Goldman Sachs has agreed to a $3.9 billion settlement with Malaysia as it begins to put behind it a kleptocracy scandal that changed the course of politics in the country.
Malaysian prosecutors filed charges in 2018 against several Goldman units for their role in helping to raise billions of dollars for a sovereign wealth fund known as 1MDB that officials were later found to be using as a personal piggy bank. The scandal led to the ouster of Malaysia’s former prime minister, Najib Razak, and a far-reaching foreign bribery and corruption investigation by U.S. prosecutors against the bank and the purported mastermind of the scheme, the Malaysian financier Jho Low.
Malaysia said on Friday that the Wall Street bank would pay $2.5 billion to resolve the case. Goldman also pledged to cover any shortfall from the sale of $1.4 billion in assets that have been seized by government authorities, including a $250 million yacht, several hotels in the United States, a $35 million Bombardier jet and an Oscar that once belonged to Marlon Brando.
“This settlement represents assets that rightfully belong to the Malaysian people,” the country’s ministry of finance said in a statement on Friday evening.
“We are confident that we are securing more money from Goldman Sachs compared to previous attempts, which were far below expectations,” it said. The Malaysian government had previously said it would seek criminal fines in excess of $2.7 billion and had charged more than a dozen executives at the bank with fraud. Under the settlement, the criminal charges against Goldman and those executives were dismissed.
Goldman said in a statement the deal with Malaysia “is an important step towards putting the 1MDB matter behind us.”
But the bank still must still resolve the investigations by prosecutors and bank regulators in the United States. Those negotiations began in earnest in late 2018 and have proceeded in and fits and starts — and in recent months been delayed by the coronavirus pandemic.
Goldman, one of the most powerful firms on Wall Street, could have to plead guilty to charges in the United States and pay another multibillion-dollar fine. Federal authorities also have been talking to Goldman about appointing a monitor to review its compliance procedures.
In recent weeks, Goldman has lobbied the Justice Department to limit the penalties it must face. The bank has asked to prosecutors in Washington to consider the penalties it pays to Malaysia when calculating its fine. It has also sought to avoid a guilty plea by one of the bank’s subsidiaries, which would be a black eye for a firm that has never had to admit guilt in a federal investigation. The U.S. Attorney’s Office in Brooklyn, which is overseeing the case, declined to comment.
Talks between prosecutors and the bank are continuing, according to a person familiar with the matter. The person added that a framework for a deal has been reached, but not finalized.
Prosecutors in the United States contend that as much as $4.5 billion was pilfered from the sovereign wealth fund — officially known as 1Malaysia Development Berhad — into the bank accounts of Mr. Low, Mr. Najib, his family and his friends. Goldman Sachs helped the fund to raise $6.5 billion in 2012 and 2013 through a series of bond sales, $2.5 billion of which authorities says was then diverted to senior officials.
In 2018, prosecutors in the United States charged Mr. Low with money laundering and other crimes in connection with the looting of the fund. Mr. Low has never appeared in federal court in Brooklyn and is believed to be hiding in China.
Mr. Low has denied he did anything wrong, but last year he agreed to relinquish any claim to more than $900 million in seized assets. Many of those assets — including the rights to the movie “The Wolf of Wall Street” — have been sold and the proceeds returned to Malaysia.
Federal prosecutors also secured a guilty plea from Tim Leissner, a former top Goldman partner in Asia, who said that he and others at Goldman conspired to circumvent the bank’s internal controls to work with Mr. Low to bribe officials in Malaysia to secure the lucrative bond work for the bank.
Mr. Leissner, the husband of the fashion designer and model Kimora Lee Simmons, personally profited from the scheme and agreed to forfeit up to $43.7 million. He is cooperating with the investigation. Federal prosecutors also charged another former Goldman banker, Roger Ng, who has pleaded not guilty and is set to go on trial next year.
Goldman Sachs, which received $600 million in payments for its bond work, has consistently denied any wrongdoing. But top officials have repeatedly apologized for actions of Mr. Leissner, who they contended acted without the bank’s approval.
The settlement “will help enable the Malaysian government to move forward with additional recovery efforts and to execute on its economic priorities,” the bank said in a statement. “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.”
The investigation by federal prosecutors has been a major reputational blow for Goldman. It revealed that some within the bank were wary of Mr. Low, a flamboyant businessman who had befriended many Hollywood celebrities and was known for staging wild and extravagant parties in Las Vegas. Some in the bank’s compliance department were concerned about Mr. Low because it was unclear how he had amassed his wealth.
Yet Mr. Low still had a way of getting close to officials at the bank.
In December 2012, Lloyd C. Blankfein, who at the time was Goldman’s chairman and chief executive, met privately with Mr. Low at Goldman’s offices in New York, just weeks before the bank arranged the third bond deal for the Malaysian fund. Two people familiar with the meeting previously described it as a one-on-one encounter; Goldman has said at least one more person attended and there was no discussion of 1MDB.
Alexandra Stevenson reported from Hong Kong and Matthew Goldstein reported from New York.