U.S. investment bank Goldman Sachs (GS) and the government of Malaysia have reached a $3.9 billion settlement agreement over a scandal related to bond sales for sovereign wealth fund 1Malaysia Development Bhd, better known as 1MDB.
Under terms of the settlement, Goldman Sachs will pay out $2.5 billion in cash to the Malaysian government and also guarantee to return at least $1.4 billion in assets linked to the 1MDB bonds.
“We are confident that we are securing more money from Goldman Sachs compared to previous attempts, which were far below expectations,” said Malaysian Finance Minister Tengku Zafrul Aziz on Friday. “We are also glad to be able to resolve this outside the court system, which would have cost a lot of time, money and resources.”
Aziz noted the settlement resolves all outstanding charges and claims against Goldman Sachs.
“Today’s settlement is an important step towards putting the 1MDB matter behind us and will help enable the Malaysian government to move forward with additional recovery efforts and to execute on its economic priorities,” Goldman Sachs stated. “There are important lessons to be learned from this situation, and we must be self-critical to ensure that we only improve from the experience.“
In December 2018, Malaysian prosecutors filed charges against three Goldman Sachs subsidiaries for misleading investors regarding $6.5 billion in bond sales that the bank helped generate for 1MDB.
Authorities in both U.S. and Malaysian said about $4.5 billion of the funds were stolen from 1MDB, in a complex scheme that included former Malaysian Prime Minister Najib Razak, among others.
Goldman Sachs collected about $600 million in fees from bond sales in 2012 and 2013 — but Malaysian prosecutors alleged that part of those proceeds were illegally diverted to officials of the sovereign wealth fund.
“This settlement represents Goldman’s acknowledgment of the misconduct of two of its former employees in the broader 1MDB fraudulent and corruption scheme,” Malaysia’s finance ministry said.
But Goldman Sachs repeatedly denied wrongdoing, insisting instead that officials of the former Malaysian government and 1MDB lied about how proceeds from the bond sales would be used.
The ongoing case against Najib will be decided upon by a Malaysian court on Tuesday. Najib has also denied any wrongdoing and pleaded not guilty to all charges.
The 1MDB scandal was so massive that it led to a change in Malaysia government in 2018 when Najib was ousted from power.
On Friday, Goldman Sachs said it expects to “materially increase” provisions for litigation and regulatory proceedings for the second quarter of 2020 due to the settlement with Malaysia.