Exclusive | ‘Abetting in scandal or merely negligent’? Deloitte and KPMG investigated over involvement in Malaysia’s 1MDB corruption scandal
- The Malaysian Securities Commission is looking into the firms to determine if they were “were aiding and abetting in this scandal, or merely negligent. The accountants must be held accountable”
Deloitte and KPMG – two of the world’s largest audit firms – are being investigated by the Malaysian authorities over their involvement in the 1Malaysia Development Berhad global corruption scandal say sources.
The Malaysian Securities Commission is looking into the firms to determine if they were “were aiding and abetting in this scandal, or merely negligent. The accountants must be held accountable”, said a source close to the matter.
This investigation is the latest move in the government’s 1MDB corruption dragnet, which has also seen them file criminal charges against Goldman Sachs for their part in the US$4.5 billion scandal and raid the investment bank’s local law firm. Disgraced former premier Najib Razak, too, is on trial for multiple charges of corruption and abuse of power following his ouster in May last year. The plundering of the 1MDB sovereign wealth fund was a key factor in his electoral loss, with political opponents Pakatan Harapan campaigning and winning on an anti-corruption platform.
After coming to power, the new government launched an aggressive multi-agency probe into the scandal, charging a slew of high-ranking government officials and going after involved parties, leading to Goldman Sachs CEO David Solomon issuing a public apology and billionaire financier and 1MDB adviser Low Taek Jho going underground.
Watchdogs have been pushing for the government to widen the investigation, tackling all layers of the scandal including the auditors.
Anti-graft activist Cynthia Gabriel, who also serves on an investigative committee set up to assist in the nation’s 1MDB probe, said that the audit firms involved were “a party to the fraud. The personnel involved should be duly punished. Evidence of wrongdoing has been produced – the auditor-general’s report, the public accounts committee’s report. In fact, KPMG is working at nullifying the audit report 2011-2012”.
Sources believe that KPMG may be negotiating a deal with the Malaysian authorities.
Don’t just apologise, pay Malaysia US$7.5 billion, finance minister tells Goldman Sachs
In mid-2018, KPMG released a statement claiming that the books it had audited for 2010, 2011 and 2012 were not “true and fair” assessments of 1MDB’s funds, and that it lacked full access to relevant documents that were only declassified when the new government took power.
When asked to confirm the investigation, the Securities Commission refused to divulge details, only saying that its review of the “conduct of auditors in relation to 1MDB audits is still ongoing”. After completing the review it will assess its findings before deciding on the next step.
The Securities Commission can prohibit any persons found guilty of wrongdoing from auditing and also impose a fine of up to RM500,000 (US$121,000) – although evidence of criminal conspiracy will result in more serious punishments.
Deloitte and KPMG did not respond to repeated requests for comment.
KPMG signed off on 1MDB’s accounts for 2010, 2011 and 2012, while Deloitte was appointed to do the same in 2013 and 2014 after KPMG was reportedly sacked for asking for more information about 1MDB assets.
Deloitte quit after the US Department of Justice filed lawsuits to recover assets acquired with misappropriated 1MDB funds, saying that its audit reports should no longer be relied upon. No accounts have been filed since 2015, although Parker Randall was appointed after Deloitte.
Meanwhile, the new Pakatan Harapan government has not yet revealed who the current 1MDB auditor is. Conflicting news reports have claimed that it is PwC, while others state that KPMG was reappointed.
Sources in the Finance Ministry have said neither firm are the 1MDB auditors, although PWC was brought in to complete a status audit in June 2018 which it submitted in August last year. This status review, too, has not been made public, although the Finance Minister Lim Guan Eng has said it showed 1MDB, which is wholly owned by the Finance Ministry, had not complied with corporate governance or management principles.
Parliament’s Public Accounts Committee, which was also probing 1MDB, was also not aware of who the new auditor for 1MDB is. Member of Parliament Wong Chen said while PWC did a “short investigation” to assess how much public money was missing, “[I] am not sure if they are now the new auditors”.
Malaysian police meet Chinese officials to help track down Jho Low
The Ministry of Finance has not responded to requests for clarification. PWC also refused to comment on the matter, citing “confidentiality reasons”.
Transparency watchdogs have been calling for investigations into the various parties and institutions that aided, abetted or helped cover up the 1MDB corruption scandal which saw billions in public money siphoned out of the state wealth fund. Some US$680 million of the money allegedly ended up in the personal bank accounts of former premier Najib, who headed 1MDB’s advisory board and also served as finance minister. Funds were also misused to purchase luxury property, jewellery, a US$250 million superyacht, artwork by Monet and van Gogh, and fund the Hollywood blockbuster Wolf of Wall Street.
Top political economist Edmund Terence Gomez said the audit firms involved had already admitted to evidence of irregularities and so thorough investigations had to be carried out.
“This is not uncommon: look at the Enron scandal. But when such scandals break, auditors are implicated. Who checks the auditors and makes sure they are doing their jobs? If international audit firms are not doing their jobs, who can we turn to?” he said, suggesting that Malaysia should put in place an independent audit regulator, similar to countries like India which did so in response to its own national audit scandals.
Gomez said that disciplinary action by professional regulatory body, the Malaysian Institute of Accountants (MIA), was insufficient to punish any wrongdoing.
The MIA is currently looking into Deloitte and KPMG’s conduct, but it cannot hand down punishments sterner than a fine of up to RM5,000 or termination of membership.
Nurmazilah Mahzan, MIA’s chief executive officer, said that the committee was still deliberating over the inquiry into the audit firms. “So far both [Deloitte and KPMG] have been cooperative, but remember this is a disciplinary tribunal for MIA members and not a court.”
