Goldman Sachs to pay $3.9bn for its role in Malaysia's 1MDB scandal

The investment bank Goldman Sachs has paid $3.9bn to settle an investigation into its role in a scandal involving a state-backed fund. Matthew Partridge reports.

Goldman Sachs will pay $3.9bn (£3.3bn) to the Malaysian government to settle a “long-running” investigation into its role in raising $6.5bn of bonds for the “scandal-hit” 1MDB fund in 2013, says Michael O’Dwyer in The Daily Telegraph. The fund was set up by Malaysian businessman Jho Low and then prime minister Najib Razak to finance infrastructure projects in Malaysia, but as much as $4.5bn was allegedly “siphoned off” in order to fund the “lavish lifestyles” of some of Kuala Lumpur’s most influential families. Goldman Sachs’s investment banking unit was paid $600m in fees for its dealings with 1MDB.

The deal represents a major setback for Goldman Sachs, which had previously argued that members of the former Malaysian government and 1MDB lied to it “about how proceeds from the bond sales would be used”, says Katherine Griffiths in The Times. What’s more, although the deal draws to a close part of the “long-running investigation” into the matter, the investment bank remains under investigation in the US. Tim Leissner, the ex-Goldman Sachs partner who led the deal with 1MDB, has already pleaded guilty to American charges of money laundering and bribery.

Shrugging off the penalty

The penalties are not as large as they seem, says Brooke Masters in the Financial Times. Firstly, $1.4bn of the settlement involves Goldman Sachs guaranteeing that Malaysia will receive “at least another $1.4bn from selling seized assets” acquired with stolen funds, a guarantee that is likely to cost it “basically nothing”. This effectively cuts the fine to $2.5bn, which is a lot less than “the $7.5bn the finance minster had originally demanded”. The Malaysian government will also drop further legal proceedings against the bank and 17 of its current and former directors, while Goldman Sachs also hopes that the settlement will encourage leniency from the US Department of Justice. Not so fast, say Alexandra Stevenson and Matthew Goldstein in The New York Times. Negotiations with US prosecutors have proceeded in “fits and starts”, while it seems that Goldman Sachs ignored misgivings from its own compliance departments about Jho Low. As a result, it could end up not only paying “another multibillion-dollar fine”, but also having to appoint a monitor to review its compliance procedures. It may also have to plead guilty to charges in the United States, which would be a “black eye” for a firm that has “never had to admit guilt in a federal investigation”.

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The bill will be “just another item on Wall Street’s mile-long rap sheet”, says John Foley on Breakingviews. After all, the bank has paid out “more than $55bn in dividends and stock buybacks since it first helped 1MDB raise funds in 2012”. Even the fallout from any guilty plea is likely to be minimal: it never stopped Citigroup and JP Morgan carrying on “as normal”.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri