How has one of the most shocking financial scandals in history played out?
A deal has been settled between Malaysia and Goldman Sachs following the 1MBD scandal for
$3.9 bn. The deal consists of a $2.5 billion cash payout by Goldman Sachs and they guarantee to return at least $1.4 billion in assets which were linked to the 1MBD bond sales.
What Is The 1MBD Scandal?
The 1MBD scandal was referred as one of the biggest scandals in the company’s history after the financial crisis in 2008. In 2012, Goldman Sachs had arranged bond sales for 1MBD which is a sovereign wealth and development fund for Malaysia. Goldman Sachs had raised over $6.5bn by investing the money in power plants and oil-drilling ventureswhich was ultimately stolen.
Authorities have stated that the stolen money was used to buy luxurious properties, famous artworks -including one ofMonet’s pieces- , yachts, private jets and had even funded the Oscar nominated film ‘The Wolf of Wall Street'. At the center of the scandal is a Malaysian financier named Jho Low who worked with Goldman Sachs to set up the sovereign wealth fund. The former Malaysian prime minister Najib Razak was also one of those accused of being involved in the 1MBD scandal and has said to have pocketed around $700m from the fund. This scandal played a big role in the electoral defeat of Najib Razak. Both Jho Low and Najib Razak have denied the allegations against them.
Malaysia had started the investigation in 2018 accusing Goldman Sachs for helping raise the $6.5 bn dollars that in the end was used as a personal bank. The scandal resulted in investigations in both Malaysia and the USA. Last month, it was announced that Goldman Sachs had reached a final deal with the Malaysian government to close the investigation after prior failed attempts. Malaysia’s finance minister said that “This settlement by Goldman Sachs represents its acknowledgment of the misconduct of two of its former employees in the broader 1MDB fraudulent and corruption scheme,” while Goldman Sachs stated that this deal “is an important step towards putting the 1MBD matter behind us.” and “will help enable the Malaysian government to move forward with additional recovery efforts and to execute its economic priorities,” Although a deal has been made to drop the charges against Goldman with the Malaysian authorities, an investigation is still ongoing in the United States by the Department of Justice.
What Does This Settlement Mean For The Future Of Goldman Sachs?
With this deal, Goldman Sachs will only pay $2.5bn instead of the $7.5bn which was the fee demanded by Malaysia in the beginning. Also, the legal processing towards the 17 employees of Goldman Sachs will be ceased. It can be interpreted as Goldman painting a picture of them fixing a misunderstanding rather than paying Malaysia billions of dollars to withdraw their allegations for one of the biggest frauds ever in history.
As mentioned above, although Goldman Sachs has reached a deal with Malaysia, there is still an investigation that is being going on by the US Department of Justice. The issue arises as to whether the Department of Justice will reach an agreement with Goldman Sachs. Consumer groups have stated their concerns of a possible deal between the two parties stating that “If the Department of Justice does less, it will once again show that Wall Street’s biggest, wealthiest, most politically connected banks are still too big to jail, no matter how many crimes they commit, how many laws they break, how many victims there are or how much damage they inflict,”.
This deal goes on to show that major banks and other organizations can get away with crimes of this magnitude like the 1MBD scandal. Despite the serious nature of the scandal, Goldman Sachs seems to have cleared up its name again, creating the impression that they were not guilty in the first place. The shares of Goldman Sachs also do not seem to be going down as they were up 0.5% late July. Conversely, Evercore ISI analyst Glenn School has commented that "Unfortunately, [Goldman] will still have to settle with the DOJ to move on completely and if past major foreign corrupt practice cases are a good indicator (which we think they are), the DOJ settlement could wipe out most of the great second quarter they just put up.”
Overall, although the US investigation is ongoing, the settlement with Malaysia and the increasing shares make it seem like Goldman has washed its hands off the scandal. However, in the event of not reaching an agreement with the Department of Justice, it is likely that Goldman Sachs may face serious consequences and lose the momentum it has going on right now.
By Ela Eren
2nd Year Law
e-mail: xw19733@bristol.ac.uk
Bibliography:
'Goldman Sachs And Malaysia Reach $3.9 Billion Settlement In 1MDB Scandal' (Nytimes.com, 2020)
'Goldman Sachs Settles 1MDB Case With Malaysia For $3.9Bn' (Ft.com, 2020)
'Goldman Sachs Settles 1MDB With Malaysia For $3.9Bn' (BBC News, 2020)
Son H, 'Goldman Sachs Agrees To $3.9 Billion Deal With Malaysia To Settle Criminal Probe Into 1MDB Scandal' (CNBC, 2020)
Sweney M, 'Goldman Sachs Pays $3.9Bn To Settle 1MDB Corruption Scandal' (the Guardian, 2020)
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