By Rozanna Latiff and Joseph Sipalan
KUALA LUMPUR/NEW YORK (Reuters) - U.S. investment bank Goldman Sachs (NYSE:GS) reached a $3.9 billion settlement on Friday with Malaysia over the multibillion-dollar 1MDB scandal that will see all criminal charges against the bank dropped.
The deal includes a $2.5 billion cash payout by Goldman and a guarantee by the bank to return at least $1.4 billion in proceeds from assets linked to sovereign wealth fund 1Malaysia Development Bhd (1MDB), the two sides said.
The settlement is the biggest Malaysia has reached so far in its efforts to recover funds allegedly stolen from 1MDB, and is a big victory for the four-month old administration of Malaysian Prime Minister Muhyiddin Yassin.
"We are confident that we are securing more money from Goldman Sachs compared to previous attempts, which were far below expectations," Finance Minister Tengku Zafrul Aziz said in a statement.
"We are also glad to be able to resolve this outside the court system, which would have cost a lot of time, money and resources," he said, adding that the deal would resolve all outstanding charges and claims against Goldman.
Malaysian and U.S. authorities estimate $4.5 billion was stolen from 1MDB in an elaborate scheme that spanned the globe and implicated high-level officials in the fund, former Malaysian Prime Minister Najib Razak, Goldman staff and others.
U.S. prosecutors said the money was used to buy artwork, including paintings by Vincent Van Gogh and Claude Monet, luxury properties in New York and London and to fund the "Wolf of Wall Street" movie.
Goldman helped the fund raise $6.5 billion in two bond offerings the bank underwrote, earning itself $600 million in fees, according to the U.S. Justice Department.
Malaysian prosecutors filed charges in December 2018 against three of the bank's units alleging it misled investors.
Goldman has consistently denied wrongdoing, saying that certain members of the former Malaysian government and 1MDB lied to it about how proceeds from the bond sales would be used. The units of Goldman Sachs pleaded not guilty to the charges.
Goldman confirmed the settlement.
Its shares rose about 0.87% in early market trading as investors were cautiously optimistic about the bank resolving one part of its ties to the scandal.
The bank has socked away around $3 billion in reserves for legal matters, more than covering the settlement with Malaysia.
However, the bank still faces an investigation by the U.S. Department of Justice (DOJ), which is reportedly looking into violations of the U.S. Foreign Corrupt Practices Act. The law makes it illegal to pay foreign government officials in order to secure their help in getting or keeping business.
A source told Reuters in December that the bank was in talks with the U.S. government and a state regulator to possibly pay up to $2 billion to resolve the investigation.
"If (the settlement with Malaysia) were it, this would be old news and we’d all move on," wrote Evercore ISI analyst Glenn Schorr on Friday.
"Unfortunately, (Goldman) will still have to settle with the DOJ to move on completely and if past major foreign corrupt practice cases are a good indicator (which we think they are), the DOJ settlement could wipe out most of the great second quarter they just put up."
BIG WIN FOR MALAYSIA
The Goldman deal could give a much needed boost to Muhyiddin's administration, which has a slim majority in parliament. The opposition is gearing up for snap elections.
Muhyiddin came to power in March after forming an alliance with Najib's party which raised questions about whether that would affect several corruption cases against Najib.
On Friday, Muhyiddin said the government was committed to continuing efforts to recover other assets linked to 1MDB.
Najib, who is facing dozens of charges over 1MDB, will face his first verdict on Tuesday in a case seen as a test for the country's efforts to stamp out corruption.
Najib has denied any wrongdoing and pleaded not guilty to all the charges against him.