Malaysia fines Deloitte for breaches linked to 1MDB

Deloitte was found to have failed to discharge its statutory obligations despite having found irregularities when auditing Bandar Malaysia and its holding company, 1MDB Real Estate.
Deloitte was found to have failed to discharge its statutory obligations despite having found irregularities when auditing Bandar Malaysia and its holding company, 1MDB Real Estate.PHOTO: REUTERS

KUALA LUMPUR (BLOOMBERG) - Malaysia imposed the maximum fine on Deloitte PLT for breaches related to a bond issuance by 1Malaysia Development Berhad (1MDB), becoming the first auditor of the scandal-ridden state fund to face penalties.

The Securities Commission (SC) imposed a RM2.2 million (S$723,450) fine on Deloitte for failing to immediately report irregularities in a RM2.4 billion sukuk or Islamic bond sale that may have had material effect on 1MDB’s ability to repay creditors.

Deloitte was the auditor for 1MDB units Bandar Malaysia, the sukuk issuer, and 1MDB Real Estate for financial years ended March 2015 and 2016.

“The SC finds the breaches committed by Deloitte serious in nature, as it has failed to discharge its statutory obligations,” it said in an e-mailed statement on Wednesday (Jan 30).

The state fund has used many of the world’s top auditors including KPMG and Ernst & Young. The fund was launched to bring in investments to the country, but has instead become the centre of worldwide investigations into possible corruption and money laundering.

Malaysia’s securities regulator said Deloitte was unable to get enough evidence to determine whether the advances to 1MDB from, among others, the sukuk proceeds could be recovered, it said in the statement. The breach led to a fine of RM2 million, the maximum allowed.

The SC imposed an additional RM200,000 fine for Deloitte’s failure to send copies of Bandar Malaysia’s 2015 and 2016 audited financial statements to the sukuk’s trustee in time.

1MDB’s new management, which is overseen by the Finance Ministry, was also investigating the testimony given by Tan Theng Hooi, the former Malaysia head of Deloitte, Finance Minister Lim Guan Eng said in a written response to Parliament in November.

Tan had defended the auditor’s opinion on 1MDB’s 2013 and 2014 financial accounts to the Parliament’s Public Accounts Committee, before Deloitte said in July 2017 that its audited financial statements for those years shouldn’t be relied upon.

A representative for Deloitte couldn’t immediately be reached for comment. The company said in November that it was cooperating fully with the authorities on matters linked to 1MDB, in response to the probe into Tan.

“We stand by our professionalism, quality, independence and ethics in the services we provide,” Deloitte Malaysia said in the November e-mailed statement.