Malaysia is determined to achieve a settlement with Goldman Sachs over its involvement with the 1MDB state investment fund despite having to deal with the economic fallout of coronavirus.
“We continue to engage [Goldman] . . . It will stop when we get the right number,” Zafrul Aziz, Malaysia’s finance minister, told the Financial Times in an interview.
He did not specify a target but he said the sum would be between $2bn and $7.5bn, the amount his predecessor demanded in 2018. Mahathir Mohamad, the former prime minister, told the FT last year that Malaysia had already rejected an offer from Goldman of “less than $2bn”.
Goldman in 2012 and 2013 arranged three bonds for 1MDB worth $6.5bn, much of which was ultimately stolen, and received $600m in fees — a sum Malaysia has said was excessive. The US Department of Justice alleges a total of $4.5bn was misappropriated from 1MDB.
Kuala Lumpur has filed criminal charges against three Goldman units, two former bankers, and Jho Low, the Malaysian financier allegedly at the centre of the fraud who remains at large and denies wrongdoing. It has accused them of helping “dishonestly misappropriate” $2.7bn from the 1MDB bonds issued in 2012 and 2013.
Criminal charges have also been filed against 17 current and former directors of Goldman subsidiaries, who are accused of misleading 1MDB bond investors.
Goldman declined to comment.
Mr Zafrul said the government was in discussions with other banks that engaged with 1MDB, including Deutsche Bank and UBS, as well as legal firms and the fund’s former auditors, Deloitte and KPMG.
“You need to apportion the blame as well,” he said.
Mr Zafrul quit his job as chief executive of Malaysian bank CIMB to help steer the country’s recovery from Covid-19, an effort that had taken precedence over the scandal. “Obviously the 1MDB case is important but not as crucial as our economic recovery,” he said.
Kuala Lumpur forecasts the 2020 fiscal deficit to grow to between 5.8 per cent and 6 per cent, the highest in a decade, after unleashing three stimulus packages worth RM295bn ($69bn). Mr Zafrul wants to cut the deficit — which will be financed via internal borrowing — to below 4 per cent in the next three to four years. This month, he will seek parliamentary approval to lift the 55 per cent statutory limit on Malaysia’s debt-to-GDP ratio, with the aim of reinstating it within five years.
“The worst case is we don’t get the recovery [of funds], which I hope will never happen. Will the economy collapse? No. Will investors stop coming to Malaysia? No. Will we not be able to pay our deficit? No.”
Mr Zafrul’s comments on 1MDB provide one of the strongest signals on the state of Malaysia’s negotiations over 1MDB after Muhyiddin Yassin replaced Mr Mahathir as prime minister earlier this year.
Mr Mahathir defeated Najib Razak, the prime minister who founded 1MDB, in 2018 on the back of a wave of public anger over corruption at the fund. After his election, Mr Mahathir launched a probe into 1MDB.
But the involvement of the United Malays National Organisation, Mr Najib’s old party which dominates Mr Muhyiddin’s governing coalition, has raised concerns that trials linked to 1MDB could be jeopardised.
Kuala Lumpur in May dropped charges against Mr Najib’s stepson — who was accused of laundering $248m in misappropriated 1MDB funds — in a deal involving the repayment to the government of more than $107m in assets.
Mr Najib — who is being tried on more than 40 criminal charges and has denied wrongdoing — has also had some success rehabilitating his own political image.
“Najib is to some extent benefiting from PM Muhyiddin’s heavy reliance on continuing support from Umno,” said Peter Mumford, head of south-east and south Asia at Eurasia Group, the consultancy. “There is a segment of the Umno party and its voter base that remains loyal to Najib.”