Goldman Sachs (NYSE:GS) has unexpectedly filed for arbitration against the Malaysian Government over the 1MDB settlement, a move that has raised concerns among the Malaysian authorities, including Datuk Seri Johari Abdul Ghani, Chairman of the 1MDB Taskforce Committee. The dispute revolves around an interim payment of $250 million that Goldman Sachs is obligated to pay due to its failure to recover $1.4 billion worth of 1MDB assets, as stipulated in the August 2020 settlement agreement.
The bank's arbitration request comes amidst ongoing negotiations and despite being in a period of Amicable Good Faith Discussions. Goldman Sachs received four extensions for resolution—the first expired in December 2023 and the fourth is set to expire in November 2023. Despite these extensions, Goldman Sachs initiated arbitration proceedings, which Abdul Ghani perceives as a diversion tactic from their obligations.
The 1MDB scandal, which involved the diversion of funds meant for economic development projects, implicated several high-profile individuals. These include former Malaysian leader Najib Razak, who is currently serving a 12-year jail term, and international fugitive financier Low Taek Jho. The funds, totaling over $4.5 billion, were used for luxury purchases and financing "The Wolf of Wall Street". Former Goldman bankers Roger Ng Chong Hwa and Tim Leissner were also involved in the scandal, with the bank earning over $600 million in fees. Leissner was ordered to pay $43.7 million after pleading guilty to bribery.
Under the terms of the original settlement agreement from August 2020, Goldman Sachs agreed to a cash payment of $2.5 billion and an Asset Recovery Guarantee of $1.4 billion if Malaysia failed to recover $500 million by August 2022. However, when this recovery target wasn't met, Goldman Sachs disputed their obligation for the Interim Payment of $250 million. If no settlement is reached by the final deadline, Malaysia may commence its own arbitration.
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