The Sarawak Report exposed the secret 1Malaysia Development Bhd (1MDB) and Petrosaudi International Limited (PSI) joint venture (JV) agreement dated 29 September 2009, revealing details which points towards a highly elaborate scam to siphon money from 1MDB.
Despite knowing that “1MDB Petrosaudi Limited” had a dubious existing debt of US$700 million, 1MDB agreed to invest US$1 billion (RM3.5 billion) into the newly set up company to subscribe for 40% of new shares. Hence 1MDB had invested US$1 billion in a JV where the JV partner immediately gets to siphon 70% of the funds out of the joint venture for practically nothing in return.
However, the salient details of the JV agreement above were never reported in 1MDB’s very first Financial Report for March 2010. This is because the JV was terminated 6 months later in 31 March 2010, very coincidentally on the very last day of the Financial Report.
The US$1 billion investment was revalued to US$1.2 billion and sold back to PSI. However the US$1.2 billion was “converted into Murabaha notes” or an Islamic loan back to “1MDB Petrosaudi Limited”.
In new documents exposed by the Sarawak Report, the evidence raises the question of a potential collusion between 1MDB and their then auditors, KPMG to hide the JV transactions.
In a “Notice of Drawing” documents dated 23rd July and 8th September 2010, the notices referred specifically to the “Murabaha Financing Agreement dated 14th June 2010 between 1MDB Petrosaudi Limited and 1Malaysia Development Bhd”.
This meant that if the Murabaha loan agreement was only signed on the 14th June 2010, why is it that the 1MDB Financial Statements for March 2010 already claimed that the 1MDB shares in the JV has been converted into Murabaha Notes on the last day of the financial year, 31st March 2010?
Further to the documents exposed, there was also an email from Patrick Mahony to the “Project Uganda” team, which included officials from PetroSaudi and 1MDB officials on 4th May 2010, which discussed the various agreements involved in the transaction – the “Murabaha Loan Agreement”, the “PetroSaudi Letter of Guarantee” and the “Letter of Agreement between PetroSaudi and 1MDB”. These emails raise the suspicion that the entire share conversion exercise by 1MDB in the JV into a loan was an afterthought well past the March 2010 financial year-end.
The fact that the Financial Statement was signed by KPMG only on 4th October 2010 also raises the question of complicity on the part of the auditors in the non-disclosure above transactions. Based on the Independent Auditor’s Report signed by KPMG Partner, Ahmad Nasri bin Abdul Wahab, they claimed to have conducted the necessary “assessment of risks of material misstatement of the financial statements whether due to fraud or error”.
The Financial Statement was signed of by 1MDB Directors, Datuk Shahrol Halmi and Tan Sri Ong Ghim Huat. Datuk Shahrol also provided a statutory declaration as the key financial officer in the preparation of the accounts where he “solemnly and sincerely declare that the financial statements set out on pages 5 to 37 are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true…”
There is no question that KPMG would have had complete access to the JV Agreement and all the relevant material documents which were completed before 31st March 2010 to arrive at its report. The apparent to hide these information from the Financial statements and the failure to red flag the above transactions meant that the KPMG would have failed their duty to protect the interest of the Government and the Malaysian public at large.
To protect the integrity and independence of the international chartered accountants, KPMG must declare its role in the Petrosaudi scandal, and if there has been omission and negligence, intentional or otherwise, in its audit of 1MDB. The failure to do so would necessitate an investigation over its conduct by the Malaysian Institute of Accountants (MIA) as the statutory body established under the Accountants Act, 1967 to regulate the accountancy profession.