KUALA LUMPUR -- Goldman Sachs has been negotiating with the Malaysian authorities to drop criminal charges against three of its subsidiaries in connection with three bond issues by 1Malaysia Development Berhad, or 1MDB.
The government is seeking $3.3 billion in compensation from the U.S. investment bank, accusing it of helping a Malaysian businessman loot the state-backed fund.
Malaysian Attorney General Tommy Thomas told the Nikkei Asian Review that two rounds of talks have taken place so far, but that the parties have not yet arrived at an agreement on the amount of compensation. Thomas leads Malaysia's negotiating team.
"We have had some preliminary meetings, but the gulf is still very wide," Thomas said on the sidelines of the International Directors Summit, organized by the Institute of Corporate Directors Malaysia.
"Both the criminal charges and settlement negotiations are happening in parallel. They are not mutually exclusive," Thomas said.
Malaysia is the first country in the world to prosecute Goldman Sachs as a company, filing charges in December against Goldman Sachs (Asia) LLC, Goldman Sachs International (UK) and Goldman Sachs (Singapore), and is seeking $2.7 billion in fines. The government alleges that Goldman Sachs misled investors in the issue of the three 1MDB bonds. It is also demanding the return of $600 million that the investment bank pocketed as fees.
Malaysia has announced separate charges against 17 current and former Goldman executives, whom it accuses of misleading investors by making false statements and omitting key facts in relation to the 1MDB-related bond issues worth $6.5 billion. Malaysian Prime Minister Mahathir Mohamad said in June that Goldman had offered $239 million in compensation, an amount he described as "little," given the "huge killing" made by the investment bank.
The government's case is set to come before the Magistrate Court, the lower court in Malaysia, on Oct. 22 and will later be transferred to the High Court.
Thomas said the settlement negotiations with Goldman may continue until the opening of the criminal trial. "We can always reach a settlement on the first day of the trial. A lot of cases are even settled even after the trial begins. So the doors for discussion are still open while the prosecution readies the criminal case."
"See you in court," Thomas said. "We have a strong case and are very confident of winning it. But if you want to negotiate, the doors are open."
Goldman faces charges of misconduct and material omissions on the bonds' prospectuses. They include material omissions regarding fugitive Malaysian businessman Low Taek Jho, also known as Jho Low, who was allegedly involved in siphoning money from 1MDB.
"The most critical material omissions in the three prospectuses were the lack of any reference to Jho Low. If you have read the documents, there is no reference to Jho Low and it is unbelievable that you can talk about 1MDB without Jho Low, who was the mastermind," he said.
1MDB, the brainchild of former Prime Minister Najib Razak, was pitched as a sovereign wealth fund. It was dogged by controversy due to questionable transactions and investments in Malaysia and overseas. It eventually racked up $13 billion in debt.
Jho Low, who is thought to have been behind the suspicious transactions, is wanted by authorities in several countries, including Malaysia, the U.S. and Singapore. Thomas said the government estimates Jho Low stole more than $10 billion from 1MDB.
He said it would be impossible to recover the full amount embezzled, as most of it has already been spent. Jho Low was known for his lavish lifestyle in the U.S., which included giving expensive gifts to celebrities, buying famous artworks and a luxury yacht, and throwing lavish parties.
The recovery of assets purchased with 1MDB funds has stalled, with an injunction issued against the U.S. Department of Justice that prevents it from selling 1MDB-related assets, based on a stay application filed by one of Jho Low's companies in the U.S.
Thomas said that although the legal development is disappointing, the Malaysian government remains convinced that the injunction can be lifted and the assets liquidated before their return to Malaysia.
"The DOJ is trying to go to court to set that stay aside. It is taking a bit too long and everyone is disappointed," he said. The Malaysian government has also appointed an independent appraiser to assess the value of 1MDB-related assets in the U.S. "They came back and told us that the properties are in top areas, but the market is currently soft, so the actual [value of the] proceeds cannot be ascertained."