KUALA LUMPUR (Nov 8): The auditors of 1Malaysia Development Bhd (1MDB) namely KPMG and Deloitte did not raise any substantial issues on the credibility of PetroSaudi International Ltd (PSI) to the board of directors, said former 1MDB chief executive officer Datuk Shahrol Azral Ibrahim Halmi.
Shahrol testified that 1MDB had in 2011 engaged the services of KPMG and Deloitte to mitigate risks to its investment in the Murabaha deal with PSI.
The discussions were also on the valuation of the Murabaha notes and how it is accounted for in the accounts of 1MDB, he said when testifying in the 1MDB-Tanore trial.
At this point, 1MDB had converted its stake in the joint venture (JV) company 1MDB-PSI Ltd to Murabaha notes, relinquishing its shareholding in the JV company.
From the discussions, the auditors had advised 1MDB to establish the creditworthiness of 1MDB-PSI before it acquired any further goods, and to seek advice from former Prime Minister Datuk Seri Najib Abdul Razak to utilise the Government-to-Government relationship with the Saudi Government in order to formalise a monitoring mechanism and also to continuously monitor 1MDB-PSI Ltd and PSI by way of media reports.
Najib was also the chairman of 1MDB’s board of advisors.
Deloitte reiterated that 1MDB's fair value assessment of the Murabaha notes at US$5.7 billion fell within the range of US$4.7 billion and US$6.3 billion, as reported by the audit firm.
"Wasn't there any concerns raised by the auditors in relation to the credibility of PSI?" asked Najib’s counsel Tan Sri Muhammad Shafee Abdullah.
Sharol replied: "At this point, there were questions but I think that the team had provided all the information that they (the auditors) had requested so they didn't raise any further issues on the credibility of PSI."
The witness, however, said he did not have the report by Deloitte with him, when asked by Shafee if he can bring it to court.
Shafee then made a formal application for the prosecution to get the document, which he referred to as a "cornerstone whether there was any value at all to the Murabaha notes".
Najib noted auditors' suggestion but did not advise any further
Further, Shahrol claimed that he, and former 1MDB chairman Tan Sri Lodin Wok Kamaruddin, had brought the observations made by the auditors to Najib.
He said the fact that at that point, 1MDB had already lent US$1.83 billion to PSI, was noted by Najib, but no further advice was given.
"The most I can remember was that he noted that we have already lent US$1.83 billion at the time, but there was no advice on how we can move forward beyond that," Shahrol said.
However, when pressed by Shafee, Shahrol admitted that there was no minutes prepared that recorded the meeting to prove that it actually did happen.
On Jan 30 this year, Deloitte became the first audit firm to be penalised in connection with 1MDB when it was slapped with a RM2 million fine by the Securities Commission Malaysia for failing to report irregularities it found in relation to the issuance of an RM2.4 billion sukuk murabahah programme issued by a 1MDB subsidiary in 2014.
The firm was also slapped with another RM200,000 fine for not submitting a copy of Bandar Malaysia’s financial statements to MTrustee Bhd — the trustee for the sukuk — within seven days after furnishing the financial statements to Bandar Malaysia.
Deloitte was 1MDB’s third auditor after KPMG and Ernst & Young were fired by the fund. In 2016, after US authorities filed civil lawsuits over 1MDB, Deloitte said the 1MDB finance statements it audited should no longer be relied on. Deloitte resigned as the fund’s auditor earlier that same year.
Meanwhile in mid-2018, KPMG released a statement claiming that the books it had audited for 2010, 2011 and 2012 were not “true and fair” assessments of 1MDB’s funds, and that it lacked full access to relevant documents that were only declassified when the new Government took power.
The trial continues on Monday.
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