COMMENT | Not so fast, ‘US$3.9bil’ deal with Goldman another lousy one
COMMENT | The US$3.9 billion deal with Goldman Sachs by Malaysia is the second consecutive lousy deal over 1Malaysia Development Bhd, or 1MDB, following upon the rotten one the prosecution made in Najib Razak’s stepson, Riza Aziz’s money laundering case. Here’s why.
That so-called settlement is not worth US$3.9 billion - the cash sum is just US$2.5 billion. The remaining US$1.4 billion is a guarantee by Goldman Sachs that at least that sum will be obtained by ongoing efforts to recover monies embezzled from the three, US$6.5 billion, in bonds that Goldman had arranged for Malaysia in 2012 and 2013.
With intensive moves by the US Department of Justice (DOJ), which published a report showing money trails of how over US$4.5 billion was stolen from 1MDB, to recover assets in the US bought with the loot, and similar efforts elsewhere, it is very likely that much more than US$1.4 billion will be recovered eventually.
That means Goldman will most likely not have to fork out a cent for this effective put option it has written which gives Malaysia the right to sell assets at an agreed price by an agreed date. The option will expire worthless for Malaysia and the effective settlement will be US$2.5 billion.
It is a pity that newly-minted Finance Minister Tengku Zafrul Aziz obfuscates this important point in his statement. He goes on about how “this settlement represents a significant increase compared to the previous offer of US$1.75 billion made by Goldman Sachs to the previous administration in 2019”.
He failed to mention that in 2018, under the previous administration, Malaysia had filed criminal charges against Goldman over its role as underwriter and arranger of the bonds. Criminal charges were pressed against 17 current and former directors of Goldman units. Zafrul’s predecessor, Lim Guan Eng was quoted as having said that the government wanted US$7.5 billion in settlements...
COMMENT | The US$3.9 billion deal with Goldman Sachs by Malaysia is the second consecutive lousy deal over 1Malaysia Development Bhd, or 1MDB, following upon the rotten one the prosecution made in Najib Razak’s stepson, Riza Aziz’s money laundering case. Here’s why.
That so-called settlement is not worth US$3.9 billion - the cash sum is just US$2.5 billion. The remaining US$1.4 billion is a guarantee by Goldman Sachs that at least that sum will be obtained by ongoing efforts to recover monies embezzled from the three, US$6.5 billion, in bonds that Goldman had arranged for Malaysia in 2012 and 2013.
With intensive moves by the US Department of Justice (DOJ), which published a report showing money trails of how over US$4.5 billion was stolen from 1MDB, to recover assets in the US bought with the loot, and similar efforts elsewhere, it is very likely that much more than US$1.4 billion will be recovered eventually.
That means Goldman will most likely not have to fork out a cent for this effective put option it has written which gives Malaysia the right to sell assets at an agreed price by an agreed date. The option will expire worthless for Malaysia and the effective settlement will be US$2.5 billion.
It is a pity that newly-minted Finance Minister Tengku Zafrul Aziz obfuscates this important point in his statement. He goes on about how “this settlement represents a significant increase compared to the previous offer of US$1.75 billion made by Goldman Sachs to the previous administration in 2019”.
He failed to mention that in 2018, under the previous administration, Malaysia had filed criminal charges against Goldman over its role as underwriter and arranger of the bonds. Criminal charges were pressed against 17 current and former directors of Goldman units. Zafrul’s predecessor, Lim Guan Eng was quoted as having said that the government wanted US$7.5 billion in settlements.
Attorney-general Tommy Thomas then, who initiated the charges against Goldman, said on Dec 17, 2018 in a media release:
“Malaysia considers the allegations in the charges against all the accused to be grave violations of our securities laws, and to reflect their severity, prosecutors will seek criminal fines against the accused well in excess of the US$2.7 billion misappropriated from the bonds proceeds and US$600 million in fees received by Goldman Sachs, and custodial sentences against each of the individual accused: the maximum term of imprisonment being 10 years. Their fraud goes to the heart of our capital markets, and if no criminal proceedings are instituted against the accused, their undermining of our financial system and market integrity will go unpunished.”
The total liability incurred as a result of the bonds is US$6.5 billion, but to this must be added interest charges to the time of expiry of the bonds. Bond specialists calculate this to be some US$3.1 billion, effectively raising total liability to US$9.6 billion.
In effect then, Goldman is paying US$2.5 billion to cancel its obligations in incurring liability of US$9.6 billion to Malaysia. One can argue that without Goldman’s connivance, the crime could not have been committed and therefore its liability should be much higher, at least half of US$9.6 billion or US$4.8 billion. And considering that all criminal charges would be dropped as part of the deal, the settlement should be even higher.
Week-long negotiations?
All told, this is a lousy deal for Malaysia and reflects, for whatever reasons, poor negotiating ability in government. It echoes of the deal earlier this year with Riza Aziz.
Riza, who was facing up to 75 years in prison and up to RM5.5 billion in fines under five money laundering charges related to 1MDB money was let off with an acquittal in return for waiving his rights to US$108 million that was being recovered from him from the US DOJ anyway.
Ironically, Tengku Zafrul in his statement thanked the Attorney-General’s Chambers, the Securities Commission Malaysia, the National Anti-Financial Crime Centre, the Malaysian Anti-Corruption Commission and members of the negotiating team “for their week-long efforts in concluding this settlement”.
Week-long negotiations? Something that involves US$9.6 billion (over RM40 billion) worth of liabilities should have been more seriously negotiated and much more consultation should have been made before a final settlement.
It would be fair to say that the screws could have been turned on Goldman much more if the criminal proceedings could have been brought to court. If there is still doubt over Goldman’s liability in this and other cases, there is a long track record in this Harvard document.
Among the numerous allegations made are:
1. Then-CEO Lloyd Blankfein “personally helped forge ties with the country and 1MDB years before Goldman ever arranged the bond deals at the heart of the probes. Blankfein attended a 2009 meeting with the former Malaysian prime minister that laid the groundwork for the relationship between the two entities,” Bloomberg reported.
2. Mr Blankfein personally met with the now-charged former Malaysia prime minister and his now-fugitive chief alleged co-conspirator, Jho Low, apparently at least twice and maybe more times. They reportedly discussed the 1MDB bond deals, seemingly an obvious topic of conversation.
3. Goldman’s compliance department was adamant that “the bank should not do business with him (Jho Low)” in 2010 and again later in 2013. That was reportedly because Goldman’s compliance group couldn’t determine how he obtained his wealth, one of innumerable glaring red flags about him and often a sure sign of criminal activity.
There is much more in this document for anyone interested in getting a fuller understanding of how Goldman defrauded 1MDB.
The question is, didn’t our negotiators know about these? And if so, why did they settle for far less than what they could have obtained?
P GUNASEGARAM is the author of the first book on 1MDB, titled, ‘1MDB: The Scandal that Brought Down a Government’. Just maybe, 1MDB might bring down the backdoor government too given their poor handling of the issue so far.
Report this comment
Are you sure you want to delete this comment?
This action cannot be undone.