Sarawak Report has uncovered evidence, which indicates the supposedly independent auditors KPMG helped ‘cook the books’ at 1MDB, while auditing the fund’s initial accounts for the period ending March 2010.

Unacceptable and unethical practices included actively conspiring to back date documents referred to in the audit report, as well as intervening to retrospectively alter agreements, which had been previously signed by 1MDB.

Reviewing this evidence, DAP opposition spokesman Tony Pua told Sarawak Report that it clearly demonstrates that KPMG had worked to assist 1MDB in deliberately hiding the details of its initial joint venture agreement with the company PetroSaudi.

By these illegal means, he pointed out, the fund managers were able to conceal the damning information that USD$700 million of its original USD$1 billion investment was siphoned out of the venture.

“It is clear from this evidence that KPMG took an active part in the cover-up” said Pua “this involves billions of ringgit of public money that had gone missing, and it requires an immediate investigation, which should include detailed questioning of the KPMG partner who signed off on those accounts, Ahmad Nasri Bin Abdul Wahab.”

The other person who signed off the accounts was 1MDB Chief Executive, Shahrol Halmi, who swore that all the details were correct, a claim which the evidence plainly now shows to be false.

In particular the Annual Report for the year ending 31st March 2010 states that the joint venture with PetroSaudi was signed on that very last day of the financial period – which is significantly untrue.

Pua has further requested that the previous auditors who had worked for 1MDB prior to KPMG, Ernst & Young, should perhaps shed more light on the situation.

Ernst & Young had surrendered their position as auditors during this very first audit process, giving way to KPMG.

It has left it open to speculation that this was because they had been unwilling to approve the accounts.

What was the date of the Murabaha Loan Agreement?

The deception which is central to the 1MDB accounts of March 31st 2010 centres on the date of a single agreement.

The KPMG audit states categorically that the joint venture relationship with the company PetroSaudi was converted into a Murabaha loan facility on the very last day of that accounting period.

By this device the auditors were enabled to focus in the report solely on the details of the Murabaha loan agreement, which was supposedly the relevant arrangement at the completion of the finance period, giving no details whatsoever of the previous joint venture agreement.

The fact that USD$700 million of taxpayers’ money had been siphoned out of the fund was therefore entirely glossed over.

But, Sarawak Report has already produced documents, which show that subsequent withdrawals by PetroSaudi from 1MDB under the terms of this loan facility always referred to the loan agreement signed on June 14th 2010 – months after the accounting period was over.

Our further research now confirms that the Sale Share Letter Agreement (SSA) cited by KPMG was being discussed and edited well after the key date of 31st March.

The necessary board approvals for the SSA were not in fact achieved until as late as early June, after months of negotiation, during which the auditors had illegally exceeded their role by suggesting alterations to various backdated documents, in an apparent attempt to make them easier to justify.

This means that the actual arrangement in place with regard to PetroSaudi at the closure of the accounting period was still the joint venture and far more details ought to have been provided to the public than the few words accorded to it in the audit.

Document trail

Sarawak Report has acquired a document trail relating to the drawing up of the Sale Share Agreement and Murabaha Loan, which shows that these agreements were only starting to be developed by the joint venture partners in mid to late March 2010.

Draft documents for all the various parts of the agreement, including the SSA itself were still being worked on and amended by 1MDB’s lawyers in the matter, Wong & Co (partner Brian Chia) throughout April 2010, after the end of the accounting period.

Indeed further amendments to the SSA were made by 1MDB’s Chief Investment Officer Nik Kamil as late as 22nd May 2010, two months after it had supposedly been signed.

Correspondence shows that these amendments were actually made at the behest of the supposedly independent outside auditors KPMG – and that Nik had told his contacts at PetroSaudi that it was best not to go through his lawyers on this matter (Jho Low had ruled that this close contact of his should act as the only point of contact with PetroSaudi for 1MDB).

As Nik explained the auditors (KPMG) had told him that they would not agree to sign the audit unless he made these restrospective changes to the agreement. This was an illegal intervention by the auditors, which indicates why Nik decided it was better to leave the lawyers out of it and get PetroSaudi’s Patrick Mahony to ‘handle’ the changes his end.

SEE SHARE SALE BUY BACK DRAFT AGREEMENT STILL BEING WORKED ON IN APRIL

Other key emails make clear that the board meeting to even approve the SSA had not in fact been held until 25th May.

SEE THE BOARD RESOLUTION DOCUMENT

Even after this the agreements were not signed by the 9th according to emails at that time and correspondence shows that amendments to the Share Sale Agreement were still being worked on through May.

And the final drafts were not produced till after the first week of June.

All this makes the date of 14th June cited by the withdrawal documents provided by PetroSaudi exactly within the correct context of the documentation.

The actual Accounts were signed on October 4th, slightly later than the normal September deadline in 2010.

The only anomaly therefore is the claim in KPMG’s audit that the Share Sale Agreement had actually been concluded on 31st March, which was so handily the very last day of the financial year they were auditing… but still not late enough to tally with the rest of the evidence.

Window Dressing

A final matter of intense concern is the evidence that all the parties concerned, including 1MDB were knowingly colluding in creating an agreement that accorded with so-called Murabaha financing rules as window dressing only.

Early in the process (April) the expert lawyer in this field from London’s White & Case, Alison Weal, raised with PetroSaudi’s Director Patrick Mahony the fact that the provisions of the loan and particularly the Share Sale Agreement violated the genuine conditions expected under the standard rules for loans claiming to be Murabaha based.

She wrote that she had come to understand that this was because the Murabaha element of the loan was considered merely “window dressing” by 1MDB and its legal partners and she wished for reassurance on that point.

Patrick Mahony readily gave it:

“That is correct, thanks” He replied.

Indeed ‘window dressing’ appears to have been the major role for the large part of people involved in raising the PetroSaudi loan at 1MDB, where huge sums were raised and apparent profits made – and yet the money has never been returned.

Given that most of the money went to an independent company outside of the Joint Venture and Muharaba Loan structures raised by 1MDB – a company which was controlled by Jho Low – the fact that the money has not yet been returned is perhaps of little surprise.

The senior staff at 1MDB clearly knew that their job was to do the bidding of Jho Low and his chosen joint venture colleagues at PetroSaudi.

Emails show that if they stepped out of line and attempted, for example, to check up on the quality of any of the investments in the joint venture, they were viciously put down.

Take the brutal response by Tarek Obaid and Patrick Mahony when Shahrol Halmi’s team attempted to make their own assessment of a drilling ship purchased by the 1MDB PetroSaudi Joint Venture company, which they alone were financing:

Onlookers are now wondering to what extent the PetroSaudi deal provided a template for a series of future joint ventures and investments which seem to have been equally profligate and poorly accounted for, and which have left 1MDB currently over RM42 billion in debt.