Analysis: Gloves come off as Malaysia, Goldman Sachs step up wrangle over controversial 1MDB settlement deal

Now, the push to bring the dispute into an arbitration in the London courts could reopen potentially embarrassing dealings by the bank in the affair, including how it reached the settlement deal with Mr Muhyiddin. 

Details to the controversial settlement, that called for an immediate upfront US$2.5 billion payment and the remaining US$1.4 billion payment in staggered milestones, are now starting to seep out.

Within hours of the announcement by the US bank that it had initiated legal action against Malaysia, Mr Johari Abdul Ghani, who chairs the 1MDB Asset Recovery Taskforce set up by the Anwar government, said in a statement that the US$1.4 billion portion of the settlement deal did not call for outright cash settlements as previously thought.

The staggered milestone payments involved a complex arrangement that featured a guarantee by Goldman Sachs on the recovery of 1MDB-related assets that include luxury properties, hugely expensive paintings, jewellery and watches.

PART OF THE SETTLEMENT DETAILS SURFACE 

Mr Johari explained that if the Malaysian government had not recovered assets amounting to US$500 million two years after signing the Aug 2020 agreement, the US bank would be required to pay US$250 million as interim payment to Malaysia.

Mr Johari said the Malaysian government provided an accounting to Goldman Sachs in August 2022 that it had not recovered USD$500 million and was entitled to the interim payment.

But Goldman Sachs disputed Malaysia’s position and, shortly after, leaned on a provision in the settlement agreement for parties to engage in a so-called “Amicable Good Faith Discussion” clause to resolve the matter. 

In early September, the US bank requested for a three-month extension to honour the US$250 million payment. After it expired, Goldman Sachs has asked for three more extensions and the last one is set to expire on Nov 8.

In its suit filed against Malaysia, the bank said in a statement: “We filed for arbitration against the government of Malaysia for violating its obligations to appropriately credit assets against the guarantee provided by Goldman Sachs in our settlement agreement and to recover other assets.”

Malaysian government officials told CNA last week that Kuala Lumpur had been considering entering into arbitration to settle the dispute if Goldman Sachs failed to meet the deadline.

In his statement, Mr Johari described the actions by Goldman Sachs as “premature and without due consideration of the necessary prerequisites”.

“Goldman Sachs’ action of initiating arbitration proceedings also appears to be an attempt to detract and divert attention away from their obligation to adhere to the Interim Payment of US$250 million requirement under the settlement agreement,” he added.

Mr Johari declined comment when contacted by CNA.

But another government official involved in the asset recovery noted that the Anwar administration had little choice but to push for a higher settlement.

“Goldman Sachs got US$600 million in fees, and we lost a big chunk of money. It is a sad Malaysian story,” he said.