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Understanding Goldman Sachs' role in Malaysia's 1MDB mega scandal

KUALA LUMPUR/WASHINGTON (Reuters) - Goldman Sachs Group Inc on Thursday reached a deal to settle a probe into the bank’s role in Malaysia’s 1MDB corruption scandal, which included total penalties of $2.9 billion.

FILE PHOTO: A sign is displayed in the reception of Goldman Sachs in Sydney, Australia, May 18, 2016. REUTERS/David Gray/File Photo/File Photo

The bank was investigated for its role in raising $6.5 billion in three bond sales between 2012 and 2013 for the 1Malaysia Development Berhad (1MDB) state fund.

WHAT IS 1MDB?

1MDB is a state fund launched in 2009 by former Malaysian prime minister Najib Razak to promote economic development.

HOW DID BILLIONS GO MISSING?

1MDB raised billions of dollars in bonds, ostensibly for investment projects and joint ventures between 2009 and 2013.

Malaysian and U.S. authorities say $4.5 billion, including some of the money Goldman helped raise, was stolen from 1MDB in an elaborate scheme that spanned the globe and implicated high-level officials of the fund, Najib and others.

The siphoned funds were used to buy luxury assets and real estate, including hotels, a private jet, art by Picasso and Monet, and to finance Hollywood films, U.S. lawsuits said.

The U.S. Department of Justice has sought to recover about $2.1 billion in assets linked to diverted 1MDB funds - the largest ever asset recovery action brought by the agency.

HOW IS GOLDMAN SACHS INVOLVED?

Goldman has been investigated by regulators in at least 14 countries for its role in underwriting the 1MDB bond issues.

The work earned the bank $600 million in fees and led to large bonuses for some of its executives, officials have said, although the bank has disputed that figure.

The Justice Department said on Thursday that Goldman violated the U.S. Foreign Corrupt Practices Act, which bans U.S. companies from paying foreign government officials for help in getting or keeping business. Malaysian prosecutors also said bank misled investors over the bond sales.

Goldman has in the past said that certain members of the former Malaysian government and 1MDB officials lied to it about how proceeds from the bond sales would be used.

On Thursday, Goldman’s Malaysian unit pleaded guilty to violating U.S. foreign bribery rules.

HOW MUCH WILL GOLDMAN PAY?

Goldman will pay a $2.3 billion fine to the Justice Department and other regulators, and a further $600 million in disgorgement of ill-gotten gains to settle the U.S. probe and avoid a criminal conviction at the group level.

This is in addition to the $3.9 billion that Goldman has agreed to pay Malaysia in exchange for dropping all criminal charges against the bank.

On Thursday, Hong Kong’s markets watchdog also fined Goldman’s Asia unit $350 million for serious lapses and deficiencies in its management controls that contributed to the misappropriation of $2.6 billion in funds it helped raise for 1MDB.

ARE THERE ANY OTHER CASES AGAINST GOLDMAN?

The Justice Department has filed criminal charges against two former Goldman bankers tied to the scandal, Tim Leissner and Roger Ng.

Leissner plead guilty to the charges last year, while Ng’s case is pending in a New York court. Ng is expected to face separate charges in Malaysia after his U.S. trial concludes.

This week, Abu Dhabi’s International Petroleum Investment Co (IPIC) dropped a lawsuit against Goldman to recover losses suffered from the bank’s dealings with 1MDB.

The lawsuit alleged that Goldman conspired with unidentified people from Malaysia to bribe two former IPIC executives to further their business at its expense.

HOW MUCH MORE IS BEING SOUGHT?

The Justice Department has recovered or assisted Malaysia in recovering nearly $1.1 billion in 1MDB-linked assets.

Malaysian authorities say at least $4.3 billion more are still unaccounted for.

WHO ELSE HAS BEEN IMPLICATED?

After losing an election in 2018, Najib has been charged with 42 criminal offences in Malaysia, mostly linked to losses at 1MDB and other state entities.

In July, he was found guilty of corruption and money laundering for illegally receiving $10 million from a former 1MDB unit and sentenced to 12 years in prison. Najib denies wrongdoing and has filed an appeal.

Elliott Broidy, a former fund-raiser for U.S. President Donald Trump, pleaded guilty this week to a charge that he illegally lobbied Trump to drop an investigation into 1MDB.

Malaysian and U.S. authorities have also filed charges against Malaysian financier Jho Low for his alleged central role in the 1MDB fraud. Low has denied wrongdoing and his whereabouts is unknown.

Reporting by Rozanna Latiff; additional reporting by Michelle Price; Editing by Sumeet Chatterjee and Nick Zieminski

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