RM2.2m fine against Deloitte over 1MDB-linked audit is valid - court

 

The Kuala Lumpur High Court ruled that the Securities Commission's (SC) RM2.2 million fine against Deloitte PLT is correct.

Judge Mariana Yahya made this ruling today when dismissing the international audit firm's judicial review against the fine over the alleged failure to flag 1MDB-linked irregularities.

The judge issued the ruling during open-court proceedings this morning.

On Jan 30 last year, it was reported that the SC fined Deloitte a total of RM2.2 million for four breaches involving the RM2.4 billion bond issued by Bandar Malaysia Sdn Bhd (BMSB), a 1MDB subsidiary, in 2014.

In a statement, the securities regulator said Deloitte was the statutory auditor for BMSB and parent company 1MDB Real Estate Sdn Bhd (1MDB RE) for the fiscal year ending Mar 31, 2015 and 2016.

Deloitte then filed the legal challenge and was granted leave by the High Court to proceed with the judicial review on Nov 25 last year.

When met after today’s proceedings, SC’s lawyer Brendan Navin Siva said the court today found that the regulator’s decision to impose the fine was in line with the provisions of the Capital Markets and Services Act 2007.

He said the court found that prior to the imposition of the fine, SC has given Deloitte the opportunity to show cause over the alleged failure to raise the irregularities in the audit of the 1MDB-linked companies.

“The SC’s interpretation of Section 276 of the Capital Markets and Services Act (to impose the fine) was correct in law. The notice to show cause (issued to SC prior to the imposition of the fine) was specific and clear.

“Deloitte was given the opportunity to be heard on the charges (allegations of failure to flag the 1MDB-linked irregularities). (The court found) the sanction of RM2.2 million fine imposed by the SC is proportionate to the seriousness of the (alleged) breaches.

“(The court found) there has been no bias in the SC’s decision. Therefore (Deloitte’s) judicial review application was dismissed,” Brendan said.

Meanwhile, Deloitte’s counsel Malik Imtiaz Sarwar said he would be getting further instructions from the auditor on whether to file an appeal against today’s verdict.

Deloitte’s judicial review application had sought to overturn the SC’s review decision made on Aug 19 last year, which maintained the RM2.2 million fine against Deloitte that it imposed earlier on Jan 30 last year.

Following the disposal of SC’s review process, Deloitte paid the RM2.2 million fine on Sept 4 last year, while the auditing firm maintained that the fine was paid without prejudice to its right to initiate judicial review proceedings against the securities regulator.

Deloitte had claimed the review conducted by the SC last year had been pre-judged and exhibited apparent bias, as the applicant was allegedly penalised in an effort to address the wrongdoings committed against 1MDB.

Deloitte claimed it had been penalised to send a message to the wider market supervised by SC, which amounted to singling out the auditor to be made an example of, and thus a violation of its fundamental right to equality under the law enshrined in Article 8 of the Federal Constitution.

It claimed that SC’s decision to impose the fine had breached the rules of natural justice as the charges framed in SC’s show cause letter were vague and ambiguous.

Deloitte also contended that the imposition of the RM2.2 million fine was excessive, as the RM2 million portion of the fine for the two main breaches under the CMSA was the maximum amount allowed under said act.

The auditing firm alleged that the remainder RM200,000 portion of the total fine, which was for two breaches under Section 276(1) of CMSA, were mere technical non-compliance and thus the RM200,000 fine for both breaches was not warranted.

The auditing firm had sought for the return of the RM2.2 million it paid as a fine to SC in the event that the court ruled in favour of its judicial review proper. - Mkini