How Goldman Sachs could wiggle free of 1MDB


Goldman Sachs is reportedly close to reaching a settlement with the US DoJ for its role in the Malaysian 1MDB scandal. PHOTO/Twitter/Right.Is

Wall Street bank set to reach favorable but controversial US settlement in multi-billion dollar Malaysia scandal

When Mahathir Mohamad returned to power last year, the world’s oldest prime minister vowed to claw back billions of dollars plundered in a globe-spanning corruption scandal involving 1Malaysia Development Berhad (1MDB), a state fund co-founded by his ousted predecessor Najib Razak.

The 94-year-old Malaysian leader recently said he was hopeful that an out-of-court settlement could soon be reached with Goldman Sachs, the Wall Street investment bank now under global scrutiny for its role in underwriting three bond issuances that raised US$6.5 billion for 1MDB in 2012 and 2013.

But while Malaysian prosecutors continue their pursuit, US authorities are said to be close to resolving separate criminal and regulatory probes into the scandal, with a settlement on the cards that could see Goldman pay up to $2 billion in penalties.

If so, it would be a much smaller punitive amount than many analysts anticipated. That, at least for now, isn’t likely to compel Mahathir to scale back his separate $7.5 billion demand of Goldman, but a lesser US settlement than expected would set a certain benchmark.

“We would like to avoid having to go to the courts, but if they come up with a reasonable sum I think we will agree [to a settlement]. But at the moment their offer is too small,” Mahathir said in an interview with Reuters on December 10. “We’re continuing to talk with them to explain why they should pay what we demand.”

Malaysia has leveled criminal charges against thee Goldman units, as well as 17 current and former directors at the bank. Though Malaysian authorities have hinted at flexibility in accepting a lower figure, Mahathir’s administration rejected a past settlement offer from Goldman of less than $2 billion.

David Solomon, Goldman’s chief executive officer, has said the bank hopes to resolve the 1MDB case as quickly as possible. The firm maintains that its senior management was unaware of criminal activity undertaken by certain “rogue” employees. Two of the bank’s former senior executives have so far been arrested in connection with the scandal.

While Goldman’s exposure to potentially huge financial penalties remains in Malaysia, its 1MDB-related liability in the US is coming into clearer view, though not without new controversy.

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