that significantly deviated from earlier negotiations led by his predecessor, Mahathir Mohamad. Initially, Mahathir’s government sought fines exceeding US$6.3 billion against Goldman Sachs. The settlement, ultimately reduced to US$3.9 billion, granted immunity to 17 Goldman Sachs directors and certain corporate entities from criminal and civil action, significantly lowering the stakes involved.

The 1MDB fund, launched in 2009 by former Prime Minister Najib Razak, aimed to spur economic growth but became embroiled in a massive corruption scheme that came to light in 2015. The scandal implicated numerous individuals and spanned multiple countries, with Goldman Sachs playing a pivotal role by structuring US$6.5 billion in bonds for 1MDB and earning over US$600 million in fees.

Despite receiving an upfront payment of US$2.5 billion from Goldman Sachs, Malaysia has yet to secure the remaining US$1.4 billion due under the settlement. This amount is currently entangled in a London arbitration case that has extended for over two years. The delay in receiving these funds has reignited criticisms of the settlement, which remains classified under the Official Secrets Act.

A senior finance ministry official has described the agreement as a “black spot” in the nation’s recovery efforts, as other asset recovery initiatives have seen more success. For instance, JPMorgan Chase recently agreed to pay Malaysia US$330 million related to the 1MDB scandal, illustrating a contrast in recovery outcomes.

Prime Minister Anwar Ibrahim has expressed concerns about the settlement, characterizing it as “done hastily” and “too small.” He has indicated a willingness to review the agreement, but has not provided details on the government’s strategy moving forward.

Calls for transparency regarding the Goldman Sachs settlement have intensified. Former Law Minister Zaid Ibrahim has advocated for greater openness in government dealings, questioning the rationale behind secret settlements. The 1MDB scandal has had lasting political repercussions, contributing to the downfall of the long-standing Barisan Nasional government in 2018 and resulting in Najib’s imprisonment.

Ongoing investigations have reportedly recovered around US$7.07 billion of the debts incurred by 1MDB, but this amount is dwarfed by the total liabilities the government has faced. As of the end of 2023, Malaysia has paid over RM43.8 billion in interest and principal on 1MDB debts.

Negotiations with Goldman Sachs began in September 2019 but were disrupted by political changes following Mahathir’s resignation in February 2020. When Muhyiddin took office, discussions resumed under a new framework, eventually leading to the settlement agreement on August 18, 2020. Details regarding the settlement’s terms, including the withdrawal of investigations by the Securities Commission, were not disclosed publicly at the time.

The arbitration that has arisen from this settlement has reportedly been complicated by disputes over the accounting of recovered assets. Goldman Sachs has challenged Malaysia’s figures, leading to a lawsuit filed on October 11, 2023, in the London Centre for International Arbitration.

As the situation develops, the Malaysian government’s approach to the settlement and ongoing recovery efforts will likely remain under scrutiny, reflecting broader issues of transparency and accountability in the aftermath of the 1MDB scandal.