1MDB settlement: What’s threatening the multi-billion dollar deal between Malaysia and Goldman Sachs?

KUALA LUMPUR: The 1Malaysia Development Berhad (1MDB) settlement agreement between Putrajaya and Goldman Sachs is in jeopardy due to differences over the asset recovery process, with a senior Malaysian official saying that the firm should not “take advantage” of the previous Muhyiddin Yassin administration’s inexperience in arriving at the deal.

The US$3.9 billion settlement agreement reached in 2020, which was classified by the previous Muhyiddin administration under the country’s Official Secrets Act, remains cloaked in secrecy.

However, there are already demands for a public review of the deal with Goldman Sachs and other settlements that the previous government entered into with other entities allegedly complicit in the 1MDB scandal. They include the settlements Putrajaya had reached with local banking group AMMB Holdings Bhd (Ambank) and international accounting firms, KPMG and Deloitte.

“1MDB is an open story and there is no reason why the Goldman Sachs deal should not be made public because the perception is that we (Malaysia) were given a raw deal and we should have creamed more money in the settlement,” said Charles Santiago, former three-term Member of Parliament and the current chairman of the National Water Services.

On Apr 17, Prime Minister Anwar Ibrahim indicated that Malaysia is re-evaluating the settlement deal. He has set up a new 1MDB asset recovery taskforce headed by former deputy finance minister Johari Abdul Ghani and publicly acknowledged that the settlement agreement “was done hastily”. 

The prime minister is insisting that the US banking powerhouse honour all its commitments under the agreement. "Sometimes people tend to view sincerity and firmness as something frivolous but it is about returning the public's money,” he told reporters last week.

Government sources familiar with internal discussions over the Goldman Sachs settlement said that the prime minister is particularly concerned over the US$2.5 billion upfront settlement in the agreement that also includes the roughly US$600 million that the international financial entity had claimed as a fee when it arranged a total of US$6.5 billion in bonds for 1MDB in 2012 and 2013. 

The sources said that Mr Anwar has also expressed his frustration in private meetings over the terms the previous Muhyiddin government conceded to Goldman Sachs. One example is the staggered recovery terms of the remaining US$1.4 billion in the settlement agreement, which one government lawyer critical of the settlement arrangement claimed “appeared to have been inserted to achieve a bigger headline figure.”

Mr Johari, who is heading the asset recovery taskforce, told CNA that negotiations with Goldman Sachs are ongoing under a new legal team but declined to discuss specific details.

“The PM feels that Goldman (Sachs) must honour the guaranteed cash settlement that was agreed in the settlement agreement. They (Goldman Sachs) can only recover the guaranteed amount through whatever asset recovery that will be made later," Mr Johari said, referring to US$1.4 billion the bank had guaranteed under the settlement pact.

“Goldman (Sachs) should not take advantage of the lack of experience on Malaysia’s part in arriving at this settlement," he added.

Issues surrounding the asset recovery process under Malaysia’s settlement agreement with Goldman Sachs are now central to the ongoing talks between the two parties.

Under the agreement reached in late July 2020, Goldman Sachs must make a one-time payment of US$250 million if Kuala Lumpur fails to receive at least US$500 million in assets and proceeds by end-August 2022.  

In corporate filings in the US, Goldman Sachs noted that it has refused to make the payment because it claims that “the Government of Malaysia unilaterally reduced the value of one asset previously included in its prior reports by US$80 million and declined to include substantial additional assets in its accounting of assets and proceeds recovered.”

“The bank (Goldman Sachs) is prepared to pay but it needs to understand the valuation process of the assets that have been recovered,” said a Goldman Sachs executive, who spoke on condition of anonymity, adding that there has been “an absence of communication” between the two parties.

This executive added that the “numbers that we are seeing as the information does not seem to add up.” “All we want is clarity."

Malaysian government sources close to the situation tell CNA a different story. 

They noted that Goldman Sachs’ legal representatives have been dragging the settlement talks by disputing the valuations of certain assets. 

Goldman Sachs is also insisting that Malaysia include the collection from fines slapped on the Ambank Group, which acted as financial advisor and borrower to 1MDB, together with accounting firms KPMG and Deloitte as part of the asset recovery. The Malaysian government collected a total of US$790 million from the three parties.

“How these amounts can be considered as part of the asset recovery is something that we simply do not understand,” said a senior government official close to the situation.

Malaysian government officials also noted that Goldman Sachs has failed to honour provisions in the settlement agreement that require the US banking giant to engage an international asset recovery concern to assist Kuala Lumpur in identifying and staking claim to items, ranging from properties, luxury artwork and jewellery that were purchased with 1MDB-related funds. 

One government official involved in the settlement talks noted that Goldman Sachs has yet to identify the recovery expert or notify their Malaysian counterparts of any progress on this front.

“This was agreed but Goldman (Sachs) has done nothing and is now laying claim on monies we recovered without their help,” noted the official, who is expecting the dispute with the US banking giant to go into arbitration. 

Apart from dealing with the current legal spat with Goldman Sachs, the asset recovery committee headed by Mr Johari, who is an elected parliamentary representative and a prominent businessman with extensive interests in media companies, is focussing on recovering 1MDB-related assets that Malaysian authorities have identified with the help of their counterpart in the United States.

Malaysian government sources noted that at least 50 items have been identified, including luxury paintings, jewellery and real estate in Switzerland.