KPMG - Auditors Or Fraudsters?

KPMG - Auditors Or Fraudsters?

Joint Venture was 'verified' by local KPMG boss

Joint Venture was ‘verified’ by local KPMG boss Ahman Nasri Bin Abdul Wahab

Sarawak Report has uncovered evidence, which indicates the supposedly independent auditors KPMG helped ‘cook the books’ at 1MDB, while auditing the fund’s initial accounts for the period ending March 2010.

Unacceptable and unethical practices included actively conspiring to back date documents referred to in the audit report, as well as intervening to retrospectively alter agreements, which had been previously signed by 1MDB.

Reviewing this evidence, DAP opposition spokesman Tony Pua told Sarawak Report that it clearly demonstrates that KPMG had worked to assist 1MDB in deliberately hiding the details of its initial joint venture agreement with the company PetroSaudi.

By these illegal means, he pointed out, the fund managers were able to conceal the damning information that USD$700 million of its original USD$1 billion investment was siphoned out of the venture.

“It is clear from this evidence that KPMG took an active part in the cover-up” said Pua “this involves billions of ringgit of public money that had gone missing, and it requires an immediate investigation, which should include detailed questioning of the KPMG partner who signed off on those accounts, Ahmad Nasri Bin Abdul Wahab.”

Signed off by a KPMG Malaysia partner

Signed off by a KPMG Malaysia partner

The other person who signed off the accounts was 1MDB Chief Executive, Shahrol Halmi, who swore that all the details were correct, a claim which the evidence plainly now shows to be false.

In particular the Annual Report for the year ending 31st March 2010 states that the joint venture with PetroSaudi was signed on that very last day of the financial period – which is significantly untrue.

1MDB CEO Swore all the details in the audit were true.

1MDB CEO Swore all the details in the audit were true.

Pua has further requested that the previous auditors who had worked for 1MDB prior to KPMG, Ernst & Young, should perhaps shed more light on the situation.

1MDB CEO Shahrol Halmi - but was he really in charge of what was going on?

1MDB CEO Shahrol Halmi – but was he really in charge of what was going on?

Ernst & Young had surrendered their position as auditors during this very first audit process, giving way to KPMG.

It has left it open to speculation that this was because they had been unwilling to approve the accounts.

What was the date of the Murabaha Loan Agreement?

The deception which is central to the 1MDB accounts of March 31st 2010 centres on the date of a single agreement.

The KPMG audit states categorically that the joint venture relationship with the company PetroSaudi was converted into a Murabaha loan facility on the very last day of that accounting period.

Pengikhtirafan oleh PetroSaudi bahawa pengelolaan itu belum dijalankan sehingga 14hb Jun 2010

1MDB Annual Report for Year ending 31st March 2010

By this device the auditors were enabled to focus in the report solely on the details of the Murabaha loan agreement, which was supposedly the relevant arrangement at the completion of the finance period, giving no details whatsoever of the previous joint venture agreement.

The driving force behind what was going on was the businessman Jho Low.

The driving force behind what was going on was the businessman Jho Low.

The fact that USD$700 million of taxpayers’ money had been siphoned out of the fund was therefore entirely glossed over.

But, Sarawak Report has already produced documents, which show that subsequent withdrawals by PetroSaudi from 1MDB under the terms of this loan facility always referred to the loan agreement signed on June 14th 2010 – months after the accounting period was over.

Our further research now confirms that the Sale Share Letter Agreement (SSA) cited by KPMG was being discussed and edited well after the key date of 31st March.

The necessary board approvals for the SSA were not in fact achieved until as late as early June, after months of negotiation, during which the auditors had illegally exceeded their role by suggesting alterations to various backdated documents, in an apparent attempt to make them easier to justify.

This means that the actual arrangement in place with regard to PetroSaudi at the closure of the accounting period was still the joint venture and far more details ought to have been provided to the public than the few words accorded to it in the audit.

Document trail

Brian Chia of Wong & Partners - left out of some of the changes to the audit

Brian Chia of Wong & Partners – left out of some of the changes to the audit

Sarawak Report has acquired a document trail relating to the drawing up of the Sale Share Agreement and Murabaha Loan, which shows that these agreements were only starting to be developed by the joint venture partners in mid to late March 2010.

Draft documents for all the various parts of the agreement, including the SSA itself were still being worked on and amended by 1MDB’s lawyers in the matter, Wong & Co (partner Brian Chia) throughout April 2010, after the end of the accounting period.

