Malaysia Wants Goldman Sachs to Pay $7.5 B in Reparations

Malaysia is seeking US$7.5 billion in reparations from Goldman Sachs Group Inc. over its dealings with scandal-linked state fund 1Malaysia Development Berhad (1MDB).

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“Their figure is US$1.8 billion. Ours is US$7.5 billion,” Finance Minister Lim Guan Eng told the Financial Times in a report published Friday.

Malaysian prosecutors this week filed charges against Goldman Sachs in connection with its role as underwriter and arranger of three bond sales that raised US$6.5 billion for 1MDB, the first criminal action against the United States bank over the scandal.

Goldman Sachs has consistently denied wrongdoing and said certain members of the former Malaysian government and 1MDB lied to the bank about the proceeds of the bond sales.

In addition to the bonds' total value, Goldman Sachs should also return US$1 billion to cover US$600 million in fees paid to the bank and bond coupons that were "higher than the market rate," Mr. Lim said.

Malaysia is not currently negotiating with Goldman, but charges filed Monday could bring the bank to the table, Lim said.

In an emailed response to Reuters, a Goldman Sachs spokesman said the bank intended to "vigorously contest these charges."

"The 1MDB bond offerings were meant to raise money to benefit Malaysia; instead, a huge portion of those funds were stolen for the benefit of members of the Malaysian government and their associates."

Critics have said the fees earned by Goldman Sachs were far in excess of the normal 1-2 percent a bank could expect for helping sell bonds.

Goldman has said the outsized fees related to additional risks: it bought the unrated bonds while it sought investors and, in the case of a 2013 bond deal which raised $2.7 billion, 1MDB wanted the funds quickly.

Malaysia has sought jail terms and billions in fines from Goldman Sachs and four individuals who allegedly misappropriated about $2.7 billion from the 1MDB bond proceeds.

In early December, Malaysian Prime Minister Najib Razak was arrested by the country’s anti-corruption commission and later released. He was accused of "manipulating" a report for the 1MDB fund and faces another 38 charges of money laundering and abuse of power.

The investigation into the former leader's possible wrongdoings began in 2015 when the media reported that about US$621 million had been funneled from 1MDB to his personal bank accounts.

According to Bloomberg Singapore is currently trying to determine whether some of the US$600 million in fees that Goldman earned from the three bond deals flowed to the Singapore subsidiary.

Goldman Sachs (Singapore) was one of the three units charged by Malaysia this week.

Shares of the U.S. investment bank fell to a two-year low this week after Malaysia filed the charges.

Two former Goldman Sachs bankers, Tim Leissner and Roger Ng, have been charged by Malaysia.

Singapore has banned Leissner, the bank's former Southeast Asia chairman, from its securities industry for life after he plead guilty in the United States for conspiring to launder 1MDB money and violate the Foreign Corrupt Practices Act.

The United States is also seeking extradition of Ng, who has been detained in Malaysia.