THE 1Malaysia Development Bhd (1MDB) Taskforce Committee has expressed shock over Goldman Sachs’s decision to sue the government over the 1MDB settlement.

Its chairman Johari Abdul Ghani said this was because both parties were still engaging in good faith discussions to resolve any dispute amicably.

“In light of recent events, the government of Malaysia will be preparing to respond to this matter and ensuring that this process is done diligently and in accordance with the established legal frameworks while ensuring that the interests of the Malaysian people are safeguarded,” Johari said in a statement.

He also branded Goldman Sachs’s action as an attempt to detract from the bank’s obligation to make an interim payment of USD$250 million (RM1.18 billion) under the settlement agreement.

“At this juncture, parties are still considered to be in the amicable good faith discussions stage and therefore as an aggrieved party, the 1MDB Taskforce views Goldman Sachs’s initiation of arbitration proceedings as premature and without due consideration of necessary prerequisites,” he said.

Bloomberg reported this morning that Goldman Sachs Group Inc had started legal action against Malaysia in a UK court over an ongoing dispute concerning a settlement related to the bank’s role in the 1MDB investment fund scandal.

A spokesman for the New York-based bank said in an email that the bank has initiated arbitration proceedings against the government of Malaysia for breaching its obligations to properly credit assets against the guarantee offered by Goldman Sachs in a settlement agreement and to recover other assets. 

Executives at the Wall Street firm had grown increasingly frustrated with Malaysia’s demands to amend the 2020 agreement in a manner that would impose more stringent penalties. They were dissatisfied with the lack of transparency regarding the assets that the nation had been recovering from the scandal. 

The formal complaint was submitted yesterday to the London International Court of Arbitration, a source familiar with the matter said.

Johari, however, disputed this and listed the conditions of the settlement and the sequence of events that followed. 

The agreement was signed on August 18, 2020 and consisted of 2 parts: a cash payment of USD$2.5 billion to be paid within 10 days from signing it and an asset recovery guarantee of USD$1.4 billion enforceable within five years of the agreement. 

Under the asset recovery guarantee, if the Malaysian government did not recover the sum of USD$500 million by August 18, 2022 (two years from signing the settlement agreement), Goldman Sachs would be required to pay USD$250 million to it as interim payment.

On August 18, 2022, the accounting provided by the Malaysian government to Goldman Sachs showed that it had not recovered the USD$500 million, hence it was entitled to the interim payment. This was disputed by Goldman Sachs.

The settlement agreement allowed the parties involved to engage in amicable good faith discussions for a period of three months in the event of any dispute. 

Four separate extensions were granted to Goldman Sachs by the Malaysian government upon expiry of the first deadline to amicably settle the dispute. 

The deadline for the latest extension is November 8, 2023, and if settlement cannot be reached by then, the Malaysian government can commence arbitration proceedings in respect of the interim payment of USD$250 million. – October 12, 2023.