KUALA LUMPUR, July 9 — The Malaysian government, the Finance Ministry-owned Ministry of Finance Inc (MoF Inc), 1Malaysia Development Berhad (1MDB) have this week filed a lawsuit to claim US$5.64 billion from the then partners of 1MDB’s former audit firm KPMG Malaysia, a report has said.
Local business publication theedgemarkets.com reported that the lawsuit was filed this Tuesday against 44 individuals who were the partners of the audit firm when it was the auditor for 1MDB in the past, over alleged contract breaches and alleged negligence in the audit and certification of 1MDB’s financial statements for 2010, 2011 and 2012 financial years ending.
The lawsuit was filed by seven plaintiffs, namely 1MDB, the government of Malaysia, MoF Inc, four 1MDB’s subsidiaries (1MDB Energy Holdings Ltd (1MEHL), 1MDB Energy Ltd (1MEL), 1MDB Energy (Langat) Ltd (1MELL) and a company which was formerly 1MDB Global Investment Company Ltd but is now known as Global Diversified Investment Company Ltd).
Citing a statement of claim numbering 148 pages filed in court for the lawsuit, theedgemarkets.com reported that Ernst & Young was the initial auditor for 1MDB but that it could not conclude its audit due to a lack of sufficient appropriate audit evidence about the fair value and recoverability of 1MDB’s purported joint venture investment, with former prime minister Datuk Seri Najib Razak in September 2010 directing for the audit firm to be removed and replaced with KPMG.
The news report said KPMG had started its audit on September 14, 2010 and issued an unqualified audit opinion on October 4, 2010.
According to the news report, the plaintiffs claimed that there was misappropriation of US$5.64 billion from 1MDB and 1MDB’s subsidiaries to the benefit of Najib and his associates or nominees, with funds totalling US$3.197 billion of the US$5.64 billion amount allegedly misappropriated during the financial years of 2010, 2011 and 2012 when KPMG acted as 1MDB’s auditor.
The lawsuit reportedly claimed that KPMG did not detect the fraudulent transactions and misappropriations that were allegedly implemented by the then 1MDB management and allegedly carried out under Najib’s directive, further claiming that the audit firm had instead issued unqualified audit opinions on 1MDB’s financial statements for the years 2010, 2011 and 2012.
The lawsuit claimed however that 1MDB’s audited financial statements for those three years, however, did not portray a true and fair view of the company’s financial affairs, and that a true audit picture could have otherwise prevented further transactions in 2013 and 2014 that resulted in more money being misappropriated from the Finance Ministry-owned 1MDB, theedgemarkets.com reported.
In claiming for the US$5.64 billion that was misappropriated from 1MDB, the lawsuit also said that interest of at least US$1.43 billion has accumulated from that sum as of May 6, 2021.
KPMG was later removed as 1MDB’s auditor after it rejected signing off on the audit for 1MDB’s accounts for the 2013 financial year, and was then replaced by audit firm Deloitte for the 2013 and 2014 financial years.
In June 2018, KPMG had said it had — after going through Malaysia’s auditor-general’s declassified report on 1MDB in May 2018 — wrote to 1MDB to notify that there should not be further reliance on KPMG’s audit reports for 1MDB for the financial years 2010, 2011, and 2012.
Malaysia had since last year reached a series of settlements with entities involved with 1MDB previously, including with Goldman Sachs, AmBank and Deloitte.
Under a US$3.9 billion deal agreed in July 2020 with Goldman Sachs, the settlement with Malaysia includes Goldman Sachs’ cash payment of US$2.5 billion (RM10.6 billion) and guarantee of full recovery value of at least US$1.4 billion (RM5.9 billion) in assets traceable to proceeds diverted from three 1MDB-linked bonds which it had helped arrange.
On February 26, the Finance Ministry said Ambank had via its public-listed holding company AMMB Holdings agreed to pay RM2.83 billion in settlement. Ambank was on July 2 reported to have paid RM1.8 billion of this sum, with the remaining to be settled via two payments of RM515 million each in December 2021 and July 2022.
On June 3, the Malaysian government said it had received US$80 million (RM336 million) from Deloitte in an out-of-court settlement related to 1MDB, an amount which the audit firm was announced on March 3 to have agreed to pay.
Also on June 3, the Finance Ministry had at that time said it was in ongoing negotiations with KPMG. It had also said that Malaysia still has to pay off 1MDB’s remaining debts worth RM39.66 billion and 1MDB former subsidiary SRC International Sdn Bhd’s remaining debts worth RM2.57 billion.
On May 10, the Finance Ministry confirmed that 1MDB had filed six lawsuits against a total of nine entities and 25 individuals for various alleged wrongdoings and that SRC had filed 16 lawsuits against a total of eight entities and 15 individuals for various alleged wrongdoings, with the 22 lawsuits aiming to recover assets totalling more than RM96.6 billion (US$23 billion).
Najib’s trial involving more than RM2 billion of 1MDB funds has been going on since August 2019, and has faced disruptions last year and this year due to the Covid-19 pandemic, and is expected to resume on the next scheduled date on August 17 this year.