Pua: KPMG covered up 1MDB scam to siphon money

The latest Sarawak Report is the strongest evidence yet that KPMG was complicit in a cover-up of the 1MDB Scandal.

KUALA LUMPUR: International auditors KPMG, Petaling Jaya Utara MP Tony Pua says, “has clearly failed to act with any integrity in an audit exercise involving 1Malaysia Development Berhad (1MDB) and did not act with the necessary independence”.

He alleged that “because 1MDB covered up the shocking embezzlement in the 1MDB PetroSaudi JV, the former was allowed to continue its wanton acts by lending even more cash to PetroSaudi”.

Consequently, he fumed, 1MDB accumulated a monster RM42 billion in debt over the next four years.

Clearly, stressed Pua who is also DAP National Publicity Secretary, “KPMG has failed Malaysians”.

He was taking issue with KPMG stating on its website that the international audit firm prided themselves that “above all, we act with integrity. We are constantly striving to uphold the highest professional standards, provide sound advice and rigorously maintain our independence”.

KPMG Partner, Ahmad Nasri bin Abdul Wahab, also claimed to have conducted the necessary “assessment of risks of material misstatement of the financial statements whether due to fraud or error”, noted Pua.

The latest documents exposed by the Sarawak Report, he pointed out, have provided the strongest evidence yet that KPMG was complicit in covering up the 1MDB PetroSaudi joint venture scandal in 1MDB’s March 2010 Financial Statements.

The Sarawak Report exposed the secret 1MDB and Petrosaudi International Limited (PSI) joint venture (JV) agreement dated 29 September 2009, revealing details “which points towards a highly elaborate scam to siphon money from 1MDB”.

The latest exposé, on Saturday, by Sarawak Report showed that the auditors KPMG knowingly took an active part in covering up the PetroSaudi joint venture, he added.

In an email on 22 May 2010, he continued, 1MDB’s Chief Investment Officer Nik Kamil wrote to the CEO of PetroSaudi, Patrick Mahoney with regards to the relevant transaction documentations. “He said, 3. Letter of Agreement to purchase shares – all okay, except Auditors want a change in clause 5.9. Conceptually, they say that they will only clear the audit if the “proportionate reduce [sic] in guarantee” is satisfied by either a “proportionate conversion of the shares” or payment in “cash”. Attached is the draft which they had proposed which I have not sent to our lawyers as it is better that you deal with it”.

This email itself provides very strong evidence that KPMG not only abetted 1MDB in covering up the joint venture, warned Pua, they even advised 1MDB on how to execute the cover up transaction agreements to their satisfaction.

Briefly, despite knowing that “1MDB Petrosaudi Limited” had a dubious existing debt of USD700 million, 1MDB agreed to invest USD1 billion (RM3.5 billion) into the newly set up company to subscribe for 40 per cent of new shares. “Hence 1MDB had invested USD1 billion in a JV where the JV partner immediately got to siphon 70 per cent of the funds out of the joint venture for practically nothing in return,” said Pua in recalling the thrust of the scandal.

In addition, he said, “it was also discovered that the supposed USD1.5 billion asset injection by PetroSaudi into the joint venture was not only dubious, but also fraudulent”.

“However, the salient details of the JV agreement above were never reported in 1MDB’s very first Financial Report for March 2010. This is because the JV was terminated six months later in 31 March 2010, very coincidentally on the very last day of the Financial Report.”

Malaysians never had an opportunity to discover the shenanigans.

Subsequently, on 31 March 2010, the Company entered into a Share Sale Letter Agreement (“SSA”) to dispose of its investment in the JV for a consideration of USD1.2 billion. “The consideration of USD1.2 billion was payable to the Company through the creation of indebtness, in favour of the Company via an issuance of notes receivable,” said Pua. “Therefore because the JV was no longer existent as of the last day of the financial year, Malaysians never had an opportunity discover the shenanigans which had occurred during the year in the financial statements.”

What was more shocking however, was that the share sale and notes receivables were never signed or created on the 31 March 2010. “Instead, we have already discovered earlier that the Murabaha loan notes were signed only on 14 June 2010.”

Email correspondences clearly showed, said Pua, that the drafts for all the various documents, including the SSA itself were still being worked on by 1MDB’s lawyers, Brian Chia of Wong & Partners throughout April and May 2010.

“An email dated 9 June 2010 from PetroSaudi’s lawyer, Thomas Merrifield to PetroSaudi’s Tim Buckland, even pointed to the fact that 1MDB’s two Board resolutions for the above transaction were signed only after 25 May 2010.”