KUALA LUMPUR (May 10): Auditor KPMG was intimidated into signing off the long-delayed 2013 financial statements of 1Malaysia Development Bhd (1MDB) by Datuk Seri Najib Razak, according to the audit firm’s managing partner Datuk Johan Idris, who was taking the stand at the 1MDB-Tanore trial on Tuesday (May 10). 

Testifying as the 14th prosecution witness in the 1MDB-Tanore trial, Johan referred to a meeting on the night of Dec 15, 2013 with Najib over the US$2.3 billion in investments made through Brazen Sky Ltd in an unknown fund called Bridge Global SPC. He said the meeting was held with Najib in the latter's capacity as finance minister as the Minister of Finance Inc was the sole shareholder of 1MDB.

Johan was under re-examination from the lead prosecutor in the trial, Datuk Seri Gopal Sri Ram, who had asked him about the meeting with Najib that night and whether the former prime minister had pressured him into signing off the audit for that year. 

Sri Ram: You were asked to confirm that the minutes do not show there were any pressure exerted by the accused Najib upon you at this meeting. You were there, at ground zero, was there pressure at all?

Johan: I put it [as] intimidation... Intimidation for us to conclude and sign the audit statements March 31, 2013. 

Sri Ram: From whom did this come?

Johan: [From] Najib. 

Previously, Najib’s lawyer Tan Sri Muhammad Shafee Abdullah had suggested to Johan that Najib had not put pressure on KPMG to sign off on the audit but was merely asking as the main shareholder of 1MDB. 

Shafee previously said to Johan: “He (Najib) was the shareholder. He was responsible for that... would not a shareholder want to see his company accounts that are long overdue closed by Dec 31 as requested by the board? Until the end, he didn’t put pressure on anyone?”

However, Johan did not answer whether Najib had put anyone under pressure or not.

On Tuesday, however, Sri Ram had asked Johan if Najib had conveyed to him that he was expressing interest in the matter as a shareholder of 1MDB and not for his personal interests during the meeting. 

Sri Ram: Did he tell you I'm a shareholder, I'm interested? 

Johan: Yes he did. He said that [he was present as a] shareholder... representative as [the finance] minister and not as prime minister. 

Johan then said he had no personal knowledge of money from 1MDB which was siphoned off and eventually ended up in Najib’s personal accounts. 

Sri Ram: Do you have any personal knowledge [of] any arrangement Najib would have had with Jho Low or BSI of the handling of those funds? 

Johan: No, I don't have personal knowledge.

Sri Ram: Do you have personal knowledge that large sums of money from 1MDB were siphoned to Najib's (personal) account?

Johan: I don't have personal knowledge. 

When Johan was testifying last month, his witness statement stated that: "Before the meeting ended, Najib stated that he would like to see the 1MDB [2013] accounts signed [off] by KPMG on or before Dec 31, 2013, but I did not give any response to him."

Johan said that it felt like an “arahan” or instruction for him to sign off on the audit. 

The witness explained that he went to Najib's residence in Jalan Langgak Duta with partner Foong Mun Kong and former KPMG managing partner Mohamed Raslan Abdul Rahman, but only Johan was allowed into the private residence.

Upon entering, Johan saw former 1MDB chairman Tan Sri Che Lodin Wok Kamaruddin, former 1MDB chief executive officer Mohd Hazem Ab Rahman and former 1MDB chief financial officer Azmi Tahir.

Johan added that KPMG wanted to obtain "evidence on the existence, accuracy, completeness and valuation of the investment" and to conduct an audit of the investments in Brazen Sky to complete the audit process as required under the International Standard of Auditing and Financial Reporting Standard.

However, Najib informed Johan that he was aware of 1MDB's investments in Brazen Sky and that 1MDB could not disclose specific details regarding the investments because they were considered "confidential".

"[But] I did not understand why 1MDB refused to disclose the information on the underlying assets which were said to be confidential," Johan said in his witness statement.

He also told the High Court that KPMG had requested the information from 1MDB since April 2013 before the Dec 15, 2013 meeting.

Towards the end of the 45-minute meeting, Johan said, Najib asked KPMG to go to Hong Kong to resolve the issue, adding KPMG was to complete the audit professionally with good governance.

Following the meeting and KPMG's hesitancy to sign off on the financial statements, the audit firm received a letter from 1MDB informing that its services as 1MDB's external auditor were to be terminated immediately. No reasons were given although KPMG was informed that Deloitte would be replacing it. KPMG was the second auditor sacked by 1MDB upon pressure from Najib as it declined to sign off the investment fund's accounts for the financial year ended March 31,  2013 (FY13).  KPMG took over the audit job from Ernst & Young that was then removed in 2010.

In its reply via a letter dated Jan 6, 2014, KPMG enumerated the reasons why the financial accounts could not be signed off. It stated that it could not ascertain the value of the investments as "reliable and appropriate" despite numerous requests for information regarding Brazen Sky's investments in the Cayman Islands. The information given by BSI Bank was also inadequate as it failed to provide information on the underlying assets of the US$2.3 billion investments.

The US$2.3 billion investments in question were made via six promissory notes which turned out to be “worthless pieces of paper”.

Before re-examination by Sri Ram, Johan was subject to cross-examination by Najib’s lawyer Wan Aizuddin Wan Mohammed, who had asked Johan about the audits KPMG conducted on 1MDB during the years 2010, 2011 and 2012. 

The lawyer suggested to Johan that if KPMG had carried out its audits properly throughout these three years, 1MDB’s misappropriation carried out by its management would have been uncovered and thwarted. 

To this Johan replied: “We have always conducted our audit properly.” 

Wan Aizuddin: I put to you that KPMG had acted systematically with the management of 1MDB to turning a blind eye to ambiguous transactions thus allowing 1MDB money to be misappropriated. 

Johan: I totally disagree. 

At the trial, Sri Ram also asked the witness if KPMG had profited from the 1MDB audit apart from fees for its work in the company. 

To this, Johan said KPMG did not profit from the siphoned 1MDB funds. 

Sri Ram: Apart from the [service fees for the] audit work you received for the professional services delivered, did KPMG obtain any share from money siphoned from 1MDB?

Johan: None. 

Sri Ram: Not a penny?

Johan: Not a penny.

Najib has been charged with four counts of abuse of power in enriching himself with RM2.3 billion of 1MDB funds and 21 counts of money laundering of the same amount. He could face a fine and up to 20 years' imprisonment if convicted.

The Edge is covering the trial live here.

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