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SINGAPORE – When the Malaysian government announced a US$3.9 billion settlement deal with Goldman Sachs in July, Prime Minister Muhyiddin Yassin used the opportunity to reiterate his administration’s commitment to recovering assets linked to the sprawling multi-billion-dollar 1Malaysia Development Berhad (1MDB) scandal.
Prominent detractors, though, panned the deal, despite it paving the way for the largest yet recovery of pilfered state funds, with Goldman committing to a $2.5 billion cash payout and a guarantee to return at least $1.4 billion in assets linked to three bond transactions worth $6.5 billion that the US investment bank had structured and arranged for 1MDB.
Leaders of Malaysia’s previous Pakatan Harapan (PH) government, which oversaw charges brought against Goldman and its executives, have suggested that Malaysia was shortchanged in the settlement, which also saw pending criminal charges against the bank dropped. To critics, the outcome amounted to a veritable slap on the wrist.
Reports indicate that another such settlement is in the works, this time with an Abu Dhabi state investment fund over 1MDB-related transactions linked to a legal challenge filed by Malaysia in a London court. Observers say the settlement could lead to a smaller-than-expected payout without details of the controversial case ever being aired in an open court.
The dispute, which had strained bilateral ties between Malaysia and the United Arab Emirates, pertained to the validity of an arbitration award that required Malaysia to pay $5.78 billion to the International Petroleum Investment Company (IPIC), which was absorbed by Mubadala Investment Company, an Abu Dhabi wealth fund, in 2017.
In 2012, IPIC had unusually agreed to guarantee two separate dollar-denominated bonds valued at $3.5 billion for 1MDB, a Malaysian state fund set up by former prime minister Najib Razak, who had forged close ties with Abu Dhabi during his 2009 to 2018 tenure. This arrangement later spiraled into a debt payment dispute between the two governments.
1MDB claimed it paid a separate $3.5 billion that year to IPIC’s subsidiary, Aabar Investments PJS. But according to the civil forfeiture suits from the US Department of Justice (DoJ), the payment was actually made to Aabar Investments PJS Ltd – a shell company based in the British Virgin Islands bearing a similar name.
US investigators say Low Taek Jho, a fugitive Malaysian financier with close ties with Najib’s family, worked hand-in-hand with IPIC’s then-managing director Khadem al-Qubaisi to divert and launder the bond proceeds – some of which ended up in Najib’s personal bank account – through financial institutions in multiple jurisdictions.
The two parties eventually entered into arbitration after IPIC sued 1MDB for defaulting on its debt obligations, reaching an agreement in 2017 that required the Malaysian state fund to pay IPIC $1.2 billion and assume responsibility for $3.5 billion in bonds which the Abu Dhabi-based sovereign investment firm had previously guaranteed.
The Najib administration’s settlement was arbitrated through the London Court of International Arbitration, a non-profit company that specializes in resolving commercial disputes. Its proceedings, however, are confidential, a fact that continues to obscure how IPIC was effectively absolved from its bond repayment obligations.
Shortly after the PH government came to power in May 2018, it accused Najib, who had also held the finance ministry portfolio, of secretly using funds from deals with the central bank and sovereign wealth fund Khazanah Nasional Berhad to pay 1MDB’s liabilities to IPIC while falsely claiming that rationalization programs were being used to settle debts.
After bringing corruption charges against Najib, Malaysia’s then-attorney general Tommy Thomas announced in October 2018 that the country would file a legal challenge to set aside his administration’s settlement or consent award with IPIC on the basis that it had been “procured by fraud or in a manner contrary to public policy.”
Malaysia won a key victory at the Court of Appeal in London in November 2019 when judges backed its argument that private arbitration proceedings meant the case would be determined without public scrutiny. The court also granted a temporary injunction halting a second round of arbitration sought by IPIC and its Aabar Investment unit against 1MDB.
The ruling brought the country a step closer to contesting its case against IPIC in an open court, where the Malaysian government sought to recover $3.5 billion that it says was paid to IPIC’s subsidiary, or the reduction of its liability to pay future interest and principal under bonds jointly guaranteed by IPIC up to that same amount.
Reports suggest that Muhyiddin’s administration, which rose to power in March with support from the United Malays National Organization (UMNO) – the former ruling party which includes criminally convicted Najib among its ranks – in a political coup that collapsed the PH government, is now opting for a very different strategy.
Sarawak Report, the whistleblower website widely recognized for its role in uncovering the byzantine money trail and political machinations behind the 1MDB scandal, published an exposé on August 2 which cited sources that claimed Malaysian authorities had opted to halt court proceedings into the matter in favor of diplomatic negotiations.
Foreign Minister Hishamuddin Hussein, who is Najib’s cousin, is leading efforts to secure an out-of-court settlement with Abu Dhabi following royal intervention from Malaysia’s constitutional monarch, or Yang di-Pertuan Agong, a “longstanding close friend” of Crown Prince Sheikh Mohammed bin Zayed al-Nahyan, the report claimed.