Indeed further amendments to the SSA were made by 1MDB’s Chief Investment Officer Nik Kamil as late as 22nd May 2010, two months after it had supposedly been signed.

Correspondence shows that these amendments were actually made at the behest of the supposedly independent outside auditors KPMG – and that Nik had told his contacts at PetroSaudi that it was best not to go through his lawyers on this matter (Jho Low had ruled that this close contact of his should act as the only point of contact with PetroSaudi for 1MDB).

Nik Kamil - "not sent this to our lawyers, better you deal with it"

Nik Kamil – “not sent this to our lawyers, better you deal with it”

As Nik explained the auditors (KPMG) had told him that they would not agree to sign the audit unless he made these restrospective changes to the agreement. This was an illegal intervention by the auditors, which indicates why Nik decided it was better to leave the lawyers out of it and get PetroSaudi’s Patrick Mahony to ‘handle’ the changes his end.

Changes to suit the Auditors made on 25th May by Nik

Changes to suit the Auditors made on 25th May by Nik

SEE SHARE SALE BUY BACK DRAFT AGREEMENT STILL BEING WORKED ON IN APRIL

Other key emails make clear that the board meeting to even approve the SSA had not in fact been held until 25th May.

More changes to the documentation appears to have split the resolutions that were placed before the board on 25th May

More changes to the documentation appears to have split the resolutions that were placed before the board on 25th May

SEE THE BOARD RESOLUTION DOCUMENT

Even after this the agreements were not signed by the 9th according to emails at that time and correspondence shows that amendments to the Share Sale Agreement were still being worked on through May.

Still tinkering in May

Still tinkering in May

And the final drafts were not produced till after the first week of June.

 

From: Nik Faisal Ariff Kamil
To: ‘[email protected]’ <[email protected]>
Cc: ‘[email protected]’ <[email protected]>
Sent: Tue Jun 08 16:14:54 2010
Subject: Re: Share buy-back / completion process

Hi Tim,

Documents pdf’d to patrick. Hardcopies being sent now. Awaiting cfo answer on preferred means of initial drawdown.

Regards

Nik

_____

From: Timothy Buckland <[email protected]>
To: Nik Faisal Ariff Kamil
Cc: Patrick Mahony <[email protected]>
Sent: Tue Jun 08 16:01:05 2010
Subject: RE: Share buy-back / completion process

Nik,

Further to your email below and my voicemail of today, have you received the executed documents from your team yet and/or confirmation from your CFO regarding 1MDB’s preferred means of effecting initial draw-down?

Many thanks,

Tim

From: Nik Faisal Ariff Kamil [mailto:[email protected]]
Sent: 04 June 2010 14:43
To: Timothy Buckland
Cc: Patrick Mahony
Subject: Re: Share buy-back / completion process
Just got the docs 2 hrs ago. Team working on it. Will deliver latest Monday

_____

From: Timothy Buckland <[email protected]>
To: Nik Faisal Ariff Kamil
Cc: Patrick Mahony <[email protected]>
Sent: Fri Jun 04 21:40:12 2010
Subject: RE: Share buy-back / completion process

Nik,

Further to my email below and our discussion yesterday, do you have a clear view of when the outstanding information will be ready and we will be able to complete?

Can we do this before the weekend?

Many thanks,

Tim

From: Timothy Buckland
Sent: 02 June 2010 16:59
To: Nik Faisal Ariff Kamil
Cc: Patrick Mahony
Subject: RE: Share buy-back / completion process

Nik,

I have now received and reviewed all of the original, executed documents returned to PetroSaudi by your colleague Kee. A fully signed set of the original, executed contracts, together with copies of the relevant company minutes (the original minutes, as reviewed by you, will be held with company records). The one exception to this is the Effective Date Side Letter, which we provided to you with the original bundle that 1MDB took away from London (Kee did not bring our signature pages back with him from Malaysia). As you already hold these documents, you should keep them and add them to the bundle of documents that Kee is bringing back from London.

Please note that certain documents were missing from the bundle of originals provided by Kee to PetroSaudi. As a result, we are unable to complete today and the signed documents I have returned to Kee are undated and must be held in escrow to our order until we have received copies of all executed documents from you. Please provide the following missing documents to me in pdf copy, followed by originals by courier, in both cases as soon as possible:

(a)    share certificates in JVCo in the name of 1MDB (for cancellation);

(b)    the 1MDB board resolution approving the transaction (in the agreed form);

(c)    resignation letters (as directors) for Shahrol and Tang Keng (in the agreed form);

(d)    acceptance letter for your appointment as director (in the agreed form).

