UPDATE: Aug. 7, 2020: Goldman Sachs restated its second-quarter earnings Thursday to reflect a $2.01 billion boost to its litigation reserves, a result of the 1MDB settlement the bank reached with Malaysia last month.
The adjustment cut Goldman’s previously announced second-quarter profit by 85%, the bank said. Goldman Sachs said last month that the settlement would “materially increase” the $945 million it had set aside during the quarter.
UPDATE: July 28, 2020: Malaysian ex-Prime Minister Najib Razak was sentenced to 12 years in prison Tuesday after a court found him guilty of all seven charges in a case involving $10 million deposited into his personal accounts from a former unit of 1MDB.
Najib testified that he acted in the best interests of the country and consulted regularly with the cabinet and 1MDB executives. His lawyers asserted he was misled by, among others, financier Jho Low, who has denied any wrongdoing and remains at large.
BlackBerry Messenger interactions showed the two were communicating, and there was no apparent attempt to hide the account balance from Najib.
Najib practiced “willful blindness” to the receipt of the funds, Judge Mohd Nazlan Mohd Ghazali said Tuesday regarding charges of money laundering, according to Bloomberg.
The judge also dismissed the notion that the funds were a donation from the Saudi royal family, which Najib could have verified himself.
Najib faces dozens more corruption and money-laundering charges in at least two more trials. His lawyer said he will appeal.
- Goldman Sachs reached a $3.9 billion settlement with the Malaysian government Friday over the bank's role in raising money for state-owned wealth fund, 1MDB.
- The settlement includes a $2.5 billion cash payment to Malaysia, for which the bank expects to "materially increase its provisions for litigation and regulatory proceedings for the second quarter of 2020," Goldman Sachs said in a release. The bank also guaranteed the recovery of at least $1.4 billion in seized 1MDB assets.
- In exchange, Malaysia would drop criminal charges against three Goldman units accused of helping "dishonestly misappropriate" $2.7 billion from 1MDB bonds issued in 2012 and 2013, a source told the Financial Times. The country would also end legal proceedings against 17 former and current Goldman directors. However, cases against former Goldman executive Tim Leissner and ex-Goldman banker Roger Ng would continue.
The settlement puts to rest the biggest legal threat hanging over the investment bank. However, Goldman's legal woes aren't quite over. The bank asked Deputy Attorney General Jeffrey Rosen to review U.S. prosecutors’ demands that it pay more than $2 billion in fines and submit a guilty plea, The New York Times reported. The bank reportedly pressed for a lower fine and a not-guilty plea.
Malaysian prosecutors filed charges in December 2018 against the three Goldman units, and followed up by charging individuals. Goldman helped the Malaysian government raise $6.5 billion for the 1MDB fund, collecting roughly $600 million in fees from bond sales in 2012 and 2013, Bloomberg reported, citing court filings.
U.S. authorities have said more than $4.5 billion went to fraudulent shell companies in a scheme that implicated former Malaysian Prime Minister Najib Razak.
Goldman Sachs has consistently denied wrongdoing, saying former Malaysian government officials lied to the bank about how proceeds from the bond sales would be used.
"We are pleased to have reached an agreement with the government of Malaysia to resolve outstanding charges and claims against Goldman Sachs," the bank said in a statement Friday. "Today’s settlement is an important step towards putting the 1MDB matter behind us and will help enable the Malaysian government to move forward with additional recovery efforts and to execute on its economic priorities."
The Malaysian government indicated previous settlement offers have been less than satisfactory.
"We are confident that we are securing more money from Goldman Sachs compared to previous attempts, which were far below expectations," Finance Minister Tengku Zafrul Aziz said in a statement, according to CNBC. "We are also glad to be able to resolve this outside the court system, which would have cost a lot of time, money and resources."
The last offer from Goldman Sachs was for $1.75 billion, the ministry said, and was made last year to former Prime Minister Mahathir Mohamad’s administration, the Financial Times reported. Mahathir's government sought as much as $7.5 billion from the bank, while its negotiators peddled figures of $2 billion to $3 billion in private discussions, according to Bloomberg.
Malaysia said the settlement also "represents Goldman’s acknowledgment of the misconduct of two of its former employees in the broader 1MDB fraudulent and corruption scheme."
Leissner, Goldman’s former Southeast Asia chairman, has pleaded guilty to U.S. charges, including conspiracy to launder money, and has admitted to bribing officials in Malaysia and the United Arab Emirates to get bond deals. Ng has been extradited from Malaysia to the U.S. to face similar charges.
Malaysia has also filed criminal charges against Jho Low, a financier and central figure in the case who is still at large and denies wrongdoing.
A Malaysian court is set to deliver a verdict Tuesday in the first of several corruption trials Najib faces in connection with the 1MDB scandal. Najib has pleaded not guilty.