THE Najib administration appears to have dodged a bullet following news that Malaysia and Abu Dhabi have reached a settlement on a dispute involving billions of dollars in debt obligations from 1Malaysia Development Berhad (1MDB).

The dispute – which forms the main plank of the money-laundering probe launched in the United States and Singapore – has been threatening to boil over into a legal slug fest that could have been damaging for Prime Minister Najib Razak, the government and 1MDB.

Government officials believe that the settlement should weaken investigations into certain Malaysians and 1MDB in the US, Singapore and other jurisdictions.

The Singapore Straits Times reported news of the settlement last night, adding that state-owned investment funds from both countries are expected to sign a settlement agreement as early as today.

A central piece of the proposed settlement calls for Malaysia to repay Abu Dhabi US$1.2 billion (RM5.3 billion) before year-end.

The amount represents a loan and accumulated interest charges on a bailout financial package 1MDB received from Abu Dhabi’s International Petroleum Investment Company (IPIC) in July 2015.

The bulk of the payment on the outstanding loan amount will come from the sale of so-called “fund units” from Brazen Sky, a financial unit owned by 1MDB, to an undisclosed buyer, financial executives told the Straits Times.

The settlement agreement also calls for both parties to enter into negotiations to resolve another dispute involving roughly US$3.5 billion in the form of cash advances and payments from 1MDB to IPIC.

The advances were part of Malaysia’s obligations under a US$3.5 billion bond issue that Abu Dhabi helped Putrajaya raise in 2012.

The Straits Times said bankers and legal executives familiar with the situation believe the deal between Malaysia and Abu Dhabi could significantly dilute the international legal challenges confronting the Najib administration over the fallout from the 1MDB saga.

They noted that the disputed funds are a key component of the legal suits brought by the US Department of Justice over the alleged misappropriation of funds from 1MDB.

The Department of Justice said the funds siphoned from 1MDB went to purchases of real estate and other assets by associates of Najib.

The settlement between Malaysia and Abu Dhabi would result in what is known legally as “no predicate offence”.

A predicate offence is the underlying criminal offence that gives rise to criminal proceeds which are the subject of a money-laundering charge.

The concept is important in the US because prosecution for money-laundering requires proof that the property involved was proceeds of specified unlawful activity.

American in origin, the concept of no predicate offence has crept into common use in British courts.

In theory, the settlement could weaken the legal action being taken or contemplated by foreign governments over alleged money-laundering at 1MDB because there would be no misappropriation of funds. In short, there would be no evidence of wrongdoing.

One senior executive said: “The main aim was to avoid a messy arbitration fight and this (deal) is a product of both parties working through back channels to reach a settlement.”

The Straits Times reported that the disputes ‎centred on fund transfers of roughly US$3.54 billion that 1MDB said it made to units of IPIC as part of its obligations under a May 2012 bond agreement.

But IPIC declared that it never received those monies, triggering a row over interest payments on the bond issue which had helped 1MDB raise funds for the acquisition of power-generation assets.

IPIC declared 1MDB in default later after the latter refused to honour an interest instalment of US$50.3 million, a move that exposed the Malaysian government to billions more in claims.

As the dispute moved into private arbitration, the 1MDB scandal grabbed global attention, with the DoJ filing suits in Los Angeles seeking to seize dozens of properties and luxury assets that it claimed were purchased with funds amounting to more than US$3.5 billion.

American officials said the funds were illegally siphoned from the Malaysian state fund. The DoJ probe, which is ongoing, is taking place against the backdrop of investigations in several other jurisdictions, including Singapore, Switzerland and Hong Kong. – April 21, 2017.