Malaysia - Goldman Sachs settlement, is it everything we hoped for?

A settlement was reached on Friday (24 July) whereby Goldman Sachs will return a cash payment of US$2.5 billion to the Malaysian government in the next two months. The balance of US$1.4 billion will be paid in assets linked to the bonds.

The company was first charged in December 2018 for its issuance of three bonds for 1MDB worth $6.5 billion, alongside $600 million in fees that the investment bank pocketed for the three issuances. Its former employees Tim Leissner and Roger Ng Chong Hwa, former 1MDB employee Jasmine Loo, and financier Jho Low also faced charges linked to the scandal.

In 2019, the bank has made an offer of $1.75 billion under the previous government administration.

Separate charges were also made against 17 more current and former executives of the bank who were accused of misleading 1MDB bond investors.

"This settlement represents assets that rightfully belong to the Malaysian people," said Malaysia's Finance Minister Tengku Zafrul Abdul Aziz.

He added that the settlement is a significant increase when compared to the previous offer made by the investment bank and that the government was satisfied that the case could be solved out of court, without incurring heavy financial and time costs.

Datuk Seri Mohamad Hasan, Deputy President of UMNO also commented that the settlement came at the right time as the country was in dire need of funding for its economic downturn.

Meanwhile, Dr Mahathir Mohammad has said via his personal blog and Twitter account that the sum to be paid by the bank to the government was nothing compared to US$9.6 billion that was due to Malaysia. He suggested that the government withdraw its agreement made with Goldman Sachs.

Former Finance Minister Lim Guan Eng also claimed that the amount of the settlement ignored the huge debt burden caused by the 1MDB scandal and questioned whether Malaysia has been shortchanged.

Previously, the Pakatan Harapan government had claimed US$7.5 billion, the value of the three bonds including US$1 billion to cover interest.

The United States and Malaysian authorities claimed that at least $3.5 billion was looted from 1MBD, primarily by Malaysia's former prime minister Datuk Seri Najib Razak and financier Jho Low, amongst others.

The fund that was initially set up to finance investment projects that would assist in the country's long term economic development was later spent on luxury apartments, paintings, yachts and even to finance the Hollywood movie "Wolf of Wall Street".

One of the biggest financial scandals of all time also managed to cost the former prime minister re-election as he was charged with abuse of power and criminal breach of trust in relation to SRC International, a former 1MDB unit. He has now been found guilty on all charges.

As for the settlement, Tengku Zafrul has said that the proceeds will be channelled directly to trust fund set up specifically to settle 1MDB debt.

Whether the amount is sufficient to cover the damage done, he added that the fund would be used to settle payments from 1MDB which would mature in 2020 and 2023.