Saturday, July 30, 2016

Deloitte Malaysia has disowned 1MDB audited accounts for March 2013 and 2014 – will KPMG do the same for the audited accounts it signed off for 2010, 2011 and 2012?

The United States Department of Justice’s (DOJ) explosive exposé has finally resulted of Deloitte Malaysia finally telling 1MDB that they no longer stand by the March 2013 and 2014 financial statements which they signed off on 28 March 2014 and 5 November 2014 respectively.

The DOJ’s account showed that Deloitte has failed to discover in its audit that 1MDB had made more than US$3.5 billion of payments over the course of 2012 t0 2014 to a fraudulent Aabar Investment PJS Limited, incorporated in the British Virgin Islands (BVI).

Deloitte also did not discover anything suspicious in 1MDB Global Investment Limited’s US$1.56 billion investment in several dodgy and obscure investment funds, including the Devonshire Growth, Enterprise Emerging Markets and Cistenique investment funds.  The US DOJ had determined that these funds had acted as conduits in the money laundering scam, including US$681 million which had ended up in the Prime Minister, Dato’ Seri Najib Razak’s personal bank account.

Deloitte was also led to believe that US$1.22 billion was successfully redeemed from 1MDB’s fake investment in the Cayman Islands, when in reality 1MDB was making round-tripping transactions with money from its subsidiary, 1MDB Global Investment Limited.  This was revealed separately by documents exposed by the Sarawak Report.

Deloitte’s gullibility had allowed 1MDB executives and the Najib administration to cite and abuse the international audit firm’s international “reputation” to lend credibility to 1MDB.  They helped mask the multi-billion dollar shenanigans which were taking place in the state-owned enterprise for the past few years.

However, Deloittle was not the only auditor guilty of such negligence.  Equally gullible to 1MDB executives lies and deceit was KPMG who signed off the 1MDB accounts for the years ending March 2010, 2011 and 2012 before they were sacked in December 2013.

In fact, it was KPMG who signed of the March 2010 accounts on 4 October 2010 in less than 3 weeks after they replaced the previous auditors, Ernst & Young, who were sacked for refusing to sign off the accounts.

The March 2010 accounts was crucial because it had involved 1MDB’s first investment of US$1 billion to form the short-lived joint venture with Petrosaudi International Limited.  As we now know for a fact, US$700 million of that investment was embezzled by Jho Low, with complicity by 1MDB top executives.

KPMG had then intentionally and/or negligently failed to report the fact that 1MDB’s sale and conversion of their stake in the Petrosaudi joint venture into a loan took place only after the March 2010 financial year.  As a result, 1MDB was able to report artificially inflated profits and failed to disclose the key transactions which were highly dubious within 1MDB-Petrosaudi Limited.

The nullification of the 1MDB’s 2010 audit would also mean that the 2011 and 2012 audits would automatically cease to be valid as well.

The question is, now that the US DOJ has surfaced evidence that the entire Petrosaudi transaction was a fraud for the purposes of money-laundering, will KPMG in form 1MDB and the public that they will no longer stand by the audited accounts like what Deloitte has done?

Or will KPMG decide to grit its teeth and stubbornly stand by the audited accounts which have now proven at best doubtful in the light of the recent developments?
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