Did Zafrul wilfully mislead over ‘US$3.9b’ Goldman deal?

It is very common for politicians from both sides of the divide in Malaysia to lie about facts and misrepresent them to make themselves look good. But that’s not something we expect of technocrats who are brought into government and the cabinet.

We would expect that they would be a few steps above many lowly, sly, deceptive and deceitful politicians and at least make a decent attempt to give credit where it is due and not explain away bad settlements by making mistakes about facts.

This refers to an interview in The Edge by Finance Minister Tengku Zafrul Aziz defending that US$3.9 billion settlement with Goldman Sachs. That was actually a cash settlement of US$2.5 billion and a guarantee of US$1.4 billion for recovery of monies of at least that much from US$6.5 billion in bonds Goldman Sachs arranged for the infamous 1Malaysia Development Bhd or 1MDB. I had criticised the deal in an earlier article.

The crucial remark that Zafrul made with respect to the deal was this: “...the current Attorney-General Tan Sri Idrus Harun secured a settlement after intimating to Goldman Sachs of amended and new charges for fraud under Section 179 (a) and civil disgorgement claims under Section 199 CMSA. These entitled Malaysia to disgorge three times the fees (US$606 million x 3 = US$1.818 billion) earned by Goldman Sachs. These statutory claims are more robust and irrebuttable and resulted in the settlement. The US$2.5 billion cash payment is 42% more than the offer received before.”

But this assertion by Zafrul (above) clashes with what the attorney-general then Tommy Thomas said in a media statement on Dec 17, 2018, when announcing the charges against Goldman Sachs: “The scheme designed and crafted by the accused to fraudulently structure the Bonds for ostensibly legitimate purposes when they knew that the proceeds thereof would be misappropriated and fraudulently diverted by the accused themselves was planned and executed in order to defraud the Government of Malaysia and the purchasers of the Bonds. Their scheme to defraud is a contravention of Malaysia’s securities laws, particularly, Section 179 of the Capital Markets and Services Act, 2007 [Act 671].

“Malaysia considers the allegations in the charges against all the accused to be grave violations of our securities laws, and to reflect their severity, prosecutors will seek criminal fines against the accused well in excess of the US$2.7 billion misappropriated from the Bonds proceeds and US$600 million in fees received by Goldman Sachs [my emphasis], and custodial sentences against each of the individual accused: the maximum term of imprisonment being 10 years. Their fraud goes to the heart of our capital markets, and if no criminal proceedings are instituted against the accused, their undermining of our financial system and market integrity will go unpunished.”

That is clear indication that Thomas was on top of the situation and considering the full use of Section 179 to recover monies from Goldman Sachs. The operative words were “well in excess” of US$2.7 billion and US$600 million or US$3.3 billion. This was confirmed by Thomas in his full rebuttal to Zafrul that Malaysia’s total exposure was US$9.6 billion while then finance minister Lim Guan Eng said in an interview the government wanted US$7.5 billion.

Bad form

It’s bad form for Zafrul to attribute this to Idrus when the process was already started by Thomas under the previous administration. And to use this to say that a better settlement (as he sees it) was made possible by Idrus’ intervention.

Even this flawed settlement was made possible by actions under Harapan, not Perikatan Nasional. There is no reason why Zafrul should not have admitted this. And as a former CEO of CIMB Group and a former investment banker, one would have expected him to lead the charge for a better deal, not to make excuses for a poor one.

Thomas (above) in his rebuttal had this to say about Zafrul’s assertion that it was a much better deal than the US$1.75 billion Goldman Sachs had offered earlier: “Separately, I would like to comment on two general matters raised by the disingenuous statements of the Finance Minister. First, that the settlement he reached was higher than the US$1.75 billion offered to the PH government. That is correct only because we rejected such a low offer, bearing in mind that Malaysia’s total exposure in principal and interest on the 3 bonds is US$9.6 billion.

“Secondly, the misleading statement about the US$1.4 billion as part of the Goldman Sachs settlement. Malaysia would have received this sum from the US Department of Justice, in any event, independent of this settlement with Goldman.

“This was because of the good relationship that Malaysia has established with the DOJ after the Pakatan Harapan government took office in May 2018. In other words, Malaysia’s right to receive the US$1.4 billion was not in any way dependent on the Goldman Sachs settlement.”

Juxtaposing the two arguments, we are now in a better position to know who is more right.

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P GUNASEGARAM and his team at KiniBiz were the first to write extensively about 1MDB’s shenanigans - beginning in March 2013. He wrote the first book on the topic ‘1MDB: The Scandal that Bought Down a Government’ in August 2018. - Mkini

The views expressed here are those of the author/contributor and do not necessarily represent the views of us.