Goldman Sachs to Pay Approximately $6 Billion in Settlements Over 1MDB Scandal

In 2009, former Prime Minister of Malaysia, Najib Razak, formed 1 Malaysia Development Bhd, or 1MBD, a sovereign investment fund intended to boost the Malaysian economy. Facially, the fund was created to transform Kuala Lumpur into the investment hub of Southeast Asia. Prime Minister Najib’s stepson, Riza Aziz, managed the fund along with now-notorious Malaysian businessman Jho Low.

Mr. Low, a friend of Aziz with strong ties to the Saudi royal family, engaged the Southeast Asian branch of international investment firm Goldman Sachs to finance 1MBD’s operations. The branch’s chairman, Timothy Leissner, and its managing director, Roger Ng, took the lead on the deal. Together with Mr. Low, Goldman raised $6.5 billion for 1MDB through the issuance of three sets of bonds.

Despite receiving approval from such senior officials at Goldman, the loan agreements provided very little information with respect to the purpose of the funds and who would be overseeing their management, disclosures that are generally considered a prerequisite for loans of this size. In exchange for waiving such requirements, which analysts presume was in part motivated by Goldman’s intense need to rebound after the 2008 financial crisis, the firm appears to have charged 1MDB a sort of “premium” on the transaction. This premium came in the form of fees twenty times the value of those usually charged for loans of this nature, or $600 million for the bank.

It soon became clear that 1MDB was not using these loans for any legitimate public purpose, but rather to indirectly enrich, primarily, Mr. Low himself, and, secondarily, Prime Minister Najib. Between 2009 and 2013, Mr. Low diverted billions of dollars in funds allocated to 1MDB to his own personal bank accounts across the globe. Mr. Low used these stolen funds to finance a lifestyle of extreme luxury, replete with multimillion dollar yachts, real estate properties in the most expensive markets in the world, and even the financing of the renowned film “The Wolf of Wall Street,” a project which itself required an expenditure of over $100 million. Low also used his relationship with the Saudi royal family to arrange a loan of several billion dollars to a Saudi shell company, which then “donated” $700 million to Prime Minister Najib for his private use. Najib later claimed in a criminal proceeding to have had no knowledge of the donation’s origin.

In 2018, Najib was voted out of office in response to his alleged participation in this elaborate defrauding of the Malaysian people. Around the same time, regulators in fourteen countries – including the Malaysian government, Hong Kong’s markets watchdog, and the United States Department of Justice – began investigating Goldman Sachs for its involvement in brokering the bond sales that made the entire scheme possible.

These investigations have resulted in global settlements totaling roughly $6 billion against Goldman and its Southeast Asian branches and subsidiaries. In addition to various other fines, the bank recently agreed to pay $3.9 billion to Malaysia in exchange for the Malaysian government dropping all criminal charges, $2.3 billion to the U.S. Justice Department, and $600 million in disgorgement fees.

Criminal charges have also been brought individually against the bankers involved, Mr. Leissner and Mr. Ng. While Mr. Leissner pled guilty to and was indicted on charges of conspiracy to launder money and violate antibribery laws (the FCPA), Mr. Ng still awaits his trial in the U.S., has pled not guilty to charges of bribery and money-laundering, and is expected to face separate charges in Malaysian courts. Though Prime Minister Najib continuously pled his innocence throughout his own trial, he was ultimately found guilty on charges of abuse of power, breach of trust, and money laundering, and sentenced to up to twelve years in prison and $50 million in fines. Low’s fate, however, along with his whereabouts, remain unknown, making him a true “international man of mystery.”