The development is a major case in the saga of the 1MDB scandal, one of the biggest of its kind in history, embroiling jurisdictions such as Singapore, the US, Switzerland and Luxembourg.
Goldman Sachs has agreed in principle to settle all criminal and regulatory proceedings with Malaysia’s government stemming from the US firm’s dealings with the scandal-warped 1MDB fund.
The firm will pay $2.5 billion to Malaysia and guarantee that the administration receives at least $1.4 billion from assets linked to 1MDB seized by authorities around the world.
The settlement will, the Wall Street-listed firm hopes, draw a red line under an affair that has embroiled Goldman Sachs for several years. The 1MDB fund, created by the Malaysian authorities, which has been allegedly used to siphon money off for personal gain, with money laundered around the world, has been one of the biggest money laundering scandals in history.
In its July 24 statement, the Malaysian government agreed to withdraw the pending criminal charges and agreed that no further charges would be brought against the Goldman Sachs, its subsidiaries, or any of their directors, officers and employees (excluding former employees Tim Leissner and Roger Ng) related to 1MDB.
“In light of this development, Goldman Sachs expects to materially increase its provisions for litigation and regulatory proceedings for the second quarter of 2020, which will be reflected in its financial statements to be filed with its Quarterly Report on Form 10-Q for the period ended June 30, 2020,” the firm said.
“The agreement in principle does not resolve the other pending governmental and regulatory investigations involving the firm relating to 1MDB,” it added.
In April, US authorities announced that they had returned $300 million to Malaysia which prosecutors say was stolen in the 1MDB case. The returned money came from assets forfeited in 2019 by fugitive financier Jho Low, in a Los Angeles federal settlement. The settlement covered assets which included a Manhattan penthouse, a Beverly Hills mansion, a Beverly Hills boutique hotel, a luxury jet, and paintings by Vincent Van Gogh and Claude Monet.
The money was siphoned off and laundered through financial institutions in several jurisdictions, including the US, Switzerland, Singapore and Luxembourg. The scandal played a part in defeating former Malaysia prime minister Najib Razak in 2018. In 2016, Singapore’s financial regulator kicked out banks for serious AML lapses (Falcon Private Bank, BSI). The affair has prompted renewed soul searching about the extent of illicit financial flows around the world. In a bizarre twist melding fiction and fact, money from 1MDB was used to finance the hit film about a financial crook - The Wolf of Wall Street.
The Malaysian government had charged Goldman Sachs and 17 and former directors of its units for allegedly misleading investors over bond sales totaling $6.5 billion which the US bank helped raise for sovereign wealth funds.