Goldman Sachs and Malaysia’s Ministry of Finance said Friday that they have reached a $3.9 billion agreement to settle all charges against the investment bank related to the 1Malaysia Development Berhad scandal, the most significant recovery of assets related to the scheme.
The settlement, in which Goldman Sachs acknowledges the misconduct of two former employees in the 1MDB corruption scheme, includes a $2.5 billion cash payment and the guarantee that at least $1.4 billion in assets seized by governments around the world will be returned to Malaysia.
The agreement does not resolve other governmental or regulatory investigations of Goldman Sachs related to 1MDB.
The settlement is more than double the $1.75 billion that Goldman Sachs had offered the Malaysian government in 2019.
Goldman Sachs said it has performed valuation analysis on the relevant assets in the settlement and that the guarantee does not present a significant risk exposure to the bank. The firm said, however, that it expects to “materially increase” its provisions for litigation and regulatory proceedings for the second quarter of 2020 because of the agreement.
Tengku Zafrul Abdul Aziz, Malaysia’s minister of finance, said he’s glad that Malaysia and Goldman Sachs were able to reach the settlement out of court, which would have cost a lot of time, money and resources.
“With this settlement, we will have the return of the monies expedited, and not held up by lengthy and costly court battles and legal process,” he said.
Goldman Sachs executives arrived in Malaysia earlier this week to resume negotiations with the Malaysian government over a financial settlement for the 1MDB scandal.
Malaysian state investment fund 1MDB was originally set up in 2009 to finance economic deals in the country, but billions of dollars were stolen in a criminal conspiracy that involved bribery, money laundering and lavish spending. Malaysian financier Jho Low was accused of masterminding the looting of the fund, and the scandal resulted in the electoral defeat of former Prime Minister Najib Razak.
Goldman Sachs helped 1MDB raise $6.5 billion in a series of bond issues in 2012 and 2013, with the U.S. investment bank earning $600 million in fees from the bond deals, according to the U.S. Department of Justice. The Malaysian government has said that Goldman Sachs knew when selling the bonds that the funds would be misused.
In February, three units of Goldman Sachs — Goldman Sachs International, Goldman Sachs Asia and Goldman Sachs Singapore — pleaded not guilty to misleading investors in Malaysia’s High Court. Those charges have been dropped as part of the settlement.
In the U.S., the investment bank has been in talks with prosecutors in an attempt to avoid pleading guilty and paying a more than $2 billion fine, according to the New York Times.
Including Friday’s settlement with Goldman Sachs, Malaysia has recovered more than $4.5 billion of the funds lost in the 1MDB scheme.