SC slaps RM2.2m fine on Deloitte over 1MDB subsidiary’s sukuk issuance

This makes Deloitte the 1st auditing firm to be charged in relation to 1MDB

By FARA AISYAH / Pic By TMR

The Securities Commission Malaysia (SC) has slapped a maximum fine to Deloitte PLT over infringements related to 1Malaysia Development Bhd (1MDB) subsidiary Bandar Malaysia Sdn Bhd’s (BMSB) Islamic notes.

Deloitte — the former auditor of 1MDB — was investigated by the Malaysian capital market regulator over its involvement in the state-owned fund, which is already the centre of one of the largest financial larcenies.

The SC said the auditing firm is fined a total of RM2.2 million for four breaches under the country’s Capital Markets and Services Act 2007 (CMSA). The infringements are related to BMSB’s RM2.4 billion Islamic notes issued in 2014.

It said Deloitte had failed to immediately report to the SC irregularities which may have a material effect on the ability of BMSB to fulfil its obligations in repaying sukuk holders any amount under the Sukuk Murabahah Programme.

“The SC finds the breaches committed by Deloitte serious in nature,” the regulator said in a statement.

Deloitte was the statutory auditor for BMSB and 1MDB Real Estate Sdn Bhd (1MDB RE) for their financial years ended March 31, 2015 to 2016. 1MDB RE — now known as TRX City Sdn Bhd — was one of the third-party security providers of the sukuk.

The SC said Deloitte had committed two breaches under Section 276(3)(b) of the CMSA for failure to immediately report to the SC irregularities.

Deloitte is imposed a total fine of RM2 million for the breaches, the maximum fine provided under Section 354(3)(b) of the CMSA, the SC said.

On the remaining two breaches under Section 276(1) of the CMSA, Deloitte is fined a total of RM200,000 for its failure to send a copy of BMSB’s audited financial statement (AFS) 2015 and AFS 2016 to MTrustee Bhd within seven days after furnishing the AFS 2015 and AFS 2016 to BMSB.

The audit qualification in Deloitte’s Independent Auditors’ Report for 1MDB RE for AFS 2015 and AFS 2016 states that Deloitte was unable to obtain sufficient appropriate audit evidence to determine whether the advances to 1MDB from, among others, the proceeds of the Sukuk Murabahah Programme could be recovered.

The emphasis of matter in Deloitte’s Independent Auditors’ Report for 1MDB RE for AFS 2015 and AFS 2016, as well as BMSB’s AFS 2015 and AFS 2016 states that 1MDB is under investigation by several authorities.

Deloitte further highlighted in its report for 1MDB RE’s AFS 2015 and AFS 2016 that “the ongoing investigations of 1MDB indicate the existence of material uncertainty which may cast significant doubt about the group’s and the company’s ability to continue as a going concern”.

The action by the SC makes Deloitte the first auditing firm to be charged in relation to 1MDB.

It was reported that the SC was investigating KPMG and Deloitte over their audit of 1MDB.

KPMG signed off 1MDB’s accounts for 2010, 2011 and 2012, while Deloitte was appointed to do the same in 2013 and 2014. Deloitte ended its relationship with 1MDB after the US Department of Justice filed lawsuits to recover assets acquired with funds stolen from 1MDB.