Malaysian Prime Minister Mahathir Mohamad recently revealed that Wall Street heavyweight Goldman Sachs paid a compensation of $241 million in the 1MDB case. Mahathir says that the bank didn’t pay enough compensation.
Is the amount sufficient?
According to Mohamad, the bank paid the compensation as it played a role in raising funds for 1MDB. The funds were later misappropriated. He noted that the bank paid a small sum in compensation as compared to the “huge killing” it made in the case.
Speaking at the Bloomberg Asean Business Summit in Bangkok, Mahathir said that Goldman’s fine was 1 billion ringgits (approx. $241 million). The prime minister said that a reasonable sum for the bank to pay would have been the commission it made by raising bonds worth $6.5 billion for 1MDB. Goldman earned about $593 million for its debt sale for the company, which is a considerably high sum that banks don’t usually make with government deals.
Mahathir said that the bank offered a small compensation, which was not enough. He added in a Bloomberg Television interview,
“We wanted to settle in-house if possible, but it seems that they are not willing to offer a reasonable sum of money.”
A Goldman representative said that the bank wouldn’t comment on its negotiations with authorities.
Why does bring penalties for Goldman?
In 2012 and 2013, Goldman Sachs arranged the sales of bonds for 1MDB. Bloomberg data suggests that the bank charged a 7.7% commission on the deal’s face value while underwriters received an average fee of 1.32% on comparable deals in 2013.
The bank suggests that it continued raising money for 1MDB without being aware of the facts that money was being diverted away from development projects. In 2015, the bank said that its fees “reflected the underwriting risks” that it had to assume to raise funds. Mahathir noted in May that he is waiting for a response from Goldman over its exorbitantly high fees charged for the bond sales.
The bank is facing investigations in Singapore, Malaysia, and the US for its role in the 1MDB fundraising case. Malaysia has also filed criminal charges against three entities owned by Goldman. The charges were announced in December 2018, and the authorities accused the bank of misleading investors, knowing that the funds will eventually be misappropriated.
Back home in the US, the prosecutors have charged two former Goldman bankers. Sources suggest that Singapore is also eyeing a deferred-prosecution agreement with Goldman.