If you can provide these to me tomorrow by email by 8am London time (I am travelling thereafter) we will be able to complete this transaction tomorrow. The originals should of course follow by courier.

In addition, could you please respond in relation to my question (3) below? As discussed, 1MDB and PS will need to jointly appoint a commodities broker to effect the sale and purchase necessary to complete our initial draw-down under the Murabaha. Do you have people who conduct these transactions regularly or would you like us to manage this?

Kind regards,

Tim

From: Timothy Buckland
Sent: 01 June 2010 09:28
To: ‘Nik Faisal Ariff Kamil’
Cc: Patrick Mahony
Subject: Share buy-back / completion process

Nik,

It was good to speak to you just now. As discussed, I would be grateful if you would:

1)      email me the address to which I should courier the fully executed copies of the documentation;

2)      courier the share certificates held by 1MDB in JV Co to me so that I can arrange their cancellation with Maples & Calder (my address is set out below);

3)      speak to your CFO about whether there is experience within 1MDB with respect to Murabaha draw-downs and the appointment of commodity brokers for this purpose. If you do not have experience in this regard let me know we can follow-up at our end.

I will call you as soon as I receive the executed documents to confirm their date of release from escrow and, thereby, their date of execution. As requested, I will then return undated copies of the fully executed live documents to you, to which you can add the date of release at your convenience.

Do give me a call if you have any questions.

Kind regards,

Timothy Buckland

General Counsel
PetroSaudi International (UK) Ltd
1 Curzon Street
London W1J 5HB
United Kingdom
Direct  Dial:    +44 (203) 145 3566
Switchboard: +44 (203) 145 3580
[email protected]

 

From: Nik Faisal Ariff Kamil [mailto:[email protected]]
Sent: 01 June 2010 00:07
To: Patrick Mahony; Timothy Buckland
Subject: Re: Follow Up

Hi Tim,

I can be contacted at +60162072855

Best Regards

Nik

_____

From: Patrick Mahony <[email protected]>
To: Timothy Buckland <[email protected]>; Nik Faisal Ariff Kamil
Sent: Tue Jun 01 02:33:27 2010
Subject: Follow Up

Tim / Nik,

As discussed with both of you, i am putting you in touch to discuss next steps now that the docs have been signed. There are a few admin matters to discuss and we also need to be agreed on the process for the upcoming drawdown. I know the amount is yet to be agreed but we should be clear on how it needs to happen so we can do it smoothly.

I will let the two of you take it from here.

Best,

Patrick

All this makes the date of 14th June cited by the withdrawal documents provided by PetroSaudi exactly within the correct context of the documentation.

The actual Accounts were signed on October 4th, slightly later than the normal September deadline in 2010.

The only anomaly therefore is the claim in KPMG’s audit that the Share Sale Agreement had actually been concluded on 31st March, which was so handily the very last day of the financial year they were auditing… but still not late enough to tally with the rest of the evidence.

Recognition by PetroSaudi that the arrangement was not in place until 14th June 2010

Recognition by PetroSaudi that the arrangement was not in place until 14th June 2010

Window Dressing

UK legal expert Alison Weal pointed out the loan did not conform to Muharaba financing requirements - it was window dressing

UK legal expert Alison Weal pointed out the loan did not conform to Muharaba financing requirements – it was window dressing

A final matter of intense concern is the evidence that all the parties concerned, including 1MDB were knowingly colluding in creating an agreement that accorded with so-called Murabaha financing rules as window dressing only.

Early in the process (April) the expert lawyer in this field from London’s White & Case, Alison Weal, raised with PetroSaudi’s Director Patrick Mahony the fact that the provisions of the loan and particularly the Share Sale Agreement violated the genuine conditions expected under the standard rules for loans claiming to be Murabaha based.

She wrote that she had come to understand that this was because the Murabaha element of the loan was considered merely “window dressing” by 1MDB and its legal partners and she wished for reassurance on that point.

Patrick Mahony readily gave it:

“That is correct, thanks” He replied.

Murabaha loan was "window dressing" only.

Murabaha loan was “window dressing” only.

Indeed ‘window dressing’ appears to have been the major role for the large part of people involved in raising the PetroSaudi loan at 1MDB, where huge sums were raised and apparent profits made – and yet the money has never been returned.

