27 Jul 2020
Goldman Sachs Group Inc. will pay $2.5 billion to the government of Malaysia for its role in the alleged theft of billions of dollars from a government investment fund, bringing the Wall Street bank close to ending one of the worst scandals in its history.
Goldman also guaranteed the recovery of $1.4 billion in assets allegedly stolen from the fund, according to the agreement announced separately by the bank and Malaysia’s Finance Ministry on Friday.
Goldman was the main banker for the Malaysian fund, 1Malaysia Development Bhd., or 1MDB. The bank raised billions of dollars for the fund, much of which was allegedly stolen by people who worked for the fund, government officials and two senior Goldman bankers.
The deal ends a yearslong tussle between one of the world’s most powerful investment banks and the Southeast Asian nation. The scandal led to the downfall of former Malaysian Prime Minister Najib Razak, who is on trial for money laundering and abuse-of-power charges relating to 1MDB. Mr. Najib denies wrongdoing.
Goldman raised $6.5 billion for 1MDB through three bond sales in 2012 and 2013, much of which U.S. authorities say was stolen by a Malaysian government adviser, Jho Low. U.S. prosecutors say the bank ignored warning signs about Mr. Low and the fund in pursuit of fees that eventually reached about $600 million.
Mr. Low agreed in October to forfeit more than $700 million in assets to U.S. authorities but hasn’t admitted wrongdoing. His whereabouts remain unknown.
The deal with Malaysia could lead to a quick settlement with the U.S. Department of Justice, effectively ending the scandal for Goldman. Late last year, the bank was close to a deal to pay a fine of about $2 billion and was negotiating whether to plead guilty to violating antibribery laws, The Wall Street Journal has reported.
Goldman executives had long said they hoped to resolve the two investigations together. Now, a Goldman deal with the U.S. will take into account its Malaysia settlement, people close to the talks said. Goldman socked away an extra $1.1 billion late last year to help pay for an expected settlement with regulators and said it would materially boost that number in the recently completed second quarter.
While Goldman has run into regulatory trouble before, including in the financial crisis, it hasn’t faced charges or fines like these. And the involvement of senior executives at the firm, including a partner, in the scandal make it difficult for the firm to claim they were rogue employees.
Malaysia created 1MDB in 2009 to help spur economic growth. The fund, advised by Mr. Low, sold $6.5 billion in three bond deals, investing it in power plants and oil-drilling ventures. More than $4.5 billion went to fraudulent shell companies controlled by corrupt officials in Malaysia and Abu Dhabi, U.S. authorities have alleged. Some cash was also used in Mr. Najib’s re-election campaign, the Journal reported.
The fund was supposed to use profits from its deals to pay back the bonds, but that quickly became impossible. A series of stories in the Journal laid out how Mr. Low with help from associates in the Middle East and two Goldman bankers, allegedly siphoned off cash from the fund. Mr. Low spent the money on a luxury yacht, luxury apartments, high-end art and a series of over-the-top parties.
By Ben Otto and Chester Tay, The Wall Street Journal, 24 July 2020
Read more at The Wall Street Journal
RiskScreen: Eliminating Financial Crime with Smart Technology
You can claim CPD minutes for this content, by signing up to our CPD WalletFREE CPD Wallet