Deloitte fined over half a million dollars in Malaysia 1MDB fall-out

01 February 2019 3 min. read

Malaysian regulators have fined Deloitte more than half a million dollars for failing to report irregularities in its audits of scandal-hit state-fund 1MDB.

Big Four professional services firm Deloitte has copped a 2.2 million ringgit rap across the knuckles – equivalent to roughly US$540,000 – from the Malaysian securities commission for the firm’s failure to immediately report irregularities uncovered during audits surrounding scandal-hit state-fund 1MDB. The fund remains subject to investigations around the globe for the alleged misappropriation of up to $4.5 billion in assets.

The former auditor of Bandar Malaysia Sdn Bhd (BMSB) and its holding company and 1MDB subsidiary 1Malaysia Development Berhad Real Estate, Deloitte has been handed the maximum fine by the Securities Commission for failing to ‘discharge its statutory obligations’ in relation to irregularities in the ~$580 million Islamic Sukuk Murabahah bond issued by BMSB, detected during audits for the financial years ending March 2015 and 2016.

The Malaysian regulator also imposed an additional RM200,000 fine for Deloitte’s failure to forward copies of Bandar Malaysia’s 2015 and 2016 financial statements to the sukuk’s trustee in due time, stating that it found the breaches committed by the professional services firm to be serious in nature.  Deloitte resigned from its role following the 2015/2016 audits and later stated that its 1MDB reports from 2013 and 2014 should no longer be relied on.Deloitte fined over half a million dollars in Malaysia 1MDB fall-outWhile Deloitte’s significant reprimand is just the latest fall-out from in the ongoing saga, which has seen former Malaysian Prime Minister Najib Razak's deposed and imprisoned for his alleged $700 million role in the corruption scandal, and, more recently, prompted Malaysian authorities to seek some $7.5 billion in reparations from Goldman Sachs for its work with 1MBD, there is still much to play out – with another former auditor KPMG reportedly next in the firing line.

The 1MBD auditor from the years 2010 to 2012, and likewise since declaring its reports unreliable, KPMG has been confirmed by the Securities Commission to be currently under investigation, with some reports suggesting that the firm may be in the process of negotiating a deal. KPMG was dismissed by 1MBD directors in 2013 over an apparent conflict concerning valuations, the same scenario which befell the fund’s original big-name auditor Ernst & Young.

Sacked in 2010 before it could file its first financial statement, EY was originally brought in as auditor for 1MBD predecessor Terengganu Investment Authority (TIA – which rebranded on federal expansion, the ‘1’ in 1MBD intended to signify the benefit for all Malaysians), with TIA likewise subject to local and international probes – thanks to its infamous advisor and alleged money-laundering mastermind Jho Low, now an international fugitive. Boston Consulting Group also served as an early advisor.

While yet to issue a public statement since receiving the fine, Deloitte Malaysia said in an earlier message from November, “We stand by our professionalism, quality, independence and ethics in the services we provide,” with both Deloitte and KPMG previously stating that they would fully cooperate with Malaysian authorities during the 1MBD investigation. BCG and EY meanwhile have not been accused of any negligence or wrongdoing.