Goldman Sachs (NYSE:GS) has initiated a lawsuit against Malaysia at the London International Court for Arbitration, escalating a dispute tied to the 2020 settlement of the 1MDB corruption scandal. The bank alleges that Malaysia has failed to honor terms that included an upfront payment by Goldman of $2.5 billion, a guaranteed return of $1.4 billion in 1MDB assets, and an interim payment clause triggering a $250 million payout if Malaysia didn't recover at least $500 million by August 2022, according to a Bloomberg report on Thursday.
The 1MDB scandal involved the theft of $4.5 billion from the 1Malaysia Development Bhd (1MDB), a sovereign fund co-founded by former Prime Minister Najib Razak and financier Jho Low. Billions were allegedly funneled into offshore accounts and shell companies linked to Low, with funds used to purchase luxury items and finance the movie "The Wolf of Wall Street".
Low, who denies any wrongdoing, faces charges in both Malaysia and the U.S., while Najib is currently serving a 12-year prison sentence related to the case. The scandal contributed to Najib's defeat in the 2018 election, leading his party, United Malays National Organisation (UMNO), to lose power for the first time since Malaysia's independence.
Goldman Sachs, which earned $600 million in fees from underwriting 1MDB bond issues, faced global investigations due to its involvement in the scandal. The bank settled with the U.S. Department of Justice (DoJ) for $2.9 billion in 2020 and agreed to pay $3.9 billion to the Malaysian government. Former Goldman partner Tim Leissner pleaded guilty to money laundering and violating an anti-bribery law, while former top investment banker for Malaysia, Roger Ng, was sentenced to prison.
The current dispute between Goldman Sachs and Malaysia centers on whether Malaysia recovered at least $500 million by August 2022 as stipulated in the settlement agreement. Prime Minister Anwar Ibrahim has acknowledged the issue and is considering revising the agreement with Goldman Sachs.
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