‘Will KPMG also disown 1MDB audited accounts?’

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MP SPEAKS The United States Department of Justice’s (DOJ) explosive exposé has finally resulted in Deloitte Malaysia finally telling 1MDB that it no longer stands by the March 2013 and 2014 financial statements it signed off on 28 March 2014 and 5 Nov 2014 respectively.

The DOJ’s account showed that Deloitte had failed to discover in its audit that 1MDB had made more than US$3.5 billion of payments over the course of 2012 to 2014 to a fraudulent Aabar Investment PJS Limited (Aabar BVI), 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 DOJ had determined that these funds had acted as conduits in the money laundering scam, including US$681 million which had ended up in Prime Minister Najib Abdul 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 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, which signed off the 1MDB accounts for the years ending March 2010, 2011 and 2012 before it was sacked in Dec 2013.

In fact, it was KPMG that signed of the March 2010 accounts on 4 Oct 2010, less than three weeks after it replaced the previous auditor, Ernst & Young, which was sacked for refusing to sign off the accounts.

The March 2010 accounts were crucial because it 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 its 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 DOJ has surfaced evidence that the entire Petrosaudi transaction was a fraud for the purpose of money laundering, will KPMG inform 1MDB and the public that it 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 been proven at best doubtful, in the light of the recent developments?

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TONY PUA is the DAP National Publicity Secretary and Petaling Jaya Utara MP. - Mkini