UPDATED – Malaysia SC Fines Deloitte for 1MDB-Linked Auditing Breaches

SC says Deloitte failed to immediately report irregularities which may have had a material effect on the ability of a 1MDB unit to repay bondholders. Deloitte is seeking a review of the decision.

31 January 2019 – Deloitte is reported to be consulting with legal counsel and seeking a review of the SC’s decision.

Malaysia’s SC (Securities Commission) has reprimanded and fined Deloitte MYR 2.2 million (USD 538,000) for breaches related to a MYR 2.4 billion Islamic bond (sukuk) issuance by a unit of state investment fund 1MDB (1Malaysia Development Bhd).

An investigation into 1MDB began in July 2015 after reports emerged that some USD 680 million from the indebted fund had been transferred to bank accounts belonging to the then Prime Minister Najib Razak. Charges have since been levied against Najib, 1MDB officials, Goldman Sachs and other connected parties.

> ALSO READ: Malaysia Files Criminal Charges Against Goldman Sachs over 1MDB (17 December 2018)

Deloitte was the statutory auditor for the ‘Sukuk Murabahah Programme’ for the financial years ended 31 March 2015 to 2016. The sukuk programme was issued in 2014 by Bandar Malaysia and secured by 1MDB Real Estate – both units of 1MDB.

For both financial years, Deloitte had stated in audit qualifications that it was not able to confirm whether advances to 1MDB from the proceeds of the sukuk issuance could be recovered, and had highlighted in audit reports “significant doubt” about Bandar Malaysia and 1MDB’s ability to continue as a going concern given the ongoing investigation into the state-run fund.

According to the regulator, Deloitte failed to immediately report to the SC irregularities which may have had a material effect on the ability of Bandar Malaysia to repay sukukholders, representing breaches of the CMSA (Capital Markets and Services Act 2007), for which a penalty of MYR 2 million has been imposed, the maximum allowed.

“The SC finds the breaches committed by Deloitte serious in nature, as it has failed to discharge its statutory obligations,” the regulator said in a statement.

Deloitte was fined an additional MYR 200,000 for its failure to send copies of Bandar Malaysia’s audited financial statements to the sukuk’s trustee within seven days as required.

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