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Business Crimes Hotline
Securities Commission Malaysia Issues Maximum Fine for Deloitte Related to 1MDB Audits
On Jan. 30, 2019, the Securities Commission Malaysia, the country's securities and corporate regulator, announced that Deloitte would be fined the maximum amount allowable ($535,612) related to its audits of Bandar Malaysia and 1MDB Real Estate Sdn BHD (now known as TRX City Sdn Bhd) — both of which are controlled by the Malaysian sovereign wealth fund, 1Malaysia Development Bhd. (1MDB). Two days before the Deloitte fine was made public, it was reported by the South China Morning Post that the Securities Commission Malaysia was continuing to investigate Deloitte and KPMG for their involvement in the 1MDB scandal, including whether the auditors were aiding in the scheme or were negligent in their work. The names of the auditors under investigation were not disclosed. KPMG is reportedly in the process of negotiating a deal with the Malaysian enforcement authority.
The Securities Commission Malaysia found that Deloitte had committed four serious violations of Malaysia's Capital Markets and Services Act (2007) when it failed to immediately report accounting irregularities to the authorities and obtained insufficient documentation in relation to the audits it carried out for years ending March 31, 2015 and 2016.
Since mid-2015, 1MDB has been subject to scrutiny by at least 10 countries around the world for the embezzlement of billions of dollars by 1MDB's former financier and businessman Low Taek Jho (Jho Low), Najib Razak, the former prime minister of Malaysia, among other individuals involved in the scheme. Established in 2009 by Razak, 1MDB is a Malaysian energy, real estate, tourism, and agribusiness economic development company. Following an FBI investigation, and according to complaints filed by the Department of Justice (DOJ), high-level 1MDB officials, including Jho Low and Razak, stole over $4.5 billion of the 1MDB funds between 2009 and 2015. The misappropriated funds were diverted to personal accounts and went toward lavish real estate, luxury shopping sprees, and payments to public officials. The DOJ filed civil forfeiture complaints in July 2016 and June 2017 seeking recovery of $1.7 billion in misappropriated and laundered funds under the Kleptocracy Asset Recovery Initiative — the largest single action ever brought. The DOJ has charged Jho Low with money laundering and Malaysian authorities have charged both men with several corruption-related crimes, including money laundering. Likewise, authorities in Malaysia, Switzerland, and Singapore are also actively pursuing banks (including Goldman Sachs) that may have facilitated the embezzlement of 1MDB funds. Razak was defeated in the 2018 general election in Malaysia and Jho Low is wanted by Malaysian authorities, though his whereabouts remain unknown.
– Colleen Snow, Mayer Brown
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