Opposition politicians soon called on Muhyiddin’s Perikatan Nasional (PN) government to address the veracity of Sarawak Report’s exposé. Attorney General Idrus Harun followed with a statement denying that legal proceedings had been stopped, but that Malaysia tellingly remains open to considering all forms of resolution between the two parties.
“Accordingly, discussions are always held between the two governments, including during the PH Government as well as the current government,” read the August 4 statement. “This discussion only involves Malaysian Government and UAE government officials without the involvement of any other party.”
Some have interpreted those remarks as effectively confirming what Sarawak Report had claimed, that Muhyiddin’s administration is preparing to discard hard-won leverage secured by the PH government’s legal challenge in favor of a negotiated deal that would keep details of the controversial consent award from being aired publicly.
“Signs are that the two sides are looking for a settlement. Najib negotiated the deal that is being disputed in the first place and both he and Abu Dhabi would like it to stay that way and for the embarrassing details to stay out of open court,” said Clare Rewcastle-Brown, editor of Sarawak Report.
“We also have an Agong now who is known to be a very close friend of the Abu Dhabi crown prince, who was the senior player in this whole affair and whose younger brother is heavily exposed at the head of IPIC,” she added, in reference to UAE’s Deputy Prime Minister Sheikh Mansour bin Zayed al-Nahayan.
In January, just weeks before the PH government’s collapse, the Malaysian Anti-Corruption Commission (MACC) released a series of bombshell audio recordings featuring then-premier Najib in discussions with various individuals – including a man believed to be Abu Dhabi’s Sheikh Mohammed – regarding efforts to cover up 1MDB-linked transactions.
In one of the recordings, which MACC said were verified by forensics experts, Najib can be heard making an appeal to a “Royal Highness” to help fabricate a loan agreement to show that Riza Aziz, the former premier’s film producer stepson, had received financing from IPIC and not from money siphoned from 1MDB.
“The premise is relatively small, if there can be an agreement with Sheikh Mansour to have a loan agreement signed … that will show that it is a legitimate financing package, it’s not money laundering,” said Najib on the audio clip, referring to the UAE’s deputy premier, who had been chairman of IPIC’s board of directors.
In May, state prosecutors dismissed money-laundering charges against Riza, who is accused of channelling $248 million in misappropriated 1MDB funds toward the production of the Oscar-nominated film “The Wolf of Wall Street” and other movies, as part of a controversial plea bargain that saw him agree to return less than half of the allegedly stolen funds.
Najib faces 42 criminal charges and in July was pronounced guilty in the first of five corruption trials he faces; his wife Rosmah Mansor also faces multiple graft charges. Speculation abounds that Najib continues to wield political influence through UMNO and some believe his convictions could be overturned if the party is returned to power.
While it isn’t clear why charges against Riza were dismissed on terms that former attorney general Thomas described as a “sweetheart deal” and “terrible for Malaysia” or if diplomatic considerations were factored into the decision, the controversy sullied the unelected PN government’s track record in dealing with the 1MDB scandal in the eyes of many.
“If Malaysia opts for a secret deal with Abu Dhabi, it will raise suspicions that both sides are attempting to brush the matter under the carpet,” said Tom Wright, co-author of the bestselling book “Billion Dollar Whale”, which documents the financial exploits of fugitive financier Low, also known as Jho Low, who is believed to be hiding in China.
“The current government wants to put the 1MDB scandal behind it, and we saw that with the Goldman deal. Perhaps Malaysia could have gotten more money by holding out,” he said. “What’s needed now is a transparent airing of a crime that was abetted by senior Malaysian and Abu Dhabi officials.”
On August 23, the Straits Times newspaper in Singapore reported that Malaysia’s foreign minister would lead a special government task force to Dubai to negotiate a closed-door compromise to PH’s legal challenge in a bid to mend strained bilateral ties, citing financial executives, lawyers close to the matter and others.
Sources told the broadsheet that any settlement would be political given that both sides were unwilling to make an admission of guilt, requiring major concessions from both governments. That scenario, observers say, could result in a Malaysia accepting a settlement in which it recoups less than the $3.5 billion it had sought to recover.
“UAE will not feel the need to fork out much if Malaysia makes clear they are happy to sweep everything under the carpet again. If they announce a private deal, it may turn out to be as secretive as the original arbitration was, leaving Malaysia unsure of the terms and conditions and how much will be paid by whom,” said Rewcastle-Brown.
“Getting the matter into court was a key strategy of the PH government to put the pressure of exposure on Abu Dhabi, in the same way that the tapes released by the MACC before the coup also revealed the extent to which the Abu Dhabi crown prince was willing to assist Najib in covering up the truth about the thefts from 1MDB,” she told Asia Times.
“The Malaysian team won that issue and it provided crucial leverage for them to reach a settlement that would have got back a lot of the missing money from Abu Dhabi. Now, that the Malaysian government appears to have agreed to suspend that court action, it can be argued they have surrendered the leverage they had to get a good deal,” she added.
“I think we are likely to be presented with an announcement that an agreement has been reached without going into court,” said Rewcastle-Brown. “The downside for Malaysia is likely to be the loss of yet more potentially enormous damages that the previous elected government had sought to secure to repair the damage of 1MDB.”