Malaysia fines Deloitte for failing to report 1MDB oddities

[KUALA LUMPUR] Malaysia imposed the maximum fine on Deloitte PLT for breaches related to a bond issuance by 1MDB, becoming the first auditor of the scandal-ridden state fund to face penalties.

The Securities Commission (SC) imposed a RM2.2 million (S$723,400) fine on Deloitte for failing to immediately report irregularities in a RM2.4 billion Islamic bond sale that may have had material effect on 1MDB's ability to repay creditors. Deloitte was the auditor for 1MDB units Bandar Malaysia Sdn, the sukuk issuer, and 1MDB Real Estate Sdn for financial years ended March 2015 and 2016.

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

The state fund, whose full name is 1Malaysia Development Bhd, has used many of the world's top auditors including KPMG and Ernst & Young. The fund was started to bring in investments to the country, but has instead become the center of worldwide investigations into possible corruption and money laundering.

Malaysia's securities regulator said Deloitte was unable to get enough evidence to determine whether the advances to 1MDB from, among others, the sukuk proceeds could be recovered, it said in the statement on Wednesday. The breach led to a 2 million ringgit fine, the maximum allowed. The SC imposed an additional 200,000 ringgit fine for Deloitte's failure to send copies of Bandar Malaysia's 2015 and 2016 audited financial statements to the sukuk's trustee in time.

1MDB's new management, which is overseen by the finance ministry, was also investigating the testimony given by Tan Theng Hooi, the former Malaysia head of Deloitte, Finance Minister Lim Guan Eng said in a written response to Parliament in November. Mr Tan had defended the auditor's opinion on 1MDB's 2013 and 2014 financial accounts to the Parliament's Public Accounts Committee, before Deloitte said in July 2017 that its audited financial statements for those years shouldn't be relied upon.

A representative for Deloitte couldn't immediately be reached for comment. The company said in November that it was cooperating fully with the authorities on matters linked to 1MDB, in response to the probe into Mr Tan.

"We stand by our professionalism, quality, independence and ethics in the services we provide," Deloitte Malaysia said in the November statement.

BLOOMBERG