UNCONVINCED by explanations proffered by senior executives of 1Malaysia Development Bhd (1MDB), audit firm KPMG insisted on getting answers from then prime minister and finance minister Datuk Seri Najib Razak as the representative of the Ministry of Finance to discuss the 2013 accounts of the national strategic investment company, on which the firm had refused to sign off.
In particular, KPMG was dissatisfied with the inadequate explanations and documents provided in relation to the company’s huge investment of US$2.3 billion in an unknown fund, Bridge Global SPC, that was made through Brazen Sky Ltd.
According to former 1MDB CEO Mohd Hazem Abdul Rahman’s testimony last week, KPMG was dismissed in 2013 after the firm — appointed as 1MDB’s auditor on Sept 15, 2010 — had refused to sign off on the company’s 2013 financial accounts even after a meeting with Najib at his residence. Until it was dismissed, KPMG — the second audit firm hired after Ernst & Young resigned from the account in 2010 — had signed off on three unqualified audit reports for 1MDB for the financial years ended March 2010 to 2012.
However, KPMG issued a statement in 2018 that those audited financial statements did not reflect a true and fair view of the company, and hence could not be relied on, following the declassification of the Auditor-General’s report on 1MDB in the same year.
On the 2013 accounts, Hazem recalled that at the time, KPMG had repeatedly insisted on details of the kinds of investments made through Brazen Sky and proof that 1MDB had invested in the SPC fund, given its claimed investment of US$2.3 billion in the fund. But he said 1MDB management themselves did not have access to the information about the investments as they were denied the documents by businessman Low Taek Jho — now a fugitive — except for the investment statements issued by BSI Bank.
Frustrated at the lack of progress, KPMG requested a meeting with the shareholder of 1MDB — in this instance, the Ministry of Finance, which was represented by Najib as the then prime minister and finance minister. However, the meeting was not minuted as it was supposed to be informal.
Prior to the meeting, Low coached the board of directors (BOD) on what to tell KPMG. “At the end of 2013, Jho Low was coming up with strategies to be used to explain this issue to KPMG without having to disclose the investment in detail. The strategies used included providing supporting documents from law firms and Brazen Sky’s investment account statements,” said Hazem.
“As far as I can remember, there were at least two occasions where 1MDB management and BOD representatives at the time were called to attend meetings with Najib for that purpose.”
Brazen Sky Ltd was subsequently discovered to be a company incorporated in the British Virgin Islands by Low, and used as a vehicle to embezzle funds out of 1MDB.
Apart from Hazem and Low, attendees at the meeting with Najib included then 1MDB chairman Tan Sri Lodin Wok Kamaruddin, 1MDB director Tan Sri Ismee Ismail, 1MDB chief financial officer Azmi Tahir, BSI Singapore representative Yak Yew Chew and Najib’s principal private secretary, Datuk Azlin Alias.
Leading up to the directors’ meeting, Hazem said Low had sent an email to him, 1MDB’s then director of finance Terence Geh and its legal officer Jasmine Loo Ai Swan, titled “URGENT; DOCUMENTS FOR BOSS TONIGHT”. Attached to the email were documents and talking points prepared by Low for Najib for the KPMG meeting.
The strategy outlined points for Najib, including expressing his confidence in the credentials of BSI Bank, which was acting as the fund manager of 1MDB’s purported US$2.3 billion investment.
At the 1MDB officials’ meeting, Hazem said Low advised Najib not to talk too much at the upcoming meeting with KPMG. However, Najib was to emphasise that he knew all about 1MDB’s investments, especially the one via Brazen Sky, and that he was comfortable with all the documents available. Najib was also told to clearly state that he had been briefed by 1MDB.
“As YAB PM has been briefed by the chairman of 1MDB and management of 1MDB on several occasions, YAB PM is recommended not to engage in a lengthy discussion with KPMG over the issues, although YAB PM may offer them a brief opportunity to air their views. YAB PM to state clearly that he has been briefed and heard both sides, and is aware of the transactions and comfortable with them given all the facts. As a final position: YAB PM may suggest that KPMG may make disclosure notes (but not qualifying accounts) as to the basis of valuation is based on confirmation from the regulated financial institutions,” the strategy by Low read.
Hazem had kept emails from Low instead of deleting them as requested.
Subsequently, Jho Low arranged for the meeting with KPMG at Najib’s residence, which was only to be attended by the audit firm’s managing partner Datuk Johan Idris and partner Ahmad Nasri Abdul Wahab, as well as Hazem, Lodin and Azmi. Hazem said that at the meeting, Najib told Johan that he wished to see KPMG close the audit report for 1MDB’s financial statements before Dec 31, 2013. Johan did not respond.
Hazem said Najib also questioned why KPMG still doubted that the investment asset was secure when BSI Bank had shown the audit firm bank statements for the investment. Furthermore, he said 1MDB was dealing with “reputable parties”.
Hazem said as he was pressured by Low and Najib to close the 2013 accounts, 1MDB replaced KPMG with Deloitte about two weeks after Najib’s meeting with KPMG, as the audit firm had insisted on issuing a qualified opinion on the said accounts. As such, KPMG was replaced before it could do so.