Malaysia: Goldman’s lawsuit over 1MDB settlement dispute ‘premature’

A Malaysian taskforce said Thursday it was surprised by the Goldman Sachs Group’s “premature” initiation of arbitration proceedings amid a settlement dispute over the bank’s role in the multibillion-dollar 1MDB investment fund scandal.

Goldman Sachs sued the Malaysian government on Wednesday, opening a new chapter in a disagreement that centers on a U.S. $3.9 billion settlement the Wall Street firm agreed to pay Malaysia in 2020 over its part in the embezzlement scheme.

Though the faltering pace of discussions has increasingly frustrated both sides, Johari Abdul Ghani, the chairman of the 1MDB Taskforce Committee, said he was caught off guard by the conduct of Goldman Sachs.

“At this juncture … parties are still considered to be in the amicable good faith discussions stage and therefore as an aggrieved party, the 1MDB Taskforce views Goldman Sachs’ initiation of arbitration proceedings as premature and without due consideration of necessary prerequisites,” Johari said in a statement. 

On Aug. 18, 2020 Goldman Sachs announced an agreement with the Malaysian government guaranteeing the return of at least $1.4 billion in 1MDB-related assets and proceeds seized worldwide to resolve criminal and regulatory proceedings.

The settlement additionally mandated a one-time $250 million interim payment by Goldman Sachs if Malaysia had not recovered a minimum of $500 million in assets and proceeds by August 2022, the bank said in a press release that year. 

The two parties disagree on whether the bank has provided those assets.

On Thursday, Goldman Sachs said it was suing Malaysia for failing to recognize its payments.

“We filed for arbitration against the Government of Malaysia for violating its obligations to appropriately credit assets against the guarantee provided by Goldman Sachs in our settlement agreement and to recover other assets,” a Goldman Sachs spokesman said in a statement.

The arbitration has been filed with the London Court of International Arbitration, Bloomberg News reported.

The Attorney General’s Chambers denied all allegations in the lawsuit and said it mischaracterized the conduct of the government.

“[We] will prepare its response within the confines of the law and reiterate that the interest of the Malaysian people is paramount,” it said in a statement.

The latest development is only likely to add to enmity between the two sides.

In August, Malaysian Prime Minister Anwar Ibrahim raised the possibility of suing Goldman Sachs for its lack of cooperation in negotiating the settlement, according to local media. 

Johari said the bank’s lawsuit appeared to be an attempt to divert attention away from its obligations.

The Malaysian government had agreed to four payment extensions since August 2022, with the last one on Aug. 8, 2023 – and this was set to expire on Nov. 8 this year, he said.

Investigations continue

The 1MDB scandal, in which at least $4.5 billion was looted from the fund, brought about the downfall of former Prime Minister Najib Razak in a historic election in 2018, and was one of the most embarrassing episodes for Goldman Sachs in recent memory.

In July 2020, the ex-prime minister was convicted of massive corruption in connection with the scandal and was sent to prison in August 2022. 

In March, a Malaysian Federal Court panel denied Najib’s final effort to be freed from prison over his 12-year sentence following his conviction on charges linked to 1MDB affiliate SRC International. The former prime minister faces additional trials linked to 1MDB.

Malaysia is still trying to bring the alleged mastermind of the scandal, Low Taek Jho – the fugitive financier better known as Jho Low – to justice. He is the subject of an international manhunt – Interpol has filed a red notice against him – and faces charges in the U.S. as well.

Last week, Roger Ng, ex-Goldman Sachs banker convicted in the U.S. for his role in the corruption scandal, was extradited to Malaysia to assist with investigations. 

Malaysian authorities this week said they were depending on Ng’s cooperation to recover as much losses as possible from the fund.

Ng, who is a Malaysian citizen, had been scheduled to begin a 10-year prison term on Oct. 6, but U.S. authorities granted a postponement, allowing him to return to Malaysia, after being granted  “temporary surrender” by the country in 2019.

Apart from Ng, Tim Leissner, a former Goldman Sachs senior executive, has also pleaded guilty to money laundering and violating the Foreign Corrupt Practices Act in connection with 1MDB. He is cooperating with prosecutors and is free on $20 million bail pending sentencing, as the Department of Justice investigates.