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Malaysia Privately Discusses Goldman Penalty of Just $2 Billion Over 1MDB

Hugo Miller, Elffie Chew, Sridhar Natarajan and Anisah Shukry

(Bloomberg) -- Again and again, Malaysia has publicly demanded Goldman Sachs pay an eye-popping $7.5 billion for its role in the 1MDB scandal. But privately, Malaysian negotiators are considering settling for a fraction of that.

Representatives for Malaysia have discussed figures of around $2 billion to $3 billion in talks with the Wall Street bank, according to people with knowledge of the matter. Though a final deal may diverge from that range, it shows what negotiators for the country may be willing to accept. Simultaneously, Malaysian prosecutors are trying to turn up the pressure by pushing for Goldman’s criminal case to be heard at the country’s High Court.

Prime Minister Mahathir Mohamad, 94, is keen to reach an accord before year-end to show progress on his signature pledge to recoup money plundered from the scandal-ridden state investment fund. He’s dispatched Daim Zainuddin, a confidant outside his cabinet, to serve as a top dealmaker, the people said, asking not to be named because talks are confidential. A sizable settlement would help cement the country’s fiscal footing, which Mahathir has cited as a reason he’s delayed handing over power to his former protege, Anwar Ibrahim.

Yet, for Goldman Sachs Group Inc., Malaysia’s probe is among a slew of related international investigations the company is eager to solve in their entirety, and it’s unclear how much credit regulators and prosecutors back in the U.S. may give the firm for a costly deal with the Southeast Asian nation.

‘Reparation Payments’

Goldman reaped $600 million from helping 1MDB raise $6.5 billion in 2012 and 2013, much of which later went missing. Malaysia has demanded the bank shoulder those losses. Earlier this month, Finance Minister Lim Guan Eng reiterated in an interview that means “reparation payments” amounting to $7.5 billion.

It’s also unclear whether a multibillion-dollar settlement might lead Malaysia Attorney General Tommy Thomas to drop all charges against Goldman Sachs, or 17 current and former bank executives individually charged, the people said. The allegations against the directors are based on the criminal case against the bank’s units.

Representatives for Goldman Sachs and the U.S. Department of Justice declined to comment. Representatives for Malaysia’s attorney general and for Daim’s office had no immediate comment. Goldman has previously blamed its entanglement in the scandal on its former Southeast Asia chairman, Tim Leissner, who pleaded guilty in 2018 to U.S. charges he conspired to launder money and violate the Foreign Corrupt Practices Act.

U.S. prosecutors are expected to extract a serious penalty from the bank for its role in funding 1MDB. Last year, they undermined the firm’s effort to focus blame on one person by also charging another banker, Roger Ng, who’s denied any complicity in wrongdoing. The Justice Department previously stunned the Malaysian government in 2016 by filing a forfeiture case that implicated then-Prime Minister Najib Razak.

Najib engaged in “a planned, premeditated breach of trust,” Malaysian prosecutors said on Tuesday at the first of the former premier’s two trials over his involvement in the scandal. That case hinges on whether he knew that $10 million deposited in his bank accounts came from 1MDB. His lawyers argue there’s no link between the funds and the decisions he took as prime minister.

Mahathir, who was prime minister from 1981 to 2003, returned to power in 2018 while promising to recoup money allegedly stolen from the state investment fund. Najib is now fighting dozens of criminal charges related to 1MDB.

Malaysia has been forced to cancel major projects and find other ways to cut government spending, after having to shoulder 51 billion ringgit ($12 billion) of 1MDB’s debt obligations.

Daim is a longtime confidant of Mahathir, hailing from the same village in the northern Malaysian state of Kedah. He was finance minister from 1984 to 1991, and was brought back by Mahathir to help steer the economy in the aftermath of the Asian financial crisis in 1999 to 2001. When Mahathir returned to power last year, he appointed Daim as his top adviser to guide the new government’s economic policy in the first 100 days.

Read a QuickTake on how the 1MDB scandal shook the financial world

Prosecutors in Kuala Lumpur said Tuesday they have submitted an application to move their criminal case against Goldman to the High Court, a request typically made to underscore the seriousness of the case.

Thomas has said he has a strong case against Goldman and isn’t dropping the charges against the units or the 17 people, responding to a report in Nikkei Asian Review that cited him as saying Goldman has been in settlement talks with Malaysia. “We’ll see them in court,” he said on Oct. 17.

(Updates with former PM’s trial in ninth paragraph.)

To contact the reporters on this story: Hugo Miller in Geneva at hugomiller@bloomberg.net;Elffie Chew in Kuala Lumpur at echew16@bloomberg.net;Sridhar Natarajan in New York at snatarajan15@bloomberg.net;Anisah Shukry in Kuala Lumpur at ashukry2@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, ;Michael J. Moore at mmoore55@bloomberg.net, ;Fion Li at fli59@bloomberg.net, ;Yudith Ho at yho35@bloomberg.net, David Scheer, Steve Dickson

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