Getting back US$588m from Goldman Sachs isn’t enough

Goldman Sachs’ possible losses from litigation, according to the Financial Times, could climb as high as US$1.8 billion above its total reserves. This is three times what it earned in commission from 1MDB.

Unsurprisingly, Finance Minister Lim Guan Eng has asked the investment bank to return US$588 million to Malaysians. The figure looks large, but it is paltry given the financial opprobrium and mayhem that Goldman Sachs rained on Malaysia for nearly a decade.

Though it is not too late for Putrajaya to change its ‘minimalist’ demand, there are five reasons why Lim – despite his credentials as an accountant – is wrong to demand such a low sum.

First of all, Goldman Sachs has backed itself to a corner. The US Department of Justice (DOJ) is launching criminal indictment of three key figures in the grand larceny of 1MDB, with perhaps more to come.

With former executives Timothy Leissner and Roger Ng being arrested and charged, Goldman Sachs is conceding criminal liability. The bank will fold, and perhaps seek a plea bargain with the DOJ to get off with a lighter punishment.

Secondly, with Goldman Sachs wanting a bigger piece of the economic pie in Asia, why shouldn’t the bank not be held accountable for the US$4.5 billion now frozen and seized in US financial system? Goldman Sachs helped to originate US$6.5 billion worth of bonds in all.

A minimal refund is not what Lim should be attempting. This is the money of Malaysian taxpayers, a large chunk of which is already being used for debt repayment. 1MDB and the many ‘mini-1MDBs’ just aggravated the trend.

Thus, there is no reason why Putrajaya should be so generous to Goldman Sachs, since the bank was never candid and generous with Malaysia to begin with.

Even with a paltry one percent interest rate, Malaysian taxpayers are losing US$45 million every month, or US$540 million a year.

Multiply that by 36 months, or, three years, the magnitude of the loss income of Malaysian money is brought into sharp relief: US$1.62 billion – and counting – has been forsaken. If the interest rate is two percent, Malaysia lost US$3.24 billion between 2015 and June 2018.

On the offensive    

One wonders why Lim is not taking a more hardline approach, with Goldman Sachs down for the count.

Without Goldman Sachs functioning as an enabler, fugitive financier Low Taek Jho would not have succeeded in his plan at all.

If the DOJ indicts Goldman Sachs, Lim must go on the offensive. Goldman Sachs should, if anything, compensate Malaysians for the damage to the country’s reputation, and the generational damage it has caused.

Malaysians are already saddled with the RM1 trillion debt and liabilities, which will only spiral upwards in years to come. One can only imagine the toll this will have on this and future generations of Malaysians, for gross income and economic opportunities lost.

Fourthly, Goldman Sachs will not lift a finger to stop credit rating agencies from potentially downgrading Malaysia,  especially with Putrajaya refusing to pay back sovereign funds to Abu Dhabi.

Moody’s Investor Service just downgraded Petronas’ outlook from stable to negative, after handing over a one-off dividend of RM30 billion to make up for the tax shortfall of the previous administration.

Did Goldman stand up to say, "We were guilty for this  short fall too"? No. It will likely remain sheepishly silent.

Finally, whatever Malaysia want to pay back, it has to do it via "samurai bonds" provided at an interest rate of 0.65 percent over the next ten years.

Financial trap

In other words, due to the 1MDB scam facilitated by Goldman Sachs in quiet complicity with former prime minister Najib Abdul Razak, Malaysia was allowed to walk into a financial trap.

But all is not lost. Prime Minister Dr Mahathir Mohamad and his successor Anwar Ibrahim have both agreed to claw back every dollar and cent; and one can imagine the Attorney-General’s Chambers being more than happy to work with the DOJ and pin Goldman Sachs down.

Regardless of how one slices and dices the math, the dues owed to Malaysians by the investment bank far exceed the US$588 million we’re asking for.

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PHAR KIM BENG is a multiple award-winning head teaching fellow on China and the Cultural Revolution at Harvard University. - Mkini