Chastised the "geniuses' at 1MDB for 'interfering' in the running of the Joint venture, when his connections were with the very top in Malaysia and Saudi Arabia

Chastised the “geniuses’ at 1MDB for ‘interfering’ in the running of the Joint venture, when his connections were with the very top in Malaysia and Saudi Arabia

Given that most of the money went to an independent company outside of the Joint Venture and Muharaba Loan structures raised by 1MDB – a company which was controlled by Jho Low – the fact that the money has not yet been returned is perhaps of little surprise.

The senior staff at 1MDB clearly knew that their job was to do the bidding of Jho Low and his chosen joint venture colleagues at PetroSaudi.

Emails show that if they stepped out of line and attempted, for example, to check up on the quality of any of the investments in the joint venture, they were viciously put down.

Take the brutal response by Tarek Obaid and Patrick Mahony when Shahrol Halmi’s team attempted to make their own assessment of a drilling ship purchased by the 1MDB PetroSaudi Joint Venture company, which they alone were financing:

Sender: [email protected]
Subject: RE: 1 MDB Message-Id:
Recipient: [email protected]
Recipient: [email protected]
ForwardedMessage.eml

Subject:RE: 1 MDB
From:”Casey Tang” <[email protected]>
Date:23/12/2009 07:41

 

To:Tarek Obaid; Patrick Mahony; Shahrol Halmi; Nik Faisal Ariff Kamil

 

Dear Tarek,

Just so you know that we are not ignoring your email and our response is channelled to you through our mutual friend.

I wish you a pleasant morning as well.

Casey Tang

From: Tarek Obaid [mailto:[email protected]]

Sent: Wednesday, 23 December, 2009 12:47 AM
To: Patrick Mahony; Shahrol Halmi; Casey Tang; Nik Faisal Ariff Kamil
Subject: Re: 1 MDB

Dear all,

I also strongly suggest that the person who called Braemer & Seascope comes forward, and the one who instructed that person to do so. I remind you all that you have directly violated the confidentiality terms of our JV agreement, and I need not remind you all what the outcome of such violations can lead to. More importantly, I would like to know the name of the Head Genius-in-Charge who is behind all this.

You people have to realize that this JV was built on the relationship between the Kingdom of Saudi Arabia and Malaysia at the highest possible levels, and surely no bunch of “Geniuses” such as yourselves is going to jeopardize this relationship. There is no trust here at all at the low level genius department, but I could not care less, as this will not stand in the way of our strategic relationship.

I wish you all a pleasant morning.

Tarek Obaid

On 22/12/2009 16:36, “Patrick Mahony” <[email protected]> wrote:

Gentlemen,

I received the following email from the person at petrosaudi that is leading the charge on the offshore oil services business we are putting together for our JV. I cannot begin to tell you how bad this makes us look. Our employees know we have a JV and that this business is going into the JV and when they receive emails like this it make us look uncoordinated at JV level and like you don’t trust us. This puts a lot of damage on our relationship in the marketplace and makes everybody ask many questions. I now have to do serious damage control with our employees who think that 1MDB and PetroSaudi are not working in tandem.

Can i ask who called braemer? You knew that we had hired them and that they are currently putting together a technical study of the vessel (they were on the ship until yesterday) that we were going to share with you – so why would you call them asking them to do an independent study for you? This makes no sense and makes it look like you just don’t trust us. We have been very transparent on our due diligence process on this asset. We have had limited time to put this all together given that the deal came about quickly and we are giving you information in real time.

This is the second time something like this happens. You did it once with JPM already. We set up this JV and put all our employees in it so that they could manage operations for both of us and you can ask them whatever questions you need (i have already suggested conference calls on this deal many times with you and them but you have not taken this up).

I expect a prompt answer from you on this issue. This seriously damages our credibility in the marketplace and is not how we wish to work with our partners.

Best,

Patrick

From: Ricardo Castro
Sent: Tuesday, 22 December, 2009 11:29 AM
To: Patrick Mahony
Cc: Rick Haythornthwaite
Subject: 1 MDB

Kevin Morrin from Braemar & Seascope, just called to inform us and ask for advice on the following:  1MDB called his office on Monday asking them to carry out a valuation and full technical survey of the Discoverer. He has signed a CA with us and is asking how to proceed.

I told him that I will respond before the day is over in London so his potential customer, 1MDB, can have an answer by the start of the business day in Malaysia on Wednesday.
Regards,

Ricardo Castro
Director Oil & Gas Services

Onlookers are now wondering to what extent the PetroSaudi deal provided a template for a series of future joint ventures and investments which seem to have been equally profligate and poorly accounted for, and which have left 1MDB currently over RM42 billion in debt.

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