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Goldman Sachs and its role in the world’s 1MDB financial scandal

Goldman Sachs Group has filed for British arbitration against Malaysia amid escalating tensions over a settlement agreement over the bank’s role in the massive 1MDB corruption scandal.

US$4.5bn has been stolen from a pre-existing Malaysian fund, 1Malaysia Development Bhd (1MDB), in a complex scheme that spanned the globe and involved former Malaysian Prime Minister Najib Razak, Goldman employees and senior officials in other countries, US and Malaysian authorities say.

1MDB is a sovereign fund that was established in 2009 to promote economic development with the participation of Malaysian financier Jho Low. Najib, who served as a Prime Minister from 2009 to 2018, co-founded 1MDB and was head of its advisory board until 2016.

Between 2009 and 2013, 1MDB raised billions of dollars in bonds for use in investment projects and joint ventures. However, the US Department of Justice (DoJ) reports that $4.5bn ended up in offshore bank accounts and shell companies, many of them set up by Low. Malaysian authorities emphasise that billions more dollars remain unaccounted for. The US notes that the 1MDB case is the largest kleptocracy investigation in their history.

Low used the stolen funds to purchase real estate and luxury assets for himself and his cronies, including hotels, a private jet, jewellery and a superyacht. The US lawsuits also state that some of the funds were used to finance the 2013 Hollywood film “The Wolf of Wall Street”.

Low faces charges in the US and Malaysia for his involvement in the case. He is a fugitive from justice and denies guilt in every way possible. Malaysia has said he is in China, but Chinese authorities have not confirmed this. Najib has not been named by the US Justice Department but was referred to in the investigation as “Malaysian Official 1,” according to Malaysian and US sources.

The scandal surrounding the case influenced Najib’s defeat in the 2018 elections. As a result, the United Malays National Organisation (UMNO) lost power for the first time since Malaysia was formed after independence from British colonial rule. Najib is currently serving a 12-year sentence in a 1MDB-related case. He has several more trials ahead of him in the 1MDB case.

Goldman has previously alleged that some members of Malaysia’s former government hid the truth from it about the use of bond proceeds. In 2020. Goldman agreed to a $2.9bn settlement with the US Justice Department and its Malaysian unit pleaded guilty to corruption charges.

Tim Leissner, a former Goldman associate, agreed to co-operate with prosecutors. He pleaded guilty to conspiracy to launder money and violating the anti-bribery law. He has been free on $20 million bail since his arrest in 2018. He is still awaiting sentencing.

Goldman’s former chief investment banker in Malaysia, Roger Ng, pleaded not guilty to similar charges. Earlier this year, he was sentenced to 10 years in prison in the United States and in October, he travelled to Malaysia to assist with local investigations.

In order to settle the criminal investigation, Goldman has agreed to pay Malaysia $3.9bn in 2020. The agreement also requires Goldman to make a one-time interim payment of $250 million if Malaysia does not receive at least $500 million by August 2022.

It is currently not known for certain whether Malaysia has repaid at least $500 million as of August 2022 and whether any interim amount has been due. Goldman says if the parties are unable to settle the dispute, it will be resolved through arbitration. Goldman filed an application with the London Court of International Arbitration this week.

Malaysian Prime Minister Anwar Ibrahim, who came to power in November 2022, has said he wants to renegotiate the settlement agreement with the bank and in August said he might even sue it.

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