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Deloitte Just Gave the Malaysian Government Several Wheelbarrows Full of Ringgit (UPDATE: KPMG Pays Up Too)

[Updated article originally posted on June 3, 2021 with additional information about KPMG settlement.]

From the Ministry of Finance in Malaysia on June 3:

The Government has received a settlement payment of RM336 million (US $80 million) related to 1Malaysia Development Bhd (1MDB) from Deloitte PLT.

In a statement today, the Ministry of Finance (MoF) said the money had been deposited into the Assets Recovery Trust Account.

“To date, the Trust Account – under the supervision of the Accountant General’s Department – has received a total of RM16.386 billion of funds seized and returned in connection with 1MDB.

“The amount in the Trust Account will be used to settle the remaining debts of 1MDB and SRC International Sdn Bhd (SRC),” he said.

However, the ministry added that this balance did not include the total settlement of RM2.83 billion that would be received from the Ambank Group in the near future.

“In addition, negotiations are also underway with KPMG,” he said.

The Finance Ministry said to date, the government had paid off RM12.54 billion of 1MDB’s debt and RM3.1 billion of SRC’s debt.

As at May 31, 2021, the outstanding debt comprising principal and coupons/ profit/ interest for bonds, Sukuk and term loans, amounted to RM39.66 billion (1MDB) and RM2.57 billion (SRC).

Meanwhile, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said the current balance of the Trust Account was only enough to pay off the principal and interest of 1MDB’s debt for 2021 and 2022 only.

“Once all the Trust Account funds are used up, the government will still have to bear the obligation to pay the balance of 1MDB’s debts as the debts are supported by the government through government guarantees and letters of support when these debts are issued,” he said.

Deloitte agreed to the $80 million settlement with Malaysia in early March.

Authorities in at least six countries are investigating alleged graft and money laundering at 1MDB, set up by former Malaysian Prime Minister Najib Razak in 2009. Najib, who was ousted in an election in 2018, was found guilty last year and sentenced to 12 years in jail in the first of several corruption trials linked to the 1MDB scandal. He is appealing the sentence.

KPMG may have to pony up some money to the Malaysian government too because it used to audit 1MDB. According to the website The Edge Markets:

Ernst & Young (EY) — was terminated before it completed the audit of 1MDB’s accounts for the financial year ended March 2010 (FY10).

According to the Auditor-General’s Report declassified in 2018, EY was sacked on Sept 15, 2010 as it declined to sign off on the FY10 accounts of 1MDB, unless it was provided with certain documents on the US$1 billion joint venture with PetroSaudi International.

KPMG, which took over in September 2010, signed off the FY10 accounts one month after it was appointed as well as those for FY11 and FY12. However, the audit firm refused to sign off the accounts for FY13 because it was unable to verify the authenticity of 1MDB’s US$2.318 billion investment in a Cayman Islands’ investment fund.

Deloitte was then appointed to replace KPMG. The third auditor quit in 2016 after the US Department of Justice filed lawsuits to recover assets acquired with misappropriated 1MDB funds.

[UPDATE] KPMG did in fact have to shell out a shit-ton of money to the Malaysian government for its shoddy auditing of 1MDB, according to Reuters on Jan. 13, 2022.

Malaysia said on Thursday audit firm KPMG has agreed to pay a 333 million ringgit ($80.11 million) settlement to resolve all claims related to their fiduciary duties on auditing of 1Malaysia Development Berhad (1MDB) accounts from 2010 to 2012.

The finance ministry said in a statement that the settlement will conclude a lawsuit filed against the auditor in July, and that KPMG will expedite the payment.

The Malaysian government, 1MDB, and its subsidiaries filed a $5.6 billion lawsuit against 44 current and former partners at KPMG on July 6, 2021, alleging breaches and negligence linked to the corruption scandal at 1MDB. KPMG pledged to “vigorously” contest the lawsuit but ultimately decided it wasn’t a battle worth fighting.